diff --git a/raw/proxies/0000320187/0000320187-13-000114/proxy.txt b/raw/proxies/0000320187/0000320187-13-000114/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..6f679bf966ecb259124a6b600f6fa847167f6179 --- /dev/null +++ b/raw/proxies/0000320187/0000320187-13-000114/proxy.txt @@ -0,0 +1,2045 @@ +DEF 14A +1 +nke-2013xdef14a.htm +DEF 14A +NKE - 2013 - DEF14A +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of the +Securities Exchange Act of 1934 +(Amendment No. ) +Filed by the Registrant x Filed by a Party other than the Registrant ¨ +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material under §240.14a-12 +NIKE, INC. +(Name of registrant as specified in its charter) +(Name of person(s) filing proxy statement, if other than the registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11 +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +To Our Shareholders: +You are cordially invited to attend the annual meeting of shareholders of NIKE, Inc. to be held at the Tiger Woods Conference Center, One Bowerman Drive, Beaverton, Oregon 97005-6453, on Thursday, September 19, 2013, at 10:00 A.M. Pacific Time. Registration will begin at 9:00 A.M. +The meeting will consist of a brief presentation followed by the business items listed on the attached notice. +Whether or not you plan to attend, the prompt execution and return of your proxy card will both assure that your shares are represented at the meeting and minimize the cost of proxy solicitation. +Sincerely, +Philip H. Knight +Chairman of the Board +July 29, 2013 +Notice of Annual Meeting +of Shareholders +September 19, 2013 +To the Shareholders of NIKE, Inc. +The annual meeting of shareholders of NIKE, Inc., an Oregon corporation, will be held on Thursday, September 19, 2013, at 10:00 A.M., at the Tiger Woods Conference Center, One Bowerman Drive, Beaverton, Oregon 97005-6453, for the following purposes: +1. To elect a Board of Directors for the ensuing year. +2. To approve executive compensation by an advisory vote. +3. To ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm. +4. To consider a shareholder proposal regarding political contributions disclosure. +5. To transact such other business as may properly come before the meeting. +All shareholders are invited to attend the meeting. Shareholders of record at the close of business on July 19, 2013, the record date fixed by the Board of Directors, are entitled to notice of and to vote at the meeting. You must present your proxy or voter instruction card or meeting notice for admission. +By Order of the Board of Directors, +John F. Coburn III +Vice President and Corporate Secretary +Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders To Be Held on September 19, 2013. The proxy statement and NIKE, Inc.'s 2013 Annual Report to Shareholders is available electronically at www.investorvote.com or www.proxyvote.com, for registered and beneficial owners, respectively. +Whether or not you intend to be present at the meeting, please sign and date the enclosed proxy and return it in the enclosed envelope, or vote by telephone or over the internet following the instructions on the proxy. +CORPORATE GOVERNANCE +Proxy Statement +Proxy Statement +We are furnishing proxy materials to our shareholders primarily via the Internet, instead of mailing printed copies of those materials to each shareholder. The Company expects to provide notice and electronic delivery of this proxy statement and the enclosed proxy to shareholders on or about August 8, 2013. If you would prefer to receive a paper copy of our proxy materials, please follow the instructions included in the notice. If you have previously elected to receive our proxy materials electronically, you will continue to receive access to these materials electronically unless you elect otherwise. +The enclosed proxy is solicited by the Board of Directors of NIKE, Inc. (“NIKE” or the “Company”) for use at the annual meeting of shareholders to be held on September 19, 2013, and at any adjournment thereof (the “Annual Meeting”). Shareholders may submit a proxy over the Internet to vote at the annual meeting by following the instructions on the proxy card. +The Company will bear the cost of soliciting proxies. In addition to soliciting proxies by mail, certain officers and employees of the Company, without extra compensation, may also solicit proxies personally or by telephone. Copies of proxy solicitation materials will be furnished to fiduciaries, custodians and brokerage houses for forwarding to the beneficial owners of shares held in their names. +All valid proxies properly executed and received by the Company prior to the Annual Meeting will be voted in accordance with the instructions specified in such proxies. Where no instructions are given, shares will be voted “FOR” the election of each of the named nominees for director (Proposal No. 1), “FOR” the proposal regarding an advisory vote to approve executive compensation (Proposal No. 2), “FOR” the ratification of the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm (Proposal No. 3), and “AGAINST” the shareholder proposal regarding political contributions disclosure (Proposal No. 4). +A shareholder giving the enclosed proxy has the power to revoke it at any time before it is exercised by affirmatively electing to vote in person at the meeting or by delivering to John F. Coburn III, Vice President and Corporate Secretary of NIKE, either an instrument of revocation or an executed proxy bearing a later date. +Voting Securities +Holders of record of NIKE’s Class A Common Stock (“Class A Stock”) and holders of record of NIKE’s Class B Common Stock (“Class B Stock”) at the close of business on July 19, 2013 will be entitled to vote at the Annual Meeting. On that date, 177,957,876 shares of Class A Stock and 712,394,590 shares of Class B Stock were issued and outstanding. Neither class of Common Stock has cumulative voting rights. All share and per-share amounts in this proxy statement have been adjusted to reflect the two-for-one stock split of the Class A Stock and the Class B Stock effected on December 24, 2012 in the form of a 100 percent common stock dividend. +Each share of Class A Stock and each share of Class B Stock is entitled to one vote on every matter submitted to the shareholders at the Annual Meeting. With regard to Proposal No. 1, the election of directors, the holders of Class A Stock and the holders of Class B Stock will vote separately. Holders of Class B Stock are currently entitled to elect 25 percent of the total Board, rounded up to the next whole number. Holders of Class A Stock are currently entitled to elect the remaining directors. Under this formula, holders of Class B Stock, voting separately, will elect three directors, and holders of Class A Stock, voting separately, will elect nine directors. Holders of Class A Stock and holders of Class B Stock will vote together as one class on Proposal Nos. 2, 3, and 4. +CORPORATE GOVERNANCE +Board of Directors +The Board of Directors is currently composed of nine independent directors, one outside director who is not independent, Philip H. Knight, Chairman of the Board, and Mark G. Parker, President and Chief Executive Officer. There were five meetings of the Board of Directors during the last fiscal year. During the fiscal year ended May 31, 2013, each director attended at least 75 percent of the total number of meetings of the Board of Directors and committees on which he or she served. The Company encourages all directors to attend each annual meeting of shareholders, and all current directors attended the 2012 Annual Meeting. +Board Committees +The Board’s current standing committees are an Audit Committee, a Compensation Committee, a Nominating and Corporate Governance Committee, a Finance Committee, a Corporate Responsibility Committee and an Executive Committee. The Board may also appoint other committees from time to time. Each standing committee has a written charter; all such charters, as well as the Company’s corporate governance guidelines, are available at the Company’s website (http://investors.nikeinc.com ) and will be provided in print to any shareholder who submits a request in writing to NIKE Investor Relations, One Bowerman Drive, Beaverton, Oregon 97005-6453. +The Executive Committee is authorized to act on behalf of the Board on all corporate actions for which applicable law does not require participation by the full Board. In practice, the Executive Committee acts in place of the full Board only when emergency issues or scheduling conflicts make it difficult or impracticable to assemble the full Board. All actions taken by the Executive Committee must be reported at the next Board meeting. The Executive Committee held no formal meetings during the fiscal year ended May 31, 2013, but took actions from time to time pursuant to written consent resolutions. +NIKE, INC. Ÿ 20 13 Notice of Annual Meeting 1 +CORPORATE GOVERNANCE +Board of Directors +The Audit Committee is responsible for the engagement or discharge of the independent registered public accountants, reviews and approves services provided by the independent registered public accountants, and reviews with the independent registered public accountants the scope and results of their annual examination of the Company’s consolidated financial statements and any recommendations they may have. The Audit Committee also reviews the Company’s procedures with respect to maintaining books and records, the adequacy and implementation of internal auditing, accounting, disclosure, and financial controls, and the Company’s policies concerning financial reporting and business practices. The Board has determined that each member of the Audit Committee meets all applicable independence and financial literacy requirements under the New York Stock Exchange (the “NYSE”) listing standards and applicable regulations adopted by the U.S. Securities and Exchange Commission (the “SEC”). The Board has also determined that Mr. Graf is an “audit committee financial expert” as defined in regulations adopted by the SEC. +The Nominating and Corporate Governance Committee identifies individuals qualified to become Board members, recommends director nominees for election at each annual shareholder meeting, and develops and recommends corporate governance guidelines and standards for business conduct and ethics. The Committee also oversees the annual self-evaluations of the Board and its committees and makes recommendations to the Board concerning the structure and membership of the other Board committees. The Company’s written policy requires the Nominating and Corporate Governance Committee to review any transaction or proposed transaction with a related person that would be required to be reported under Item 404(a) of Regulation S-K, and to determine whether to ratify or approve the transaction, with ratification or approval to occur only if the Committee determines that the transaction is fair to the Company or that approval or ratification of the transaction is in the interest of the Company. The Board has determined that each member of the Nominating and Corporate Governance Committee meets all applicable independence requirements under the NYSE listing standards. +The Finance Committee considers long-term financing options and needs of the Company, long-range tax, financial regulatory and currency issues facing the Company, and management recommendations concerning major capital expenditures and material acquisitions or divestments. +The Corporate Responsibility Committee reviews significant activities and policies regarding labor and environmental practices, community affairs, charitable and foundation activities, diversity and equal opportunity, and environmental and sustainability initiatives, and makes recommendations to the Board of Directors. +The Compensation Committee oversees the performance evaluation of the Chief Executive Officer and our other Named Executive Officers, and recommends their compensation for approval by the independent members of the Board of Directors. The Compensation Committee also grants equity incentive awards under the NIKE, Inc. 1990 Stock Incentive Plan, and determines targets and awards under the NIKE, Inc. Executive Performance Sharing Plan and the NIKE, Inc. Long-Term Incentive Plan. The Committee also makes recommendations to the Board regarding other executive incentive compensation arrangements and profit sharing plan contributions. The Board has determined that each member of the Compensation Committee meets all applicable independence requirements under the NYSE listing standards. +The table below provides information regarding membership of each standing Board committee as of May 31, 2013 and meetings held during fiscal 2013: +Director Name +Audit +Compensation +Nominating and +Corporate Governance +Corporate +Responsibility +Finance +Executive +Elizabeth J. Comstock +ü +ü +John G. Connors +ü +ü +Timothy D. Cook +Chair +ü +Alan B. Graf, Jr. +Chair +Chair +Douglas G. Houser +ü +ü +ü +Philip H. Knight +Chair +John C. Lechleiter +ü +ü +Mark G. Parker +ü +Johnathan A. Rodgers +ü +ü +Orin C. Smith +ü +Chair +John R. Thompson, Jr. +ü +Phyllis M. Wise +ü +Chair +Meetings in Fiscal 2013 +13 +6 +4 +5 +6 +— +Director Independence +Pursuant to NYSE rules, in order for a director to qualify as “independent,” the Board of Directors must affirmatively determine that the director has no material relationship with the Company that would impair the director’s independence. The Board affirmatively determined that commercial or charitable relationships below the following thresholds will not be considered material relationships that impair a director’s independence: (i) if a NIKE director or immediate family member is an executive officer of another company that does business with NIKE and the annual sales to, or purchases from, NIKE are less than one percent of the annual revenues of the other company; and (ii) if a NIKE director or immediate family member serves as an officer, director or trustee of a charitable organization, and NIKE’s contributions to the organization are less than one percent of that organization’s total annual charitable receipts. After applying this categorical standard, the Board of Directors has determined that all directors have no material relationship with the Company and, therefore, are independent, except for Messrs. Knight, Parker, and Thompson. Mr. Knight and Mr. Parker are executive officers of the Company. Mr. Thompson is not independent pursuant to NYSE rules, because the Company has a contract with his son, who is the head basketball coach at Georgetown University, to provide endorsement and consulting services to the Company, under which the Company paid to him more than $120,000 during the twelve-month period ending August 31, 2012. Mr. Thompson's son was paid $107,500 for services, product, and travel during fiscal 2013. +2 +CORPORATE GOVERNANCE +Board of Directors +Director Nominations +The Nominating and Corporate Governance Committee identifies potential director candidates through a variety of means, including recommendations from members of the Committee or the Board, suggestions from Company management, and shareholder recommendations. The Committee also may, in its discretion, engage director search firms to identify candidates. Shareholders may recommend director candidates for consideration by the Nominating and Corporate Governance Committee by submitting a written recommendation to the Committee, c/o John F. Coburn III, Vice President and Corporate Secretary, NIKE, Inc., One Bowerman Drive, Beaverton, Oregon 97005-6453. The recommendation should include the candidate’s name, age, qualifications (including principal occupation and employment history), and written consent to be named as a nominee in the Company’s proxy statement and to serve as a director, if elected. +The Board of Directors has adopted qualification standards for the selection of independent nominees for director which can be found at our website: http://investors.nikeinc.com . As provided in these standards and the Company’s Corporate Governance Guidelines, nominees for director are selected on the basis of, among other things, distinguished business experience or other non-business achievements; education; significant knowledge of international business, finance, marketing, technology, law, or other fields which are complementary to, and balance the knowledge of, other Board members; a desire to represent the interests of all shareholders; independence; character; ethics; good judgment; diversity; and ability to devote substantial time to discharge Board responsibilities. +The Nominating and Corporate Governance Committee identifies qualified potential candidates without regard to their age, gender, race, national origin, sexual orientation, or religion. While the Board has no policy regarding Board member diversity, the Nominating and Corporate Governance Committee considers and discusses diversity in selecting director nominees and in the re-nomination of an incumbent director. The Committee views diversity broadly, including gender, ethnicity, differences of viewpoint, geographic location, skills, education, and professional and industry experience, among others. The Board believes that a variety and balance of perspectives on the Board can result in more thoughtful deliberations. +In considering the re-nomination of an incumbent director, the Nominating and Corporate Governance Committee reviews the director’s overall service to the Company during his or her term, including the number of meetings attended, level of participation and quality of performance, as well as any special skills or diversity that such director brings to the Board. All potential new director candidates, whether recommended by shareholders or identified by other means, are initially screened by the Chair of the Nominating and Corporate Governance Committee, who may seek additional information about the background and qualifications of the candidate, and who may determine that a candidate does not have qualifications that merit further consideration by the full Committee. With respect to new director candidates who pass the initial screening, the Nominating and Corporate Governance Committee meets to discuss and consider each candidate’s qualifications and potential contributions to the Board, and determines by majority vote whether to recommend such candidates to the Board of Directors. The final decision to either appoint a candidate to fill a vacancy between Annual Meetings or include a candidate on the slate of nominees proposed at an Annual Meeting is made by the Board of Directors. +Directors first elected after the 1993 fiscal year must retire by the age of 72. +Shareholder Communications with Directors +Shareholders or interested parties desiring to communicate directly with the Board of Directors, with the non-management directors or with any individual director may do so in writing addressed to the intended recipient or recipients, c/o John F. Coburn III, Vice President and Corporate Secretary, NIKE, Inc., One Bowerman Drive, Beaverton, Oregon 97005-6453. All such communications will be reviewed, compiled as necessary, and then forwarded to the designated recipient or recipients in a timely manner. +Board Leadership Structure +NIKE’s governance documents provide the Board with flexibility to select the appropriate leadership structure of the Company. In determining the leadership structure, the Board considers many factors, including the specific needs of the business, fulfilling the duties of the Board, and the best interests of the Company’s shareholders. In 2004, the Board of Directors chose to separate the position of Chairman of the Board from the position of President and Chief Executive Officer (“CEO”), although this is not a permanent policy of the Board. The Chairman, Mr. Knight, presides over meetings of the Board of Directors and shareholders. The CEO, Mr. Parker, is in charge of the general supervision, direction, and control of the business and affairs of the Company, subject to the overall direction and supervision of the Board of Directors and its committees. +The Board believes this leadership structure is appropriate for the Company because it separates the leadership of the Board from the duties of day-to-day leadership of the Company. In particular, it permits Mr. Parker to focus his full time and attention to the business, the supervision of which has become increasingly complex as the Company has grown. In addition, the structure permits Mr. Knight to direct his attention to the broad strategic issues considered by the Board of Directors. Further, with his significant Company experience and ownership of Common Stock, Mr. Knight is particularly well-suited as Chairman, helping to align the Board with the interests of shareholders. +The chairs of Board committees play an active role in the leadership structure of the Board. The Nominating and Corporate Governance Committee and the Board endeavor to select independent committee chairs who will provide strong leadership to guide the important work of the Board committees. Committee chairs work with senior executives to ensure that committees are discussing the key strategic risks and opportunities for the Company. +The Nominating and Corporate Governance Committee has determined that given the separation of the positions of Chairman and CEO, and the strong leadership of experienced chairs of each of the Board committees, a lead director would not improve the effectiveness of the Board at this time. A presiding director is appointed to chair executive sessions of non-management directors (consisting of all directors other than Mr. Knight and Mr. Parker). The position of presiding director is rotated among the chairs of the various Board committees, other than the Executive Committee. The current presiding director at the executive sessions is Dr. Wise. Executive sessions are regularly scheduled and held at least once each year. For all of these reasons, the Board believes this leadership structure is optimal and has worked well for many years. +NIKE, INC. Ÿ 20 13 Notice of Annual Meeting 3 +CORPORATE GOVERNANCE +Board of Directors +The Board’s Role in Risk Oversight +While the Company’s management is responsible for day-to-day management of the various risks facing the Company, the Board of Directors takes an active role in the oversight of the management of critical business risks. The Board does not view risk in isolation. Risks are considered in virtually every business decision and as part of NIKE’s business strategy. The Board recognizes that it is neither possible nor prudent to eliminate all risk. Purposeful and appropriate risk-taking is essential for the Company to be competitive on a global basis and to achieve its strategic objectives. +The Board implements its risk oversight function both as a whole and through committees, which play a significant role in carrying out risk oversight. While the Audit Committee is responsible for oversight of management’s risk management policies, oversight responsibility for particular areas of risk is allocated among the Board committees according to the committee’s area of responsibility as reflected in the committee charters. In particular: +• +The Audit Committee oversees risks related to the Company’s financial statements, the financial reporting process, accounting, and legal matters. The Committee oversees the internal audit function, reviews a risk-based plan of internal audits, and reviews a risk-based integrated audit of internal controls over financial reporting. The Committee meets separately with the Vice President of Corporate Audit, representatives of the independent external auditor, and senior management. +• +The Compensation Committee oversees risks and rewards associated with the Company’s compensation philosophy and programs, executive succession plans, and executive development. +• +The Nominating and Corporate Governance Committee oversees risks associated with company governance, including NIKE’s code of business conduct and ethics, compliance programs, and the structure and performance of the Board and its committees. +• +The Finance Committee oversees financial matters and risks relating to budgeting, investments, access to capital, capital deployment, acquisitions and divestitures, financial risk management (including foreign exchange and interest rate risk), financial regulation, and significant capital projects. +• +The Corporate Responsibility Committee oversees issues that involve reputational risk to the Company, including community engagement, manufacturing health and safety, environmental sustainability, and diversity. +Each committee chair works with the senior executive assigned to assist the committee to develop agendas for the year and for each meeting, paying particular attention to areas of business risk identified by management, Board members, internal and external auditors, and in their committee charter, and to schedule agenda topics, presentations, and discussions periodically regarding business risks within their area of responsibility. At meetings, the committees discuss areas of business risk, the potential related impacts, and management’s initiatives to manage business risk, often within the context of important business decisions. Through this process key business risk areas are reviewed at appropriate times, with some topics reviewed on several occasions throughout the year. At every Board meeting the chair of each committee reports to the full Board its discussions and actions, including those affecting the oversight of various risks. +The Company believes that its leadership structure, discussed in detail above, supports the risk oversight function of the Board. Strong directors chair the various committees involved in risk oversight, there is open communication between management and directors, and all directors are involved in the risk oversight function. +Code of Business Conduct and Ethics +The NIKE Code of Ethics (“Code”) is available at the Company’s website (http://investors.nikeinc.com ) and will be provided in print without charge to any shareholder who submits a request in writing to NIKE Investor Relations, One Bowerman Drive, Beaverton, Oregon 97005-6453. The Code applies to all of the Company’s employees and directors, including our chief executive officer, senior financial officers, and all other officers. The Code provides that any waiver of the Code may be made only by the Board. Any such waiver in favor of a director or executive officer will be publicly disclosed. The Company plans to disclose amendments to, and waivers from, the Code on the Company’s website: http://investors.nikeinc.com. +Proposal 1 +Election of Directors +A Board of 12 directors will be elected at the Annual Meeting. All of the nominees were elected at the 2012 annual meeting of shareholders. Directors will hold office until the next annual meeting of shareholders or until their successors are elected and qualified. +Alan B. Graf, Jr., John C. Lechleiter, and Phyllis M. Wise are nominated by the Board of Directors for election by the holders of Class B Stock. The other nine nominees are nominated by the Board of Directors for election by the holders of Class A Stock. +Under Oregon law, if a quorum of each class of shareholders is present at the Annual Meeting, the nine director nominees who receive the greatest number of votes cast by holders of Class A Stock and the three director nominees who receive the greatest number of votes cast by holders of Class B Stock will be elected directors. Abstentions and broker non-votes will have no effect on the results of the vote. Unless otherwise instructed, proxy holders will vote the proxies they receive for the nominees listed below. If any nominee becomes unable to serve, the holders of the proxies may, in their discretion, vote the shares for a substitute nominee or nominees designated by the Board of Directors. +The Bylaws and the Corporate Governance Guidelines of the Company provide that any nominee for director in an uncontested election who receives a greater number of votes “withheld” from his or her election than votes “for” such election shall tender his or her resignation for consideration by the Nominating and Corporate Governance Committee. The Committee will recommend to the Board the action to be taken with respect to the resignation. The Board will publicly disclose its decision within 90 days of the certification of the election results. +4 +CORPORATE GOVERNANCE +Background information on the nominees as of July 19, 2013, including some of the attributes that led to their selection, appears below. The Nominating and Corporate Governance Committee has determined that each director meets the qualification standards described in the section entitled “Director Nominations” above. In addition, the Board firmly believes that the experience, attributes, and skills of any single director should not be viewed in isolation, but rather in the context of the experience, attributes, and skills that all director nominees bring to the Board as a whole, each of which contributes to the function of an effective Board. +Nominees for Election by Class A Shareholders +Elizabeth J. Comstock +Ms. Comstock, 52, a director since 2011, is Senior Vice President and Chief Marketing Officer of General Electric Company (“GE”). Ms. Comstock oversees GE sales, GE ventures equity investing and internal start-up programs, sales and licensing. At GE, she was appointed Vice President, Communications, NBC News Communications in 1994, Senior Vice President, NBC Corporate Communications in 1996, Vice President of Corporate Communications in 1998, Corporate Vice President and Chief Marketing Officer in 2003, President, NBC Universal Integrated Media in 2006, and Senior Vice President and Chief Marketing Officer in 2008. Prior to joining GE in 1994, Ms. Comstock held a succession of positions at NBC, CBS, and Turner Broadcasting. Ms. Comstock is a trustee of the Smithsonian’s Cooper-Hewitt National Design Museum. Ms. Comstock was selected to serve on the Board because her broad experience in, and understanding of, media, marketing and innovation aligns well with the Company’s business model, which involves a great deal of each. +John G. Connors +Mr. Connors, 54, a director since 2005, is a partner in Ignition Partners LLC, a Seattle-area venture capital firm. Mr. Connors served as Senior Vice President and Chief Financial Officer of Microsoft Corporation from December 1999 to May 2005. He joined Microsoft in 1989 and held various management positions, including Corporate Controller from 1994 to 1996, Vice President, Worldwide Enterprise Group in 1999, and Chief Information Officer from 1996 to 1999. Mr. Connors is currently a member of the Board of Directors of Scout Analytics Inc., OpsCode, Inc., Motif Investing, Inc., FiREapps, Inc., Xamarin, Inc., DataSphere Technologies, Inc., Splunk, Inc., Tier 3, Inc., the Washington Policy Center, and the University of Washington Tyee Club. Mr. Connors was selected to serve on the Board because his experience and skills in accounting, financial leadership, venture capital, technology, and international operations enable him to make valuable contributions to NIKE’s Audit Committee and Finance Committee. +Timothy D. Cook +Mr. Cook, 52, a director since 2005, is the Chief Executive Officer of Apple Inc. Mr. Cook joined Apple in March 1998 as Senior Vice President of Worldwide Operations, also served as its Executive Vice President, Worldwide Sales and Operations and its Chief Operating Officer. Mr. Cook was Vice President, Corporate Materials for Compaq Computer Corporation from 1997 to 1998. Prior to his work at Compaq, Mr. Cook served in the positions of Senior Vice President Fulfillment and Chief Operating Officer of the Reseller Division at Intelligent Electronics from 1994 to 1997. Mr. Cook also worked for International Business Machines Corporation from 1983 to 1994, most recently as Director of North American Fulfillment. Mr. Cook is currently a member of the Board of Directors of the National Football Foundation and Apple Inc. Mr. Cook was selected to serve on the Board because his operational executive experience and his knowledge of technology, marketing, and international business allow him to provide the Board with valuable perspectives and insights. +NIKE, INC. Ÿ 20 13 Notice of Annual Meeting 5 +CORPORATE GOVERNANCE +PROPOSAL 1 +Douglas G. Houser +Mr. Houser, 78, a director since 1970, has been a partner and Senior Counsel in the Portland, Oregon, law firm of Bullivant, Houser, Bailey since 1965. Mr. Houser is a Life Trustee of Willamette University, a Fellow in the American College of Trial Lawyers, has served as a member of the Board of Governors and Treasurer of the Oregon State Bar Association, and as a Director of the Rand Corporation, Institute for Civil Justice Board of Overseers, and the National Judicial College Foundation Board. Mr. Houser was selected to serve on the Board because his knowledge of NIKE and its Board, together with his experience as a principal of a significant law firm, allow him to provide beneficial contributions regarding legal issues, corporate responsibility, and board governance. +Philip H. Knight +Mr. Knight, 75, a director since 1968, is Chairman of the Board of Directors of NIKE, Inc. Mr. Knight is a co-founder of the Company and, except for the period from June 1983 through September 1984, served as its President from 1968 to 1990, and from June 2000 to December 2004. Prior to 1968, Mr. Knight was a certified public accountant with Price Waterhouse and Coopers & Lybrand and was an Assistant Professor of Business Administration at Portland State University. Mr. Knight led NIKE from a small partnership founded on a handshake to the world’s largest athletic footwear, apparel, and equipment company. He has extensive knowledge of and experience in Company operations, sports marketing, manufacturing, management, accounting, and financial matters, which make him uniquely qualified to serve as Chairman of the Board. +Mark G. Parker +Mr. Parker, 57, has been President and Chief Executive Officer and a director since 2006. He has been employed by NIKE since 1979 with primary responsibilities in product research, design and development, marketing, and brand management. Mr. Parker was appointed divisional Vice President in charge of development in 1987, corporate Vice President in 1989, General Manager in 1993, Vice President of Global Footwear in 1998, and President of the NIKE Brand in 2001. He has extensive knowledge and experience of Company operations, sports marketing, manufacturing, research, design, development, and management, and is an effective leader of NIKE. His position as Chief Executive Officer makes his participation on the Board critical. +6 +CORPORATE GOVERNANCE +Johnathan A. Rodgers +Mr. Rodgers, 67, a director since 2006, retired as the President and Chief Executive Officer of TV One, LLC in July 2011. Prior to joining TV One, LLC in March 2003, Mr. Rodgers was President, Discovery Networks US for Discovery Communications, Inc. from 1996 to 2003. Prior to his work at Discovery Communications, Mr. Rodgers had a 20-year career at CBS, Inc. where he held a variety of executive positions, including President, CBS Television Stations. Mr. Rodgers is currently a member of the Board of Directors of Procter & Gamble Company, Comcast Corporation and a Trustee of the University of California — Berkeley. Mr. Rodgers was selected to serve on the Board because his experience and knowledge in media, broadcasting, and telecommunications, his skills in executive leadership, and knowledge of multicultural media allow him to provide valuable insights to the Board regarding corporate responsibility, diversity, compensation, and marketing. +Orin C. Smith +Mr. Smith, 71, a director since 2004, was President and Chief Executive Officer of Starbucks Corporation from 2000 to 2005. He joined Starbucks as Vice President and Chief Financial Officer in 1990, became President and Chief Operating Officer in 1994, and became a director of Starbucks in 1996. Prior to joining Starbucks, Mr. Smith spent a total of 14 years with Deloitte & Touche. He was later the Executive Vice President and Chief Financial Officer of two transportation companies. Between these assignments, he was Chief Policy and Finance Officer in the administrations of two Washington State Governors. Mr. Smith is currently the independent Lead Director of the Board of Directors of The Walt Disney Company and serves on the Board of Regents of the University of Washington. Mr. Smith was selected to serve on the Board because his experience and skills in accounting, financial leadership, marketing, international and retail operations enable him to make valuable contributions to NIKE’s Audit Committee and Finance Committee. +John R. Thompson, Jr. +Mr. Thompson, 71, a director since 1991, was head coach of the Georgetown University men’s basketball team from 1972 until 1998. Mr. Thompson was head coach of the 1988 United States Olympic basketball team. He hosted a sports radio talk show in Washington, D.C. for 13 years, and he is a nationally broadcast sports analyst for Turner Network Television (TNT) and Dial Global, Inc. He serves as Assistant to the President of Georgetown University for Urban Affairs, and he is a past President of the National Association of Basketball Coaches and presently serves on its Board of Governors. Mr. Thompson has honorary doctorate degrees from Wheeling Jesuit University, Georgetown University, University of the District of Columbia, and St. Peter's College. Mr. Thompson was selected to serve on the Board because his extensive experience and knowledge of education, college and professional sports, media, broadcasting, and knowledge of urban issues allow him to +provide valuable insights to the Board regarding sports marketing, corporate responsibility,and diversity. +NIKE, INC. Ÿ 20 13 Notice of Annual Meeting 7 +CORPORATE GOVERNANCE +PROPOSAL 1 +Nominees for Election by Class B Shareholders +Alan B. Graf, Jr. +Mr. Graf, 59, a director since 2002, is the Executive Vice President and Chief Financial Officer of FedEx Corporation, a position he has held since 1998, and is a member of FedEx Corporation’s Executive Committee. Mr. Graf joined FedEx Corporation in 1980 and was Senior Vice President and Chief Financial Officer for FedEx Express, FedEx’s predecessor, from 1991 to 1998. He previously served on the boards of directors of Kimball International Inc., Storage USA, Inc. and Arkwright Mutual Insurance Co., and he is currently a director of Mid-America Apartment Communities, Inc. Mr. Graf was selected to serve on the Board because his experience and skills in auditing, accounting, financial management, and international operations enable him to effectively lead NIKE’s Audit Committee, serving as its Chair and financial expert. +John C. Lechleiter +Dr. Lechleiter, 59, a director since 2009, is Chairman of the Board, President, and Chief Executive Officer of Eli Lilly and Company (“Lilly”). He has served as President and Chief Executive Officer since April 1, 2008. He has been a member of Lilly’s board of directors since 2005 and was named Chairman on January 1, 2009. Dr. Lechleiter began work at Lilly as a senior organic chemist in Lilly’s process research and development division in 1979. He is a member of the American Chemical Society and Business Roundtable. He serves on the boards of Pharmaceutical Research and Manufacturers of America (PhRMA), United Way Worldwide, Xavier University, the Life Sciences Foundation, and the Central Indiana Corporate Partnership. Dr. Lechleiter was selected to serve on NIKE’s Board because his operational executive experience and his knowledge of science, marketing, management, and international business allow him to provide the Board with significant contributions in those strategic areas. +Phyllis M. Wise +Dr. Wise, 68, a director since 2009, is Chancellor of the University of Illinois, at Urbana-Champaign. She joined the University of Maryland School of Medicine as an assistant professor in 1976, was appointed associate professor in 1982, and professor in 1987. Dr. Wise was appointed a professor and chair of the department of physiology at the University of Kentucky in 1993, and was appointed dean of the division of biological sciences and distinguished professor of neurobiology at the University of California-Davis in 2002. In 2005, she was appointed Provost and Vice President for Academic Affairs at the University of Washington, and served as Provost and Executive Vice President from 2007 to 2010, and interim President until July 2011, where she was also professor of physiology and biophysics, biology, and obstetrics and gynecology. During her tenure, she led the establishment of the College of the Environment, the mission of which is to provide solutions to developing a sustainable healthy environment through research and teaching. Dr. Wise has a doctorate in zoology from the University of Michigan and an honorary doctorate from Swarthmore College, and she is an elected member of the Institute of Medicine and the American Academy of Arts and Sciences. Dr. Wise is currently a member of the Board of Directors of RAND Health. Dr. Wise was selected to serve on the Board because her extensive experience in medical science, health, higher education, and societal issues allow her to provide valuable contributions to the Board’s deliberations of strategic importance. +8 +CORPORATE GOVERNANCE +Director Compensation for Fiscal 2013 +Name +Fees Earned or +Paid in Cash +($) +Option Awards (1) +($) +Change in Pension Value +and Nonqualified Deferred +Compensation Earnings (2) +($) +All Other +Compensation (3) +($) +Total +($) +Elizabeth J. Comstock +85,000 +175,140 +— +316 +260,456 +John G. Connors +90,000 +175,140 +— +17,342 +282,482 +Timothy D. Cook +95,000 +175,140 +— +20,950 +291,090 +Alan B. Graf, Jr. +115,000 +175,140 +— +331 +290,471 +Douglas G. Houser +85,000 +200,160 +21,694 +20,331 +327,185 +John C. Lechleiter +85,000 +175,140 +— +20,331 +280,471 +Johnathan A. Rodgers +85,000 +175,140 +— +331 +260,471 +Orin C. Smith +100,000 +175,140 +— +20,331 +295,471 +John R. Thompson, Jr. +67,000 +175,140 +— +22,933 +265,073 +Phyllis M. Wise +95,000 +175,140 +— +20,316 +290,456 +(1) +Represents the grant date fair value of annual director options granted in fiscal 2013 computed in accordance with accounting guidance applicable to stock-based compensation. The grant date fair value of the options was estimated using the Black-Scholes option pricing model. On September 20, 2012, each director elected at the 2012 Annual Meeting other than Mr. Houser was granted an option for 7,000 shares with an exercise price of $96.72 per share, which was the closing market price of our Class B Stock on the grant date prior to adjustment for our December 24, 2012 two-for-one stock split. On September 20, 2012, Mr. Houser was granted an option for 8,000 shares with an exercise price of $96.72 per share (on a pre-split basis). The assumptions made in determining the grant date fair values of options under applicable accounting guidance are disclosed in Note 11 of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended May 31, 2013. As of May 31, 2013, non-employee directors held outstanding options for the following numbers of shares of our Class B Stock (on a post-split basis): Ms. Comstock, 38,000; Mr. Connors, 114,000; Mr. Cook, 78,000; Mr. Graf, 110,000; Mr. Houser, 44,000; Dr. Lechleiter, 56,000; Mr. Rodgers, 82,000; Mr. Smith, 130,000; Mr. Thompson, 62,000; and Dr. Wise, 48,000. +(2) +Represents above-market earnings credited during fiscal 2013 to the account of Mr. Houser under our prior Executive Deferred Compensation Plan adopted in 1983 (the “1983 DCP”). While deferrals under the 1983 DCP were discontinued in 1990, earnings have continued to accrue on the 1983 DCP account balances. Under the terms of the 1983 DCP, Mr. Houser received a guaranteed return equal to the current monthly rate of Moody’s seasoned corporate bonds index, plus 4%, which paid an average interest rate of 8.12% in fiscal 2013. +(3) +Includes medical and life insurance premiums paid by us of $22,572 for Mr. Thompson. Also includes matched contributions to charities in the following amounts: Mr. Connors, $17,000, Mr. Cook, $20,000, Mr. Houser, $20,000, Dr. Lechleiter, $20,000, Mr. Smith, $20,000, and Dr. Wise, $20,000. Also includes sample and test products we provided to directors during the fiscal year, the value of which we estimate at $316 for Ms. Comstock and Dr. Wise, $342 for Mr. Connors, $950 for Mr. Cook, $331 for Messrs. Graf, Houser, Rodgers, Smith and Dr. Lechleiter, and $361 for Mr. Thompson, based on our incremental cost. +Director Fees and Arrangements +Effective for fiscal 2013, we changed our standard director compensation program to eliminate fees for meeting attendance and adjust our annual fees and annual option grant. Commencing with fiscal 2013, non-employee directors annually receive: +• +An annual retainer fee at the rate of $85,000 per year (increased from $60,000 for fiscal 2012 concurrently with the elimination of meeting attendance fees). +• +An option to purchase 7,000 shares of our Class B Stock, granted on the date of each annual meeting of shareholders (increased from 6,000 shares for fiscal 2012). The option has a term of ten years and an exercise price equal to the closing market price of our Class B Stock on the grant date. The option becomes exercisable in full on the date of the next annual meeting of shareholders. +• +For chairs of board committees (other than the Executive Committee), an annual fee at the rate of $10,000 for each committee chaired ($15,000 for the chair of the Audit Committee). +• +For Audit Committee members, an additional annual fee at the rate of $5,000 per year (new for fiscal 2013). +• +Payment or reimbursement of travel and other expenses incurred in attending board meetings. +• +Matching charitable contributions under the NIKE Matching Gift Program, under which directors are eligible to contribute to qualified charitable organizations and we provide a matching contribution to the charities in an equal amount, up to $20,000 in the aggregate for each director annually. +Ms. Comstock, Messrs. Connors, Cook, Graf, Rodgers and Smith, and Drs. Lechleiter and Wise participate in our standard director compensation program. Mr. Houser also participates in our standard program, except that, in exchange for electing in fiscal 2000 to participate in the standard program when it was first instituted, he receives an annual option to purchase 8,000 shares of our Class B Stock, instead of 7,000 shares. +Mr. Thompson does not participate in our standard director compensation program. Pursuant to his election made in fiscal 2000, Mr. Thompson received an annual retainer fee at the rate of $67,000 per year (instead of the $85,000 annual retainer fee paid under our standard program). Pursuant to his election, Mr. Thompson also received medical insurance and $500,000 of life insurance coverage paid for by us. Additionally, on +NIKE, INC. Ÿ 20 13 Notice of Annual Meeting 9 +CORPORATE GOVERNANCE +PROPOSAL 1 +the date of each annual meeting of shareholders, Mr. Thompson receives an annual option to purchase 7,000 shares of our Class B Stock on the same terms as apply to the options granted pursuant to our standard program. +Philip H. Knight, as the Chairman of our Board of Directors, is one of our executive officers, but is not a Named Executive Officer. Mr. Knight does not receive any additional compensation for services provided as a director. +Stock Ownership Guidelines for Directors +On June 20, 2013, the Board of Directors adopted stock ownership guidelines for all non-employee directors. Under these guidelines, directors are required to hold NIKE stock valued at five times their annual cash retainer. Current directors are required to attain these ownership levels by June 20, 2018 and new directors within five years of their election to the Board. +Director Participation in Deferred Compensation Plan +Under our Deferred Compensation Plan, non-employee directors may elect in advance to defer up to 100 percent of the director fees paid by us. For a description of the plan, see “Non-Qualified Deferred Compensation in Fiscal 2013” below. In addition, in fiscal 2000, Messrs. Houser and Thompson received credits to a fully vested NIKE stock account under the Deferred Compensation Plan in exchange for their waiver of rights to future payments under a former non-employee director retirement program. The Class B Stock credited to these directors’ accounts is distributed to them upon their retirement from the Board, and the accounts are credited with quarterly dividends until distributed. +10 +CORPORATE GOVERNANCE +Stock Holdings of Certain Owners and Management +The following table sets forth the number of shares of each class of NIKE securities beneficially owned, as of July 19, 2013, by (i) each person known to the Company to be the beneficial owner of more than 5 percent of any class of the Company’s securities, (ii) each of the directors and nominees for director, (iii) each executive officer listed in the Summary Compensation Table (“Named Officers”), and (iv) all nominees, Named Officers, and other executive officers as a group. Because Class A Stock is convertible into Class B Stock on a share-for-share basis, each beneficial owner of Class A Stock is deemed by the SEC to be a beneficial owner of the same number of shares of Class B Stock. Therefore, in indicating a person’s beneficial ownership of shares of Class B Stock in the table, it has been assumed that such person has converted into Class B Stock all shares of Class A Stock of which such person is a beneficial owner. For these reasons the table contains substantial duplications in the numbers of shares and percentages of Class A and Class B Stock shown for Mr. Knight and for all directors and officers as a group. In addition, unless otherwise indicated, all persons named below can be reached at c/o John F. Coburn III, Vice President and Corporate Secretary, NIKE, Inc., One Bowerman Drive, Beaverton, Oregon 97005. +Title of Class +Shares Beneficially Owned (1) +Percent of Class (2) +Elizabeth J. Comstock +Class B +24,000 +(3) +— +John G. Connors +Class B +112,920 +(3) +— +Timothy D. Cook +Class B +64,000 +(3) +— +Alan B. Graf, Jr +Class B +148,000 +(3) +— +Douglas G. Houser +Class B +359,016 +(3)(4) +— +Philip H. Knight +Class A +134,584,968 +(5) +75.6 +% +One Bowerman Drive, Beaverton, Oregon 97005 +Class B +134,600,448 +(5) +15.8 +% +John C. Lechleiter +Class B +48,750 +(3) +— +Mark G. Parker (6) +Class B +2,681,270 +(3)(7) +0.4 +% +Johnathan A. Rodgers +Class B +68,000 +(3) +— +Orin C. Smith +Class B +121,400 +(3) +— +John R. Thompson, Jr +Class B +71,628 +(3)(4) +— +Phyllis M. Wise +Class B +34,000 +(3) +— +Donald W. Blair (6) +Class B +893,568 +(3)(7) +0.1 +% +Charles D. Denson (6) +Class B +2,338,258 +(3)(7) +0.3 +% +Eric D. Sprunk (6) +Class B +672,353 +(3)(7) +— +Trevor A. Edwards (6) +Class B +981,394 +(3)(7) +0.1 +% +Sojitz Corporation of America +1211 S.W. 5 th Ave, Pacwest Center, Ste. 2220, Portland, OR 97204 +Preferred (8) +300,000 +100 +% +The Vanguard Group +100 Vanguard Blvd., Malvern, PA 19355 +Class B +37,457,506 +(9) +5.2 +% +BlackRock, Inc +40 East 57 th Street, New York, NY 10022 +Class B +38,396,884 +(10) +5.3 +% +All directors and executive officers as a group (21 persons) +Class A +134,584,968 +75.6 +% +Class B +140,057,718 +(3) +16.5 +% +(1) +A person is considered to beneficially own any shares: (a) over which the person exercises sole or shared voting or investment power, or (b) of which the person has the right to acquire beneficial ownership at any time within 60 days (such as through conversion of securities or exercise of stock options). Unless otherwise indicated, voting and investment power relating to the above shares is exercised solely by the beneficial owner or shared by the owner and the owner’s spouse or children. +(2) +Omitted if less than 0.1 percent. +(3) +These amounts include the right to acquire, pursuant to the exercise of stock options, within 60 days after July 19, 2013, the following numbers of shares: 24,000 shares for Ms. Comstock, 100,000 shares for Mr. Connors, 64,000 shares for Mr. Cook, 96,000 shares for Mr. Graf, 28,000 shares for Mr. Houser, 42,000 shares for Dr. Lechleiter, 2,355,000 shares for Mr. Parker, 68,000 shares for Mr. Rodgers, 116,000 shares for Mr. Smith, 48,000 shares for Mr. Thompson, 34,000 shares for Dr. Wise, 752,000 shares for Mr. Blair, 2,000,000 shares for Mr. Denson, 625,000 shares for Mr. Sprunk, 851,000 shares for Mr. Edwards, and 8,445,350 shares for the executive officer and director group. +(4) +Includes shares credited to accounts under the NIKE, Inc. Deferred Compensation Plan in the following amounts: 20,268 for Mr. Houser, and 15,628 for Mr. Thompson. +(5) +Does not include: (a) 260,896 Class A Stock which is owned by Mr. Knight’s spouse, (b) 37,370,460 Class A Stock held by six grantor annuity trusts for the benefit of Mr. Knight’s children, (c) 2,880,290 Class B Stock held by the Knight Foundation, a charitable foundation in which Mr. Knight and his spouse are directors, (d) 1,791,252 Class B Stock held by Jasper Ridge Strategic Partners, L.P. (f/k/a Oak Hill Strategic Partners, L.P.), a limited partnership in which a company owned by Mr. Knight is a limited partner, and (e) 2,487,608 Class B Stock held by Cardinal Investment Sub I L.P., a limited partnership in which trusts for the benefit of Mr. Knight's child are limited partners. Mr. Knight has disclaimed ownership of all such shares. +NIKE, INC. Ÿ 20 13 Notice of Annual Meeting 11 +CORPORATE GOVERNANCE +PROPOSAL 1 +(6) +Executive officer listed in the Summary Compensation Table. +(7) +Includes shares held in accounts under the NIKE, Inc. 401(k) and Profit Sharing Plan for Messrs. Parker, Blair, Denson, Sprunk, and Edwards in the amounts of 16,885, 5,704, 21,622, 578 and 8,926 shares, respectively. +(8) +Preferred Stock does not have general voting rights except as provided by law, and under certain circumstances as provided in the Company’s Restated Articles of Incorporation, as amended. +(9) +Information provided as of February 12, 2013 in Schedule 13G filed by the shareholder. +(10) +Information provided as of January 30, 2013 in Schedule 13G filed by the shareholder. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors and executive officers, and persons who own more than 10 percent of a registered class of the Company’s equity securities, to file with the SEC and the NYSE initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Officers, directors and greater than 10 percent shareholders are required by the regulations of the SEC to furnish the Company with copies of all Section 16(a) forms they file. To the Company’s knowledge, based solely on review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ended May 31, 2013 all Section 16(a) filing requirements applicable to its officers, directors and greater than 10 percent beneficial owners were complied with, except that one transaction on January 4, 2012 by Hans van Alebeek and two transactions by Eric Sprunk on November 29, 2011 and December 26, 2012 were reported late due to administrative errors. +Transactions with Related Persons +Mr. Knight makes his airplane available for business use by the Company for no charge. NIKE operates and maintains the aircraft. Mr. Knight reimbursed the Company $960,015 for NIKE’s operating costs related to his personal use of this aircraft during fiscal 2013, determined based on the cost of fuel and other variable costs associated with the flights under FAR 91-501(d). +Pursuant to the terms of a past consulting agreement with the Company, the Company agreed to pay for health and life insurance policies for Howard Slusher, the father of John Slusher, Executive Vice President of Sports Marketing, following expiration of the agreement. During fiscal 2013, the Company paid Howard Slusher $130,427 for health and life insurance premiums. +Three of Mr. Parker’s siblings are employed by the Company in non-executive roles. Bob Parker is a Marketplace Director, and has been employed by the Company for over 29 years; Stephen Parker is the General Manager, China-Converse, and has been employed by the Company for over 25 years; and Ann Parker is an Executive Talent Scout, and has been employed by the Company for over 23 years. During fiscal year 2013, the Company paid aggregate compensation to Bob Parker, Stephen Parker and Ann Parker in the amounts of $439,806, $545,015, $299,425, respectively. The compensation was consistent with compensation paid to other employees holding similar positions, and was composed of salary, bonuses, the grant date fair value of stock options granted during the fiscal year estimated using the Black-Scholes pricing model, profit sharing and matching contributions to Company-sponsored retirement plans. +Mr. Thompson’s son, John Thompson III, is the head basketball coach at Georgetown University, and the Company has a contract with him to provide endorsement and consulting services to the Company through August 2014, with base compensation over the five year term of the contract of $500,000, and up to $80,000 per year of product and other performance incentives. +Compensation Committee Interlocks and Insider Participation +The members of the Compensation Committee of the Board of Directors during the fiscal year ended May 31, 2013 were Timothy D. Cook, Elizabeth J. Comstock, John C. Lechleiter, and Johnathan A. Rodgers. The Committee is composed solely of independent, non-employee directors. No member of the Compensation Committee has been an executive officer of the Company, and no member of the Compensation Committee had any relationships requiring disclosure by the Company under the SEC’s rules requiring disclosure of certain relationships and related-party transactions. None of the Company’s executive officers served as a director or member of a compensation committee (or other committee serving an equivalent function) of any other entity, the executive officers of which served as a director or member of the Compensation Committee of the Company during the fiscal year ended May 31, 2013. +12 +COMPENSATION DISCUSSION AND ANALYSIS +COMPENSATION DISCUSSION AND ANALYSIS +Executive Summary +This Compensation Discussion and Analysis explains our compensation philosophy, summarizes our compensation programs and reviews compensation decisions for the executives identified as Named Executive Officers in the Summary Compensation Table on page 24. The Named Executive Officers for fiscal 2013 were: +• +Mark G. Parker, President and Chief Executive Officer +• +Donald W. Blair, Executive Vice President and Chief Financial Officer +• +Charles D. Denson, President, NIKE Brand +• +Eric D. Sprunk, Executive Vice President, Merchandising and Product Management +• +Trevor A. Edwards, Executive Vice President, Global Brand and Category Management. +On June 20, 2013, Mr. Denson announced that he would be retiring on January 3, 2014 after 34 years of exceptional service with the Company. He resigned as President, NIKE Brand effective July 1, 2013. Mr. Denson has played a key role in developing a strong leadership team, which enabled leadership transition as demonstrated by Mr. Edwards' promotion to President, NIKE Brand and Mr. Sprunk's promotion to Chief Operating Officer, in both cases effective July 1, 2013. +The Compensation Committee of the Board of Directors (the “Committee”) is comprised of Timothy D. Cook (Chairman), Elizabeth J. Comstock, John C. Lechleiter, and Johnathan A. Rodgers, each of whom is an independent director under applicable NYSE listing standards. +Our executive compensation program is aligned with our business strategy and culture to attract and retain top talent, reward business results and individual performance, and most importantly, maximize shareholder returns. Our total compensation program for the Named Executive Officers is highly incentive-based and competitive in the marketplace, with Company performance determining a significant portion of total compensation. +Executive Compensation Governance Practices +To achieve the objectives of our executive compensation program and emphasize pay-for-performance principles, the Compensation Committee has continued to employ strong governance practices, including: +We Do +We Don't Do +ü Base a majority of total compensation on performance and retention incentives +ü Set annual and long-term incentive targets based on clearly disclosed, objective performance measures +ü Mitigate undue risk associated with compensation by using multiple performance targets, caps on potential incentive payments and a clawback policy +ü Require executive officers & non-employee directors to hold NIKE stock through published stock ownership guidelines +ü Vest equity awards over time to promote retention +ü Provide double-trigger change-in-control equity acceleration +ü Require executive officers and directors to obtain pre-approval to pledge NIKE stock +ü Mitigate potential dilutive effect of equity awards through robust share repurchase program +ü Conduct annual “say-on-pay” advisory votes +û Retirement acceleration for restricted stock or RSUs +û Repricing of options without shareholder approval +û Hedging transactions or short sales by executive officers or directors +û Dividends or dividend equivalents on unearned RSUs +û Significant perquisites +û Tax gross-ups for perquisites +û Pension or supplemental executive retirement plan (SERP) +û Employment contracts +û Cash-based change-in-control benefits +û Excise tax gross-ups upon change of control +Consideration of Say-on-Pay Vote Results +The non-binding advisory proposal regarding compensation of the Named Executive Officers submitted to shareholders at our 2012 Annual Meeting was approved by over 92% of the votes cast. The Committee believes this favorable outcome conveyed our shareholders' support of our executive compensation program and the Committee's decisions. After considering the shareholder vote and other factors in its annual review of our total executive compensation programs, the Committee made no material changes in the structure of our compensation programs. The Committee will continue to consider the outcome of the Company's say-on-pay votes when conducting its regular practice of evaluating the program and making future compensation decisions for the Named Executive Officers. +NIKE, INC. Ÿ 20 13 Notice of Annual Meeting 13 +COMPENSATION DISCUSSION AND ANALYSIS +Financial Highlights under Incentive Plans +NIKE delivered strong performance in fiscal 2013. In May 2012, NIKE announced its intention to divest of the Cole Haan and Umbro businesses. As a result, the measures below vary from NIKE's comparable publicly reported financial results from continuing operations. These results have been adjusted appropriately to account for the divestitures of the businesses as described in the footnotes to the charts below and in “Elements of our Compensation Program.” The charts below set forth certain key financial results that were used in determining payouts under our incentive compensation plans for fiscal 2013. +1 For purposes of the fiscal 2011-2013 long-term incentive award payout, fiscal 2013 revenue is adjusted to extrapolate Cole Haan and Umbro revenues through the divestiture dates of February 1, 2013 and November 30, 2012, respectively, for the full fiscal year. Fiscal 2013 EPS is adjusted to extrapolate Cole Haan and Umbro operating income through the respective divestiture dates for the full fiscal year. Fiscal 2013 also excludes divestiture-related charges and gains. All periods restated to reflect December 24, 2012 two-for-one stock split. +2 For purposes of the fiscal 2013 annual incentive award payout, fiscal 2012 and 2013 exclude all Cole Haan and Umbro revenues and expenses, all divestiture-related charges and gains, and any amounts associated with the transfer of Umbro sports marketing sponsorships to NIKE. +Executive Compensation Highlights +The total compensation for each of the Named Executive Officers is shown in the Summary Compensation Table on page 24 While we describe executive compensation in greater detail throughout this Compensation Discussion and Analysis, actions the Committee took in fiscal 2013 are highlighted below: +• +Base Salary. Base salaries remained the same, except in the case of Messrs. Sprunk and Edwards, who received merit increases of 5.6%. +• +Performance-Based Annual Incentive Plan. Target awards remained the same. For fiscal 2013, the payout was 107% of target. +• +Performance-Based Long-Term Incentive Plan. Mr. Parker's target award for the fiscal 2013-2015 performance period was increased to $3,500,000. Target awards for the other Named Executive Officers remained the same. For the fiscal 2011-2013 performance period, the payout was 147% of target. +• +Stock Options. Mr. Parker was granted an option for 330,000 shares. Mr. Denson received an option for 240,000 shares and Messrs. Blair, Sprunk, and Edwards each received an option of 120,000 shares (as adjusted for the December 24, 2012 two-for-one stock split). Each award vests equally over four years. +• +Restricted Stock. Mr. Parker received an award in the amount of $3,500,000. Messrs. Blair, Sprunk, and Edwards each received an award in the amount of $625,000. Mr. Denson received an award in the amount of $5,000,000 in recognition of his key role in leadership transition and his critical role in driving the company's growth strategy. Each award vests equally over three years. +• +Restricted Stock Units. Messrs. Blair, Sprunk, and Edwards received restricted stock unit (“RSU”) retention awards in the amount of $3,000,000 for Mr. Blair and $5,000,000 for Messrs. Sprunk and Edwards. These awards are intended to further promote retention of key leaders and are scheduled to vest in full on the third anniversary of the grant date for Mr. Blair and on the fifth anniversary of the grant date for Messrs. Sprunk and Edwards. The awards have no value to the recipients unless they remain employed with the Company for the full vesting period. +• +Peer Group. Added J.C. Penney, Kimberly-Clark, and Time Warner and removed Apple from our peer group. +• +Stock Ownership Guidelines. On June 20, 2013, the Board of Directors adopted stock ownership guidelines for executive officers and non-employee directors to further align their long-term interests with those of our shareholders. +Operation of the Compensation Committee +The Compensation Committee of the Board of Directors (the “Committee”) evaluates the performance of the CEO against goals and objectives set by the Committee, and based on the evaluation, recommends the CEO's compensation to the independent members of the Board of Directors. Subject to the approval of the independent members of the Board of Directors, the Committee also determines the compensation of our other Named Executive Officers. The Committee also oversees the performance evaluation of those officers and the administration of our +14 +COMPENSATION DISCUSSION AND ANALYSIS +executive compensation programs. The Committee receives recommendations from the CEO as to compensation of other Named Executive Officers, and the CEO participates in Committee discussions regarding the compensation of those officers. The Committee meets in executive session without the CEO to determine his compensation. The Committee is comprised of Timothy D. Cook (Chairman), Elizabeth J. Comstock, John C. Lechleiter, and Johnathan A. Rodgers, each of whom is an independent director under applicable NYSE listing standards. The Committee operates pursuant to a written charter that is available on our website at: http://investors.nikeinc.com . +Each year, the Committee reviews our executive total compensation programs to ensure they continue to reflect the Committee's commitment to align the objectives and rewards of our executive officers with the creation of value for our shareholders. The programs have been designed to reinforce our pay-for-performance philosophy by delivering total compensation that motivates and rewards short-and long-term financial performance to maximize shareholder value, and to be externally competitive to attract and retain outstanding and diverse executive talent. In conducting its annual review, the Committee considers information provided by our human resources staff. Our human resources staff retains independent compensation consulting firms to provide surveys and reports containing competitive market data. These consultants do not formulate executive compensation strategies for NIKE or recommend individual executive compensation. The human resources staff uses the surveys and reports to make recommendations to the Committee concerning executive compensation. The Committee has the authority, in its sole discretion, to retain compensation consultants to assist the Committee in evaluating the compensation of executive officers, but chose to not retain any such consultants in fiscal 2013. The Committee relies on its collective experience and judgment along with the recommendations prepared by our human resources staff to set executive compensation. +Use of Market Survey Data +To help establish competitive ranges of base salary, incentive compensation opportunities, and target total compensation for the purpose of making recommendations to the Committee, our human resources staff uses competitive market data from surveys and reports prepared by Aon Hewitt Associates and Towers Watson. We consider market survey data from a peer group of companies which have similar revenue size, have similar products or markets, or reflect the companies with which we compete for executive talent. In addition, we consider market data across many industries focusing on companies with revenues of $10 billion or more. +In February 2012, we conducted our periodic review of our peer group. In reviewing the factors described above, we determined that for purposes of setting executive compensation in fiscal 2013, the peer group should be refined to include J.C. Penney Company Inc., Kimberly-Clark Corporation and Time Warner Inc., and to remove Apple Inc. The fiscal 2013 peer group was: +NIKE, INC. Ÿ 20 13 Notice of Annual Meeting 15 +COMPENSATION DISCUSSION AND ANALYSIS +Company +Reported +Fiscal Year +Revenue +(in millions) +The Coca-Cola Company +12/12 +$48,017.0 +Colgate-Palmolive Company +12/12 +17,085.0 +FedEx Corp. +05/13 +44,287.0 +Gap Inc. +01/13 +15,651.0 +General Mills Inc. +05/13 +17,774.1 +Google Inc. +12/12 +50,175.0 +J.C. Penny Company Inc.* +01/13 +12,985.0 +Kellogg Co. +12/12 +14,197.0 +Kimberly-Clark Corporation* +12/12 +21,063.0 +Limited Brands Inc. +01/13 +10,459.0 +Macy’s, Inc. +01/13 +27,686.0 +McDonald’s Corporation +12/12 +27,567.0 +PepsiCo, Inc. +12/12 +65,492.0 +Starbucks Corp. +09/12 +13,299.5 +Time Warner Inc.* +12/12 +28,729.0 +The Walt Disney Company +09/12 +42,278.0 +* Represents company added to peer group +The surveys that our human resources staff reviews show percentile compensation levels for various executive positions with comparable job responsibilities. The staff also analyzes market data regarding compensation mix among base salary, annual incentive and long-term incentives such as performance-based cash awards, stock options, restricted stock and restricted stock unit awards. The Committee reviews this mix analysis when evaluating the separate compensation elements for each executive. The Committee does not endeavor to set executive compensation at or near any particular percentile, and it considers target total compensation to be competitive if it is generally within the 50 th to 75 th percentiles. Market data is one of many factors that the Committee considers in the determination of executive compensation levels. Other factors include internal pay equity, level of responsibility, the individual's performance, expectations regarding the individual's future potential contributions, succession planning and retention strategies, budget considerations, and our performance. +16 +COMPENSATION DISCUSSION AND ANALYSIS +Objectives and Elements of Our Compensation Program +As noted in the Executive Summary, our executive compensation program is aligned with our business strategy and culture to attract and retain top talent, reward business results and individual performance, and most importantly, maximize shareholder returns. Our total compensation program for the Named Executive Officers is highly incentive-based and competitive in the marketplace, with Company performance determining a significant portion of total compensation. Our program consists of the following elements: +• +Base salary that reflects the executive’s accountabilities, skills, experience, performance, and future potential +• +Annual performance-based incentive cash bonus based on Company financial results under our Executive Performance Sharing Plan +• +A portfolio approach to long-term incentive compensation to provide a balanced mix of performance-based cash incentives and equity, including: +◦ +Performance-based long-term incentive cash awards based on Company financial results to encourage attainment of long-term financial objectives +◦ +Stock options to align the interests of executives with those of shareholders +◦ +Restricted stock awards and restricted stock unit retention awards to provide incentives consistent with shareholder returns, and to provide strong retention incentives +• +Benefits +◦ +Profit sharing contributions to defined contribution retirement plans +◦ +Post-termination payments under non-competition or employment agreements +In determining the award levels for each of the elements in our total compensation program, our philosophy is to "pay for performance." As a result, we place relatively greater emphasis on the incentive components of compensation (annual incentive award, long-term incentive award, and stock options) to align the interests of our executives with shareholders, and motivate them to maximize shareholder returns. This is balanced with retention incentives provided by base salary, restricted stock awards, and restricted stock unit awards. +We look to the experience and judgment of the Committee to determine what it believes to be the appropriate target compensation mix for each Named Executive Officer. We do not apply fixed ratios or formulae, or rely solely on market data or quantitative measures. In allocating compensation among the various elements, the Committee considers market data, Company performance and budget, the impact of the executive's position in the Company, individual past performance, expectations for future performance, experience in the position, any anticipated increase in the individual's responsibilities, internal pay equity for comparable positions, and retention incentives for succession planning. +As shown in the charts below, incentive components (including restricted stock) accounted for 89% of the CEO's target compensation and approximately 83% of the other Named Executive Officers' target compensation in fiscal 2013. For purposes of this analysis, RSU retention awards, which were granted to certain of the Named Executive Officers other than the CEO in fiscal 2013, are excluded to reflect the compensation mix targeted by the Committee on an annual basis. +NIKE, INC. Ÿ 20 13 Notice of Annual Meeting 17 +COMPENSATION DISCUSSION AND ANALYSIS +Elements of Our Compensation Program +Base Salary +When making recommendations to the Committee concerning base salary levels for our Named Executive Officers, our human resources staff considers the individual's performance in the prior year, expectations regarding the individual's future performance, experience in the position, any anticipated increase in the individual's responsibilities, internal pay equity for comparable positions, succession planning strategies, our annual salary budget, other elements of the individual's compensation, and the market data described in “Use of Market Survey Data.” The Committee reviews these factors each year and adjusts base salary levels to ensure that we are appropriately rewarding performance. +The Committee generally reviews base salaries of the Named Executive Officers annually based on a review of individual performance at a meeting in June, with salary adjustments becoming effective for the first pay period ending in August. During the salary review in June 2012, the Committee decided to maintain the base salaries for Messrs. Parker, Blair, and Denson at $1,550,000, $850,000, $1,320,000, respectively, based on its determination that the base salaries were appropriately aligned with comparable positions in the market. The Committee decided to increase the base salaries for Messrs. Sprunk and Edwards 5.6% from $885,000 to $935,000 to align their salaries with market and reflect their performance against their individual goals. +In setting a Named Executive Officer's overall compensation package, the Committee places a relatively greater emphasis on the incentive components of compensation described below. +Performance-Based Annual Incentive Bonus +Annual awards are paid to the Named Executive Officers under our Executive Performance Sharing Plan (“PSP”). Our “pay for performance” philosophy for awards is simple: if we exceed our financial objectives, we will pay more; if we fail to reach them, we will pay less or nothing at all. The PSP for all executives is based 100% on overall corporate performance each year as measured by income before income taxes excluding the effect of any acquisitions, divestitures or accounting changes (“PTI”). Basing our annual incentive award program for all executives on overall corporate performance is intended to foster teamwork and send the message to each executive that his or her role is to help ensure overall organizational success and maximize shareholder returns. +Each year the Committee establishes a PSP target award for each Named Executive Officer based on its judgment of the impact of the position in the Company and what it believes to be competitive against market data as described in “Use of Market Survey Data,” while considering internal pay equity for comparable positions. For fiscal 2013, the Committee maintained the PSP target award percentages set in fiscal 2012. The fiscal 2013 target awards were: +Named Executive Officer +Fiscal 2013 PSP Target Award +(% of base salary) +Mr. Parker +150% +Mr. Denson +130% +Mr. Blair +90% +Mr. Sprunk +90% +Mr. Edwards +90% +In May 2012, the Company announced its intention to divest of the Cole Haan and Umbro businesses. As a result, when the Committee established performance goals for the fiscal 2013 PSP in June 2012, it determined that PTI would exclude all Cole Haan and Umbro revenues and expenses, all divestiture-related charges and gains, and any amounts associated with the transfer of Umbro sports marketing sponsorships to NIKE. The table below summarizes the fiscal 2013 PSP performance goals. NIKE achieved an adjusted PTI of $3,318 million in fiscal 2013, a 9.6% increase over fiscal 2012 adjusted PTI. This achievement was above the target performance goal established by the Committee. As a result, each executive officer's award was paid out at 107% of the target award. +(Dollars in millions) +Fiscal 2013 PSP Performance Goal +Threshold Performance +Threshold % Payout +Target Performance +Target % Payout +Maximum Performance +Maximum % Payout +Actual Performance +Actual % Payout +PTI 1 +$3,019 2 +50% +$3,282 3 +100% +$3,545 4 +150% +$3,318 +107% 5 +__________________________________________________________ +1 For purposes of the fiscal 2013 annual incentive award payout, fiscal 2012 and 2013 exclude all Cole Haan and Umbro revenues and expenses, all divestiture-related charges and gains, and all amounts associated with the transfer of Umbro sports marketing sponsorships to NIKE. +2 Threshold payout approximates adjusted PTI for fiscal 2012. For threshold, target, and maximum award payouts, increases over fiscal 2012 adjusted PTI results are not uniform percentages, but were established by the Committee based on its evaluation of our business plan and prospects for the year. +3 Target payout represents 8.5% increase above fiscal 2012 adjusted PTI. +4 Maximum payout represents 17.2% increase above fiscal 2012 adjusted PTI. +5 Prorated for performance between payout levels. +18 +COMPENSATION DISCUSSION AND ANALYSIS +Performance-Based Long-Term Incentive Plan +The first component in our long-term portfolio mix is performance-based awards payable in cash under our Long-Term Incentive Plan (“LTIP”). As with the performance-based annual incentive, the LTIP follows our “pay for performance” philosophy. If we exceed our targets, we will pay more; if we fall short, we will pay less or nothing at all. This program focuses executives on overall, long-term financial performance, and is intended to reward them for delivering revenue growth and diluted earnings per share (“EPS”) growth over a three-year performance period. At the beginning of each fiscal year, the Committee establishes performance goals and potential cash payouts for the next three fiscal years for all executives under the LTIP. LTIP measures for all executives are based 50% on cumulative revenues for the three-year performance period and 50% on cumulative EPS for the period, in each case excluding generally the effect of acquisitions, divestitures and accounting changes. +During the compensation review in June 2012, the Committee approved LTIP target awards for all Named Executive Officers for the fiscal 2013-2015 performance period. The Committee set these targets based on its judgment of what it believes to be a desirable mix of long-term compensation, the impact of the position in the Company, and what it finds to be competitive against market data as described in “Use of Market Survey Data,” while maintaining internal pay equity for comparable positions. For the fiscal 2013-2015 performance period, the Committee increased Mr. Parker's target award from $3,000,000 to $3,500,000, reflecting the Committee's desire to have a higher portion of his compensation dependent on achievement of long-term growth measures. The target awards for the other Named Executive Officers remained at the same levels approved each year since 2008. The target awards for the fiscal 2013-2015 performance period are: +Named Executive Officer +Fiscal 2013-2015 LTIP Award Target ($) +Mr. Parker +$3,500,000 +Mr. Denson +1,500,000 +Mr. Blair +500,000 +Mr. Sprunk +500,000 +Mr. Edwards +500,000 +In May 2012, the Company announced its intention to divest of the Cole Haan and Umbro businesses. As a result, when the Committee established measures for the fiscal 2013-2015 LTIP in June 2012, it determined that revenues and EPS should exclude all Cole Haan and Umbro revenues and expenses, all divestiture-related charges and gains, and any amounts associated with the transfer of Umbro sports marketing sponsorships to NIKE. The Committee considered our long-term financial goals of high single-digit revenue growth and mid-teens EPS growth in setting the performance goals for the target award payout level. The total payout percentage will be the average of the payout percentages determined for cumulative revenues and cumulative EPS, respectively. Payout below the threshold payout level may occur if either the revenue or EPS related percentage achievement is less than 50%. If both revenue and EPS fall below the threshold level, there is no payment. The table below summarizes the fiscal 2013-2015 LTIP performance goals. +(Dollars in millions, except per share data) +Fiscal 2013-2015 Performance Goals 1 +Threshold Performance 2 +Threshold % Payout +Target Performance 3 +Target % Payout +Maximum Performance 4 +Maximum % Payout +Revenue +$78,733 +50% +$81,801 +100% +$88,176 +200% +EPS +$8.575 +50% +$9.24 +100% +$10.67 +200% +__________________________________________________________ +1 Exclude all Cole Haan and Umbro revenues and expenses, all divestiture-related charges and gains, and all amounts associated with the transfer of Umbro sports marketing sponsorships to NIKE. EPS goals reflect December 24, 2012 two-for-one stock split. +2 Threshold payout for revenue requires cumulative revenue corresponding to a 6% compound annual growth rate (“CAGR”) from fiscal 2012 adjusted revenue of $23,331 million. Threshold payout for EPS requires cumulative EPS corresponding to a 9% CAGR from fiscal 2012 adjusted EPS of $2.40. +3 Target revenue payout requires an 8% CAGR and target EPS payout requires a 13% CAGR. +4 Maximum revenue payout requires a 12% CAGR and maximum EPS payout requires a 21% CAGR. +NIKE, INC. Ÿ 20 13 Notice of Annual Meeting 19 +COMPENSATION DISCUSSION AND ANALYSIS +Our executive officers were eligible to receive LTIP award payouts based on performance targets set in June 2010 covering the fiscal 2011-13 performance period. For LTIP measures established prior to fiscal 2013, award terms provide for the extrapolation of divested business results for the post-divestiture portion of the related performance period, as well as the exclusion of divestiture-related charges or gains. In June 2013, the Committee determined a payout of 147% under these awards was earned based on the average of the payout percentages for cumulative adjusted revenues and cumulative adjusted EPS for the performance period shown in the table below: +(Dollars in millions, except per share data) +Fiscal 2011-2013 Performance Goals +Threshold Performance +Threshold % Payout +Target Performance +Target % Payout +Maximum Performance +Maximum % Payout +Actual Performance +Actual % Payout +Revenue +$63,305 +50% +$66,665 +100% +$71,196 +200% +$71,079 1 +197% +EPS +$6.725 +50% +$7.275 +100% +$8.185 +200% +$7.235 2 +96% +Total Payout +147% +1 Cumulative revenues for fiscal 2011, fiscal 2012 and fiscal 2013. Fiscal 2013 revenue is adjusted to extrapolate Cole Haan and Umbro revenues through the divestiture dates of February 1, 2013 and November 30, 2012, respectively, for the full fiscal year. +2 Cumulative EPS for fiscal 2011, fiscal 2012 and fiscal 2013. Fiscal 2013 EPS is adjusted to extrapolate Cole Haan and Umbro operating income through the respective divestiture dates for the full fiscal year. Fiscal 2013 also excludes divestiture-related charges and gains. All periods restated to reflect December 24, 2012 two-for-one stock split. +Stock Options +The second component in our long-term portfolio mix is stock options. Stock options are designed to align the interests of the Company's executives with those of shareholders by encouraging executives to enhance the value of the Company and, hence, the price of the Class B Stock. This is true “pay for performance”: executives are rewarded only if the market price of our stock rises, and they get nothing if the price does not rise. When determining the grants, the Committee generally focuses on the number of shares, while considering the value for accounting purposes. Our approach is based on our desire to carefully control annual share usage and avoid fluctuations in grant levels due to share price changes. The Committee awards stock options to each executive based on its judgment. The Committee considers a number of factors including the individual's performance, management succession, competitive market data as described in “Use of Market Survey Data,” internal pay equity for comparable positions, and a desirable mix of long-term incentives. Our human resources staff periodically tests the reasonableness of our stock option grants against competitive market data and may make recommendations to the Committee. Options are generally granted annually to selected employees, including the Named Executive Officers, in July of each year under our shareholder-approved Stock Incentive Plan. Stock options for fiscal 2013 were granted by the Committee on July 20, 2012 with an exercise price equal to the closing market price of our stock on that date. +In July 2012, the Committee granted options to Mr. Parker for 330,000 shares and to Mr. Denson for 240,000 shares, the same number of split-adjusted stock options granted to each of them in July 2011. Messrs. Blair, Sprunk, and Edwards each received 120,000 shares, an increase of 20,000 shares to each of them from July 2011 (stock-split adjusted).The Committee, in its judgment, set these award levels based on the factors described above. +Options we grant generally vest over a four-year period, and are forfeited if the employee leaves before vesting occurs, to promote executive retention. A standard retirement feature of stock options granted to all employees prior to fiscal 2011 was to accelerate vesting of some or all options for any employee with at least five years of service where the sum of the employee's age plus years of service totaled a minimum of 55, as described in “Potential Payments Upon Termination or Change-in-Control.” Based on their ages and years of service, as of May 31, 2013, Messrs. Parker, Blair, Denson, Sprunk, and Edwards could terminate employment at any time and receive full vesting of their options granted prior to July 2010. +In June 2010, after a review of the Company's succession plans, the Committee and the Board of Directors amended the Stock Incentive Plan for future option grants to remove this accelerated vesting feature, and replaced it with a strengthened provision to encourage employees to delay retirement, thus enhancing retention. Beginning with the July 2010 grants, only those employees with a minimum of five years of service who are age 55 and above at the time of termination of employment will be eligible for the provision. Under the provision, only unvested stock options that have been granted for at least one full year to employees between the ages of 55 to 59 at the time of termination of employment will continue to vest, and may be exercised for up to four years after termination. If an employee is age 60 or older and has at least five years of service at termination, unvested stock options that have been granted for at least one full year will receive accelerated vesting and may be exercised for up to four years after termination. The features related to accelerated vesting are described in “Potential Payments upon Termination or Change-in-Control.” Based on their ages and years of service, as of May 31, 2013, Messrs. Parker, Blair, and Denson could terminate employment at any time and receive continued vesting of their options granted in July 2010 and July 2011. +Restricted Stock Awards +The third component in our long-term portfolio mix is restricted stock awards. Stock ownership and stock-based incentive awards align the interests of our Named Executive Officers with the interests of our shareholders, as the value of this incentive rises and falls with the stock price, consistent with shareholder returns. Restricted stock awards are generally granted annually to selected employees, including the Named Executive Officers, in July at the same meeting at which stock options are granted under our shareholder-approved Stock Incentive Plan. Awards generally vest in three equal installments on each of the first three anniversaries of the grant date. The awards promote executive retention, as unvested shares held at the time the executive's employment is terminated are forfeited. Award recipients receive dividends on the full number of restricted shares awarded at the same time dividends are paid to others shareholders. +20 +COMPENSATION DISCUSSION AND ANALYSIS +In July 2012, the Committee granted a restricted stock award to Mr. Parker valued at $3,500,000, representing 75,206 shares of our Class B Stock, based on the closing price of our stock on the grant date and as adjusted for the stock split. This was the same value of restricted stock granted to Mr. Parker in July 2011. Mr. Denson received an award valued at $5,000,000, and Messrs. Blair, Sprunk, and Edwards each received an award valued at $625,000. This represented 107,436 shares of our Class B Stock for Mr. Denson, and 13,430 shares of our Class B Stock for each of Messrs. Blair, Sprunk, and Edwards, based on the closing price of our stock on the grant date and as adjusted for the stock split. This was an increase of $2,950,000 for Mr. Denson, an increase of $75,000 for Mr. Blair, and an increase of $25,000 for each of Messrs. Sprunk and Edwards. The Committee, in its judgment, set these award levels based on several factors, including what the Committee believed to be a desirable mix of long-term compensation, their determination of an appropriate weighting of potential future contribution to the Company, retention incentives, and competitive grants based on competitive market data. In the case of Mr. Denson, the Committee granted his award in recognition of his key role in leadership transition and his critical role in driving the company's growth strategy. +Restricted Stock Unit (RSU) Retention Awards +From time to time, the Committee also grants restricted stock units (“RSUs”) that vest based on continued service through a future service date with the Company specifically to further promote retention. These RSU awards accumulate dividend equivalents that are only paid in cash upon full vesting. The awards have no value to the executive unless the executive remains employed with the Company for the full vesting period, and will be canceled if the executive terminates or retires within the vesting period. +On July 20, 2012, the Committee approved a grant of RSUs to Mr. Blair valued at $3,000,000, and grants of RSUs to Messrs. Sprunk and Edwards each valued at $5,000,000. This represented 64,462 RSUs for Mr. Blair and 107,436 RSUs for each of Messrs. Sprunk and Edwards based on the closing price of our Class B Stock on the grant date, as adjusted for the stock split. Mr. Blair's RSUs are scheduled to vest in full on the third anniversary of the grant date and the RSUs awarded to Messrs. Sprunk and Edwards are scheduled to vest in full on the fifth anniversary of the grant date. In determining the award amounts, the Committee considered several factors including the Company's succession and retention strategy, a review of accumulated vested and unvested awards for the recipients, individual performance, and the Committee's business judgment and experience. As these awards are intended as a retention incentive they were viewed by the Committee as compensation over the vesting periods and not solely as compensation for fiscal 2013. +Profit Sharing and Retirement Plans +The NIKE 401(k) Savings and Profit Sharing Plan is our tax qualified retirement savings plan pursuant to which our employees, including the Named Executive Officers, are able to make pre-tax contributions from their cash compensation. We make matching contributions for all participants each year equal to 100% of their elective deferrals up to 5% of their total eligible compensation. We also make annual profit sharing contributions to the accounts of our employees under the 401(k) Savings and Profit Sharing Plan. The contributions are allocated among eligible employees based on a percentage of their total salary and annual incentive award for the year. The total profit sharing contribution and the percentage of salary and annual incentive award contributed for each employee is determined each year by the Board of Directors. For fiscal 2013, the Board of Directors approved a profit sharing contribution for each employee equal to 4.02% of the employee's total eligible salary and annual incentive award. +The Internal Revenue Code limits the amount of compensation that can be deferred under the 401(k) Savings and Profit Sharing Plan, and also limits the amount of salary and annual incentive award ($250,000 for fiscal 2013) with respect to which matching contributions and profit sharing contributions can be made under that plan. Accordingly, we provide our executive officers and other highly compensated employees with the opportunity to defer their compensation, including amounts in excess of the tax law limit, under our nonqualified Deferred Compensation Plan. We also make profit sharing contributions under the Deferred Compensation Plan with respect to salary and annual incentive award of any employee that exceeds the tax law limit, and for fiscal 2013 these contributions were equal to 4.02% of the total salary and annual incentive award of each Named Executive Officer in excess of $250,000. These contributions under the Deferred Compensation Plan allow our Named Executive Officers and other highly compensated employees to receive profit sharing retirement contributions in the same percentage as our other employees. We do not match executive deferrals to the Deferred Compensation Plan. Executive officer balances in the Deferred Compensation Plan are unsecured and at-risk, meaning the balances may be forfeited in the event of the Company's financial distress such as bankruptcy. Our matching and profit sharing contributions for fiscal 2013 to the accounts of the Named Executive Officers under the qualified and nonqualified plans are included in the All Other Compensation column in the Summary Compensation Table on page 24. +Post-termination Payments under Non-competition and/or Employment Agreements +In exchange for non-competition agreements from all of our Named Executive Officers, we have agreed to provide during the non-competition period the monthly payments described in “Potential Payments upon Termination or Change-in-Control,” some of which are at the election of the Company. We believe that it is appropriate to compensate individuals to refrain from working with competitors following termination, and that compensation enhances the enforceability of such agreements. +NIKE, INC. Ÿ 20 13 Notice of Annual Meeting 21 +Stock Ownership Guidelines +On June 20, 2013, the Board of Directors adopted stock ownership guidelines for executive officers. These guidelines are designed to further align the long-term interests of our executive officers with those of our shareholders. Under the guidelines, the CEO and other executive officers are required to hold NIKE stock valued at the following multiple of their annual base salary: +Position +Ownership Level +Chief Executive Officer +6X Base Salary +Named Executive Officers +3X Base Salary +Other Executive Officers +2X Base Salary +Current executive officers are required to attain these ownership levels by June 20, 2018 and new officers within five years of their appointment. +Hedging and Pledging +The Company's black-out and pre-clearance policy (which supplements our insider trading policy) prohibits directors, executive officers and other designated insiders from engaging in transactions involving hedging, monetization or short sales of NIKE stock, including zero-cost collars and forward sale contracts. The policy also requires directors, executive officers and designated insiders to obtain pre-approval from the Company's Corporate Secretary before pledging NIKE stock. Before granting approval of any pledge, the Corporate Secretary considers the size of the pledge relative to the individual's other holdings, both direct and indirect, and NIKE's shares outstanding; the risk of foreclosure given the nature of the associated transaction; protections against the appearance of insider trading, including prohibitions on sales during black-out windows; and the ability to timely report sales on Form 4. +Change-in-Control Provisions +Under the terms of stock option and restricted stock awards granted before fiscal 2011, any unvested awards would vest upon certain transactions that would result in a change in control, such as shareholder approval of a liquidation, a sale, lease, exchange or transfer of substantially all of the assets of the Company, or a consolidation, merger, plan of exchange, or transaction in which the Company is not the surviving corporation. These transactions are described in “Potential Payments Upon Termination or Change-in-Control.” This vesting feature, re-approved by shareholders in 2005, was in place because we believed that utilizing a single event to vest awards provided a simple and certain approach for treatment of equity awards in a transaction that would likely result in the elimination or de-listing of our stock. This provision recognized that such transactions have the potential to cause a significant disruption or change in employment relationships and thus treated all employees the same regardless of their employment status after the transaction. In addition, it provided our employee option holders with the same opportunities as our other shareholders, who are free to realize the value created at the time of the transaction by selling their equity. +In June 2010, the Committee approved a revision to our change-in-control vesting provision under which future stock option, restricted stock, and restricted stock unit awards are subject to accelerated vesting only when two events (a “double trigger”) occur. Beginning with grants made in July 2010, vesting of grants is generally accelerated only if there is a change in control of the Company and either the acquiring entity fails to assume the awards or the employee's employment is terminated by the acquirer without cause or by the employee for good reason within two years following a change in control. This double trigger was adopted to encourage executive retention through a period of uncertainty and a subsequent integration with an acquirer. The Committee believes that this approach will enhance shareholder value in the context of an acquisition, and align executives with the interests of investors. +Clawback Policy +In June 2010, the Committee and Board of Directors approved a policy for recoupment of incentive compensation (the “clawback policy”). The Board of Directors adopted the clawback policy to prevent executives involved in certain wrongful conduct from unjustly benefiting from that conduct, and to remove the financial incentives to engage in that conduct. The clawback policy generally requires an executive officer who is involved in wrongful conduct that results in a restatement of the Company's financial statements to repay to the Company up to the full amount of any incentive compensation based on the financial statements that were subsequently restated. Incentive compensation includes the annual PSP award, LTIP payout, profit sharing contributions to the Deferred Compensation Plan, and excess proceeds from sales of stock acquired under stock option, restricted stock and restricted stock unit awards that occurred prior to the restatement. +Risk Assessment +At the Committee's request, in fiscal 2013 management prepared and discussed with the Committee an assessment of potential risk associated with the Company's compensation programs, including any risk that would be reasonably likely to have a material adverse effect on the Company. This included an assessment of risks associated with each element of employee compensation. The assessment considered certain design features of the compensation programs that reduce the likelihood of excessive risk taking, such as reasonable performance targets, capped payouts of incentive compensation, a balance of short- and long-term incentives, a balance of cash and equity incentives, vesting of awards over time, and the potential for clawback of incentive compensation. In addition, for equity compensation the Committee and the Board have restricted both the future eligibility for accelerated vesting of stock options upon termination of employment and the accelerated vesting of all equity awards upon change in control (as described above). +NIKE, INC. Ÿ 20 13 Notice of Annual Meeting 22 +Tax Deductibility of Executive Compensation +Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public companies for annual compensation over $1 million paid to their chief executive officer and the next three most highly compensated executive officers (other than the principal financial officer). The Internal Revenue Code generally excludes from the calculation of the $1 million cap compensation that is based on the attainment of pre-established, objective performance goals established under a shareholder-approved plan. We consider the impact of this exclusion when developing and implementing our executive compensation programs. Annual awards under our Executive Performance Sharing Plan, long-term incentive awards under our Long-Term Incentive Plan and stock options under our 1990 Stock Incentive Plan generally are designed to meet the requirements under the exclusion. We also believe that it is important to preserve flexibility in administering compensation programs in a manner designed to promote varying corporate goals. Accordingly, we have not adopted a policy that all compensation must qualify as deductible under Section 162(m). Amounts paid under any of our compensation programs, including salaries, annual incentive awards, performance awards and grants of restricted stock and restricted stock units, may not qualify as performance-based compensation that is excluded from the Section 162(m) limitation on deductibility. In fiscal 2013 a portion of the compensation paid to Messrs. Parker, Denson, Sprunk, and Edwards was not deductible. +NIKE, INC. Ÿ 2013 Notice of Annual Meeting 23 +COMPENSATION COMMITTEE REPORT +COMPENSATION COMMITTEE REPORT +The Compensation Committee of the Board of Directors (the “Committee”) has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K. Based on the review and discussions, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement. +Members of the Compensation Committee: +• +Timothy D. Cook, Chairman +• +Elizabeth J. Comstock +• +John C. Lechleiter +• +Johnathan A. Rodgers +24 +EXECUTIVE COMPENSATION +EXECUTIVE COMPENSATION +Summary Compensation Table +The following table sets forth compensation for fiscal 2011-2013 paid to or earned by our Chief Executive Officer, our Chief Financial Officer and our next three most highly compensated executive officers who were serving as executive officers on May 31, 2013. These individuals are referred to throughout this proxy statement as the “Named Executive Officers.” +Name and Principal +Position +Year +Salary (1) +($) +Stock +Awards (2) +($) +Option +Awards (3) +($) +Non-Equity +Incentive Plan +Compensation (4) +($) +All Other +Compensation (5) +($) +Total +($) +Mark G. Parker +2013 +1,609,615 +3,500,087 +4,199,250 +5,522,466 +594,190 +15,425,608 +President and Chief +2012 +1,550,000 +23,500,076 +3,648,150 +6,205,960 +308,492 +35,212,678 +Executive Officer +2011 +1,535,557 +3,500,065 +2,916,095 +2,735,569 +343,395 +11,030,681 +Donald W. Blair +2013 +882,692 +3,625,093 +1,527,000 +1,584,715 +138,932 +7,758,432 +Executive Vice President +2012 +850,000 +550,017 +1,105,500 +1,725,832 +117,676 +4,349,025 +& Chief Financial Officer +2011 +842,308 +500,029 +883,665 +889,207 +140,669 +3,255,878 +Charles D. Denson (6) +2013 +1,370,769 +5,000,071 +3,054,000 +4,111,027 +246,597 +13,782,464 +President, NIKE Brand +2012 +1,320,000 +2,050,045 +2,653,200 +4,628,141 +219,905 +10,871,291 +2011 +1,308,462 +2,000,047 +2,120,796 +2,071,975 +248,764 +7,750,044 +Eric D. Sprunk +2013 +961,346 +5,625,103 +1,527,000 +1,660,430 +170,055 +9,943,934 +Executive Vice President, +2012 +878,269 +600,085 +1,105,500 +1,749,972 +114,438 +4,448,264 +Merchandising & Product +2011 +842,308 +500,029 +883,665 +889,207 +133,186 +3,248,395 +Trevor A. Edwards +2013 +961,346 +5,625,103 +1,527,000 +1,660,430 +169,552 +9,943,431 +Executive Vice President, +2012 +878,269 +600,085 +1,105,500 +1,749,972 +109,316 +4,443,142 +Global Brand & Category +Management +2011 +842,308 +500,029 +883,665 +889,207 +126,570 +3,241,779 +(1) +Reflects 27 pay periods during fiscal 2013. +(2) +Represents the grant date fair value of restricted stock and restricted stock unit awards granted in the applicable year computed in accordance with accounting guidance applicable to stock-based compensation. The grant date fair value is based on the closing market price of our Class B Stock on the grant date. +(3) +Represents the grant date fair value of options granted in the applicable year computed in accordance with accounting guidance applicable to stock-based compensation. The grant date fair value of the options was estimated using the Black-Scholes option pricing model. The assumptions made in determining the grant date fair values of options under applicable accounting guidance are disclosed in Note 11 of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended May 31, 2013. +NIKE, INC. Ÿ 20 13 Notice of Annual Meeting 25 +EXECUTIVE COMPENSATION +(4) +Non-Equity Incentive Plan Compensation consists of the following: +Name +Fiscal Year +Annual Incentive +Compensation +($) +Long-Term Incentive +Compensation +($) +Total +($) +Mark G. Parker +2013 +2,582,466 +2,940,000 +5,522,466 +2012 +2,205,960 +4,000,000 +6,205,960 +2011 +2,735,569 +— +2,735,569 +Donald W. Blair +2013 +849,715 +735,000 +1,584,715 +2012 +725,832 +1,000,000 +1,725,832 +2011 +889,207 +— +889,207 +Charles D. Denson +2013 +1,906,027 +2,205,000 +4,111,027 +2012 +1,628,141 +3,000,000 +4,628,141 +2011 +2,071,975 +— +2,071,975 +Eric D.Sprunk +2013 +925,430 +735,000 +1,660,430 +2012 +749,972 +1,000,000 +1,749,972 +2011 +889,207 +— +889,207 +Trevor A. Edwards +2013 +925,430 +735,000 +1,660,430 +2012 +749,972 +1,000,000 +1,749,972 +2011 +889,207 +— +889,207 +Amounts shown in the Annual Incentive Compensation column were earned for performance in the applicable fiscal year under our Executive Performance Sharing Plan. Amounts shown in the Long-Term Incentive Compensation column were earned for performance during the three -year period ending with the applicable fiscal year under our Long-Term Incentive Plan. +(5) +For each of the Named Executive Officers, this includes profit-sharing contributions by us to the 401(k) Savings and Profit Sharing Plan for fiscal 2013 in the amount of $10,051 and matching contributions by us to the 401(k) Savings and Profit Sharing Plan for fiscal 2013 in the amount of $12,500 for Messrs. Parker, Blair, Denson and Sprunk and $12,269 for Mr. Edwards. Also includes profit-sharing contributions by us to the Deferred Compensation Plan for fiscal 2013 in the following amounts: $143,346 for Mr. Parker; $54,616 for Mr. Blair; $110,514 for Mr. Denson; and $58,749 for Messrs. Sprunk and Edwards. Includes dividends paid on restricted stock and dividend equivalents credited (but not paid) on unvested restricted stock units in the following amounts: $425,793 for Mr. Parker, $61,765 for Mr. Blair, $113,532 for Mr. Denson, $88,755 for Mr. Sprunk, and $88,183 for Mr. Edwards. +(6) +Mr. Denson resigned as President, NIKE Brand effective July 1, 2013. +26 +EXECUTIVE COMPENSATION +Grants of Plan-Based Awards in Fiscal 2013 +The following table contains information concerning the long-term incentive bonus opportunities, annual incentive bonus opportunities, restricted stock and restricted stock unit awards and stock options granted to the Named Executive Officers in fiscal 2013. +Estimated Possible Payouts Under +Non-Equity Incentive Plan Awards +Threshold +Target +Maximum +All Other Stock Awards: +Number of Shares of +Stock (3) +All Other +Option Awards: +Number of +Shares +Underlying +Options (5) +Exercise +or Base Price +of Option +Awards +Grant Date +Fair Value +of Stock +and Option +Awards (6) +Name +Grant Date +($) +($) +($) +(#) +(#) +($/Sh) +($) +Mark +6/20/2012 +1,207,211 (1) +2,414,423 (1) +3,621,634 (1) +G. Parker +6/20/2012 +1,750,000 (2) +3,500,000 (2) +7,000,000 (2) +7/20/2012 +75,206 +3,500,087 +7/20/2012 +330,000 +46.54 +4,199,250 +Donald +6/20/2012 +397,211 (1) +794,423 (1) +1,191,634 (1) +W. Blair +6/20/2012 +250,000 (2) +500,000 (2) +1,000,000 (2) +7/20/2012 +13,430 +625,032 +7/20/2012 +120,000 +46.54 +1,527,000 +7/20/2012 +64,462 (4) +3,000,061 +Charles +6/20/2012 +891,000 (1) +1,782,000 (1) +2,673,000 (1) +D. Denson +6/20/2012 +750,000 (2) +1,500,000 (2) +3,000,000 (2) +7/20/2012 +107,436 +5,000,071 +7/20/2012 +240,000 +46.54 +3,054,000 +Eric +6/20/2012 +432,606 (1) +865,211 (1) +1,297,817 (1) +D. Sprunk +6/20/2012 +250,000 (2) +500,000 (2) +1,000,000 (2) +7/20/2012 +13,430 +625,032 +7/20/2012 +120,000 +46.54 +1,527,000 +7/20/2012 +107,436 (4) +5,000,071 +Trevor +6/20/2012 +432,606 (1) +865,211 (1) +1,297,817 (1) +A. Edwards +6/20/2012 +250,000 (2) +500,000 (2) +1,000,000 (2) +7/20/2012 +13,430 +625,032 +7/20/2012 +120,000 +46.54 +1,527,000 +7/20/2012 +107,436 (4) +5,000,071 +(1) +These amounts represent the potential bonuses payable for performance during fiscal 2013 under our Executive Performance Sharing Plan. Under this plan, the Compensation Committee approved target awards for fiscal 2013 based on a percentage of the executive’s base salary paid during fiscal 2013 as follows: Mr. Parker, 150%; Mr. Blair, 90%; Mr. Denson, 130%; Mr. Sprunk, 90%; and Mr. Edwards, 90%. The Committee also established a series of performance targets based on our income before income taxes (“PTI”) for fiscal 2013 (excluding the effect of acquisitions, divestitures and accounting changes) corresponding to award payouts ranging from 50% to 150% of the target awards. The PTI for fiscal 2013 required to earn the target award payout was $3,282 million. The PTI for fiscal 2013 required to earn the 150% maximum payout was $3,545 million. The PTI for fiscal 2013 required to earn the 50% threshold payout was $3,019 million. Participants receive a payout at the percentage level at which the performance target is met, subject to the Committee’s discretion to reduce or eliminate any award based on Company or individual performance. Actual award payouts earned in fiscal 2013 and paid in fiscal 2014 are shown in footnote 3 to the Non-Equity Incentive Plan Compensation column in the Summary Compensation Table. +(2) +These amounts represent the potential long-term incentive awards payable for performance during the three-year period consisting of fiscal 2013-2015 under our Long-Term Incentive Plan. Under this plan, the Compensation Committee approved target awards for the performance period and also established a series of performance targets based on our cumulative revenues and cumulative diluted earnings per common share (“EPS”) for the performance period (excluding the effect of acquisitions, divestitures and accounting changes not reflected in our business plan at the time of approval of the target awards) corresponding to award payouts ranging from 50% to 200% of the target awards. Participants will receive a payout at the average of the percentage levels at which the two performance targets are met, subject to the Committee’s discretion to reduce or eliminate any award based on Company or individual performance. For cumulative revenues over the performance period, the target payout requires revenues of $81,801 million, the 50% threshold payout requires revenues of $78,733 million, and the 200% maximum payout requires revenues of $88,176 million. For cumulative EPS over the performance period, the target payout requires EPS of $9.24, the 50% threshold payout requires EPS of $8.575, and the 200% maximum payout requires EPS of $10.67. Under the terms of the awards, on the first payroll period ending in August 2015 we will issue the award payout to each participant, provided that the participant is employed by us on the last day of the performance period. +(3) +All amounts reported in this column represent grants of restricted stock or restricted stock units under our 1990 Stock Incentive Plan. Restricted stock generally vests in three equal installments on the first three anniversaries of the grant date. Vesting will be accelerated in certain circumstances as described below under “Potential Payments Upon Termination or Change-in-Control.” Dividends are payable on restricted stock at the same rate paid on all other outstanding shares of our Class B Stock. +NIKE, INC. Ÿ 20 13 Notice of Annual Meeting 27 +EXECUTIVE COMPENSATION +(4) +These restricted stock unit awards are scheduled to vest in full on the third anniversary of the grant date for Mr. Blair and on the fifth anniversary of the grant date for Messrs. Sprunk and Edwards. Vesting will be accelerated in certain circumstances as described below under “Potential Payments Upon Termination or Change-in-Control.” Dividend equivalents accumulate and are only paid upon full vesting. +(5) +All amounts reported in this column represent options granted under our 1990 Stock Incentive Plan. Options generally become exercisable for option shares in four equal installments on the first four anniversaries of the grant date. Options will become fully exercisable in certain circumstances as described below under “Potential Payments Upon Termination or Change-in-Control.” Each option has a maximum term of 10 years, subject to earlier termination in the event of the optionee’s termination of employment. +(6) +For stock awards, represents the value of restricted shares or restricted stock units granted based on the closing market price of our Class B Stock on the grant date. For option awards, represents the grant date fair value of options granted based on a value of $12.725 per share calculated using the Black-Scholes option pricing model. These are the same values for these equity awards used under accounting guidance applicable to stock-based compensation. The assumptions made in determining option values are disclosed in Note 11 of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended May 31, 2013. +28 +EXECUTIVE COMPENSATION +Outstanding Equity Awards at May 31, 2013 +The following table sets forth information concerning outstanding stock options and unvested restricted stock held by the Named Executive Officers at May 31, 2013. +Option Awards +Stock Awards +Name +Number of Securities Underlying Unexercised Options (#) Exercisable +Number of +Securities +Underlying +Unexercised +Options (#) (1) +Option Exercise Price ($) +Option Expiration Date +Number of Shares That Have Not Vested (#) +Market Value of Shares That Have Not Vested ($) +Mark G. Parker +240,000 +— +18.3000 +7/16/2014 +280,000 +— +21.9000 +7/15/2015 +500,000 +— +21.0700 +2/16/2016 +270,000 +— +29.2600 +7/20/2017 +270,000 +— +29.1000 +7/18/2018 +225,000 +75,000 +(2) +26.2200 +7/17/2019 +165,000 +165,000 +(3) +34.4800 +7/16/2020 +82,500 +247,500 +(4) +45.8500 +7/15/2021 +— +330,000 +(5) +46.5400 +7/20/2022 +539,296 (6) +33,252,991 +Donald W. Blair +33,000 +— +18.3000 +7/16/2014 +132,000 +— +21.9000 +7/15/2015 +132,000 +— +19.6900 +7/14/2016 +100,000 +— +29.2600 +7/20/2017 +100,000 +— +29.1000 +7/18/2018 +75,000 +25,000 +(2) +26.2200 +7/17/2019 +50,000 +50,000 +(3) +34.4800 +7/16/2020 +25,000 +75,000 +(4) +45.8500 +7/15/2021 +— +120,000 +(5) +46.5400 +7/20/2022 +90,722 (7) +5,593,919 +Charles D. Denson +280,000 +— +18.3000 +7/16/2014 +280,000 +— +21.9000 +7/15/2015 +400,000 +— +21.0700 +2/16/2016 +220,000 +— +29.2600 +7/20/2017 +220,000 +— +29.1000 +7/18/2018 +180,000 +60,000 +(2) +26.2200 +7/17/2019 +120,000 +120,000 +(3) +34.4800 +7/16/2020 +60,000 +180,000 +(4) +45.8500 +7/15/2021 +— +240,000 +(5) +46.5400 +7/20/2022 +156,578 (8) +9,654,599 +Eric D. Sprunk +132,000 +— +21.9000 +7/15/2015 +72,000 +— +19.6900 +7/14/2016 +66,000 +— +29.2600 +7/20/2017 +100,000 +— +29.1000 +7/18/2018 +75,000 +25,000 +(2) +26.2200 +7/17/2019 +50,000 +50,000 +(3) +34.4800 +7/16/2020 +25,000 +75,000 +(4) +45.8500 +7/15/2021 +— +120,000 +(5) +46.5400 +7/20/2022 +134,424 (9) +8,288,584 +NIKE, INC. Ÿ 20 13 Notice of Annual Meeting 29 +EXECUTIVE COMPENSATION +Trevor A. Edwards +132,000 +— +18.3000 +7/16/2014 +132,000 +— +21.9000 +7/15/2015 +132,000 +— +19.6900 +7/14/2016 +100,000 +— +29.2600 +7/20/2017 +100,000 +— +29.1000 +7/18/2018 +75,000 +25,000 +(2) +26.2200 +7/17/2019 +50,000 +50,000 +(3) +34.4800 +7/16/2020 +25,000 +75,000 +(4) +45.8500 +7/15/2021 +— +120,000 +(5) +46.5400 +7/20/2022 +134,424 (10) +8,288,584 +(1) +Stock options generally become exercisable for option shares in four equal installments on each of the first four anniversaries of the grant date. +(2) +100% of these shares vested on July 17, 2013. +(3) +50% of these shares vested on July 16, 2013 and 50% will vest on July 16, 2014. +(4) +33.3% of these shares vested on July 15, 2013, 33.3% will vest on July 15, 2014 and 33.3% will vest on July 15, 2015. +(5) +25% of these shares vested on July 20, 2013, 25% will vest on July 20, 2014 25% will vest on July 20, 2015, and 25% will vest on July 20, 2016. +(6) +25,069 of these shares vested on July 20, 2013, 25,069 of these shares will vest on July 20, 2014 and 25,068 of these shares will vest on July 20, 2015. 25,445 of these shares vested on July 15, 2013 and 25,445 of these shares will vest on July 15, 2014. 33,836 of these shares vested on July 16, 2013. 379,364 of these shares will vest on May 18, 2017. +(7) +4,477 of these shares vested on July 20, 2013, 4,477 of these shares will vest on July 20, 2014 and 4,476 of these shares will vest on July 20, 2015. 3,998 of these shares vested on July 15, 2013 and 3,998 of these shares will vest on July 15, 2014. 4,834 of these shares vested on July 16, 2013. 64,462 of these shares will vest on July 20, 2015. +(8) +35,812 of these shares vested on July 20, 2013, 35,812 of these shares will vest on July 20, 2014 and 35,812 of these shares will vest on July 20, 2015. 14,904 of these shares vested on July 15, 2013 and 14,904 of these shares will vest on July 15, 2014. 19,334 of these shares vested on July 16, 2013. +(9) +4,477 of these shares vested on July 20, 2013, 4,477 of these shares will vest on July 20, 2014 and 4,476 of these shares will vest on July 20, 2015. 4,362 of these shares vested on July 15, 2013 and 4,362 of these shares will vest on July 15, 2014.4,834 of these shares vested on July 16, 2013. 107,436 of these shares will vest on July 20, 2017. +(10) +4,477 of these shares vested on July 20, 2013, 4,477 of these shares will vest on July 20, 2014 and 4,476 of these shares will vest on July 20, 2015. 4,362 of these shares vested on July 15, 2013 and 4,362 of these shares will vest on July 15, 2014. 4,834 of these shares vested on July 16, 2013. 107,436 of these shares will vest on July 20, 2017. +Option Exercises and Stock Vested During Fiscal 2013 +The following table provides information concerning stock option exercises and vesting of restricted stock during fiscal 2013 for each of the Named Executive Officers on an aggregated basis. +Option Awards +Stock Awards +Name +Number of Shares +Acquired on Exercise +(#) +Value Realized +on Exercise +($) +Number of Shares +Acquired on Vesting +(#) +Value Realized +on Vesting +($) +Mark G. Parker +40,000 +1,628,425 +103,776 +4,855,077 +Donald W. Blair +121,000 +5,160,980 +27,904 +1,302,055 +Charles D. Denson +50,000 +1,913,006 +59,666 +2,791,501 +Eric D. Sprunk +— +— +31,446 +1,466,969 +Trevor A. Edwards +132,000 +6,016,309 +28,268 +1,319,160 +Equity Compensation Plans +The following table summarizes equity compensation plans approved by shareholders and equity compensation plans that were not approved by the shareholders as of May 31, 2013 +30 +Plan Category +(a) +Number of Securities +to be Issued Upon Exercise of +Outstanding Options, Warrants and Rights +(b) +Weighted-Average Exercise +Price of Outstanding +Options, Warrants and Rights (3) +(c) +Number of Securities +Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column(a)) +Equity compensation plans approved by shareholders (1) +69,238,718 +$34.72 +47,887,736 +Equity compensation plans not approved by shareholders (2) +— +— +657,119 +Total +69,238,718 +$34.72 +48,544,855 +(1) +Includes 69,238,718 shares subject to awards of options, restricted stock units and stock appreciation rights outstanding under the 1990 Stock Incentive Plan. Includes 45,384,990 shares available for future issuance under the 1990 Stock Incentive Plan, and 2,502,746 shares available for future issuance under the Employee Stock Purchase Plan. +(2) +Includes 657,119 shares available for future issuance under the Foreign Subsidiary Employee Stock Purchase Plan, pursuant to which shares are offered and sold to employees of selected non-U.S. subsidiaries of the Company on substantially the same terms as those offered to U.S. employees under the shareholder-approved Employee Stock Purchase Plan. +(3) +These weighted-average exercise prices do not reflect the shares that will be issued upon the payment of outstanding awards of restricted stock units. +Non-Qualified Deferred Compensation in Fiscal 2013 +Name +Plan +Name +Executive +Contributions +in Fiscal 2013 (1) +NIKE Contributions +in Fiscal 2013 (1) +Aggregate Earnings +in Fiscal 2013 +Aggregate +Withdrawals/ +Distributions in +Fiscal 2013 +Aggregate +Balance +at 5/31/2013 (1) +Mark G. Parker +DCP +$1,243,596 +$154,004 +$103,808 +— +$7,773,635 +Donald W. Blair +DCP +1,299,582 +56,951 +1,538,741 +— +8,170,394 +Charles D. Denson +DCP +4,557,775 +119,945 +2,668,372 +— +28,465,813 +Eric D. Sprunk +DCP +500,000 +58,028 +779,367 +— +4,380,631 +Trevor A. Edwards +DCP +1,356,681 +58,028 +1,297,318 +— +8,517,509 +(1) +All amounts reported in the Executive Contributions column are also included in amounts reported in the Summary Compensation Table. The amounts reported in the NIKE Contributions column represent profit sharing contributions made by us in early fiscal 2013 based on fiscal 2012 results; these amounts are also included in amounts reported for fiscal 2012 in the All Other Compensation column of the Summary Compensation Table. Of the amounts reported in the Aggregate Balance column, the following amounts have been reported in the Summary Compensation Tables in this proxy statement or in prior year proxy statements: Mr. Parker, $7,116,215; Mr. Blair, $5,949,511; Mr. Denson, $23,634,461; Mr. Sprunk, $896,557; and Mr. Edwards, $3,587,696. +Non-Qualified Deferred Compensation Plans +The Named Executive Officers are eligible to participate in our Deferred Compensation Plan (the “DCP”). Participants in the DCP may elect in advance to defer up to 100 percent of their annual base salary, bonus and long-term incentive payments. +Each year, we share profits with our employees in the form of profit sharing contributions to defined contribution retirement plans. The contributions are allocated among eligible employees based on a percentage of their total salary and bonus for the year. To the fullest extent permitted under Internal Revenue Code limitations, these contributions are made to employees’ accounts under our qualified 401(k) Savings and Profit Sharing Plan. Contributions based on salary and bonus in excess of the tax law limit ($250,000 for fiscal 2013) are made as NIKE contributions under the DCP. +Amounts deferred under the DCP are credited to a participant’s account under the DCP. Each participant may allocate his or her account among any combination of the investment funds available under the DCP. Participants’ accounts are adjusted to reflect the investment performance of the funds selected by the participants. Participants can change the allocation of their account balances daily. The funds available under the DCP consist of 16 mutual funds with a variety of investment objectives. The investment funds had annual returns in fiscal 2013 ranging from -0.79% to 34.85%. Amounts credited to participants’ accounts are invested by us in actual investments matching the investment options selected by the participants to ensure that we do not bear any investment risk related to participants’ investment choices. +The portion of a participant’s account attributable to elective deferrals, including investment returns, is fully vested at all times. The portion of a participant’s account attributable to NIKE contributions, including investment returns, is fully vested after the participant has been employed by us for five years. All of the Named Executive Officers are fully vested in their NIKE contributions. +Each time they elect to defer compensation, participants make an election regarding distribution of the compensation deferred under the election (as adjusted to reflect investment performance). A participant may elect for distribution to be made in a lump sum at the beginning of a predetermined year while the participant is still employed or in service (but no sooner than the fourth year after the year in which the distribution election is submitted). Alternatively, a participant may elect for distribution to be made in a lump sum or in annual installments over five, ten or fifteen years after termination of employment or service. Participants have limited rights to change their distribution elections. Participants may make a hardship withdrawal under certain circumstances. Subject to certain limitations, a participant may also at any time request to withdraw +NIKE, INC. Ÿ 20 13 Notice of Annual Meeting 31 +EXECUTIVE COMPENSATION +amounts from his or her account balance that were vested as of December 31, 2004 (and any subsequent investment returns on such amount). If such request is approved, the participant may withdraw 90% of the amount requested, and the remaining 10% will be permanently forfeited. +Potential Payments Upon Termination or Change-in-Control +Change-in-Control Compensation — Acceleration of Equity Awards +Under the terms of stock option granted before fiscal 2011, we have agreed to accelerate the vesting of unvested awards held by the Named Executive Officers upon the approval by our shareholders of an “approved transaction.” This acceleration of vesting will occur whether or not their employment is terminated. In our agreements, “approved transaction” is generally defined to include an acquisition of NIKE through a merger, consolidation or plan of exchange, a sale of all or substantially all of our assets, or the adoption of a plan for our liquidation or dissolution. +Beginning with grants in fiscal 2011, we have agreed to accelerate the vesting of restricted stock, restricted stock units (RSUs) and stock options and to extend the standard period for exercising options following termination of employment from three months to four years, but not beyond each option’s original 10-year term, when two events (a “double trigger”) occur: there is a “change in control” and the Named Executive Officer’s employment is terminated by us without “cause” or by the Named Executive Officer for “good reason,” in each case on or before the second anniversary of the change in control. A double trigger with respect to vesting of stock options and RSUs will also occur if we are acquired and the acquiring company does not assume the outstanding options or RSUs. In our agreements, “change in control” is generally defined to include: +• +the acquisition by any person of 50% or more of our outstanding Class A Stock or, if the Class A Stock no longer elects a majority of directors, the acquisition by any person of 30% or more of our total outstanding Common Stock, +• +the nomination (and subsequent election) in a two-year period of a majority of our directors by persons other than the incumbent directors, and a sale of all or substantially all of our assets, or an acquisition of NIKE through a merger, consolidation or share exchange. +In our agreements, “cause” generally includes willful and continued failure to substantially perform assigned duties and willful engagement in illegal conduct materially injurious to us. In our agreements, “good reason” generally includes a material diminution in position or duties, a salary reduction or material reduction in other benefits, and a home office relocation of over 50 miles. +The following table shows the estimated benefits that would have been received by the Named Executive Officers if a double trigger including an approved transaction had occurred on May 31, 2013. +Name +Stock Award +Acceleration (1) +Stock Option +Acceleration (2) +Total +Mark G. Parker +$ +33,252,991 +$ +18,638,677 +$ +51,891,668 +Donald W. Blair +5,593,919 +6,112,622 +11,706,541 +Charles D. Denson +9,654,599 +13,748,711 +23,403,310 +Eric D. Sprunk +8,288,584 +6,112,622 +14,401,206 +Trevor A. Edwards +8,288,584 +6,112,622 +14,401,206 +(1) +Information regarding unvested restricted stock and restricted stock units held by each Named Executive Officer is set forth in the Outstanding Equity Awards table above. The award agreements provide that all shares will immediately vest upon the occurrence of a double trigger. The amounts in the table above represent the number of unvested restricted shares multiplied by a stock price of $61.66 per share, which was the closing price of our Class B Stock on May 31, 2013. +(2) +Information regarding outstanding unexercisable options held by each Named Executive Officer is set forth in the Outstanding Equity Awards table above. The stock option agreements granted before fiscal 2011 provide that upon the approval by our shareholders of an approved transaction all outstanding unexercisable options will immediately become exercisable and all unexercised options will remain exercisable during the remainder of the term of the options, except that the Compensation Committee may provide a 30-day period prior to the change of control during which the optionees may exercise the options without any limitation on exercisability. At the end of the 30-day period, the options would terminate. Amounts in the table above with respect to options granted before fiscal 2011 represent the aggregate value as of May 31, 2013 of each Named Executive Officer’s outstanding unexercisable pre-2011 options based on the positive spread between the exercise price of each such option and a stock price of $61.66 per share, which was the closing price of our Class B Stock on May 31, 2013. The stock option agreements granted in and after fiscal 2011 provide that upon the occurrence of a double trigger all unexercisable options will immediately become fully exercisable and the standard three-month period for exercising options following termination of employment will be extended to four years, but not beyond each option’s original 10-year term. Amounts in the table above with respect to options granted in or after fiscal 2011 represent the sum of (i) for each Named Executive Officer’s outstanding unexercisable post-2010 options, the aggregate value as of May 31, 2013 of those options assuming a four-year remaining term and otherwise calculated using the Black-Scholes option pricing model with assumptions consistent with those used by us for valuing our options under accounting guidance applicable to stock-based compensation, plus (ii) for each Named Executive Officer’s outstanding exercisable post-2010 options, +32 +EXECUTIVE COMPENSATION +the increase in value of those options resulting from the extension of the post-termination exercise period from three months to four years, if applicable, with the option values for three-month and four-year remaining terms calculated using the Black-Scholes option pricing model with assumptions consistent with those used for valuing our options under accounting guidance applicable to stock-based compensation. If an approved transaction but not a double trigger had occurred on May 31, 2013, then the amounts in the table above would be only $2,658,000 for Mr. Parker; $2,126,400 for Mr. Denson; and $886,000 for each of Messrs. Blair, Sprunk, and Edwards. +Benefits Triggered on Certain Employment Terminations +Stock Option Acceleration and Extension +As of May 31, 2013, each Named Executive Officer held options to purchase Class B Stock as listed in the Outstanding Equity Awards table above. Under the terms of the stock options granted to each Named Executive Officer before fiscal 2011, upon the death or disability of the officer, all unexercisable options become fully exercisable and the standard three-month period for exercising options following termination of employment is extended to 12 months, but not beyond each option’s original 10-year term. Under the terms of the stock options granted to each Named Executive Officer in and after fiscal 2011, upon the death or disability of the officer, all unexercisable options become fully exercisable and the standard three-month period for exercising options following termination of employment is extended to four years, but not beyond each option’s original 10-year term. If death or disability of a Named Executive Officer had occurred on May 31, 2013, the sum of (i) for outstanding unexercisable options that would have become exercisable, the aggregate value as of May 31, 2013 of those options assuming a 12-month term, in the case of options granted before fiscal 2011, and a four-year remaining term, in the case of options granted in or after fiscal 2011, and otherwise calculated using the Black-Scholes option pricing model with assumptions consistent with those used by us for valuing our options under accounting guidance applicable to stock-based compensation, plus (ii) for outstanding exercisable options, the increase in value, if any, of those options resulting from the extension of the post-termination exercise period from three months to 12 months, in the case of options granted before fiscal 2011, and from three months to four years, in the case of options granted in or after fiscal 2011, with the option values as of May 31, 2013 for three-month, 12-month and four-year remaining terms calculated using the Black-Scholes option pricing model with assumptions consistent with those used by us for valuing our options under accounting guidance applicable to stock-based compensation, is $18,642,106 for Mr. Parker, $13,751,205 for Mr. Denson, and $6,113,765 for Messrs. Blair, Sprunk, and Edwards. +NIKE, INC. Ÿ 20 13 Notice of Annual Meeting 33 +EXECUTIVE COMPENSATION +Under the terms of the stock options granted to Named Executive Officers before fiscal 2011, if termination of the officer’s employment occurs when the officer’s retirement point total is at least 55 and the officer has been employed by us for at least five years, then a portion of the unexercisable options will become exercisable for a maximum remaining term of three months as follows: +Retirement Point Total +Percent of Unexercisable Option That Becomes Exercisable +55 or 56 +20% +57 +40% +58 +60% +59 +80% +60 +100% +An officer’s “retirement point total” means the sum of the officer’s age plus the number of years that the officer has been employed by us. As of May 31, 2013, the retirement point total for each of the Named Executive Officers was over 60, and these officers are therefore eligible to have all unexercisable pre-2011 options become fully exercisable on any termination of employment. The aggregate value as of May 31, 2013 of pre-2011 options held by each of the Named Executive Officers that would have become exercisable if termination of employment (other than due to death or disability) had occurred on that date based on the positive spread between the exercise price of each option and a stock price of $61.66 per share, which was the closing price of our Class B Stock on May 31, 2013, is $2,658,000 for Mr. Parker; $2,126,400 for Mr. Denson; and $886,000 for Messrs. Blair, Sprunk and Edwards. +Under the terms of the stock options granted to Named Executive Officers in or after fiscal 2011, the treatment of stock options on retirement is modified. Under these agreements, vesting of options that have been outstanding for at least one year will be accelerated if the holder retires after reaching age 60 with at least 5 years of service, and vesting of options that have been outstanding for at least one year will continue notwithstanding termination of employment if the holder retires after reaching age 55 with at least 5 years of service. In addition, for any holder who retires after reaching age 55 with at least 5 years of service, the standard three-month period for exercising these options following termination of employment will be extended to four years, but not beyond the option’s original 10-year term. If termination of employment of a Named Executive Officer (other than due to death or disability) had occurred on May 31, 2013, the sum of (i) for outstanding unexercisable post-2010 options that would have become exercisable, the aggregate value as of May 31, 2013 of those options assuming a four-year remaining term and otherwise calculated using the Black-Scholes option pricing model with assumptions consistent with those used by us for valuing our options under accounting guidance applicable to stock-based compensation, plus (ii) for outstanding exercisable post-2010 options, the increase in value, if any, of those options resulting from the extension of the post-termination exercise period from three months to four years, with the option values as of May 31, 2013 for three-month and four-year remaining terms calculated using the Black-Scholes option pricing model with assumptions consistent with those used by us for valuing our options under accounting guidance applicable to stock-based compensation, is $9,646,523 for Mr. Parker, $7,015,653 for Mr. Denson, and $2,923,189 for Mr. Blair. The value for Messrs. Sprunk and Edwards is zero because neither has reached age 55. +Stock Award Acceleration +As of May 31, 2013, each Named Executive Officer held unvested restricted stock and restricted stock units as set forth in the Outstanding Equity Awards table above. Under the terms of their award agreements, all unvested restricted shares and restricted stock units will immediately vest upon the death or disability of the officer. The value of the unvested restricted shares and restricted stock units held by each Named Executive Officer as of May 31, 2013 that would have become vested if death or disability had occurred on that date is as set forth in the “ Stock Award Acceleration” column of the Change-in-Control Compensation — Acceleration of Equity Awards table above. +Payments Under Noncompetition Agreements +We have an agreement with each of Mr. Parker and Mr. Denson that contains a covenant not to compete that extends for two years following the termination of the officer’s employment with us. Each agreement provides that if the officer’s employment is terminated by us, we will make monthly payments to him during the two-year noncompetition period in an amount equal to one-twelfth of his then current annual salary and target Performance Sharing Plan bonus (“Annual NIKE Income”). Each agreement provides further that if the officer voluntarily resigns, we will make monthly payments to him during the two-year noncompetition period in an amount equal to one-twenty-fourth of his then current Annual NIKE Income. However, commencement of the above-described monthly payments will be delayed until after the six-month period following the officer’s separation from service, and all payments that the officer would otherwise have received during that period will be paid in a lump sum promptly following the end of the period, together with interest at the prime rate. If employment is terminated without cause, the parties may mutually agree to waive the covenant not to compete, and if employment is terminated for cause, we may unilaterally waive the covenant. If the covenant is waived, we will not be required to make the payments described above for the months as to which the waiver applies. If the employment of these officers had been terminated by us on May 31, 2013 and assuming the covenant is not waived, we would have been required to pay Mr. Parker $335,336 per month and Mr. Denson $262,731 per month for the 24-month period ending May 31, 2015. If these officers had voluntarily resigned on May 31, 2013 and assuming the covenant is not waived, we would have been required to pay Mr. Parker $167,668 per month and Mr. Denson $131,365 per month for the 24-month period ending May 31, 2015. Mr. Denson resigned as President, NIKE Brand, effective July 1, 2013 but remains employed by us. He will be eligible to receive the payments described above upon his retirement in January 2014. +We have noncompetition agreements with Messrs. Blair, Sprunk and Edwards on the same terms, except that the noncompetition period is one year instead of two years, the six-month delay for commencement of payments does not apply and we may unilaterally waive the covenant in all cases including termination without cause. In addition, for Messrs. Blair, Sprunk and Edwards, the monthly payments are one-twelfth or one-twenty-fourth of their current annual salaries, instead of their Annual NIKE Income. If the employment of these officers had been terminated by us on May 31, 2013 and assuming the covenant is not waived, we would have been required to pay Mr. Blair $73,558 per month, and Messrs. Sprunk and Edwards $80,112 per month for the 12-month period ending May 31, 2014. If these officers had voluntarily resigned on May 31, 2013 and assuming the covenant is not waived, we would have been required to pay Mr. Blair $36,779 per month, and Messrs. Sprunk and Edwards $40,056 per month for the 12-month period ending May 31, 2014. +34 +PROPOSAL 2 AND PROPOSAL 3 +Proposal 2 +Shareholder Advisory Vote to Approve +Executive Compensation +We are submitting to shareholders our annual "say-on-pay proposal," an advisory vote to approve the compensation of our Named Executive Officers as described in this proxy statement +At the Company’s 2012 annual meeting of shareholders, 92% of the votes cast on the say-on-pay proposal were voted in favor of the proposal. The Compensation Committee believes this affirms shareholders’ support of the Company’s approach to executive compensation. +As discussed in the Compensation Discussion and Analysis, our compensation philosophy is designed to attract and retain highly-talented individuals, provide rewards for strong business results and individual performance, and motivate executives to maximize long-term shareholder returns. The program is competitive in the marketplace, highly incentive-based to align interests of executives with those of shareholders, and balanced across incentives to appropriately mitigate risk. +To achieve the objectives of our executive compensation program and emphasize pay-for-performance principles, the Compensation Committee has continued to employ the strong governance practices described in “Executive Compensation Governance Practices” on page 13, including: +• +basing a majority of total compensation on performance and retention incentives; +• +setting annual and long-term incentive targets based on clearly disclosed, objective performance measures; +• +mitigating undue risk associated with compensation by using multiple performance targets, caps on potential incentive payments and a clawback policy; and +• +requiring executive officers and non-employee directors to hold NIKE stock through published stock ownership guidelines. +Because your vote is advisory, it will not be binding on the Board. However, the Board values shareholder opinions, and the Compensation Committee will take into account the outcome of the vote when considering future executive compensation arrangements. +Board Recommendation +The Board of Directors recommends that shareholders vote FOR approval of the compensation paid to the Named Executive Officers as disclosed pursuant to the SEC's compensation disclosure rules (which disclosure includes the Compensation Discussion and Analysis, the compensation tables, and the narrative disclosures that accompany the compensation tables). Holders of Class A Stock and Class B Stock will vote together as a single class on Proposal 2. If a quorum is present at the Annual Meeting, Proposal 2 will be approved if the number of shares voted in favor of the proposal exceeds the number of shares voting against the proposal. Abstentions and broker non-votes are counted for purposes of determining whether a quorum exists, but are not counted as voting either for or against and therefore have no effect on the results of the vote. +Proposal 3 +Ratification of Independent Registered Public +Accounting Firm +The Audit Committee of the Board of Directors has appointed PricewaterhouseCoopers LLP as independent registered public accounting firm to examine the Company’s consolidated financial statements for the fiscal year ending May 31, 2014 and to render other professional services as required. +The Audit Committee is submitting the appointment of PricewaterhouseCoopers LLP to shareholders for ratification. If the appointment is not ratified by our shareholders, the Audit Committee may reconsider whether it should appoint another independent registered public accounting firm. +Representatives of PricewaterhouseCoopers LLP will be present at the Annual Meeting, will have the opportunity to make a statement if they desire to do so, and are expected to be available to respond to questions. +Aggregate fees billed by the Company’s independent registered public accounting firm, PricewaterhouseCoopers LLP, for audit services related to the most recent two fiscal years, and for other professional services incurred in the most recent two fiscal years, were as follows: +Type of Service +2013 +2012 +Audit Fees (1) +$ +12.2 +million +$ +9.1 +million +Audit-Related Fees (2) +$ +0.2 +million +$ +0.1 +million +Tax Fees (3) +$ +2.5 +million +$ +2.3 +million +All Other Fees (4) +$ +0.3 +million +$ +— +million +Total +$ +15.2 +million +$ +11.5 +million +(1) +Comprised of the audits of the Company’s annual financial statements and internal controls over financial reporting, and reviews of the Company’s quarterly financial statements, as well as statutory audits of Company subsidiaries, attest services and consents to SEC filings. For fiscal 2013, also includes audit services related to the divestiture of Cole Haan and Umbro. +(2) +Comprised of employee benefit plan audits and consultations regarding financial accounting and reporting. +NIKE, INC. Ÿ 2013 Notice of Annual Meeting 35 +(3) +Tax fees are comprised of services for tax compliance, tax planning, and tax advice. Tax compliance includes services for compliance related tax advice, as well as the preparation and review of both original and amended tax returns for the Company and its consolidated subsidiaries. Tax compliance related fees represented $1.8 million and $1.7 million of the tax fees for fiscal 2013 and 2012, respectively. The remaining tax fees primarily include tax advice. +(4) +Comprised of other miscellaneous services. +In accordance with the Sarbanes-Oxley Act of 2002, the Audit Committee established policies and procedures under which all audit and non-audit services performed by the Company’s independent registered public accounting firm must be approved in advance by the Audit Committee. During fiscal 2013 and fiscal 2012, all such services were approved in advance. +Board Recommendation +The Board of Directors recommends that shareholders vote FOR ratification of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending May 31, 2013. +Report of the Audit Committee +The Audit Committee has: +• +Reviewed and discussed the audited financial statements with management. +• +Discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, as amended, and as adopted by the Public Company Accounting Oversight Board (“PCAOB”) in Rule 3200T pursuant to Item 407(d)(3)(i)(B) of Regulation S-K of the Securities Exchange Act of 1934, as amended, regarding “ Communications with Audit Committees. ” +• +Received the written disclosures and the letter from the independent accountants required by applicable requirements of the PCAOB regarding the independent accountants’ communications concerning independence, and has discussed with the independent accountant the independent accountant’s independence. +• +Based on the review and discussions above, recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the last fiscal year for filing with the Securities and Exchange Commission. +Members of the Audit Committee: +• +Alan B. Graf, Jr., Chairman +• +John G. Connors +• +Orin C. Smith +NIKE, INC. Ÿ 2013 Notice of Annual Meeting 36 +Proposal 4 +Shareholder Proposal Regarding Political +Contributions Disclosure +The North Carolina Department of State Treasurer, on behalf of the North Carolina Retirement Systems, 2325 North Salisbury Street, Raleigh, North Carolina 27603, a holder of 587,813 shares of Class B Stock, submitted the following resolution (the “Proposal”), for the reasons stated. The Board of Directors (the "Board") recommends a vote AGAINST the Proposal and asks shareholders to read through NIKE’s response which follows the shareholder proposal. +RESOLVED : Shareholders request that NIKE, Inc. (“Company”) provide a report, updated semiannually, that discloses NIKE’s: +1. +Policies and procedures for making, with corporate funds or assets, direct or indirect contributions and expenditures to: (a) participate or intervene in any political campaign on behalf of (or in opposition to) any candidate for public office, or (b) influence the general public, or any segment thereof, with respect to an election or referendum. +2. +Monetary and non-monetary contributions and expenditures (direct and indirect) used in the manner described in section 1 above, including: +a. +The identity of the recipient as well as the amount paid to each; and +b. +The title(s) of person(s) at NIKE responsible for decision-making. +The report shall be presented to the Board (or relevant Board committee) and posted on NIKE’s website. +Supporting Statement +As long-term shareholders, we support transparency and accountability in corporate spending on political activities. Disclosure is in the best interest of shareholders, and is critical for NIKE's compliance with federal ethics laws. Gaps in transparency and accountability expose NIKE to reputational and business risks that could threaten shareholder value. +NIKE has a policy statement regarding political contributions; however, we believe this policy has the following significant gaps: +• +It requires senior-executive approval of contributions only when amounts aggregate more than $100,000 annually to an entity. This threshold is too high to ensure meaningful stewardship. +• +Its description of what NIKE will disclose is confusing and includes a $100,000 threshold for reporting, which is far too high to ensure adequate transparency. +• +It does not address payments to any third-party group, including trade associations and 501(c)(4) organizations. +• +NIKE pledged in 2011 to make disclosures annually, but a 2013 disclosure (the first to be released, covering 2012) reports on a single state: Oregon. It appears that NIKE's criteria for reporting (“...direct political cash contributions in any U.S. state where more than 50% of NIKE's total annual contributions were made...”), ensures that there will never be more than one state reported on, and in some cases there may not be any. +NIKE contributed at least $1.1 million in corporate funds since the 2002 election cycle ( CQ : www.politicalmoneyline.com and National Institute on Money in State Politics: www.followthemoney.org). +However, publicly available data does not provide a complete picture of NIKE's political spending. For example, NIKE's payments to trade associations used for political activities are entirely undisclosed and unknown. +This common-sense governance proposal asks NIKE to disclose all of its political spending, including payments to trade associations and other tax exempt organizations that are used for political purposes. This would bring NIKE in line with a growing number of leading companies - including Exelon, Merck, and Microsoft - that are transparent about their political activity and disclose this information on their websites. +NIKE's Board and its shareholders need comprehensive disclosure in order to fully evaluate the political use of corporate assets. +Therefore, we urge your support FOR this critical governance reform . +The Company’s Statement in Opposition to Proposal 4 +The Board of Directors opposes this shareholder proposal because (1) our current policies and disclosures already address many of the items requested by the proposal, (2) the Board's judgment that more disclosure than we already make would not be in the best interests of shareholders, and (3) last year the same proponent submitted a virtually identical proposal, which was rejected by approximately 78% of shares voting at the meeting. +We agree with our shareholders. +NIKE, INC. Ÿ 2013 Notice of Annual Meeting 37 +OTHER INFORMATION +NIKE has strong governance practices and accountability in corporate spending on political activities, and we have a level of transparency that we believe allows shareholders to have the information they need to make informed decisions. The Proposal is unnecessary to achieve these objectives, and the proponent offers no new compelling evidence or arguments in support of the proposal. +NIKE has a Political Contributions Policy (the “Policy”), which is designed to give shareholders confidence there is proper oversight of political activity, and to allow them to assess any risks associated with significant contributions. All of our political contributions and expenditures are made in accordance with the Policy, and our objective is to strictly comply with all public reporting laws. Our Policy ensures that political contributions, trade group memberships, and policy statements are made in a manner consistent with NIKE's core values to protect or enhance shareholder value, without regard to the private political preferences of our corporate officers. Our Policy describes the policies and procedures for making corporate political contributions, how they are approved, who must approve them, and how they are reported to the Board's independent Nominating and Corporate Governance Committee. We disclose our Policy on our website at http://investors.nikeinc.com/Investors/Corporate-Governance/Political-Contributions/default.aspx. +Consistent with our Policy, we also annually disclose on our website all direct political contributions to any candidate, political party, or ballot initiative in any year that exceeds $100,000, and all political contributions in any U.S. state where we make more than 50% of our political contributions in any year. We believe these disclosures provide shareholders meaningful information to assess any risks posed by significant political contributions. Our disclosures are simple, accurate, and clear. +Our Policy also requires that management annually report to the Board's independent Nominating and Corporate Governance Committee on compliance with our Policy, and to review the strategic priorities for political contributions and trade association affiliations, to ensure they align with the long-term business objectives of the Company. +The expanded disclosure requested in this proposal could place NIKE at a competitive disadvantage by revealing strategies and priorities designed to protect the economic future of NIKE, its employees, and shareholders. Because parties with interests adverse to NIKE also participate in the political process to their business advantage, any unilateral expanded disclosure could benefit them, while harming the interests of NIKE and its shareholders. +In summary, the Board of Directors believes the proposal is unnecessary, because NIKE already complies with a comprehensive policy for oversight and disclosure of political contributions. The proposal would create unnecessary administrative costs, as well as expose NIKE to competitive harm, without commensurate benefit to our shareholders. Our shareholders have understandably rejected this proposal before. +Board Recommendation +The Board of Directors recommends a vote AGAINST the shareholder proposal. Holders of Class A Stock and Class B Stock will vote together as a single class on Proposal 4. If holders of a majority of the shares of Common Stock vote on the proposal, Proposal 4 will be adopted if the votes cast in favor of the Proposal exceed the votes cast against the proposal. Accordingly, abstentions and broker non-votes will have no effect on the results of the vote. +Other Matters +As of the time this proxy statement was printed, management was unaware of any proposals to be presented for consideration at the Annual Meeting other than those set forth herein, but if other matters do properly come before the Annual Meeting, the persons named in the proxy will vote the shares represented by such proxy according to their best judgment. +Shareholder Proposals +A proposal by a shareholder for inclusion in the Company’s proxy statement and form of proxy for the 2014 annual meeting of shareholders must be received by John F. Coburn III, Vice President and Corporate Secretary of NIKE, at One Bowerman Drive, Beaverton, Oregon 97005-6453, on or before March 31, 2014 to be eligible for inclusion. Rules under the Securities Exchange Act of 1934 describe standards as to the submission of shareholder proposals. In addition, the Company’s bylaws require that any shareholder wishing to make a nomination for Director, or wishing to introduce a proposal or other business at a shareholder meeting must give the Company at least 60 days’ advance written notice, which for the 2014 annual meeting of shareholders is July 10, 2014, and that notice must meet certain other requirements described in the bylaws. +For the Board of Directors, +John F. Coburn III +Vice President and Corporate Secretary +38 +ANNUAL +MEETING +AND +PROXY STATEMENT +September 19, 2013 +Beaverton, Oregon +Electronic Voting Instructions +Available 24 hours a day, 7 days a week! +Instead of mailing your proxy, you may choose one of the voting methods outlined below to vote your proxy. +VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR. +Proxies submitted by the Internet or telephone must be received by 1:00 a.m., Central Time, on September 19, 2013. +Vote by Internet +• Go to www.investorvote.com +• Or scan the QR code with your smartphone +• Follow the steps outlined on the secure website +Vote by telephone +• Call toll free 1-800-652-VOTE (8683) within the USA, US territories & Canada on a touch tone telephone +• Follow the instructions provided by the recorded message +Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas. +x +q IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q +A +Proposals — The Board of Directors recommends a vote FOR all the nominees listed, a vote for FOR Proposals 2 - 3 and a vote AGAINST Proposal 4. +1. +Class A director nominees: To elect a Board of Directors for the ensuing year. +» +For +Withhold +For +Withhold +For +Withhold +01 - Elizabeth J. Comstock +¨ +¨ +02 - John G. Connors +¨ +¨ +03 - Timothy D. Cook +¨ +¨ +04 - Douglas G. Houser +¨ +¨ +05 - Philip H. Knight +¨ +¨ +06 - Mark G. Parker +¨ +¨ +07 - Johnathan A. Rodgers +¨ +¨ +08 - Orin C. Smith +¨ +¨ +09 - John R. Thompson, Jr. +¨ +¨ +For +Against +Abstain +For +Against +Abstain +2. +To approve executive compensation by an advisory vote. +¨ +¨ +¨ +3. +To ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm. +¨ +¨ +¨ +4. +To consider a shareholder proposal regarding political contributions disclosure. +¨ +¨ +¨ +5. +To transact such other business as may properly come before the meeting. +B +Non-Voting Items +Change of Address — Please print new address below. +C +Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below +Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title. +Date (mm/dd/yyyy) — Please print date below. +Signature 1 — Please keep signature within the box. +Signature 2 — Please keep signature within the box. +/ / +Meeting Information +2013 Annual Meeting of Shareholders +for Shareholders as of July 19, 2013 +September 19, 2013 +10:00 A.M. PDT +Meeting Location: +Tiger Woods Conference Center +One Bowerman Drive +Beaverton, OR 97005 +Meeting Directions: +From I-5 South of Portland: +I-5 North to 217 North. Follow to Hwy 26 West. +From I-5 North of Portland: +I-5 South to I-405 South. Follow to Hwy 26 West. +From I-84 East of Portland: +I-84 West to I-5 South to I-405 North. Follow to Hwy 26 West. +Exit Hwy 26 at Murray Blvd, turn left and drive one mile. Turn right on Walker Road, then left on Meadow Drive into the NIKE World Headquarters (WHQ). Check in at the Security bunker located at the top of the entry. The Tiger Woods Conference Center is located directly ahead of the Security bunker. For patron drop off only, continue straight ahead to the main entry. To park, turn left from the Security bunker onto Del Hayes Way and enter parking lots on either side of Del Hayes Way. Follow the covered sidewalk to the main entry of the Tiger Woods Conference Center. Please note that the NIKE Campus is a non-smoking location and smoking is not permitted on NIKE WHQproperty. +Ç IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. Ç +NIKE, INC. +CLASS A COMMON STOCK PROXY +SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +FOR THE 2013 MEETING OF SHAREHOLDERS +SEPTEMBER 19, 2013 +The undersigned hereby appoints Philip H. Knight, Mark G. Parker and Douglas G. Houser, and each of them, proxies with full power of substitution, to vote, as designated on the reverse side, on behalf of the undersigned, all shares of Class A Common Stock which the undersigned may be entitled to vote at the Annual Meeting of Shareholders of NIKE, Inc. on September 19, 2013, and any adjournments thereof, with all powers that the undersigned would possess if personally present. A majority of the proxies or substitutes present at the meeting may exercise all powers granted hereby. +THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED, BUT IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR, FOR PROPOSALS 2 - 3 AND A VOTE AGAINST PROPOSAL 4. THE PROXIES MAY VOTE IN THEIR DISCRETION AS TO OTHER MATTERS WHICH MAY COME BEFORE THE MEETING. +YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS’ RECOMMENDATIONS. THE PROXIES CANNOT VOTE THESE SHARES UNLESS YOU SIGN AND RETURN THIS CARD OR PROPERLY VOTE BY PHONE OR INTERNET. +Electronic Voting Instructions +Available 24 hours a day, 7 days a week! +Instead of mailing your proxy, you may choose one of the voting methods outlined below to vote your proxy. +VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR. +Proxies submitted by the Internet or telephone must be received by 1:00 a.m., Central Time, on September 19, 2013. +Vote by Internet +• Go to www.investorvote.com +• Or scan the QR code with your smartphone +• Follow the steps outlined on the secure website +Vote by telephone +• Call toll free 1-800-652-VOTE (8683) within the USA, US territories & Canada on a touch tone telephone +• Follow the instructions provided by the recorded message +Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas. +x +q IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q +A +Proposals — The Board of Directors recommends a vote FOR all the nominees listed, a vote for FOR Proposals 2 - 3 and a vote AGAINST Proposal 4. +1. +Class B director nominees: To elect a Board of Directors for the ensuing year. +» +For +Withhold +For +Withhold +For +Withhold +01 - Alan B. Graf, Jr. +¨ +¨ +02 - John C. Lechleiter +¨ +¨ +03 - Phyllis M. Wise +¨ +¨ +For +Against +Abstain +For +Against +Abstain +2. +To approve executive compensation by an advisory vote. +¨ +¨ +¨ +3. +To ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm. +¨ +¨ +¨ +4. +To consider a shareholder proposal regarding political contributions disclosure. +¨ +¨ +¨ +5. +To transact such other business as may properly come before the meeting. +B +Non-Voting Items +Change of Address — Please print new address below. +C +Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below +Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title. +Date (mm/dd/yyyy) — Please print date below. +Signature 1 — Please keep signature within the box. +Signature 2 — Please keep signature within the box. +/ / +Meeting Information +2013 Annual Meeting of Shareholders +for Shareholders as of July 19, 2013 +September 19, 2013 +10:00 A.M. PDT +Meeting Location: +Tiger Woods Conference Center +One Bowerman Drive +Beaverton, OR 97005 +Meeting Directions: +From I-5 South of Portland: +I-5 North to 217 North. Follow to Hwy 26 West. +From I-5 North of Portland: +I-5 South to I-405 South. Follow to Hwy 26 West. +From I-84 East of Portland: +I-84 West to I-5 South to I-405 North. Follow to Hwy 26 West. +Exit Hwy 26 at Murray Blvd, turn left and drive one mile. Turn right on Walker Road, then left on Meadow Drive into the NIKE World Headquarters (WHQ). Check in at the Security bunker located at the top of the entry. The Tiger Woods Conference Center is located directly ahead of the Security bunker. For patron drop off only, continue straight ahead to the main entry. To park, turn left from the Security bunker onto Del Hayes Way and enter parking lots on either side of Del Hayes Way. Follow the covered sidewalk to the main entry of the Tiger Woods Conference Center. Please note that the NIKE Campus is a non-smoking location and smoking is not permitted on NIKE WHQ property. +q IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q +Ç IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. Ç +NIKE, INC. +CLASS B COMMON STOCK PROXY +SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +FOR THE 2013 MEETING OF SHAREHOLDERS +SEPTEMBER 19, 2013 +The undersigned hereby appoints Philip H. Knight, Mark G. Parker and Douglas G. Houser, and each of them, proxies with full power of substitution, to vote, as designated on the reverse side, on behalf of the undersigned, all shares of Class B Common Stock which the undersigned may be entitled to vote at the Annual Meeting of Shareholders of NIKE, Inc. on September 19, 2013, and any adjournments thereof, with all powers that the undersigned would possess if personally present. A majority of the proxies or substitutes present at the meeting may exercise all powers granted hereby. +THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED, BUT IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR, FOR PROPOSALS 2 - 3 AND A VOTE AGAINST PROPOSAL 4. THE PROXIES MAY VOTE IN THEIR DISCRETION AS TO OTHER MATTERS WHICH MAY COME BEFORE THE MEETING. +YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS’ RECOMMENDATIONS. THE PROXIES CANNOT VOTE THESE SHARES UNLESS YOU SIGN AND RETURN THIS CARD OR PROPERLY VOTE BY PHONE OR INTERNET. \ No newline at end of file diff --git a/raw/proxies/0000320187/0000320187-13-000114/proxy_rpt.txt b/raw/proxies/0000320187/0000320187-13-000114/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..f8388eac7d1e483be8b79f1ff43b073fb4ce67ae --- /dev/null +++ b/raw/proxies/0000320187/0000320187-13-000114/proxy_rpt.txt @@ -0,0 +1,8 @@ +Transactions with Related Persons +Mr. Knight makes his airplane available for business use by the Company for no charge. NIKE operates and maintains the aircraft. Mr. Knight reimbursed the Company $960,015 for NIKE’s operating costs related to his personal use of this aircraft during fiscal 2013, determined based on the cost of fuel and other variable costs associated with the flights under FAR 91-501(d). +Pursuant to the terms of a past consulting agreement with the Company, the Company agreed to pay for health and life insurance policies for Howard Slusher, the father of John Slusher, Executive Vice President of Sports Marketing, following expiration of the agreement. During fiscal 2013, the Company paid Howard Slusher $130,427 for health and life insurance premiums. +Three of Mr. Parker’s siblings are employed by the Company in non-executive roles. Bob Parker is a Marketplace Director, and has been employed by the Company for over 29 years; Stephen Parker is the General Manager, China-Converse, and has been employed by the Company for over 25 years; and Ann Parker is an Executive Talent Scout, and has been employed by the Company for over 23 years. During fiscal year 2013, the Company paid aggregate compensation to Bob Parker, Stephen Parker and Ann Parker in the amounts of $439,806, $545,015, $299,425, respectively. The compensation was consistent with compensation paid to other employees holding similar positions, and was composed of salary, bonuses, the grant date fair value of stock options granted during the fiscal year estimated using the Black-Scholes pricing model, profit sharing and matching contributions to Company-sponsored retirement plans. +Mr. Thompson’s son, John Thompson III, is the head basketball coach at Georgetown University, and the Company has a contract with him to provide endorsement and consulting services to the Company through August 2014, with base compensation over the five year term of the contract of $500,000, and up to $80,000 per year of product and other performance incentives. +Compensation Committee Interlocks and Insider Participation +The members of the Compensation Committee of the Board of Directors during the fiscal year ended May 31, 2013 were Timothy D. Cook, Elizabeth J. Comstock, John C. Lechleiter, and Johnathan A. Rodgers. The Committee is composed solely of independent, non-employee directors. No member of the Compensation Committee has been an executive officer of the Company, and no member of the Compensation Committee had any relationships requiring disclosure by the Company under the SEC’s rules requiring disclosure of certain relationships and related-party transactions. None of the Company’s executive officers served as a director or member of a compensation committee (or other committee serving an equivalent function) of any other entity, the executive officers of which served as a director or member of the Compensation Committee of the Company during the fiscal year ended May 31, 2013. +12 \ No newline at end of file diff --git a/raw/proxies/0000320187/0000320187-14-000099/proxy.txt b/raw/proxies/0000320187/0000320187-14-000099/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..889d71c956182560cce9e8837f388f928638e920 --- /dev/null +++ b/raw/proxies/0000320187/0000320187-14-000099/proxy.txt @@ -0,0 +1,1976 @@ +DEF 14A +1 +nke-2014xdef14a.htm +DEF 14A +NKE - 2014 - DEF14A +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of the +Securities Exchange Act of 1934 +(Amendment No. ) +Filed by the Registrant x Filed by a Party other than the Registrant ¨ +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material under §240.14a-12 +NIKE, INC. +(Name of registrant as specified in its charter) +(Name of person(s) filing proxy statement, if other than the registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11 +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +To Our Shareholders: +You are cordially invited to attend the annual meeting of shareholders of NIKE, Inc. to be held at the Tiger Woods Conference Center, One Bowerman Drive, Beaverton, Oregon 97005-6453, on Thursday, September 18, 2014, at 10:00 A.M. Pacific Time. Registration will begin at 9:00 A.M. +The meeting will consist of a brief presentation followed by the business items listed on the attached notice. +Whether or not you plan to attend, the prompt execution and return of your proxy card will both assure that your shares are represented at the meeting and minimize the cost of proxy solicitation. +Sincerely, +Philip H. Knight +Chairman of the Board +July 25, 2014 +Notice of Annual Meeting +of Shareholders +September 18, 2014 +To the Shareholders of NIKE, Inc. +The annual meeting of shareholders of NIKE, Inc., an Oregon corporation, will be held on Thursday, September 18, 2014, at 10:00 A.M., at the Tiger Woods Conference Center, One Bowerman Drive, Beaverton, Oregon 97005-6453, for the following purposes: +1. To elect a Board of Directors for the ensuing year. +2. To approve executive compensation by an advisory vote. +3. To ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm. +4. To transact such other business as may properly come before the meeting. +All shareholders are invited to attend the meeting. Shareholders of record at the close of business on July 18, 2014, the record date fixed by the Board of Directors, are entitled to notice of and to vote at the meeting. You must present your proxy, voter instruction card, or meeting notice for admission. +By Order of the Board of Directors, +John F. Coburn III +Vice President and Corporate Secretary +Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders To Be Held on September 18, 2014. The proxy statement and NIKE, Inc.'s 2014 Annual Report to Shareholders is available electronically at www.investorvote.com or www.proxyvote.com, for registered and beneficial owners, respectively. +Whether or not you intend to be present at the meeting, please sign and date the enclosed proxy and return it in the enclosed envelope, or vote by telephone or online following the instructions on the proxy. +CORPORATE GOVERNANCE +Proxy Statement +Proxy Statement +We are furnishing proxy materials to our shareholders primarily via the Internet, instead of mailing printed copies of those materials to each shareholder. The Company expects to provide notice and electronic delivery of this proxy statement and the enclosed proxy to shareholders on or about August 7, 2014. If you would prefer to receive a paper copy of our proxy materials, please follow the instructions included in the notice. If you have previously elected to receive our proxy materials electronically, you will continue to receive access to these materials electronically unless you elect otherwise. +The enclosed proxy is solicited by the Board of Directors of NIKE, Inc. (“NIKE” or the “Company”) for use at the annual meeting of shareholders to be held on September 18, 2014, and at any adjournment thereof (the “Annual Meeting”). Shareholders may submit a proxy via the Internet to vote at the annual meeting by following the instructions on the proxy card. +The Company will bear the cost of soliciting proxies. In addition to soliciting proxies by mail, certain officers and employees of the Company, without extra compensation, may also solicit proxies personally or by telephone. Copies of proxy solicitation materials will be furnished to fiduciaries, custodians and brokerage houses for forwarding to the beneficial owners of shares held in their names. +All valid proxies properly executed and received by the Company prior to the Annual Meeting will be voted in accordance with the instructions specified in such proxies. Where no instructions are given, shares will be voted “FOR” the election of each of the named nominees for director (Proposal No. 1), “FOR” the proposal regarding an advisory vote to approve executive compensation (Proposal No. 2), and “FOR” the ratification of the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm (Proposal No. 3). +A shareholder giving the enclosed proxy has the power to revoke it at any time before it is exercised by affirmatively electing to vote in person at the meeting or by delivering to John F. Coburn III, Vice President and Corporate Secretary of NIKE, either an instrument of revocation or an executed proxy bearing a later date. +Voting Securities +Holders of record of NIKE’s Class A Common Stock (“Class A Stock”) and holders of record of NIKE’s Class B Common Stock (“Class B Stock”) at the close of business on July 18, 2014 will be entitled to vote at the Annual Meeting. On that date, 177,557,876 shares of Class A Stock and 690,739,620 shares of Class B Stock were issued and outstanding. Neither class of Common Stock has cumulative voting rights. +Each share of Class A Stock and each share of Class B Stock is entitled to one vote on every matter submitted to the shareholders at the Annual Meeting. With regard to Proposal No. 1, the election of directors, the holders of Class A Stock and the holders of Class B Stock will vote separately. Holders of Class B Stock are currently entitled to elect 25 percent of the total Board, rounded up to the next whole number. Holders of Class A Stock are currently entitled to elect the remaining directors. Under this formula, holders of Class B Stock, voting separately, will elect four directors, and holders of Class A Stock, voting separately, will elect ten directors. Holders of Class A Stock and holders of Class B Stock will vote together as one class on Proposal Nos. 2 and 3. +CORPORATE GOVERNANCE +Board of Directors +The Board of Directors is currently composed of eleven independent directors, one outside director who is not independent, Philip H. Knight, Chairman of the Board, and Mark G. Parker, President and Chief Executive Officer. There were five meetings of the Board of Directors during the last fiscal year. During the fiscal year ended May 31, 2014, all but one director attended at least 75 percent of the total number of meetings of the Board of Directors and committees on which he or she served. Orin C. Smith attended 65 percent of the meetings of the Board of Directors and committees (Audit and Finance) on which he served. Mr. Smith was excused from several meetings due to illness, which caused Mr. Smith's attendance to fall below 75 percent. The Company encourages all directors to attend each annual meeting of shareholders, and all directors serving at the time of the 2013 Annual Meeting attended the 2013 Annual Meeting. +Board Committees +The Board’s current standing committees are an Audit Committee, a Compensation Committee, a Nominating and Corporate Governance Committee, a Finance Committee, a Corporate Responsibility and Sustainability Committee and an Executive Committee. The Board may also appoint other committees from time to time. Each standing committee has a written charter; all such charters, as well as the Company’s corporate governance guidelines, are available at the Company’s corporate website (http://investors.nikeinc.com ) and will be provided in print to any shareholder who submits a request in writing to NIKE Investor Relations, One Bowerman Drive, Beaverton, Oregon 97005-6453. +The Executive Committee is authorized to act on behalf of the Board on all corporate actions for which applicable law does not require participation by the full Board. In practice, the Executive Committee acts in place of the full Board only when emergency issues or scheduling conflicts make it difficult or impracticable to assemble the full Board. All actions taken by the Executive Committee must be reported at the next Board meeting. The Executive Committee held no formal meetings during the fiscal year ended May 31, 2014, but took actions from time to time pursuant to written consent resolutions. +NIKE, INC. Ÿ 2014 Notice of Annual Meeting 1 +CORPORATE GOVERNANCE +Board of Directors +The Audit Committee is responsible for the engagement or discharge of the independent registered public accountants, reviews and approves services provided by the independent registered public accountants, and reviews with the independent registered public accountants the scope and results of their annual audit of the Company’s consolidated financial statements and any recommendations they may have. The Audit Committee also reviews the Company’s procedures with respect to maintaining books and records, the adequacy and implementation of internal auditing, accounting, disclosure, and financial controls, and the Company’s policies concerning financial reporting and business practices. The Board has determined that each member of the Audit Committee meets all applicable independence and financial literacy requirements under the New York Stock Exchange (the “NYSE”) listing standards and applicable regulations adopted by the U.S. Securities and Exchange Commission (the “SEC”). The Board has also determined that Mr. Graf is an “audit committee financial expert” as defined in regulations adopted by the SEC. +The Nominating and Corporate Governance Committee identifies individuals qualified to become Board members, recommends director nominees for election at each annual shareholder meeting, and develops and recommends corporate governance guidelines and standards for business conduct and ethics. The Committee also oversees the annual self-evaluations of the Board and its committees and makes recommendations to the Board concerning the structure and membership of the other Board committees. The Company’s written policy requires the Nominating and Corporate Governance Committee to review any transaction or proposed transaction with a related person that would be required to be reported under Item 404(a) of Regulation S-K, and to determine whether to ratify or approve the transaction, with ratification or approval to occur only if the Committee determines that the transaction is fair to the Company or that approval or ratification of the transaction is in the interest of the Company. The Board has determined that each member of the Nominating and Corporate Governance Committee meets all applicable independence requirements under the NYSE listing standards. +The Finance Committee reviews the Company's annual operating budget and recommends approval to the Board, considers long-term financing options, long-range tax, financial regulatory and foreign currency issues facing the Company, and management recommendations concerning capital deployment strategy, major capital expenditures and material acquisitions or divestitures. +The Corporate Responsibility and Sustainability Committee reviews significant strategies, activities and policies regarding sustainability (including labor practices), community impact and charitable activities, and makes recommendations to the Board of Directors. +The Compensation Committee evaluates the performance of the Chief Executive Officer, oversees the performance evaluations of our other Named Executive Officers, and recommends their compensation for approval by the independent members of the Board of Directors (other than the incentive compensation approved solely by the Compensation Committee as described below). The Compensation Committee also grants equity incentive awards under the NIKE, Inc. 1990 Stock Incentive Plan, and determines targets and awards under the NIKE, Inc. Executive Performance Sharing Plan and the NIKE, Inc. Long-Term Incentive Plan. The Committee also makes recommendations to the Board regarding other executive incentive compensation arrangements and profit sharing plan contributions. The Board has determined that each member of the Compensation Committee meets all applicable independence requirements under the NYSE listing standards. +The table below provides information regarding membership of each standing Board committee as of May 31, 2014 and meetings held during fiscal 2014: +Director Name +Audit +Compensation +Nominating and +Corporate Governance +Corporate +Responsibility +Finance +Executive +Elizabeth J. Comstock +ü +ü +John G. Connors +ü +ü +Timothy D. Cook +Chair +ü +Alan B. Graf, Jr. +Chair +Chair +Douglas G. Houser +ü +ü +ü +Philip H. Knight +Chair +John C. Lechleiter +ü +ü +Mark G. Parker +ü +Michelle A. Peluso +ü +ü +Johnathan A. Rodgers +ü +ü +Orin C. Smith +ü +Chair +John R. Thompson, Jr. +ü +Phyllis M. Wise +ü +Chair +Meetings in Fiscal 2014 +13 +5 +5 +5 +5 +- +Director Independence +Pursuant to NYSE rules, in order for a director to qualify as “independent,” the Board of Directors must affirmatively determine that the director has no material relationship with the Company that would impair the director’s independence. The Board affirmatively determined that commercial or charitable relationships below the following thresholds will not be considered material relationships that impair a director’s independence: (i) if a NIKE director or immediate family member is an executive officer of another company that does business with NIKE and the annual sales to, or purchases from, NIKE are less than one percent of the annual revenues of the other company; and (ii) if a NIKE director or immediate family member serves as an officer, director or trustee of a charitable organization, and NIKE’s contributions to the organization are less than one percent of that organization’s total annual charitable receipts. After applying this categorical standard, the Board of Directors has determined that all directors have no material relationship with the Company and, therefore, are independent, except for Messrs. Knight, Parker, and Thompson. Mr. Knight and Mr. Parker are executive officers of the Company. Mr. Thompson is not independent pursuant to NYSE rules, because the Company has a contract with his son, who is the head basketball coach at Georgetown University, to provide endorsement and consulting services to the Company, under which the Company paid to him more than $120,000 during the twelve-month period ending August 31, 2012. +NIKE, INC. Ÿ 2014 Notice of Annual Meeting 2 +CORPORATE GOVERNANCE +Board of Directors +Director Nominations +The Nominating and Corporate Governance Committee identifies potential director candidates through a variety of means, including recommendations from members of the Committee or the Board, suggestions from Company management, and shareholder recommendations. The Committee also may, in its discretion, engage director search firms to identify candidates. Michelle A. Peluso and John J. Donahoe II, were appointed as directors on April 17, 2014 and June 19, 2014, respectively. Ms. Peluso and Mr. Donahoe were identified by a director search firm, which also provided information about each directors' qualifications and experience. Shareholders may recommend director candidates for consideration by the Nominating and Corporate Governance Committee by submitting a written recommendation to the Committee, c/o John F. Coburn III, Vice President and Corporate Secretary, NIKE, Inc., One Bowerman Drive, Beaverton, Oregon 97005-6453. The recommendation should include the candidate’s name, age, qualifications (including principal occupation and employment history), and written consent to be named as a nominee in the Company’s proxy statement and to serve as a director, if elected. +The Board of Directors has adopted qualification standards for the selection of independent nominees for director, which can be found at our corporate website: http://investors.nikeinc.com . As provided in these standards and the Company’s Corporate Governance Guidelines, nominees for director are selected on the basis of, among other things, distinguished business experience or other non-business achievements; education; significant knowledge of international business, finance, marketing, technology, law, or other fields which are complementary to, and balance the knowledge of, other Board members; a desire to represent the interests of all shareholders; independence; character; ethics; good judgment; diversity; and ability to devote substantial time to discharge Board responsibilities. +The Nominating and Corporate Governance Committee identifies qualified potential candidates without regard to their age, gender, race, national origin, sexual orientation, or religion. While the Board has no policy regarding Board member diversity, the Nominating and Corporate Governance Committee considers and discusses diversity in selecting director nominees and in the re-nomination of an incumbent director. The Committee views diversity broadly, including gender, ethnicity, differences of viewpoint, geographic location, skills, education, and professional and industry experience, among others. The Board believes that a variety and balance of perspectives on the Board can result in more thoughtful deliberations. +In considering the re-nomination of an incumbent director, the Nominating and Corporate Governance Committee reviews the director’s overall service to the Company during his or her term, including the number of meetings attended, level of participation and quality of performance, as well as any special skills, experience or diversity that such director brings to the Board. All potential new director candidates, whether recommended by shareholders or identified by other means, are initially screened by the Chair of the Nominating and Corporate Governance Committee, who may seek additional information about the background and qualifications of the candidate, and who may determine that a candidate does not have qualifications that merit further consideration by the full Committee. With respect to new director candidates who pass the initial screening, the Nominating and Corporate Governance Committee meets to discuss and consider each candidate’s qualifications and potential contributions to the Board, and determines by majority vote whether to recommend such candidates to the Board of Directors. The final decision to either appoint a candidate to fill a vacancy between Annual Meetings or include a candidate on the slate of nominees proposed at an Annual Meeting is made by the Board of Directors. +It is the general policy of the Board of Directors that directors first elected after the fiscal year ended May 31, 1993 will not stand for re-election after reaching the age of 72. Given Mr. Smith's outstanding contributions to the Board of Directors, his extensive knowledge of the Company and his subject matter expertise, the Board has decided not to apply this policy to Mr. Smith this year to allow time to effectively transition his knowledge and experience to our newly appointed directors. +Shareholder Communications with Directors +Shareholders or interested parties desiring to communicate directly with the Board of Directors, with the non-management directors or with any individual director may do so in writing addressed to the intended recipient or recipients, c/o John F. Coburn III, Vice President and Corporate Secretary, NIKE, Inc., One Bowerman Drive, Beaverton, Oregon 97005-6453. All such communications will be reviewed, compiled as necessary, and then forwarded to the designated recipient or recipients in a timely manner. +Board Leadership Structure +NIKE’s governance documents provide the Board with flexibility to select the appropriate leadership structure of the Company. In determining the leadership structure, the Board considers many factors, including the specific needs of the business, fulfilling the duties of the Board, and the best interests of the Company’s shareholders. In 2004, the Board of Directors chose to separate the position of Chairman of the Board from the position of President and Chief Executive Officer (“CEO”), although this is not a permanent policy of the Board. The Chairman, Mr. Knight, presides over meetings of the Board of Directors and shareholders. The CEO, Mr. Parker, is in charge of the general supervision, direction, and control of the business and affairs of the Company, subject to the overall direction and supervision of the Board of Directors and its committees. +The Board believes this leadership structure is appropriate for the Company because it separates the leadership of the Board from the duties of day-to-day leadership of the Company. In particular, it permits Mr. Parker to focus his full time and attention to the business, the supervision of which has become increasingly more complex as the Company has grown. In addition, the structure permits Mr. Knight to direct his attention to the broad strategic issues considered by the Board of Directors. Further, with his significant Company experience and ownership of Common Stock, Mr. Knight is particularly well-suited as Chairman, helping to align the Board with the interests of shareholders. +The chairs of Board committees play an active role in the leadership structure of the Board. The Nominating and Corporate Governance Committee and the Board endeavor to select independent committee chairs who will provide strong leadership to guide the important work of the Board committees. Committee chairs work with senior executives to ensure the committees are discussing the key strategic risks and opportunities for the Company. +NIKE, INC. Ÿ 2014 Notice of Annual Meeting 3 +CORPORATE GOVERNANCE +Board of Directors +The Nominating and Corporate Governance Committee has determined that given the separation of the positions of Chairman and CEO, and the strong leadership of experienced chairs of each of the Board committees, a lead director would not improve the effectiveness of the Board at this time. A presiding director is appointed to chair executive sessions of non-management directors (consisting of all directors other than Messrs. Knight and Parker). The position of presiding director is rotated among the chairs of the various Board committees, other than the Executive Committee. The current presiding director at the executive sessions is Mr. Graf. Executive sessions are regularly scheduled and held at least once each year. For all of these reasons, the Board believes this leadership structure is optimal and has worked well for many years. +The Board’s Role in Risk Oversight +While the Company’s management is responsible for day-to-day management of the various risks facing the Company, the Board of Directors takes an active role in the oversight of the management of critical business risks. The Board does not view risk in isolation. Risks are considered in virtually every business decision and as part of NIKE’s business strategy. The Board recognizes it is neither possible nor prudent to eliminate all risk. Purposeful and appropriate risk-taking is essential for the Company to be competitive on a global basis and to achieve its strategic objectives. +The Board implements its risk oversight function both as a whole and through committees, which play a significant role in carrying out risk oversight. While the Audit Committee is responsible for oversight of management’s risk management policies, oversight responsibility for particular areas of risk is allocated among the Board committees according to the committee’s area of responsibility as reflected in the committee charters. In particular: +• +The Audit Committee oversees risks related to the Company’s financial statements, the financial reporting process, accounting, and legal matters. The Committee oversees the internal audit function, reviews a risk-based plan of internal audits, and reviews a risk-based integrated audit of internal controls over financial reporting. The Committee meets separately with each of the Vice President of Corporate Audit, representatives of the independent registered public accountants, and senior management. +• +The Compensation Committee oversees risks and rewards associated with the Company’s compensation philosophy and programs, management succession plans, and executive development. +• +The Finance Committee oversees financial matters and risks relating to budgeting, investments, access to capital, capital deployment, acquisitions and divestitures, currency risk and hedging programs, and significant capital projects. +• +The Corporate Responsibility and Sustainability Committee oversees issues that involve reputational risk to the Company, including community engagement, and sustainability innovation relating to the Company's products, its supply chain and the environment. +• +The Nominating and Corporate Governance Committee oversees risks associated with company governance, including NIKE’s code of business conduct and ethics, compliance programs, and the structure and performance of the Board and its committees. +Each committee chair works with the senior executive assigned to assist the committee to develop agendas for the year and for each meeting, paying particular attention to areas of business risk identified by management, Board members, internal and external auditors, and in their committee charter, and to schedule agenda topics, presentations, and discussions periodically regarding business risks within their area of responsibility. At meetings, the committees discuss areas of business risk, the potential impact, and management’s initiatives to manage business risk, often within the context of important business decisions. Through this process key business risk areas are reviewed at appropriate times, with some topics reviewed on several occasions throughout the year. At every Board meeting each committee chair provides a report to the full Board outlining its discussions and actions, including those affecting the oversight of various risks. +The Company believes its leadership structure, discussed in detail above, supports the risk oversight function of the Board. Strong directors chair the various committees involved in risk oversight, there is open communication between management and directors, and all directors are involved in the risk oversight function. +Code of Business Conduct and Ethics +The NIKE Code of Ethics (“Code”) is available at the Company’s corporate website (http://investors.nikeinc.com ) and will be provided in print without charge to any shareholder who submits a request in writing to NIKE Investor Relations, One Bowerman Drive, Beaverton, Oregon 97005-6453. The Code applies to all of the Company’s employees and directors, including our chief executive officer, senior financial officers, and all other officers. The Code provides that any waiver of the Code may be made only by the Board. Any such waiver in favor of a director or executive officer will be publicly disclosed. The Company plans to disclose amendments to, and waivers from, the Code on the Company’s corporate website: http://investors.nikeinc.com. +Proposal 1 +Election of Directors +A Board of 14 directors will be elected at the Annual Meeting. All of the nominees other than Ms. Peluso and Mr. Donahoe were elected at the 2013 annual meeting of shareholders. Directors will hold office until the next annual meeting of shareholders or until their successors are elected and qualified. +NIKE, INC. Ÿ 2014 Notice of Annual Meeting 4 +CORPORATE GOVERNANCE +Alan B. Graf, Jr., John C. Lechleiter, Michelle A. Peluso, and Phyllis M. Wise are nominated by the Board of Directors for election by the holders of Class B Stock. The other ten nominees are nominated by the Board of Directors for election by the holders of Class A Stock. +Under Oregon law, if a quorum of each class of shareholders is present at the Annual Meeting, the ten director nominees who receive the greatest number of votes cast by holders of Class A Stock and the four director nominees who receive the greatest number of votes cast by holders of Class B Stock will be elected directors. Abstentions and broker non-votes will have no effect on the results of the vote. Unless otherwise instructed, proxy holders will vote the proxies they receive for the nominees listed below. If any nominee becomes unable to serve, the holders of the proxies may, in their discretion, vote the shares for a substitute nominee or nominees designated by the Board of Directors. +The Bylaws and the Corporate Governance Guidelines of the Company provide that any nominee for director in an uncontested election who receives a greater number of votes “withheld” from his or her election than votes “for” such election shall tender his or her resignation for consideration by the Nominating and Corporate Governance Committee. The Committee will recommend to the Board the action to be taken with respect to the resignation. The Board will publicly disclose its decision within 90 days of the certification of the election results. +Background information on the nominees as of July 18, 2014, including some of the attributes that led to their selection, appears below. The Nominating and Corporate Governance Committee has determined that each director meets the qualification standards described in the section entitled “Director Nominations” above. In addition, the Board firmly believes that the experience, attributes, and skills of any single director should not be viewed in isolation, but rather in the context of the experience, attributes, and skills that all director nominees bring to the Board as a whole, each of which contributes to the function of an effective Board. +Nominees for Election by Class A Shareholders +Elizabeth J. Comstock +Ms. Comstock, 53, a director since 2011, is Senior Vice President and Chief Marketing Officer of General Electric Company (“GE”). Ms. Comstock oversees GE sales, GE ventures equity investing and internal start-up programs, sales and licensing. At GE, she was appointed Vice President, Communications, NBC News Communications in 1994, Senior Vice President, NBC Corporate Communications in 1996, Vice President of Corporate Communications in 1998, Corporate Vice President and Chief Marketing Officer in 2003, President, NBC Universal Integrated Media in 2006, and Senior Vice President and Chief Marketing Officer in 2008. Prior to joining GE in 1994, Ms. Comstock held a succession of positions at NBC, CBS, and Turner Broadcasting. Ms. Comstock is a trustee of the Smithsonian’s Cooper-Hewitt National Design Museum and serves on the board of directors of Quirky. Ms. Comstock was selected to serve on the Board because her broad experience in, and understanding of, media, marketing and innovation aligns well with the Company’s business model, which involves a great deal of each. +John G. Connors +Mr. Connors, 55, a director since 2005, is a partner in Ignition Partners LLC, a Seattle-area venture capital firm. Mr. Connors served as Senior Vice President and Chief Financial Officer of Microsoft Corporation from December 1999 to May 2005. He joined Microsoft in 1989 and held various management positions, including Corporate Controller from 1994 to 1996, Vice President, Worldwide Enterprise Group in 1999, and Chief Information Officer from 1996 to 1999. Mr. Connors is currently a member of the board of directors of Chef, Inc., Motif Investing, Inc., FiREapps, Inc., Xamarin, Inc., DataSphere Technologies, Inc., Splunk, Inc., the Washington Policy Center, and the University of Washington Tyee Club. Mr. Connors was selected to serve on the Board because his experience and skills in accounting, financial leadership, venture capital, technology, and international operations enable him to make valuable contributions to NIKE’s Audit Committee and Finance Committee. +NIKE, INC. Ÿ 2014 Notice of Annual Meeting 5 +CORPORATE GOVERNANCE +PROPOSAL 1 +Timothy D. Cook +Mr. Cook, 53, a director since 2005, is the Chief Executive Officer of Apple, Inc. Mr. Cook joined Apple in March 1998 as Senior Vice President of Worldwide Operations, also served as its Executive Vice President, Worldwide Sales and Operations and its Chief Operating Officer. Mr. Cook was Vice President, Corporate Materials for Compaq Computer Corporation from 1997 to 1998. Previous to his work at Compaq, Mr. Cook served in the positions of Senior Vice President Fulfillment and Chief Operating Officer of the Reseller Division at Intelligent Electronics from 1994 to 1997. Mr. Cook also worked for International Business Machines Corporation from 1983 to 1994, most recently as Director of North American Fulfillment. Mr. Cook is currently a member of the board of directors of the National Football Foundation and Apple, Inc. Mr. Cook was selected to serve on the Board because his operational executive experience and his knowledge of technology, marketing, and international business allow him to provide the Board with valuable perspectives and insights. +John J. Donahoe II +Mr. Donahoe, 54, a director since June 2014, is President and Chief Executive Officer of eBay, Inc. ("eBay"), provider of the global eBay.com online marketplace and PayPal digital payments platform. Mr. Donahoe joined eBay in 2005 as President of eBay Marketplaces, responsible for eBay's global e-Commerce businesses, and was appointed President and Chief Executive Officer in 2008. He has also served on eBay's board of directors since 2008. Prior to joining eBay, Mr. Donahoe was the CEO and Worldwide Managing Director of Bain & Company from 1999 to 2005, and a Managing Director from 1982 to 1999. Mr. Donahoe also serves on the board of directors of Intel Corporation and is a member of the President's Export Council. Mr. Donahoe was selected to serve on the Board because of his experience in executive and financial management, strategic planning, branding, technology, and digital commerce, which allow him to provide valued perspectives on each of these areas of the Company's business. +Douglas G. Houser +Mr. Houser, 79, a director since 1970, has been a partner and Senior Counsel in the Portland, Oregon, law firm of Bullivant, Houser, Bailey since 1965. Mr. Houser is a Life Trustee of Willamette University, a Fellow in the American College of Trial Lawyers, has served as a member of the Board of Governors and Treasurer of the Oregon State Bar Association, and as a director of the Rand Corporation, Institute for Civil Justice Board of Overseers, and the National Judicial College Foundation Board. Mr. Houser was selected to serve on the Board because his knowledge of NIKE and its Board, together with his experience as a principal of a significant law firm, allow him to provide beneficial contributions regarding legal issues, corporate responsibility, and board governance. +NIKE, INC. Ÿ 2014 Notice of Annual Meeting 6 +CORPORATE GOVERNANCE +Philip H. Knight +Mr. Knight, 76, a director since 1968, is Chairman of the Board of Directors of NIKE, Inc. Mr. Knight is a co-founder of the Company and, except for the period from June 1983 through September 1984, served as its President from 1968 to 1990, and from June 2000 to December 2004. Prior to 1968, Mr. Knight was a certified public accountant with Price Waterhouse and Coopers & Lybrand and was an Assistant Professor of Business Administration at Portland State University. Mr. Knight led NIKE from a small partnership founded on a handshake to the world’s largest athletic footwear, apparel, and equipment company. He has extensive knowledge of and experience in Company operations, sports marketing, manufacturing, management, accounting, and financial matters, which make him uniquely qualified to serve as Chairman of the Board. +Mark G. Parker +Mr. Parker, 58, has been President and Chief Executive Officer and a director since 2006. He has been employed by NIKE since 1979 with primary responsibilities in product research, design and development, marketing, and brand management. Mr. Parker was appointed divisional Vice President in charge of development in 1987, corporate Vice President in 1989, General Manager in 1993, Vice President of Global Footwear in 1998, and President of the NIKE Brand in 2001. He has extensive knowledge and experience of Company operations, sports marketing, manufacturing, research, design, development, and management, and is an effective leader of NIKE. His position as Chief Executive Officer makes his participation on the Board critical. +Johnathan A. Rodgers +Mr. Rodgers, 68, a director since 2006, retired as the President and Chief Executive Officer of TV One, LLC in July 2011. Prior to joining TV One, LLC in March 2003, Mr. Rodgers was President, Discovery Networks US for Discovery Communications, Inc. from 1996 to 2003. Prior to his work at Discovery Communications, Mr. Rodgers had a 20-year career at CBS, Inc. where he held a variety of executive positions, including President, CBS Television Stations. Mr. Rodgers is currently a member of the board of directors of Procter & Gamble Company, and a Trustee of the University of California — Berkeley. Mr. Rodgers previously served as a director of Comcast Corporation. Mr. Rodgers was selected to serve on the Board because his experience and knowledge in media, broadcasting, and telecommunications, his skills in executive leadership, and knowledge of multicultural media allow him to provide valuable insights to the Board regarding corporate responsibility, diversity, compensation, and marketing. +NIKE, INC. Ÿ 2014 Notice of Annual Meeting 7 +CORPORATE GOVERNANCE +PROPOSAL 1 +Orin C. Smith +Mr. Smith, 72, a director since 2004, was President and Chief Executive Officer of Starbucks Corporation from 2000 to 2005. He joined Starbucks as Vice President and Chief Financial Officer in 1990, became President and Chief Operating Officer in 1994, and became a director of Starbucks in 1996. Prior to joining Starbucks, Mr. Smith spent a total of 14 years with Deloitte & Touche. He was later the Executive Vice President and Chief Financial Officer of two transportation companies. Between these assignments, he was Chief Policy and Finance Officer in the administrations of two Washington State Governors. Mr. Smith is currently the independent Lead Director of the board of directors of The Walt Disney Company and serves on the Board of Regents of the University of Washington, and previously served on the Board of Directors of Washington Mutual, Inc. until March 2012. Mr. Smith was selected to serve on the Board because his experience and skills in accounting, financial leadership, marketing, international and retail operations enable him to make valuable contributions to NIKE’s Audit Committee and Finance Committee. +John R. Thompson, Jr. +Mr. Thompson, 72, a director since 1991, was head coach of the Georgetown University men’s basketball team from 1972 until 1998. Mr. Thompson was head coach of the 1988 United States Olympic basketball team. He hosted a sports radio talk show in Washington, D.C. for 13 years, and he is a nationally broadcast sports analyst for Turner Network Television (TNT) and Dial Global, Inc. He serves as Assistant to the President of Georgetown University for Urban Affairs, and he is a past President of the National Association of Basketball Coaches and presently serves on its Board of Governors. Mr. Thompson has honorary doctorate degrees from Wheeling Jesuit University, Georgetown University, University of the District of Columbia, and St. Peter's College. Mr. Thompson was selected to serve on the Board because his extensive experience and knowledge of education, college and professional sports, media, broadcasting, and knowledge of urban issues allow him to provide valuable insights to the Board regarding sports marketing, corporate responsibility and diversity. +Board Recommendation +The Board of Directors recommends that the Class A Shareholders vote FOR the election of nominees above to the Board of Directors. +NIKE, INC. Ÿ 2014 Notice of Annual Meeting 8 +CORPORATE GOVERNANCE +Nominees for Election by Class B Shareholders +Alan B. Graf, Jr. +Mr. Graf, 60, a director since 2002, is the Executive Vice President and Chief Financial Officer of FedEx Corporation, a position he has held since 1998, and is a member of FedEx Corporation’s Executive Committee. Mr. Graf joined FedEx Corporation in 1980 and was Senior Vice President and Chief Financial Officer for FedEx Express, FedEx’s predecessor, from 1991 to 1998. He previously served on the boards of directors of Kimball International Inc., Storage USA, Inc. and Arkwright Mutual Insurance Co., and he is currently a director of Mid-America Apartment Communities, Inc., Methodist Le Bonheur Healthcare, and the Indiana University Foundation. Mr. Graf was selected to serve on the Board because his experience and skills in auditing, accounting, financial management, executive leadership, and international operations enable him to effectively lead NIKE’s Audit Committee, serving as its Chair and financial expert, and the Nominating and Corporate Governance Committee. +John C. Lechleiter +Dr. Lechleiter, 60, a director since 2009, is Chairman of the Board, President, and Chief Executive Officer of Eli Lilly and Company (“Lilly”). He has served as President and Chief Executive Officer since April 1, 2008. He has been a member of Lilly’s board of directors since 2005 and was named Chairman on January 1, 2009. Dr. Lechleiter began work at Lilly as a senior organic chemist in Lilly’s process research and development division in 1979. He is a member of the American Chemical Society and Business Roundtable. He serves on the board of Pharmaceutical Research and Manufacturers of America, as President of the International Federation of Pharmaceutical Manufacturers & Associations, as Chairman of the U.S. - Japan Business Council and of United Way Worldwide, and on the boards of the Life Sciences Foundation, the Central Indiana Corporate Partnership, and Ford Motor Company. Dr. Lechleiter was selected to serve on NIKE’s Board because his operational executive experience and his knowledge of science, marketing, management, and international business allow him to provide the Board with significant contributions in those strategic areas. +Michelle A. Peluso +Ms. Peluso, 42, a director since April 2014, is Chief Executive Officer of online shopping destination Gilt. Prior to joining Gilt in 2013, she served as Global Consumer Chief Marketing and Internet Officer of Citigroup Inc. from 2009 to 2013, and from 2002 to 2009, Ms. Peluso held senior management positions at Travelocity.com LP, being appointed Chief Operating Officer in 2003, and President and Chief Executive Officer in December 2003. Prior to joining Travelocity, in 1999 she founded Site59, an online travel site, serving as its Chief Executive Officer until its acquisition by Travelocity in 2002. Ms. Peluso has been a director of Gilt since 2009, and was also a director of OpenTable, Inc. from 2008 to 2012. Ms. Peluso was selected to serve on the Board because of her extensive experience in, and understanding of, online retail, marketing, branding, and digital connections with consumers, which are integral components of the Company's growth strategy. +NIKE, INC. Ÿ 2014 Notice of Annual Meeting 9 +CORPORATE GOVERNANCE +PROPOSAL 1 +Phyllis M. Wise +Dr. Wise, 69, a director since 2009, is Chancellor of the University of Illinois, at Urbana-Champaign. She joined the University of Maryland School of Medicine as an assistant professor in 1976, was appointed associate professor in 1982, and professor in 1987. Dr. Wise was appointed a professor and chair of the department of physiology at the University of Kentucky in 1993, and was appointed dean of the division of biological sciences and distinguished professor of neurobiology at the University of California-Davis in 2002. In 2005, she was appointed Provost and Vice President for Academic Affairs at the University of Washington, and served as Provost and Executive Vice President from 2007 to 2010, and interim President until July 2011, where she was also professor of physiology and biophysics, biology, and obstetrics and gynecology. During her tenure, she led the establishment of the College of the Environment, the mission of which is to provide solutions to developing a sustainable healthy environment through research and teaching. Dr. Wise has a doctorate in zoology from the University of Michigan and an honorary doctorate from Swarthmore College, and she is an elected member of the Institute of Medicine and the American Academy of Arts and Sciences. Dr. Wise is currently a member of the board of directors of RAND Health. Dr. Wise was selected to serve on the Board because her extensive experience in medical science, health, higher education, and societal issues allow her to provide valuable contributions to the Board’s deliberations of strategic importance. +Board Recommendation +The Board of Directors recommends that the Class B Shareholders vote FOR the election of nominees above to the Board of Directors. +Director Compensation for Fiscal 2014 +Name +Fees Earned or Paid in Cash ($) +Stock Award (1) ($) +Option Awards (2) ($) +Change in Pension Value and +Nonqualified Deferred Compensation +Earnings (3) ($) +All Other +Compensation (4) +($) +Total +($) +Elizabeth J. Comstock +85,000 +— +116,060 +— +15,125 +216,185 +John G. Connors +90,000 +— +116,060 +— +20,125 +226,185 +Timothy D. Cook +95,000 +— +116,060 +— +20,125 +231,185 +Alan B. Graf, Jr. +115,000 +— +116,060 +— +125 +231,185 +Douglas G. Houser +85,000 +— +132,640 +13,524 +20,125 +251,289 +John C. Lechleiter +85,000 +— +116,060 +— +19,795 +220,855 +Michelle A. Peluso 5 +10,389 +160,053 +— +— +5,000 +175,442 +Johnathan A. Rodgers +85,000 +— +116,060 +— +12,625 +213,685 +Orin C. Smith +75,000 +— +116,060 +— +20,125 +211,185 +John R. Thompson, Jr. +67,000 +— +116,060 +— +22,821 +205,881 +Phyllis M. Wise +95,000 +— +116,060 +— +20,125 +231,185 +(1) +Represents the grant date fair value of restricted stock awards granted in fiscal 2014 computed in accordance with accounting guidance applicable to stock-based compensation. The grant date fair value is based on the closing market price of our Class B Stock on the grant date. As of May 31, 2014, Ms. Peluso held 2,162 shares of unvested restricted stock. +(2) +Represents the grant date fair value of annual director options granted in fiscal 2014 computed in accordance with accounting guidance applicable to stock-based compensation. The grant date fair value of the options was estimated using the Black-Scholes option pricing model. On September 19, 2013, each director elected at the 2013 Annual Meeting other than Mr. Houser was granted an option for 7,000 shares with an exercise price of $69.50 per share. On September 19, 2013, Mr. Houser was granted an option for 8,000 shares with +NIKE, INC. Ÿ 2014 Notice of Annual Meeting 10 +CORPORATE GOVERNANCE +an exercise price of $69.50 per share. The assumptions made in determining the grant date fair values of options under applicable accounting guidance are disclosed in Note 11 of Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended May 31, 2014. As of May 31, 2014, non-employee directors held outstanding options for the following numbers of shares of our Class B Stock: Ms. Comstock, 45,000; Mr. Connors, 121,000; Mr. Cook, 85,000; Mr. Graf, 101,000; Mr. Houser, 52,000; Dr. Lechleiter, 63,000; Mr. Rodgers, 89,000; Mr. Smith, 101,000; Mr. Thompson, 45,000; and Dr. Wise, 55,000. +(3) +Represents above-market earnings credited during fiscal 2014 to the account of Mr. Houser under our prior Executive Deferred Compensation Plan adopted in 1983 (the “1983 DCP”). While deferrals under the 1983 DCP were discontinued in 1990, earnings have continued to accrue on the 1983 DCP account balances. Under the terms of the 1983 DCP, Mr. Houser received a guaranteed return equal to the current monthly rate of Moody’s seasoned corporate bonds index, plus 4%, which paid an average interest rate of 8.74% in fiscal 2014. +(4) +Includes medical and life insurance premiums paid by us of $22,696 for Mr. Thompson. Also includes matched contributions to charities in the following amounts: Ms. Comstock, $15,000; Messrs Connors, Cook, Houser, and Smith, $20,000; Dr. Lechleiter, $19,670; Ms. Peluso, $5,000; Mr. Rodgers, $12,500; and Dr. Wise, $20,000. Also includes sample and test products we provided to directors during the fiscal year, the value of which we estimate at $125 for Ms. Comstock, Messrs. Connors, Cook, Graf, Houser, Rodgers, Smith, Thompson, and Drs. Lechleiter and Wise based on our incremental cost. +(5) +Ms. Peluso was elected a director on April 17, 2014. In addition to the matching contribution described above, her compensation includes an initial restricted stock award valued at $160,053 and a pro-rated retainer fee of $10,389 for six weeks of Board service in fiscal 2014. +Director Fees and Arrangements +Under our standard director compensation program in effect for fiscal 2014, non-employee directors annually receive: +• +An annual retainer of $85,000 per year. +• +An option to purchase 7,000 shares of our Class B Stock, granted on the date of each annual meeting of shareholders. The option has a term of ten years and an exercise price equal to the closing market price of our Class B Stock on the grant date. The option becomes exercisable in full on the date of the next annual meeting of shareholders. +• +For chairs of board committees (other than the Executive Committee), an annual retainer of $10,000 for each committee chaired ($15,000 for the chair of the Audit Committee). +• +For Audit Committee members, an additional annual retainer of $5,000 per year. +• +Payment or reimbursement of travel and other expenses incurred in attending board meetings. +• +Matching charitable contributions under the NIKE Matching Gift Program, under which directors are eligible to contribute to qualified charitable organizations and we provide a matching contribution to the charities in an equal amount, up to $20,000 in the aggregate for each director annually. +• +If a director does not attend 75% of the total fiscal year board and committee meetings, the fourth quarter payment of the annual retainers is forfeited. +Mses. Comstock and Peluso, Messrs. Connors, Cook, Donahoe, Graf, Rodgers and Smith, and Drs. Lechleiter and Wise participate in our standard director compensation program. +Mr. Houser also participates in our standard program, except that, in exchange for electing in fiscal 2000 to participate in the standard program when it was first instituted, he receives an annual option to purchase 8,000 shares of our Class B Stock, instead of 7,000 shares. +Mr. Thompson does not participate in our standard director compensation program. Pursuant to his election made in fiscal 2000, Mr. Thompson received an annual retainer of $67,000 per year (instead of the $85,000 annual retainer fee paid under our standard program). Pursuant to his election, Mr. Thompson also received medical insurance and $500,000 of life insurance coverage paid for by the Company. Additionally, on the date of each annual meeting of shareholders, Mr. Thompson receives an annual option to purchase 7,000 shares of our Class B Stock on the same terms as apply to the options granted pursuant to our standard program. +Philip H. Knight, as the Chairman of our Board of Directors, is one of our executive officers, but is not a Named Executive Officer. Mr. Knight does not receive any additional compensation for services provided as a director. +Effective for fiscal 2015 we are changing the annual equity award included in our standard director compensation program by replacing the option to purchase 7,000 shares of our Class B Stock with a restricted stock award valued at $160,000 on the date of grant. In addition to his restricted stock award, Mr. Houser will receive an annual option to purchase 1,000 shares. The restricted stock award will be granted on the date of each annual meeting of shareholders and will be subject to forfeiture in the event that service as a director terminates prior to the next annual meeting. +Effective April 17, 2014, we also changed the initial equity award included in our standard director compensation program. Upon election to the Board, a newly appointed non-employee director is now granted a restricted stock award valued at $160,000 on the date of grant. The restricted stock award is subject to forfeiture in the event that service as a director terminates prior to the first anniversary of the grant. Prior to April 17, 2014, newly appointed non-employee directors received initial awards of stock options to purchase 7,000 shares of our Class B Stock. +We made the changes to our director equity awards to maintain the competitiveness of NIKE’s director compensation program and to reinforce our directors’ ability to meet our stock ownership guidelines described below. All other components of our standard director compensation program remain unchanged. +Stock Ownership Guidelines for Directors +NIKE, INC. Ÿ 2014 Notice of Annual Meeting 11 +CORPORATE GOVERNANCE +PROPOSAL 1 +On June 20, 2013, the Board of Directors adopted stock ownership guidelines for all non-employee directors. Under these guidelines, directors are required to hold NIKE stock valued at five times their annual cash retainer. Directors elected prior to June 20, 2013 are required to attain these ownership levels by June 20, 2018 and new directors within five years of their election to the Board. +NIKE, INC. Ÿ 2014 Notice of Annual Meeting 12 +CORPORATE GOVERNANCE +Director Participation in Deferred Compensation Plan +Under our Deferred Compensation Plan, non-employee directors may elect in advance to defer up to 100 percent of the director fees paid by us. For a description of the plan, see “Non-Qualified Deferred Compensation in Fiscal 2014” below. In addition, in fiscal 2000, Messrs. Houser and Thompson received credits to a fully vested NIKE stock account under the Deferred Compensation Plan in exchange for their waiver of rights to future payments under a former non-employee director retirement program. The Class B Stock credited to these directors’ accounts is distributed to them upon their retirement from the Board, and the accounts are credited with quarterly dividends until distributed. +Stock Holdings of Certain Owners and Management +The following table sets forth the number of shares of each class of NIKE securities beneficially owned, as of June 30, 2014, by (i) each person known to the Company to be the beneficial owner of more than 5 percent of any class of the Company’s securities, (ii) each of the directors and nominees for director, (iii) each executive officer listed in the Summary Compensation Table (“Named Officers”), and (iv) all nominees, Named Officers, and other executive officers as a group. Because Class A Stock is convertible into Class B Stock on a share-for-share basis, each beneficial owner of Class A Stock is deemed by the SEC to be a beneficial owner of the same number of shares of Class B Stock. Therefore, in indicating a person’s beneficial ownership of shares of Class B Stock in the table, it has been assumed that such person has converted into Class B Stock all shares of Class A Stock of which such person is a beneficial owner. For these reasons the table contains substantial duplications in the numbers of shares and percentages of Class A and Class B Stock shown for Mr. Knight and for all directors and officers as a group. In addition, unless otherwise indicated, all persons named below can be reached at c/o John F. Coburn III, Vice President and Corporate Secretary, NIKE, Inc., One Bowerman Drive, Beaverton, Oregon 97005. +Title of Class +Shares Beneficially Owned (1) +Percent of Class (2) +Elizabeth J. Comstock +Class B +38,000 +(3) +— +John G. Connors +Class B +126,920 +(3) +— +Timothy D. Cook +Class B +78,000 +(3) +— +John J. Donahoe II +Class B +2,116 +— +Alan B. Graf, Jr +Class B +153,123 +(3) +— +Douglas G. Houser +Class B +375,276 +(3)(4) +— +Philip H. Knight +Class A +133,276,410 +(5) +75.1 +% +One Bowerman Drive, Beaverton, Oregon 97005 +Class B +133,291,890 +(5) +16.2 +% +John C. Lechleiter +Class B +63,500 +(3) +— +Mark G. Parker (6) +Class B +2,841,439 +(3)(7) +0.4 +% +Michelle A. Peluso +Class B +2,162 +— +Johnathan A. Rodgers +Class B +82,000 +(3) +— +Orin C. Smith +Class B +99,400 +(3) +— +John R. Thompson, Jr +Class B +69,829 +(3)(4) +— +Phyllis M. Wise +Class B +48,000 +(3) +— +Donald W. Blair (6) +Class B +837,847 +(3)(7) +0.1 +% +Trevor A. Edwards (6) +Class B +1,078,056 +(3)(7) +0.2 +% +Eric D. Sprunk (6) +Class B +756,450 +(3)(7) +0.1 +% +Jeanne P. Jackson (6) +Class B +401,524 +(3)(7) +— +Sojitz Corporation of America +1211 S.W. 5th Ave, Pacwest Center, Ste. 2220, Portland, OR 97204 +Preferred (8) +300,000 +100.0 +% +The Vanguard Group +100 Vanguard Blvd., Malvern, PA 19355 +Class B +41,214,248 +(9) +6.0 +% +BlackRock, Inc. +40 East 57th Street, New York, NY 10022 +Class B +39,973,612 +(10) +5.8 +% +All directors and executive officers as a group (22 persons) +Class A +133,276,410 +75.1 +% +Class B +141,586,252 +(3) +17.2 +% +(1) +A person is considered to beneficially own any shares: (a) over which the person exercises sole or shared voting or investment power, or (b) of which the person has the right to acquire beneficial ownership at any time within 60 days (such as through conversion of securities or exercise of stock options). Unless otherwise indicated, voting and investment power relating to the above shares is exercised solely by the beneficial owner or shared by the owner and the owner’s spouse or children. +(2) +Omitted if less than 0.1 percent. +(3) +These amounts include the right to acquire, pursuant to the exercise of stock options, within 60 days after June 30, 2014, the following numbers of shares: 38,000 shares for Ms. Comstock, 114,000 shares for Mr. Connors, 78,000 shares for Mr. Cook, 94,000 shares for Mr. Graf, 44,000 shares for Mr. Houser, 56,000 shares for Dr. Lechleiter, 2,403,750 shares for Mr. Parker, 82,000 shares for Mr. Rodgers, +NIKE, INC. Ÿ 2014 Notice of Annual Meeting 13 +CORPORATE GOVERNANCE +PROPOSAL 1 +94,000 shares for Mr. Smith, 38,000 shares for Mr. Thompson, 48,000 shares for Dr. Wise, 685,750 shares for Mr. Blair, 949,750 shares for Mr. Edwards, 723,750 shares for Mr. Sprunk, 369,750 shares for Ms. Jackson, and 6,935,625 shares for the executive officer and director group. +(4) +Includes shares credited to accounts under the NIKE, Inc. Deferred Compensation Plan in the following amounts: 20,528 for Mr. Houser, and 15,829 for Mr. Thompson. +(5) +Does not include: (a) 260,896 shares of Class A Stock that are owned by Mr. Knight’s spouse, (b) 35,701,191 shares of Class A Stock held by seven grantor annuity trusts for the benefit of Mr. Knight’s children, (c) 2,880,290 shares of Class B Stock held by the Knight Foundation, a charitable foundation in which Mr. Knight and his spouse are directors, and (d) 1,689,263 shares of Class B Stock held by Jasper Ridge Strategic Partners, L.P., a limited partnership in which a company owned by Mr. Knight is a limited partner. Mr. Knight has disclaimed ownership of all such shares. +(6) +Executive officer listed in the Summary Compensation Table. +(7) +Includes shares held in accounts under the NIKE, Inc. 401(k) and Profit Sharing Plan for Messrs. Parker, Blair, Edwards, Sprunk, and Ms. Jackson in the amounts of 17,088, 5,773, 9,033, 557 and 834 shares, respectively. +(8) +Preferred Stock does not have general voting rights except as provided by law, and under certain circumstances as provided in the Company’s Restated Articles of Incorporation, as amended. +(9) +Information provided as of February 6, 2014 in Schedule 13G filed by the shareholder. +(10) +Information provided as of February 6, 2014 in Schedule 13G filed by the shareholder. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors and executive officers, and persons who own more than 10 percent of a registered class of the Company’s equity securities, to file with the SEC and the NYSE initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Officers, directors and greater than 10 percent shareholders are required by the regulations of the SEC to furnish the Company with copies of all Section 16(a) forms they file. To the Company’s knowledge, based solely on review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ended May 31, 2014 all Section 16(a) filing requirements applicable to its officers, directors and greater than 10 percent beneficial owners were complied with, except that the annual stock option grants to non-employee directors in September 2013 covering a total of 71,000 shares were reported late due to administrative error. +Transactions with Related Persons +Effective July 1, 2013, Mr. Knight terminated an arrangement whereby he made his airplane available to the Company for business use for no charge. During the course of the arrangement NIKE operated and maintained the aircraft. Mr. Knight reimbursed the Company $96,835 for NIKE’s operating costs related to his personal use of this aircraft during fiscal 2014, determined based on the cost of fuel and other variable costs associated with the flights under FAR 91-501(d). In connection with the termination of the airplane arrangement, the Company sold a tug and power cart, purchased for Mr. Knight's plane, to a company owned by Mr. Knight for $110,000. +Mr. Howard S. Slusher, the father of John Slusher, Executive Vice President of Sports Marketing, and the Company are parties to a Consulting Agreement pursuant to which Howard Slusher manages the planning, design, and construction of new buildings at, and improvements to, NIKE's World Headquarters. Howard Slusher was selected due to his deep history and experience with the Company, as he has managed several significant construction projects for the Company, including the original World Headquarters construction and later expansions. In addition, Howard Slusher's previous engagement with the Company garnered the trust of management and makes him uniquely qualified to oversee the project. During fiscal 2014, the Company paid Howard Slusher $1,525,000 for these services. +Pursuant to the terms of a past consulting agreement with the Company, the Company agreed to pay for health and life insurance policies for Howard Slusher following expiration of the agreement. During fiscal 2014, the Company paid $129,801 for health and life insurance premiums. +Three of Mr. Parker’s siblings are employed by the Company in non-executive roles. Bob Parker is a Marketplace Director, and has been employed by the Company for over 30 years; Stephen Parker is Vice President & General Manager, Converse Asia-Pacific, and has been employed by the Company for over 26 years; and Ann Parker is an Executive Talent Scout, and has been employed by the Company for over 24 years. During fiscal year 2014, the Company paid aggregate compensation to each of Bob Parker, Stephen Parker and Ann Parker in the amounts of $384,637, $514,215, $277,678, respectively. The compensation was consistent with compensation paid to other employees holding similar positions, and was composed of salary, bonuses, the grant date fair value of stock options granted during the fiscal year estimated using the Black-Scholes pricing model, profit sharing and matching contributions to Company-sponsored retirement plans. +Mr. Thompson’s son, John Thompson III, head basketball coach at Georgetown University, and the Company are parties to a contract pursuant to which Mr. Thompson III provides certain endorsement and consulting services to the Company. The terms of this agreement, effective August 2014 through August 2019, provide for annual base compensation of $200,000, and up to $112,000 per year of product and merchandise, for use by him, the basketball staff and team. In addition, there are annual incentive payments based upon his team's performance of up to $100,000. +Compensation Committee Interlocks and Insider Participation +The members of the Compensation Committee of the Board of Directors during the fiscal year ended May 31, 2014 were Timothy D. Cook, Elizabeth J. Comstock, John C. Lechleiter, and Johnathan A. Rodgers. The Committee is composed solely of independent, non-employee directors. No member of the Compensation Committee has been an executive officer of the Company, and no member of the Compensation +NIKE, INC. Ÿ 2014 Notice of Annual Meeting 14 +CORPORATE GOVERNANCE +Committee had any relationships requiring disclosure by the Company under the SEC’s rules requiring disclosure of certain relationships and related-party transactions. None of the Company’s executive officers served as a director or member of a compensation committee (or other committee serving an equivalent function) of any other entity, the executive officers of which served as a director or member of the Compensation Committee of the Company during the fiscal year ended May 31, 2014. +COMPENSATION DISCUSSION AND ANALYSIS +Executive Summary +This Compensation Discussion and Analysis explains our compensation philosophy, summarizes our compensation programs and reviews compensation decisions for the executives identified as Named Executive Officers in the Summary Compensation Table on page 23. The Named Executive Officers for fiscal 2014 were: +• +Mark G. Parker, President and Chief Executive Officer +• +Donald W. Blair, Executive Vice President and Chief Financial Officer +• +Trevor A. Edwards, President, NIKE Brand +• +Eric D. Sprunk, Chief Operating Officer +• +Jeanne P. Jackson, President, Product and Merchandising +Messrs. Edwards and Sprunk and Ms. Jackson were promoted to their current positions effective July 1, 2013. Ms. Jackson is a new Named Executive Officer for fiscal 2014. +The Compensation Committee of the Board of Directors (the “Committee”) is comprised of Timothy D. Cook (Chairman), Elizabeth J. Comstock, John C. Lechleiter, and Johnathan A. Rodgers, each of whom is an independent director under applicable NYSE listing standards. +Our executive compensation program, similar to our non-executive compensation programs, is aligned with our business strategy and culture to attract and retain top talent, reward business results and individual performance, and most importantly, maximize shareholder returns. Our total compensation program for the Named Executive Officers is highly incentive-based and competitive in the marketplace, with Company performance determining a significant portion of total compensation. +Executive Compensation Governance Practices +To achieve the objectives of our executive compensation program and emphasize pay-for-performance principles, the Compensation Committee has continued to employ strong governance practices, including: +We Do +We Don't Do +ü Base a majority of total compensation on performance and retention incentives +ü Set annual and long-term incentive targets based on clearly disclosed, objective performance measures +ü Mitigate undue risk associated with compensation by using multiple performance targets, caps on potential incentive payments and a clawback policy +ü Require executive officers & non-employee directors to hold NIKE stock through published stock ownership guidelines +ü Vest equity awards over time to promote retention +ü Provide double-trigger change-in-control equity acceleration +ü Require executive officers and directors to obtain pre-approval to pledge NIKE stock +ü Mitigate potential dilutive effect of equity awards through robust share repurchase program +ü Conduct annual “say-on-pay” advisory votes +û Retirement acceleration for restricted stock or RSUs +û Repricing of options without shareholder approval +û Hedging transactions or short sales by executive officers or directors +û Dividends or dividend equivalents on unearned RSUs +û Significant perquisites +û Tax gross-ups for perquisites +û Pension or supplemental executive retirement plan (SERP) +û Employment contracts +û Cash-based change-in-control benefits +û Excise tax gross-ups upon change of control +Consideration of Say-on-Pay Vote Results +The non-binding advisory proposal regarding compensation of the Named Executive Officers submitted to shareholders at our 2013 Annual Meeting was approved by over 98% of the votes cast. The Committee believes this favorable outcome conveyed our shareholders' support of our executive compensation program and the Committee's decisions. After considering the shareholder vote and other factors in its annual review of our total executive compensation programs, the Committee made no material changes in the structure of our compensation programs. The Committee will continue to consider the outcome of the Company's say-on-pay votes when conducting its regular practice of evaluating the program and making future compensation decisions for the Named Executive Officers. +Financial Highlights under Incentive Plans +NIKE delivered strong performance in fiscal 2014. The charts below set forth certain key financial results that were used in determining payouts under our incentive compensation plans for fiscal 2014. In fiscal 2013, NIKE divested the Cole Haan and Umbro businesses. As a result, the measures below vary from NIKE's comparable publicly reported financial results from continuing operations. These results have been adjusted appropriately to account for the divestitures of the businesses as described in the footnotes to the charts below and in “Elements of our Compensation Program.” +1 For purposes of the fiscal 2012-2014 long-term incentive award payout, fiscal 2013 and 2014 revenues are adjusted to extrapolate Cole Haan and Umbro revenues through the divestiture dates of February 1, 2013 and November 30, 2012, respectively, for the full performance period. Fiscal 2013 and 2014 EPS are adjusted to extrapolate Cole Haan and Umbro operating income through the respective divestiture dates for the full performance period. Fiscal 2013 and 2014 also exclude divestiture-related charges and gains. All periods restated to reflect the December 24, 2012 two-for-one stock split. +2 For purposes of the annual incentive award payouts, fiscal 2013 and 2014 exclude all Cole Haan and Umbro revenues and expenses, all divestiture-related charges and gains, and any amounts associated with the transfer of Umbro sports marketing sponsorships to NIKE. +Executive Compensation Highlights +The total compensation for each of the Named Executive Officers is shown in the Summary Compensation Table on page 23. While we describe executive compensation in greater detail throughout this Compensation Discussion and Analysis, actions the Committee took in fiscal 2014 are highlighted below: +• +Base Salary. Based on the recommendation by the Committee, which was approved by the independent members of the Board, base salaries remained the same as it was determined that they were appropriately aligned with the market. +• +Performance-Based Annual Incentive Plan. Target awards remained the same, except in the case of Messrs. Parker and Edwards, who received target increases to 170% and 100% of base salary, respectively. The Committee established an increased target award for Mr. Parker to align with market and for Mr. Edwards in connection with his promotion to President, NIKE Brand. For fiscal 2014, the payout was 95.02% of target. +• +Performance-Based Long-Term Incentive Plan. The target awards for the fiscal 2014-2016 performance period for Messrs. Parker and Blair remained the same. The target awards for Messrs. Edwards and Sprunk were increased to $900,000 and $750,000, respectively. The Committee set these increased targets in connection with Mr. Edwards' promotion to President, NIKE Brand and Mr. Sprunk's promotion to Chief Operating Officer. The Committee set Ms. Jackson's target award at $750,000 based on competitive market data and internal pay equity. For the fiscal 2012-2014 performance period, the payout was 134.48% of target. +• +Stock Options. Mr. Parker was granted an option for 165,000 shares. Messrs. Blair, Edwards, and Sprunk and Ms. Jackson each received an option for 75,000 shares. Each award vests equally over four years. +• +Restricted Stock. Mr. Parker received an award in the amount of $3,500,000. Mr. Edwards received an award in the amount of $750,000. Messrs. Blair and Sprunk and Ms. Jackson each received an award in the amount of $625,000. Each award vests equally over three years. +• +Peer Group. For purposes of setting executive compensation in fiscal 2014, the companies in the peer group were unchanged from fiscal 2013. +NIKE, INC. Ÿ 2014 Notice of Annual Meeting 15 +COMPENSATION DISCUSSION AND ANALYSIS +Operation of the Compensation Committee +The Compensation Committee of the Board of Directors (the “Committee”) evaluates the performance of the CEO against goals and objectives set by the Committee. Based on the evaluation, the Committee Chair discusses the CEO's performance and recommended compensation with the independent members of the Board of Directors. The CEO's base salary and the base salaries of the other Named Executive Officers are approved by the independent members of the Board of Directors. The Committee has sole responsibility for all other elements of Named Executive Officer compensation. The Committee also oversees the performance evaluation of those officers and the administration of our executive compensation programs. The Committee receives recommendations from the CEO as to compensation of other Named Executive Officers, and the CEO participates in Committee discussions regarding the compensation of those officers. The Committee meets in executive session without the CEO to determine his compensation. The Committee is comprised of Timothy D. Cook (Chairman), Elizabeth J. Comstock, John C. Lechleiter, and Johnathan A. Rodgers, each of whom is an independent director under applicable NYSE listing standards. The Committee operates pursuant to a written charter that is available on our website at: http://investors.nikeinc.com . +Each year, the Committee reviews our executive total compensation program to ensure it continues to reflect the Committee's commitment to align the objectives and rewards of our executive officers with the creation of value for our shareholders. Similar to our non-executive compensation programs, the program has been designed to reinforce our pay-for-performance philosophy by delivering total compensation that motivates and rewards short-and long-term financial performance to maximize shareholder value, and to be externally competitive to attract and retain outstanding and diverse executive talent. This is done much in the same way our human resources staff designs our non-executive compensation programs, by ensuring they are market competitive, offer performance-based financial incentives, and provide opportunities to share in total Company success through competitive benefits, stock purchase discount programs, and broad-based profit sharing. In conducting its annual review, the Committee considers information provided by our human resources staff. Our human resources staff retains independent compensation consulting firms to provide surveys and reports containing competitive market data. These consultants do not formulate executive compensation strategies for NIKE or recommend individual executive compensation. The human resources staff uses the surveys and reports to make recommendations to the Committee concerning executive compensation. The Committee has the authority, in its sole discretion, to retain compensation consultants to assist the Committee in evaluating the compensation of executive officers, but chose to not retain any such consultants in fiscal 2014. The Committee relies on its collective experience and judgment along with the recommendations prepared by our human resources staff to set executive compensation. +Use of Market Survey Data +To help establish competitive ranges of base salary, incentive compensation opportunities, and target total compensation for the purpose of making recommendations to the Committee, our human resources staff uses competitive market data from surveys and reports prepared by Aon Hewitt Associates and Towers Watson. We consider market survey data from a peer group of companies which have similar revenue size, have similar products or markets, or reflect the companies with which we compete for executive talent. In addition, we consider market data across many industries, focusing on companies with revenues of $10 billion or more. +For purposes of setting executive compensation for fiscal 2014, the companies in our peer group were unchanged from fiscal 2013 and consisted of the following: +Company +Reported +Fiscal Year +Revenue +(in millions) +The Coca-Cola Company +12/13 +$46,854.0 +Colgate-Palmolive Company +12/13 +17,420.0 +FedEx Corp. +05/14 +45,567.0 +Gap Inc. +01/14 +16,148.0 +General Mills Inc. +05/14 +17,909.6 +Google Inc. +12/13 +59,825.0 +J.C. Penny Company Inc. +01/14 +11,859.0 +Kellogg Co. +12/13 +14,792.0 +Kimberly-Clark Corporation +12/13 +21,152.0 +Limited Brands Inc. +01/14 +10,773.0 +Macy’s, Inc. +01/14 +27,931.0 +McDonald’s Corporation +12/13 +28,105.7 +PepsiCo, Inc. +12/13 +66,415.0 +Starbucks Corp. +09/13 +14,892.2 +Time Warner Inc. +12/13 +29,795.0 +The Walt Disney Company +09/13 +45,041.0 +The surveys that our human resources staff reviews show percentile compensation levels for various executive positions with comparable job responsibilities. The staff also analyzes market data regarding compensation mix among base salary, annual incentive and long-term incentives such as performance-based cash awards, stock options, restricted stock and restricted stock unit awards. The Committee reviews this mix analysis when evaluating the separate compensation elements for each executive. The Committee does not endeavor to set executive compensation at or +NIKE, INC. Ÿ 2014 Notice of Annual Meeting 16 +COMPENSATION DISCUSSION AND ANALYSIS +near any particular percentile, and it considers target total compensation to be competitive if it is generally within the 50 th to 75 th percentiles. Market data is one of many factors that the Committee considers in the determination of executive compensation levels. Other factors include internal pay equity, level of responsibility, the individual's performance, expectations regarding the individual's future potential contributions, succession planning and retention strategies, budget considerations, and our performance. +In November 2013, we conducted our regular periodic review of our peer group. Based on the criteria described above, we determined that for purposes of setting executive compensation in fiscal 2015, the peer group above should be refined to include eBay Inc., Kohl's Corp., and Mondelez International, Inc. and to remove General Mills Inc. and J.C. Penney Company Inc. +Objectives and Elements of Our Compensation Program +As noted in the Executive Summary, our executive compensation program is aligned with our business strategy and culture to attract and retain top talent, reward business results and individual performance, and most importantly, maximize shareholder returns. Our total compensation program for the Named Executive Officers is highly incentive-based and competitive in the marketplace, with Company performance determining a significant portion of total compensation. Our program consists of the following elements: +• +Base salary that reflects the executive’s accountabilities, skills, experience, performance, and future potential +• +Annual performance-based incentive cash bonus based on Company financial results under our Executive Performance Sharing Plan +• +A portfolio approach to long-term incentive compensation to provide a balanced mix of performance-based cash incentives and equity, including: +◦ +Performance-based long-term incentive cash awards based on Company financial results to encourage attainment of long-term Company financial objectives +◦ +Stock options to align the interests of executives with those of shareholders +◦ +Restricted stock awards and restricted stock unit retention awards to provide incentives consistent with shareholder returns, and to provide strong retention incentives +• +Benefits +◦ +Profit sharing contributions to defined contribution retirement plans +◦ +Post-termination payments under non-competition agreements +◦ +Executives are generally eligible for the same competitive benefits as other employees in the U.S., including medical, dental, and vision insurance, paid time off, 401(k) plan, and Company-provided life and disability insurance. Employees outside of the U.S. are offered locally competitive benefits. +◦ +Employee Stock Purchase Plan +In determining the award levels for each of the elements in our total compensation program, our philosophy is to "pay for performance." As a result, we place relatively greater emphasis on the incentive components of compensation (annual incentive award, long-term incentive award, and stock options) to align the interests of our executives with shareholders, and motivate them to maximize shareholder returns. This is balanced with retention incentives provided by base salary, restricted stock awards, and restricted stock unit awards. +We look to the experience and judgment of the Committee to determine what it believes to be the appropriate target compensation mix for each Named Executive Officer. We do not apply fixed ratios or formulas, or rely solely on market data or quantitative measures. In allocating compensation among the various elements, the Committee considers market data, Company performance and budget, the impact of the executive's position in the Company, individual past performance, expectations for future performance, experience in the position, any anticipated increase in the individual's responsibilities, internal pay equity for comparable positions, and retention incentives for succession planning.As shown in the charts below, incentive components accounted for 89% of the CEO's target compensation and approximately 80% of the other Named Executive Officers' target compensation in fiscal 2014. +NIKE, INC. Ÿ 2014 Notice of Annual Meeting 17 +COMPENSATION DISCUSSION AND ANALYSIS +Elements of Our Compensation Program +Base Salary +When making recommendations to the Committee concerning base salary levels for our Named Executive Officers, our human resources staff follows a similar process to how they evaluate non-executive base salary levels. We consider the individual's performance in the prior year, expectations regarding the individual's future performance, experience in the position, any anticipated increase in the individual's responsibilities, internal pay equity for comparable positions, succession planning strategies, our annual salary budget, other elements of the individual's compensation, and the market data described in “Use of Market Survey Data.” The Committee reviews these factors each year and adjusts base salary levels to ensure that we are appropriately rewarding performance. +The Committee generally reviews base salaries of the Named Executive Officers annually based on a review of individual performance at a meeting in June, with salary adjustments becoming effective for the first pay period ending in August. During the salary review in June 2013, the Committee recommended, and the independent members of the Board approved, maintaining the base salaries for Messrs. Parker, Blair, Edwards, and Sprunk and Ms. Jackson at $1,550,000, $850,000, $935,000, $935,000, and $885,000, respectively, based on the determination that the base salaries were appropriately aligned with comparable positions in the market. +In setting a Named Executive Officer's overall compensation package, the Committee places a relatively greater emphasis on the incentive components of compensation described below. +Performance-Based Annual Incentive Bonus +Annual awards are paid to the Named Executive Officers under our Executive Performance Sharing Plan (“PSP”). Our “pay for performance” philosophy for awards is simple and applies to all global employees who are eligible to share in the Company's success through incentive bonuses: if we exceed our financial objectives, we will pay more; if we fail to reach them, we will pay less or nothing at all. The PSP for all executives is based 100% on overall corporate performance each year against a target based on the Company's annual financial objective, as measured by income before income taxes excluding the effect of any acquisitions, divestitures or accounting changes (“PTI”). Basing our annual incentive award program for all executives on overall corporate performance is intended to foster teamwork and send the message to each executive that his or her role is to help ensure overall organizational success and maximize shareholder returns. +Each year the Committee establishes a PSP target award for each Named Executive Officer based on its judgment of the impact of the position in the Company and what it believes to be competitive against market data as described in “Use of Market Survey Data,” while considering internal pay equity for comparable positions. The fiscal 2014 target awards were: +Named Executive Officer +Fiscal 2014 PSP Target Award +(% of base salary) +Mr. Parker +170% +Mr. Edwards +100% +Mr. Blair +90% +Mr. Sprunk +90% +Ms. Jackson +90% +The Committee increased Mr. Parker's target from 150% to 170% to align with market. Mr. Edwards' target was increased from 90% to 100% in recognition of the expanded responsibilities associated with his promotion to President, NIKE Brand on July 1, 2013. The targets for Messrs. Blair and Sprunk remained unchanged. Ms. Jackson's target was set based on competitive market data and internal pay equity considerations. +NIKE, INC. Ÿ 2014 Notice of Annual Meeting 18 +COMPENSATION DISCUSSION AND ANALYSIS +The table below summarizes the fiscal 2014 PSP performance goals established by the Committee. In June 2014, NIKE achieved a PTI of $3,535 million in fiscal 2014, an 8.0% increase over fiscal 2013 publicly reported continuing operations PTI. This achievement was below the target performance goal established by the Committee. As a result, each executive officer's award was paid out at 95.02% of the target award. (Dollars in millions) +Fiscal 2014 PSP Performance Goal +Threshold Performance +Threshold % Payout +Target Performance +Target % Payout +Maximum Performance +Maximum % Payout +Actual Performance +Actual % Payout +PTI 1 +$3,278 2 +50% +$3,563 3 +100% +$3,848 4 +150% +$3,535 +95.02% 5 +__________________________________________________________ +1 Excludes all charges and gains related to the divestitures of Cole Haan and Umbro. +2 Threshold payout approximates publicly reported continuing operations PTI for 2013. For threshold, target, and maximum award payouts, increases over fiscal 2013 publicly reported continuing operations PTI results are not uniform percentages, but were established by the Committee based on its evaluation of our business plan and prospects for the year. +3 Target payout represents 8.9% increase above fiscal 2013 publicly reported continuing operations PTI. +4 Maximum payout represents 17.6% increase above fiscal 2013 publicly reported continuing operations PTI. +5 Prorated for performance between payout levels. +Performance-Based Long-Term Incentive Plan +The first component in our long-term portfolio mix is performance-based awards payable in cash under our Long-Term Incentive Plan (“LTIP”). As with the performance-based annual incentive, the LTIP follows our “pay for performance” philosophy. If we exceed our targets, we will pay more; if we fall short, we will pay less or nothing at all. This program focuses executives on overall, long-term financial performance, and is intended to reward them for delivering revenue growth and diluted earnings per share (“EPS”) growth over a three-year performance period. At the beginning of each fiscal year, the Committee establishes performance goals and potential cash payouts for the next three fiscal years for all executives under the LTIP. LTIP measures for all executives are based 50% on cumulative revenues for the three-year performance period and 50% on cumulative EPS for the period, in each case excluding generally the effect of acquisitions, divestitures and accounting changes. +During the compensation review in June 2013, the Committee approved LTIP target awards for all Named Executive Officers for the fiscal 2014-2016 performance period. The Committee set these targets based on its judgment of what it believes to be a desirable mix of long-term compensation, the impact of the position in the Company, and what it finds to be competitive against market data as described in “Use of Market Survey Data,” while maintaining internal pay equity for comparable positions. For the fiscal 2014-2016 performance period, the Committee maintained the targets for Messrs. Parker and Blair. Mr. Edwards' target was increased from $500,000 to $900,000 in recognition of the expanded responsibilities associated with his promotion to President, NIKE Brand on July 1, 2013. Mr. Sprunk's target award was increased from $500,000 to $750,000 in recognition of the expanded responsibilities associated with his promotion to Chief Operating Officer on July 1, 2013. The Committee set Ms. Jackson's target based on competitive market data and internal pay equity considerations. The target awards for the fiscal 2014-2016 performance period are: +Named Executive Officer +Fiscal 2014-2016 LTIP Award Target ($) +Mr. Parker +$3,500,000 +Mr. Edwards +900,000 +Mr. Sprunk +750,000 +Ms. Jackson +750,000 +Mr. Blair +500,000 +In June 2013, the Committee established measures for the fiscal 2014-2016 LTIP. The Committee considered our long-term financial goals of high single-digit revenue growth and mid-teens EPS growth in setting performance goals for the target award payout level. The total payout percentage will be the average of the payout percentages determined for cumulative revenues and cumulative EPS, respectively. Payout below the threshold payout level may occur if either the revenue or EPS related percentage achievement is less than 50%. If both revenue and EPS fall below the threshold level, there is no payment. The table below summarizes the fiscal 2014-2016 LTIP performance goals. +(Dollars in millions, except per share data) +Fiscal 2014-2016 Performance Goals +Threshold Performance 1 +Threshold % Payout +Target Performance 2 +Target % Payout +Maximum Performance 3 +Maximum % Payout +Revenue +$85,422 +50% +$88,750 +100% +$95,666 +200% +EPS +$9.61 +50% +$10.36 +100% +$11.96 +200% +__________________________________________________________ +1 Threshold payout for revenue requires cumulative revenue corresponding to a 6% compound annual growth rate (“CAGR”) from fiscal 2013 continuing operations revenue of $25,313 million. Threshold payout for EPS requires cumulative EPS corresponding to a 9% CAGR from fiscal 2013 continuing operations EPS of $2.69. +2 Target revenue payout requires an 8% CAGR and target EPS payout requires a 13% CAGR. +3 Maximum revenue payout requires a 12% CAGR and maximum EPS payout requires a 21% CAGR. +NIKE, INC. Ÿ 2014 Notice of Annual Meeting 19 +COMPENSATION DISCUSSION AND ANALYSIS +Our executive officers were eligible to receive LTIP award payouts based on performance targets set in June 2011 covering the fiscal 2012-14 performance period. For this performance period, award terms provide for the extrapolation of divested business results for the post-divestiture portion of the related performance period, as well as the exclusion of divestiture-related charges or gains. In June 2014, the Committee determined a payout of 134.48% under these awards was earned based on the average of the payout percentages for cumulative adjusted revenues and cumulative adjusted EPS for the performance period shown in the table below: +(Dollars in millions, except per share data) +Fiscal 2012-2014 Performance Goals +Threshold Performance +Threshold % Payout +Target Performance +Target % Payout +Maximum Performance +Maximum % Payout +Actual Performance +Actual % Payout +Revenue +$69,458 +50% +$73,145 +100% +$78,116 +200% +$78,805 1 +200% +EPS +$7.67 +50% +$8.45 +100% +$9.34 +200% +$7.96 2 +68.96% +Total Payout +134.48% +1 Cumulative revenues for fiscal 2012, fiscal 2013 and fiscal 2014. Fiscal 2013 and 2014 revenues are adjusted to extrapolate Cole Haan and Umbro revenues through the divestiture dates of February 1, 2013 and November 30, 2012, respectively, for the full performance period. +2 Cumulative EPS for fiscal 2012, fiscal 2013 and fiscal 2014. Fiscal 2013 and 2014 EPS are adjusted to extrapolate Cole Haan and Umbro operating income through the respective divestiture dates for the full performance period. Fiscal 2013 and 2014 also exclude divestiture-related charges and gains. All periods restated to reflect December 24, 2012 two-for-one stock split. +Stock Options +The second component in our long-term portfolio mix is stock options. Stock options are designed to align the interests of the Company's executives with those of shareholders by encouraging executives to enhance the value of the Company and, hence, the price of the Class B Stock. This is true “pay for performance”: executives are rewarded only if the market price of our stock rises, and they get nothing if the price does not rise. When determining the grants, the Committee generally focuses on the number of shares, while considering the value for accounting purposes. Our approach is based on our desire to carefully control annual share usage and avoid fluctuations in grant levels due to share price changes. The Committee awards stock options to each executive based on its judgment. The Committee considers a number of factors including the individual's performance, management succession, competitive market data as described in “Use of Market Survey Data,” internal pay equity for comparable positions, and a desirable mix of long-term incentives. Our human resources staff periodically tests the reasonableness of our stock option grants against competitive market data and may make recommendations to the Committee. Options are generally granted annually to selected employees, including the Named Executive Officers, in July of each year under our shareholder-approved Stock Incentive Plan. Stock options for fiscal 2014 were granted by the Committee on July 19, 2013 with an exercise price equal to the closing market price of our stock on that date. +In July 2013, the Committee granted options to Mr. Parker for 165,000 shares, the same number of stock options granted to him in July 2012 before adjustment for our December 24, 2012 two-for-one stock split. Messrs. Blair, Edwards, and Sprunk each received 75,000 shares, an increase of 15,000 shares to each of them from July 2012 (pre-stock split). Ms. Jackson also received 75,000 shares. The Committee, in its judgment, set these award levels based on the factors described above. +Options we grant generally vest over a four-year period, and are forfeited if the employee leaves before vesting occurs, to promote executive retention. All options granted since July 2010 provide for a limited retirement provision designed to encourage employees to delay retirement, thus enhancing retention. Only those employees with a minimum of five years of service who are age 55 and above at the time of termination of employment are eligible for the provision. Under the provision, only unvested stock options that have been granted for at least one full year to employees between the ages of 55 to 59 at the time of termination of employment will continue to vest, and may be exercised for up to four years after termination. If an employee is age 60 or older and has at least five years of service at termination, unvested stock options that have been granted for at least one full year will receive accelerated vesting and may be exercised for up to four years after termination. The features related to accelerated vesting are described in “Potential Payments upon Termination or Change-in-Control.” Based on their ages and years of service, as of May 31, 2014, Messrs. Parker and Blair could terminate employment at any time and receive continued vesting of their options granted in July 2010, 2011, and 2012. As of May 31, 2014, Ms. Jackson could terminate employment at any time and receive accelerated vesting of her options granted in July 2010, 2011, and 2012. +Restricted Stock Awards +The third component in our long-term portfolio mix is restricted stock awards. Stock ownership and stock-based incentive awards align the interests of our Named Executive Officers with the interests of our shareholders, as the value of this incentive rises and falls with the stock price, consistent with shareholder returns. Restricted stock awards are generally granted annually to selected employees, including the Named Executive Officers, in July at the same meeting at which stock options are granted under our shareholder-approved Stock Incentive Plan. Awards generally vest in three equal installments on each of the first three anniversaries of the grant date. The awards promote executive retention, as unvested shares held at the time the executive's employment is terminated are forfeited. Award recipients receive dividends on the full number of restricted shares awarded at the same time dividends are paid to others shareholders. +The Committee, in its judgment, sets these award levels based on several factors, including what the Committee believes to be a desirable mix of long-term compensation, their determination of an appropriate weighting of potential future contribution to the Company, retention incentives, and competitive grants based on competitive market data. In July 2013, the Committee granted a restricted stock award to Mr. Parker valued at $3,500,000, representing 55,249 shares of our Class B Stock, based on the closing price of our stock on the grant date. This was the same value of restricted stock granted to Mr. Parker in July 2012. Mr. Edwards received an award valued at $750,000, representing 11,839 shares of our Class B Stock. The Committee increased his award by $125,000 relative to his award in July 2012 in recognition of the expanded +NIKE, INC. Ÿ 2014 Notice of Annual Meeting 20 +COMPENSATION DISCUSSION AND ANALYSIS +responsibilities associated with his promotion to President, NIKE Brand on July 1, 2013. Messrs. Blair and Sprunk and Ms. Jackson each received an award valued at $625,000, representing 9,866 shares based on the closing price of our stock on the grant date. This was the same value granted to Messrs. Blair and Sprunk in July 2012. +Restricted Stock Unit (RSU) Retention Awards +From time to time, the Committee also grants restricted stock units (“RSUs”) that vest based on continued service through a future service date with the Company specifically to further promote retention. These RSU awards accumulate dividend equivalents that are only paid in cash upon full vesting. The awards have no value to the executive unless the executive remains employed with the Company for the full vesting period, and will be canceled if the executive terminates or retires within the vesting period. None of our Named Executive Officers received RSUs in fiscal 2014. +Profit Sharing and Retirement Plans +The NIKE 401(k) Savings and Profit Sharing Plan is our U.S. tax qualified retirement savings plan pursuant to which all our U.S. employees who work at least 1,000 hours in a year, including the Named Executive Officers, are able to make pre-tax contributions from their cash compensation. We make matching contributions for all participants each year equal to 100% of their elective deferrals up to 5% of their total eligible compensation. We also make annual profit sharing contributions to the accounts of our eligible U.S. employees under the 401(k) Savings and Profit Sharing Plan. The contributions are allocated among eligible employees based on a percentage of their total salary and annual incentive award for the year. The total profit sharing contribution and the percentage of salary and annual incentive award contributed for each employee is determined each year by the Board of Directors. For fiscal 2014, the Board of Directors approved a profit sharing contribution for each employee equal to 3.89% of the employee's total eligible salary and annual incentive award. +The Internal Revenue Code limits the amount of compensation that can be deferred under the 401(k) Savings and Profit Sharing Plan, and also limits the amount of salary and annual incentive award ($255,000 for fiscal 2014) with respect to which matching contributions and profit sharing contributions can be made under that plan. Accordingly, we provide our executive officers and other highly compensated employees with the opportunity to defer their compensation, including amounts in excess of the tax law limit, under our nonqualified Deferred Compensation Plan. We also make profit sharing contributions under the Deferred Compensation Plan with respect to salary and annual incentive award of any employee that exceeds the tax law limit, and for fiscal 2014 these contributions were equal to 3.89% of the total salary and annual incentive award of each Named Executive Officer in excess of $255,000. These contributions under the Deferred Compensation Plan allow our Named Executive Officers and other highly compensated employees to receive profit sharing retirement contributions in the same percentage as our other employees. We do not match executive deferrals to the Deferred Compensation Plan. Executive officer balances in the Deferred Compensation Plan are unsecured and at-risk, meaning the balances may be forfeited in the event of the Company's financial distress such as bankruptcy. Our matching and profit sharing contributions for fiscal 2014 to the accounts of the Named Executive Officers under the qualified and nonqualified plans are included in the All Other Compensation column in the Summary Compensation Table on page 23. +Employee Stock Purchase Plan +Our Employee Stock Purchase Plan allows all employees who work at least 20 hours per week in the United States and in many countries outside of the United States to purchase NIKE Class B Stock through payroll deductions at a 15% discount to the market price on the first or last trading day of the six-month purchase period, dependent on which day the stock price was lower. No plan participant is allowed to purchase more than $25,000 in market value of our stock under the plan in any calendar year. In fiscal 2014, all Named Executive Officers participated in our Employee Stock Purchase Plan, with the exception of Mr. Parker. +Post-termination Payments under Non-competition Agreements +In exchange for non-competition agreements from all of our Named Executive Officers, we have agreed to provide, during the non-competition period, the monthly payments described in “Potential Payments upon Termination or Change-in-Control,” some of which are at the election of the Company. We believe that it is appropriate to compensate individuals to refrain from working with competitors following termination, and that compensation enhances the enforceability of such agreements. +Stock Ownership Guidelines +On June 20, 2013, the Board of Directors adopted stock ownership guidelines for executive officers. These guidelines are designed to further align the long-term interests of our executive officers with those of our shareholders. Under the guidelines, the CEO and other executive officers are required to hold NIKE stock valued at the following multiple of their annual base salary: +Position +Ownership Level +Chief Executive Officer +6X Base Salary +Named Executive Officers +3X Base Salary +Other Executive Officers +2X Base Salary +Current executive officers are required to attain these ownership levels by June 20, 2018 and new officers within five years of their appointment. +Hedging and Pledging +The Company's black-out and pre-clearance policy (which supplements our insider trading policy) prohibits directors, executive officers and other designated insiders from engaging in transactions involving hedging, monetization or short sales of NIKE stock, including zero-cost collars and forward sale contracts. The policy also requires directors, executive officers and designated insiders to obtain pre-approval from the Company's Corporate Secretary before pledging NIKE stock. Before granting approval of any pledge, the Corporate Secretary considers the size of the pledge relative to the individual's other holdings, both direct and indirect, and NIKE's shares outstanding; the risk of foreclosure given the nature of the associated transaction; protections against the appearance of insider trading, including prohibitions on sales during black-out windows; and the ability to timely report sales on Form 4. +Change-in-Control Provisions +All unvested stock option, restricted stock, and restricted stock unit awards are subject to accelerated change-in-control vesting only when two events (a “double trigger”) occur. Vesting of grants is generally accelerated only if there is a change in control of the Company and either the acquiring entity fails to assume the awards or the employee's employment is terminated by the acquirer without cause or by the employee for good reason within two years following a change in control. This double trigger was adopted to encourage executive retention through a period of uncertainty and a subsequent integration with an acquirer. The Committee believes that this approach will enhance shareholder value in the context of an acquisition, and align executives with the interests of investors. The effects of change-in-control transactions on stock option, restricted stock, and restricted stock unit awards are described further in “Potential Payments Upon Termination or Change-in-Control.” +Clawback Policy +In June 2010, the Committee and Board of Directors approved a policy for recoupment of incentive compensation (the “clawback policy”). The Board of Directors adopted the clawback policy to prevent executives involved in certain wrongful conduct from unjustly benefiting from that conduct, and to remove potential financial incentives to engage in that conduct. The clawback policy generally requires an executive officer who is involved in wrongful conduct that results in a restatement of the Company's financial statements to repay to the Company up to the full amount of any incentive compensation based on the financial statements that were subsequently restated. Incentive compensation includes the annual PSP award, LTIP payout, profit sharing contributions to the Deferred Compensation Plan, and excess proceeds from sales of stock acquired under stock option, restricted stock, and restricted stock unit awards that occurred prior to the restatement. +Risk Assessment +At the Committee's request, in fiscal 2014 management prepared and discussed with the Committee an assessment of potential risk associated with the Company's compensation programs, including any risk that would be reasonably likely to have a material adverse effect on the Company. This included an assessment of risks associated with each element of employee compensation. The assessment considered certain design features of the compensation programs that reduce the likelihood of excessive risk taking, such as reasonable performance targets, capped payouts of incentive compensation, a balance of short- and long-term incentives, a balance of cash and equity incentives, vesting of awards over time, and the potential for clawback of incentive compensation. In addition, for equity compensation, in recent years the Committee and the Board have adopted stock ownership guidelines, limited accelerated vesting of stock options upon termination of employment, and implemented double-trigger accelerated vesting for all equity awards upon change in control (each as described above). +NIKE, INC. Ÿ 2014 Notice of Annual Meeting 21 +Tax Deductibility of Executive Compensation +Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public companies for annual compensation over $1 million paid to their chief executive officer and the next three most highly compensated executive officers (other than the principal financial officer). The Internal Revenue Code generally excludes from the calculation of the $1 million cap compensation that is based on the attainment of pre-established, objective performance goals established under a shareholder-approved plan. We consider the impact of this exclusion when developing and implementing our executive compensation programs. Annual awards under our Executive Performance Sharing Plan, long-term incentive awards under our Long-Term Incentive Plan and stock options under our 1990 Stock Incentive Plan generally are designed to meet the requirements under the exclusion. We also believe that it is important to preserve flexibility in administering compensation programs in a manner designed to promote varying corporate goals. Accordingly, we have not adopted a policy that all compensation must qualify as deductible under Section 162(m). Amounts paid under any of our compensation programs, including salaries, annual incentive awards, performance awards and grants of restricted stock and restricted stock units, may not qualify as performance-based compensation that is excluded from the Section 162(m) limitation on deductibility. In fiscal 2014, a portion of the compensation paid to Messrs. Parker, Edwards, and Sprunk and Ms. Jackson was not deductible. +COMPENSATION COMMITTEE REPORT +The Compensation Committee of the Board of Directors (the “Committee”) has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K. Based on the review and discussions, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement. +Members of the Compensation Committee: +• +Timothy D. Cook, Chairman +• +Elizabeth J. Comstock +• +John C. Lechleiter +• +Johnathan A. Rodgers +EXECUTIVE COMPENSATION +Summary Compensation Table +The following table sets forth compensation for fiscal 2012-2014 paid to or earned by our Chief Executive Officer, our Chief Financial Officer and our next three most highly compensated executive officers who were serving as executive officers on May 31, 2014. These individuals are referred to throughout this proxy statement as the “Named Executive Officers.” +Name and Principal +Position +Year +Salary (1) +($) +Stock +Awards (2) +($) +Option +Awards (3) +($) +Non-Equity +Incentive Plan +Compensation (4) +($) +All Other +Compensation (5) +($) +Total +($) +Mark G. Parker +2014 +1,550,000 +3,500,024 +2,451,174 +6,538,177 +638,974 +14,678,349 +President and Chief +2013 +1,609,615 +3,500,087 +4,199,250 +5,522,466 +594,190 +15,425,608 +Executive Officer +2012 +1,550,000 +23,500,076 +3,648,150 +6,205,960 +308,492 +35,212,678 +Donald W. Blair +2014 +850,000 +625,011 +1,114,170 +1,399,303 +158,219 +4,146,703 +Executive Vice President +2013 +882,692 +3,625,093 +1,527,000 +1,584,715 +138,932 +7,758,432 +and Chief Financial Officer +2012 +850,000 +550,017 +1,105,500 +1,725,832 +117,676 +4,349,025 +Trevor A. Edwards +2014 +935,000 +750,001 +1,114,170 +1,560,837 +204,920 +4,564,928 +President, NIKE Brand +2013 +961,346 +5,625,103 +1,527,000 +1,660,430 +169,552 +9,943,431 +2012 +878,269 +600,085 +1,105,500 +1,749,972 +109,316 +4,443,142 +Eric D. Sprunk +2014 +935,000 +625,011 +1,114,170 +1,471,993 +203,559 +4,349,733 +Chief Operating Officer +2013 +961,346 +5,625,103 +1,527,000 +1,660,430 +170,055 +9,943,934 +2012 +878,269 +600,085 +1,105,500 +1,749,972 +114,438 +4,448,264 +Jeanne P. Jackson +2014 +885,000 +625,011 +1,114,170 +1,429,234 +159,979 +4,213,394 +President, Product and Merchandising +NIKE, INC. Ÿ 2014 Notice of Annual Meeting 22 +EXECUTIVE COMPENSATION +(1) +Reflects 26 pay periods during fiscal 2014 and fiscal 2012 and 27 pay periods during fiscal 2013. +(2) +Represents the grant date fair value of restricted stock and restricted stock unit awards granted in the applicable year computed in accordance with accounting guidance applicable to stock-based compensation. The grant date fair value is based on the closing market price of our Class B Stock on the grant date. +(3) +Represents the grant date fair value of options granted in the applicable year computed in accordance with accounting guidance applicable to stock-based compensation. The grant date fair value of the options was estimated using the Black-Scholes option pricing model. The assumptions made in determining the grant date fair values of options under applicable accounting guidance are disclosed in Note 11 of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended May 31, 2014. +(4) +Non-Equity Incentive Plan Compensation consists of the following: +Name +Fiscal Year +Annual Incentive +Compensation +($) +Long-Term Incentive +Compensation +($) +Total +($) +Mark G. Parker +2014 +2,503,777 +4,034,400 +6,538,177 +2013 +2,582,466 +2,940,000 +5,522,466 +2012 +2,205,960 +4,000,000 +6,205,960 +Donald W. Blair +2014 +726,903 +672,400 +1,399,303 +2013 +849,715 +735,000 +1,584,715 +2012 +725,832 +1,000,000 +1,725,832 +Trevor A. Edwards +2014 +888,437 +672,400 +1,560,837 +2013 +925,430 +735,000 +1,660,430 +2012 +749,972 +1,000,000 +1,749,972 +Eric D.Sprunk +2014 +799,593 +672,400 +1,471,993 +2013 +925,430 +735,000 +1,660,430 +2012 +749,972 +1,000,000 +1,749,972 +Jeanne P. Jackson +2014 +756,834 +672,400 +1,429,234 +Amounts shown in the Annual Incentive Compensation column were earned for performance in the applicable fiscal year under our Executive Performance Sharing Plan. Amounts shown in the Long-Term Incentive Compensation column were earned for performance during the three -year period ending with the applicable fiscal year under our Long-Term Incentive Plan. +(5) +For fiscal 2014 for each of the Named Executive Officers, this includes profit-sharing contributions by us to the 401(k) Savings and Profit Sharing Plan in the amount of $9,931 and matching contributions by us to the 401(k) Savings and Profit Sharing Plan in the amount of $12,750 for Messrs. Parker, Blair, Edwards and Sprunk, and Ms. Jackson. Also includes profit-sharing contributions by us to the Deferred Compensation Plan in the following amounts: $151,006 for Mr. Parker, $56,264 for Mr. Blair, $62,523 for Messrs. Edwards and Sprunk, and $58,989 for Ms. Jackson. Includes dividends paid on restricted stock and dividend equivalents credited (but not paid) on unvested restricted stock units in the following amounts: $465,287 for Mr. Parker, $79,274 for Mr. Blair, $119,716 for Mr. Edwards, $118,355 for Mr. Sprunk, and $78,309 for Ms. Jackson. +NIKE, INC. Ÿ 2014 Notice of Annual Meeting 23 +EXECUTIVE COMPENSATION +Grants of Plan-Based Awards in Fiscal 2014 +The following table contains information concerning the long-term incentive bonus opportunities, annual incentive bonus opportunities, restricted stock and restricted stock unit awards and stock options granted to the Named Executive Officers in fiscal 2014. +Estimated Possible Payouts Under +Non-Equity Incentive Plan Awards +Threshold +Target +Maximum +All Other Stock Awards: +Number of Shares of +Stock (3) +All Other +Option Awards: +Number of +Shares +Underlying +Options (4) +Exercise +or Base Price +of Option +Awards +Grant Date +Fair Value +of Stock +and Option +Awards (5) +Name +Grant Date +($) +($) +($) +(#) +(#) +($/Sh) +($) +Mark +6/19/2013 +1,317,500 (1) +2,635,000 (1) +3,952,500 (1) +G. Parker +6/19/2013 +1,750,000 (2) +3,500,000 (2) +7,000,000 (2) +7/19/2013 +55,249 +3,500,024 +7/19/2013 +165,000 +63.35 +2,451,174 +Donald +6/19/2013 +382,500 (1) +765,000 (1) +1,147,500 (1) +W. Blair +6/19/2013 +250,000 (2) +500,000 (2) +1,000,000 (2) +7/19/2013 +9,866 +625,011 +7/19/2013 +75,000 +63.35 +1,114,170 +Trevor +6/19/2013 +467,500 (1) +935,000 (1) +1,402,500 (1) +A. Edwards +6/19/2013 +450,000 (2) +900,000 (2) +1,800,000 (2) +7/19/2013 +11,839 +750,001 +7/19/2013 +75,000 +63.35 +1,114,170 +Eric +6/19/2013 +420,750 (1) +841,500 (1) +1,262,250 (1) +D. Sprunk +6/19/2013 +375,000 (2) +750,000 (2) +1,500,000 (2) +7/19/2013 +9,866 +625,011 +7/19/2013 +75,000 +63.35 +1,114,170 +Jeanne +6/19/2013 +398,250 (1) +796,500 (1) +1,194,750 (1) +P. Jackson +6/19/2013 +375,000 (2) +750,000 (2) +1,500,000 (2) +7/19/2013 +9,866 +625,011 +7/19/2013 +75,000 +63.35 +1,114,170 +(1) +These amounts represent the potential bonuses payable for performance during fiscal 2014 under our Executive Performance Sharing Plan. Under this plan, the Compensation Committee approved target awards for fiscal 2014 based on a percentage of the executive’s base salary paid during fiscal 2014 as follows: Mr. Parker, 170%; Mr. Blair, 90%; Mr. Edwards, 100%; Mr. Sprunk, 90%; and Ms. Jackson, 90%. The Committee also established a series of performance targets based on our income before income taxes (“PTI”) for fiscal 2014 (excluding the effect of acquisitions, divestitures and accounting changes) corresponding to award payouts ranging from 50% to 150% of the target awards. The PTI for fiscal 2014 required to earn the target award payout was $3,563 million. The PTI for fiscal 2014 required to earn the 150% maximum payout was $3,848 million. The PTI for fiscal 2014 required to earn the 50% threshold payout was $3,278 million. Participants receive a payout at the percentage level at which the performance target is met, subject to the Committee’s discretion to reduce or eliminate any award based on Company or individual performance. Actual award payouts earned in fiscal 2014 and paid in fiscal 2015 are shown in footnote 4 to the Non-Equity Incentive Plan Compensation column in the Summary Compensation Table. +(2) +These amounts represent the potential long-term incentive awards payable for performance during the three-year period consisting of fiscal 2014-2016 under our Long-Term Incentive Plan. Under this plan, the Compensation Committee approved target awards for the performance period and also established a series of performance targets based on our cumulative revenues and cumulative diluted earnings per common share (“EPS”) for the performance period (excluding the effect of acquisitions, divestitures and accounting changes not reflected in our business plan at the time of approval of the target awards) corresponding to award payouts ranging from 50% to 200% of the target awards. Participants will receive a payout at the average of the percentage levels at which the two performance targets are met, subject to the Committee’s discretion to reduce or eliminate any award based on Company or individual performance. For cumulative revenues over the performance period, the target payout requires revenues of $88,750 million, the 50% threshold payout requires revenues of $85,422 million, and the 200% maximum payout requires revenues of $95,666 million. For cumulative EPS over the performance period, the target payout requires EPS of $10.36, the 50% threshold payout requires EPS of $9.61, and the 200% maximum payout requires EPS of $11.96. Under the terms of the awards, on the first payroll period ending in August 2016 we will issue the award payout to each participant, provided that the participant is employed by us on the last day of the performance period. +(3) +All amounts reported in this column represent grants of restricted stock under our 1990 Stock Incentive Plan. Restricted stock generally vests in three equal installments on the first three anniversaries of the grant date. Vesting will be accelerated in certain circumstances as described below under “Potential Payments Upon Termination or Change-in-Control.” Dividends are payable on restricted stock at the same rate paid on all other outstanding shares of our Class B Stock. +(4) +All amounts reported in this column represent options granted under our 1990 Stock Incentive Plan. Options generally become exercisable for option shares in four equal installments on the first four anniversaries of the grant date. Options will become fully exercisable in certain circumstances as described below under “Potential Payments Upon Termination or Change-in-Control.” Each option has a maximum term of 10 years, subject to earlier termination in the event of the optionee’s termination of employment. +NIKE, INC. Ÿ 2014 Notice of Annual Meeting 24 +EXECUTIVE COMPENSATION +(5) +For stock awards, represents the value of restricted shares granted based on the closing market price of our Class B Stock on the grant date. For option awards, represents the grant date fair value of options granted based on a value of $14.8556 per share calculated using the Black-Scholes option pricing model. These are the same values for these equity awards used under accounting guidance applicable to stock-based compensation. The assumptions made in determining option values are disclosed in Note 11 of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended May 31, 2014. +NIKE, INC. Ÿ 2014 Notice of Annual Meeting 25 +EXECUTIVE COMPENSATION +Outstanding Equity Awards at May 31, 2014 +The following table sets forth information concerning outstanding stock options and unvested restricted stock and restricted stock units held by the Named Executive Officers at May 31, 2014. +Option Awards +Stock Awards +Name +Number of Securities Underlying Unexercised Options Exercisable (#) +Number of +Securities +Underlying +Unexercised +Options (#) (1) +Option Exercise Price ($) +Option Expiration Date +Number of Shares That Have Not Vested (#) +Market Value of Shares That Have Not Vested ($) +Mark G. Parker +280,000 +— +21.9000 +7/15/2015 +500,000 +— +21.0700 +2/16/2016 +270,000 +— +29.2600 +7/20/2017 +270,000 +— +29.1000 +7/18/2018 +300,000 +— +26.2200 +7/17/2019 +247,500 +82,500 +(2) +34.4800 +7/16/2020 +165,000 +165,000 +(3) +45.8500 +7/15/2021 +82,500 +247,500 +(4) +46.5400 +7/20/2022 +— +165,000 +(5) +63.3500 +7/19/2023 +510,195 (6) +39,239,097 +Donald W. Blair +132,000 +— +19.6900 +7/14/2016 +100,000 +— +29.2600 +7/20/2017 +100,000 +— +29.1000 +7/18/2018 +100,000 +— +26.2200 +7/17/2019 +75,000 +25,000 +(2) +34.4800 +7/16/2020 +50,000 +50,000 +(3) +45.8500 +7/15/2021 +30,000 +90,000 +(4) +46.5400 +7/20/2022 +— +75,000 +(5) +63.3500 +7/19/2023 +87,279 (7) +6,712,628 +Trevor A. Edwards +132,000 +— +18.3000 +7/16/2014 +132,000 +— +21.9000 +7/15/2015 +132,000 +— +19.6900 +7/14/2016 +100,000 +— +29.2600 +7/20/2017 +100,000 +— +29.1000 +7/18/2018 +100,000 +— +26.2200 +7/17/2019 +75,000 +25,000 +(2) +34.4800 +7/16/2020 +50,000 +50,000 +(3) +45.8500 +7/15/2021 +30,000 +90,000 +(4) +46.5400 +7/20/2022 +— +75,000 +(5) +63.3500 +7/19/2023 +132,590 (8) +10,197,497 +Eric D. Sprunk +132,000 +— +21.9000 +7/15/2015 +72,000 +— +19.6900 +7/14/2016 +66,000 +— +29.2600 +7/20/2017 +100,000 +— +29.1000 +7/18/2018 +100,000 +— +26.2200 +7/17/2019 +75,000 +25,000 +(2) +34.4800 +7/16/2020 +50,000 +50,000 +(3) +45.8500 +7/15/2021 +30,000 +90,000 +(4) +46.5400 +7/20/2022 +— +75,000 +(5) +63.3500 +7/19/2023 +130,617 (9) +10,045,753 +Jeanne P. Jackson +8,000 +— +28.1600 +9/17/2017 +8,000 +— +31.5800 +9/22/2018 +34,000 +— +21.2800 +3/4/2019 +66,000 +— +26.2200 +7/17/2019 +75,000 +25,000 +(2) +34.4800 +7/16/2020 +50,000 +50,000 +(3) +45.8500 +7/15/2021 +30,000 +90,000 +(4) +46.5400 +7/20/2022 +— +75,000 +(5) +63.3500 +7/19/2023 +86,559 (10) +6,657,253 +(1) +Stock options generally become exercisable for option shares in four equal installments on each of the first four anniversaries of the grant date. +(2) +100% of these shares vested on July 16, 2014. +(3) +50% of these shares vested on July 15, 2014 and 50% will vest on July 15, 2015. +NIKE, INC. Ÿ 2014 Notice of Annual Meeting 26 +EXECUTIVE COMPENSATION +(4) +33.3% of these shares vested on July 20, 2014, 33.3% will vest on July 20, 2015, and 33.3% will vest on July 20, 2016. +(5) +25% of these shares vested on July 19, 2014, 25% will vest on July 19, 2015, 25% will vest on July 19, 2016, and 25% will vest on July 19, 2017. +(6) +18,417 of these shares vested on July 19, 2014, 18,416 of these shares will vest on July 19, 2015, and 18,416 of these shares will vest on July 19, 2016. 25,069 of these shares vested on July 20, 2014 and 25,068 of these shares will vest on July 20, 2015. 25,445 of these shares vested on July 15, 2014. 379,364 of these shares will vest on May 18, 2017. +(7) +3,289 of these shares vested on July 19, 2014, 3,289 of these shares will vest on July 19, 2015, and 3,288 of these shares will vest on July 19, 2016. 4,477 of these shares vested on July 20, 2014 and 4,476 of these shares will vest on July 20, 2015. 3,998 of these shares vested on July 15, 2014. 64,462 of these shares will vest on July 20, 2015. +(8) +3,947 of these shares vested on July 19, 2014, 3,946 of these shares will vest on July 19, 2015, and 3,946 of these shares will vest on July 19, 2016. 4,477 of these shares vested on July 20, 2014 and 4,476 of these shares will vest on July 20, 2015. 4,362 of these shares vested on July 15, 2014. 107,436 of these shares will vest on July 20, 2017. +(9) +3,289 of these shares vested on July 19, 2014, 3,289 of these shares will vest on July 19, 2015, and 3,288 of these shares will vest on July 19, 2016. 4,477 of these shares vested on July 20, 2014 and 4,476 of these shares will vest on July 20, 2015. 4,362 of these shares vested on July 15, 2014. 107,436 of these shares will vest on July 20, 2017. +(10) +3,289 of these shares vested on July 19, 2014, 3,289 of these shares will vest on July 19, 2015, and 3,288 of these shares will vest on July 19, 2016. 4,298 of these shares vested on July 20, 2014 and 4,298 of these shares will vest on July 20, 2015. 3,635 of these shares vested on July 15, 2014. 64,462 of these shares will vest on July 20, 2017. +Option Exercises and Stock Vested During Fiscal 2014 +The following table provides information concerning stock option exercises and vesting of restricted stock during fiscal 2014 for each of the Named Executive Officers on an aggregated basis. +Option Awards +Stock Awards +Name +Number of Shares +Acquired on Exercise +(#) +Value Realized +on Exercise +($) +Number of Shares +Acquired on Vesting +(#) +Value Realized +on Vesting +($) +Mark G. Parker +240,000 +12,007,500 +84,350 +5,351,715 +Donald W. Blair +165,000 +8,870,400 +13,309 +844,405 +Trevor A. Edwards +— +— +13,673 +867,580 +Eric D. Sprunk +— +— +13,673 +867,580 +Jeanne P. Jackson +— +— +11,799 +748,630 +Equity Compensation Plans +The following table summarizes equity compensation plans approved by shareholders and equity compensation plans that were not approved by the shareholders as of May 31, 2014. +Plan Category +(a) +Number of Securities +to be Issued Upon Exercise of +Outstanding Options, Warrants and Rights +(b) +Weighted-Average Exercise +Price of Outstanding +Options, Warrants and Rights (3) +(c) +Number of Securities +Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column(a)) +Equity compensation plans approved by shareholders +65,069,019 (1) +$39.28 +39,991,048 +Equity compensation plans not approved by shareholders (2) +— +— +378,356 +Total +65,069,019 +$39.28 +40,369,404 +(1) +Includes 65,069,019 shares subject to awards of options, restricted stock units and stock appreciation rights outstanding under the 1990 Stock Incentive Plan. Includes 38,623,890 shares available for future issuance under the 1990 Stock Incentive Plan, and 1,367,158 shares available for future issuance under the Employee Stock Purchase Plan. +(2) +Includes 378,356 shares available for future issuance under the Foreign Subsidiary Employee Stock Purchase Plan, pursuant to which shares are offered and sold to employees of selected non-U.S. subsidiaries of the Company on substantially the same terms as those offered to U.S. employees under the shareholder-approved Employee Stock Purchase Plan. +(3) +These weighted-average exercise prices do not reflect the shares that will be issued upon the payment of outstanding awards of restricted stock units. +NIKE, INC. Ÿ 2014 Notice of Annual Meeting 27 +EXECUTIVE COMPENSATION +Non-Qualified Deferred Compensation in Fiscal 2014 +Name +Plan +Name +Executive +Contributions +in Fiscal 2014 (1) +NIKE Contributions +in Fiscal 2014 (1) +Aggregate Earnings +in Fiscal 2014 +Aggregate +Withdrawals/ +Distributions in +Fiscal 2014 +Aggregate +Balance +at 5/31/2014 (1) +Mark G. Parker +DCP +$1,197,993 +$143,346 +$156,401 +— +$9,271,375 +Donald W. Blair +DCP +1,363,366 +54,616 +1,486,525 +— +11,074,902 +Trevor A. Edwards +DCP +1,312,072 +58,749 +1,301,238 +— +11,189,568 +Eric D. Sprunk +DCP +598,858 +58,749 +779,146 +— +5,817,384 +Jeanne Jackson +DCP +— +57,048 +129,488 +— +1,068,815 +(1) +All amounts reported in the Executive Contributions column are also included in amounts reported in the Summary Compensation Table. The amounts reported in the NIKE Contributions column represent profit sharing contributions made by us in early fiscal 2014 based on fiscal 2013 results; these amounts are also included in amounts reported for fiscal 2013 in the All Other Compensation column of the Summary Compensation Table. Of the amounts reported in the Aggregate Balance column, the following amounts have been reported in the Summary Compensation Tables in this proxy statement or in prior year proxy statements: Mr. Parker, $8,457,554; Mr. Blair, $7,367,494; Mr. Edwards, $4,958,517; Mr. Sprunk, $1,554,164; and Ms. Jackson, $57,048. +Non-Qualified Deferred Compensation Plans +The Named Executive Officers are eligible to participate in our Deferred Compensation Plan (the “DCP”). Participants in the DCP may elect in advance to defer up to 100 percent of their annual base salary, bonus and long-term incentive payments. +Each year, we share profits with our employees in the form of profit sharing contributions to defined contribution retirement plans. The contributions are allocated among eligible employees based on a percentage of their total salary and bonus for the year. To the fullest extent permitted under Internal Revenue Code limitations, these contributions are made to employees’ accounts under our qualified 401(k) Savings and Profit Sharing Plan. Contributions based on salary and bonus in excess of the tax law limit ($255,000 for fiscal 2014) are made as NIKE contributions under the DCP. +Amounts deferred under the DCP are credited to a participant’s account under the DCP. Each participant may allocate his or her account among any combination of the investment funds available under the DCP. Participants’ accounts are adjusted to reflect the investment performance of the funds selected by the participants. Participants can change the allocation of their account balances daily. The funds available under the DCP consist of 16 mutual funds with a variety of investment objectives. The investment funds had annual returns in fiscal 2014 ranging from -0.15% to 24.51%. Amounts credited to participants’ accounts are invested by us in actual investments matching the investment options selected by the participants to ensure that we do not bear any investment risk related to participants’ investment choices. +The portion of a participant’s account attributable to elective deferrals, including investment returns, is fully vested at all times. The portion of a participant’s account attributable to NIKE contributions, including investment returns, is fully vested after the participant has been employed by us for five years. All of the Named Executive Officers are fully vested in their NIKE contributions. +Each time they elect to defer compensation, participants make an election regarding distribution of the compensation deferred under the election (as adjusted to reflect investment performance). A participant may elect for distribution to be made in a lump sum at the beginning of a predetermined year while the participant is still employed or in service (but no sooner than the fourth year after the year in which the distribution election is submitted). Alternatively, a participant may elect for distribution to be made in a lump sum or in annual installments over five, ten or fifteen years after termination of employment or service. Participants have limited rights to change their distribution elections. Participants may make a hardship withdrawal under certain circumstances. Subject to certain limitations, a participant may also at any time request to withdraw amounts from his or her account balance that were vested as of December 31, 2004 (and any subsequent investment returns on such amount). If such request is approved, the participant may withdraw 90% of the amount requested, and the remaining 10% will be permanently forfeited. +Potential Payments Upon Termination or Change-in-Control +Change-in-Control Compensation — Acceleration of Equity Awards +All unvested stock option, restricted stock, and restricted stock unit ("RSU") awards are subject to accelerated vesting upon the occurrence of two events (a “double trigger”): there is a “change in control” and the Named Executive Officer’s employment is terminated by us without “cause” or by the Named Executive Officer for “good reason,” in each case on or before the second anniversary of the change in control. In addition, for stock options granted since July 2010, the standard period for exercising options following termination of employment is extended from three months to four years, but not beyond each option’s original 10-year term. A double trigger with respect to vesting of stock options and RSUs will also occur if we are acquired and the acquiring company does not assume the outstanding options or RSUs. In our agreements, “change in control” is generally defined to include: +• +the acquisition by any person of 50% or more of our outstanding Class A Stock or, if the Class A Stock no longer elects a majority of directors, the acquisition by any person of 30% or more of our total outstanding Common Stock, +• +the nomination (and subsequent election) in a two-year period of a majority of our directors by persons other than the incumbent directors, and a sale of all or substantially all of our assets, or an acquisition of NIKE through a merger, consolidation or share exchange. +NIKE, INC. Ÿ 2014 Notice of Annual Meeting 28 +EXECUTIVE COMPENSATION +In our agreements, “cause” generally includes willful and continued failure to substantially perform assigned duties and willful engagement in illegal conduct materially injurious to us. In our agreements, “good reason” generally includes a material diminution in position or duties, a salary reduction or material reduction in other benefits, and a home office relocation of over 50 miles. +The following table shows the estimated benefits that would have been received by the Named Executive Officers if a double trigger had occurred on May 31, 2014, when the most recent closing price of our Class B Stock was $76.91 per share. +Name +Stock Award +Acceleration (1) +Stock Option +Acceleration (2) +Total +Mark G. Parker +$ +39,239,097.00 +$ +19,538,175 +$ +58,777,272 +Donald W. Blair +6,712,628 +6,876,897 +13,589,525 +Trevor A. Edwards +10,197,497 +6,876,897 +17,074,394 +Eric D. Sprunk +10,045,753 +6,876,897 +16,922,650 +Jeanne P. Jackson +6,657,253 +6,876,897 +13,534,150 +(1) +Information regarding unvested restricted stock and restricted stock units held by each Named Executive Officer is set forth in the Outstanding Equity Awards table above. The award agreements provide that all shares will immediately vest upon the occurrence of a double trigger. The amounts in the table above represent the number of unvested restricted shares multiplied by the closing price of our Class B Stock as of May 31, 2014. +(2) +Information regarding outstanding unexercisable options held by each Named Executive Officer is set forth in the Outstanding Equity Awards table above. The agreements governing unvested stock options provide that upon the occurrence of a double trigger all unexercisable options will immediately become fully exercisable and the standard three-month period for exercising options following termination of employment will be extended to four years, but not beyond each option’s original 10-year term. Amounts in the table above represent the sum of (i) for each Named Executive Officer’s outstanding unexercisable options, the aggregate value as of May 31, 2014 of those options assuming a four-year remaining term and otherwise calculated using the Black-Scholes option pricing model with assumptions consistent with those used by us for valuing our options under accounting guidance applicable to stock-based compensation, plus (ii) for each Named Executive Officer’s outstanding exercisable options granted since July 2010, the increase in value of those options resulting from the extension of the post-termination exercise period from three months to four years, with the option values for three-month and four-year remaining terms calculated using the Black-Scholes option pricing model with assumptions consistent with those used for valuing our options under accounting guidance applicable to stock-based compensation. +Benefits Triggered on Certain Employment Terminations +Stock Option Acceleration and Extension +As of May 31, 2014, each Named Executive Officer held options to purchase Class B Stock as listed in the Outstanding Equity Awards table above. Under the terms of the stock options granted to each Named Executive Officer before July 2010, upon the death or disability of the officer, the standard three-month period for exercising options following termination of employment is extended to 12 months, but not beyond each option’s original 10-year term. Under the terms of the stock options granted to each Named Executive Officer since July 2010, upon the death or disability of the officer, all unexercisable options become fully exercisable and the standard three-month period for exercising options following termination of employment is extended to four years, but not beyond each option’s original 10-year term. If death or disability of a Named Executive Officer had occurred on May 31, 2014, the sum of (i) for outstanding unexercisable options that would have become exercisable, the aggregate value as of May 31, 2014 of those options assuming a four-year remaining term, in the case of options granted since July 2010, and otherwise calculated using the Black-Scholes option pricing model with assumptions consistent with those used by us for valuing our options under accounting guidance applicable to stock-based compensation, plus (ii) for outstanding exercisable options, the increase in value, if any, of those options resulting from the extension of the post-termination exercise period from three months to 12 months, in the case of options granted before July 2010, and from three months to four years, in the case of options granted since July 2010, with the option values as of May 31, 2014 for three-month, 12-month and four-year remaining terms calculated using the Black-Scholes option pricing model with assumptions consistent with those used by us for valuing our options under accounting guidance applicable to stock-based compensation, is $19,501,568 for Mr. Parker, and $6,865,804 for Messrs. Blair, Sprunk, and Edwards, and Ms. Jackson. +Under the terms of the unvested stock options granted to Named Executive Officers since July 2010, vesting of options that have been outstanding for at least one year will be accelerated if the holder retires after reaching age 60 with at least 5 years of service, and vesting of options that have been outstanding for at least one year will continue notwithstanding termination of employment if the holder retires after reaching age 55 with at least 5 years of service. In addition, for any holder who retires after reaching age 55 with at least 5 years of service, the standard three-month period for exercising these options following termination of employment will be extended to four years, but not beyond the option’s original 10-year term. If termination of employment of a Named Executive Officer (other than due to death or disability) had occurred on May 31, 2014, the sum of (i) for outstanding unexercisable options that would have become exercisable, the aggregate value as of May 31, 2014 of those options assuming a four-year remaining term and otherwise calculated using the Black-Scholes option pricing model with assumptions consistent with those used by us for valuing our options under accounting guidance applicable to stock-based compensation, plus (ii) for outstanding exercisable options granted since July 2010, the increase in value, if any, of those options resulting from the extension of the post-termination exercise period from three months to four years, with the option values as of May 31, 2014 for three-month and four-year remaining terms calculated using the Black-Scholes option pricing model with assumptions consistent with those used by us for valuing our options under accounting guidance applicable to stock-based compensation, is $16,233,748 for Mr. Parker, $5,380,431 for Mr. Blair, and $5,380,431 for Ms. Jackson. The value for Messrs. Sprunk and Edwards is zero because neither has reached age 55. +Stock Award Acceleration +NIKE, INC. Ÿ 2014 Notice of Annual Meeting 29 +EXECUTIVE COMPENSATION +As of May 31, 2014, each Named Executive Officer held unvested restricted stock and restricted stock units as set forth in the Outstanding Equity Awards table above. Under the terms of their award agreements, all unvested restricted shares and restricted stock units will immediately vest upon the death or disability of the officer. The value of the unvested restricted shares and restricted stock units held by each Named Executive Officer as of May 31, 2014 that would have become vested if death or disability had occurred on that date is as set forth in the “Stock Award Acceleration” column of the Change-in-Control Compensation — Acceleration of Equity Awards table above. +Payments Under Noncompetition Agreements +We have an agreement with Mr. Parker that contains a covenant not to compete that extends for two years following the termination of his employment with us. The agreement provides that if Mr. Parker's employment is terminated by us, we will make monthly payments to him during the two-year noncompetition period in an amount equal to one-twelfth of his then current annual salary and target Performance Sharing Plan bonus (“Annual NIKE Income”). The agreement provides further that if Mr. Parker voluntarily resigns, we will make monthly payments to him during the two-year noncompetition period in an amount equal to one-twenty-fourth of his then current Annual NIKE Income. However, commencement of the above-described monthly payments will be delayed until after the six-month period following Mr. Parker's separation from service, and all payments that he would otherwise have received during that period will be paid in a lump sum promptly following the end of the period, together with interest at the prime rate. If employment is terminated without cause, the parties may mutually agree to waive the covenant not to compete, and if employment is terminated for cause, we may unilaterally waive the covenant. If the covenant is waived, we will not be required to make the payments described above for the months as to which the waiver applies. If the employment of Mr. Parker had been terminated by us on May 31, 2014 and assuming the covenant is not waived, we would have been required to pay Mr. Parker $348,750 per month for the 24-month period ending May 31, 2016. If Mr. Parker had voluntarily resigned on May 31, 2014 and assuming the covenant is not waived, we would have been required to pay Mr. Parker $174,375 per month for the 24-month period ending May 31, 2016. +We have noncompetition agreements with Messrs. Blair, Sprunk and Edwards, and Ms. Jackson on the same terms, except that the noncompetition period is one year instead of two years, the six-month delay for commencement of payments does not apply and we may unilaterally waive the covenant in all cases including termination without cause. In addition, for Messrs. Blair, Sprunk and Edwards, and Ms. Jackson, the monthly payments are one-twelfth or one-twenty-fourth of their current annual salaries, instead of their Annual NIKE Income. If the employment of these officers had been terminated by us on May 31, 2014 and assuming the covenant is not waived, we would have been required to pay Mr. Blair $70,833 per month, Messrs. Sprunk and Edwards $77,917 per month, and Ms. Jackson $73,750 for the 12-month period ending May 31, 2015. If these officers had voluntarily resigned on May 31, 2014 and assuming the covenant is not waived, we would have been required to pay Mr. Blair $35,417 per month, Messrs. Sprunk and Edwards $38,959 per month, and Ms. Jackson $36,875 for the 12-month period ending May 31, 2015. +Proposal 2 +Shareholder Advisory Vote to Approve +Executive Compensation +We are submitting to shareholders our annual "say-on-pay proposal," an advisory vote to approve the compensation of our Named Executive Officers as described in this proxy statement +At the Company’s 2013 annual meeting of shareholders, 98% of the votes cast on the say-on-pay proposal were voted in favor of the proposal. The Compensation Committee believes this affirms shareholders’ support of the Company’s approach to executive compensation. +As discussed in the Compensation Discussion and Analysis, our compensation philosophy is designed to attract and retain highly talented individuals, provide rewards for strong business results and individual performance, and motivate executives to maximize long-term shareholder returns. The program is competitive in the marketplace, highly incentive-based to align interests of executives with those of shareholders, and balanced across incentives to appropriately mitigate risk. +To achieve the objectives of our executive compensation program and emphasize pay-for-performance principles, the Compensation Committee has continued to employ the strong governance practices described in “Executive Compensation Governance Practices” on page 14, including: +• +basing a majority of total compensation on performance and retention incentives; +• +setting annual and long-term incentive targets based on clearly disclosed, objective performance measures and the Company's performance goals; +• +mitigating undue risk associated with compensation by using multiple performance targets, caps on potential incentive payments and a clawback policy; and +• +requiring executive officers and non-employee directors to hold NIKE stock through published stock ownership guidelines. +Because your vote is advisory, it will not be binding on the Board. However, the Board values shareholder opinions, and the Compensation Committee will take into account the outcome of the vote when considering future executive compensation arrangements. +Board Recommendation +The Board of Directors recommends that shareholders vote FOR approval of the compensation paid to the Named Executive Officers as disclosed pursuant to the SEC's compensation disclosure rules (which disclosure includes the Compensation Discussion and Analysis, the compensation tables, and the narrative disclosures that accompany the compensation tables). +NIKE, INC. Ÿ 2014 Notice of Annual Meeting 30 +PROPOSAL 3 +Proposal 3 +Ratification of Independent Registered Public +Accounting Firm +The Audit Committee of the Board of Directors has sole authority to retain, with shareholder ratification, the Company’s independent registered public accounting firm. The Audit Committee directly oversees the firm’s work with respect to the annual audit of the Company’s consolidated financial statements and internal control over financial reporting and approves all audit engagement fees and terms. At least annually, the Audit Committee evaluates the independent registered public accounting firm’s qualifications, performance, and independence, including a review and evaluation of its lead partner. The Audit Committee is also involved in the selection of the new lead engagement partner following mandated rotation of the firm’s lead partner, and is responsible for considering the benefits of rotation of the Company’s independent registered public accounting firm. +The Audit Committee has appointed PricewaterhouseCoopers LLP to audit the Company’s consolidated financial statements and internal control over financial reporting for the fiscal year ending May 31, 2015 and to render other professional services as required. +PricewaterhouseCoopers LLP has served as the Company's independent registered public accounting firm for many years. The Audit Committee and the Board of Directors believe that the continued retention of PricewaterhouseCoopers LLP as the independent registered public accounting firm is in the best interests of the Company and its shareholders. +Accordingly, the Audit Committee is submitting the appointment of PricewaterhouseCoopers LLP to shareholders for ratification. If the appointment is not ratified by our shareholders, the Audit Committee may reconsider whether it should appoint another independent registered public accounting firm. +Representatives of PricewaterhouseCoopers LLP will be present at the Annual Meeting, will have the opportunity to make a statement if they desire to do so, and are expected to be available to respond to questions. +Aggregate fees billed by the Company’s independent registered public accounting firm, PricewaterhouseCoopers LLP, for audit services related to the most recent two fiscal years, and for other professional services incurred in the most recent two fiscal years, were as follows: +Type of Service +2014 +2013 +Audit Fees (1) +$ +13.0 +million +$ +12.9 +million +Audit-Related Fees (2) +0.1 +million +0.2 +million +Tax Fees (3) +2.1 +million +2.5 +million +All Other Fees (4) +0.7 +million +0.3 +million +Total +$ +15.9 +million +$ +15.9 +million +(1) +Comprises the audits of the Company’s annual financial statements and internal controls over financial reporting, and reviews of the Company’s quarterly financial statements, as well as statutory audits of Company subsidiaries, attest services and consents to SEC filings. The amounts shown for fiscal 2013 include audit services related to the divestiture of Cole Haan and Umbro and have been revised to reflect actual fees paid. +(2) +Comprises employee benefit plan audits and consultations regarding financial accounting and reporting. +(3) +Comprises services for tax compliance, tax planning, and tax advice. Tax compliance includes services for compliance related tax advice, as well as the preparation and review of both original and amended tax returns for the Company and its consolidated subsidiaries. Tax compliance related fees represented $1.7 million and $1.8 million of the tax fees for fiscal 2014 and 2013, respectively. The remaining tax fees primarily include tax advice. +(4) +Comprises other miscellaneous services. +In accordance with the Sarbanes-Oxley Act of 2002, the Audit Committee established policies and procedures under which all audit and non-audit services performed by the Company’s independent registered public accounting firm must be approved in advance by the Audit Committee. During fiscal 2014 and fiscal 2013, all such services were approved in advance. +Board Recommendation +The Board of Directors recommends that shareholders vote FOR ratification of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending May 31, 2015. +Report of the Audit Committee +The Audit Committee has: +NIKE, INC. Ÿ 2014 Notice of Annual Meeting 31 +• +Reviewed and discussed the audited financial statements with management. +• +Discussed with the independent auditors the matters required to be discussed by Public Company Accounting Oversight Board (“PCAOB”) Statement on Auditing Standards No. 16 Communications with Audit Committees. +• +Received the written disclosures and the letter from the independent accountants required by applicable requirements of the PCAOB regarding the independent accountants’ communications concerning independence, and has discussed with the independent accountant the independent accountant’s independence. +• +Based on the review and discussions above, recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the last fiscal year for filing with the Securities and Exchange Commission. +Members of the Audit Committee: +• +Alan B. Graf, Jr., Chairman +• +John G. Connors +• +Michelle A. Peluso +• +Orin C. Smith +Other Matters +As of the time this proxy statement was printed, management was unaware of any proposals to be presented for consideration at the Annual Meeting other than those set forth herein, but if other matters do properly come before the Annual Meeting, the persons named in the proxy will vote the shares represented by such proxy according to their best judgment. +Shareholder Proposals +A proposal by a shareholder for inclusion in the Company’s proxy statement and form of proxy for the 2015 annual meeting of shareholders must be received by John F. Coburn III, Vice President and Corporate Secretary of NIKE, at One Bowerman Drive, Beaverton, Oregon 97005-6453, on or before April 9, 2015 to be eligible for inclusion. Rules under the Securities Exchange Act of 1934 describe standards as to the submission of shareholder proposals. In addition, the Company’s bylaws require that any shareholder wishing to make a nomination for Director, or wishing to introduce a proposal or other business at a shareholder meeting must give the Company at least 60 days’ advance written notice, which for the 2015 annual meeting of shareholders is July 20, 2015, and that notice must meet certain other requirements described in the bylaws. +For the Board of Directors, +John F. Coburn III +Vice President and Corporate Secretary +NIKE, INC. Ÿ 2014 Notice of Annual Meeting 32 +ANNUAL +MEETING +AND +PROXY STATEMENT +September 18, 2014 +Beaverton, Oregon +Electronic Voting Instructions +Available 24 hours a day, 7 days a week! +Instead of mailing your proxy, you may choose one of the voting methods outlined below to vote your proxy. +VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR. +Proxies submitted by the Internet or telephone must be received by 1:00 a.m., Central Time, on September 18, 2014. +Vote by Internet +• Go to www.investorvote.com +• Or scan the QR code with your smartphone +• Follow the steps outlined on the secure website +Vote by telephone +• Call toll free 1-800-652-VOTE (8683) within the USA, US territories & Canada on a touch tone telephone +• Follow the instructions provided by the recorded message +Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas. +x +q IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q +A +Proposals — The Board of Directors recommends a vote FOR all the nominees listed, and a vote for FOR Proposals 2 and 3. +1. +Class A director nominees: To elect a Board of Directors for the ensuing year. +» +For +Withhold +For +Withhold +For +Withhold +01 - Elizabeth J. Comstock +¨ +¨ +02 - John G. Connors +¨ +¨ +03 - Timothy D. Cook +¨ +¨ +04 - John J. Donahoe II +¨ +¨ +05 - Douglas G. Houser +¨ +¨ +06 - Philip H. Knight +¨ +¨ +07 - Mark G. Parker +¨ +¨ +08 - Johnathan A. Rodgers +¨ +¨ +09 - Orin C. Smith +¨ +¨ +10 - John R. Thompson, Jr. +¨ +¨ +For +Against +Abstain +For +Against +Abstain +2. +To approve executive compensation by an advisory vote. +¨ +¨ +¨ +3. +To ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm. +¨ +¨ +¨ +4. +To transact such other business as may properly come before the meeting. +B +Non-Voting Items +Change of Address — Please print new address below. +C +Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below +Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title. +Date (mm/dd/yyyy) — Please print date below. +Signature 1 — Please keep signature within the box. +Signature 2 — Please keep signature within the box. +/ / +Meeting Information +2014 Annual Meeting of Shareholders +for Shareholders as of July 18, 2014 +September 18, 2014 +10:00 A.M. PDT +Meeting Location: +Tiger Woods Conference Center +One Bowerman Drive +Beaverton, OR 97005 +Meeting Directions: +From I-5 South of Portland: +I-5 North to 217 North. Follow to Hwy 26 West. +From I-5 North of Portland: +I-5 South to I-405 South. Follow to Hwy 26 West. +From I-84 East of Portland: +I-84 West to I-5 South to I-405 North. Follow to Hwy 26 West. +Exit Hwy 26 at Murray Blvd, turn left and drive one mile. Turn right on Walker Road, then left on Meadow Drive into the NIKE World Headquarters (WHQ). Check in at the Security bunker located at the top of the entry. The Tiger Woods Conference Center is located directly ahead of the Security bunker. For patron drop off only, continue straight ahead to the main entry. To park, turn left from the Security bunker onto Del Hayes Way and enter parking lots on either side of Del Hayes Way. Follow the covered sidewalk to the main entry of the Tiger Woods Conference Center. Please note that the NIKE Campus is a non-smoking location and smoking is not permitted on NIKE WHQ property. +Ç IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. Ç +NIKE, INC. +CLASS A COMMON STOCK PROXY +SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +FOR THE 2014 MEETING OF SHAREHOLDERS +SEPTEMBER 18, 2014 +The undersigned hereby appoints Philip H. Knight, Mark G. Parker and Douglas G. Houser, and each of them, proxies with full power of substitution, to vote, as designated on the reverse side, on behalf of the undersigned, all shares of Class A Common Stock which the undersigned may be entitled to vote at the Annual Meeting of Shareholders of NIKE, Inc. on September 18, 2014, and any adjournments thereof, with all powers that the undersigned would possess if personally present. A majority of the proxies or substitutes present at the meeting may exercise all powers granted hereby. +THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED, BUT IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR, AND FOR PROPOSALS 2 AND 3 . THE PROXIES MAY VOTE IN THEIR DISCRETION AS TO OTHER MATTERS WHICH MAY COME BEFORE THE MEETING. +YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS’ RECOMMENDATIONS. THE PROXIES CANNOT VOTE THESE SHARES UNLESS YOU SIGN AND RETURN THIS CARD OR PROPERLY VOTE BY PHONE OR INTERNET. +Electronic Voting Instructions +Available 24 hours a day, 7 days a week! +Instead of mailing your proxy, you may choose one of the voting methods outlined below to vote your proxy. +VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR. +Proxies submitted by the Internet or telephone must be received by 1:00 a.m., Central Time, on September 18, 2014. +Vote by Internet +• Go to www.investorvote.com +• Or scan the QR code with your smartphone +• Follow the steps outlined on the secure website +Vote by telephone +• Call toll free 1-800-652-VOTE (8683) within the USA, US territories & Canada on a touch tone telephone +• Follow the instructions provided by the recorded message +Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas. +x +q IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q +A +Proposals — The Board of Directors recommends a vote FOR all the nominees listed, and a vote for FOR Proposals 2 and 3. +1. +Class B director nominees: To elect a Board of Directors for the ensuing year. +» +For +Withhold +For +Withhold +For +Withhold +01 - Alan B. Graf, Jr. +¨ +¨ +02 - John C. Lechleiter +¨ +¨ +03 - Michelle A. Peluso +¨ +¨ +04 - Phyllis M. Wise +¨ +¨ +For +Against +Abstain +For +Against +Abstain +2. +To approve executive compensation by an advisory vote. +¨ +¨ +¨ +3. +To ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm. +¨ +¨ +¨ +4. +To transact such other business as may properly come before the meeting. +B +Non-Voting Items +Change of Address — Please print new address below. +C +Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below +Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title. +Date (mm/dd/yyyy) — Please print date below. +Signature 1 — Please keep signature within the box. +Signature 2 — Please keep signature within the box. +/ / +Meeting Information +2014 Annual Meeting of Shareholders +for Shareholders as of July 18, 2014 +September 18, 2014 +10:00 A.M. PDT +Meeting Location: +Tiger Woods Conference Center +One Bowerman Drive +Beaverton, OR 97005 +Meeting Directions: +From I-5 South of Portland: +I-5 North to 217 North. Follow to Hwy 26 West. +From I-5 North of Portland: +I-5 South to I-405 South. Follow to Hwy 26 West. +From I-84 East of Portland: +I-84 West to I-5 South to I-405 North. Follow to Hwy 26 West. +Exit Hwy 26 at Murray Blvd, turn left and drive one mile. Turn right on Walker Road, then left on Meadow Drive into the NIKE World Headquarters (WHQ). Check in at the Security bunker located at the top of the entry. The Tiger Woods Conference Center is located directly ahead of the Security bunker. For patron drop off only, continue straight ahead to the main entry. To park, turn left from the Security bunker onto Del Hayes Way and enter parking lots on either side of Del Hayes Way. Follow the covered sidewalk to the main entry of the Tiger Woods Conference Center. Please note that the NIKE Campus is a non-smoking location and smoking is not permitted on NIKE WHQ property. +Ç IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. Ç +NIKE, INC. +CLASS B COMMON STOCK PROXY +SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +FOR THE 2014 MEETING OF SHAREHOLDERS +SEPTEMBER 18, 2014 +The undersigned hereby appoints Philip H. Knight, Mark G. Parker and Douglas G. Houser, and each of them, proxies with full power of substitution, to vote, as designated on the reverse side, on behalf of the undersigned, all shares of Class B Common Stock which the undersigned may be entitled to vote at the Annual Meeting of Shareholders of NIKE, Inc. on September 18, 2014, and any adjournments thereof, with all powers that the undersigned would possess if personally present. A majority of the proxies or substitutes present at the meeting may exercise all powers granted hereby. +THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED, BUT IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR, AND FOR PROPOSALS 2 AND 3. THE PROXIES MAY VOTE IN THEIR DISCRETION AS TO OTHER MATTERS WHICH MAY COME BEFORE THE MEETING. +YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS’ RECOMMENDATIONS. THE PROXIES CANNOT VOTE THESE SHARES UNLESS YOU SIGN AND RETURN THIS CARD OR PROPERLY VOTE BY PHONE OR INTERNET. \ No newline at end of file diff --git a/raw/proxies/0000320187/0000320187-14-000099/proxy_rpt.txt b/raw/proxies/0000320187/0000320187-14-000099/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..5e8ccdd1618e324876863b30424bb8fac1fee1e1 --- /dev/null +++ b/raw/proxies/0000320187/0000320187-14-000099/proxy_rpt.txt @@ -0,0 +1,9 @@ +Transactions with Related Persons +Effective July 1, 2013, Mr. Knight terminated an arrangement whereby he made his airplane available to the Company for business use for no charge. During the course of the arrangement NIKE operated and maintained the aircraft. Mr. Knight reimbursed the Company $96,835 for NIKE’s operating costs related to his personal use of this aircraft during fiscal 2014, determined based on the cost of fuel and other variable costs associated with the flights under FAR 91-501(d). In connection with the termination of the airplane arrangement, the Company sold a tug and power cart, purchased for Mr. Knight's plane, to a company owned by Mr. Knight for $110,000. +Mr. Howard S. Slusher, the father of John Slusher, Executive Vice President of Sports Marketing, and the Company are parties to a Consulting Agreement pursuant to which Howard Slusher manages the planning, design, and construction of new buildings at, and improvements to, NIKE's World Headquarters. Howard Slusher was selected due to his deep history and experience with the Company, as he has managed several significant construction projects for the Company, including the original World Headquarters construction and later expansions. In addition, Howard Slusher's previous engagement with the Company garnered the trust of management and makes him uniquely qualified to oversee the project. During fiscal 2014, the Company paid Howard Slusher $1,525,000 for these services. +Pursuant to the terms of a past consulting agreement with the Company, the Company agreed to pay for health and life insurance policies for Howard Slusher following expiration of the agreement. During fiscal 2014, the Company paid $129,801 for health and life insurance premiums. +Three of Mr. Parker’s siblings are employed by the Company in non-executive roles. Bob Parker is a Marketplace Director, and has been employed by the Company for over 30 years; Stephen Parker is Vice President & General Manager, Converse Asia-Pacific, and has been employed by the Company for over 26 years; and Ann Parker is an Executive Talent Scout, and has been employed by the Company for over 24 years. During fiscal year 2014, the Company paid aggregate compensation to each of Bob Parker, Stephen Parker and Ann Parker in the amounts of $384,637, $514,215, $277,678, respectively. The compensation was consistent with compensation paid to other employees holding similar positions, and was composed of salary, bonuses, the grant date fair value of stock options granted during the fiscal year estimated using the Black-Scholes pricing model, profit sharing and matching contributions to Company-sponsored retirement plans. +Mr. Thompson’s son, John Thompson III, head basketball coach at Georgetown University, and the Company are parties to a contract pursuant to which Mr. Thompson III provides certain endorsement and consulting services to the Company. The terms of this agreement, effective August 2014 through August 2019, provide for annual base compensation of $200,000, and up to $112,000 per year of product and merchandise, for use by him, the basketball staff and team. In addition, there are annual incentive payments based upon his team's performance of up to $100,000. +Compensation Committee Interlocks and Insider Participation +The members of the Compensation Committee of the Board of Directors during the fiscal year ended May 31, 2014 were Timothy D. Cook, Elizabeth J. Comstock, John C. Lechleiter, and Johnathan A. Rodgers. The Committee is composed solely of independent, non-employee directors. No member of the Compensation Committee has been an executive officer of the Company, and no member of the Compensation +NIKE, INC. Ÿ 2014 Notice of Annual Meeting 14 \ No newline at end of file diff --git a/raw/proxies/0000320187/0000891020-02-001261/proxy.txt b/raw/proxies/0000320187/0000891020-02-001261/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..7a66be89f7298c34e88c4a1f1e3c9f40d3943fd2 --- /dev/null +++ b/raw/proxies/0000320187/0000891020-02-001261/proxy.txt @@ -0,0 +1,2555 @@ +DEF 14A +1 +v83195ordef14a.htm +NOTICE AND PROXY STATEMENT MEETING SEPT. 18, 2002 +Nike, Inc. Notice & Proxy Statement +NIKE, Inc. +One Bowerman Drive +Beaverton, Oregon 97005-6453 +August 16, 2002 +To Our Shareholders: +You are cordially invited to attend the annual +meeting of shareholders of NIKE, Inc. to be held at the Portland +Exposition Building, 239 Park Avenue, Portland, Maine +04102, on Wednesday, September 18, 2002, at 1:00 P.M. +Eastern Time. Registration will begin at 12:00 P.M. +NIKE’s Cole Haan and Bauer NIKE Hockey +subsidiaries are headquartered nearby. I believe that the annual +meeting provides an excellent opportunity for shareholders to +become better acquainted with NIKE and its directors and +officers. I hope that you will be able to attend. Highlights of +the meeting will be available on videotape by calling +1-800-640-8007 following the meeting. +Whether or not you plan to attend, the prompt +execution and return of your proxy card will both assure that +your shares are represented at the meeting and minimize the cost +of proxy solicitation. +Sincerely, +Philip H. Knight +Chairman of the Board, +President, and Chief Executive +Officer +Notice of Annual Meeting of +Shareholders +September 18, 2002 +To the Shareholders of NIKE, Inc. +The annual meeting of shareholders of NIKE, Inc., +an Oregon corporation, will be held on Monday, +September 18, 2002, at 1:00 P.M., at the Portland +Exposition Building, 239 Park Avenue, Portland, Maine +04102, for the following purposes: +1. +To elect a Board of Directors for the ensuing +year. +2. +To approve the extension of and amendments to the +NIKE, Inc. Long Term Incentive Plan. +3. +To ratify the appointment of +PricewaterhouseCoopers LLP as independent accountants. +4. +To transact such other business as may properly +come before the meeting. +All shareholders are invited to attend the +meeting. Shareholders of record at the close of business on +July 25, 2002, the record date fixed by the Board of +Directors, are entitled to notice of and to vote at the meeting. +You must present an admission ticket enclosed in this Proxy +Statement. +By Order of the Board of Directors +JOHN E. JAQUA +Secretary +Beaverton, Oregon +August 16, 2002 +Whether or not you intend to be present at the +meeting, please sign and date the enclosed proxy and return it +in the enclosed envelope, or vote by telephone or over the +internet following the instructions on the proxy. +PROXY STATEMENT +The enclosed proxy is solicited by the Board of +Directors of NIKE, Inc. (“NIKE” or the +“Company”) for use at the annual meeting of +shareholders to be held on September 18, 2002, and at any +adjournment thereof (the “Annual Meeting”). The +Company expects to mail this proxy statement and the enclosed +proxy to shareholders on or about August 16, 2002. +The Company will bear the cost of solicitation of +proxies. In addition to the solicitation of proxies by mail, +certain officers and employees of the Company, without extra +compensation, may also solicit proxies personally or by +telephone. The Company has retained ADP Investor Communications +Services, 51 Mercedes Way, Edgewood, New York, to +assist in the solicitation of proxies from nominees and brokers +at an estimated fee of $5,000 plus related out-of-pocket +expenses. Copies of proxy solicitation materials will be +furnished to fiduciaries, custodians and brokerage houses for +forwarding to the beneficial owners of shares held in their +names. +All valid proxies properly executed and received +by the Company prior to the Annual Meeting will be voted in +accordance with the instructions specified in the proxy. Where +no instructions are given, shares will be voted FOR the election +of each of the named nominees for director, FOR approval of the +extension of and amendments to the NIKE, Inc. Long-Term +Incentive Plan, and FOR ratification of the appointment of +PricewaterhouseCoopers LLP as independent accountants. A +shareholder may choose to strike the names of the proxy holders +named in the enclosed proxy and insert other names. +A shareholder giving the enclosed proxy has the +power to revoke it at any time before it is exercised by +affirmatively electing to vote in person at the meeting or by +delivering to John F. Coburn III, Assistant Secretary +of NIKE, either an instrument of revocation or an executed proxy +bearing a later date. +VOTING SECURITIES +Holders of record of NIKE’s Class A +Common Stock (“Class A Stock”) and holders of +record of NIKE’s Class B Common Stock +(“Class B Stock”), at the close of business on +July 25, 2002, will be entitled to vote at the Annual +Meeting. On that date, 98,095,361 shares of Class A Stock +and 167,763,188 shares of Class B Stock were issued and +outstanding. Neither class of Common Stock has cumulative voting +rights. +Each share of Class A Stock and each share +of Class B Stock is entitled to one vote on every matter +submitted to the shareholders at the Annual Meeting. With regard +to Proposal 1, the election of directors, the holders of +Class A Stock and the holders of Class B Stock will +vote separately. Holders of Class B Stock are currently +entitled to elect 25 percent of the total Board, rounded up +to the next whole number. Holders of Class A Stock are +currently entitled to elect the remaining directors. Under this +formula, holders of Class B Stock, voting separately, will +elect three directors, and holders of Class A Stock, voting +separately, will elect nine directors. Holders of Class A +Stock and holders of Class B Stock will vote together as +one class on Proposals 2 and 3. +PROPOSAL 1 +ELECTION OF DIRECTORS +A Board of 12 directors will be elected at the +Annual Meeting. All of the nominees were elected at the +2001 annual meeting of shareholders, except for +Jeanne P. Jackson, who was elected as a director by the +Board of Directors in November 2001. Directors will hold office +until the next annual meeting of shareholders or until their +successors are elected and qualified. +Thomas E. Clarke, Jill K. Conway and +Delbert J. Hayes are nominated by management for election +by the holders of Class B Stock. The other nine nominees +are nominated by management for election by the holders of +Class A Stock. +Under Oregon law, if a quorum of each class of +shareholders is present at the Annual Meeting, the nine director +nominees who receive the greatest number of votes cast by +holders of Class A Stock and the three director nominees +who receive the greatest number of votes cast by holders of +Class B Stock will be elected directors. Abstentions and +broker non-votes will have no effect on the results of the vote. +Unless otherwise instructed, proxy holders will vote the proxies +they receive for the nominees listed below. If any nominee +becomes unable to serve, the holders of the proxies may, in +their discretion, vote the shares for a substitute nominee or +nominees designated by the Board of Directors. +Background information on the nominees as of +July 15, 2002, appears below: +Nominees for Election by Class A +Shareholders +Ralph D. +DeNunzio — +Mr. DeNunzio, 70, a director of the Company since +1988, is President of Harbor Point Associates, Inc., New York, +New York, a private investment and consulting firm. +Mr. DeNunzio was employed by the investment banking firm of +Kidder, Peabody & Co. Incorporated from 1953 to 1987, where +he served as President from 1977 to 1986, as Chief Executive +Officer from 1980 to 1987 and as Chairman of the Board of +Directors from 1986 to 1987. Mr. DeNunzio served as Vice +Chairman and Chairman of the Board of Governors of the New York +Stock Exchange from 1969 to 1972 and was President of the +Securities Industry Association in 1981. In 1970, +Mr. DeNunzio headed the Securities Industry Task Force, +which led to enactment of the Securities Investor Protection Act +of 1970 and establishment of the Securities Investor Protection +Corporation. He is also a director of FDX Corporation and Harris +Corporation. +Richard K. +Donahue — +Mr. Donahue, 75, a director since 1977, is Vice +Chairman of the Board. He served as President and Chief +Operating Officer of the Company from 1990 until 1994. He has +been a partner in the law firm of Donahue & Donahue, Lowell, +Massachusetts, since 1951. From 1961 to 1963, Mr. Donahue +was an assistant to President John F. Kennedy. +Mr. Donahue is a former President of the Massachusetts Bar +Association and the New England Bar Association. He is a member +of the John F. +2 +Kennedy Library Foundation. Mr. Donahue is a +trustee of the Joyce Foundation and is a director of Courier +Corp. +Douglas G. +Houser — +Mr. Houser, 67, a director since 1970, is an Assistant +Secretary of the Company and has been a partner in the Portland, +Oregon law firm of Bullivant, Houser, Bailey since 1965. +Mr. Houser is a trustee of Willamette University and a +Fellow in the American College of Trial Lawyers, and has served +as a member of the Board of Governors and Treasurer of the +Oregon State Bar Association and as a Director of the Rand +Corporation, Institute for Civil Justice Board of Overseers. +Jeanne P. +Jackson — +Ms. Jackson, 50, a director since November 2001, +was CEO of Walmart.com from March 2000 to +December 2001. She was formerly employed by Gap, Inc. +in 1995 and served as president and CEO of Banana Republic, a +division of Gap Inc., from 1996 to March 2001, and +also served as CEO of Gap, Inc. Direct, a division of +Gap, Inc., from 1998 to March 2001. Since 1978, she +has held various retail management positions with +Victoria’s Secret, The Walt Disney Company, Saks Fifth +Avenue, and Federated Department Stores. Ms. Jackson is a +Trustee of the United States Ski and Snowboard Team, and serves +on the Board of Advisors of the Harvard Graduate School of +Business. She is also a director of McDonald’s Corporation. +John E. +Jaqua — +Mr. Jaqua, 81, a director since 1968, is Secretary of +NIKE and has been a principal in the law firm of Jaqua & +Wheatley, P.C., Eugene, Oregon, since 1962. Mr. Jaqua has +served as President of the Oregon State Bar Association and as a +State Delegate to the House of Delegates of the American Bar +Association. +Philip H. +Knight — Mr. Knight, +64, a director since 1968, is President, Chief Executive Officer +and Chairman of the Board of Directors of NIKE. Mr. Knight +is a co-founder of the Company and, except for the period from +June 1983 through September 1984, served as its +President from 1968 to 1990, and from June 2000 to present. +Prior to 1968, Mr. Knight was a certified public accountant +with Price Waterhouse and Coopers & Lybrand and was an +Assistant Professor of Business Administration at Portland State +University. +Charles W. +Robinson — +Mr. Robinson, 82, a director since 1978, is Chairman +and President of Robinson & Associates, Inc., Santa Fe, +New Mexico, a venture capital firm. From January 1978 to +January 1979, Mr. Robinson was Vice Chairman of the +Board of Blyth, Eastman, Dillon & Co., Inc. and from +March 1977 to December 1977, was Senior Managing +Director of Kuhn Loeb & Co., Incorporated. Mr. Robinson +served as Under-secretary of State for Economic Affairs from +1974 to 1976, at which time he was appointed Deputy Secretary of +State. From 1964 to 1974, Mr. Robinson was President of +Marcona Corporation. Mr. Robinson is also a director of +Allen Telecom, Inc., and a trustee of The Brookings Institution. +A. Michael Spence — +Dr. Spence, 58, a director +since 1995, is a partner of Oak Hill Venture Partners. He was +the Philip H. Knight Professor and Dean of the Graduate School +of Business at Stanford University from 1990 to 1999. From 1984 +to 1990 he was Dean of the Faculty of Arts and +3 +Sciences at Harvard University. He was professor +of economics and business administration at Harvard University +from 1977 to 1986. He is the author of three books and numerous +articles on economics and business. He is a Fellow of the +Econometric Society and was for six years Chairman of the +National Research Council Board on Science, Technology and +Economic Policy. Dr. Spence received the Nobel Prize in +Economics in 2001. Dr. Spence is also a director of Exult, +Inc., General Mills, Inc., Siebel Systems, Inc., and Torstar +Corporation. +John R. Thompson, +Jr. — +Mr. Thompson, 60, a director since 1991, was head +coach of the Georgetown University men’s basketball team +from 1972 until 1998. Mr. Thompson serves as Assistant to +the President of Georgetown for Urban Affairs. Mr. Thompson +was head coach of the 1988 United States Olympic basketball +team. He is a past President of the National Association of +Basketball Coaches and presently serves on its Board of +Governors. +Nominees for Election by Class B +Shareholders +Thomas E. +Clarke — +Dr. Clarke, 51, a director since 1994, joined the +Company in 1980, and serves as President of New Business +Ventures of the Company. He was appointed divisional vice +president in charge of marketing in 1987, corporate Vice +President in 1989, General Manager in 1990, and served as +President and Chief Operating Officer from 1994 to 1999. +Dr. Clarke previously held various positions with the +Company, primarily in research, design, development and +marketing. Dr. Clarke holds a Doctorate degree in +biomechanics. +Jill K. +Conway — +Dr. Conway, 67, a director since 1987, is currently a +Visiting Scholar with the Massachusetts Institute of +Technology’s Program in Science, Technology and Society, +and Chairman of Lend Lease Inc., an Australian-based property +company. Dr. Conway was a Professor of History and +President of Smith College, Northampton, Massachusetts, from +1975 to 1985. She was affiliated with the University of Toronto +from 1964 to 1975, and held the position of Vice President, +Internal Affairs from 1973 to 1975. Dr. Conway holds +numerous Honorary Doctorates from North American universities. +She is also a director of Merrill Lynch & Co., Inc. and +Colgate-Palmolive Company. +Delbert J. +Hayes — +Mr. Hayes, 67, a director since 1975, served as +Executive Vice President of NIKE from 1980 to 1995. +Mr. Hayes served as Treasurer and in a number of other +executive positions with the Company from 1975 to 1980. +Mr. Hayes was a partner with Hayes, Nyman & Co., +certified public accountants, from 1970 to 1975. Prior to 1970, +Mr. Hayes was a certified public accountant with Price +Waterhouse for eight years. +Board of Directors and Committees +The Board currently has an Executive Committee, +an Audit Committee, a Finance Committee, a Corporate +Responsibility Committee, a Personnel Committee, and a +Compensation Plan Subcommittee of the Personnel Committee, and +may also appoint other committees from time to time. There is +4 +currently no Nominating Committee. There were +five meetings of the Board of Directors during the last fiscal +year. Each director attended at least 75 percent of the +total number of meetings of the Board of Directors and +committees on which he or she served, except for +Mr. Thompson who attended 70 percent. +The Executive Committee of the Board is currently +composed of Messrs. Knight (Chairman), Clarke, and Houser. The +Executive Committee is authorized to act on behalf of the Board +on all corporate actions for which applicable law does not +require participation by the full Board. In practice, the +Executive Committee acts in place of the full Board only when +emergency issues or scheduling make it difficult or +impracticable to assemble the full Board. All actions taken by +the Executive Committee must be reported at the next Board +meeting. The Executive Committee held no formal meetings during +the fiscal year ended May 31, 2002, but took actions from +time to time pursuant to written consent resolutions. +The Audit Committee is currently composed of +Mr. Hayes (Chairman), Mr. Houser and Dr. Spence. +The Audit Committee reviews and makes recommendations to the +Board regarding services provided by the independent +accountants, reviews with the independent accountants the scope +and results of their annual examination of the Company’s +consolidated financial statements and any recommendations they +may have, and makes recommendations to the Board with respect to +the engagement or discharge of the independent accountants. The +Audit Committee also reviews the Company’s procedures with +respect to maintaining books and records, the adequacy and +implementation of internal auditing, accounting and financial +controls, and the Company’s policies concerning financial +reporting and business practices. The Audit Committee met nine +times during the fiscal year ended May 31, 2002. +The Finance Committee is currently composed of +Messrs. Robinson (Chairman), DeNunzio, and Hayes. The +Finance Committee considers long-term financing options and +needs of the Company, long-range tax and currency issues facing +the Company, and management recommendations concerning major +capital expenditures and material acquisitions or divestments. +The Finance Committee met five times during the fiscal year +ended May 31, 2002. +The Corporate Responsibility Committee is +currently composed of Dr. Conway (Chair), and +Messrs. Donahue and Spence. The Corporate Responsibility +Committee reviews significant activities and policies regarding +labor and environmental practices, community affairs, charitable +and foundation activities, diversity and equal opportunity, and +environmental and sustainability initiatives, and makes +recommendations to the Board of Directors. The Corporate +Responsibility Committee met three times during the fiscal year +ended May 31, 2002. +The Personnel Committee is currently composed of +Mr. DeNunzio (Chairman), Dr. Conway, Mr. Jaqua, +Dr. Spence and Mr. Thompson. The Personnel Committee +makes recommendations to the Board regarding officers’ +compensation, management incentive compensation arrangements and +profit +5 +sharing plan contributions. The Personnel +Committee met five during the fiscal year ended May 31, +2002. +The Compensation Plan Subcommittee of the +Personnel Committee is currently composed of Dr. Spence and +Mr. Jaqua. The Subcommittee grants stock options and +restricted stock bonuses under the NIKE, Inc. 1990 Stock +Incentive Plan, and determines targets and awards under the +NIKE, Inc. Executive Performance Sharing Plan and the NIKE, Inc. +Long-Term Incentive Plan. +Director Compensation and Retirement +Plan +Messrs. Knight and Clarke do not receive +additional compensation for their services as directors. +Directors are reimbursed for travel and other expenses incurred +in attending Board meetings. No fee is paid for attending +Compensation Plan Subcommittee meetings. In fiscal 2000, +directors made a one-time election to be compensated under +either: +(a) the previously existing method, which +consists of a fee of $18,000 per year, plus $2,000 for each +Board meeting attended, $1,000 for each committee meeting +attended, medical insurance, and $500,000 of life insurance +coverage, or +(b) the revised compensation method, which +consists of a fee of $36,000 per year, plus $2,000 for each +Board meeting attended, $1,000 for each committee meeting +attended, an annual grant of an option to purchase +1,000 shares of stock at the market price at grant, but no +medical or life insurance benefits while serving or after +retirement. +Messrs. DeNunzio, Houser, and Spence elected +the latter revised compensation, and any new non-employee +directors elected after fiscal 2000 will be compensated in the +revised fashion. +The Company has since 1989 provided certain +retirement benefits to non-employee directors who retire after +serving for five years or more. The plan has provided that after +ten years of service by a director, the Company will provide +such director for the remainder of his or her life with $500,000 +of life insurance and medical insurance at the levels provided +by the Company to all of its employees at the time the director +retires. The plan has also provided that a director who has +served for at least five years will receive an annual retirement +cash payment for life, commencing on the later of age 65 or +the date the director retires or ceases to be a member of the +Board. The annual retirement cash payment ranges from $9,000 for +five years of service up to a maximum of $18,000 for 10 or more +years of service. +In fiscal 2000, in an effort to reduce future +retirement obligations, the Board of Directors approved a new +retirement plan that allowed directors to make a one-time +election to waive their future rights to annual retirement cash +payments in exchange for a credit to a stock account under the +Company’s Deferred Compensation Plan equal to the lump sum +present value of the payments based on the actuarial life +expectancy of each director. The number of shares of +Class B Common Stock credited to each stock account was +based on the market price of the stock on September 1, +1999. The three +6 +directors who chose the revised compensation +method (b) above were required to opt for the new +retirement plan. All other directors, except for +Messrs. Donahue and Robinson elected the new plan. The +number of shares of Class B Common Stock credited to the +stock accounts of each director was: Dr. Conway, 4,165; +Mr. DeNunzio, 3,852; Mr. Hayes, 4,217; +Mr. Houser, 4,243; Mr. Jaqua, 2,610; Dr. Spence, +1,220; and Mr. Thompson, 3,271. Any new non-employee +directors elected after fiscal 2000 will not receive retirement +benefits. +New directors elected after the 1993 fiscal year +must retire at age 72. +Stock Holdings of Certain Owners and +Management +The following table sets forth the number of +shares of each class of NIKE securities beneficially owned, as +of July 15, 2002, by (i) each person known to the +Company to be the beneficial owner of more than 5 percent +of any class of the Company’s securities, (ii) each of +the nominees for director, (iii) each executive officer +listed in the Summary Compensation Table (“Named +Officers”), and (iv) all nominees, Named Officers, and +other executive officers as a group. Because Class A Stock +is convertible into Class B Stock on a share-for-share +basis, each beneficial owner of Class A Stock is deemed by +the Securities and Exchange Commission to be a beneficial owner +of the same number of shares of Class B Stock. Therefore, +in indicating a person’s beneficial ownership of shares of +Class B Stock in the table, it has been assumed that such +person has converted into Class B Stock all shares of +Class A Stock of which such person is a beneficial owner. +For these reasons the table contains substantial duplications in +the numbers of shares and percentages of Class A and +Class B Stock shown for Messrs. Hayes, Jaqua and +Knight; for Cardinal Fund I, L.P.; and for all directors +and officers as a group. +Shares +Title of +Beneficially +Percent of +Class +Owned(1) +Class(2) +Thomas E. Clarke(3) +Class B +325,982 +(4)(5)(7)(8) +0.2 +% +Portland, Oregon +Jill K. Conway +Class B +66,711 +(9) +Boston, Massachusetts +Ralph D. DeNunzio +Class B +109,371 +(4)(9) +Riverside, Connecticut +Richard K. Donahue +Class B +137,002 +0.1 +% +Lowell, Massachusetts +Delbert J. Hayes +Class A +640,000 +0.7 +% +Newberg, Oregon +Class B +654,447 +(9) +0.4 +% +Douglas G. Houser +Class B +94,373 +(4)(9) +Portland, Oregon +John E. Jaqua +Class A +574,209 +0.6 +% +Eugene, Oregon +Class B +576,899 +(9) +0.3 +% +7 +Shares +Title of +Beneficially +Percent of +Class +Owned(1) +Class(2) +Jeanne P. Jackson +Class B +— +Huntington Beach, California +Philip H. Knight(3) +Class A +78,655,047 +(6) +80.2 +% +Beaverton, Oregon +Class B +78,665,730 +(6)(7) +31.9 +% +Charles W. Robinson +Class B +300,000 +0.2 +% +Santa Fe, New Mexico +A. Michael Spence +Class B +23,258 +(4)(9) +Palo Alto, CA +John R. Thompson, Jr. +Class B +32,372 +(4)(9) +Washington, D.C. +Charles Denson(3) +Class B +139,761 +(4)(5)(7)(8) +0.1 +% +Portland, Oregon +Mindy Grossman(3) +Class B +55,119 +(4)(7) +Beaverton, Oregon +Mark G. Parker(3) +Class B +433,941 +(4)(5)(7)(8) +0.3 +% +Beaverton, Oregon +Nissho Iwai American Corporation +Preferred +(10) +300,000 +100.0 +% +Portland, Oregon +Cardinal Fund I, L.P. +Class A +14,718,131 +(11) +15.0 +% +Fort Worth, Texas +Class B +14,718,131 +8.1 +% +FMR Corp. +Class B +13,187,347 +(12) +7.9 +% +Boston, Massachusetts +Capital Research and Management Company +Class B +15,081,730 +(12) +9.0 +% +Los Angeles, California +All directors and executive officers as a group +(23 persons) +Class A +79,869,256 +81.4 +% +Class B +82,208,514 +(4) +33.2 +% +(1) +A person is considered to beneficially own any +shares: (a) over which the person exercises sole or shared +voting or investment power, or (b) of which the person has +the right to acquire beneficial ownership at any time within +60 days (such as through conversion of securities or +exercise of stock options). Unless otherwise indicated, voting +and investment power relating to the above shares is exercised +solely by the beneficial owner or shared by the owner and the +owner’s spouse or children. +(2) +Omitted if less than 0.1 percent. +(3) +Executive officer listed in the Summary +Compensation Table. +8 +(4) +These amounts include the right to acquire, +pursuant to the exercise of stock options, within 60 days +after July 15, 2002, the following numbers of shares: +273,750 shares for Dr. Clarke, 2,000 shares for +Mr. DeNunzio, 2,000 shares for Mr. Houser, +22,000 shares for Dr. Spence, 25,000 shares for +Mr. Thompson, 112,000 shares for Mr. Denson, +40,834 shares for Ms. Grossman, 385,377 shares +for Mr. Parker, and 1,340,211 shares for the executive +officer and director group. +(5) +Includes shares held in accounts under the NIKE, +Inc. Retirement Savings Plan for Dr. Clarke, +Mr. Denson, and Mr. Parker in the amounts of 2,410, +4,125, and 2,755 shares, respectively. +(6) +Does not include: (a) 814,790 shares +held by a limited partnership in which a corporation owned by +Mr. Knight’s spouse is a co-general partner, +(b) 65,224 shares owned by such corporation, +(c) 1,000,000 Class B shares held by the Knight +Foundation, a charitable trust in which Mr. Knight and his +spouse are directors, (d) 1,950,000 shares held by Oak +Hill Strategic Partners, L.P., a limited partnership in which a +company owned by Mr. Knight is a limited partner, and +(e) 12,768,131 shares held by Cardinal Fund I, +L.P., a limited partnership in which Mr. Knight is a +limited partner. Mr. Knight has disclaimed ownership of all +such shares. +(7) +These amounts include (a) 3,105, 3,105, 777, +and 1,553 restricted shares granted to Mr. Knight, +Dr. Clarke, Mr. Denson, and Mr. Parker, +respectively, under the NIKE, Inc. Long-Term Incentive Plan, as +to which the restrictions expire August 15, 2002; +(b) 5,719, 5,719, 1,430, and 2,859 restricted shares +granted to Mr. Knight, Dr. Clarke, Mr. Denson, +and Mr. Parker, respectively, under the NIKE, Inc. +Long-Term Incentive Plan, as to which the restrictions expire +August 15, 2003; (c) 1,859, 1,859, 929, 929, and +929 shares granted to Mr. Knight, Dr. Clarke, +Mr. Denson, Ms. Grossman, and Mr. Parker, +respectively, under the NIKE, Inc. Long-Term Incentive Plan, as +to which the restrictions expire August 15, 2004, and +(d) 8,363 restricted shares granted to Ms. Grossman +under the NIKE, Inc. 1990 Stock Incentive Plan, as to which the +restrictions expire September 6, 2002. If an officer’s +employment terminates before the restrictions expire, any +remaining restricted shares are forfeited, except that the +shares granted to Ms. Grossman in (d) above are not +forfeited if the termination is without cause or for good reason. +(8) +These amounts include 24,078, 9,029, and +18,058 restricted shares granted on March 8, 2000 to +Dr. Clarke, Mr. Denson, and Mr. Parker, +respectively, under the NIKE, Inc. 1990 Stock Incentive Plan as +to which restrictions expire March 8, 2003, unless +employment terminates before that date, in which case any +remaining restricted shares are forfeited. +(9) +Includes shares credited to accounts under the +NIKE, Inc. Deferred Compensation Plan in the following amounts: +4,293 for Dr. Conway; 3,971 for Mr. DeNunzio; 4,347 +for Mr. Hayes; 4,373 for Mr. Houser; 2,690 for +Mr. Jaqua; 1,258 for Dr. Spence; and 3,372 for +Mr. Thompson. +(10) +Preferred Stock does not have general voting +rights except as provided by law, and under certain +circumstances as provided in the Company’s Restated +Articles of Incorporation, as amended. +9 +(11) +Includes 1,950,000 shares of Class A Common +Stock held by Oak Hill Strategic Partners, L.P., which is +under common control with Cardinal Fund I, L.P. +(12) +Information provided as of December 31, 2001 +in a Schedule 13G filed by the shareholder. +Section 16(a) Beneficial Ownership +Reporting Compliance +Section 16(a) of the Securities Exchange Act +of 1934 requires the Company’s directors and executive +officers, and persons who own more than 10 percent of a +registered class of the Company’s equity securities, to +file with the Securities and Exchange Commission, the New York +Stock Exchange and the Pacific Stock Exchange initial reports of +ownership and reports of changes in ownership of Common Stock +and other equity securities of the Company. Officers, directors +and greater than 10 percent shareholders are required by +the regulations of the Securities and Exchange Commission to +furnish the Company with copies of all Section 16(a) forms +they file. To the Company’s knowledge, based solely on +review of the copies of such reports furnished to the Company +and written representations that no other reports were required, +during the fiscal year ended May 31, 2002 all +Section 16(a) filing requirements applicable to its +officers, directors and greater than 10 percent beneficial +owners were complied with, except that one report, covering the +sale of 5,521 shares was filed late for Mr. Frits +vanPaaschen. +10 +EXECUTIVE COMPENSATION +The following table discloses compensation +awarded to, earned by, or paid to the Company’s Chief +Executive Officer and its next four most highly compensated +executive officers for all services rendered by them in all +capacities to the Company and its subsidiaries during the fiscal +year ended May 31, 2002 and the two preceding fiscal years. +Summary Compensation Table +Long-term +Compensation +Annual Compensation +Restricted +Stock +Stock +All Other +Name and +Other Annual +Awards +Options +LTIP +Compensation +Principal Position +Year +Salary($) +Bonus($) +Compensation($) +($) +(#) +Payouts($) +($)(1) +Philip H. Knight +2002 +1,350,321 +1,377,327 +— +— +0 +0 +572,856 +(2) +Chairman, Chief +2001 +1,300,000 +663,000 +— +— +0 +92,000 +586,427 +Executive +2000 +1,205,300 +1,330,651 +— +— +0 +272,000 +666,665 +Officer and +President +Thomas E. Clarke +2002 +1,107,051 +0 +102,049 +(3) +— +0 +0 +68,358 +(4) +President of +2001 +1,100,000 +448,800 +103,509 +— +0 +92,000 +75,410 +New Business +2000 +910,833 +942,712 +110,338 +2,000,000 +(5) +150,000 +272,000 +126,899 +Ventures +Mark G. Parker +2002 +897,436 +595,000 +— +— +60,000 +0 +50,284 +(4) +President +2001 +772,756 +255,531 +— +— +0 +46,000 +55,686 +NIKE Brand +2000 +658,333 +545,100 +— +1,500,000 +(5) +105,000 +136,000 +84,994 +Charles Denson +2002 +713,141 +472,812 +108,502 +(7) +— +60,000 +0 +35,702 +President +2001 +458,333 +146,413 +243,287 +(7) +— +0 +46,000 +27,837 +NIKE Brand +2000 +294,167 +171,580 +200,017 +(7) +750,000 +(5) +40,000 +68,000 +29,291 +Mindy Grossman +2002 +645,833 +395,250 +— +— +30,000 +0 +199,137(8) +Vice President +2001 +404,615 +183,600 +— +999,985 +(6) +100,000 +46,000 +302,646(8)(9) +Apparel +2000 +— +— +— +— +— +— +— +(1) +Includes contributions by the Company to the +NIKE, Inc. Retirement Savings Plan for the fiscal year ended +May 31, 2002 in the amount of $6,152 each for +Mr. Knight and Ms. Grossman, $12,952 each for +Dr. Clarke and Mr. Parker, and $10,749 for +Mr. Denson. Also includes contributions by the Company to +the Deferred Compensation Plan for Mr. Knight, +Dr. Clarke, Mr. Parker, Mr. Denson and +Ms. Grossman of $66,704, $53,769, $35,571, $24,953, and +$29,291, respectively. +(2) +The Company paid $500,000 towards a portion of +the annual premium for term life insurance on the life of +Mr. Knight pursuant to a “split dollar” plan. The +Company would be reimbursed for its payments from the proceeds +of the life insurance policies in the event Mr. Knight dies. +(3) +Includes forgiveness of $100,000 of a $500,000 +loan made in 1994 for a second home, pursuant to an agreement +that conditions such forgiveness on continued employment with +the Company. +(4) +Includes above-market interest on deferred +compensation for Dr. Clarke and Mr. Parker in the +amount of $1,637 and $1,761, respectively, for the 2002 fiscal +year. +11 +(5) +Represents the value of restricted shares granted +based on the closing market price of the Class B Stock on +the grant date. In fiscal 2000, restricted stock grants were +made to Dr. Clarke for 72,235 shares, Mr. Parker +for 54,176 shares, and Mr. Denson for +27,088 shares. The restrictions lapse with respect to one +third of the shares on each of the first three anniversaries of +the grant date, unless employment terminates before that date, +in which case any remaining restricted shares are forfeited. +Dividends on restricted shares are paid currently to the +holders. On May 31, 2002, the number of remaining +restricted shares and the dollar value of those shares based on +the fair market value of $53.75 per share on that date was +24,078 shares with a value of $2,294,198 for +Dr. Clarke, 18,058 shares with a value of $970,618 for +Mr. Parker, and 9,029 shares with a value of $485,309 +for Mr. Denson. +(6) +Represents the value of shares and restricted +shares granted to Ms. Grossman based on the closing market +price of the Class B Stock on the grant date. A stock grant +was made to Ms. Grossman in fiscal 2001 for +25,078 shares, of which 16,727 were restricted. The +restrictions lapse with respect to one-half of the shares on +each of the first two anniversaries of the grant date, unless +employment terminates before that date, in which case any +remaining restricted shares are forfeited except if the +termination is without cause or for good reason. Dividends on +restricted shares are paid currently to the holder. On +May 31, 2002, the number of remaining restricted shares and +the dollar value of those shares based on the fair market value +of $53.75 per share on that date was 8,363 shares with a value +of $449,511. +(7) +Represents additional compensation, taxes and +expenses for overseas assignment and relocation, including gross +up for taxes on such compensation, for Mr. Denson. +(8) +Includes additional compensation to +Ms. Grossman for relocation and transportation expenses, +including gross up for taxes on such compensation, in the amount +of $163,694 for fiscal 2002, and $52,646 for fiscal 2001. +(9) +Includes $250,000 signing bonus paid to +Ms. Grossman at the commencement of her employment. +12 +Option Grants in the Fiscal Year Ended +May 31, 2002 +Potential Realizable Value +at Assumed Annual Rates of +% of Total +Stock Price Appreciation for +Options Granted +Exercise or +Option Term(3) +Options Granted +to Employees +Base Price +Expiration +Name +(#)(1) +in Fiscal Year +($/share)(2) +Date +5%($) +10%($) +Philip H. Knight +— +— +— +— +— +— +Thomas E. Clarke +— +— +— +— +— +— +Mark G. Parker +60,000 +1.4 +$ +42.36 +7/11/11 +$ +1,598,399 +$ +4,050,656 +Charles Denson +60,000 +1.4 +$ +42.36 +7/11/11 +$ +1,598,399 +$ +4,050,656 +Mindy Grossman +30,000 +0.7 +$ +42.36 +7/11/11 +$ +799,200 +$ +2,025,328 +(1) +The options shown in the table with the +expiration date of July 12, 2011 become exercisable with +respect to 25% of the total number of shares on each of +July 12, 2002, 2003, 2004, and 2005. All options for all +individuals will become fully exercisable generally upon the +approval by the Company’s shareholders of a merger, plan of +exchange, sale of substantially all of the Company’s assets +or plan of liquidation. +(2) +The exercise price is the market price of +Class B Stock on the date the options were granted. +(3) +Assumed annual appreciation rates are set by the +SEC and are not a forecast of future appreciation. The actual +realized value depends on the market value of the Class B +Stock on the exercise date, and no gain to the optionees is +possible without an increase in the price of the Class B +Stock. All assumed values are before taxes and do not include +dividends. +Aggregated Option Exercises in the Fiscal +Year +Ended May 31, 2002 and Fiscal Year-End +Option Values +Number of Unexercised +Value of Unexercised +Options at +In-the-Money Options +Shares +Fiscal Year-End(#) +at Fiscal Year-End($)(1) +Acquired on +Value +Name +Exercise(#) +Realized($) +Exercisable +Unexercisable +Exercisable +Unexercisable +Philip H. Knight +0 +0 +0 +0 +0 +0 +Thomas E. Clarke +0 +0 +240,000 +90,000 +$ +1,656,406 +$ +1,057,031 +Mark G. Parker +35,000 +$ +1,272,188 +332,127 +125,625 +$ +6,133,414 +$ +1,437,267 +Charles Denson +0 +0 +88,250 +83,750 +$ +1,555,828 +$ +963,947 +Mindy Grossman +0 +0 +33,334 +96,666 +$ +462,509 +$ +1,266,691 +(1) +Based on a fair market value as of May 31, +2002 of $53.75 per share. Values are stated on a pre-tax basis. +13 +Long-Term Incentive Plans Awards in Fiscal +Year Ended May 31, 2002 +Performance +or Other Period +Until Maturation +Name +or Payout(1) +Threshold($) +Target($) +Maximum($) +Philip H. Knight +Fiscal Year 2003 +40,000 +400,000 +600,000 +Fiscal Year 2004 +40,000 +400,000 +600,000 +Thomas E. Clarke +— +— +— +— +Mark G. Parker +Fiscal Year 2003 +20,000 +200,000 +300,000 +Fiscal Year 2004 +20,000 +200,000 +300,000 +Charles Denson +Fiscal Year 2003 +20,000 +200,000 +300,000 +Fiscal Year 2004 +20,000 +200,000 +300,000 +Mindy Grossman +Fiscal Year 2003 +20,000 +200,000 +300,000 +Fiscal Year 2004 +20,000 +200,000 +300,000 +(1) +In July 2001, the Compensation Plan Subcommittee +established a series of performance targets based on fiscal 2003 +and 2004 revenues and earnings per share corresponding to award +payouts ranging from 10% to 150% of the target awards. +Participants will receive a payout at the highest percentage +level at which both performance targets are met, subject to the +Committee’s discretion to reduce or eliminate any award +based on Company or individual performance. Under the terms of +the awards, on August 15, 2003 and 2004 the Company would +issue in the name of each participant a number of shares of +Class B Stock with a value equal to the award payout based +on the closing price of the Class B Stock on that date on +the New York Stock Exchange. The shares will be 100% vested at +that time. The Company’s performance in fiscal year 2002 +corresponded to an LTIP payout of 0% of the target awards +for 2002. +14 +Equity Compensation Plans +The following table summarizes equity +compensation plans approved by shareholders and equity +compensation plans that were not approved by the shareholders as +of May 31, 2002: +(c) +Number of Securities +(a) +Remaining Available for +Number of Securities +(b) +Future Issuance Under +to be Issued Upon +Weighted-Average +Equity Compensation +Exercise of Outstanding +Exercise Price of +Plans (Excluding +Options, Warrants and +Outstanding Options, +Securities Reflected in +Plan category +Rights +Warrants and Rights +Column (a)) +Equity compensation plans approved by +shareholders(1) +16,757,547 +$ +42.25 +14,351,090 +Equity compensation plans not approved by +shareholders(2) +330,000 +41.70 +0 +Total +17,087,547 +$ +42.24 +14,351,090 +(1) +Includes 16,626,753 outstanding subject to the +1990 Stock Incentive Plan and 130,794 outstanding subject to the +Long-Term Incentive Plan. Includes 10,559,877 available for +future issuance under the 1990 Stock Incentive Plan, 869,206 +available for future issuance under the Long-Term Incentive +Plan, and 2,922,007 available for future issuance under the +Employee Stock Purchase Plan. +(2) +The Company has granted to a few consultants and +directors nonqualified options to purchase NIKE Class B +Stock. The options have terms ranging from 8 to 10 years, +expiring at various times from 2003 to 2009, with exercise +prices ranging from $12.03 to $55.81. All of the options are +exercisable. +15 +Notwithstanding anything to the contrary set +forth in any of the Company’s filings under the Securities +Act of 1933 or the Securities Exchange Act of 1934, the +following Performance Graph and the Report of the Personnel +Committee below shall not be incorporated by reference into any +such filings and shall not otherwise be deemed filed under such +acts. +Performance Graph +The following graph demonstrates a five-year +comparison of cumulative total returns for NIKE’s +Class B Stock, the Standard & Poor’s 500 +Stock Index, and the Standard & Poor’s Footwear +and Apparel and Accessories Indices. The graph assumes an +investment of $100 on May 31, 1997 in each of the +Company’s Common Stock, and the stocks comprising the +Standard & Poor’s 500 Stock Index and the +Standard & Poor’s Footwear and Apparel and +Accessories Indices. Each of the indices assumes that all +dividends were reinvested. +COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN +AMONG NIKE, INC., S&P 500 INDEX, S&P FOOTWEAR +INDEX AND S&P APPAREL AND ACCESSORIES INDEX +The Standard & Poor’s Footwear +Index consists of NIKE and Reebok International. The +Standard & Poor’s Apparel and Accessories Index +consists of Liz Claiborne, Inc., VF Corp., and Jones +Apparel. The Standard & Poor’s Footwear and +Apparel and Accessories Indices include companies in two major +lines of business in which the Company competes. The indices do +not encompass all of the Company’s competitors, nor all +product categories and lines of business in which the Company is +engaged. Because NIKE is part of the S&P Footwear +Index, the price and returns of NIKE stock affect this index. +The Stock Performance shown on the Graph above +is not necessarily indicative of future performance. The Company +will not make nor endorse any predictions as to future stock +performance. +16 +REPORT OF THE PERSONNEL COMMITTEE OF THE +BOARD +OF DIRECTORS ON EXECUTIVE +COMPENSATION +The Personnel Committee of the Board of Directors +(the “Committee”), subject to the approval of the +Board of Directors, determines the compensation of the +Company’s five most highly compensated executive officers, +including the Chief Executive Officer, and oversees the +administration of executive compensation programs, except that +stock option grants, and targets and awards under the Executive +Performance Sharing Plan and the Long-Term Incentive Plan, are +made by the Compensation Plan Subcommittee (the +“Subcommittee”), which is composed of outside +directors. +Executive Compensation Policies and Programs. +The Company’s executive +compensation programs are designed to attract and retain highly +qualified executives and to motivate them to maximize +shareholder returns by achieving both short- and long-term +strategic Company goals. The programs link each executive’s +compensation directly to individual and Company performance. A +significant portion of each executive’s total compensation +is variable and dependent upon the attainment of strategic and +financial goals, individual performance objectives, and the +appreciation in value of the Common Stock. +There are three basic components to the +Company’s “pay for performance” system: base pay; +annual incentive bonus; and long-term incentive compensation. +Each component is addressed in the context of individual and +Company performance, competitive conditions and equity among +employees. In determining competitive compensation levels, the +Company analyzes information from several independent surveys +which include information regarding the general industry as well +as other consumer product companies. Since the Company’s +market for executive talent extends beyond the sports industry, +the survey data includes global name-brand consumer product +companies with sales in excess of $2 billion. A comparison +of the Company’s financial performance with that of the +companies and indices shown in the Performance Graph is only one +of many factors considered by the Committee to determine +executive compensation. +Base Pay. Base pay +is designed to be competitive, although conservative (generally +in the second or third quartile) as compared to salary levels +for equivalent executive positions at other global consumer +product companies. An executive’s actual salary within this +competitive framework will vary based on responsibilities, +experience, leadership, potential future contribution, and +demonstrated individual performance (measured against strategic +management objectives such as maintaining customer satisfaction, +developing innovative products, strengthening market share and +profitability, and expanding the markets for the Company’s +products). The types and relative importance of specific +financial and other business objectives vary among the +Company’s executives depending on their positions and the +particular operations or functions for which they are +responsible. The Company’s philosophy and practice is to +place a relatively greater emphasis on the incentive components +of compensation. +Annual Incentive Bonus. +Each executive is eligible to receive +an annual cash bonus under the Executive Performance Sharing +Plan. The “target” level for that bonus, like the base +salary level, is set +17 +with reference to Company-wide bonus programs, as +well as competitive conditions. These target levels are intended +to motivate the Company’s executives by providing +substantial bonus payments for the achievement of financial +goals within the Company’s business plan. An executive +receives a percentage of his or her target bonus depending on +the extent to which the Company achieves financial performance +goals set by the Subcommittee, as measured by the Company’s +net income before taxes. Bonuses may exceed the target if the +Company’s performance exceeds the goal. +Long-Term Incentive Compensation. +The long-term compensation program is +tied directly to shareholder return. Under the current program, +long-term incentive compensation consists of stock options, 25% +of which vest in each of the four years after grant, and +performance-based stock or cash awards under the Long-Term +Incentive Plan (“LTIP”). +Stock options are awarded with an exercise price +equal to the fair market value of the Class B Stock on the +date of grant. Accordingly, the executive is rewarded only if +the market price of the Class B Stock appreciates. Since +options vest over time, the Company periodically grants new +options to provide continuing incentives for future performance. +The size of previous grants and the number of options held are +considered by the Subcommittee, but are not entirely +determinative of future grants. Like base pay, the grant is set +with regard to competitive considerations, and each +executive’s actual grant is based upon individual +performance measured against the criteria described in the +preceding paragraphs and the executive’s potential for +future contributions. +Under the LTIP, the Subcommittee has established +a series of performance targets corresponding to awards of stock +ranging from 10% to 150% of the target awards. The performance +targets are currently based on revenues and earnings per share. +The Company expects that future awards under the LTIP will be +for performance periods from between one to three years, in +order to provide an incentive to achieve the Company’s +longer-term performance goals. If performance targets are +achieved, shares of stock issued to executives will be 100% +vested for payouts made after 2002. +Stock options and performance-based stock and +cash awards under the LTIP are designed to align the interests +of the Company’s executives with those of shareholders by +encouraging executives to enhance the value of the Company and, +hence, the price of the Class B Stock and the +shareholders’ return. In addition, through deferred vesting +and three-year performance periods, this component of the +compensation system is designed to create an incentive for the +individual executive to remain with the Company. +Other Plans. The +Company maintains combined profit sharing and +401(k) retirement plans, a non-qualified Deferred +Compensation Plan, and an Employee Stock Purchase Plan. Under +the profit sharing retirement plan, the Company annually +contributes to a trust on behalf of employees, including +executive officers, an amount that in the past five fiscal years +has equaled an annual contribution of between 3.29% to 4.09% of +each employee’s earnings. The percentage is determined by +the Board of Directors. +18 +For fiscal 2002, under the terms of the profit +sharing plan, each employee, including each executive officer, +received a contribution to his or her plan account of 3.62% of +the employee’s total salary and bonus up to $170,000. Under +the terms of the Deferred Compensation Plan, employees, +including executive officers, whose total salary and bonus +exceeds $170,000 receive a supplemental profit sharing +contribution into a nonqualified deferred compensation account +in an amount equal to the additional contribution they would +have received under the profit sharing plan if not for the +$170,000 cap on salary and bonus considered for purposes of that +plan as required under IRS regulations. Accordingly, those +employees each received supplemental contributions equal to +3.62% of their salary and bonus in excess of $170,000. These +profit sharing plans serve to retain employees and executives, +since funds do not fully vest until after five years of +employment with the Company. +Under the 401(k) retirement plan, the Company +contributes up to 4% of each employee’s earnings as a +matching contribution for pre-tax salary deferred into the plan. +This matching contribution is initially invested in Class B +Stock, which strengthens the linkage between employee and +shareholder interests. +The Company’s Employee Stock Purchase Plan +(“ESPP”) qualifies under Section 423 of the +Internal Revenue Code. The ESPP allows employees to defer up to +10% of their annual compensation for purchases of Class B +Stock, subject to certain limitations. The stock is purchased +every six months at 85% of the lower of the price of the stock +at the beginning and end of the six-month period. The ESPP is +intended to encourage employee investment in the Company and to +provide an incentive for employees to increase shareholder +returns. +Annual Reviews. Each +year, the Committee reviews the executive compensation policies +with respect to the linkage between executive compensation and +the creation of shareholder value, as well as the +competitiveness of the programs. The Committee determines what +changes, if any, are appropriate in the compensation programs +for the following year. In conducting the annual review, the +Committee considers information provided by Human Resources +staff and uses surveys and reports prepared by independent +compensation consultants. +Each year, the Committee, with the Chairman and +Human Resources staff, reviews the individual performance of +each of the other four most highly compensated executive +officers, and the Chairman’s recommendations with respect +to the appropriate compensation levels and awards. The +Subcommittee sets performance and bonus targets, and certifies +awards, under the Executive Performance Sharing Plan and the +LTIP, and makes stock option grants and restricted stock awards. +The Committee makes recommendations to the Board of Directors +for final approval of all other compensation matters. The +Committee also reviews with the Chairman and the Human Resources +staff the financial and other strategic objectives, such as +those identified above, for each of the named executive officers +for the following year. +19 +For fiscal year 2002, the Company met targeted +performance objectives set for named executive officers +sufficient for a payout under the Executive Performance Sharing +Plan. This resulted from increased profitability due to aligning +costs with revenues, and sales increases in key product +categories and markets, more than offsetting reductions in +others. Furthermore, the Company’s competitive position in +the industry remained strong. The Company’s financial +performance corresponded to bonuses of 102% of the individual +targeted bonuses under the Executive Performance Sharing Plan. +There was no payout under the LTIP because the Company did not +meet the 2002 targets under that plan. +Chief Executive Officer. +In reviewing Mr. Knight’s +performance, the Committee focused primarily on the +Company’s performance in fiscal year 2002, which resulted +in better earnings compared to the performance of the previous +year. The Committee noted continued progress toward the +achievement of various strategic objectives such as earnings +growth, infrastructure expansion, and growth in key product +categories and regions, including the United States. The +Committee also considered the other factors described above. +Consistent with the plans, Mr. Knight received a bonus of +$1,377,327 under the Executive Performance Sharing Plan, but no +payout under the LTIP and no stock option awards. The Committee +did not change Mr. Knight’s base salary for the 2003 +fiscal year. +Section 162(m) of the Internal Revenue +Code. In 2000 shareholders re-approved +the Executive Performance Sharing Plan and the stock option +plan, and it is proposed that shareholders amend and re-approve +the LTIP this year. The plans are each designed to satisfy the +performance-based exception to the Section 162(m) +limitation on deductibility with respect to incentive +compensation for named executive officers, except that +restricted stock bonuses do not qualify as performance based. +Members of the Personnel Committee: +Ralph D. DeNunzio, Chairman +Jill K. Conway +John E. Jaqua* +A. Michael Spence* +John R. Thompson, Jr. +* +Also members of the Compensation Plan +Subcommittee. +Personnel Committee Interlocks and Insider +Participation +The members of the Personnel Committee of the +Board of Directors during the fiscal year ended May 31, +2002 are listed above. The Committee is composed solely of +non-employee directors. Mr. Jaqua serves as Secretary of +the Company, but is not an employee. During the fiscal year +ended May 31, 2002, the Company paid Harbor Point +Associates, Inc., of which director Ralph D. DeNunzio is +President, +20 +$103,576 for financial consulting services, and +paid Robanna, Inc., a corporation owned by director John R. +Thompson, Jr., $150,000 for consulting services. The Company +expects to pay Mr. DeNunzio, or his firm, and Mr. Thompson +for additional consulting services that may be performed by them +for the Company during fiscal year 2003. +Employment Contracts and Termination of +Employment and Change-in-Control Arrangements +An agreement between the Company and President of +New Business Ventures, Dr. Thomas E. Clarke, contains +a covenant not to compete that extends for one year following +the termination of his employment with the Company. The +agreement provides that if he voluntarily resigns, the Company +will make monthly payments to him during the one-year +noncompetition period in an amount equal to one-half of his last +monthly salary. The agreement provides further that if his +employment is terminated by the Company, the Company will make +monthly payments to him during the one-year noncompetition +period in an amount equal to his last monthly salary. The +Company may unilaterally waive the covenant not to compete. If +the covenant is waived, the Company will not be required to make +the payments described above for the months as to which the +waiver applies. +The Company has a similar agreement with +President of the NIKE Brand Mark G. Parker that extends for one +year following the termination of his employment with the +Company. The agreement provides that if Mr. Parker +voluntarily resigns, the Company will make monthly payments to +him during the one-year noncompetition period in an amount equal +to the greater of (i) $20,833 or +(ii) one-twenty-fourth of the total salary and bonuses +received by Mr. Parker during the 12-month period +immediately preceding his resignation. The agreement provides +further that if Mr. Parker’s employment is terminated +by the Company, the Company will make monthly payments to him +during the one-year noncompetition period in an amount equal to +the greater of (i) $41,667 or (ii) one-twelfth of the +total salary and bonuses received by Mr. Parker during the +12-month period immediately preceding his termination. If +Mr. Parker is terminated without cause, the parties may +mutually agree to waive the covenant not to compete, and if +Mr. Parker is terminated for cause, the Company may +unilaterally waive the covenant. If the covenant is waived, the +Company will not be required to make the payments described +above for the months as to which the waiver applies. +The Company has an employment agreement and a +covenant not to compete with Vice President Mindy Grossman. +Under the agreement, the Company will pay certain travel +expenses for her and her family between New York City and +Beaverton, Oregon. Ms. Grossman will also receive salary +increases of $50,000 and $100,000, respectively, on the first +two anniversaries of her three-year employment agreement which +commenced on September 6, 2000, and a target bonus of +60 percent of her annual salary under the Executive +Performance Sharing Plan. Ms. Grossman was also granted a +signing bonus, initial restricted stock grant, and stock options +described in the Summary Compensation Table. She is to be +granted an option to purchase at least 30,000 shares of +Class B Stock each year during the term of her contract, +which will generally vest with respect to 25% of each option on +the first four anniversaries of +21 +the date of grant. If Ms. Grossman’s +employment is terminated (i) without cause, (ii) by +her for good reason, or (iii) due to disability, she will +receive severance payments equal to one times her final annual +salary and 60% of the salary earned year-to-date in the fiscal +year of termination, and her initial option and restricted stock +grants will be fully vested. In addition, if +Ms. Grossman’s employment with the Company is +terminated, the Company will make monthly payments to her during +a one-year period of a covenant not to compete in an amount +equal to her last monthly salary. The Company may unilaterally +waive the covenant not to compete. If the covenant is waived, +the Company will not be required to make the payments described +above for the months as to which the waiver applies. +Certain Transactions and Business +Relationships +During the fiscal year ended May 31, 2002, +the Company paid Harbor Point Associates, Inc., of which +director Ralph D. DeNunzio is President, $103,576 for +financial consulting services, and paid Robanna, Inc., a +corporation owned by director John R. Thompson, Jr., +$150,000 for consulting services. The Company expects to pay +Mr. DeNunzio, or his firm, and Mr. Thompson for +additional consulting services that may be performed by them for +the Company during fiscal year 2003. +Mr. Knight makes his airplane available for +business use by the Company for no charge. NIKE operates and +maintains the aircraft. During fiscal 2002, Mr. Knight +reimbursed the Company $163,783 for NIKE’s operating costs +related to his personal use of this aircraft. +Indebtedness of Management +In 1994 the Company loaned $500,000 at 5.65% per +annum to President of New Business Ventures Thomas E. +Clarke for the purchase of a second home. The loan is secured by +the second home, and must be repaid within 180 days +following termination of employment. As an inducement to remain +employed by the Company, the Company has agreed to forgive +$100,000 of the loan commencing January 1, 2000 and on each +of the four anniversary dates thereafter, provided that +Dr. Clarke remains employed by the Company. +22 +PROPOSAL 2 +APPROVAL OF EXTENSION OF AND AMENDMENTS +TO +THE NIKE, INC. LONG-TERM INCENTIVE +PLAN +In 1997, the Board of Directors adopted, and the +shareholders approved, the Company’s Long-Term Incentive +Plan (the “Plan”). Historically, the Company had +relied exclusively on stock options to provide long-term +incentives to officers and employees. To provide more +competitive compensation arrangements, particularly for officers +and senior managers, the Board of Directors believes that the +Company should have the flexibility to make long-term incentive +awards of stock or cash subject to such terms and restrictions +as may be determined at the time of the awards. The Plan gives +the Company broad authority to make such awards and to qualify +such awards as “performance-based compensation” as +defined under Section 162(m) of the Internal Revenue Code +of 1986 (the “Code”), thereby permitting full +deductibility of any amounts paid under the Plan to the named +executive officers. +The Plan provides that it will terminate at the +first shareholder meeting that occurs in the fifth year after +the Company’s shareholders approve the Plan. This provision +is consistent with the requirement under the Code that the Plan +be reapproved by shareholders every five years in order for +awards under the Plan to continue to qualify as +performance-based compensation. See “Tax +Consequences.” Accordingly, unless the shareholders +reapprove the Plan as requested in this proposal, the Plan will +terminate at the Annual Meeting. If the shareholders reapprove +the Plan, the Plan will be extended for an additional five years +until the first shareholder meeting in 2007. +Under the Plan as originally adopted, only +corporate and division officers of the Company were eligible to +receive awards under the Plan. Since fiscal 2000, the Company +has made awards to selected senior managers similar to the +awards made to officers under the Plan, but has made those +awards under the Company’s 1990 Stock Incentive Plan rather +than under the Plan. To permit all such future awards to be made +under one plan instead of two plans, the Board of Directors +adopted amendments to the Plan, subject to shareholder approval, +to expand eligibility under the Plan to include all employees of +the Company and its subsidiaries. In addition, the Board of +Directors has adopted technical amendments to Section 6(c) +of the Plan, subject to shareholder approval, to clarify the +wording of that section. +The complete text of the Plan, marked to show the +proposed amendments, is attached to this proxy statement as +Exhibit A. The following description of the Plan is a +summary of certain provisions and is qualified in its entirety +by reference to Exhibit A. +Description of the Plan +Eligibility. Under +the proposed Plan amendments, all employees of the Company and +its subsidiaries will be eligible to receive awards under the +Plan. Although this group currently consists of approximately +22,700 persons, the Company’s current intent is to +grant awards under the Plan to approximately 100 officers +and senior managers. +23 +Shares Available. +The Plan provides that not more than 1,000,000 shares of +Class B Stock may be issued pursuant to the Plan. +Administration. +Grants of target awards under the Plan and all other decisions +regarding the administration of the Plan are made by the +Personnel Committee of the Board of Directors, or if the +Personnel Committee is not comprised solely of “outside +directors” as that term is defined in regulations under +Section 162(m), another Board committee consisting solely +of outside directors. Currently, the Plan is administered by the +Compensation Plan Subcommittee of the Personnel Committee (the +“Committee”). +Target Awards. The +Committee may grant target awards denominated either in +Class B Stock or in dollar amounts and shall make such +awards within 90 days after the commencement of the period +covered by the award (the “Performance Period”). All +or part of the awards will be earned if performance targets +established by the Committee for the Performance Period are met +and the participant satisfies any other restrictions established +by the Committee. Performance targets must be expressed as an +objectively determinable level of performance of the Company or +any subsidiary, division or other unit of the Company, based on +one or more of the following: net income, net income before +taxes, operating income, revenues, return on sales, return on +equity, earnings per share, total shareholder return, or any of +the foregoing before the effect of acquisitions, divestitures, +accounting changes, restructuring, or other special charges, as +determined by the Committee at the time of establishing the +performance target. Target awards may be paid in cash or +Class B Stock and may be made as awards of restricted +shares subject to forfeiture if performance targets are not +satisfied, as determined by the Committee. The Committee shall +not establish target award opportunities for any participant +such that the maximum amount payable under target awards +denominated in stock which have Performance Periods ending in +any single fiscal year exceeds the equivalent of +20,000 shares of Class B Stock or the maximum amount +payable under target awards denominated in dollars which have +Performance Periods ending in any single fiscal year exceeds +$1,000,000. The payment of a target award in cash will not +reduce the number of shares reserved under the Plan. +Determination of Award +Payouts. At the end of each +Performance Period, the Committee will certify the attainment of +the performance targets and the calculation of the payouts of +the related target awards. No award shall be paid if the related +performance target is not met, but the Committee may, in its +discretion, reduce or eliminate a participant’s calculated +award based on circumstances relating to the performance of the +Company or the participant. +Changes in Capital +Structure. The Plan provides that if +the outstanding Class B Stock is increased or decreased or +changed into or exchanged for a different number or kind of +shares or other securities of the Company by reason of any stock +split, stock dividend or recapitalization, appropriate +adjustment will be made by the Committee in the number and kind +of shares available for awards under the Plan. +24 +Amendment and +Termination. The Plan may be amended +by the Committee, with the approval of the Board of Directors, +at any time except to the extent that shareholder approval would +be required to maintain the qualification of Plan awards as +performance-based compensation. Unless again reapproved by the +shareholders, the Plan will terminate at the first meeting of +shareholders of the Company in the year 2007. +Tax Consequences +An employee who receives stock in connection with +the performance of services will generally realize taxable +income at the time of receipt unless the shares are +substantially nonvested for purposes of Section 83 of the +Code. Absent an election under Section 83(b), an employee +who receives substantially nonvested stock in connection with +performance of services will realize taxable income in each year +in which a portion of the shares substantially vests. The +Company will generally be entitled to a tax deduction in the +amount includible as income by the employee at the same time or +times as the employee recognizes income with respect to the +shares. +Section 162(m) of the Code limits to +$1,000,000 per person the amount that the Company may deduct for +compensation paid to any of its most highly compensated officers +in any year. Under IRS regulations, compensation received +through a performance-based award will not be subject to the +$1,000,000 limit if the performance-based award and the plan +meet certain requirements. One such requirement is shareholder +approval at least once every five years of the performance +criteria upon which award payouts will be based and the maximum +amount payable under awards, both of which are set forth in the +Plan. Approval of this Proposal 2 will constitute +reapproval of the performance criteria and maximum amounts under +the Plan previously approved by shareholders. Other requirements +are that objective performance goals and the amounts payable +upon achievement of the goals be established by a committee of +at least two outside directors and that no discretion be +retained to increase the amount payable under the awards. The +Company believes that, if this proposal is approved by the +shareholders, compensation received on vesting of awards granted +under the Plan in compliance with all of the above requirements +will continue to be exempt from the $1,000,000 deduction limit. +Plan Benefits +In July 2002, the Committee made target +awards under the Plan which are summarized in the following +table. The awards to persons who are not corporate or division +officers are subject to shareholder approval of the Plan +amendment making them eligible for awards under the Plan. The +Performance Period for these target awards is the three-year +period consisting of the Company’s 2003-2005 fiscal years. +Since the Plan was adopted in 1997, target awards with similar +target amounts but different performance criteria have been made +with Performance Periods corresponding to each fiscal year from +1998 through 2004. Payouts for fiscal years 1998, 1999, 2000, +2001 and 2002 were 0%, 39%, 75%, 23% and 0% of target, +respectively. Of the 1,000,000 shares of Class B Stock +originally reserved for +25 +the Plan, a total of 143,344 shares were +issued in the 1999, 2000 and 2001 payouts. In addition, a total +of 43,060 shares were issued to senior managers under the +1990 Stock Incentive Plan in the 2000 and 2001 payouts. +Long-Term Incentive Plan(1) +Dollar Value($) +Name and Position +Threshold +Target +Maximum +Philip H. Knight +$ +40,000 +$ +400,000 +$ +600,000 +Chairman, Chief Executive Officer and President +Thomas E. Clarke +— +— +— +President of New Business Ventures +Mark G. Parker +$ +20,000 +$ +200,000 +$ +300,000 +President of the NIKE Brand +Charlie Denson +$ +20,000 +$ +200,000 +$ +300,000 +President of the NIKE Brand +Mindy Grossman +$ +20,000 +$ +200,000 +$ +300,000 +Vice President, Apparel +Executive Officer Group (includes above +5 officers) +$ +280,000 +$ +2,800,000 +$ +4,200,000 +All Other Employee Group +$ +550,000 +$ +5,500,000 +$ +8,250,000 +(1) +The Committee established a series of performance +targets based on revenues and earnings per share for the +three-year period consisting of fiscal 2003-2005 corresponding +to award payouts ranging from 10% to 150% of the target awards. +Participants will receive a payout at the average of the +percentage levels at which the two performance targets are met, +subject to the Committee’s discretion to reduce or +eliminate any award based on Company or individual performance. +Under the terms of the awards, on August 15, 2005 the +Company would issue to each participant either cash equal to the +award payout or a number of shares of Class B Stock with a +value equal to the award payout based on the closing price of +the Class B Stock on that date on the New York Stock +Exchange, at the election of the participant. +Board Recommendation +The Board of Directors recommends that +shareholders vote FOR approval of the extension of and +amendments to the Plan. Holders of Class A Stock and +Class B Stock will vote together as a single class on +Proposal 2. If holders of a majority of the shares of +Common Stock vote on the proposal, Proposal 2 will be +adopted if a majority of the votes cast are cast for the +proposal. Abstentions are considered votes cast and have the +same effect as “no” votes in determining whether the +proposal is adopted. Broker non-votes are not counted as voted +on the proposal and therefore have no effect on the results of +the vote. +26 +PROPOSAL 3 +RATIFICATION OF INDEPENDENT +ACCOUNTANTS +The Board of Directors of the Company, upon +recommendation of its Audit Committee, has appointed +PricewaterhouseCoopers LLP as independent accountants to examine +the Company’s consolidated financial statements for the +fiscal year ending May 31, 2003 and to render other +professional services as required. +The Board of Directors is submitting the +appointment of PricewaterhouseCoopers LLP to shareholders for +ratification. +PricewaterhouseCoopers has served as independent +accountants to the Company since 1971. Representatives of +PricewaterhouseCoopers will be present at the Annual Meeting and +are expected to be available to respond to questions. +Aggregate fees billed for professional services +rendered by the Company’s principal accountants, +PricewaterhouseCoopers LLP, for the most recent fiscal year: +Audit Fees +$ +1.9 million +Financial Information Systems +Design and Implementation +$ +5.9 million +All Other Fees +Acquisition due diligence +$ +0.6 million +Financial consulting services +$ +0.6 million +Labor and corporate responsibility +$ +0.5 million +Sales Incentive Projects +$ +2.2 million +Supply Chain Development and Training +$ +5.1 million +Tax consulting services +$ +2.3 million +Total +$ +19.1 million +Beginning in late 1998, NIKE commenced a +multi-year, $400 million project to replace and upgrade its +supply chain technology systems, including design, production, +sales, distribution and finance. PricewaterhouseCoopers LLP was +chosen through a competitive bidding process as one of several +major contractors to work on a portion of that project. In +fiscal 2002, approximately $11 million of the non-audit +fees paid to PricewaterhouseCoopers, including amounts listed in +the table above as “Financial Information Systems Design +and Implementation” services, were for services related to +the +27 +supply chain project. The Company currently +believes that those fees will decline significantly over the +next three years as the supply chain project is implemented in +the various global regions. Further, the Company has been +informed that the portion of PricewaterhouseCoopers firm working +on the supply chain project will, within the coming fiscal year, +be acquired by a separate company with substantially separate +ownership and management, so that in the future such services +will not be performed by PricewaterhouseCoopers. +The Audit Committee has established policies, +procedures and practices related to audit and non-audit services +performed by the Company’s principal accountants. The Audit +Committee has also assigned responsibility for implementing the +policies, procedures and practices, and has communicated them +internally and to the principal accountant. The policies +include, among others, the following: +• +Engagements of the Company’s principal +accountants to perform non-audit services (other than tax, +acquisition due diligence, attest, and statutory audit services) +in excess of $100,000 are competitively bid and approved by both +the Chief Financial Officer and the Company’s Internal +Audit Director. +• +The Audit Committee reviews and approves all +non-audit services by the Company’s principal accountants +at each Committee meeting. +• +The principal accountants may not perform +financial information design and implementation services for the +Company in the future, other than the completion of their +portion of the supply chain project described above. +• +The principal accountants may not provide +internal audit services, except those services related to +financial control review, attest work, and local language and +culture assistance. +• +The Audit Committee reviews and approves the +Company’s hiring for a senior executive position anyone +directly from the principal accountant’s firm, or anyone +who was involved in providing audit services to the Company in +the previous five years. +The Sarbanes-Oxley Act of 2002, recently signed +into law by President Bush, and proposed changes to the listing +standards of the New York Stock Exchange, contain provisions +that will supercede or supplement the existing policies, +procedures and practices of the Audit Committee. The Audit +Committee intends to comply fully with the Act and listing +standards. +28 +Notwithstanding anything to the contrary set +forth in any of the Company’s filings under the Securities +Act of 1933 or the Securities Exchange Act of 1934, the +following Report of the Audit Committee shall not be +incorporated by reference into any such filings and shall not +otherwise be deemed filed under such acts. +REPORT OF THE AUDIT COMMITTEE +The Audit Committee has: +• +Reviewed and discussed the audited financial +statements with management. +• +Discussed with the independent auditors the +matters required to be discussed by SAS 61. +• +Received the written disclosures and the letter +from the independent auditors required by Independence Standards +Board Standard No. 1, and has discussed with the +independent auditors the auditors’ independence. +• +Based on the review and discussions above, +recommended to the Board of Directors that the audited financial +statements be included in the Company’s Annual Report on +Form 10-K for the last fiscal year for filing with the +Securities and Exchange Commission. +• +Considered whether the provision by the principal +accountant of professional services other than for the audit of +the Company’s financial statements is compatible with +maintaining the principal accountant’s independence, and +determined that it is compatible. +The Board of Directors has determined that the +members of the Audit Committee are independent. The Audit +Committee has adopted a written charter. +Members of the Audit Committee: +Delbert J. Hayes, Chairman +Douglas G. Houser +A. Michael Spence +OTHER MATTERS +As of the time this proxy statement was printed, +management was unaware of any proposals to be presented for +consideration at the Annual Meeting other than those set forth +herein, but if other matters do properly come before the Annual +Meeting, the persons named in the proxy will vote the shares +represented by such proxy according to their best judgment. +29 +SHAREHOLDER PROPOSALS +A proposal by a shareholder for inclusion in the +Company’s proxy statement and form of proxy for the 2003 +annual meeting of shareholders must be received by John F. +Coburn III, Assistant Secretary of NIKE, at +One Bowerman Drive, Beaverton, Oregon 97005-6453, on or +before April 18, 2003 in order to be eligible for +inclusion. Rules under the Securities Exchange Act of 1934 +describe standards as to the submission of shareholder +proposals. In addition, the Company’s bylaws require that +any shareholder wishing to make a nomination for Director, or +wishing to introduce a proposal or other business at a +shareholder meeting must give the Company at least +60 days’ advance written notice, and that notice must +meet certain requirements described in the bylaws. +A copy of NIKE’S 2002 Annual Report on +Form 10-K will be available to shareholders without charge +upon request to: Investor Relations, NIKE, Inc., One Bowerman +Drive, Beaverton, Oregon 97005 -6453. +For the Board of Directors +JOHN E. JAQUA +SECRETARY +30 +EXHIBIT A +NIKE, Inc. LONG-TERM INCENTIVE PLAN* +This is the Long-Term Incentive Plan of NIKE, +Inc. for the payment of incentive compensation to designated +employees. +Section 1. Definitions. +The following terms have the following meanings: +Board: The Board of +Directors of the Company. +Code: The Internal +Revenue Code of 1986, as amended. +Committee: The +Personnel Committee of the Board, provided however, if the +Personnel Committee of the Board is not composed entirely of +Outside Directors, the “Committee” shall mean a +committee composed entirely of at least two Outside Directors +appointed by the Board from time to time. +Company: NIKE, Inc. +Outside Directors: +The meaning ascribed to this term in +Section 162(m) of the Code and the regulations proposed or +adopted thereunder. +Performance Period: +The period of time for which Company +performance is measured for purposes of a Target Award. +Performance Target: +An objectively determinable level of +performance as selected by the Committee to measure performance +of the Company or any subsidiary, division, or other unit of the +Company for the Performance Period based on one or more of the +following: net income, net income before taxes, operating +income, revenues, return on sales, return on equity, earnings +per share, total shareholder return, or any of the foregoing +before the effect of acquisitions, divestitures, accounting +changes, restructuring, or other special charges, as determined +by the Committee at the time of establishing a Performance +Target. +Plan: The Long-Term +Incentive Plan of the Company. +Target Award: An +amount of compensation to be paid to a Plan participant based on +achievement of a particular Performance Target level, as +established by the Committee. Target Awards shall be denominated +at the time of grant either in Class B Common Stock +(“Stock Target Awards”) or in dollar amounts +(“Dollar Target Awards”). Payment under a Stock Target +Award +* +Matter in bold and underline is new; matter in +brackets and italics is to be deleted. +A-1 +or a Dollar Target Award shall be made, at the +discretion of the Committee, in Class B Common Stock or in +cash or in any combination thereof. +Year: The fiscal +year of the Company. +Section 2. Objectives. +The objectives of the Plan are to: +(a) recognize and reward on a long-term +basis [the Company’s corporate and division +officers] selected employees of the Company and its +subsidiaries for their contributions to the overall +profitability and performance of the Company; and +(b) qualify compensation under the Plan as +“performance-based compensation” within the meaning of +Section 162(m) of the Code and the regulations promulgated +thereunder. +Section 3. Shares Subject to the Plan. +Subject to adjustment as provided below and in +Section 9, the shares to be awarded under the Plan shall +consist of Class B Common Stock of the Company, and the +total number of shares of Class B Common Stock that may be +issued under the Plan shall not exceed 1,000,000 shares. If a +Target Award granted under the Plan expires, terminates or is +cancelled, the unissued shares subject to such Target Award +shall again be available under the Plan. If shares issued under +a Target Award are forfeited to the Company, the number of +shares forfeited shall again be available under the Plan. +Section 4. Administration. +The Plan will be administered by the Committee. +Subject to the provisions of the Plan, the Committee will have +full authority to interpret the Plan, to establish and amend +rules and regulations relating to it, to determine the terms and +provisions for making awards and to make all other +determinations necessary or advisable for the administration of +the Plan. +Section 5. Participation. +Target Awards may be granted under the Plan only +to individuals selected by the Committee who are [corporate +or division officers of the Company] employees of the +Company or a subsidiary of the Company . +Section 6. Determination of the +Performance Targets and Awards. +(a) Performance Targets and Awards. +The Committee shall establish in writing, in its sole +discretion, the Performance Targets and Target Award +opportunities for each participant, within 90 days of the +beginning of the applicable Performance Period. The Committee +may establish (i) several Performance Target levels for +each participant, each corresponding to a different Target Award +opportunity, and (ii) different Performance Targets and +Target Award opportunities for each participant +A-2 +in the Plan. For competitive reasons, the +specific Performance Targets determined by the Committee will +not be publicly disclosed. +(b) Other Terms and Restrictions. The +Committee may establish other restrictions to payment under a +Target Award, such as a continued employment requirement, in +addition to satisfaction of the Performance Targets. Some or all +of any shares of Class B Common Stock issuable under any +Target Award may be issued at the time of the award or any other +time as restricted shares subject to forfeiture in whole or in +part if Performance Targets or, if applicable, other +restrictions are not satisfied. +(c) Maximum Awards. The Committee +shall not establish Target Award opportunities for any +participant such that the maximum amount payable +[number of shares of Class B Common Stock issuable] +under Stock Target Awards which have Performance Periods ending +in any single Year exceeds the equivalent of +20,000 shares of Class B Common Stock or +the maximum amount [of cash] payable under Dollar Target +Awards which have Performance Periods ending in any single Year +exceeds $1,000,000. +(d) Tax Withholding. Each participant +who has received shares of Class B Common Stock upon +payment of an award shall, upon notification of the amount due, +pay to the Company in cash amounts necessary to satisfy any +applicable federal, state and local tax withholding +requirements. If the participant fails to pay the amount +demanded, the Company may withhold that amount from other +amounts payable by the Company to the participant, including +salary, subject to applicable law. With the consent of the +Committee, a participant may satisfy this obligation, in whole +or in part, by having the Company withhold from any shares to be +issued that number of shares that would satisfy the withholding +amount due or by delivering shares of Class B Common Stock +to the Company to satisfy the withholding amount. +(e) Effect on Shares Available. The +payment of a Target Award in cash shall not reduce the number of +shares of Class B Common Stock reserved for issuance under +the Plan. The number of shares of Class B Common Stock +reserved for issuance under the Plan shall be reduced by the +number of shares issued upon payment of an award, less the +number of shares surrendered or withheld to satisfy withholding +obligations. +Section 7. Determination of Plan +Awards. +At the conclusion of the Performance Period, in +accordance with Section 162(m)(4)(C)(iii) of the Code, +prior to the payment of any award under the Plan, the Committee +shall certify in the Committee’s internal meeting minutes +the attainment of the Performance Targets for the Performance +Period and the calculation of the awards. No award shall be paid +if the related Performance Target is not met. The Committee may, +in its sole discretion, reduce or eliminate any +participant’s calculated award based on circumstances +relating to the performance of the Company or the participant. +Awards will be paid in accordance with the terms of the awards +as soon as practicable following the Committee’s +certification of the awards. +A-3 +Section 8. Termination of Employment. +The terms of a Target Award may provide that in +the event of a participant’s termination of employment for +any reason during a Performance Period, the participant (or his +or her beneficiary) will receive, at the time provided in +Section 7, all or any portion of the award to which the +participant would otherwise have been entitled. +Section 9. Changes in Capital +Structure. +If the outstanding Class B Common Stock of +the Company is hereafter increased or decreased or changed into +or exchanged for a different number or kind of shares or other +securities of the Company by reason of any stock split, +combination of shares or dividend payable in shares, +recapitalization or reclassification, appropriate adjustment +shall be made by the Committee in the number and kind of shares +available for grants under the Plan. In addition, the Committee +shall make appropriate adjustment in the number and kind of +shares subject to outstanding Target Awards so that the +recipient’s proportionate interest before and after the +occurrence of the event is maintained. Notwithstanding the +foregoing, the Committee shall have no obligation to effect any +adjustment that would or might result in the issuance of +fractional shares, and any fractional shares resulting from any +adjustment may be disregarded or provided for in any manner +determined by the Committee. Any such adjustments made by the +Committee shall be conclusive. +Section 10. Miscellaneous. +(a) Amendment and Termination of the +Plan. The Committee with the approval of the Board may +amend, modify or terminate the Plan at any time and from time to +time except insofar as approval by the Company’s +shareholders is required pursuant to +Section 162(m)(4)(C)(ii) of the Code. The Plan shall +terminate at the first shareholder meeting that occurs in the +fifth year after the Company’s shareholders approve the +Plan. Notwithstanding the foregoing, no such amendment, +modification or termination shall affect the payment of Target +Awards previously established. +(b) No Assignment. Except as +otherwise required by applicable law, no interest, benefit, +payment, claim or right of any participant under the plan shall +be subject in any manner to any claims of any creditor of any +participant or beneficiary, nor to alienation by anticipation, +sale, transfer, assignment, bankruptcy, pledge, attachment, +charge or encumbrance of any kind, and any attempt to take any +such action shall be null and void. +(c) No Rights to Employment. Nothing +contained in the Plan shall give any person the right to be +retained in the employment of the Company or any of its +subsidiaries. The Company reserves the right to terminate a +participant at any time for any reason notwithstanding the +existence of the Plan. +(d) Beneficiary Designation. The +Committee shall establish such procedures as it deems necessary +for a participant to designate a beneficiary to whom any amounts +would be payable in the event of a participant’s death. +A-4 +(e) Plan Unfunded. The entire cost of +the Plan shall be paid from the general assets of the Company. +The rights of any person to receive benefits under the Plan +shall be only those of a general unsecured creditor, and neither +the Company nor the Board nor the Committee shall be responsible +for the adequacy of the general assets of the Company to meet +and discharge Plan liabilities, nor shall the Company be +required to reserve or otherwise set aside funds for the payment +of its obligations hereunder. +(f) Applicable Law. The Plan and all +rights thereunder shall be governed by and construed in +accordance with the laws of the State of Oregon. +A-5 +ANNUAL +MEETING +AND +PROXY STATEMENT +September 18, 2002 +Portland, Maine +This proxy statement is printed on recycled paper +NIKE, INC. +P.O. BOX 43069 +PROVIDENCE, RI 02940-3069 +VOTE BY INTERNET — www.proxyvote.com +Use the Internet to transmit your voting instructions and for electronic +delivery of information up until 11:59 P.M. Eastern Time the day before the +meeting date. Have your proxy card in hand when you access the web site. You +will be prompted to enter your 12-digit Control Number which is located below +to obtain your records and to create an electronic voting instruction form. +VOTE BY PHONE — 1-800-690-6903 +Use any touch-tone telephone to transmit your voting instructions up until +11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card +in hand when you call. You will be prompted to enter your 12-digit Control +Number which is located below and then follow the simple instructions the Vote +Voice provides you. +VOTE BY MAIL +Mark, sign, and date your proxy card and return it in the postage-paid envelope +we have provided or return it to NIKE, Inc., c/o ADP, 51 Mercedes Way, +Edgewood, NY 11717. +TO VOTE MARK BLOCKS BELOW IN BLUE OR BLACK INK +AS FOLLOWS: [ ] NIKE01 +KEEP THIS PORTION FOR YOUR RECORDS +THIS +PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. +DETACH AND RETURN THIS PORTION ONLY +NIKE, INC. +THE BOARD OF DIRECTORS RECOMMENDS A +VOTE FOR PROPOSALS 2 AND 3. +To withhold authority to vote, mark +For +Withhold +For All +“For All Except” and write the +All +All +Except +nominee’s number on the line below. +1. +Election of Directors; +[ ] +[ ] +[ ] +Nominees: 01) Ralph D. DeNunzio, +02) Richard K. Donahue, (03) Douglas +G. Houser, 04) Jeanne P. Jackson, 05) +John E. Jaqua, 06) Philip H +Knight, 07) Charles W. Robinson, +08) Michael Spence, 09) John R +Thompson, Jr. +For +Against +Abstain +2. +Proposal to approve the extension of and amendments to the NIKE, Inc. +Long Term Incentive Plan +[ ] +[ ] +[ ] +3. +Proposal to ratify the appointment of +PricewaterhouseCoopers LLP as independent +accountants +[ ] +[ ] +[ ] +THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED, BUT IF NO +SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES +FOR DIRECTOR, AND FOR PROPOSALS 2 AND 3. THE PROXIES MAY VOTE IN THEIR DISCRETION +AS TO OTHER MATTERS WHICH MAY COME BEFORE THE MEETING. +YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE +BOXES, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE +WITH THE BOARD OF DIRECTORS’ RECOMMENDATIONS. THE PROXIES CANNOT VOTE +YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD. +For address changes and/or comments, please check [ ] +this box and write them on the back where indicated. +(Please date and sign below exactly as your name or names appear +hereon. Joint owners should each sign personally. Corporate proxies +should be signed in full corporate name by an authorized officer +and attested. Persons signing in a fiduciary capacity should indicate +their full titles in such capacity.) +Signature (PLEASE SIGN WITHIN BOX) Date +Signature (Joint Owners) Date +NIKE, INC. +CLASS A COMMON STOCK PROXY +SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +FOR THE 2002 MEETING OF SHAREHOLDERS +SEPTEMBER 18, 2002 +The undersigned hereby appoints Philip H. Knight, Delbert J. Hayes and Douglas +G. Houser, and each of them, proxies with full power of substitution, to vote, +as designated on the reverse side, on behalf of the undersigned all shares of +Class A Common Stock which the undersigned may be entitled to vote at the +Annual Meeting of Shareholders of NIKE, Inc. on September 18, 2002, and any +adjournments thereof, with all powers that the undersigned would possess if +personally present. A majority of the proxies or substitutes present at the +meeting may exercise all powers granted hereby. +ADDRESS CHANGE/COMMENTS: +If you noted address changes or comments above, +please mark the corresponding box on the reverse side. +NIKE, INC. +P.O. BOX 43069 +PROVIDENCE, RI 02940-3069 +VOTE BY INTERNET — www.proxyvote.com +Use the internet to transmit your voting instructions and for electronic +delivery of information up until 11:59 P.M. Eastern Time the day before the +meeting date. Have your proxy card in hand when you access the web site. You +will be prompted to enter your 12-digit Control Number which is located below +to obtain your records and to create an electronic voting instruction form. +VOTE BY PHONE — 1-800-690-6903 +Use any touch-tone telephone to transmit your voting instructions up until +11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card +in hand when you call. You will be prompted to enter your 12-digit Control +Number which is located below and then follow the simple instructions the Vote +Voice provides you. +VOTE BY MAIL +Mark, sign, and date your proxy card and return it in the postage-paid envelope +we have provided or return it to NIKE, Inc. c/o ADP, 51 Mercedes Way, Edgewood, +NY 11717. +TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: NIKE03 +KEEP THIS PORTION +FOR YOUR RECORDS. +DETACH AND RETURN THIS PORTION ONLY. +THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. +NIKE, INC. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 2 AND 3. +1. +Election of Directors: +Nominees: 01) Thomas E. Clarke, 02) Jill K. Conway, and +03) Delbert J. Hayes. +FOR +WITHHOLD +FOR ALL +To +withhold authority to vote, mark “For All Except” +ALL +ALL +EXCEPT +and write the nominee's number on the line below. +[ ] +[ ] +[ ] +2. +Proposal to approve the extension of and amendments to the NIKE, Inc. Long Term Incentive Plan +FOR +AGAINST +ABSTAIN +[ ] +[ ] +[ ] +3. +Proposal to ratify the appointment of PricewaterhouseCoopers LLP as +independent accountants. +FOR +AGAINST +ABSTAIN +[ ] +[ ] +[ ] +THESE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED, BUT IF NO +SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE +NOMINEES +FOR DIRECTOR, AND FOR PROPOSALS 2 AND 3. THE PROXIES MAY VOTE IN THEIR +DISCRETION +AS TO OTHER MATTERS WHICH MAY COME BEFORE THE MEETING. +YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES, +BUT +YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF +DIRECTORS’ RECOMMENDATIONS. THE PROXIES CANNOT VOTE YOUR SHARES UNLESS YOU SIGN +AND RETURN THIS CARD. +For address changes and/or comments, please check +this box and write them on the back where indicated +[ ] +(Please date and sign below exactly as your name or names appear hereon. Joint +owners should each sign personally. Corporate proxies should be signed in full +corporate name by an authorized officer and attested. Persons signing in a +fiduciary capacity should indicate their full titles in such capacity.) +Signature (PLEASE SIGN WITHIN BOX) Date +Signature (Joint Owners) +Date +NIKE, INC. +CLASS B COMMON STOCK PROXY +SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +FOR THE 2002 MEETING OF SHAREHOLDERS +SEPTEMBER 18, 2002 +The undersigned hereby appoints Philip H. Knight, Delbert J. Hayes and Douglas +G. Houser, and each of them, proxies with full power of substitution, to vote, +as designated on the reverse side, on behalf of the undersigned all shares of +Class B Common Stock which the undersigned may be entitled to vote at the +Annual Meeting of Shareholders of NIKE, Inc. on September 18, 2002, and any +adjournments thereof, with all powers that the undersigned would possess if +personally present. A majority of the proxies or substitutes present at the +meeting may exercise all powers granted hereby. +ADDRESS CHANGE/COMMENTS: +If you noted address changes or comments above, +please mark the corresponding box on the reverse side. +30 \ No newline at end of file diff --git a/raw/proxies/0000320187/0000891020-02-001261/proxy_rpt.txt b/raw/proxies/0000320187/0000891020-02-001261/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000320187/0000891020-05-000240/proxy.txt b/raw/proxies/0000320187/0000891020-05-000240/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..e265c8c4ded361c65e79c4aa500f773458d7d034 --- /dev/null +++ b/raw/proxies/0000320187/0000891020-05-000240/proxy.txt @@ -0,0 +1,3850 @@ +DEF 14A +1 +v10581dedef14a.htm +DEFINITIVE 14A +def14a +Table of Contents +OMB +APPROVAL +OMB Number: +3235-0059 +Expires: +February 28, 2006 +Estimated +average burden +hours per response +12.75 +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant To +Section 14(a) of +The Securities Exchange Act of 1934 (Amendment +No. ) +Filed by the +Registrant þ +Filed by a Party other than the +Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only +(as permitted by Rule 14a-6(e)(2)) +þ +Definitive Proxy Statement +o +Definitive Additional Materials +NIKE, INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the +Registrant) +Payment of Filing Fee (Check the appropriate box): +þ +Fee not required. +o +Fee computed on table +below per Exchange Act Rules 14a-6(i)(4) and 0-11. +(1) +Title of each class of securities to which +transaction applies: +(2) +Aggregate number of securities to which transaction +applies: +(3) +Per unit price or other underlying value of +transaction computed pursuant to Exchange Act Rule 0-11 (set forth +the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +SEC 1913 (04-04) +Persons who are to respond to the +collection of information contained in this form are not required to +respond unless the form displays a currently valid OMB control number. +Table of Contents +NIKE, Inc. +One Bowerman Drive +Beaverton, Oregon 97005-6453 +August 12, 2005 +To Our Shareholders: +You are cordially invited to attend the annual meeting of +shareholders of NIKE, Inc. to be held at the Cannon Center for +the Performing Arts at the Memphis Cook Convention Center, 255 +North Main Street, Memphis, Tennessee 38103, on Tuesday, +September 20, 2005, at 10:00 A.M. Central Time. +Registration will begin at 9:00 A.M. +I believe that the annual meeting provides an excellent +opportunity for shareholders to become better acquainted with +NIKE and its directors and officers. I hope that you will be +able to attend. Highlights of the meeting will be available on +videotape by calling 1-800-640-8007 following the meeting. +Whether or not you plan to attend, the prompt execution and +return of your proxy card will both assure that your shares are +represented at the meeting and minimize the cost of proxy +solicitation. +Sincerely, +Philip H. Knight +Chairman of the Board +Table of Contents +Notice of Annual Meeting of Shareholders +September 20, 2005 +To the Shareholders of NIKE, Inc. +The annual meeting of shareholders of NIKE, Inc., an Oregon +corporation, will be held on Tuesday, September 20, 2005, +at 10:00 A.M., at the Cannon Center for the Performing Arts +at the Memphis Cook Convention Center, 255 North Main Street, +Memphis, Tennessee 38103, for the following purposes: +1. To elect a Board of Directors for the ensuing year. +2. To amend the Articles of Incorporation to increase the +number of authorized shares. +3. To re-approve and amend the NIKE, Inc. Executive +Performance Sharing Plan. +4. To amend the NIKE, Inc. 1990 Stock Incentive Plan. +5. To ratify the appointment of PricewaterhouseCoopers LLP +as independent registered public accounting firm. +6. To transact such other business as may properly come +before the meeting. +All shareholders are invited to attend the meeting. Shareholders +of record at the close of business on July 25, 2005, the +record date fixed by the Board of Directors, are entitled to +notice of and to vote at the meeting. You must present an +admission ticket enclosed in this Proxy Statement. +By Order of the Board of Directors +LINDSAY D. STEWART +Secretary +Beaverton, Oregon +August 12, 2005 +Whether or not you intend to be present at the meeting, please +sign and date the enclosed proxy and return it in the enclosed +envelope, or vote by telephone or over the internet following +the instructions on the proxy. +TABLE OF CONTENTS +PROXY STATEMENT +VOTING SECURITIES +PROPOSAL 1 ELECTION OF DIRECTORS +EXECUTIVE COMPENSATION +Option Grants in the Fiscal Year Ended May 31, 2005 +Aggregated Option Exercises in the Fiscal Year Ended May 31, 2005 and Fiscal Year-End Option Values +Long-Term Incentive Plans Awards in Fiscal Year Ended May 31, 2005 +Equity Compensation Plans +REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION +PROPOSAL 2 APPROVAL OF INCREASE IN AUTHORIZED COMMON STOCK +PROPOSAL 3 RE-APPROVAL AND AMENDMENT OF EXECUTIVE PERFORMANCE SHARING PLAN +PROPOSAL 4 APPROVAL OF AMENDMENT TO THE 1990 STOCK INCENTIVE PLAN +PROPOSAL 5 RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +REPORT OF THE AUDIT COMMITTEE +OTHER MATTERS +SHAREHOLDER PROPOSALS +Table of Contents +PROXY STATEMENT +The enclosed proxy is solicited by the Board of Directors of +NIKE, Inc. (“NIKE” or the “Company”) for use +at the annual meeting of shareholders to be held on +September 20, 2005, and at any adjournment thereof (the +“Annual Meeting”). The Company expects to mail this +proxy statement and the enclosed proxy to shareholders on or +about August 12, 2005. +The Company will bear the cost of solicitation of proxies. In +addition to the solicitation of proxies by mail, certain +officers and employees of the Company, without extra +compensation, may also solicit proxies personally or by +telephone. The Company has retained ADP Investor Communications +Services, 51 Mercedes Way, Edgewood, New York, to assist in the +solicitation of proxies from nominees and brokers at an +estimated fee of $9,000 plus related out-of-pocket expenses. +Copies of proxy solicitation materials will be furnished to +fiduciaries, custodians and brokerage houses for forwarding to +the beneficial owners of shares held in their names. +All valid proxies properly executed and received by the Company +prior to the Annual Meeting will be voted in accordance with the +instructions specified in the proxy. Where no instructions are +given, shares will be voted FOR (1) the election of each of +the named nominees for director, (2) the approval of the +increase in the authorized common stock, (3) re-approval +and amendment of the NIKE, Inc. Executive Performance Sharing +Plan, (4) amendment of the NIKE, Inc. 1990 Stock Incentive +Plan, and (5) ratification of the appointment of +PricewaterhouseCoopers LLP as independent registered public +accounting firm. A shareholder may choose to strike the names of +the proxy holders named in the enclosed proxy and insert other +names. +A shareholder giving the enclosed proxy has the power to revoke +it at any time before it is exercised by affirmatively electing +to vote in person at the meeting or by delivering to John F. +Coburn III, Assistant Secretary of NIKE, either an +instrument of revocation or an executed proxy bearing a later +date. +VOTING SECURITIES +Holders of record of NIKE’s Class A Common Stock +(“Class A Stock”) and holders of record of +NIKE’s Class B Common Stock (“Class B +Stock”), at the close of business on July 25, 2005, +will be entitled to vote at the Annual Meeting. On that date, +65,676,484 shares of Class A Stock and +195,976,930 shares of Class B Stock were issued and +outstanding. Neither class of Common Stock has cumulative voting +rights. +Each share of Class A Stock and each share of Class B +Stock is entitled to one vote on every matter submitted to the +shareholders at the Annual Meeting. With regard to +Proposal 1, the election of directors, the holders of +Class A Stock and the holders of Class B Stock will +vote separately. Holders of Class B Stock are currently +entitled to elect 25 percent of the total Board, rounded up +to the next whole +Table of Contents +number. Holders of Class A Stock are currently entitled to +elect the remaining directors. Under this formula, holders of +Class B Stock, voting separately, will elect three +directors, and holders of Class A Stock, voting separately, +will elect seven directors. Holders of Class A Stock and +holders of Class B Stock will vote separately on +Proposal 2 and together as one class on Proposals 3, 4 +and 5. +PROPOSAL 1 +ELECTION OF DIRECTORS +A Board of 10 directors will be elected at the Annual +Meeting. All of the nominees were elected at the 2004 annual +meeting of shareholders except for Orin C. Smith, William D. +Perez, and John G. Connors, who were appointed to the Board of +Directors on September 20, 2004, December 28, 2004, +and April 14, 2005, respectively. Directors will hold +office until the next annual meeting of shareholders or until +their successors are elected and qualified. Delbert J. Hayes, +who has served on the Board of Directors since 1975, has chosen +to retire from the Board at the Annual Meeting, and accordingly +will not stand for election at the Annual Meeting. The Company +appreciates greatly his distinguished service and valuable +contributions to NIKE. +Jill K. Conway, Alan B. Graf, Jr., and Jeanne P. Jackson +are nominated by the Board of Directors for election by the +holders of Class B Stock. The other seven nominees are +nominated by the Board of Directors for election by the holders +of Class A Stock. +Under Oregon law, if a quorum of each class of shareholders is +present at the Annual Meeting, the seven director nominees who +receive the greatest number of votes cast by holders of +Class A Stock and the three director nominees who receive +the greatest number of votes cast by holders of Class B +Stock will be elected directors. Abstentions and broker +non-votes will have no effect on the results of the vote. Unless +otherwise instructed, proxy holders will vote the proxies they +receive for the nominees listed below. If any nominee becomes +unable to serve, the holders of the proxies may, in their +discretion, vote the shares for a substitute nominee or nominees +designated by the Board of Directors. +Background information on the nominees as of July 15, 2005, +appears below: +Nominees for Election by Class A Shareholders +John G. Connors — Mr. Connors, 46, a +director since April 2005, is a partner in Ignition Partners +LLC, a Seattle-area venture capital firm. Mr. Connors +served as Senior Vice President and Chief Financial Officer of +Microsoft Corporation from December 1999 to May 2005. He joined +Microsoft in 1989 and held various management positions, +including Corporate Controller from 1994 to 1996, Vice +President, Worldwide Enterprise Group in 1999, and Chief +Information Officer from 1996 to 1999. Mr. Connors is also +a member of the Board of Trustees — Nature Conservancy +of Montana. +2 +Table of Contents +Ralph D. DeNunzio — Mr. DeNunzio, 73, a +director since 1988, is President of Harbor Point Associates, +Inc., New York, New York, a private investment and consulting +firm. Mr. DeNunzio was employed by the investment banking +firm of Kidder, Peabody & Co. Incorporated from 1953 to +1987, where he served as President from 1977 to 1986, as Chief +Executive Officer from 1980 to 1987 and as Chairman of the Board +of Directors from 1986 to 1987. Mr. DeNunzio served as Vice +Chairman and Chairman of the Board of Governors of the New York +Stock Exchange from 1969 to 1972 and was President of the +Securities Industry Association in 1981. In 1970, +Mr. DeNunzio headed the Securities Industry Task Force, +which led to enactment of the Securities Investor Protection Act +of 1970 and establishment of the Securities Investor Protection +Corporation. +Douglas G. Houser — Mr. Houser, 70, a +director since 1970, has been a partner in the Portland, Oregon +law firm of Bullivant, Houser, Bailey since 1965. +Mr. Houser is a trustee of Willamette University and a +Fellow in the American College of Trial Lawyers, and has served +as a member of the Board of Governors and Treasurer of the +Oregon State Bar Association and as a Director of the Rand +Corporation, Institute for Civil Justice Board of Overseers. +Philip H. Knight — Mr. Knight, 67, a +director since 1968, is Chairman of the Board of Directors of +NIKE. Mr. Knight is a co-founder of the Company and, except +for the period from June 1983 through September 1984, served as +its President from 1968 to 1990, and from June 2000 to 2004. +Prior to 1968, Mr. Knight was a certified public accountant +with Price Waterhouse and Coopers & Lybrand and was an +Assistant Professor of Business Administration at Portland State +University. +William D. Perez — Mr. Perez, 57, a +director since December 2004, is President and Chief Executive +Officer of NIKE. Immediately prior to joining NIKE, he was +President and Chief Executive Officer of S. C. +Johnson & Son, Inc. in Racine, Wisconsin, a position he +held since 1997. Mr. Perez joined S. C. Johnson & +Son, Inc. in 1970, where he held a number of senior positions in +marketing, regional management, and global management, becoming +President and Chief Operating Officer of Worldwide Consumer +Products in 1993. Mr. Perez is also a director of Kellogg +Company, where he serves on the Audit Committee and the Consumer +Marketing Committee. +Orin C. Smith — Mr. Smith, 62, a director +since September 2004, was President and Chief Executive Officer +of Starbucks Corporation from 2000 to 2005. He joined Starbucks +as Vice President and Chief Financial Officer in 1990, became +President and Chief Operating Officer in 1994, and became a +director of Starbucks in 1996. Prior to joining Starbucks, +Mr. Smith spent a total of 14 years with +Deloitte & Touche. He was later the Executive Vice +President and Chief Financial Officer of two transportation +companies. Between these assignments, he was Chief Policy and +Finance Officer in the administrations of two Washington State +Governors. +John R. Thompson, Jr. — Mr. Thompson, +64, a director since 1991, was head coach of the Georgetown +University men’s basketball team from 1972 until 1998. +Mr. Thompson serves as Assistant to the President of +Georgetown for Urban Affairs. Mr. Thompson was head coach +of the 1988 +3 +Table of Contents +United States Olympic basketball team. He is a past +President of the National Association of Basketball Coaches and +presently serves on its Board of Governors. +Nominees for Election by Class B Shareholders +Jill K. Conway — Dr. Conway, 70, a +director since 1987, is currently a Visiting Scholar with the +Massachusetts Institute of Technology’s Program in Science, +Technology and Society. Dr. Conway was a Professor of +History and President of Smith College, Northampton, +Massachusetts, from 1975 to 1985. She was affiliated with the +University of Toronto from 1964 to 1975, and held the position +of Vice President, Internal Affairs from 1973 to 1975. +Dr. Conway holds numerous Honorary Doctorates from North +American universities. She is also a director of Merrill +Lynch & Co., Inc. and Colgate-Palmolive Company. +Alan B. Graf, Jr. — Mr. Graf, 51, a +director since 2002, is the Executive Vice President and Chief +Financial Officer of FedEx Corporation, a position he has held +since 1998, and is a member of FedEx Corporation’s +Executive Committee. Mr. Graf joined FedEx Corporation in +1980 and was Senior Vice President and Chief Financial Officer +for FedEx Express, FedEx’s predecessor, from 1991 to 1998. +He is also a director of Kimball International, Inc. and +Mid-America Apartment Communities, Inc. +Jeanne P. Jackson — Ms. Jackson, 53, a +director since 2001, is Founder and CEO of MSP Capital, a +private investment company. Ms. Jackson was CEO of +Walmart.com from March 2000 to January 2002. She was with Gap, +Inc., as President and CEO of Banana Republic from 1995-2000, +also serving as CEO of Gap, Inc. Direct from 1998-2000. Since +1978, she has held various retail management positions with +Victoria’s Secret, The Walt Disney Company, Saks Fifth +Avenue, and Federated Department Stores. Ms. Jackson is a +Trustee of the United States Ski and Snowboard Team, and serves +on the Board of Advisors of the Harvard Graduate School of +Business. She is also a director of McDonald’s Corporation, +Nordstrom, Inc., and Williams-Sonoma, Inc. +Board of Directors and Committees +The Board currently has an Executive Committee, an Audit +Committee, a Nominating and Corporate Governance Committee, a +Finance Committee, a Corporate Responsibility Committee, and a +Compensation Committee, and may also appoint other committees +from time to time. Each committee has a written charter; all +such charters, as well as the Company’s corporate +governance guidelines, are available at the Company’s +internet website (www.nikebiz.com) and will be provided in print +to any shareholder who submits a request in writing to NIKE +Investor Relations, One Bowerman Drive, Beaverton, Oregon +97005-6453. There were six meetings of the Board of Directors +during the last fiscal year. Each director attended at least +75 percent of the total number of meetings of the Board of +Directors and committees on which he or she served. The Company +encourages all directors to attend each annual meeting of +shareholders, and all directors attended the 2004 Annual Meeting. +4 +Table of Contents +Pursuant to New York Stock Exchange rules, in order for a +director to qualify as “independent,” the Board of +Directors must affirmatively determine that the director has no +material relationship with the Company that would impair the +director’s independence. The rules permit the Board to +adopt categorical standards under which relationships will be +deemed immaterial without any specific Board determination. +Accordingly, the Board has determined that commercial or +charitable relationships below the following thresholds will not +be considered material relationships that impair a +director’s independence: (i) if a NIKE director or +immediate family member is an executive officer of another +company that does business with NIKE and the annual sales to, or +purchases from, NIKE are less than one percent of the annual +revenues of the other company; and (ii) if a NIKE director +or immediate family member serves as an officer, director or +trustee of a charitable organization, and NIKE’s +contributions to the organization are less than one percent of +that organization’s total annual charitable receipts. After +applying this categorical standard, the Board of Directors has +determined that all directors, except Mr. Knight and +Mr. Perez who are executive officers of the Company, have +no material relationship with the Company and, therefore, are +independent. +Executive sessions of non-management directors (consisting of +all directors other than Mr. Knight and Mr. Perez) are +regularly scheduled and held at least once each year. The +position of presiding director at these executive sessions is +rotated among the Chairs of the various Board committees, other +than the Executive Committee, so there is no single lead +director. +The Executive Committee of the Board is currently composed of +Messrs. Knight (Chairman), Perez, and Houser. The Executive +Committee is authorized to act on behalf of the Board on all +corporate actions for which applicable law does not require +participation by the full Board. In practice, the Executive +Committee acts in place of the full Board only when emergency +issues or scheduling make it difficult or impracticable to +assemble the full Board. All actions taken by the Executive +Committee must be reported at the next Board meeting. The +Executive Committee held no formal meetings during the fiscal +year ended May 31, 2005, but took actions from time to time +pursuant to written consent resolutions. +The Audit Committee is currently composed of Messrs. Graf +(Chairman), Connors, Hayes and Smith. The Board has determined +that each member of the Audit Committee meets all applicable +independence and financial literacy requirements under the New +York Stock Exchange listing standards. The Board has also +determined that Mr. Graf is an “audit committee +financial expert” as defined in regulations adopted by the +Securities and Exchange Commission. The Audit Committee is +responsible for the engagement or discharge of the independent +registered public accountants, reviews and approves services +provided by the independent registered public accountants, and +reviews with the independent registered public accountants the +scope and results of their annual examination of the +Company’s consolidated financial statements and any +recommendations they may have. The Audit Committee also reviews +the Company’s procedures with respect to maintaining books +and records, the adequacy and implementation of internal +auditing, accounting, disclosure, and financial controls, and +the Company’s policies concerning financial reporting and +business practices. In 2005, the Charter of the +5 +Table of Contents +Audit Committee was amended. A copy of the Charter is attached +to this Proxy Statement as Exhibit A. The Audit Committee +met 13 times during the fiscal year ended May 31, 2005. +The Nominating and Corporate Governance Committee is currently +composed of Mr. DeNunzio (Chairman), Dr. Conway, and +Mr. Houser. The Board has determined that each member of +the Nominating and Corporate Governance Committee meets all +applicable independence requirements under the New York Stock +Exchange listing standards. The Nominating and Corporate +Governance Committee identifies individuals qualified to become +Board members, recommends director nominees for election at each +annual shareholder meeting, and develops and recommends +corporate governance guidelines and standards for business +conduct and ethics. The committee also oversees the annual +self-evaluations of the Board and its committees and makes +recommendations to the Board concerning the structure and +membership of the other Board committees. The Nominating and +Corporate Governance Committee met eight times during the fiscal +year ended May 31, 2005. +The Finance Committee is currently composed of +Messrs. Smith (Chairman), DeNunzio, and Hayes. The Finance +Committee considers long-term financing options and needs of the +Company, long-range tax and currency issues facing the Company, +and management recommendations concerning major capital +expenditures and material acquisitions or divestments. The +Finance Committee met six times during the fiscal year ended +May 31, 2005. +The Corporate Responsibility Committee is currently composed of +Dr. Conway (Chair), Ms. Jackson and +Messrs. Houser and Thompson. The Corporate Responsibility +Committee reviews significant activities and policies regarding +labor and environmental practices, community affairs, charitable +and foundation activities, diversity and equal opportunity, and +environmental and sustainability initiatives, and makes +recommendations to the Board of Directors. The Corporate +Responsibility Committee met five times during the fiscal year +ended May 31, 2005. +The Compensation Committee is currently composed of +Mr. DeNunzio (Chairman), Dr. Conway, and +Mr. Thompson. The Compensation Committee determines the +Chief Executive Officer’s compensation and makes +recommendations to the Board regarding other officers’ +compensation, management incentive compensation arrangements and +profit sharing plan contributions. The Compensation Committee +also grants stock options and restricted stock bonuses under the +NIKE, Inc. 1990 Stock Incentive Plan, and determines targets and +awards under the NIKE, Inc. Executive Performance Sharing Plan +and the NIKE, Inc. Long-Term Incentive Plan. The Compensation +Committee met six times during the fiscal year ended +May 31, 2005. +Director Nominations +The Nominating and Corporate Governance Committee identifies +potential director candidates through a variety of means, +including recommendations from members of the Committee or the +Board, suggestions from Company management, and shareholder +recommendations. The committee also may, in its discretion, +engage director search firms to identify candidates. +Shareholders may recommend +6 +Table of Contents +director candidates for consideration by the Nominating and +Corporate Governance Committee by submitting a written +recommendation to the Committee, c/o John F. +Coburn III, Assistant Secretary, NIKE, Inc., One Bowerman +Drive, Beaverton, Oregon 97005-6453. The recommendation should +include the candidate’s name, age, qualifications +(including principal occupation and employment history), and +written consent to be named as a nominee in the Company’s +proxy statement and to serve as a director, if elected. +As provided in the Company’s Corporate Governance +Guidelines, nominees for director are selected on the basis of +their character, judgment, business experience and acumen, +understanding of the Company’s business, diversity, +specific skills needed by the Board, and ability to devote time +to Board responsibilities. In considering the re-nomination of +an incumbent director, the Nominating and Corporate Governance +Committee reviews the director’s overall service to the +Company during his or her term, including the number of meetings +attended, level of participation and quality of performance, as +well as any special skills or diversity that such director +brings to the Board. All potential new director candidates, +whether recommended by shareholders or identified by other +means, are initially screened by the Chair of the Nominating and +Corporate Governance Committee, who may seek additional +information about the background and qualifications of the +candidate, and who may determine that a candidate does not have +qualifications that merit further consideration by the full +committee. With respect to new director candidates who pass the +initial screening, the Nominating and Corporate Governance +Committee meets to discuss and consider each candidate’s +qualifications and potential contributions to the Board, and +determines by majority vote whether to recommend such candidates +to the Board of Directors. The final decision to either elect a +candidate to fill a vacancy between Annual Meetings or include a +candidate on the slate of nominees proposed at an Annual Meeting +is made by the Board of Directors. +Shareholder Communications with Directors +Shareholders desiring to communicate directly with the Board of +Directors, with the non-management directors, or with any +individual director, may do so in writing addressed to the +intended recipient or recipients, c/o John F. +Coburn III, Assistant Secretary, NIKE, Inc., One Bowerman +Drive, Beaverton, Oregon 97005-6453. All such communications +will be reviewed, compiled as necessary, and then forwarded to +the designated recipient or recipients in a timely manner. +Code of Business Conduct and Ethics +The NIKE Code of Ethics (“Code”) is available at the +Company’s internet website ( www.nikebiz.com ) and +will be provided in print without charge to any shareholder who +submits a request in writing to NIKE Investor Relations, One +Bowerman Drive, Beaverton, Oregon 97005-6453. The Code applies +to the Company’s chief executive officer and senior +financial officers, and to all other Company directors, officers +and employees. The Code provides that any waiver of the Code may +be made only by the Board. Any such waiver in favor of a +director or executive officer will be publicly +7 +Table of Contents +disclosed. The Company plans to disclose amendments to, and +waivers from, the Code on the Company’s internet website: +www.nikebiz.com. +Director Compensation and Retirement Plan +Messrs. Knight and Perez do not receive additional +compensation for their services as directors. Directors are +reimbursed for travel and other expenses incurred in attending +Board meetings. Pursuant to elections made in fiscal 2000, +Messrs. Hayes and Thompson, and Dr. Conway receive an +annual fee of $22,000 per year, plus $2,000 for each Board +meeting attended, $1,000 for each committee meeting attended, an +annual grant of an option to purchase 4,000 shares of +stock at the market price at grant, medical insurance, and +$500,000 of life insurance coverage. Messrs. DeNunzio, +Graf, Houser, Smith, Connors and Ms. Jackson, and all +directors first elected after fiscal 2000, receive a fee of +$40,000 per year, plus $2,000 for each Board meeting +attended, $1,000 for each committee meeting attended, and an +annual grant of an option to purchase 4,000 shares of +stock at the market price at grant. However, they receive no +medical or life insurance benefits. In exchange for electing the +new compensation method in fiscal 2000, Messrs. DeNunzio +and Houser also receive an annual grant of an option to +purchase 1,000 shares of stock at the market price on +the date of grant. Directors serving as chair to a board +committee, except the Executive Committee, also receive an +annual fee of $5,000 for each committee chaired. +From 1989 to 1999, the Company provided certain retirement +benefits to non-employee directors who retired after serving for +five years or more. The plan provided that after ten years of +service by a director, the Company would provide such director +for the remainder of his or her life with $500,000 of life +insurance and medical insurance at the levels provided by the +Company to all of its employees at the time the director +retires. The plan also provided that a director who had served +for at least five years would receive an annual retirement cash +payment for life, commencing on the later of age 65 or the +date the director retires or ceases to be a member of the Board. +The annual retirement cash payment ranged from $9,000 for five +years of service up to a maximum of $18,000 for 10 or more years +of service. +In fiscal 2000, in an effort to reduce future retirement +obligations, the Board of Directors approved a new retirement +plan that allowed directors to make a one-time election to waive +their future rights to annual retirement cash payments in +exchange for a credit to a stock account under the +Company’s Deferred Compensation Plan equal to the lump sum +present value of the payments based on the actuarial life +expectancy of each director. The number of shares of +Class B Common Stock credited to each stock account was +based on the market price of the stock on September 1, +1999. All current directors who were directors at that time +elected the new plan. The number of shares of Class B +Common Stock credited to the stock accounts of each director +was: Dr. Conway, 4,165; Mr. DeNunzio, 3,852; +Mr. Hayes, 4,217; Mr. Houser, 4,243; and +Mr. Thompson, 3,271. Any non-employee directors first +elected after fiscal 2000 do not receive retirement benefits. +Directors first elected after the 1993 fiscal year must retire +at age 72. +8 +Table of Contents +Stock Holdings of Certain Owners and Management +The following table sets forth the number of shares of each +class of NIKE securities beneficially owned, as of July 15, +2005, by (i) each person known to the Company to be the +beneficial owner of more than 5 percent of any class of the +Company’s securities, (ii) each of the directors and +nominees for director, (iii) each executive officer listed +in the Summary Compensation Table (“Named Officers”), +and (iv) all nominees, Named Officers, and other executive +officers as a group. Because Class A Stock is convertible +into Class B Stock on a share-for-share basis, each +beneficial owner of Class A Stock is deemed by the +Securities and Exchange Commission to be a beneficial owner of +the same number of shares of Class B Stock. Therefore, in +indicating a person’s beneficial ownership of shares of +Class B Stock in the table, it has been assumed that such +person has converted into Class B Stock all shares of +Class A Stock of which such person is a beneficial owner. +For these reasons the table contains substantial duplications in +the numbers of shares and percentages of Class A and +Class B Stock shown for Messrs. Hayes and Knight; for +Cardinal Fund I, L.P.; and for all directors and officers +as a group. +Shares +Title of +Beneficially +Percent of +Class +Owned(1) +Class(2) +John G. Connors +Class B +3,230 +Medina, Washington +Jill K. Conway +Class B +25,368 +(3)(4) +Boston, Massachusetts +Ralph D. DeNunzio +Class B +116,504 +(3)(4) +Riverside, Connecticut +Alan B. Graf, Jr. +Class B +13,000 +(3) +Memphis, Tennessee +Delbert J. Hayes +Class A +390,000 +0.6 +% +Newberg, Oregon +Class B +552,900 +(3)(4) +0.3 +% +Douglas G. Houser +Class B +88,196 +(3)(4) +Portland, Oregon +Jeanne Jackson +Class B +11,800 +(3) +Newport Coast, California +Philip H. Knight(6) +Class A +59,955,047 +(5) +91.0 +% +Beaverton, Oregon +Class B +65,173,881 +(5) +25.4 +% +William D. Perez(6) +Class B +124,862 +(7)(8) +Beaverton, Oregon +Orin C. Smith +Class B +Seattle, Washington +9 +Table of Contents +Shares +Title of +Beneficially +Percent of +Class +Owned(1) +Class(2) +John R. Thompson, Jr. +Class B +17,485 +(3)(4) +Washington, D.C. +Charles Denson(6) +Class B +288,262 +(3)(7)(9)(10) +0.1 +% +Portland, Oregon +Mindy Grossman(6) +Class B +80,995 +(3)(9) +Beaverton, Oregon +Mark G. Parker(6) +Class B +375,327 +(3)(7)(9)(10) +0.2 +% +Beaverton, Oregon +Gary M. DeStefano(6) +Class B +216,551 +(3)(7)(9) +Beaverton, Oregon +Sojitz Corporation of America +Preferred +(11) +300,000 +100.0 +% +Portland, Oregon +Cardinal Fund I, L.P. +Class A +1,950,000 +(12) +3.0 +% +Fort Worth, Texas +Class B +14,718,131 +(12) +7.5 +% +Janus Capital Management LLC +Class B +13,131,505 +(13) +6.7 +% +Denver, Colorado +FMR Corp +Class B +11,092,911 +(13) +5.7 +% +Boston, Massachusetts +Marisco Capital Management, LLC +Class B +10,434,732 +(13) +5.3 +% +Denver, Colorado +All directors and executive officers as a group (25 persons) +Class A +60,345,047 +91.6 +% +Class B +68,005,732 +(3) +26.6 +% +(1) +A person is considered to beneficially own any shares: +(a) over which the person exercises sole or shared voting +or investment power, or (b) of which the person has the +right to acquire beneficial ownership at any time within +60 days (such as through conversion of securities or +exercise of stock options). Unless otherwise indicated, voting +and investment power relating to the above shares is exercised +solely by the beneficial owner or shared by the owner and the +owner’s spouse or children. +(2) +Omitted if less than 0.1 percent. +(3) +These amounts include the right to acquire, pursuant to the +exercise of stock options, within 60 days after +July 15, 2005, the following numbers of shares:, +4,000 shares for Dr. Conway, 9,000 shares for +Mr. DeNunzio, 9,000 shares for Mr. Graf, +4,000 shares for Mr. Hayes, 5,000 shares for +Mr. Houser, 10,000 shares for Ms. Jackson, +10,000 shares for Mr. Thompson, 245,000 shares +for Mr. Denson, 67,500 shares for Ms. Grossman, +307,500 shares for Mr. Parker, +10 +Table of Contents +181,000 shares for Mr. DeStefano, and +1,605,500 shares for the executive officer and director +group. +(4) +Includes shares credited to accounts under the NIKE, Inc. +Deferred Compensation Plan in the following amounts: 4,437 for +Dr. Conway, 4,104 for Mr. DeNunzio, 4,493 for +Mr. Hayes, 4,519 for Mr. Houser, and 3,485 for +Mr. Thompson. +(5) +Does not include: (a) 814,790 Class A shares held by a +limited partnership in which a corporation owned by +Mr. Knight’s spouse is a co-general partner, +(b) 65,224 Class A shares owned by such corporation, +(c) 1,000,000 Class B shares held by the Knight +Foundation, a charitable foundation in which Mr. Knight and +his spouse are directors, (d) 1,950,000 Class A shares +held by Oak Hill Strategic Partners, L.P., a limited partnership +in which a company owned by Mr. Knight is a limited +partner, and (e) 12,768,131 Class B shares held by +Cardinal Fund I, L.P., a limited partnership in which +Mr. Knight is a limited partner. Mr. Knight has +disclaimed ownership of all such shares. +(6) +Executive officer listed in the Summary Compensation Table. +(7) +Includes shares held in accounts under the NIKE, Inc. 401(k) and +Profit Sharing Plan for Messrs. Perez, Denson, Parker, and +DeStefano in the amounts of 28, 4,511, 3,219, and +3,243 shares, respectively. +(8) +This amount includes 100,000 restricted shares granted on +December 28, 2004 and 22,834 restricted shares granted on +July 15, 2005 to Mr. Perez under the NIKE, Inc. 1990 +Stock Incentive Plan. With respect to the 100,000-share grant, +the restrictions lapse with respect to one-third of the shares +on each of the first three anniversaries of the grant date, +unless on or prior to December 28, 2007 +Mr. Perez’s employment is terminated by the Company +without cause or by Mr. Perez for good reason, in which +case the 100,000 share grant will vest completely. With +respect to the 22,834-share grant, the restrictions lapse with +respect to one-fourth of the shares on each of the first four +anniversaries of the grant date, unless employment terminates +before that date, in which case any remaining restricted shares +are forfeited. +(9) +These amounts include 10,209, 9,571, 10,209, and 11,485 +restricted shares granted on July 18, 2003 to +Mr. Denson, Ms. Grossman, Mr. Parker, and +Mr. DeStefano respectively, under the NIKE, Inc. 1990 Stock +Incentive Plan. The restrictions lapse with respect to one third +of the shares on each of the first three anniversaries of the +grant date, with the exception of Mr. DeStefano’s +grant which will vest 100% on the third anniversary of the date, +unless employment terminates before that date, in which case any +remaining restricted shares are forfeited. +(10) +These amounts include 15,000 restricted shares granted on +July 15, 2005 to each of Messrs. Parker and Denson +under the NIKE, Inc. 1990 Stock Incentive Plan. The restrictions +lapse with respect to one-third of the shares on each of the +first three anniversaries of the grant date, unless +11 +Table of Contents +employment terminates before that date, in which case any +remaining restricted shares are forfeited. +(11) +Preferred Stock does not have general voting rights except as +provided by law, and under certain circumstances as provided in +the Company’s Restated Articles of Incorporation, as +amended. +(12) +Includes 1,950,000 shares of Class A Common Stock held +by Oak Hill Strategic Partners, L.P., which is under common +control with Cardinal Fund I, L.P. +(13) +Information provided as of December 31, 2004 in +Schedule 13G filed by the shareholder. +Section 16(a) Beneficial Ownership Reporting +Compliance +Section 16(a) of the Securities Exchange Act of 1934 +requires the Company’s directors and executive officers, +and persons who own more than 10 percent of a registered +class of the Company’s equity securities, to file with the +Securities and Exchange Commission (the “SEC”) and the +New York Stock Exchange initial reports of ownership and reports +of changes in ownership of Common Stock and other equity +securities of the Company. Officers, directors and greater than +10 percent shareholders are required by the regulations of +the SEC to furnish the Company with copies of all +Section 16(a) forms they file. To the Company’s +knowledge, based solely on review of the copies of such reports +furnished to the Company and written representations that no +other reports were required, during the fiscal year ended +May 31, 2005 all Section 16(a) filing requirements +applicable to its officers, directors and greater than +10 percent beneficial owners were complied with. +12 +Table of Contents +EXECUTIVE COMPENSATION +The following table discloses compensation awarded to, earned +by, or paid to the Company’s former and current Chief +Executive Officer and its next four most highly compensated +executive officers for all services rendered by them in all +capacities to the Company and its subsidiaries during the fiscal +year ended May 31, 2005 and the two preceding fiscal years. +Summary Compensation Table +Long-Term +Annual Compensation +Compensation +Restricted +All Other +Name and +Other Annual +Stock +Stock +LTIP +Compensation +Principal Position +Year +Salary($) +Bonus($) +Compensation($) +Awards($) +Options(#) +Payouts($) +($)(1) +Philip H. Knight +2005 +1,270,769 +1,554,665 +— +— +— +386,860 +244,160 +Chairman (formerly +2004 +1,392,308 +2,278,282 +— +— +— +456,000 +99,053 +Chief Executive +2003 +1,350,000 +1,121,840 +— +— +— +320,000 +87,195 +Officer and President) +William D. Perez +2005 +467,308 +1,123,358 +— +9,085,000 +(2) +200,000 +— +18,602 +(3) +President and Chief Executive Officer +Mark G. Parker +2005 +1,042,308 +1,338,167 +— +— +70,000 +290,000 +169,059 +(4) +President +2004 +992,308 +1,270,759 +— +800,000 +(2) +70,000 +228,000 +81,226 +NIKE Brand +2003 +942,308 +817,154 +— +— +70,000 +160,000 +59,079 +Charles Denson +2005 +992,308 +1,273,974 +— +— +70,000 +290,000 +155,612 +President +2004 +934,615 +1,196,878 +— +800,000 +(2) +70,000 +228,000 +72,050 +NIKE Brand +2003 +834,615 +740,907 +— +— +50,000 +290,000 +114,167 +Mindy Grossman +2005 +833,846 +1,182,111 +(6) +96,793 +(5) +— +50,000 +290,000 +114,167 +Vice President +2004 +792,308 +1,073,531 +(6) +— +750,000 +(2) +50,000 +228,000 +50,341 +Apparel +2003 +734,615 +485,434 +— +— +40,000 +160,000 +96,719 +Gary M. DeStefano +2005 +783,846 +822,710 +(6) +— +— +44,000 +290,000 +113,595 +President +2004 +742,308 +769,361 +(6) +— +600,000 +(2) +44,000 +228,000 +53,796 +USA Operations +2003 +684,615 +420,080 +— +— +44,000 +160,000 +41,704 +(1) +Includes contributions by the Company to the NIKE, Inc. 401(k) +and Profit Sharing Plan for the fiscal year ended May 31, +2005 in the amount of $11,658 each for Mr. Knight and +Ms. Grossman, $1,662 for Mr. Perez, $17,658 for +Mr. Denson, and $19,858 each for Mr. Parker and +Mr. DeStefano. Also includes contributions by the Company +to the Deferred Compensation Plan for Mr. Knight, +Mr. Parker, Mr. Denson, Ms. Grossman, and +Mr. DeStefano of $232,502, $147,106, $137,954, $102,509, +and $93,737, respectively. +(2) +Represents the value of restricted shares granted based on the +closing market price of the Class B Stock on the grant +date. On December 28, 2004, a restricted stock grant was +made to Mr. Perez for 100,000 shares. On July 18, +2003, restricted stock grants were made to Mr. Parker and +Mr. Denson for 15,314 shares, Ms. Grossman for +14,357 shares, and Mr. DeStefano for +11,485 shares. For the grants to Mr. Parker, +Mr. Denson, and Ms. Grossman, the restrictions lapse +with respect to one- +13 +Table of Contents +third of the shares on each of the first three anniversaries of +the grant date. Mr. DeStefano’s grant will vest 100% +on the third anniversary of the grant date. +Mr. Perez’s grant restrictions lapse with respect to +one-third of the shares on each of the first three anniversaries +of the grant date, subject to acceleration if, on or prior to +December 28, 2007, Mr. Perez’s employment is +terminated by the Company without cause or by Mr. Perez for +good reason. If employment terminates before the restrictions +lapse, any remaining restricted shares are forfeited. Dividends +on restricted shares are paid currently to the holders. On +May 31, 2005 the number of remaining restricted shares and +the dollar value of those shares based on the fair market value +of $82.20 per share on that date was 100,000 shares +with a value of $8,220,000 for Mr. Perez, +10,209 shares with a value of $1,678,360 for +Mr. Parker and Mr. Denson, 9,571 shares with a +value of $786,736 for Ms. Grossman, and 11,485 shares +with a value of $994,067 for Mr. DeStefano. +(3) +Includes $16,940 of temporary lodging relocation expenses +incurred during the fiscal year. +(4) +Includes above-market interest on deferred compensation for +Mr. Parker in the amount of $2,095 for the 2005 fiscal year. +(5) +Represents additional compensation to Ms. Grossman for +transportation expenses pursuant to her employment agreement, +including $61,175 for the aggregate incremental cost of the use +of Company aircraft, and gross up for taxes on such compensation. +(6) +Includes bonus outside the Executive Performance Sharing Plan +for Ms. Grossman in the amount of $290,000 and $228,000 for +fiscal 2005 and 2004, respectively, and for Mr. DeStefano in the +amount of $40,000 and $30,000 for fiscal 2005 and 2004, +respectively. +14 +Table of Contents +Option Grants in the Fiscal Year Ended May 31, 2005 +Potential Realizable Value +at Assumed Annual Rates of +% of Total +Stock Price Appreciation for +Options Granted +Exercise or +Option Term(3) +Options Granted +to Employees in +Base Price +Expiration +Name +(#)(1) +Fiscal Year +($/Share)(2) +Date +5% ($) +10% ($) +Philip H. Knight +— +— +— +— +— +— +William D. Perez +200,000 +3.7 +$ +90.85 +12/27/14 +$ +11,427,015 +$ +28,958,300 +Mark G. Parker +70,000 +1.3 +$ +73.21 +7/15/14 +$ +3,222,896 +$ +8,167,451 +Charles Denson +70,000 +1.3 +$ +73.21 +7/15/14 +$ +3,222,896 +$ +8,167,451 +Mindy Grossman +50,000 +0.9 +$ +73.21 +7/15/14 +$ +2,302,068 +$ +5,833,894 +Gary DeStefano +44,000 +0.8 +$ +73.21 +7/15/14 +$ +2,025,820 +$ +5,133,826 +(1) +The options shown in the table for Mr. Perez become +exercisable with respect to one-third of the total number of +shares on each of December 28, 2005, 2006, and 2007, except +that Mr. Perez’s options will become vested if, on or +prior to December 28, 2007, his employment is terminated by +the Company without cause or by him for good reason. The options +shown in the table with the expiration date of July 15, +2014 become exercisable with respect to 25% of the total number +of shares on each of July 16, 2005, 2006, 2007, and 2008. +All options for all individuals will become fully exercisable +generally upon the approval by the Company’s shareholders +of a merger, plan of exchange, sale of substantially all of the +Company’s assets or plan of liquidation. +(2) +The exercise price is the market price of Class B Stock on +the date the options were granted. +(3) +Assumed annual appreciation rates are set by the SEC and are not +a forecast of future appreciation. The actual realized value +depends on the market value of the Class B Stock on the +exercise date, and no gain to the optionees is possible without +an increase in the price of the Class B Stock. All assumed +values are before taxes and do not include dividends. +15 +Table of Contents +Aggregated Option Exercises in the Fiscal Year +Ended May 31, 2005 and Fiscal Year-End Option Values +Number of Unexercised +Value of Unexercised +Options at +In-the-Money Options at +Shares +Fiscal Year-End (#) +Fiscal Year-End ($)(1) +Acquired on +Value +Name +Exercise (#) +Realized ($) +Exercisable +Unexercisable +Exercisable +Unexercisable +Philip H. Knight +0 +0 +0 +0 +0 +0 +William D. Perez +0 +0 +0 +200,000 +0 +0 +Mark G. Parker +30,000 +951,000 +300,000 +172,500 +$ +10,330,612 +$ +3,962,500 +Charles Denson +0 +0 +177,500 +172,500 +$ +6,423,925 +$ +3,962,500 +Mindy Grossman +40,000 +1,455,029 +25,000 +115,000 +$ +789,750 +$ +2,536,200 +Gary DeStefano +0 +0 +138,000 +109,000 +$ +4,769,975 +$ +2,513,480 +(1) +Based on a fair market value as of May 31, 2005 of +$82.20 per share. Values are stated on a pre-tax basis. +Long-Term Incentive Plans Awards in Fiscal Year Ended +May 31, 2005 +Performance or Other Period +Name +Until Maturation or Payout(1) +Threshold ($) +Target ($) +Maximum ($) +Philip H. Knight(2) +Fiscal Years 2005 to 2007 +60,000 +600,000 +900,000 +William D. Perez +— +— +— +— +Mark G. Parker +Fiscal Years 2005 to 2007 +50,000 +500,000 +750,000 +Charles Denson +Fiscal Years 2005 to 2007 +50,000 +500,000 +750,000 +Mindy Grossman +Fiscal Years 2005 to 2007 +40,000 +400,000 +600,000 +Gary DeStefano +Fiscal Years 2005 to 2007 +30,000 +300,000 +450,000 +(1) +In June 2004, the Compensation Committee established a series of +performance targets based on fiscal 2005 through 2007 revenues +and earnings per share corresponding to award payouts ranging +from 10% to 150% of the target awards. Participants will receive +a payout at the average of the percentage levels corresponding +to the results for the two targets, subject to the +Committee’s discretion to reduce or eliminate any award +based on Company or individual performance. Under the terms of +the awards, on August 15, 2007 the Company would issue in +the name of each participant a number of shares of Class B +Stock with a value equal to the award payout based on the +closing price of the Class B Stock on that date on the New +York Stock Exchange, or pay all or part of that value in cash, +at the election of the participant. The shares or cash will be +100% vested at +16 +Table of Contents +that time. The Company’s performance in fiscal years 2003 +to 2005 corresponded to an LTIP payout of 145% of the target +awards for the performance period that ended on May 31, +2005. +(2) +In February 2005, in connection with Mr. Knight’s reduction +in responsibilities following the hiring of Mr. Perez, the +Compensation Committee determined that Mr. Knight’s LTIP +awards for fiscal years 2004 to 2006 and fiscal years 2005 to +2007 would not be paid. +Equity Compensation Plans +The following table summarizes equity compensation plans +approved by shareholders and equity compensation plans that were +not approved by the shareholders as of May 31, 2005: +(c) +Number of Securities +(a) +Remaining Available for +Number of Securities to +(b) +Future Issuance Under +be Issued Upon +Weighted-Average +Equity Compensation +Exercise of Outstanding +Exercise Price of +Plans (Excluding +Options, Warrants and +Outstanding Options, +Securities Reflected +Plan Category +Rights +Warrants and Rights +in Column(a)) +Equity compensation plans approved by shareholders(1) +19,240,696 +$ +54.99 +11,751,354 +Equity compensation plans not approved by shareholders(2) +120,000 +52.69 +904,620 +Total +19,360,696 +$ +54.98 +12,655,974 +(1) +Includes 19,240,696 options outstanding subject to the 1990 +Stock Incentive Plan. Includes 8,717,950 shares available +for future issuance under the 1990 Stock Incentive Plan, +911,521 shares available for future issuance under the +Long-Term Incentive Plan, and 2,121,883 shares available +for future issuance under the Employee Stock Purchase Plan. +(2) +The Company has granted to a few consultants and directors +nonqualified options to purchase NIKE Class B Stock. The +options have terms ranging from 8 to 10 years, expiring at +various times from 2006 to 2009, with exercise prices ranging +from $49.19 to $55.81. All of the options are exercisable. +Includes 904,620 shares available for future issuance under +the Foreign Subsidiary Employee Stock Purchase Plan, pursuant to +which shares are offered and sold to employees of selected +non-U.S. subsidiaries of the Company on substantially the +same terms as those offered to U.S. employees under the +shareholder-approved Employee Stock Purchase Plan. +Notwithstanding anything to the contrary set forth in any of +the Company’s filings under the Securities Act of 1933 or +the Securities Exchange Act of 1934, the following Performance +Graph and the Report of the Compensation Committee below shall +not be incorporated by reference into any such filings and shall +not otherwise be deemed filed under such acts. +17 +Table of Contents +Performance Graph +The following graph demonstrates a five-year comparison of +cumulative total returns for NIKE’s Class B Stock, the +Standard & Poor’s 500 Stock Index, the +Standard & Poor’s Footwear Index, and the +Standard & Poor’s Apparel, Accessories & +Luxury Goods Index. The graph assumes an investment of $100 on +May 31, 2000 in each of the Company’s Common Stock, +and the stocks comprising the Standard & Poor’s +500 Stock Index, the Standard & Poor’s Footwear +Index, and the Standard & Poor’s Apparel, +Accessories & Luxury Goods Index. Each of the indices +assumes that all dividends were reinvested. +COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN AMONG NIKE, +INC., S&P 500 +INDEX, S&P FOOTWEAR INDEX AND S&P APPAREL, +ACCESSORIES & LUXURY GOODS INDEX +18 +Table of Contents +The Standard & Poor’s Footwear Index consists of +NIKE and Reebok International. Because NIKE is part of the +S&P Footwear Index, the price and returns of NIKE stock have +a substantial effect on this index. The Standard & +Poor’s Apparel, Accessories & Luxury Goods Index +consists of Liz Claiborne, Inc., VF Corp., and Jones Apparel. +The Standard & Poor’s Footwear and Apparel, +Accessories, and Luxury Goods Indices include companies in two +major lines of business in which the Company competes. The +indices do not encompass all of the Company’s competitors, +nor all product categories and lines of business in which the +Company is engaged. +The Stock Performance shown on the Graph above is not +necessarily indicative of future performance. The Company will +not make nor endorse any predictions as to future stock +performance. +19 +Table of Contents +REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD +OF DIRECTORS ON EXECUTIVE COMPENSATION +The Compensation Committee of the Board of Directors (the +“Committee”) determines the compensation of the Chief +Executive Officer and, subject to the approval of the Board of +Directors, the compensation of the Company’s other four +most highly compensated executive officers, and oversees the +administration of executive compensation programs. +Executive Compensation Policies and Programs. The +Company’s executive compensation programs are designed to +attract and retain highly qualified executives and to motivate +them to maximize shareholder returns by achieving both short- +and long-term strategic Company goals. The programs link each +executive’s compensation directly to individual and Company +performance. A significant portion of each executive’s +total compensation is variable and dependent upon the attainment +of strategic and financial goals, individual performance +objectives, and the appreciation in value of the Common Stock. +There are three basic components to the Company’s “pay +for performance” system: base pay; annual incentive bonus; +and long-term incentive compensation. Each component is +addressed in the context of individual and Company performance, +competitive conditions and equity among employees. In +determining competitive compensation levels, the Company +analyzes information from several independent surveys that +include information regarding the general industry as well as +other consumer product companies. Since the Company’s +market for executive talent extends beyond the sports industry, +the survey data includes global name-brand consumer product +companies with median revenues of approximately +$15 billion. A comparison of the Company’s financial +performance with that of the companies and indices shown in the +Performance Graph is only one of many factors considered by the +Committee to determine executive compensation. +Base Pay. Base pay is designed to be competitive +(generally in the second or third quartile) as compared to +salary levels for equivalent executive positions at other global +consumer product companies. An executive’s actual salary +within this competitive framework will vary based on +responsibilities, experience, leadership, potential future +contribution, and demonstrated individual performance (measured +against strategic management objectives such as maintaining +customer satisfaction, developing innovative products, +strengthening market share and profitability, and expanding the +markets for the Company’s products). The types and relative +importance of specific financial and other business objectives +vary among the Company’s executives depending on their +positions and the particular operations or functions for which +they are responsible. The Company’s philosophy and practice +is to place a relatively greater emphasis on the incentive +components of compensation. +Annual Incentive Bonus. Each executive is eligible to +receive an annual cash bonus under the Executive Performance +Sharing Plan. The “target” level for that bonus, like +the base salary level, is set with reference to Company-wide +bonus programs, as well as competitive conditions. These target +levels are intended to motivate the Company’s executives by +providing substantial bonus payments for the +20 +Table of Contents +achievement of financial goals within the Company’s +business plan. An executive receives a percentage of his or her +target bonus depending on the extent to which the Company +achieves financial performance goals set by the Committee, as +measured by the Company’s net income before taxes. Bonuses +may exceed the target if the Company’s performance exceeds +the goal. +Long-Term Incentive Compensation. The long-term +compensation program is tied directly to shareholder return. +Under the current program, long-term incentive compensation +consists of stock options, 25% of which vest in each of the four +years after grant, and performance-based stock or cash awards +under the Long-Term Incentive Plan (“LTIP”). +Stock options are awarded with an exercise price equal to the +fair market value of the Class B Stock on the date of +grant. Accordingly, the executive is rewarded only if the market +price of the Class B Stock appreciates. Since options vest +over time, the Company periodically grants new options to +provide continuing incentives for future performance. The size +of previous grants and the number of options held are considered +by the Committee, but are not entirely determinative of future +grants. Like base pay, the grant is set with regard to +competitive considerations, and each executive’s actual +grant is based upon individual performance measured against the +criteria described in the preceding paragraphs and the +executive’s potential for future contributions. From time +to time, executives may receive restricted stock awards, which +vest over three or four years. +Under the LTIP, the Committee has established a series of +performance targets corresponding to awards of stock or cash +ranging from 10% to 150% of the target awards. The performance +targets have been based on revenues and earnings per share for +performance periods of three years, in order to provide an +incentive to achieve the Company’s longer-term performance +goals. If performance targets are achieved, shares of stock or +cash issued to executives are fully vested upon payment. +Stock options and performance-based stock and cash awards under +the LTIP are designed to align the interests of the +Company’s executives with those of shareholders by +encouraging executives to enhance the value of the Company and, +hence, the price of the Class B Stock and the +shareholders’ return. In addition, through deferred vesting +and three-year performance periods, this component of the +compensation system is designed to create an incentive for the +individual executive to remain with the Company. +Other Plans. The Company maintains combined profit +sharing and 401(k) retirement plans, a non-qualified Deferred +Compensation Plan, and Employee Stock Purchase Plans. Under the +profit sharing retirement plan, the Company annually contributes +to a trust on behalf of employees, including executive officers, +an amount that in the past five fiscal years has equaled an +annual contribution of between 3.20% to 5.69% of each +employee’s eligible earnings. The percentage is determined +by the Board of Directors. +For fiscal 2005, under the terms of the profit sharing plan, +each employee, including each executive officer, received a +contribution to his or her plan account of 4% of the +employee’s total eligible salary and +21 +Table of Contents +bonus up to $205,000, and an additional 2.95% of the +employee’s total eligible salary and bonus in excess of +$87,900 and below $205,000. Under the terms of the Deferred +Compensation Plan, employees, including executive officers, +whose total eligible salary and bonus exceeds $205,000 receive a +supplemental profit sharing contribution into a nonqualified +deferred compensation account in an amount equal to the +additional contribution they would have received under the +profit sharing plan if not for the $205,000 cap on salary and +bonus considered for purposes of that plan as required under IRS +regulations. Accordingly, those employees each received +supplemental contributions equal to 6.95% of their eligible +salary and bonus in excess of $205,000. These profit sharing +plans serve to retain employees and executives, since funds do +not fully vest until after five years of employment with the +Company. +Under the 401(k) retirement plan, the Company contributes up to +4% of each employee’s earnings as a matching contribution +for pre-tax salary deferred into the plan. This matching +contribution is initially invested in Class B Stock, which +strengthens the linkage between employee and shareholder +interests. +The Company’s Employee Stock Purchase Plan +(“ESPP”) qualifies under Section 423 of the +Internal Revenue Code. The ESPP allows employees to defer up to +10% of their annual compensation for purchases of Class B +Stock, subject to certain limitations. The stock is purchased +every six months at 85% of the lower of the price of the stock +at the beginning or end of the six-month period. Pursuant to the +Foreign Subsidiary Employee Stock Purchase Plan, the Company +offers and sells Class B Stock on substantially identical +terms to employees of selected non-U.S. subsidiaries. These +plans are intended to encourage employee investment in the +Company and to provide an incentive for employees to increase +shareholder returns. +Annual Reviews. Each year, the Committee reviews the +executive compensation policies with respect to the linkage +between executive compensation and the creation of shareholder +value, as well as the competitiveness of the programs. The +Committee determines what changes, if any, are appropriate in +the compensation programs for the following year. In conducting +the annual review, the Committee considers information provided +by Human Resources staff and uses surveys and reports prepared +by independent compensation consultants. +Each year, the Committee, with the Chief Executive Officer and +Human Resources staff, reviews the individual performance of +each of the other four most highly compensated executive +officers, and the Chief Executive Officer’s recommendations +with respect to the appropriate compensation levels and awards. +The Committee sets performance and bonus targets, and certifies +awards, under the Executive Performance Sharing Plan and the +LTIP, makes stock option grants and restricted stock awards, +determines the compensation of the Chief Executive Officer, and +makes recommendations to the Board of Directors for final +approval of all other compensation matters. The Committee also +reviews with the Chief Executive Officer and the Human Resources +staff the financial and other strategic objectives, such as +those identified above, for each of the named executive officers +for the following year. +22 +Table of Contents +For fiscal year 2005, the Company met targeted performance +objectives set for named executive officers sufficient for a +payout under the Executive Performance Sharing Plan. This +resulted from increased profitability due to aligning costs with +revenues, increased gross margin, and sales increases in key +product categories and markets. Furthermore, the Company’s +balance sheet and competitive position in the industry remained +strong. The Company’s financial performance corresponded to +bonuses of 143% of the individual target bonuses under the +Executive Performance Sharing Plan, and 145% of the individual +target payouts under the three-year LTIP. +Chief Executive Officer. Mr. Perez was appointed +President and Chief Executive Officer on December 28, 2004, +succeeding Mr. Knight, who remains Chairman of the Board. +Under the terms of the employment agreement between the Company +and Mr. Perez, he received an initial stock option grant +and an initial restricted stock bonus under the terms described +in the tables on pages 13-15, an initial annual salary of +$1,350,000, and an annual bonus target under the Company’s +Performance Sharing Plan of 125% of his salary. He will also +receive annual option grants of at least 150,000 shares, +annual restricted stock bonus awards of at least $2,000,000 of +Company stock, and annual $600,000 target awards under the +Company’s three-year long-term incentive programs. He +received special target awards under the Company’s +long-term incentive plan of $600,000 for a two-year performance +period and $283,000 for a one-year performance period. The +agreement includes certain payments upon termination of +employment described on page 24. +In reviewing Mr. Perez’s performance, the Committee +focused primarily on the Company’s performance in fiscal +year 2005 following Mr. Perez’s appointment. The +Company’s financial results demonstrated strong revenue and +earnings growth. The Committee noted continued progress toward +the achievement of various strategic objectives such as +operational and supply chain efficiencies, growth in key product +categories and regions, and revenue growth. The Committee also +considered the other factors described above. Consistent with +the plans and the employment agreement, Mr. Perez received +a bonus of $1,003,008, of which $703,125 was guaranteed under +the employment agreement. Future cash bonuses under the +Executive Performance Sharing Plan are not guaranteed, except in +certain situations of employment termination described on +page 24. Mr. Perez also received a long-term bonus of +$120,350, which is equal to the amount he would have received if +he had been a participant in the remaining portion of the fiscal +2003-2005 performance period of the LTIP, with a target award of +$83,000. The Committee increased Mr. Perez’s base +salary for the 2006 fiscal year by 3.7% to $1,400,000. +Mr. Knight served as President and Chief Executive Officer +until December 28, 2004. He remains Chairman of the Board +and an officer of the Company. Effective February 1, 2005, +the Committee reduced Mr. Knight’s salary to +$1,000,000 per year. Because Mr. Knight served as CEO +for only part of the fiscal year, the Committee reduced his +fiscal 2005 bonus and LTIP payout by one-third, to $1,554,665 +and $386,860, respectively. The Committee also determined that +Mr. Knight would not receive bonuses or LTIP awards or +payouts for fiscal years after fiscal 2005. +23 +Table of Contents +Section 162(m) of the Internal Revenue Code. In +2000 shareholders re-approved the Executive Performance +Sharing Plan, in 2002 they re-approved the LTIP, and in 2003 +they re-approved the stock incentive plan. It is proposed that +shareholders amend and re-approve the Executive Performance +Sharing Plan and the 1990 Stock Incentive Plan this year. The +plans are each designed to satisfy the performance-based +exception to the Section 162(m) limitation on deductibility +with respect to incentive compensation for named executive +officers, except that restricted stock bonuses do not qualify as +performance based. +Members of the Compensation Committee: +Ralph D. DeNunzio, Chairman +Jill K. Conway +John R. Thompson, Jr. +Compensation Committee Interlocks and Insider +Participation +The members of the Compensation Committee of the Board of +Directors during the fiscal year ended May 31, 2005 are +listed above. The Committee is composed solely of independent, +non-employee directors. +Employment Contracts and Termination of Employment and +Change-in-Control Arrangements +The Company has an employment agreement with President and Chief +Executive Officer William D. Perez. Under the terms of this +agreement, Mr. Perez will receive target bonuses under the +Company’s annual Performance Sharing Plan of 125% of +salary, annual option grants of at least 150,000 shares, +annual restricted stock bonus awards of at least $2,000,000 of +Class B Stock, and annual $600,000 target awards under the +Company’s three-year long-term incentive programs. He will +also participate in other employee benefit programs available to +executives of the Company. If, on or prior to December 28, +2007, Mr. Perez’s employment is terminated by the +Company without cause or by Mr. Perez for good reason, he +will receive a severance payment equal to two years’ salary +plus at least one year’s target annual bonus, and will have +vesting accelerated on his initial stock option and restricted +stock awards. If Mr. Perez’s employment is terminated +by the Company without cause or by Mr. Perez for good +reason after December 28, 2007, he will receive a severance +payment equal to two years’ salary. +An agreement between the Company and President of the NIKE Brand +Mark G. Parker contains a covenant not to compete that extends +for two years following the termination of his employment with +the Company. The agreement provides that if +Mr. Parker’s employment is terminated by the Company +at any time, or if he voluntarily resigns after +December 31, 2006 but before December 31, 2007, the +Company will make monthly payments to him during the two-year +noncompetition period in an amount equal to one-twelfth of his +then current annual salary and target performance bonus +(“Annual Nike +24 +Table of Contents +Income”). The agreement provides further that if +Mr. Parker voluntarily resigns prior to December 31, +2006 or after December 31, 2007, the Company will make +monthly payments to him during the two-year noncompetition +period in an amount equal to one-twenty-fourth of his then +current Annual Nike Income. If Mr. Parker is terminated +without cause, the parties may mutually agree to waive the +covenant not to compete, and if Mr. Parker is terminated +for cause, the Company may unilaterally waive the covenant. If +the covenant is waived, the Company will not be required to make +the payments described above for the months as to which the +waiver applies. +The Company has a similar agreement with President of NIKE Brand +Charles D. Denson that extends for two years following the +termination of his employment with the Company. The agreement +provides that if Mr. Denson’s employment is terminated +by the Company at any time, or if he voluntarily resigns after +December 31, 2006 but before December 31, 2007, the +Company will make monthly payments to him during the two-year +noncompetition period in an amount equal to one-twelfth of his +then current annual salary and target performance bonus +(“Annual Nike Income”). The agreement provides further +that if Mr. Denson voluntarily resigns on or prior to +December 31, 2006 or on or after December 31, 2007, +the Company will make monthly payments to him during the +two-year noncompetition period in an amount equal to +one-twenty-fourth of his then current Annual Nike Income. If +Mr. Denson is terminated without cause, the parties may +mutually agree to waive the covenant not to compete, and if +Mr. Denson is terminated for cause, the Company may +unilaterally waive the covenant. If the covenant is waived, the +Company will not be required to make the payments described +above for the months as to which the waiver applies. +The Company has an employment agreement and a covenant not to +compete with Vice President Mindy Grossman that was renewed for +a three-year term as of September 28, 2003. Under the new +agreement, her base salary will be $800,000 per year, +subject to annual increases based on performance. The Company +will pay certain travel expenses for her and her family between +New York City and Beaverton, Oregon, her target bonus under the +Executive Performance Sharing Plan for fiscal 2004 and +thereafter was set at 75 percent of her annual salary, and +her target award level under the Long-Term Incentive Plan for +all awards made in or after fiscal 2004 was set at $400,000. +During the term of her contract, she is to be granted an option +to purchase at least 50,000 shares of Class B Stock +each year, which will generally vest with respect to 25% of each +option on the first four anniversaries of the date of grant. If +Ms. Grossman’s employment is terminated +(i) without cause, (ii) by her for good reason, or +(iii) due to disability, she will receive severance +payments equal to one times her final annual salary and 60% of +the salary earned year-to-date in the fiscal year of +termination, and her initial option and restricted stock grants +will be fully vested. In addition, if Ms. Grossman’s +employment with the Company is terminated, the Company will make +monthly payments to her during a one-year period of a covenant +not to compete in an amount equal to her last monthly salary. +The Company may unilaterally waive the covenant not to compete. +If the covenant is waived, the Company will not be required to +make the payments described above for the months as to which the +waiver applies. +25 +Table of Contents +Certain Transactions and Business Relationships +Mr. Knight makes his airplane available for business use by +the Company for no charge. NIKE operates and maintains the +aircraft. Mr. Knight has reimbursed the Company $309,578 +for NIKE’s operating costs related to his personal use of +this aircraft during fiscal 2005. +On March 14, 2005, the Company and Mr. Perez entered +into an aircraft time-sharing agreement, under which +Mr. Perez may use the Company’s aircraft for personal +use and reimburse the Company for its operating costs related to +such use. Mr. Perez has or will reimburse the Company +$52,910 for NIKE’s operating costs related to his personal +use of the aircraft during fiscal 2005. +PROPOSAL 2 +APPROVAL OF INCREASE IN AUTHORIZED COMMON STOCK +The Board of Directors recommends that shareholders of the +Company approve an amendment to Article IV of the +Company’s Restated Articles of Incorporation, as amended, +to increase the Company’s authorized Class A Stock +from 110,000,000 to 175,000,000 shares and the authorized +Class B Stock from 350,000,000 shares to +750,000,000 shares. As of May 31, 2005, (a) a +total of 71,881,484 shares of Class A Stock and +189,188,272 shares of Class B Stock were outstanding, +(b) 71,881,484 shares of Class B Stock were +reserved for issuance upon conversion of outstanding shares of +Class A Stock, (c) 19,360,696 shares of +Class B Stock were reserved for issuance upon exercise of +outstanding stock options, and (d) a total of +12,655,974 shares of Class B Stock were reserved for +future option grants and other issuances under the +Company’s 1990 Stock Incentive Plan, Long-Term Incentive +Plan and Employee Stock Purchase Plans. In addition, the Company +has proposed to increase by 16,000,000 the number of shares of +Class B Stock reserved for future issuance under the 1990 +Stock Incentive Plan (see “Proposal 4 Approval of +Amendment to the 1990 Stock Incentive Plan”). Accordingly, +as of May 31, 2005, the Company had 38,118,516 unreserved +Class A shares and, assuming shareholder approval of +Proposal 4, 40,913,574 unreserved Class B shares +available for issuance for other purposes. +The reason for this amendment is to permit the Company to effect +one or more stock splits by means of stock dividends. The Board +of Directors has not approved such a split, but believes it to +be desirable to have that flexibility in the future if the Board +determines at such time that such action would be in the best +interests of the Company. +While the proposed amendment is intended to facilitate future +stock splits or stock dividends, the shares could also be used +for other purposes such as financings, compensation plans, +business acquisitions and other general corporate purposes. The +shares could be issued from time to time for such purposes as +the Board may approve and, unless required by applicable law or +stock exchange rules, no further vote of the shareholders will +be required. The Board has no present plans, proposals or +26 +Table of Contents +arrangements to issue any of the additional shares to be +authorized under this Proposal 2 for any of those purposes. +The authorization of additional shares of Common Stock could +have an anti-takeover effect, although that is not the intention +of this proposal. For example, without further shareholder +approval, the Board of Directors could sell Common Stock in a +private transaction to purchasers who would oppose a takeover, +thereby potentially preventing a transaction favored by a +majority of independent shareholders under which shareholders +would have received a premium for their shares over then current +market prices. Other existing provisions applicable to the +Company that might have a material anti-takeover effect include +(a) the right of holders of the Class A Stock (over +90% of which is held by Philip H. Knight) to elect a majority of +the Company’s directors, which right continues to apply as +long as the Class A Stock represents at least 12.5% of the +total outstanding Common Stock; (b) the Oregon Control +Share Act, which under certain circumstances would operate to +deprive a person or group that acquires more than 20% of the +outstanding Common Stock of voting rights with respect to those +shares; (c) the Oregon Business Combination statute, which +places restrictions on business combination transactions with +persons or groups that own 15% or more of the outstanding Common +Stock, unless the transaction is approved by the Board of +Directors; and (d) provisions of outstanding employee and +director options that accelerate vesting of options upon the +occurrence of a change of control of the Company. The Board has +no knowledge of any present efforts to accumulate shares of the +Company’s Common Stock in the market or to gain control of +the Company, and has no present intention to adopt any other +provisions or enter into any other arrangements that would have +a material anti-takeover effect. +The additional shares of Common Stock for which authorization is +sought would be identical to the shares of Common Stock the +Company now has authorized. Holders of Common Stock do not have +preemptive rights to subscribe to additional securities which +may be issued by the Company. +The Board of Directors considers this amendment advisable to +provide flexibility for future stock splits, stock dividends and +capital requirements. Approval of this amendment by the +shareholders at the Annual Meeting may avoid the expensive +procedure of calling and holding a special meeting of +shareholders for such a purpose at a later date. +Approval of Proposal 2 would require (i) the presence +at the Annual Meeting of a majority of the outstanding shares of +Class A Stock and a majority of the outstanding shares of +Class B Stock, and (ii) that in each such class the +number of shares voting in favor of this Proposal exceeds the +number of shares voting against this Proposal. Abstentions and +broker non-votes are counted for purposes of determining whether +a quorum exists but are not counted as voting either for or +against and therefore have no effect on the results of the vote. +27 +Table of Contents +PROPOSAL 3 +RE-APPROVAL AND AMENDMENT OF EXECUTIVE PERFORMANCE SHARING +PLAN +Section 162(m) of the Internal Revenue Code (the +“Code”) prevents a publicly held corporation from +taking federal income tax deductions for compensation in excess +of $1 million per year paid to any of its chief executive +officer or four other most highly compensated executive +officers’. The Code, however exempts compensation that +qualifies as “performance-based” as defined in +regulations. +The Board of Directors responded to this 1993 tax law by +adopting the Executive Performance Sharing Plan (the +“Plan”), which was approved by the shareholders at the +fiscal 1996 annual meeting and then re-approved by the +shareholders at the 2001 annual meeting. The purpose of the Plan +is to satisfy Code requirements for shareholder-approved, +performance-based compensation to preserve the Company’s +income tax deduction for annual incentive bonus payments to its +most highly compensated executive officers. The Plan is a +continuation of the previously existing incentive bonus program +for corporate officers, and is similar to the incentive bonus +program for all employees of the Company. +The Plan provides that it will terminate at the first +shareholder meeting that occurs in the fifth fiscal year after +the Company’s shareholders last approved the Plan. This +provision is consistent with the tax law requirement that the +Plan be re-approved by shareholders every five years in order +for awards under the Plan to continue to qualify as +performance-based compensation. Accordingly, unless the +shareholders re-approve the Plan as requested in this proposal, +the Plan will terminate at the Annual Meeting. If the +shareholders re-approve the Plan, the Plan will be extended for +an additional five years until the fiscal 2011 annual meeting. +In addition, on June 16, 2005, the Board of Directors +approved amendments to the Plan, subject to shareholder +approval, to increase the per-employee limit on annual bonuses +under the Plan from (i) the lesser of 150% of base salary +or $2 million to (ii) the lesser of 200% of base +salary or $5 million. The Company’s employment +agreement with William D. Perez, President and Chief Executive +Officer, provides for annual target awards under the Plan equal +to 125% of his base salary with potential maximum payouts of +150% of the target awards for exceptional Company performance. +His annual salary for fiscal 2006 is $1,400,000, so a payout to +him at the higher performance levels will exceed both the +existing 150% of base salary limit and the existing $2,000,000 +limit under the Plan. Mr. Perez has acknowledged that his +bonus compensation under the Plan for fiscal 2006 is subject to +shareholder approval of this Proposal 3. The existing +limits in the Plan were established in 1995, and the Board of +Directors believes that changes in chief executive officer pay +levels and practices since then as evidenced by +Mr. Perez’s agreement make it necessary to increase +these limits. +The following summary of the Plan, as proposed to be amended, is +qualified in its entirety by reference to the terms of the Plan, +a copy of which is attached as Exhibit B to this Proxy +Statement. +28 +Table of Contents +Description of the Plan +Persons Covered. The persons covered by the Plan are all +corporate officers of the Company. Under the Company’s +Bylaws, corporate officers are those elected by the Board of +Directors. The corporate officers currently comprise a total of +17 persons, 16 of which are executive officers. Other officers +and employees of the Company will continue to be eligible to +receive annual cash incentive bonuses outside of the Plan. +Administration. Grants of target awards under the Plan +and all other decisions regarding the administration of the Plan +will be made by the Compensation Committee of the Board of +Directors (the “Committee”). The Committee is +comprised solely of “outside directors” as that term +is defined in regulations under Section 162(m). +Target Awards. Within 90 days of the beginning of +each fiscal year of the Company, the Committee will establish +for each corporate officer the performance target or targets and +related target awards payable in cash upon meeting the +performance targets for the year. Performance targets must be +expressed as an objectively determinable level of performance of +the Company or any subsidiary, division or other unit of the +Company, based on one or more of the following: net income, net +income before taxes, operating income, revenues, return on +sales, return on equity, earnings per share, total shareholder +return, or any of the foregoing before the effect of +acquisitions, divestitures, accounting changes, restructuring, +or other special charges, as determined by the Committee at the +time of establishing the performance target. The maximum target +award for a corporate officer in any year will be the lesser of +200% of the officer’s base salary established at the +beginning of the year, or $5 million. +Determination of Award Payouts. At the end of each fiscal +year, the Committee will certify the attainment of the +performance targets and the calculation of the payouts of the +related target awards. No award shall be paid if the related +performance target is not met, but the Committee may, in its +discretion, reduce or eliminate an officer’s calculated +award based on circumstances relating to the performance of the +Company or the officer. +Amendment and Termination. The Plan may be amended by the +Committee, with the approval of the Board of Directors, at any +time except to the extent that shareholder approval would be +required to maintain the qualification of Plan awards as +performance-based compensation. Unless again re-approved by the +shareholders, the Plan will terminate at the first meeting of +shareholders of the Company in the Company’s 2011 fiscal +year. +2006 Target Awards. In June 2005, the Committee +established performance targets and target awards under the Plan +for the corporate officers for fiscal 2006. As in prior years, +target awards for fiscal 2006 are based on the achievement of +pre-established target levels of net income before taxes. The +actual amounts to be paid under those awards cannot be +determined at this time, as such amounts are dependent upon the +Company’s performance for the current fiscal year. However, +Mr. Perez’s target award under the Plan for fiscal +2006 is $1,750,000, Mr. Knight will not be participating in the +Plan for +29 +Table of Contents +2006, and the actual bonus compensation received by the other +Named Officers under the Plan in fiscal 2005 is shown in the +Summary Compensation Table on page 13. All corporate officers as +a group, including the Named Officers, received bonus +compensation under the Plan for fiscal 2005 of $10,728,665. +Board Recommendation +The Board of Directors recommends that shareholders +vote FOR re-approval of the Plan. Holders of Class A +Stock and Class B Stock will vote together as a single +class on Proposal 3. If a quorum is percent at the Annual +Meeting, Proposal 3 will be approved if the number of +shares voted in favor of the proposal exceeds the number of +shares voting against the proposal. Abstentions and broker +non-votes are counted for purposes of determining whether a +quorum exists, but are not counted as voting either for or +against and therefore have no effect on the results of the vote. +PROPOSAL 4 +APPROVAL OF AMENDMENT TO THE 1990 STOCK INCENTIVE PLAN +The Board of Directors believes that the availability of stock +options and other stock-based incentives under the +Company’s 1990 Stock Incentive Plan (the “1990 +Plan”) is important to the Company’s ability to +attract and retain experienced employees and to provide an +incentive for them to exert their best efforts on behalf of the +Company. As of July 25, 2005, out of a total of +50,000,000 shares of Class B Stock reserved for +issuance under the 1990 Plan, only 3,322,162 shares +remained available for grant. The Board of Directors believes +additional shares will be needed under the 1990 Plan to provide +appropriate incentives to key employees. Accordingly, on +June 16, 2005 the Board of Directors approved an amendment +to the 1990 Plan, subject to shareholder approval, to reserve an +additional 16,000,000 shares of Class B Stock for the +1990 Plan, thereby increasing the total number of shares +reserved for issuance under the 1990 Plan from 50,000,000 to +66,000,000 shares. The additional 16,000,000 shares +proposed for issuance under the 1990 Plan represent 8.2% of the +total outstanding Class A Stock and Class B Stock as +of July 25, 2005. In addition, the Board of Directors has +approved an amendment to the 1990 Plan, subject to shareholder +approval, to increase the per-employee limit on grants of +options and stock appreciation rights under the 1990 Plan from +200,000 shares to 400,000 shares annually. A +shareholder-approved per-employee limit on grants of options and +stock appreciation rights is required to comply with regulations +under Section 162(m) of the Code. See “Tax +Consequences.” +Grants of stock options under the 1990 Plan, net of option +cancellations, totaled 5,005,000 shares in fiscal 2005, +4,636,000 shares in fiscal 2004 and 4,565,000 shares +in fiscal 2003, or an average of 1.8% of the outstanding Common +Stock per year. Grants of restricted stock bonuses under the +1990 Plan totaled 114,343 shares in fiscal 2005, +148,134 shares in fiscal 2004 and 9,358 shares in +fiscal 2003. On July 15, +30 +Table of Contents +2005, the Compensation Committee granted options for a total of +5,442,295 shares of Class B Stock and restricted stock +bonuses for a total of 52,834 shares of Class B Stock. The +1990 Plan does not authorize the Company to reprice stock +options and, accordingly, current rules of the New York +Stock Exchange prohibit the Company from repricing stock options. +The complete text of the 1990 Plan, marked to show the proposed +amendment, is attached to this proxy statement as +Exhibit C. The following description of the 1990 Plan is a +summary of certain provisions and is qualified in its entirety +by reference to Exhibit C. +Description of the 1990 Plan +Eligibility. All employees, officers and directors of the +Company and its subsidiaries, as well as consultants, advisors +and independent contractors to the Company, are eligible to be +selected for awards under the 1990 Plan. The number of persons +who currently hold options granted under the Plan is +approximately 3,200. +Administration. The 1990 Plan is administered by the +Compensation Committee of the Board of Directors (the +“Committee”). The Committee may promulgate rules and +regulations for the operation of the 1990 Plan and related +agreements and generally supervises the administration of the +1990 Plan. The Committee determines the individuals to whom +awards are made under the 1990 Plan, the amount of the awards, +and the other terms and conditions of the awards, except that +the Committee has delegated to a board committee consisting of +the Chief Executive Officer the authority to grant awards with +respect to a maximum of 50,000 shares to any eligible +employee who is not at the time of such grant subject to the +reporting requirements and liability provisions contained in +Section 16 of the Securities Exchange Act of 1934 and the +regulations thereunder. The Committee may also advance any +waiting period, accelerate any exercise date, or waive or modify +any restriction with respect to an award. +Term of 1990 Plan. The Plan will continue until all +shares available for issuance under the 1990 Plan have been +issued and all restrictions on such shares have lapsed. The +Board of Directors has the power to suspend, terminate, modify +or amend the 1990 Plan at any time. +Stock Options. The Committee may grant stock options to +eligible individuals under the 1990 Plan. The Committee will +determine the individuals to whom options will be granted, the +exercise price of each option, the number of shares to be +covered by each option, the period of each option, the times at +which each option may be exercised, and whether each option is +an Incentive Stock Option (intended to meet all of the +requirements of an Incentive Stock Option as defined in +Section 422 of the Code) or a non-statutory stock option. +If an option is an Incentive Stock Option, the exercise price +must be at least 100 percent of the fair market value of +the underlying shares on the date of grant. If a grantee of an +Incentive Stock Option at the time of grant owns stock +possessing more than 10 percent of the combined voting +power of all classes of stock of the Company, the exercise price +may not be less than 110 percent of the fair market value +of the underlying shares on the date of grant. If the option is +a non-statutory +31 +Table of Contents +stock option, the exercise price may not be less than +75 percent of the fair market value of the underlying +shares on the date of grant, although the Company’s general +practice is and has been to grant all options with an exercise +price of at least 100 percent of the fair market value of +the underlying shares on the date of grant. For purposes of +determining the exercise price of options granted under the 1990 +Plan, the fair market value of the Class B Stock will be +deemed to be the closing price of the Class B Stock as +reported in the NYSE-Composite Transactions in The Wall Street +Journal, or such other reported value of the Class B Stock +as shall be specified by the Committee, on the last trading day +preceding the date of grant. No monetary consideration will be +paid to the Company upon the granting of options. +Options may be granted for varying periods established at the +time of grant, not to exceed 10 years from the date of +grant for Incentive Stock Options. Incentive Stock Options are +nontransferable except in the event of the death of the holder. +The Committee has discretion to allow non-statutory stock +options to be transferred to immediate family members of the +optionee, subject to certain limitations. Options will be +exercisable in accordance with the terms of an option agreement +entered into at the time of the grant. In the event of the death +or other termination of an optionee’s employment with the +Company, the 1990 Plan provides that the optionee’s options +may be exercised for specified periods thereafter (one year in +the case of termination by reason of death or disability and +three months in the case of termination for any other reason). +The 1990 Plan also provides that upon any termination of +employment, the Committee may extend the exercise period for any +period up to the expiration date of the option and may increase +the portion of the option that is exercisable. +The purchase price for shares purchased pursuant to the exercise +of options must be paid in cash or, with the consent of the +Committee, in whole or in part in shares of Class B Stock. +With the consent of the Committee, an optionee may request the +Company to apply the shares to be received on exercise of a +portion of an option to satisfy the exercise price for +additional portions of the option. Upon the exercise of an +option, the number of shares subject to the option and the +number of shares available for issuance under the 1990 Plan will +be reduced by the number of shares issued upon exercise of the +option. Option shares that are not purchased prior to the +expiration, termination or cancellation of the related option +will become available for future awards under the 1990 Plan. +Stock Appreciation Rights. The Committee may grant stock +appreciation rights (“SARs”) to eligible individuals +under the 1990 Plan. SARs may, but need not, be granted in +connection with an option. An SAR gives the holder the right to +payment from the Company of an amount equal in value to the +excess of the fair market value on the date of exercise of one +share of Class B Stock over its fair market value on the +date of grant (or, if granted in connection with an option, the +exercise price per share under the option to which the SAR +relates), multiplied by the number of shares covered by the +portion of the SAR or option that is surrendered. The fair +market value of the Class B Stock on the date of exercise +shall be deemed to be the closing price of the Class B +Stock as reported in the NYSE-Composite Transactions in The Wall +Street Journal, or such other reported value of the Class B +Stock as shall be specified by the Committee, on the date of +exercise, or if such date is not a trading day, +32 +Table of Contents +then on the immediately preceding trading day. An SAR holder +will not pay the Company any cash consideration upon either the +grant or exercise of an SAR, except for tax withholding amounts +upon exercise. +An SAR is exercisable only at the time or times established by +the Committee. If an SAR is granted in connection with an +option, it is exercisable only to the extent and on the same +conditions that the related option is exercisable. Payment by +the Company upon exercise of an SAR may be made in shares of +Class B Stock valued at fair market value, or in cash, or +partly in stock and partly in cash, as determined by the +Committee. The Committee may withdraw any SAR granted under the +1990 Plan at any time and may impose any conditions upon the +exercise of an SAR or adopt rules and regulations from time to +time affecting the rights of holders of SARs. If an SAR is not +exercised prior to the expiration, termination or cancellation +of the SAR, the unissued shares subject to the SAR will become +available for future awards under the 1990 Plan. Cash payments +for SARs will not reduce the number of shares available for +awards under the 1990 Plan. No SARs have been granted under the +1990 Plan. +Stock Bonuses. The Committee may award Class B Stock +to eligible individuals as stock bonuses under the 1990 Plan. +The Committee will determine the individuals to receive stock +bonuses, the number of shares to be awarded and the time of the +award. No cash consideration (other than tax withholding +amounts) will be paid by bonus recipients to the Company in +connection with stock bonuses. Shares received as a stock bonus +may be subject to terms, conditions and restrictions as +determined by the Committee. Restrictions may include +restrictions concerning transferability, forfeiture of the +shares issued, or such other restrictions as the Committee may +determine. Stock bonus shares that are forfeited to the Company +will be available for future grant under the 1990 Plan. +Restricted Stock. The Committee may award restricted +shares to eligible individuals in such amounts, for such +consideration (including promissory notes and services), subject +to such restrictions, and on such terms as the Committee may +determine. Restrictions may include restrictions concerning +transferability, repurchase by the Company, forfeiture of the +shares issued, or such other restrictions as the Committee may +determine. No restricted shares may be issued for consideration +that is less than 75 percent of the fair market value of +such shares at the time of issuance. Restricted shares that are +forfeited to or repurchased by the Company will be available for +future grant under the 1990 Plan. +Acceleration in Certain Events. The 1990 Plan provides +for automatic acceleration of the vesting of options and SARs +granted under the 1990 Plan in the event that the shareholders +of the Company approve (i) certain transactions involving +the Company and pursuant to which the Company is not the +surviving entity or pursuant to which the Common Stock of the +Company would be converted into cash, securities, or other +property, (ii) a sale or other transfer of all or +substantially all of the assets of the Company or +(iii) adoption of any plan or proposal for the liquidation +or dissolution of the Company. Such acceleration may also be +effected at the discretion of the Committee in the event of a +merger, consolidation or plan of exchange in which the Company +is the surviving entity. These provisions relating to +acceleration may, in certain circumstances, tend to discourage +attempts to acquire the Company. +33 +Table of Contents +The 1990 Plan also provides for automatic acceleration of +options and related SARs held by any employee whose employment +is terminated by reason of death, disability, or +“retirement” as defined in the 1990 Plan. +Corporate Mergers. The Committee may make awards under +the 1990 Plan that have terms and conditions that vary from +those specified in the Plan when such awards are granted in +substitution for, or in connection with the assumption of, +existing awards made by another corporation and assumed or +otherwise agreed to be provided for by the Company in connection +with a corporate merger or other similar transaction to which +the Company or an affiliated Company is a party. +Tax Consequences +Certain options authorized to be granted under the 1990 Plan are +intended to qualify as “Incentive Stock Options” for +federal income tax purposes. Under federal income tax law in +effect as of the date of this proxy statement, an optionee will +recognize no regular income upon grant or exercise of an +Incentive Stock Option. The amount by which the market value of +shares issued upon exercise of an Incentive Stock Option exceeds +the exercise price, however, is included in the optionee’s +alternative minimum taxable income and may, under certain +conditions, be taxed under the alternative minimum tax. If an +optionee exercises an Incentive Stock Option and does not +dispose of any of the shares thereby acquired within two years +following the date of grant and within one year following the +date of exercise, then any gain realized upon subsequent +disposition of the shares will be treated as income from the +sale or exchange of a capital asset. If an optionee disposes of +shares acquired upon exercise of an Incentive Stock Option +before the expiration of either the one-year holding period or +the two-year holding period specified in the foregoing sentence +(a “disqualifying disposition”), the optionee will +realize ordinary income in an amount equal to the lesser of +(i) the excess of the fair market value of the shares on +the date of exercise over the option price or (ii) the +excess of the fair market value of the shares on the date of +disposition over the option price. Any additional gain realized +upon the disqualifying disposition will constitute capital gain. +The Company will not be allowed any deduction for federal income +tax purposes at either the time of grant or the time of exercise +of an Incentive Stock Option. Upon any disqualifying disposition +by an optionee, the Company will generally be entitled to a +deduction to the extent the optionee realizes ordinary income. +Certain options authorized to be granted under the 1990 Plan +will be treated as non-statutory stock options for federal +income tax purposes. Under federal income tax law in effect as +of the date of this proxy statement, no income is generally +realized by the grantee of a non-statutory stock option until +the option is exercised. At the time of exercise of a +non-statutory stock option, the optionee will realize ordinary +income, and the Company will generally be entitled to a +deduction, in the amount by which the fair market value of the +shares subject to the option at the time of exercise exceeds the +exercise price. The Company is required to withhold income taxes +on such income if the optionee is an employee. Upon the sale of +shares acquired upon exercise of a non-statutory stock option, +the optionee will realize capital +34 +Table of Contents +gain or loss equal to the difference between the amount realized +from the sale and the fair market value of the shares on the +date of exercise. +An individual who receives stock under the 1990 Plan will +generally realize ordinary income at the time of receipt unless +the shares are not substantially vested for purposes of +Section 83 of the Code. Absent an election under +Section 83(b), an individual who receives shares that are +not substantially vested will realize ordinary income in each +year in which a portion of the shares substantially vests. The +amount of ordinary income recognized in any such year will be +the fair market value of the shares that substantially vest in +that year less any consideration paid for the shares. The +Company will generally be entitled to a deduction in the amount +includable as ordinary income by the recipient at the same time +or times as the recipient recognizes ordinary income with +respect to the shares. The Company is required to withhold +income taxes on such income if the recipient is an employee. +Section 162(m) of the Code limits to $1,000,000 per +person the amount that the Company may deduct for compensation +paid to any of its most highly compensated officers in any year. +Under IRS regulations, compensation received through the +exercise of an option or stock appreciation right will not be +subject to the $1,000,000 limit if the option or stock +appreciation right and the plan pursuant to which it is granted +meet certain requirements. One requirement is shareholder +approval at least once every five years of a per-employee limit +on the number of shares as to which options and stock +appreciation rights may be granted. Approval of this +Proposal 4 will constitute approval of the per-employee +limit under the 1990 Plan. Other requirements are that the +option or stock appreciation right be granted by a committee of +at least two outside directors and that the exercise price of +the option or stock appreciation right be not less than fair +market value of the Class B Stock on the date of grant. +Accordingly, the Company believes that if this proposal is +approved by shareholders, compensation received on exercise of +options and stock appreciation rights granted under the 1990 +Plan in compliance with all of the above requirements will +continue to be exempt from the $1,000,000 deduction limit. +Board Recommendation +The Board of Directors recommends that shareholders +vote FOR approval of the amendments to the 1990 Plan. +Holders of Class A Stock and Class B Stock will vote +together as a single class on Proposal 4. If holders of a +majority of the shares of Common Stock vote on the proposal, +Proposal 4 will be adopted if a majority of the votes cast +are cast for the proposal. Abstentions are considered votes cast +and have the same effect as “no” votes in determining +whether the proposal is adopted. Broker non-votes are not +counted as voted on the proposal and therefore have no effect on +the results of the vote. +35 +Table of Contents +PROPOSAL 5 +RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING +FIRM +The Audit Committee of the Board of Directors has appointed +PricewaterhouseCoopers LLP as independent registered public +accounting firm to examine the Company’s consolidated +financial statements for the fiscal year ending May 31, +2006 and to render other professional services as required. +The Audit Committee is submitting the appointment of +PricewaterhouseCoopers LLP to shareholders for ratification. +Representatives of PricewaterhouseCoopers LLP will be present at +the Annual Meeting, will have the opportunity to make a +statement if they desire to do so, and are expected to be +available to respond to questions. +Aggregate fees billed by the Company’s independent +registered public accounting firm, PricewaterhouseCoopers LLP, +for audit services related to the most recent two fiscal years, +and for other professional services billed in the most recent +two fiscal years, were as follows: +Type of Service +2005 +2004 +Audit Fees(1) +$ +6.6 million +$ +3.1 million +Audit-Related Fees(2) +$ +0.4 million +$ +0.2 million +Tax Fees(3) +$ +2.1 million +$ +1.8 million +All Other Fees(4) +$ +0.7 million +$ +0.7 million +Total +$ +9.8 million +$ +5.8 million +(1) +Comprised of the audits of the Company’s annual financial +statements and reviews of the Company’s quarterly financial +statements, as well as statutory audits of Company subsidiaries, +attest services, comfort letters and consents to SEC filings. +Audit fees during fiscal 2005 also included audit services +related to the Company’s compliance with Section 404 +of the Sarbanes-Oxley Act of 2002 regarding internal controls +over financial reporting. +(2) +Comprised of employee benefit plan audits, acquisition due +diligence, and consultations regarding financial accounting and +reporting. +(3) +Comprised of services for tax compliance, tax planning, and tax +advice. Tax compliance includes services related to the +preparation or review of original and amended tax returns for +the Company and its consolidated subsidiaries and represents +$1.3 million and $1.2 million of the tax fees for +fiscal 2005 and 2004, respectively. The remaining tax fees +primarily include tax advice. +36 +Table of Contents +(4) +Comprised of services for the preparation of tax returns for +expatriate employees and other miscellaneous services, including +for 2004, labor and corporate responsibility audits and computer +system access security (completed by May 6, 2004 in +accordance with transition rules). +In accordance with the Sarbanes-Oxley Act of 2002, the Audit +Committee established policies and procedures under which all +audit and non-audit services performed by the Company’s +independent registered public accounting firm must be approved +in advance by the Audit Committee. During fiscal 2005, fees +totaling $19,025, or 0.2% of total fees, were paid to +PricewaterhouseCoopers LLP for several small engagements in +foreign locations that were not pre-approved, but were approved +by the Audit Committee promptly after their inadvertent omission +from pre-approval was noticed. +Notwithstanding anything to the contrary set forth in any of +the Company’s filings under the Securities Act of 1933 or +the Securities Exchange Act of 1934, the following Report of the +Audit Committee shall not be incorporated by reference into any +such filings and shall not otherwise be deemed filed under such +acts. +REPORT OF THE AUDIT COMMITTEE +The Audit Committee has: +• +Reviewed and discussed the audited financial statements with +management. +• +Discussed with the independent auditors the matters required to +be discussed by SAS 61. +• +Received the written disclosures and the letter from the +independent accountants required by Independence Standards Board +Standard No. 1, and has discussed with the independent +accountant the independent accountant’s independence. +• +Based on the review and discussions above, recommended to the +Board of Directors that the audited financial statements be +included in the Company’s Annual Report on Form 10-K +for the last fiscal year for filing with the Securities and +Exchange Commission. +Members of the Audit Committee: +Alan B. Graf, Jr., Chairman +John G. Connors +Delbert J. Hayes +Orin C. Smith +37 +Table of Contents +OTHER MATTERS +As of the time this proxy statement was printed, management was +unaware of any proposals to be presented for consideration at +the Annual Meeting other than those set forth herein, but if +other matters do properly come before the Annual Meeting, the +persons named in the proxy will vote the shares represented by +such proxy according to their best judgment. +SHAREHOLDER PROPOSALS +A proposal by a shareholder for inclusion in the Company’s +proxy statement and form of proxy for the 2006 annual meeting of +shareholders must be received by John F. Coburn III, +Assistant Secretary of NIKE, at One Bowerman Drive, Beaverton, +Oregon 97005-6453, on or before April 14, 2006 to be eligible +for inclusion. Rules under the Securities Exchange Act of 1934 +describe standards as to the submission of shareholder +proposals. In addition, the Company’s bylaws require that +any shareholder wishing to make a nomination for Director, or +wishing to introduce a proposal or other business at a +shareholder meeting must give the Company at least +60 days’ advance written notice, and that notice must +meet certain requirements described in the bylaws. +For the Board of Directors +LINDSAY D. STEWART +Secretary +38 +Table of Contents +EXHIBIT A +NIKE, Inc. +Charter of the Audit Committee +Purpose +The purpose of the Audit Committee (the “Committee”) +of the Board of Directors (the “Board”) of NIKE, Inc. +(the “Company”) is to provide assistance to the Board +in fulfilling its legal and fiduciary obligations with respect +to matters involving the accounting, auditing, financial +reporting, and internal controls of the Company. The +Committee’s purpose includes assisting the Board’s +oversight of: +• +the integrity of the Company’s financial statements; +• +the Company’s compliance with legal and regulatory +requirements; +• +the independent auditor’s qualifications and +independence; and +• +the performance of the Company’s internal audit function +and independent auditor. +The Committee’s purpose also includes preparing the report +of the Committee that the Securities and Exchange Commission +(“SEC”) rules require to be included in the +Company’s annual proxy statement. +Membership +The Audit Committee shall consist of at least three directors as +determined by the Board. The Committee members shall meet the +independence, financial literacy, and other requirements of the +NYSE and all other applicable rules, regulations, and statutes. +At least one of the members must be a financial expert as +defined by applicable rules, regulations, and statutes. The +chair of the Committee shall be designated by the Board and +shall have accounting or related financial management expertise. +A member of the Committee may not simultaneously serve on the +audit committee of more than three public companies unless such +service is approved by the Board upon its determination, based +on the recommendation of the Nominating and Corporate Governance +Committee, that the simultaneous service would not impair the +ability of the member to effectively serve on the Company’s +Audit Committee. A member of the Committee may not, other than +in his or her capacity as a member of the Audit Committee, the +Board, or any other Board committee, accept any consulting, +advisory, or other compensatory fee from the Company, or be an +affiliated person of the Company or a subsidiary thereof. The +chair and the members of the Committee shall be appointed by the +Board of Directors approximately annually. +A-1 +Table of Contents +Meetings +The Committee shall meet with such frequency and at such +intervals as it determines is necessary to carry out its duties +and responsibilities. The Committee may permit attendance at +meetings by management and such ex officio members as the +Committee may determine appropriate or advisable from time to +time. The Committee shall report regularly to the Board on +matters within the Committee’s responsibilities, and shall +maintain minutes of Committee meetings. +Duties and Responsibilities +The Committee will have the following duties and +responsibilities: +1. The sole authority to retain, with shareholder +ratification, and terminate the Company’s independent +auditor, to approve all audit engagement fees, compensation and +terms, and to directly oversee the work of the independent +auditor with respect to the annual audit of the Company. +2. To instruct the Company’s independent auditor that +it is to report directly to the Committee. +3. The sole authority to approve in advance all audit and +legally permitted non-audit services to be provided by any +independent public accountants; provided, however, that advance +approval of non-audit services shall not be required if: +a. the aggregate amount of fees for all such non-audit +services provided to the Company constitutes not more than five +percent of the total amount of revenues paid by the Company to +its auditor during the fiscal year in which the non-audit +services are provided; +b. the services were not recognized by the Company at the +time of the engagement to be non-audit services; and +c. the services are promptly brought to the attention of +the Committee and approved prior to the completion of the audit +by the Committee or by one or more members of the Committee who +are members of the Board to whom authority to grant such +approvals has been delegated by the Committee. +4. The sole authority to delegate to one or more designated +members of the Committee who are independent directors of the +Board, the authority to grant advance approvals of audit and +non-audit services as described in Section 3 above. +5. At least annually, to obtain and review a report by the +independent auditor describing: the firm’s internal quality +control procedures; any material issues raised by the most +recent internal quality control review, or peer review, of the +firm, or by any inquiry or investigation by governmental or +professional authorities, within the preceding five years, +respecting one or more +A-2 +Table of Contents +independent audits carried out by the firm and any steps taken +to deal with any such issues; and all relationships between the +independent auditor and the Company. +6. At least annually, to evaluate the independent +auditor’s qualifications, performance, and independence, +which evaluation shall include the review and evaluation of the +lead partner of the independent auditor and a review of the +report referred to in Section 5 above. In making its +evaluation, the Committee shall take into account the opinions +of management and the Company’s internal auditors. The +Committee shall further ensure the rotation of the lead audit +and review partners every five years, or more frequently as the +Committee shall determine in its sole discretion. The Committee +shall decide as to whether the Company is obtaining high quality +audits and whether rotation of the auditor would be helpful. The +Committee shall present its conclusions with respect to the +independent auditor to the Board. +7. To discuss the annual audited financial statements and +quarterly financial statements with management and the +independent auditor, including the Company’s disclosures +under “Management’s Discussion and Analysis of +Financial Condition and Results of Operations.” +8. To review NIKE’s Annual Report to be filed with the +SEC on Form 10-K, and recommend to the Board that the +audited financial statements be included in the Form 10-K. +9. To discuss with the independent auditor any items +required to be communicated by the independent auditor in +accordance with SAS 61 and 100. +10. To discuss with the Chief Executive Officer and the +Chief Financial Officer the individual certifications required +to be filed with the Company’s periodic reports to the SEC. +11. To discuss earnings press releases, as well as +financial information and earnings guidance provided to analysts +and rating agencies. +12. To engage and compensate independent counsel and other +advisors, as the Committee determines necessary to carry out its +duties. +13. To discuss policies with respect to risk assessment and +risk management and to discuss the Company’s major +financial risk exposures and the steps management has taken to +monitor and control such exposures. +14. To meet separately, at least quarterly, with +management, with internal auditors, and with the independent +auditor. +15. To review with the independent auditor any audit +problems or difficulties and management’s response, +including, but not limited to, any restriction on the scope of +the independent auditor’s activities or on access to +requested information, any significant disagreements with +management, any accounting adjustments that were noted or +proposed by the auditor but were passed as immaterial or +otherwise, any communications between the audit team and audit +firm’s +A-3 +Table of Contents +national office respecting auditing or accounting issues +presented by the engagement, and any “management” or +“internal control” letter issued, or proposed to be +issued, by the independent auditor to the Company. The review +shall also include discussion of the responsibilities, budget +and staffing of the Company’s internal audit function. +16. To resolve disagreements between management and the +independent auditor regarding financial reporting. +17. To obtain from the Company’s independent auditor +any information required to be provided pursuant to +Rule 2-07 of Regulation S-X. +18. To review and approve, if appropriate, the internal +audit charter and any changes thereto. +19. To ensure that the chief internal auditor is +independent of the Company’s management and to concur in +the selection, retention, and dismissal of the chief internal +auditor. +20. To review management’s assessment of the the +effectiveness of the Company’s accounting and internal +control structure and procedures. +21. To establish procedures for (i) the receipt, +retention, treatment, processing and resolution of complaints +received by the Company regarding accounting, internal +accounting controls, or auditing matters, and (ii) the +confidential, anonymous submission by employees of the Company +of concerns regarding questionable accounting or auditing +matters. +22. To set hiring policies for employees or former +employees of the independent auditor all in accordance with +applicable legal requirements. +23. To meet periodically with the general counsel or other +legal counsel to review legal and regulatory matters, including +any matters that may have a material effect on the financial +statements of the Company. +24. To meet periodically with the Company’s internal +Clearance Director, who will (i) review and approve in +advance all trades of NIKE common stock owned by the +Company’s directors and officers who are subject to +Section 16 of the “34 Act, (ii) be a member of, +and be provided with all information furnished to, the +Disclosure Committee, (iii) meet at least annually with the +Company’s directors and officers to inform them of the +stock trading policies and procedures applicable to them, and +(iv) provide periodic reports to the Committee regarding +the performance of his or her duties and any issues or problems +encountered. +25. To receive reports from the Company’s internal +Disclosure Committee, which is responsible for quarterly review +of material issues regarding accounting, financial reporting, +public disclosure, internal control, and fraud issues in respect +of the financial statements of the Company. +A-4 +Table of Contents +26. To report regularly to the Board any material issues +that arise with respect to the quality or integrity of the +Company’s financial statements, the Company’s +compliance with legal or regulatory requirements, the +performance and independence of the Company’s independent +auditor, or the performance of the internal audit function. +27. To direct the preparation of and approve the Audit +Committee Report for inclusion in the annual Proxy Statement +that summarizes the Committee’s activities in compliance +with Item 7 of Schedule 14A under the Securities +Exchange Act of 1934. +28. To direct the preparation and execution of the +NYSE’s annual written affirmation of director independence +and qualifications to serve on the Committee as required by the +NYSE Listed Company Manual. +29. To annually evaluate the performance of the Committee +and report the results of the Committee performance evaluation +to the Board. +30. To review and assess annually the adequacy of the +Committee’s charter. +31. To perform such additional activities and consider such +other matters within the scope of its responsibilities as the +Committee or the Board deems necessary or appropriate. +A-5 +Table of Contents +EXHIBIT B +NIKE, Inc. +Executive Performance Sharing Plan* +This is the Executive Performance Sharing Plan of NIKE, Inc. for +the payment of incentive compensation to designated employees. +Section 1. Definitions. +The following terms have the following meanings: +Board: The Board of Directors of the Company. +Code: The Internal Revenue Code of 1986, as amended. +Committee: The Compensation +[ Personnel ] Committee of the Board, provided however, +if the Compensation [ Personnel ] Committee +of the Board is not composed entirely of Outside Directors, the +“Committee” shall mean a committee composed entirely +of at least two Outside Directors appointed by the Board from +time to time. +Company: NIKE, Inc. +Exchange Act: The Securities Exchange Act of 1934, as +amended. +Outside Directors: The meaning ascribed to this term in +Section 162(m) of the Code and the regulations proposed or +adopted thereunder. +Performance Target: An objectively determinable level of +performance as selected by the Committee to measure performance +of the Company or any subsidiary, division, or other unit of the +Company for the Year based on one or more of the following: net +income, net income before taxes, operating income, revenues, +return on sales, return on equity, earnings per share, total +shareholder return, or any of the foregoing before the effect of +acquisitions, divestitures, accounting changes, restructuring, +or other special charges, as determined by the Committee at the +time of establishing a Performance Target. +Plan: The Executive Performance Sharing Plan of the +Company. +Target Award: An amount of cash compensation to be paid +to a Plan participant based on achievement of a particular +Performance Target level established by the Committee, expressed +as a percentage of the participant’s base salary at the +beginning of the Year, determined in accordance with guidelines +established by the Committee. +Year: The fiscal year of the Company. +* Matters in bold and underlined are new; matters in +brackets and italics are to be deleted. +B-1 +Table of Contents +Section 2. Objectives. +The objectives of the Plan are to: +(a) recognize and reward on an annual basis the +Company’s corporate officers for their contributions to the +overall profitability and performance of the Company; and +(b) qualify compensation under the Plan as +“performance-based compensation” within the meaning of +Section 162(m) of the Code and the regulations promulgated +thereunder. +Section 3. Administration. +The Plan will be administered by the Committee. Subject to the +provisions of the Plan, the Committee will have full authority +to interpret the Plan, to establish and amend rules and +regulations relating to it, to determine the terms and +provisions for making awards and to make all other +determinations necessary or advisable for the administration of +the Plan. +Section 4. Participation. +Participation in the Plan shall be limited to individuals who +are corporate officers of the Company. +Section 5. Determination +of the Performance Targets and Awards. The Committee shall +determine, in its sole discretion, the Performance Targets and +Target Award opportunities for each participant, within +90 days of the beginning of each Year. The Committee may +establish (i) several Performance Target levels for each +participant, each corresponding to a different Target Award +opportunity, and (ii) different Performance Targets and +Target Award opportunities for each participant in the Plan. The +maximum Target Award opportunity under the Plan for a +participant in any Year shall be the lesser of 200% +[ 150% ] of the participant’s base salary +established at the beginning of the Year, or $5 +[ $2 ] million. For competitive reasons, the +specific Performance Targets determined by the Committee will +not be publicly disclosed. +Section 6. Determination +of Plan Awards. At the conclusion of the Year, in accordance +with Section 162(m)(4)(C)(iii) of the Code, prior to the +payment of any award under the Plan, the Committee shall certify +in the Committee’s internal meeting minutes the attainment +of the Performance Targets for the Year and the calculation of +the awards. No award shall be paid if the related Performance +Target is not met. In no event shall an award to any participant +exceed the lesser of 200% [ 150% ] of the +participant’s base salary, or $5 +[ $2 ] million. The Committee may, in its sole +discretion, reduce or eliminate any participant’s +calculated award based on circumstances relating to the +performance of the Company or the participant. Awards will be +paid in cash as soon as practicable following the +Committee’s certification of the awards. +Section 7. Termination +of Employment. The terms of a Target Award may provide that +in the event of a participant’s termination of employment +for any reason during a Year, the participant (or his or her +beneficiary) will receive, at the time provided in +Section 6, all or any portion of the award to which the +participant would otherwise have been entitled. +B-2 +Table of Contents +Section 8. Miscellaneous. +(a) Amendment and Termination of the Plan. The +Committee with the approval of the Board may amend, modify or +terminate the Plan at any time and from time to time except +insofar as approval by the Company’s shareholders is +required pursuant to Section 162(m)(4)(C)(ii) of the Code. +The Plan shall terminate at the first shareholder meeting that +occurs in the fifth Year after the Company’s shareholders +approve the Plan. Notwithstanding the foregoing, no such +amendment, modification or termination shall affect the payment +of Target Awards previously established. +(b) No Assignment. Except as otherwise required by +applicable law, no interest, benefit, payment, claim or right of +any participant under the plan shall be subject in any manner to +any claims of any creditor of any participant or beneficiary, +nor to alienation by anticipation, sale, transfer, assignment, +bankruptcy, pledge, attachment, charge or encumbrance of any +kind, and any attempt to take any such action shall be null and +void. +(c) No Rights to Employment. Nothing contained in +the Plan shall give any person the right to be retained in the +employment of the Company or any of its subsidiaries. The +Company reserves the right to terminate a participant at any +time for any reason notwithstanding the existence of the Plan. +(d) Beneficiary Designation. The Committee shall +establish such procedures as it deems necessary for a +participant to designate a beneficiary to whom any amounts would +be payable in the event of a participant’s death. +(e) Plan Unfunded. The entire cost of the Plan shall +be paid from the general assets of the Company. The rights of +any person to receive benefits under the Plan shall be only +those of a general unsecured creditor, and neither the Company +nor the Board nor the Committee shall be responsible for the +adequacy of the general assets of the Company to meet and +discharge Plan liabilities, nor shall the Company be required to +reserve or otherwise set aside funds for the payment of its +obligations hereunder. +(f) Applicable Law. The Plan and all rights +thereunder shall be governed by and construed in accordance with +the laws of the State of Oregon. +B-3 +Table of Contents +EXHIBIT C +NIKE, Inc. 1990 Stock Incentive Plan +1. Purpose . The purpose of this Stock +Incentive Plan (the “Plan”) is to enable NIKE, Inc. +(the “Company”) to attract and retain as directors, +officers, employees, consultants, advisors and independent +contractors people of initiative and ability and to provide +additional incentives to such persons. +2. Shares Subject to the Plan . Subject to +adjustment as provided below and in paragraph 10, the +shares to be offered under the Plan shall consist of +Class B Common Stock of the Company (“Shares”), +and the total number of Shares that may be issued under the Plan +shall not exceed sixty-six +[ fifty ] million ( 66,000,000 +[ 50,000,000 ]) Shares. If an option or stock +appreciation right granted under the Plan expires, terminates or +is canceled, the unissued Shares subject to such option or stock +appreciation right shall again be available under the Plan. If +Shares sold or awarded as a bonus under the Plan are forfeited +to the Company or repurchased by the Company, the number of +Shares forfeited or repurchased shall again be available under +the Plan. +3. Effective Date and Duration of Plan . +(a) Effective Date . The Plan shall become +effective when adopted by the Board of Directors of the Company. +However, no option or stock appreciation right granted under the +Plan shall become exercisable until the Plan is approved by the +affirmative vote of the holders of a majority of the Common +Stock of the Company represented at a shareholders meeting at +which a quorum is present and any awards under the Plan prior to +such approval shall be conditioned on and subject to such +approval. Subject to this limitation, options and stock +appreciation rights may be granted and Shares may be awarded as +bonuses or sold under the Plan at any time after the effective +date and before termination of the Plan. +(b) Duration . The Plan shall continue in +effect until all Shares available for issuance under the Plan +have been issued and all restrictions on such Shares have +lapsed. The Board of Directors may suspend or terminate the Plan +at any time except with respect to options and Shares subject to +restrictions then outstanding under the Plan. Termination shall +not affect any outstanding options, any right of the Company to +repurchase Shares or the forfeitability of Shares issued under +the Plan. +4. Administration . +The Plan shall be administered by a committee appointed by the +Board of Directors of the Company consisting of not less than +two directors (the “Committee”), which shall determine +and designate from time to time the individuals to whom awards +shall be made, the amount of the awards and the other terms and +conditions of the awards, except that only the Board of +Directors may amend or terminate the Plan as provided in +paragraphs 3 and 13. Subject to the provisions of the Plan, +the Committee may from time to time adopt and amend rules and +regulations relating to administration of +C-1 +Table of Contents +the Plan, advance the lapse of any waiting period, accelerate +any exercise date, waive or modify any restriction applicable to +Shares (except those restrictions imposed by law) and make all +other determinations in the judgment of the Committee necessary +or desirable for the administration of the Plan. The +interpretation and construction of the provisions of the Plan +and related agreements by the Committee shall be final and +conclusive. The Committee may correct any defect or supply any +omission or reconcile any inconsistency in the Plan or in any +related agreement in the manner and to the extent it shall deem +expedient to carry the Plan into effect, and it shall be the +sole and final judge of such expediency. Notwithstanding +anything to the contrary contained in this Paragraph 4, the +Board of Directors may delegate to the Chief Executive Officer +of the Company, as a one-member committee of the Board of +Directors, the authority to grant awards with respect to a +maximum of 50,000 Shares to any eligible employee who is +not, at the time of such grant, subject to the reporting +requirements and liability provisions contained in +Section 16 of the Securities Exchange Act of 1934 (the +“Exchange Act”) and the regulations thereunder. +5. Types of Awards; Eligibility . The +Committee may, from time to time, take the following action, +separately or in combination, under the Plan: (i) grant +Incentive Stock Options, as defined in Section 422 of the +Internal Revenue Code of 1986, as amended (the +“Code”), as provided in paragraph 6(b); +(ii) grant options other than Incentive Stock Options +(“Non-Statutory Stock Options”) as provided in +paragraph 6(c); (iii) award stock bonuses as provided +in paragraph 7; (iv) sell shares subject to +restrictions as provided in paragraph 8; and (v) grant +stock appreciation rights as provided in paragraph 9. Any +such awards may be made to employees, including employees who +are officers or directors, of the Company or any parent or +subsidiary corporation of the Company and to other individuals +described in paragraph 1 who the Committee believes have +made or will make an important contribution to the Company or +its subsidiaries; provided, however, that only employees of the +Company shall be eligible to receive Incentive Stock Options +under the Plan. The Committee shall select the individuals to +whom awards shall be made. The Committee shall specify the +action taken with respect to each individual to whom an award is +made under the Plan. No employee may be granted options or stock +appreciation rights under the Plan for more than +400,000 [ 200,000 ] Shares in any +calendar year. +6. Option Grants . +(a) Grant . The Committee may grant options +under the Plan. With respect to each option grant, the Committee +shall determine the number of Shares subject to the option, the +option price, the period of the option, the time or times at +which the option may be exercised and whether the option is an +Incentive Stock Option or a Non-Statutory Stock Option. +C-2 +Table of Contents +(b) Incentive Stock Options . Incentive Stock +Options shall be subject to the following terms and conditions: +(i) An Incentive Stock Option may be granted under the Plan +to an employee possessing more than 10 percent of the total +combined voting power of all classes of stock of the Company or +of any parent or subsidiary of the Company only if the option +price is at least 110 percent of the fair market value of +the Shares subject to the option on the date it is granted, as +described in paragraph 6(b)(iii), and the option by its +terms is not exercisable after the expiration of five years from +the date it is granted. +(ii) Subject to paragraphs 6(b)(i) and 6(d), Incentive +Stock Options granted under the Plan shall continue in effect +for the period fixed by the Committee, except that no Incentive +Stock Option shall be exercisable after the expiration of +10 years from the date it is granted. +(iii) The option price per share shall be determined by the +Committee at the time of grant. Subject to +paragraph 6(b)(i), the option price shall not be less than +100 percent of the fair market value of the Shares covered +by the Incentive Stock Option at the date the option is granted. +The fair market value shall be deemed to be the closing price of +the Class B Common Stock of the Company as reported in the +New York Stock Exchange Composite Transactions in the Wall +Street Journal on the day preceding the date the option is +granted, or if there has been no sale on that date, on the last +preceding date on which a sale occurred, or such other reported +value of the Class B Common Stock of the Company as shall +be specified by the Committee. +(iv) No Incentive Stock Option shall be granted on or after +the tenth anniversary of the last action by the Board of +Directors approving an increase in the number of shares +available for issuance under the Plan, which action was +subsequently approved within 12 months by the shareholders. +(c) Non-Statutory Stock Options . The option +price for Non-Statutory Stock Options shall be determined by the +Committee at the time of grant. The option price may not be less +than 75 percent of the fair market value of the Shares +covered by the Non-Statutory Stock Option on the date the option +is granted. The fair market value of Shares covered by a +Non-Statutory Stock Option shall be determined pursuant to +paragraph 6(b)(iii). +(d) Exercise of Options . Except as provided +in paragraph 6(f), no option granted under the Plan may be +exercised unless at the time of such exercise the optionee is +employed by the Company or any parent or subsidiary corporation +of the Company and shall have been so employed continuously +since the date such option was granted. Absence on leave or on +account of illness or disability under rules established by the +Committee shall not, however, be deemed an interruption of +employment for this purpose. Except as provided in +paragraphs 6(f), 10 and 11, options granted under the +Plan may be exercised from time to time over the period stated +in each option in such amounts and at such times as shall be +prescribed by the Committee, provided that options shall not be +exercised for fractional shares. +C-3 +Table of Contents +Unless otherwise determined by the Committee, if the optionee +does not exercise an option in any one year with respect to the +full number of Shares to which the optionee is entitled in that +year, the optionee’s rights shall be cumulative and the +optionee may purchase those Shares in any subsequent year during +the term of the option. +(e) Nontransferability . Except as provided +below, each stock option granted under the Plan by its terms +shall be nonassignable and nontransferable by the optionee, +either voluntarily or by operation of law, and each option by +its terms shall be exercisable during the optionee’s +lifetime only by the optionee. A stock option may be transferred +by will or by the laws of descent and distribution of the state +or country of the optionee’s domicile at the time of death. +A Non-Statutory Stock Option shall also be transferable pursuant +to a qualified domestic relations order as defined under the +Code or Title I of the Employee Retirement Income Security +Act. The Committee may, in its discretion, authorize all or a +portion of a Non-Statutory Stock Option granted to an optionee +to be on terms which permit transfer by the optionee to +(i) the spouse, children or grandchildren of the optionee +(“Immediate Family Members”), (ii) a trust or +trusts for the exclusive benefit of Immediate Family Members, or +(iii) a partnership in which Immediate Family Members are +the only partners, provided that (x) there may be no +consideration for any transfer, (y) the stock option +agreement pursuant to which the options are granted must +expressly provide for transferability in a manner consistent +with this paragraph, and (z) subsequent transfers of +transferred options shall be prohibited except by will or by the +laws of descent and distribution. Following any transfer, +options shall continue to be subject to the same terms and +conditions as were applicable immediately prior to transfer, +provided that for purposes of paragraphs 6(d), 6(g), 10 and +11 the term “optionee” shall be deemed to refer to the +transferee. The events of termination of employment of +paragraph 6(f), shall continue to be applied with respect +to the original optionee, following which the options shall be +exercisable by the transferee only to the extent, and for the +periods specified, and all other references to employment, +termination of employment, life or death of the optionee, shall +continue to be applied with respect to the original optionee. +(f) Termination of Employment or Death . +(i) Unless otherwise provided at the time of grant, in the +event the employment of the optionee by the Company or a parent +or subsidiary corporation of the Company terminates for any +reason other than because of retirement, physical disability or +death, the option may be exercised at any time prior to the +expiration date of the option or the expiration of three months +after the date of such termination of employment, whichever is +the shorter period, but only if and to the extent the optionee +was entitled to exercise the option at the date of such +termination. +(ii) Unless otherwise provided at the time of grant, in the +event the employment of the optionee by the Company or a parent +or subsidiary corporation of the Company terminates as a result +of the optionee’s retirement, the option may be exercised +by the optionee to the extent specified in this +paragraph 6(f)(ii) at any time prior to the expiration date +of the option or the expiration of three months after the date +of such termination of employment, whichever is the shorter +period. For purposes of this +C-4 +Table of Contents +paragraph 6(f), “retirement” means a termination +of employment that occurs at a time when (A) the +optionee’s retirement point total is at least 55, and +(B) the optionee has at least five full years of service as +an employee of the Company or a parent or subsidiary corporation +of the Company. For purposes of this paragraph 6(f), +“retirement point total” means the sum of the +optionee’s age in full years plus the optionee’s full +years of service as an employee of the Company or a parent or +subsidiary corporation of the Company. Upon retirement, the +optionee may exercise the portion of the option that the +optionee was entitled to exercise immediately prior to +retirement plus a percentage of the remaining unvested portion +of the option based on the optionee’s retirement point +total at the time of retirement as set forth in the following +table: +Percent of Unvested Option +Retirement Point Total +that Becomes Exercisable +55 or 56 +20 +% +57 +40 +% +58 +60 +% +59 +80 +% +60 +100 +% +(iii) Unless otherwise provided at the time of grant, in +the event the employment of the optionee by the Company or a +parent or subsidiary corporation of the Company terminates +because the optionee becomes disabled (within the meaning of +Section 22(e)(3) of the Code), the option may be exercised +by the optionee free of the limitations on the amount that may +be purchased in any one year specified in the option agreement +at any time prior to the expiration date of the option or the +expiration of one year after the date of such termination, +whichever is the shorter period. +(iv) Unless otherwise provided at the time of grant, in the +event of the death of the optionee while in the employ of the +Company or a parent or subsidiary corporation of the Company, +the option may be exercised free of the limitations on the +amount that may be purchased in any one year specified in the +option agreement at any time prior to the expiration date of the +option or the expiration of one year after the date of such +death, whichever is the shorter period, but only by the person +or persons to whom such optionee’s rights under the option +shall pass by the optionee’s will or by the laws of descent +and distribution of the state or country of domicile at the time +of death. +(v) The Committee, at the time of grant or at any time +thereafter, may extend the three-month and one-year expiration +periods any length of time not later than the original +expiration date of the option, and may increase the portion of +an option that is exercisable, subject to such terms and +conditions as the Committee may determine. +(vi) To the extent that the option of any deceased optionee +or of any optionee whose employment terminates is not exercised +within the applicable period, all further rights to purchase +Shares pursuant to such option shall cease and terminate. +C-5 +Table of Contents +(g) Purchase of Shares . Unless the Committee +determines otherwise, Shares may be acquired pursuant to an +option granted under the Plan only upon receipt by the Company +of notice in writing from the optionee of the optionee’s +intention to exercise, specifying the number of Shares as to +which the optionee desires to exercise the option and the date +on which the optionee desires to complete the transaction, and +if required in order to comply with the Securities Act of 1933, +as amended, containing a representation that it is the +optionee’s present intention to acquire the Shares for +investment and not with a view to distribution. Unless the +Committee determines otherwise, on or before the date specified +for completion of the purchase of Shares pursuant to an option, +the optionee must have paid the Company the full purchase price +of such Shares in cash or with the consent of the Committee, in +whole or in part, in Common Stock of the Company valued at fair +market value. The fair market value of Common Stock of the +Company provided in payment of the purchase price shall be the +closing price of the Common Stock of the Company as reported in +the New York Stock Exchange Composite Transactions in the Wall +Street Journal or such other reported value of the Common Stock +of the Company as shall be specified by the Committee, on the +date the option is exercised, or if such date is not a trading +day, then on the immediately preceding trading day. No Shares +shall be issued until full payment therefor has been made. With +the consent of the Committee, an optionee may request the +Company to apply automatically the Shares to be received upon +the exercise of a portion of a stock option (even though stock +certificates have not yet been issued) to satisfy the purchase +price for additional portions of the option. Each optionee who +has exercised an option shall immediately upon notification of +the amount due, if any, pay to the Company in cash amounts +necessary to satisfy any applicable federal, state and local tax +withholding requirements. If additional withholding is or +becomes required beyond any amount deposited before delivery of +the certificates, the optionee shall pay such amount to the +Company on demand. If the optionee fails to pay the amount +demanded, the Company may withhold that amount from other +amounts payable by the Company to the optionee, including +salary, subject to applicable law. With the consent of the +Committee, an optionee may satisfy this obligation, in whole or +in part, by having the Company withhold from the Shares to be +issued upon the exercise that number of Shares that would +satisfy the withholding amount due or by delivering Common Stock +of the Company to the Company to satisfy the withholding amount. +Upon the exercise of an option, the number of Shares reserved +for issuance under the Plan shall be reduced by the number of +Shares issued upon exercise of the option. +7. Stock Bonuses . The Committee may award +Shares under the Plan as stock bonuses. Shares awarded as a +stock bonus shall be subject to the terms, conditions, and +restrictions determined by the Committee. The restrictions may +include restrictions concerning transferability and forfeiture +of the Shares awarded, together with such other restrictions as +may be determined by the Committee. The Committee may require +the recipient to sign an agreement as a condition of the award, +but may not require the recipient to pay any monetary +consideration other than amounts necessary to satisfy tax +withholding requirements. The agreement may contain any terms, +conditions, restrictions, representations and warranties +required by the Committee. The certificates representing the +Shares awarded shall +C-6 +Table of Contents +bear any legends required by the Committee. The Company may +require any recipient of a stock bonus to pay to the Company in +cash upon demand amounts necessary to satisfy any applicable +federal, state or local tax withholding requirements. If the +recipient fails to pay the amount demanded, the Company may +withhold that amount from other amounts payable by the Company +to the recipient, including salary, subject to applicable law. +With the consent of the Committee, a recipient may deliver +Common Stock of the Company to the Company to satisfy this +withholding obligation. Upon the issuance of a stock bonus, the +number of Shares reserved for issuance under the Plan shall be +reduced by the number of Shares issued. +8. Restricted Stock . The Committee may issue +Shares under the Plan for such consideration (including +promissory notes and services) as determined by the Committee, +provided that in no event shall the consideration be less than +75 percent of fair market value of the Shares at the time +of issuance. Shares issued under the Plan shall be subject to +the terms, conditions and restrictions determined by the +Committee. The restrictions may include restrictions concerning +transferability, repurchase by the Company and forfeiture of the +Shares issued, together with such other restrictions as may be +determined by the Committee. All Shares issued pursuant to this +paragraph 8 shall be subject to a purchase agreement, which +shall be executed by the Company and the prospective recipient +of the Shares prior to the delivery of certificates representing +such Shares to the recipient. The purchase agreement may contain +any terms, conditions, restrictions, representations and +warranties required by the Committee. The certificates +representing the Shares shall bear any legends required by the +Committee. The Company may require any purchaser of restricted +stock to pay to the Company in cash upon demand amounts +necessary to satisfy any applicable federal, state or local tax +withholding requirements. If the purchaser fails to pay the +amount demanded, the Company may withhold that amount from other +amounts payable by the Company to the purchaser, including +salary, subject to applicable law. With the consent of the +Committee, a purchaser may deliver Common Stock of the Company +to the Company to satisfy this withholding obligation. Upon the +issuance of restricted stock, the number of Shares reserved for +issuance under the Plan shall be reduced by the number of Shares +issued. +9. Stock Appreciation Rights . +(a) Grant . Stock appreciation rights may be +granted under the Plan by the Committee, subject to such rules, +terms, and conditions as the Committee prescribes. +(b) Exercise . +(i) A stock appreciation right shall be exercisable only at +the time or times established by the Committee. If a stock +appreciation right is granted in connection with an option, the +stock appreciation right shall be exercisable only to the extent +and on the same conditions that the related option could be +exercised. Upon exercise of a stock appreciation right, any +option or portion thereof to which the stock appreciation right +relates terminates. If a stock appreciation right is granted in +C-7 +Table of Contents +connection with an option, upon exercise of the option, the +stock appreciation right or portion thereof to which the option +relates terminates. +(ii) The Committee may withdraw any stock appreciation +right granted under the Plan at any time and may impose any +conditions upon the exercise of a stock appreciation right or +adopt rules and regulations from time to time affecting the +rights of holders of stock appreciation rights. Such rules and +regulations may govern the right to exercise stock appreciation +rights granted before adoption or amendment of such rules and +regulations as well as stock appreciation rights granted +thereafter. +(iii) Each stock appreciation right shall entitle the +holder, upon exercise, to receive from the Company in exchange +therefor an amount equal in value to the excess of the fair +market value on the date of exercise of one share of +Class B Common Stock of the Company over its fair market +value on the date of grant (or, in the case of a stock +appreciation right granted in connection with an option, the +option price per Share under the option to which the stock +appreciation right relates), multiplied by the number of Shares +covered by the stock appreciation right or the option, or +portion thereof, that is surrendered. Payment by the Company +upon exercise of a stock appreciation right may be made in +Shares valued at fair market value, in cash, or partly in Shares +and partly in cash, all as determined by the Committee. +(iv) For purposes of this paragraph 9, the fair market +value of the Class B Common Stock of the Company on the +date a stock appreciation right is exercised shall be the +closing price of the Class B Common Stock of the Company as +reported in the New York Stock Exchange Composite Transactions +in the Wall Street Journal, or such other reported value of the +Class B Common Stock of the Company as shall be specified +by the Committee, on the date the stock appreciation right is +exercised, or if such date is not a trading day, then on the +immediately preceding trading day. +(v) No fractional shares shall be issued upon exercise of a +stock appreciation right. In lieu thereof, cash shall be paid in +an amount equal to the value of the fractional share. +(vi) Each stock appreciation right granted under the Plan +by its terms shall be nonassignable and nontransferable by the +holder, either voluntarily or by operation of law, except by +will or by the laws of descent and distribution of the state or +county of the holder’s domicile at the time of death, and +each stock appreciation right by its terms shall be exercisable +during the holder’s lifetime only by the holder; provided, +however, that a stock appreciation right not granted in +connection with an Incentive Stock Option shall also be +transferable pursuant to a qualified domestic relations order as +defined under the Code or Title I of the Employee +Retirement Income Security Act. +(vii) Each participant who has exercised a stock +appreciation right shall, upon notification of the amount due, +pay to the Company in cash amounts necessary to satisfy any +applicable federal, state or local tax withholding requirements. +If the participant fails to pay the amount demanded, the Company +may withhold that amount from other amounts payable by the +Company to the +C-8 +Table of Contents +participant including salary, subject to applicable law. With +the consent of the Committee a participant may satisfy this +obligation, in whole or in part, by having the Company withhold +from any Shares to be issued upon the exercise that number of +Shares that would satisfy the withholding amount due or by +delivering Common Stock of the Company to the Company to satisfy +the withholding amount. +(viii) Upon the exercise of a stock appreciation right for +Shares, the number of Shares reserved for issuance under the +Plan shall be reduced by the number of Shares issued. Cash +payments of stock appreciation rights shall not reduce the +number of Shares reserved for issuance under the Plan. +10. Changes in Capital Structure . If the +outstanding shares of Common Stock of the Company are hereafter +increased or decreased or changed into or exchanged for a +different number or kind of shares or other securities of the +Company or of another corporation by reason of any +reorganization, merger, consolidation, plan of exchange, +recapitalization, reclassification, stock split-up, combination +of shares or dividend payable in shares, appropriate adjustment +shall be made by the Committee in the number and kind of shares +available for awards under the Plan, provided that this +paragraph 10 shall not apply with respect to transactions +referred to in paragraph 11. In addition, the Committee +shall make appropriate adjustment in the number and kind of +shares as to which outstanding options and stock appreciation +rights, or portions thereof then unexercised, shall be +exercisable, to the end that the optionee’s proportionate +interest is maintained as before the occurrence of such event. +The Committee may also require that any securities issued in +respect of or exchanged for Shares issued hereunder that are +subject to restrictions be subject to similar restrictions. +Notwithstanding the foregoing, the Committee shall have no +obligation to effect any adjustment that would or might result +in the issuance of fractional shares, and any fractional shares +resulting from any adjustment may be disregarded or provided for +in any manner determined by the Committee. Any such adjustments +made by the Committee shall be conclusive. In the event of a +merger, consolidation or plan of exchange affecting the Company +to which paragraph 11 does not apply, in lieu of providing +for options and stock appreciation rights as provided above in +this paragraph 10, the Committee may, in its sole +discretion, provide a 30-day period prior to such event during +which optionees shall have the right to exercise options and +stock appreciation rights in whole or in part without any +limitation on exercisability and upon the expiration of such +30-day period all unexercised options and stock appreciation +rights shall immediately terminate. +11. Special Acceleration in Certain Events . +(a) Special Acceleration . Notwithstanding any +other provisions of the Plan, a special acceleration +(“Special Acceleration”) of options and stock +appreciation rights outstanding under the Plan shall occur +C-9 +Table of Contents +with the effect set forth in paragraph 11(b) at any time +when the shareholders of the Company approve one of the +following (“Approved Transactions”): +(i) Any consolidation, merger, plan of exchange, or +transaction involving the Company (“Merger”) in which +the Company is not the continuing or surviving corporation or +pursuant to which the Common Stock of the Company would be +converted into cash, securities or other property, other than a +Merger involving the Company in which the holders of the Common +Stock of the Company immediately prior to the Merger have the +same proportionate ownership of common stock of the surviving +corporation after the Merger; or +(ii) Any sale, lease, exchange, or other transfer (in one +transaction or a series of related transactions) of all or +substantially all of the assets of the Company or the adoption +of any plan or proposal for the liquidation or dissolution of +the Company. +(b) Effect on Outstanding Options and Stock +Appreciation Rights . Except as provided below in this +paragraph 11(b), upon a Special Acceleration pursuant to +paragraph 11(a), all options and stock appreciation rights +then outstanding under the Plan shall immediately become +exercisable in full during the remainder of their terms; +provided, the Committee may, in its sole discretion, provide a +30-day period prior to an Approved Transaction during which +optionees shall have the right to exercise options and stock +appreciation rights, in whole or in part, without any limitation +on exercisability, and upon the expiration of such 30-day period +all unexercised options and stock appreciation rights shall +immediately terminate. +12. Corporate Mergers, Acquisitions, etc . The +Committee may also grant options, stock appreciation rights, and +stock bonuses and issue restricted stock under the Plan having +terms, conditions and provisions that vary from those specified +in this Plan, provided that any such awards are granted in +substitution for, or in connection with the assumption of, +existing options, stock appreciation rights, stock bonuses, and +restricted stock, awarded or issued by another corporation and +assumed or otherwise agreed to be provided for by the Company +pursuant to or by reason of a transaction involving a corporate +merger, consolidation, plan of exchange, acquisition of property +or stock, separation, reorganization or liquidation to which the +Company or a parent or subsidiary corporation of the Company is +a party. +13. Amendment of Plan . The Board of Directors +may at any time, and from time to time, modify or amend the Plan +in such respects as it shall deem advisable because of changes +in the law while the Plan is in effect or for any other reason. +Except as provided in paragraphs 6(f), 9, 10 +and 11, however, no change in an award already granted +shall be made without the written consent of the holder of such +award. +14. Approvals . The obligations of the Company +under the Plan are subject to the approval of state and federal +authorities or agencies with jurisdiction in the matter. The +Company will use its best efforts to take steps required by +state or federal law or applicable regulations, including rules +and regulations of the Securities and Exchange Commission and +any stock exchange or trading system on which the +C-10 +Table of Contents +Company’s shares may then be listed or admitted for +trading, in connection with the grants under the Plan. The +foregoing notwithstanding, the Company shall not be obligated to +issue or deliver Class B Common Stock under the Plan if +such issuance or delivery would violate applicable state or +federal securities laws. +15. Employment and Service Rights . Nothing in +the Plan or any award pursuant to the Plan shall (i) confer +upon any employee any right to be continued in the employment of +the Company or any parent or subsidiary corporation of the +Company or shall interfere in any way with the right of the +Company or any parent or subsidiary corporation of the Company +by whom such employee is employed to terminate such +employee’s employment at any time, for any reason, with or +without cause, or to increase or decrease such employee’s +compensation or benefits, or (ii) confer upon any person +engaged by the Company any right to be retained or employed by +the Company or to the continuation, extension, renewal, or +modification of any compensation, contract, or arrangement with +or by the Company. +16. Rights as a Shareholder . The recipient of +any award under the Plan shall have no rights as a shareholder +with respect to any Shares until the date of issue to the +recipient of a stock certificate for such Shares. Except as +otherwise expressly provided in the Plan, no adjustment shall be +made for dividends or other rights for which the record date is +prior to the date such stock certificate is issued. +C-11 +Table of Contents +ANNUAL +MEETING +AND +PROXY STATEMENT +September 20, 2005 +Memphis, Tennessee +This proxy statement is printed on recycled paper +Table of Contents +NIKE, INC. +P.O. +BOX 43069 +PROVIDENCE, RI 02940-3069 +VOTE +BY INTERNET — www.proxyvote.com +Use the Internet to transmit your voting +instructions and for electronic delivery of +information up until 11:59 P.M. Eastern Time the +day before the cut-off date or meeting date. Have +your proxy card in hand when you access the web +site and follow the instructions to obtain your +records and to create an electronic voting +instruction form. +ELECTRONIC DELIVERY OF FUTURE SHAREHOLDER +COMMUNICATIONS +If you would like to reduce the costs incurred by +NIKE, Inc. in mailing proxy materials, you can +consent to receiving all future proxy statements, +proxy cards and annual reports electronically via +e-mail or the Internet. To sign up for electronic +delivery, please follow the instructions above to +vote using the Internet and, when prompted, +indicate that you agree to receive or access +shareholder communications electronically in +future years. +VOTE BY PHONE — 1-800-690-6903 +Use any touch-tone telephone to transmit your +voting instructions up until 11:59 P.M. Eastern +Time the day before the cut-off date or meeting +date. Have your proxy card in hand when you call +and then follow the instructions. +VOTE BY MAIL +Mark, sign and date your proxy card and return it +in the postage-paid envelope we have provided or +return it to NIKE, Inc., c/o ADP, 51 Mercedes Way, +Edgewood, NY 11717. +TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: +NIKE A1 +KEEP THIS PORTION FOR YOUR RECORDS +DETACH AND RETURN THIS PORTION ONLY +THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. +NIKE, INC. +THE BOARD OF DIRECTORS RECOMMENDS A +VOTE FOR PROPOSALS 2, 3, 4 AND 5. +For +All +Withhold +All +For All +Except +To withhold authority to vote for any +nominee(s), mark “For All Except” and write +1. +Election of Directors: +the nominee’s number on the line below. +Nominees: 01) John G. Connors, 02) Ralph D. DeNunzio, +o +o +o +03) Douglas G. Houser, 04) Philip +H. Knight, 05) William D. Perez, 06) Orin C. Smith, 07) John R. +Thompson, Jr. +For +Against +Abstain +2. +Proposal to amend the Articles of Incorporation to increase the number of authorized shares. +o +o +o +3. +Proposal to re-approve and amend the NIKE, Inc. Executive Performance Sharing Plan. +o +o +o +4. +Proposal to amend the NIKE, Inc. 1990 Stock Incentive Plan. +o +o +o +5. +Proposal to ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm. +o +o +o +For address changes and/or comments, please check +this box and write them on the back where indicated. +o +(Please date and sign below exactly as your name +or names appear hereon. Joint owners should each sign +personally. Corporate proxies should be signed in full +corporate name by an authorized officer and attested. +Persons signing in a fiduciary capacity should +indicate their full titles in such capacity.) +Signature [PLEASE SIGN WITHIN BOX] Date +Signature (Joint Owners) Date +Table of Contents +NIKE, INC. +CLASS A COMMON STOCK PROXY +SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +FOR THE 2005 MEETING OF SHAREHOLDERS +SEPTEMBER 20, 2005 +The undersigned hereby appoints Philip H. Knight, William D. Perez and Douglas G. Houser, and each +of them, proxies with full power of substitution, to vote, as designated on the reverse side, on +behalf of the undersigned, all shares of Class A Common Stock which the undersigned may be entitled +to vote at the Annual Meeting of Shareholders of NIKE, Inc. on September 20, 2005, and any +adjournments thereof, with all powers that the undersigned would possess if personally present. A +majority of the proxies or substitutes present at the meeting may exercise all powers granted +hereby. +THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED, BUT IF NO SPECIFICATION IS MADE, +THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR, AND FOR PROPOSALS 2, 3, 4 +AND 5. THE PROXIES MAY VOTE IN THEIR DISCRETION AS TO OTHER MATTERS WHICH MAY COME BEFORE THE +MEETING. +YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES, BUT YOU NEED NOT MARK +ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS’ RECOMMENDATIONS. THE +PROXIES CANNOT VOTE THESE SHARES UNLESS YOU SIGN AND RETURN THIS CARD OR PROPERLY VOTE BY PHONE OR +INTERNET. +Address Change/Comments: +If you noted address changes or comments above, please mark the corresponding box on the reverse side. +Table of Contents +NIKE, INC. +P.O. BOX 43069 +PROVIDENCE, RI 02940-3069 +VOTE +BY INTERNET — www.proxyvote.com +Use the Internet to transmit your voting instructions and for electronic delivery of information up +until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card +in hand when you access the web site and follow the instructions to obtain your records and to +create an electronic voting instruction form. +ELECTRONIC DELIVERY OF FUTURE SHAREHOLDER COMMUNICATIONS +If you would like to reduce the costs incurred by NIKE, Inc. in mailing proxy materials, you can +consent to receiving all future proxy statements, proxy cards and annual reports electronically via +e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above +to vote using the Internet and, when prompted, indicate that you agree to receive or access +shareholder communications electronically in future years. +VOTE BY PHONE — 1-800-690-6903 +Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time +the day before the cut-off date or meeting date. Have your proxy card in hand when you call and +then follow the instructions. +VOTE BY MAIL +Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or +return it to NIKE, Inc., c/o ADP, 51 Mercedes Way, Edgewood, NY 11717. +TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: +NIKEB1 +KEEP THIS PORTION FOR YOUR RECORDS +DETACH AND RETURN THIS PORTION ONLY +THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. +NIKE, INC. +THE +BOARD OF DIRECTORS RECOMMENDS A +VOTE FOR PROPOSALS 2, 3, 4 AND 5. +1. +Election of +Directors: +Nominees: 01) Jill K. Conway +02) Alan B. Graf, Jr. +03) Jeanne P. Jackson +For +All +Withhold +All +For All +Except +o +o +o +To withhold authority to vote for any nominee(s), mark “For All Except” and write the nominee’s +number on the line below. +For +Against +Abstain +2. +Proposal to amend the Articles of Incorporation to increase the number of authorized shares. +o +o +o +3. +Proposal to re-approve and amend the NIKE, Inc. Executive Performance Sharing Plan. +o +o +o +4. +Proposal to amend the NIKE, Inc. 1990 Stock Incentive Plan. +o +o +o +5. +Proposal to ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm. +o +o +o +For address changes and/or comments, please check this box and write them on the back where +indicated. o +(Please date and sign below exactly as your name or names appear hereon. Joint owners should each +sign personally. Corporate proxies should be signed in full corporate name by an authorized officer +and attested. Persons signing in a fiduciary capacity should indicate their full titles in such +capacity.) +Signature [PLEASE SIGN WITHIN BOX] +Date +Signature (Joint Owners) +Date +Table of Contents +NIKE, INC. +CLASS B COMMON STOCK PROXY +SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +FOR THE 2005 MEETING OF SHAREHOLDERS +SEPTEMBER 20, 2005 +The undersigned hereby appoints Philp H. Knight, William D. Perez and Douglas G. Houser, and each +of them, proxies with full power of substitution, to vote, as designated on the reverse side, on +behalf of the undersigned all shares of Class B Common Stock which the undersigned may be entitled +to vote at the Annual Meeting of Shareholders of NIKE, Inc. on September 20, 2005, and any +adjournments thereof, with all powers that the undersigned, would possess if personally present. A +majority of the proxies or substitutes present at the meeting may exercise all powers granted +hereby. +THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED, BUT IF NO SPECIFICATION IS MADE, +THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR, AND FOR PROPOSALS 2, 3, 4 +and 5. THE PROXIES MAY VOTE IN THEIR DISCRETION AS TO OTHER MATTERS WHICH MAY COME BEFORE THE +MEETING. +YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES, BUT YOU NEED NOT MARK +ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS’ RECOMMENDATIONS. THE +PROXIES CANNOT VOTE THESE SHARES UNLESS YOU SIGN AND RETURN THIS CARD OR PROPERLY VOTE BY PHONE OR +INTERNET. +Address Change/Comments: +If you noted address changes or comments above, please mark the corresponding box on the reverse side. \ No newline at end of file diff --git a/raw/proxies/0000320187/0000891020-05-000240/proxy_rpt.txt b/raw/proxies/0000320187/0000891020-05-000240/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000320187/0001095811-01-503848/proxy.txt b/raw/proxies/0000320187/0001095811-01-503848/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..0f7fec5d546d38bf998d76b2bd65921c20de2673 --- /dev/null +++ b/raw/proxies/0000320187/0001095811-01-503848/proxy.txt @@ -0,0 +1,1688 @@ +DEF 14A +1 +v74222ddef14a.txt +DEFINITIVE PROXY STATEMENT +1 +SCHEDULE 14A INFORMATION +PROXY STATEMENT PURSUANT TO SECTION 14(a) +OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ) +Filed by the Registrant [ ] +Filed by a Party other than the Registrant [ ] +Check the appropriate box: +[ ] Preliminary Proxy Statement +[ ] Confidential, for Use of the Commission Only (as permitted by +Rule 14a-6(e)(2)) +[X] Definitive Proxy Statement +[ ] Definitive Additional Materials +[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12 +NIKE, INC. +-------------------------------------------------------------------------------- +(Name of Registrant as Specified In Its Charter) +-------------------------------------------------------------------------------- +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +[X] No fee required. +[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. +(1) Title of each class of securities to which transaction applies: +--------------------------------------------------------------------- +(2) Aggregate number of securities to which transaction applies: +--------------------------------------------------------------------- +(3) Per unit price or other underlying value of transaction computed +pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the +filing fee is calculated and state how it was determined): +--------------------------------------------------------------------- +(4) Proposed maximum aggregate value of transaction: +--------------------------------------------------------------------- +(5) Total fee paid: +--------------------------------------------------------------------- +[ ] Fee paid previously with preliminary materials. +[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule +0-11(a)(2) and identify the filing for which the offsetting fee was paid +previously. Identify the previous filing by registration statement number, +or the Form or Schedule and the date of its filing. +(1) Amount Previously Paid: +--------------------------------------------------------------------- +(2) Form, Schedule or Registration Statement No.: +--------------------------------------------------------------------- +(3) Filing Party: +--------------------------------------------------------------------- +(4) Date Filed: +--------------------------------------------------------------------- +2 +NIKE LOGO +NIKE, INC. +ONE BOWERMAN DRIVE +BEAVERTON, OREGON 97005-6453 +August 10, 2001 +To Our Shareholders: +You are cordially invited to attend the annual meeting of shareholders of +NIKE, Inc. to be held at the Center for Cultural Exchange, One Longfellow +Square, Portland, Maine 04101, on Monday, September 17, 2001, at 1:00 P.M. +Eastern Time. Registration will begin at 12:00 P.M. +NIKE's Cole Haan and Bauer NIKE Hockey subsidiaries are headquartered +nearby. I believe that the annual meeting provides an excellent opportunity for +shareholders to become better acquainted with NIKE and its directors and +officers. I hope that you will be able to attend. Highlights of the meeting will +be available on videotape by calling 1-800-640-8007 following the meeting. +Whether or not you plan to attend, the prompt execution and return of your +proxy card will both assure that your shares are represented at the meeting and +minimize the cost of proxy solicitation. +Sincerely, +[/s/ Philip H. Knight] +Philip H. Knight +Chairman of the Board, +President, and Chief Executive +Officer +3 +NIKE LOGO +NOTICE OF ANNUAL MEETING OF SHAREHOLDERS +SEPTEMBER 17, 2001 +To the Shareholders of NIKE, Inc. +The annual meeting of shareholders of NIKE, Inc., an Oregon corporation, +will be held on Monday, September 17, 2001, at 1:00 P.M., at the Center for +Cultural Exchange, One Longfellow Square, Portland, Maine 04101, for the +following purposes: +1. To elect a Board of Directors for the ensuing year. +2. To approve the NIKE, Inc. Employee Stock Purchase Plan. +3. To consider a shareholder proposal. +4. To ratify the appointment of PricewaterhouseCoopers LLP as independent +accountants. +5. To transact such other business as may properly come before the +meeting. +All shareholders are invited to attend the meeting. Shareholders of record +at the close of business on July 25, 2001, the record date fixed by the Board of +Directors, are entitled to notice of and to vote at the meeting. You must +present an admission ticket enclosed in this Proxy Statement. +By Order of the Board of Directors +JOHN E. JAQUA +Secretary +Beaverton, Oregon +August 10, 2001 +Whether or not you intend to be present at the meeting, please sign and date the +enclosed proxy and return it in the enclosed envelope, or vote by telephone or +over the internet following the instructions on the proxy. +4 +PROXY STATEMENT +The enclosed proxy is solicited by the Board of Directors of NIKE, Inc. +("NIKE" or the "Company") for use at the annual meeting of shareholders to be +held on September 17, 2001, and at any adjournment thereof (the "Annual +Meeting"). The Company expects to mail this proxy statement and the enclosed +proxy to shareholders on or about August 10, 2001. +The Company will bear the cost of solicitation of proxies. In addition to +the solicitation of proxies by mail, certain officers and employees of the +Company, without extra compensation, may also solicit proxies personally or by +telephone. The Company has retained ADP Investor Communications Services, 51 +Mercedes Way, Edgewood, New York, to assist in the solicitation of proxies from +nominees and brokers at an estimated fee of $5,000 plus related out-of-pocket +expenses. Copies of proxy solicitation materials will be furnished to +fiduciaries, custodians and brokerage houses for forwarding to the beneficial +owners of shares held in their names. +All valid proxies properly executed and received by the Company prior to +the Annual Meeting will be voted in accordance with the instructions specified +in the proxy. Where no instructions are given, shares will be voted FOR the +election of each of the named nominees for director, FOR approval of the NIKE, +Inc. Employee Stock Purchase Plan, AGAINST the shareholder proposal regarding +business principles for China, and FOR ratification of the appointment of +PricewaterhouseCoopers LLP as independent accountants. A shareholder may choose +to strike the names of the proxy holders named in the enclosed proxy and insert +other names. +A shareholder giving the enclosed proxy has the power to revoke it at any +time before it is exercised by affirmatively electing to vote in person at the +meeting or by delivering to John F. Coburn III, Assistant Secretary of NIKE, +either an instrument of revocation or an executed proxy bearing a later date. +VOTING SECURITIES +Holders of record of NIKE's Class A Common Stock ("Class A Stock") and +holders of record of NIKE's Class B Common Stock ("Class B Stock"), at the close +of business on July 25, 2001, will be entitled to vote at the Annual Meeting. On +that date, 99,126,334 shares of Class A Stock and 170,114,060 shares of Class B +Stock were issued and outstanding. Neither class of Common Stock has cumulative +voting rights. +5 +Each share of Class A Stock and each share of Class B Stock is entitled to +one vote on every matter submitted to the shareholders at the Annual Meeting. +With regard to Proposal 1, the election of directors, the holders of Class A +Stock and the holders of Class B Stock will vote separately. Holders of Class B +Stock are currently entitled to elect 25 percent of the total Board, rounded up +to the next whole number. Holders of Class A Stock are currently entitled to +elect the remaining directors. Under this formula, holders of Class B Stock, +voting separately, will elect three directors, and holders of Class A Stock, +voting separately, will elect eight directors. Holders of Class A Stock and +holders of Class B Stock will vote together as one class on Proposals 2, 3 and +4. +2 +6 +PROPOSAL 1 +ELECTION OF DIRECTORS +A Board of 11 directors will be elected at the Annual Meeting. All of the +nominees were elected at the 2000 annual meeting of shareholders. Directors will +hold office until the next annual meeting of shareholders or until their +successors are elected and qualified. +Thomas E. Clarke, Jill K. Conway and Delbert J. Hayes are nominated by +management for election by the holders of Class B Stock. The other eight +nominees are nominated by management for election by the holders of Class A +Stock. +Under Oregon law, if a quorum of each class of shareholders is present at +the Annual Meeting, the eight director nominees who receive the greatest number +of votes cast by holders of Class A Stock and the three director nominees who +receive the greatest number of votes cast by holders of Class B Stock will be +elected directors. Abstentions and broker non-votes will have no effect on the +results of the vote. Unless otherwise instructed, proxy holders will vote the +proxies they receive for the nominees listed below. If any nominee becomes +unable to serve, the holders of the proxies may, in their discretion, vote the +shares for a substitute nominee or nominees designated by the Board of +Directors. +Background information on the nominees as of July 15, 2001, appears below: +NOMINEES FOR ELECTION BY CLASS A SHAREHOLDERS +Ralph D. DeNunzio -- Mr. DeNunzio, 69, a director of the Company since +1988, is President of Harbor Point Associates, Inc., New York, New York, a +private investment and consulting firm. Mr. DeNunzio was employed by the +investment banking firm of Kidder, Peabody & Co. Incorporated from 1953 to 1987, +where he served as President from 1977 to 1986, as Chief Executive Officer from +1980 to 1987 and as Chairman of the Board of Directors from 1986 to 1987. Mr. +DeNunzio served as Vice Chairman and Chairman of the Board of Governors of the +New York Stock Exchange from 1969 to 1972 and was President of the Securities +Industry Association in 1981. In 1970, Mr. DeNunzio headed the Securities +Industry Task Force, which led to enactment of the Securities Investor +Protection Act of 1970 and establishment of the Securities Investor Protection +Corporation. He is also a director of FDX Corporation and Harris Corporation. +Richard K. Donahue -- Mr. Donahue, 74, a director since 1977, is Vice +Chairman of the Board. He served as President and Chief Operating Officer of the +Company from 1990 until 1994. He has been a partner in the law firm of Donahue & +Donahue, Lowell, Massachusetts, since 1951. From 1961 to 1963, Mr. Donahue was +an assistant to President John F. Kennedy. Mr. Donahue is a former President of +the Massachusetts Bar Association and the New England Bar Association. He is a +member of the John F. Kennedy Library Foundation. Mr. Donahue is a trustee of +the Joyce Foundation and is a director of Courier Corp. +3 +7 +Douglas G. Houser -- Mr. Houser, 66, a director since 1970, is an Assistant +Secretary of the Company and has been a partner in the Portland, Oregon law firm +of Bullivant, Houser, Bailey since 1965. Mr. Houser is a trustee of Willamette +University and a Fellow in the American College of Trial Lawyers, and has served +as a member of the Board of Governors and Treasurer of the Oregon State Bar +Association and as a Director of the Rand Corporation, Institute for Civil +Justice Board of Overseers. +John E. Jaqua -- Mr. Jaqua, 80, a director since 1968, is Secretary of NIKE +and has been a principal in the law firm of Jaqua & Wheatley, P.C., Eugene, +Oregon, since 1962. Mr. Jaqua has served as President of the Oregon State Bar +Association and as a State Delegate to the House of Delegates of the American +Bar Association. +Philip H. Knight -- Mr. Knight, 63, a director since 1968, is President, +Chief Executive Officer and Chairman of the Board of Directors of NIKE. Mr. +Knight is a co-founder of the Company and, except for the period from June 1983 +through September 1984, served as its President from 1968 to 1990, and from June +2000 to present. Prior to 1968, Mr. Knight was a certified public accountant +with Price Waterhouse and Coopers & Lybrand and was an Assistant Professor of +Business Administration at Portland State University. +Charles W. Robinson -- Mr. Robinson, 81, a director since 1978, is Chairman +and President of Robinson & Associates, Inc., Santa Fe, New Mexico, a venture +capital firm. From January 1978 to January 1979, Mr. Robinson was Vice Chairman +of the Board of Blyth, Eastman, Dillon & Co., Inc. and from March 1977 to +December 1977, was Senior Managing Director of Kuhn Loeb & Co., Incorporated. +Mr. Robinson served as Under-secretary of State for Economic Affairs from 1974 +to 1976, at which time he was appointed Deputy Secretary of State. From 1964 to +1974, Mr. Robinson was President of Marcona Corporation. Mr. Robinson is also a +director of Allen Telecom, Inc., and a trustee of The Brookings Institution. +A. Michael Spence -- Dr. Spence, 57, a director since 1995, is a partner of +Oak Hill Venture Partners. He was the Philip H. Knight Professor and Dean of the +Graduate School of Business at Stanford University from 1990 to 1999. From 1984 +to 1990 he was Dean of the Faculty of Arts and Sciences at Harvard University. +He was professor of economics and business administration at Harvard University +from 1977 to 1986. He is the author of three books and numerous articles on +economics and business. He is a Fellow of the Econometric Society and was for +six years Chairman of the National Research Council Board on Science, Technology +and Economic Policy. Dr. Spence is also a director of Sun Microsystems, Inc., +Siebel Systems, Inc., General Mills, Inc. eGain Communications Corp., Exult, +Inc., Torstar Corporation, and ITI Education Corporation. +John R. Thompson, Jr. -- Mr. Thompson, 59, a director since 1991, was head +coach of the Georgetown University men's basketball team from 1972 until 1998. +Mr. Thompson also serves as Assistant to the President of Georgetown for Urban +Affairs. Mr. Thompson was head coach of the 1988 +4 +8 +United States Olympic basketball team. He is a past President of the National +Association of Basketball Coaches and presently serves on its Board of +Governors. +NOMINEES FOR ELECTION BY CLASS B SHAREHOLDERS +Thomas E. Clarke -- Dr. Clarke, 50, a director since 1994, joined the +Company in 1980, and serves as President of New Business Ventures of the +Company. He was appointed divisional vice president in charge of marketing in +1987, corporate Vice President in 1989, General Manager in 1990, and served as +President and Chief Operating Officer from 1994 to 1999. Dr. Clarke previously +held various positions with the Company, primarily in research, design, +development and marketing. Dr. Clarke holds a Doctorate degree in biomechanics. +Jill K. Conway -- Dr. Conway, 66, a director since 1987, is currently a +Visiting Scholar with the Massachusetts Institute of Technology's Program in +Science, Technology and Society, and Chairman of Lend Lease Inc., an +Australian-based property company. Dr. Conway was President of Smith College, +Northampton, Massachusetts, from 1975 to 1985. She was affiliated with the +University of Toronto from 1964 to 1975, and held the position of Vice +President, Internal Affairs from 1973 to 1975. Her field of academic specialty +is history. Dr. Conway is currently a director of Merrill Lynch & Co., Inc., and +Colgate-Palmolive Company. She is currently a trustee of Mount Holyoke College. +Delbert J. Hayes -- Mr. Hayes, 67, a director since 1975, served as +Executive Vice President of NIKE from 1980 to 1995. Mr. Hayes served as +Treasurer and in a number of other executive positions with the Company from +1975 to 1980. Mr. Hayes was a partner with Hayes, Nyman & Co., certified public +accountants, from 1970 to 1975. Prior to 1970, Mr. Hayes was a certified public +accountant with Price Waterhouse for eight years. +BOARD OF DIRECTORS AND COMMITTEES +The Board currently has an Executive Committee, an Audit Committee, a +Finance Committee, a Corporate Responsibility Committee, a Personnel Committee, +and a Compensation Plan Subcommittee of the Personnel Committee, and may also +appoint other committees from time to time. There is currently no Nominating +Committee. There were five meetings of the Board of Directors during the last +fiscal year. Each director attended at least 75 percent of the total number of +meetings of the Board of Directors and committees on which he or she served, +except for Dr. Spence who attended 50 percent. +The Executive Committee of the Board is currently composed of Messrs. +Knight (Chairman), Clarke, and Houser. The Executive Committee is authorized to +act on behalf of the Board on all corporate actions for which applicable law +does not require participation by the full Board. In practice, the Executive +Committee acts in place of the full Board only when emergency issues or +scheduling make it difficult or impracticable to assemble the full Board. All +actions taken by the Executive Committee must be reported at the next Board +meeting. The Executive Committee held no formal meetings during +5 +9 +the fiscal year ended May 31, 2001, but took actions from time to time pursuant +to written consent resolutions. +The Audit Committee is currently composed of Mr. Hayes (Chairman), Mr. +Houser and Dr. Spence. The Audit Committee reviews and makes recommendations to +the Board regarding services provided by the independent accountants, reviews +with the independent accountants the scope and results of their annual +examination of the Company's consolidated financial statements and any +recommendations they may have, and makes recommendations to the Board with +respect to the engagement or discharge of the independent accountants. The Audit +Committee also reviews the Company's procedures with respect to maintaining +books and records, the adequacy and implementation of internal auditing, +accounting and financial controls, and the Company's policies concerning +financial reporting and business practices. The Audit Committee met four times +during the fiscal year ended May 31, 2001. +The Finance Committee is currently composed of Messrs. Robinson (Chairman), +DeNunzio, and Hayes. The Finance Committee considers long-term financing options +and needs of the Company, long-range tax and currency issues facing the Company, +and management recommendations concerning major capital expenditures and +material acquisitions or divestments. The Finance Committee met five times +during the fiscal year ended May 31, 2001. +The Corporate Responsibility Committee is currently composed of Dr. Conway +(Chair), and Messrs. Donahue and Spence. The Corporate Responsibility Committee +reviews significant activities and policies regarding labor and environmental +practices, community affairs, charitable and foundation activities, diversity +and equal opportunity, and environmental and sustainability initiatives, and +makes recommendations to the Board of Directors. The Board established the +committee in June 2001. +The Personnel Committee is currently composed of Mr. DeNunzio (Chairman), +Dr. Conway, Mr. Jaqua, Dr. Spence and Mr. Thompson. The Personnel Committee +makes recommendations to the Board regarding officers' compensation, management +incentive compensation arrangements and profit sharing plan contributions. The +Personnel Committee met five times during the fiscal year ended May 31, 2001. +The Compensation Plan Subcommittee of the Personnel Committee is currently +composed of Dr. Spence and Mr. Jaqua. The Subcommittee grants stock options and +restricted stock bonuses under the NIKE, Inc. 1990 Stock Incentive Plan, and +determines targets and awards under the NIKE, Inc. Executive Performance Sharing +Plan and the NIKE, Inc. Long-Term Incentive Plan. +6 +10 +DIRECTOR COMPENSATION AND RETIREMENT PLAN +Messrs. Knight and Clarke do not receive additional compensation for their +services as directors. Directors are reimbursed for travel and other expenses +incurred in attending Board meetings. No fee is paid for attending Compensation +Plan Subcommittee meetings. In fiscal 2000, directors made a one-time election +to be compensated under either: +(a) the previously existing method, which consists of a fee of $18,000 +per year, plus $2,000 for each Board meeting attended, $1,000 for each +committee meeting attended, medical insurance, and $500,000 of life +insurance coverage, or +(b) a revised compensation method, which consists of a fee of $36,000 +per year, plus $2,000 for each Board meeting attended, $1,000 for each +committee meeting attended, an annual grant of an option to purchase 1,000 +shares of stock at the market price at grant, but no medical or life +insurance benefits while serving or after retirement. +Messrs. DeNunzio, Houser, and Spence elected the latter revised compensation, +and any new non-employee directors elected after fiscal 2000 will be compensated +in the revised fashion. +The Company has since 1989 provided certain retirement benefits to +non-employee directors who retire after serving for five years or more. The plan +has provided that after ten years of service by a director, the Company will +provide such director for the remainder of his or her life with $500,000 of life +insurance and medical insurance at the levels provided by the Company to all of +its employees at the time the director retires. The plan has also provided that +a director who has served for at least five years will receive an annual +retirement cash payment for life, commencing on the later of age 65 or the date +the director retires or ceases to be a member of the Board. The annual +retirement cash payment ranges from $9,000 for five years of service up to a +maximum of $18,000 for 10 or more years of service. +In fiscal 2000, in an effort to reduce future retirement obligations, the +Board of Directors approved a new retirement plan that allowed directors to make +a one-time election to waive their future rights to annual retirement cash +payments in exchange for a credit to a stock account under the Company's +Deferred Compensation Plan equal to the lump sum present value of the payments +based on the actuarial life expectancy of each director. The number of shares of +Class B Common Stock credited to each stock account was based on the market +price of the stock on September 1, 1999. The three directors that chose the +revised compensation method (b) above were required to opt for the new +retirement plan. All other directors, except for Messrs. Donahue and Robinson +elected the new plan. The number of shares of Class B Common Stock credited to +the stock accounts of each director was: Dr. Conway, 4,165; Mr. DeNunzio, 3,852; +Mr. Hayes, 4,217; Mr. Houser, 4,243; Mr. Jaqua, 2,610; Dr. Spence, 1,220; and +Mr. Thompson, 3,271. Any new non-employee directors elected after fiscal 2000 +will not receive retirement benefits. +New directors elected after the 1993 fiscal year must retire at age 72. +7 +11 +STOCK HOLDINGS OF CERTAIN OWNERS AND MANAGEMENT +The following table sets forth the number of shares of each class of NIKE +securities beneficially owned, as of July 15, 2001, by (i) each person known to +the Company to be the beneficial owner of more than 5 percent of any class of +the Company's securities, (ii) each of the nominees for director, (iii) each +executive officer listed in the Summary Compensation Table ("Named Officers"), +and (iv) all nominees, Named Officers, and other executive officers as a group. +Because Class A Stock is convertible into Class B Stock on a share-for-share +basis, each beneficial owner of Class A Stock is deemed by the Securities and +Exchange Commission to be a beneficial owner of the same number of shares of +Class B Stock. Therefore, in indicating a person's beneficial ownership of +shares of Class B Stock in the table, it has been assumed that such person has +converted into Class B Stock all shares of Class A Stock of which such person is +a beneficial owner. For these reasons the table contains substantial +duplications in the numbers of shares and percentages of Class A and Class B +Stock shown for Messrs. Hayes, Jaqua and Knight, and for all directors and +officers as a group. +SHARES +TITLE OF BENEFICIALLY PERCENT OF +CLASS OWNED(1) CLASS(2) +--------- ------------ ---------- +Thomas E. Clarke(3).................. Class B 295,264(4)(5)(7)(8) 0.2% +Portland, Oregon +Jill K. Conway....................... Class B 71,962(9) +Boston, Massachusetts +Ralph D. DeNunzio.................... Class B 108,325(4)(9) +Riverside, Connecticut +Richard K. Donahue................... Class B 142,706 0.1% +Lowell, Massachusetts +Delbert J. Hayes..................... Class A 670,000 0.7% +Newberg, Oregon Class B 686,597(9) 0.4% +Douglas G. Houser.................... Class B 93,323(4)(9) +Portland, Oregon +John E. Jaqua........................ Class A 585,752 +Eugene, Oregon Class B 588,411(9) 0.6% +Philip H. Knight(3).................. Class A 94,653,192(6) 95.5% +Beaverton, Oregon Class B 95,662,016(6)(7) 36.1% +Charles W. Robinson.................. Class B 350,000 0.2% +Santa Fe, New Mexico +A. Michael Spence.................... Class B 22,243(4)(9) +Palo Alto, CA +John R. Thompson, Jr. ............... Class B 49,833(4)(9) +Washington, D.C. +8 +12 +SHARES +TITLE OF BENEFICIALLY PERCENT OF +CLASS OWNED(1) CLASS(2) +--------- ------------ ---------- +Gary M. DeStefano(3)................. Class B 88,169(4)(5)(7)(8) +Beaverton, Oregon +Mark G. Parker(3).................... Class B 408,259(4)(5)(7)(8) 0.2% +Portland, Oregon +Ian T. Todd(3)....................... Class B 98,162(4)(7) +Beaverton, Oregon +Nissho Iwai American Corporation..... Preferred(10) 300,000 100.0% +Portland, Oregon +All directors and executive officers +as a group (21 persons)............ Class A 95,908,944 96.8% +Class B 99,094,924(4) 37.3% +--------------- +(1) A person is considered to beneficially own any shares: (a) over which the +person exercises sole or shared voting or investment power, or (b) of which +the person has the right to acquire beneficial ownership at any time within +60 days (such as through conversion of securities or exercise of stock +options). Unless otherwise indicated, voting and investment power relating +to the above shares is exercised solely by the beneficial owner or shared +by the owner and the owner's spouse or children. +(2) Omitted if less than 0.1 percent. +(3) Executive officer listed in the Summary Compensation Table. +(4) These amounts include the right to acquire, pursuant to the exercise of +stock options, within 60 days after July 15, 2001, the following numbers of +shares: 221,250 shares for Dr. Clarke, 1,000 shares for Mr. DeNunzio, 1,000 +shares for Mr. Houser, 21,000 shares for Dr. Spence, 42,500 shares for Mr. +Thompson, 354,002 shares for Mr. Parker, 93,750 shares for Mr. Todd, 45,000 +shares for Mr. DeStefano, and 1,070,377 shares for the executive officer +and director group. +(5) Includes shares held in account under the NIKE, Inc. Retirement Savings +Plan for Dr. Clarke and Messrs. DeStefano and Parker in the amounts of +2,213, 2,640, and 2,613 shares, respectively. +(6) Includes (a) 3,368,416 shares held by a limited partnership in which a +corporation owned by Mr. Knight's spouse is a co-general partner, (b) +65,224 shares owned by such corporation, (c) 1,000,000 shares held by the +Knight Foundation, a charitable trust in which Mr. Knight and his spouse +are directors, and (d) 1,950,000 shares held by Oak Hill Strategic +Partners, L.P. (formerly F.W. Strategic Partners, L.P.), a limited +partnership in which a company owned by Mr. Knight is a limited partner. +Mr. Knight has disclaimed ownership of all such shares. +(7) These amounts include 3,105, 3,105, 1,553, 1,553, and 1,553 restricted +shares granted to Dr. Clarke and Messrs. Knight, Parker, Todd, and +DeStefano, respectively, under NIKE, Inc. Long-Term Incentive Plan, as to +which the restrictions expire August 15, 2002, unless employment terminates +before that date, in which case the shares are forfeited. These amounts +also +9 +13 +include 5,719, 5,719, 2,859, 2,859, and 2,859 restricted shares granted to +Dr. Clarke and Messrs. Knight, Parker, Todd, and DeStefano respectively, +under NIKE, Inc. Long-Term Incentive Plan, as to which the restrictions +expire August 15, 2003, unless employment terminates before that date, in +which case the shares are forfeited. +(8) These amounts include 48,157, 36,117, and 24,078 restricted shares granted +in March 2000 to Dr. Clarke and Messrs. Parker and DeStefano, respectively, +under NIKE, Inc. 1990 Stock Incentive Plan. The restrictions lapse with +respect to one-third of the shares on each of the first three anniversaries +of the grant date, unless employment terminates before that date, in which +case any remaining restricted shares are forfeited. +(9) Includes shares credited to accounts under the NIKE, Inc. Deferred +Compensation Plan in the following amounts: Dr. Conway, 4,244; Mr. +DeNunzio, 3,925; Mr. Hayes, 4,297; Mr. Houser, 4,323; Mr. Jaqua, 2,659; Dr. +Spence, 1,243; and Mr. Thompson, 3,333. +(10) Preferred Stock does not have general voting rights except as provided by +law, and under certain circumstances as provided in the Company's Restated +Articles of Incorporation, as amended. +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Section 16(a) of the Securities Exchange Act of 1934 requires the Company's +directors and executive officers, and persons who own more than 10 percent of a +registered class of the Company's equity securities, to file with the Securities +and Exchange Commission, the New York Stock Exchange and the Pacific Stock +Exchange initial reports of ownership and reports of changes in ownership of +Common Stock and other equity securities of the Company. Officers, directors and +greater than 10 percent shareholders are required by the regulations of the +Securities and Exchange Commission to furnish the Company with copies of all +Section 16(a) forms they file. To the Company's knowledge, based solely on +review of the copies of such reports furnished to the Company and written +representations that no other reports were required, during the fiscal year +ended May 31, 2001 all Section 16(a) filing requirements applicable to its +officers, directors and greater than 10 percent beneficial owners were complied +with, except as follows. The Company filed one report late for each of Dr. +Conway, Mr. DeNunzio, Mr. Hayes, Mr. Houser, Mr. Jaqua, Dr. Spence, and Mr. +Thompson, covering the initial crediting of shares of Class B Stock to their +accounts under the Deferred Compensation Plan in September 1999 and the +crediting of additional shares to their accounts for dividend reinvestments on +three dividend payment dates in fiscal year 2000. One report, covering the sale +of 352 shares in a retirement account was filed late for Mr. Hayes due to broker +error. Finally, one report, covering the sale of 20,000 shares was filed late +for Mr. Robinson as a result of the broker's administrative error. +10 +14 +EXECUTIVE COMPENSATION +The following table discloses compensation awarded to, earned by, or paid +to the Company's Chief Executive Officer and its next four most highly +compensated executive officers for all services rendered by them in all +capacities to the Company and its subsidiaries during the fiscal year ended May +31, 2001 and the two preceding fiscal years. +SUMMARY COMPENSATION TABLE +LONG-TERM +COMPENSATION +ANNUAL COMPENSATION RESTRICTED ------------ +--------------------------------------- STOCK STOCK ALL OTHER +OTHER ANNUAL AWARDS OPTIONS LTIP COMPENSATION +NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) ($)(2) (#) PAYOUTS($) ($)(1) +--------------------------- ---- --------- --------- --------------- ---------- ------------ ---------- ------------ +Philip H. Knight.......... 2001 1,300,000 663,000 -- -- 0 92,000 586,427(3) +Chairman, Chief 2000 1,205,300 1,330,651 -- -- 0 300,000 666,665 +Executive Officer and 1999 1,115,000 892,000 -- -- 0 156,000 936,901 +President +Thomas E. Clarke.......... 2001 1,100,000 448,800 103,509(5) -- 0 92,000 75,410(4) +President of New 2000 910,833 942,712 110,338 2,000,000 150,000 300,000 126,899 +Business Ventures 1999 825,000 618,750 -- -- 60,000 156,000 357,306 +Ian T. Todd............... 2001 1,091,667 334,050 -- -- 0 46,000 64,202 +Vice President 2000 1,041,667 862,500 -- -- 50,000 150,000 129,826 +Sports Marketing 1999 1,000,000 2,600,000 -- -- 100,000 78,000 137,789 +Mark G. Parker............ 2001 772,756 256,169 -- -- 0 46,000 55,686(4) +President 2000 658,333 545,100 -- 1,500,000 105,000 150,000 84,994 +NIKE Brand 1999 600,000 360,000 -- -- 52,500 78,000 32,854 +Gary M. DeStefano......... 2001 501,042 153,319 -- - 0 46,000 32,924 +President 2000 387,500 294,113 -- 1,000,000 60,000 150,000 47,520 +USA Operations 1999 349,999 192,500 -- -- 30,000 78,000 16,969 +--------------- +(1) Includes contributions by the Company to the NIKE, Inc. Retirement Savings +Plan for the fiscal year ended May 31, 2001 in the amount of $12,385 each +for Dr. Clarke and Messrs. Parker and DeStefano, and $5,585 each for Messrs. +Knight and Todd. Also includes contributions by the Company to the Deferred +Compensation Plan for Messrs. Knight, Clarke, Todd, Parker and DeStefano of +$80,842, $61,526, $58,617, $41,688, and $20,539, respectively. +(2) Represents the value of restricted shares granted based on the closing +market price of the Class B Stock on the grant date. In fiscal 2000, +restricted stock grants were made to Dr. Clarke for 72,235 shares, Mr. +Parker for 54,176 shares, and Mr. DeStefano for 36,177 shares. The +restrictions lapse with respect to one third of the shares on each of the +first three anniversaries of the grant date, unless employment terminates +before that date, in which case any remaining restricted shares are +forfeited. Dividends on restricted shares are paid currently to the holders. +On May 31, 2001, the number of remaining restricted shares and the dollar +value of those shares based on the fair market value of $41.10 per share on +that date was 48,157 shares with a value of $1,979,253 for Dr. Clarke, +36,117 shares with a value of $1,434,409 for Mr. Parker, and 24,078 shares +with a value of $989,606 for Mr. DeStefano. +11 +15 +(3) The Company paid $500,000 towards a portion of the annual premium for term +life insurance on the life of Mr. Knight pursuant to a "split dollar" plan. +The Company would be reimbursed for its payments from the proceeds of the +life insurance policies in the event Mr. Knight dies. +(4) Includes above-market interest on deferred compensation for Dr. Clarke and +Mr. Parker in the amount of $1,499 and $1,613, respectively, for the 2001 +fiscal year. +(5) Includes forgiveness of $100,000 of a $500,000 loan in 1994 for a second +home, pursuant to an agreement that conditions such forgiveness on continued +employment with the Company. +OPTION GRANTS IN THE FISCAL YEAR ENDED MAY 31, 2001 +There were no grants of stock options to the named executive officers +during Fiscal Year 2001. +AGGREGATED OPTION EXERCISES IN THE FISCAL YEAR +ENDED MAY 31, 2001 AND FISCAL YEAR-END OPTION VALUES +NUMBER OF UNEXERCISED VALUE OF UNEXERCISED +OPTIONS AT IN-THE-MONEY OPTIONS +SHARES FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(1) +ACQUIRED ON VALUE --------------------------- --------------------------- +NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE +---- ----------- ----------- ----------- ------------- ----------- ------------- +Philip H. Knight.......... 0 0 0 0 0 0 +Thomas E. Clarke.......... 387,288 $12,783,995 177,500 152,500 $ 251,484 $754,453 +Ian T. Todd............... 0 0 62,500 87,500 $ 83,828 $251,484 +Mark G. Parker............ 61,056 $ 2,085,003 319,002 193,377 $4,164,382 $528,117 +Gary M. DeStefano......... 49,000 $ 654,906 26,250 63,750 $ 100,594 $301,781 +--------------- +(1) Based on a fair market value as of May 31, 2001 of $41.10 per share. Values +are stated on a pre-tax basis. +12 +16 +LONG-TERM INCENTIVE PLANS AWARDS IN FISCAL YEAR ENDED MAY 31, 2001 +PERFORMANCE +OR OTHER PERIOD +UNTIL MATURATION +NAME OR PAYOUT(1) THRESHOLD($) TARGET($) MAXIMUM($) +---- ---------------- ------------ --------- ---------- +Philip H. Knight....................... Fiscal Year 2003 40,000 400,000 600,000 +Fiscal Year 2004 40,000 400,000 600,000 +Thomas E. Clarke....................... Fiscal Year 2003 -- -- -- +Fiscal Year 2004 -- -- -- +Ian T. Todd............................ Fiscal Year 2003 20,000 200,000 300,000 +Fiscal Year 2004 20,000 200,000 300,000 +Mark G. Parker......................... Fiscal Year 2003 20,000 200,000 300,000 +Fiscal Year 2004 20,000 200,000 300,000 +Gary M. DeStefano...................... Fiscal Year 2003 20,000 200,000 300,000 +Fiscal Year 2004 20,000 200,000 300,000 +--------------- +(1) The Compensation Plan Subcommittee established a series of performance +targets based on fiscal 2003 and 2004 revenues and earnings per share +corresponding to award payouts ranging from 10% to 150% of the target +awards. Participants will receive a payout at the highest percentage level +at which both performance targets are met, subject to the Committee's +discretion to reduce or eliminate any award based on Company or individual +performance. Under the terms of the awards, on August 15, 2003 and 2004 the +Company would issue in the name of each participant a number of shares of +Class B Stock with a value equal to the award payout based on the closing +price of the Class B Stock on that date on the New York Stock Exchange. The +shares will be 100% vested at that time. The Company's performance in fiscal +year 2001 corresponded to an LTIP payout of 23% of the target awards for +2001. +13 +17 +Notwithstanding anything to the contrary set forth in any of the Company's +filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, +the following Performance Graph and the Report of the Personnel Committee below +shall not be incorporated by reference into any such filings and shall not +otherwise be deemed filed under such acts. +PERFORMANCE GRAPH +The following graph demonstrates a five-year comparison of cumulative total +returns for NIKE's Class B Stock, the Standard & Poor's 500 Stock Index, and the +Standard & Poor's Footwear and Textiles-Apparel Indices. The graph assumes an +investment of $100 on May 31, 1996 in each of the Company's Common Stock, and +the stocks comprising the Standard & Poor's 500 Stock Index and the Standard & +Poor's Footwear and Textiles-Apparel Indices. Each of the indices assumes that +all dividends were reinvested. +COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN AMONG NIKE, INC., +S&P 500 INDEX, S&P FOOTWEAR INDEX AND S&P TEXTILES-APPAREL INDEX +(PERFORMANCE GRAPH) +S&P TEXTILES +NIKE, INC. S&P 500 S&P FOOTWEAR (APPAREL) +---------- ------- ------------ ------------ +5/96 100 100 100 100 +5/97 115.29 129.41 117.79 106.04 +5/98 93.07 169.12 94.14 126.14 +5/99 124.7 204.68 119.41 91.45 +5/00 88.65 226.13 84.77 69.5 +5/01 86 202.27 88.14 96.42 +The Standard & Poor's Footwear Index consists of NIKE and Reebok +International. The Standard & Poor's Textiles-Apparel Index consists of Liz +Claiborne, Inc., Russell Corp., and VF Corp. The Standard & Poor's Footwear and +Textiles-Apparel Indices include companies in two major lines of business in +which the Company competes. The indices do not encompass all of the Company's +competitors, nor all product categories and lines of business in which the +Company is engaged. Because NIKE is part of the S&P Footwear Index, the price +and returns of NIKE stock affect this index. +The Stock Performance shown on the Graph above is not necessarily +indicative of future performance. The Company will not make nor endorse any +predictions as to future stock performance. +14 +18 +REPORT OF THE PERSONNEL COMMITTEE OF THE BOARD +OF DIRECTORS ON EXECUTIVE COMPENSATION +The Personnel Committee of the Board of Directors (the "Committee"), +subject to the approval of the Board of Directors, determines the compensation +of the Company's five most highly compensated executive officers, including the +Chief Executive Officer, and oversees the administration of executive +compensation programs, except that stock option grants, and targets and awards +under the Executive Performance Sharing Plan and the Long-Term Incentive Plan, +are made by the Compensation Plan Subcommittee (the "Subcommittee"), which is +composed of outside directors. +Executive Compensation Policies and Programs. The Company's executive +compensation programs are designed to attract and retain highly qualified +executives and to motivate them to maximize shareholder returns by achieving +both short- and long-term strategic Company goals. The programs link each +executive's compensation directly to individual and Company performance. A +significant portion of each executive's total compensation is variable and +dependent upon the attainment of strategic and financial goals, individual +performance objectives, and the appreciation in value of the Common Stock. +There are three basic components to the Company's "pay for performance" +system: base pay; annual incentive bonus; and long-term, equity-based incentive +compensation. Each component is addressed in the context of individual and +Company performance, competitive conditions and equity among employees. In +determining competitive compensation levels, the Company analyzes information +from several independent surveys which include information regarding the general +industry as well as other consumer product companies. Since the Company's market +for executive talent extends beyond the sports industry, the survey data +includes global name-brand consumer product companies with sales in excess of $2 +billion. A comparison of the Company's financial performance with that of the +companies and indices shown in the Performance Graph is only one of many factors +considered by the Committee to determine executive compensation. +Base Pay. Base pay is designed to be competitive, although conservative +(generally in the second or third quartile) as compared to salary levels for +equivalent executive positions at other global consumer product companies. An +executive's actual salary within this competitive framework will vary based on +responsibilities, experience, leadership, potential future contribution, and +demonstrated individual performance (measured against strategic management +objectives such as maintaining customer satisfaction, developing innovative +products, strengthening market share and profitability, and expanding the +markets for the Company's products). The types and relative importance of +specific financial and other business objectives vary among the Company's +executives depending on their positions and the particular operations or +functions for which they are responsible. The Company's philosophy and practice +is to place a relatively greater emphasis on the incentive components of +compensation. +Annual Incentive Bonus. Each executive is eligible to receive an annual +cash bonus under the Executive Performance Sharing Plan. The "target" level for +that bonus, like the base salary level, is set +15 +19 +with reference to Company-wide bonus programs, as well as competitive +conditions. These target levels are intended to motivate the Company's +executives by providing substantial bonus payments for the achievement of +financial goals within the Company's business plan. An executive receives a +percentage of his or her target bonus depending on the extent to which the +Company achieves financial performance goals set by the Subcommittee, as +measured by the Company's net income before taxes. Bonuses may exceed the target +if the Company's performance exceeds the goal. +Long-Term, Equity-Based Incentive Compensation. The long-term equity-based +compensation program is tied directly to shareholder return. Under the current +program, long-term incentive compensation consists of stock options, 25% of +which vest in each of the four years after grant, and performance-based stock +under the Long-Term Incentive Plan ("LTIP"). +Stock options are awarded with an exercise price equal to the fair market +value of the Class B Stock on the date of grant. Accordingly, the executive is +rewarded only if the market price of the Class B Stock appreciates. Since +options vest over time, the Company periodically grants new options to provide +continuing incentives for future performance. The size of previous grants and +the number of options held are considered by the Subcommittee, but are not +entirely determinative of future grants. Like base pay, the grant is set with +regard to competitive considerations, and each executive's actual grant is based +upon individual performance measured against the criteria described in the +preceding paragraphs and the executive's potential for future contributions. +Under the LTIP, the Subcommittee has established a series of performance +targets corresponding to awards of stock ranging from 10% to 150% of the target +awards. The performance targets are currently based on revenues and earnings per +share. The Company expects that future awards under the LTIP will be for +performance periods from between one to three years, in order to provide an +incentive to achieve the Company's longer-term performance goals. If performance +targets are achieved, the shares of stock issued to executives will be 100% +vested for payouts made after 2002. +Stock options and performance-based stock under the LTIP are designed to +align the interests of the Company's executives with those of shareholders by +encouraging executives to enhance the value of the Company and, hence, the price +of the Class B Stock and the shareholders' return. In addition, through deferred +vesting and three-year performance periods, this component of the compensation +system is designed to create an incentive for the individual executive to remain +with the Company. +Other Plans. The Company maintains combined profit sharing and 401(k) +retirement plans, a non-qualified Deferred Compensation Plan, and has proposed +an Employee Stock Purchase Plan. Under the profit sharing retirement plan, the +Company annually contributes to a trust on behalf of employees, including +executive officers, an amount that in the past five fiscal years has equaled an +annual contribution of between 3.29% to 6.94% of each employee's earnings. The +percentage is determined by the Board of Directors. +16 +20 +For fiscal 2001, under the terms of the profit sharing plan, each employee, +including each executive officer, received a contribution to his or her plan +account of 3.29% of the employee's total salary and bonus up to $170,000, and an +additional 4.0% of the employee's total salary and bonus in excess of +approximately $80,400 and below $170,000. Under the terms of the Deferred +Compensation Plan, employees, including executive officers, whose total salary +and bonus exceeds $170,000 receive a supplemental profit sharing contribution +into a nonqualified deferred compensation account in an amount equal to the +additional contribution they would have received under the profit sharing plan +if not for the $170,000 cap on salary and bonus considered for purposes of that +plan as required under IRS regulations. Accordingly, those employees each +received supplemental contributions equal to 3.29% of their salary and bonus in +excess of $170,000. These profit sharing plans serve to retain employees and +executives, since funds do not fully vest until after five years of employment +with the Company. +Under the 401(k) retirement plan, the Company contributes up to 4% of each +employee's earnings as a matching contribution for pre-tax salary deferred into +the plan. This matching contribution is initially invested in Class B Stock, +which strengthens the linkage between employee and shareholder interests. +This year, the Company has proposed for shareholder approval an Employee +Stock Purchase Plan ("ESPP") that would qualify under Section 423 of the +Internal Revenue Code. See Proposal 2. The ESPP would allow employees to defer +up to 10% or $25,000 of their annual compensation for purchases of Class B +Stock. The stock would be purchased every six months at 85% of the lower of the +price of the stock at the beginning and end of the six-month period. The ESPP is +intended to encourage employee investment in the Company and to provide an +incentive for employees to increase shareholder returns. +Annual Reviews. Each year, the Committee reviews the executive compensation +policies with respect to the linkage between executive compensation and the +creation of shareholder value, as well as the competitiveness of the programs. +The Committee determines what changes, if any, are appropriate in the +compensation programs for the following year. In conducting the annual review, +the Committee considers information provided by Human Resources staff and uses +surveys and reports prepared by independent compensation consultants. +Each year, the Committee, with the Chairman and Human Resources staff, +reviews the individual performance of each of the other four most highly +compensated executive officers, and the Chairman's recommendations with respect +to the appropriate compensation levels and awards. The Subcommittee sets +performance and bonus targets, and certifies awards, under the Executive +Performance Sharing Plan and the LTIP, and makes stock option grants and +restricted stock awards. The Committee makes recommendations to the Board of +Directors for final approval of all other compensation matters. The Committee +also reviews with the Chairman and the Human Resources staff the financial and +other strategic objectives, such as those identified above, for each of the +named executive officers for the following year. +17 +21 +For fiscal year 2001, the Company met targeted performance objectives set +for named executive officers sufficient for a payout under the Executive +Performance Sharing Plan and the LTIP. This resulted from increased +profitability due to aligning costs with revenues, and sales increases in key +product categories and markets, helping to offset reductions in others. +Furthermore, the Company's competitive position in the industry remained strong. +The Company's financial performance corresponded to bonuses of 51% of the +individual targeted bonuses under the Executive Performance Sharing Plan and 23% +of their individual targeted stock payouts under the LTIP. +Chief Executive Officer. In reviewing Mr. Knight's performance, the +Committee focused primarily on the Company's performance in fiscal year 2001, +which resulted in better earnings compared to the performance of the previous +year. The Committee noted continued progress toward the achievement of various +strategic objectives such as earnings growth, infrastructure expansion, and +growth in key product categories and regions outside the United States. The +Committee also considered the other factors and considerations described above. +Consistent with the plans, Mr. Knight received a bonus of $663,000 under the +Executive Performance Sharing Plan and an award of $92,000 worth of Class B +Stock under the LTIP. The Committee increased Mr. Knight's base salary for the +2002 fiscal year by 3.8 percent to $1,350,000. Mr. Knight received no stock +option awards. +Section 162(m) of the Internal Revenue Code. In 2000 shareholders amended +and re-approved the Executive Performance Sharing Plan, and in 1997 shareholders +approved the stock option plan and the LTIP. The plans are each designed to +satisfy the performance-based exception to the Section 162(m) limitation on +deductibility with respect to incentive compensation for named executive +officers, except that restricted stock bonuses granted in March 2000 will not +qualify as performance based. +Members of the Personnel Committee: +Ralph D. DeNunzio, Chairman +Jill K. Conway +John E. Jaqua* +A. Michael Spence* +John R. Thompson, Jr. +--------------- +* Also members of the Compensation Plan Subcommittee. +PERSONNEL COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +The members of the Personnel Committee of the Board of Directors during the +fiscal year ended May 31, 2001 are listed above. The Committee is composed +solely of non-employee directors. Mr. Jaqua serves as Secretary of the Company, +but is not an employee. During the fiscal year ended May 31, 2001, +18 +22 +the Company paid Harbor Point Associates, Inc., of which director Ralph D. +DeNunzio is President, $91,667 for financial consulting services, and paid Dr. +Jill K. Conway $74,487 ($37,226 in cash, and 884 shares of Class B Stock valued +at $37,261) for consulting services rendered for labor relations and corporate +responsibility matters. The Company expects to pay Mr. DeNunzio, or his firm, +and Dr. Conway for additional consulting services that may be performed by them +for the Company during fiscal year 2002. +EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL +ARRANGEMENTS +An agreement between the Company and President of New Business Ventures, +Dr. Thomas E. Clarke, contains a covenant not to compete that extends for one +year following the termination of his employment with the Company. The agreement +provides that if he voluntarily resigns, the Company will make monthly payments +to him during the one-year noncompetition period in an amount equal to one-half +of his last monthly salary. The agreement provides further that if his +employment is terminated by the Company, the Company will make monthly payments +to him during the one-year noncompetition period in an amount equal to his last +monthly salary. The Company may unilaterally waive the covenant not to compete. +If the covenant is waived, the Company will not be required to make the payments +described above for the months as to which the waiver applies. +The Company has a similar agreement with Vice President Mark G. Parker that +extends for one year following the termination of Mr. Parker's employment with +the Company. The agreement provides that if Mr. Parker voluntarily resigns, the +Company will make monthly payments to him during the one-year noncompetition +period in an amount equal to the greater of (i) $20,833 or (ii) +one-twenty-fourth of the total salary and bonuses received by Mr. Parker during +the 12-month period immediately preceding his resignation. The agreement +provides further that if Mr. Parker's employment is terminated by the Company, +the Company will make monthly payments to him during the one-year noncompetition +period in an amount equal to the greater of (i) $41,667 or (ii) one-twelfth of +the total salary and bonuses received by Mr. Parker during the 12-month period +immediately preceding his termination. If Mr. Parker is terminated without +cause, the parties may mutually agree to waive the covenant not to compete, and +if Mr. Parker is terminated for cause, the Company may unilaterally waive the +covenant. If the covenant is waived, the Company will not be required to make +the payments described above for the months as to which the waiver applies. +The Company has an employment agreement and a covenant not to compete with +Vice President Ian T. Todd, pursuant to which Mr. Todd is to receive minimum +annual salary increases of five percent, and a target bonus of 60 percent of his +annual salary. Mr. Todd will also be granted an option to purchase 25,000 shares +of Class B Stock each year during the term of his contract, which expires July +31, 2004. Company has guaranteed a minimum level of appreciation in such options +during the employment contract period. In the event the appreciation of vested +options is less than an amount computed assuming a 10% per annum increase in +share value, the Company will pay a cash bonus on July 31, 2004 +19 +23 +equal to the shortfall. The options generally vest with respect to 25% of each +option on the first four anniversaries of the option. If Mr. Todd's employment +is terminated without cause before any of the options completely vest, the +remaining unvested portion of all options granted to Mr. Todd during the term of +his employment contract will vest and the options will terminate on July 31, +2004. In that event, the Company's guarantee of appreciation described above +would still apply. In addition, if Mr. Todd's employment with the Company is +terminated without cause, the Company will pay to Mr. Todd as severance, upon +the satisfaction of certain conditions, an amount equal to 24 months' of Mr. +Todd's base salary. His covenant not to compete extends for one year following +the termination of his employment with the Company. +CERTAIN TRANSACTIONS AND BUSINESS RELATIONSHIPS +During the fiscal year ended May 31, 2001, the Company paid Harbor Point +Associates, Inc., of which director Ralph D. DeNunzio is President, $91,667 for +financial consulting services, and paid Dr. Jill K. Conway $74,487 ($37,226 in +cash, and 884 shares of Class B Stock valued at $37,261) for consulting services +rendered for labor and corporate responsibility matters. The Company expects to +pay Mr. DeNunzio, or his firm, and Dr. Conway for additional consulting services +that may be performed by them for the Company during fiscal year 2002. +Mr. Knight makes his airplane available for business use by the Company for +no charge. NIKE operates and maintains the aircraft. During fiscal 2001, Mr. +Knight reimbursed the Company $63,439 for NIKE's operating costs related to his +personal use of this aircraft. +INDEBTEDNESS OF MANAGEMENT +In 1994 the Company loaned $500,000 at 5.65% per annum to President of New +Business Ventures Thomas E. Clarke for the purchase of a second home. The loan +is secured by the second home, and must be repaid within 180 days following +termination of employment. As an inducement to remain employed by the Company, +the Company has agreed to forgive $100,000 of the loan commencing January 1, +2000 and on each of the four anniversary dates thereafter, provided that Dr. +Clarke remains employed by the Company. +20 +24 +PROPOSAL 2 +APPROVAL OF THE NIKE, INC. EMPLOYEE STOCK PURCHASE PLAN +The Company's Employee Stock Purchase Plan (the "ESPP") is intended to +provide a convenient and practical means by which employees may participate in +stock ownership of the Company. The Board of Directors believes that the +opportunity to acquire a proprietary interest in the success of the Company +through the acquisition of shares of Class B Stock pursuant to the ESPP will be +an important aspect of the Company's ability to attract and retain highly +qualified and motivated employees. Accordingly, the Board has approved the ESPP, +subject to shareholder approval. +The complete text of the ESPP is attached to this proxy statement as +Exhibit A. The following description of the ESPP is a summary of certain +provisions and is qualified in its entirety by reference to Exhibit A. +DESCRIPTION OF THE ESPP +Shares Reserved for the ESPP. A total of 3,000,000 shares of Class B Stock +are reserved under the ESPP for issuance to participating employees. The number +of shares reserved under the ESPP is subject to adjustment in the event of stock +dividends, reverse or forward stock splits, combinations of shares, +recapitalizations or other changes in the outstanding Class B Stock. +Eligibility. All active employees of the Company and its participating +subsidiaries are eligible to participate in the ESPP, except for the following: +(a) any employee who has been employed less than one month when an offering +commences, (b) any employee whose customary employment is less than 20 hours per +week, and (c) any employee who would, immediately after an offering, and after +including the number of shares that could be purchased in that offering, own or +be deemed to own five percent or more of the voting power or value of all +classes of stock of the Company or any subsidiary of the Company. +ESPP Offerings. The ESPP shall be implemented by a series of six-month +offerings, with a new offering commencing on April 1 and October 1 of each year +beginning with October 1, 2001. The first day of each offering is the "offering +date" for that offering and the last day of each offering is the "purchase date" +for that offering. An employee may purchase shares only through payroll +deductions permitted under the ESPP. Payroll deductions must be not less than 1% +or more than 10% of the participant's compensation. +The maximum number of shares that any participant may purchase in any +single offering is 1,000 shares. In addition, the terms of an offering may not +allow an employee's right to purchase shares under all stock purchase plans of +the Company and its subsidiaries to which Section 423 of the Internal Revenue +Code of 1986, as amended (the "Code"), applies to accrue at a rate that exceeds +$25,000 of +21 +25 +fair market value of shares, as determined on the offering date, for each +calendar year in which the offering is outstanding. +Purchase Price. The price at which shares may be purchased in an offering +will be the lower of (a) 85 percent of the fair market value of a share of Class +B Stock on the offering date of the offering or (b) 85 percent of the fair +market value of a share of Class B Stock on the purchase date of the offering. +The fair market value of a share of Class B Stock on any date will be the +closing price on the immediately preceding trading day of the Class B Stock on +the New York Stock Exchange or, if the Class B Stock is not traded on the New +York Stock Exchange, such other reported value of the Class B Stock as may be +specified by the Board of Directors. +Termination and Amendment. The ESPP will terminate when all of the shares +reserved for purposes of the ESPP have been purchased, provided that the Board +of Directors in its sole discretion may terminate the ESPP at any time. The +Board may at any time amend the ESPP in any and all respects, provided that +without shareholder approval, the Board may not increase the number of shares +reserved for the ESPP or decrease the purchase price of shares offered pursuant +to the ESPP. +TAX CONSEQUENCES +The ESPP is intended to qualify as an "employee stock purchase plan" within +the meaning of Section 423 of the Code. Under the Code, employees will not +recognize taxable income or gain with respect to shares purchased under the ESPP +either at the offering date or the purchase date of an offering. If an employee +disposes of shares purchased under the ESPP more than two years after the +offering date, or in the event of the employee's death at any time, the employee +or the employee's estate generally will be required to report as ordinary +compensation income for the taxable year of disposition or death an amount equal +to the lesser of (a) the excess of the fair market value of the shares at the +time of disposition or death over the applicable purchase price, or (b) 15 +percent of the fair market value of the shares on the offering date. In the case +of such a disposition or death, the Company will not be entitled to any +deduction from income. Any gain on the disposition in excess of the amount +treated as ordinary compensation income generally will be capital gain. +If an employee disposes of shares purchased under the ESPP within two years +after the offering date, the employee generally will be required to report the +excess of the fair market value of the shares on the purchase date over the +applicable purchase price as ordinary compensation income for the year of +disposition. If the disposition is by sale, any difference between the fair +market value of the shares on the purchase date and the disposition price +generally will be capital gain or loss. In the event of a disposition within two +years after the offering date, subject to certain limitations such as the +$1,000,000 cap on deductibility under Section 162(m) of the Code, the Company +generally will be entitled to a deduction from income in the year of such +disposition equal to the amount the employee is required to report as ordinary +compensation income. +22 +26 +RECOMMENDATION OF THE BOARD +The Board of Directors recommends that shareholders vote FOR approval of +the ESPP. Holders of Class A Stock and Class B Stock will vote together as a +single class on Proposal 2. If holders of a majority of the shares of Common +Stock vote on the proposal, Proposal 2 will be adopted if the votes cast in +favor of the proposal exceed the votes cast against the proposal. Accordingly, +abstentions and broker non-votes will have no effect on the results of the vote. +PROPOSAL 3 +SHAREHOLDER PROPOSAL +John C. Harrington, P.O. Box 6108, Napa, California 94581-1108, a holder of +100 shares of Class B Stock, submitted the following resolution (the +"Proposal"), for the reasons stated. The Board of Directors recommends a vote +AGAINST the Proposal and asks shareholders to read through NIKE's response, +which follows the shareholder proposal. +US BUSINESS PRINCIPLES FOR HUMAN RIGHTS OF WORKERS IN CHINA +WHEREAS: our company's business practices in China respect human and labor +rights of workers. The eleven principles below were designed to commit a company +to a widely accepted and thorough set of human and labor rights standards for +China. They were defined by the International Labor Organization and the United +Nations Covenants on Economic, Social and Cultural Rights, and Civil, and +Political Rights. They have been signed by the Chinese government and China's +national laws. +(1) No goods or products produced within our company's facilities or +those of suppliers shall be manufactured by bonded labor, forced labor, +within prison camps or as part of reform-through-labor or +reeducation-through-labor programs. +(2) Our facilities and suppliers shall adhere to wages that meet +workers' basic needs, fair and decent working hours, and at a minimum, to +the wage and hour guidelines provided by China's national labor laws. +(3) Our facilities and suppliers shall prohibit the use of corporal +punishment, any physical, sexual or verbal abuse or harassment of workers. +(4) Our facilities and suppliers shall use production methods that do +not negatively affect the worker's occupational safety and health. +(5) Our facilities and suppliers shall not call on police or military +to enter their premises to prevent workers from exercising their rights. +23 +27 +(6) We shall undertake to promote the following freedoms among our +employees and the employees of our suppliers: freedom of association and +assembly, including the rights to form unions and bargain collectively; +freedom of expression, and freedom from arbitrary arrest or detention. +(7) Company employees and those of our suppliers shall not face +discrimination in hiring, remuneration or promotion based on age, gender, +marital status, pregnancy, ethnicity or region of origin. +(8) Company employees and those of our suppliers shall not face +discrimination in hiring, remuneration or promotion based on labor, +political or religious activity, or on involvement in demonstrations, past +records of arrests or internal exile for peaceful protest, or membership in +organizations committed to non-violent social or political change. +(9) Our facilities and suppliers shall use environmentally responsible +methods of production that have minimum adverse impact on land, air and +water quality. +(10) Our facilities and suppliers shall prohibit child labor, at a +minimum comply with guidelines on minimum age for employment within China's +national labor laws. +(11) We will issue annual statements to the Human Rights for Workers +in China Working Group detailing our efforts to uphold these principles and +to promote these basic freedoms. +RESOLVED: Stockholders request the Board of Directors to make all possible +lawful efforts to implement and/or increase activity on each of the principles +named above in the People's Republic of China. +SUPPORTING STATEMENT: As U.S. companies import more goods, consumer and +shareholder concern is growing about working conditions in China that fall below +basic standards of fair and humane treatment. We hope that our company can prove +to be a leader in its industry and embrace these principles. +RECOMMENDATION OF THE BOARD +The Board of Directors recommends a vote AGAINST adoption of the Proposal +for the following reasons: +NIKE supports the general intent of the Proposal, but believes that it +already has a Code of Conduct that addresses most of the principles contained in +the Proposal that the Company can legally comply with in China. Also, there are +elements of the proposal that are vague and so sweeping in nature that +compliance would be difficult or impossible to measure. +NIKE is committed to operating in full compliance with applicable laws in +every country in which it does business, including China, and requires the same +compliance of its contract manufacturers. +24 +28 +NIKE was among the first in the industry to establish standards for labor +practices and environmental responsibility in the numerous countries in which +its products are manufactured. These standards and principles are embodied in +the NIKE Code of Conduct, first established in 1992. NIKE has regularly revised, +improved and expanded the Code of Conduct as it has been able to raise levels of +compliance in its contract factories. The Code's requirements frequently exceed +the requirements of local laws in many countries, and in many instances impose +standards that are higher than those stated in the Proposal. +The Board believes the Proposal is redundant because NIKE's Code of Conduct +already prohibits the use of forced labor or child labor, and requires employers +to respect the dignity of workers. Moreover, NIKE works with its contractors on +safety standards, and has adopted specific exposure limit standards for indoor +factory air quality (or their equivalent) established by U.S. OSHA. +Since 1992, the Company has invested significant resources to develop its +own internal system to monitor compliance with the Code of Conduct, and to work +with external auditing partners, and, more recently, international +non-governmental organizations to collect data directly from workers to help +enforce the Code. +In addition, some parts of the Proposal are vague and overbroad, and lack +clear standards, such as requiring wages that meet workers' "basic needs," +requiring production methods that do not "negatively affect" worker health and +have "minimum adverse impact" on land, air and water quality, and "promoting" +enumerated freedoms. +The Proposal also calls for contradictory actions. It requires an employer +to comply with the law of the country in which it operates, but also requires +that the employer promote the right to form unions and establish collective +bargaining -- actions which are illegal in China. Further, since NIKE does not +control the state in China, nor its police, the Company is not in a position to +guarantee workers freedom from arrest or detention. Where rights of free +association and collective bargaining are illegal, NIKE has successfully used +worker opinion surveys conducted by independent non-governmental organizations +to provide necessary information to NIKE and factory management about workers' +needs and desires. +But, in the spirit of the proponent of the Proposal, NIKE has, in the past +three years, +- raised the minimum age for workers to 18 years for its contract footwear +factories and 16 for its apparel factories. +- sponsored, with its factory partners, loan programs for workers to +provide capital for small businesses in factory communities, and free +education for workers seeking to improve their quality of life. +- improved the air quality in factories by developing and introducing safe +water-based glues to replace petroleum-based glues in shoe production. +25 +29 +- worked with the Global Alliance for Workers and Communities to assess +worker sentiments and needs in factories in Thailand, Vietnam and +Indonesia, and developed remediation plans to meet worker concerns about +conditions and benefits such as education or health care. The Global +Alliance will undertake similar survey research in China. See +www.theglobalalliance.org. +- made significant investments in community youth sports development +programs in China, including building or making available high quality +youth sports facilities and organizing and funding youth sports programs. +The Board encourages shareholders to obtain more information about these +programs and the NIKE Code of Conduct, and also to take a look inside a factory +at www.nikebiz.com/social. +Although the Board agrees with the concerns for worker welfare expressed, +the Board believes that adoption of the Proposal as currently worded would be +counterproductive because of its redundancy with the Code of Conduct, vague and +conflicting requirements, and the potential to divert valuable resources from +Code of Conduct compliance monitoring. Accordingly, the Board recommends a vote +AGAINST the Proposal. +Holders of Class A Stock and Class B Stock will vote together as a single +class on Proposal 3. If holders of a majority of the shares of Common Stock vote +on the proposal, Proposal 3 will be adopted if the votes cast in favor of the +proposal exceed the votes cast against the proposal. Accordingly, abstentions +and broker non-votes will have no effect on the results of the vote. +PROPOSAL 4 +RATIFICATION OF INDEPENDENT ACCOUNTANTS +The Board of Directors of the Company, upon recommendation of its Audit +Committee, has appointed PricewaterhouseCoopers LLP as independent accountants +to examine the Company's consolidated financial statements for the fiscal year +ending May 31, 2002 and to render other professional services as required. +The Board of Directors is submitting the appointment of +PricewaterhouseCoopers LLP to shareholders for ratification. +PricewaterhouseCoopers has served as independent accountants to the Company +since 1971. Representatives of PricewaterhouseCoopers will be present at the +Annual Meeting and are expected to be available to respond to questions. +Notwithstanding anything to the contrary set forth in any of the Company's +filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, +the following Report of the Audit Committee shall not be incorporated by +reference into any such filings and shall not otherwise be deemed filed under +such acts. +26 +30 +REPORT OF THE AUDIT COMMITTEE +The Audit Committee has: +- Reviewed and discussed the audited financial statements with management. +- Discussed with the independent auditors the matters required to be +discussed by SAS 61. +- Received the written disclosures and the letter from the independent +auditors required by Independence Standards Board Standard No. 1, and has +discussed with the independent auditors the auditors' independence. +- Based on the review and discussions above, recommended to the Board of +Directors that the audited financial statements be included in the +Company's Annual Report on Form 10-K for the last fiscal year for filing +with the Securities and Exchange Commission. +- Considered whether the provision by the principal accountant of +professional services other than for the audit of the Company's financial +statements is compatible with maintaining the principal accountant's +independence, and determined that it is compatible. +The Board of Directors has determined that the members of the Audit +Committee are independent. The Audit Committee has adopted a written charter. +Members of the Audit Committee: +Delbert J. Hayes, Chairman +Douglas G. Houser +A. Michael Spence +Aggregate fees billed for professional services rendered by the Company's +principal accountants, PricewaterhouseCoopers LLP, for the most recent fiscal +year: +Audit Fees........................................ $ 1.7 million +Financial Information Systems +Design and Implementation....................... $ 4.7 million +All Other Fees.................................... $15.2 million +------------- +Total................................... $21.6 million +OTHER MATTERS +As of the time this proxy statement was printed, management was unaware of +any proposals to be presented for consideration at the Annual Meeting other than +those set forth herein, but if other matters do properly come before the Annual +Meeting, the persons named in the proxy will vote the shares represented by such +proxy according to their best judgment. +27 +31 +SHAREHOLDER PROPOSALS +A proposal by a shareholder for inclusion in the Company's proxy statement +and form of proxy for the 2002 annual meeting of shareholders must be received +by John F. Coburn III, Assistant Secretary of NIKE, at One Bowerman Drive, +Beaverton, Oregon 97005-6453, on or before April 12, 2002 in order to be +eligible for inclusion. Rules under the Securities Exchange Act of 1934 describe +standards as to the submission of shareholder proposals. In addition, the +Company's bylaws require that any shareholder wishing to make a nomination for +Director, or wishing to introduce a proposal or other business at a shareholder +meeting must give the Company at least 60 days' advance written notice, and that +notice must meet certain requirements described in the bylaws. +A COPY OF NIKE'S 2001 ANNUAL REPORT ON FORM 10-K WILL BE AVAILABLE TO +SHAREHOLDERS WITHOUT CHARGE UPON REQUEST TO: INVESTOR RELATIONS, NIKE, INC., ONE +BOWERMAN DRIVE, BEAVERTON, OREGON 97005-6453. +For the Board of Directors +JOHN E. JAQUA +SECRETARY +28 +32 +EXHIBIT A +NIKE, INC. EMPLOYEE STOCK PURCHASE PLAN +1. Purpose of the Plan. NIKE, Inc. (the "Company") believes that ownership +of shares of its common stock by employees of the Company and its Participating +Subsidiaries (as defined below) is desirable as an incentive to better +performance and improvement of profits, and as a means by which employees may +share in the rewards of growth and success. The purpose of the Company's +Employee Stock Purchase Plan (the "Plan") is to provide a convenient means by +which employees of the Company and Participating Subsidiaries may purchase the +Company's shares through payroll deductions and a method by which the Company +may assist and encourage such employees to become share owners. +2. Shares Reserved for the Plan. There are 3,000,000 shares of the +Company's authorized but unissued or reacquired Class B Common Stock reserved +for purposes of the Plan. The number of shares reserved for the Plan is subject +to adjustment in the event of any stock dividend, stock split, combination of +shares, recapitalization or other change in the outstanding Class B Common Stock +of the Company. The determination of whether an adjustment shall be made and the +manner of any such adjustment shall be made by the Board of Directors of the +Company, which determination shall be conclusive. +3. Administration of the Plan. The Plan shall be administered by or under +the direction of the Personnel Committee of the Board of Directors, which may +delegate some or all of its duties and authority to one or more Company +employees. The Personnel Committee may promulgate rules and regulations for the +operation of the Plan, adopt forms for use in connection with the Plan, and +decide any question of interpretation of the Plan or rights arising thereunder. +The Personnel Committee may consult with counsel for the Company on any matter +arising under the Plan. All determinations and decisions of the Personnel +Committee shall be conclusive. +4. Eligible Employees. All Eligible Employees (as defined below) of the +Company and all Eligible Employees of each corporate subsidiary of the Company +that is designated by the Board of Directors of the Company as a participant in +the Plan (such participating subsidiary being hereinafter called a +"Participating Subsidiary") are eligible to participate in the Plan. An +"Eligible Employee" is an employee who has been employed by the Company or a +Participating Subsidiary for at least one full month prior to the Offering Date +(as defined below) excluding, however, (a) any employee whose customary +employment is less than 20 hours per week, and (b) any employee who would, after +a purchase of shares under the Plan, own or be deemed (under Section 424(d) of +the Internal Revenue Code of 1986, as amended (the "Code")) to own stock +(including stock subject to any outstanding options held by the employee) +possessing 5 percent or more of the total combined voting power or value of all +classes of stock of the Company or any parent or subsidiary of the Company. +A-1 +33 +5. Offerings. +(a) Offering and Purchase Dates. The Plan shall be implemented by a series +of six-month offerings (the "Offerings"), with a new Offering commencing on +April 1 and October 1 of each year beginning with October 1, 2001. Each Offering +commencing on April 1 of any year shall end on September 30 of that year, and +each Offering commencing on October 1 of any year shall end on March 31 of the +following year. The first day of each Offering is the "Offering Date" for that +Offering and the last day of each Offering is the "Purchase Date" for that +Offering. +(b) Grants; Limitations. On each Offering Date, each Eligible Employee +shall be granted an option under the Plan to purchase shares of Class B Common +Stock on the Purchase Date for the Offering for the price determined under +paragraph 7 of the Plan exclusively through payroll deductions authorized under +paragraph 6 of the Plan; provided, however, that (i) no option shall permit the +purchase of more than 1,000 shares, and (ii) no option may be granted under the +Plan that would allow an employee's right to purchase shares under all stock +purchase plans of the Company and its parents and subsidiaries to which Section +423 of the Code applies to accrue at a rate that exceeds $25,000 of fair market +value of shares (determined at the date of grant) for each calendar year in +which such option is outstanding. +6. Participation in the Plan. +(a) Initiating Participation. An Eligible Employee may participate in an +Offering under the Plan by filing with the Company a subscription and payroll +deduction authorization on a form furnished by the Company. The subscription and +payroll deduction authorization must be filed no later than the "Subscription +Deadline," which shall be a number of days prior to the Offering Date with the +exact number of days being established from time to time by the Personnel +Committee by written notice to Eligible Employees. Once filed, a subscription +and payroll deduction authorization shall remain in effect unless amended or +terminated, and upon the expiration of an Offering the participants in that +Offering will be automatically enrolled in the new Offering starting the +following day. The payroll deduction authorization will authorize the employing +corporation to make payroll deductions in an amount designated by the +participant from each of the participant's paychecks during the Offering. The +designated amount to be deducted from each paycheck must be a whole percentage +of not less than one percent or more than 10 percent of the participant's +Compensation (as defined below) for the period covered by the paycheck. If +payroll deductions are made by a Participating Subsidiary, that corporation will +promptly remit the amount of the deductions to the Company. +(b) Definition of Compensation. "Compensation" means the participant's pay +reportable on IRS Form W-2 (under Section 3401(a) of the Code), adjusted as +follows: +(i) Before-tax contributions to a non-qualified deferred compensation +arrangement, contributions to a plan qualified under Section 401(k) of the +Code, and any amounts set aside by the +A-2 +34 +participant from otherwise taxable pay under a welfare benefit plan +qualified under Section 125 of the Code shall be included. +(ii) Expense reimbursements, disability benefits, payments from a +nonqualified deferred compensation arrangement, stock option income, and +adjustments for overseas employment (other than any transfer premium) shall +be excluded. +(iii) Any payment representing excess vacation or paid time-off +accruals (where such excess represents vacation or time-off not taken) +shall be excluded. +(c) Amending Participation. After a participant has begun participating in +the Plan by initiating payroll deductions, the participant may amend the payroll +deduction authorization (i) once during any Offering to decrease the amount of +payroll deductions, and (ii) effective for the first paycheck of a new Offering +to either increase or decrease the amount of payroll deductions. In addition, if +the amount of payroll deductions from any participant during an Offering exceeds +the maximum amount that can be applied to purchase shares in that Offering under +the limitations set forth in paragraph 5(b) above, then (x) as soon as +practicable following a written request from the participant, payroll deductions +from the participant shall cease and all such excess amounts shall be refunded +to the participant, and (y) payroll deductions from the participant shall +restart as of the commencement of the next Offering at the rate set forth in the +participant's then effective payroll deduction authorization. A permitted change +in payroll deductions shall be effective for any paycheck only if written notice +is received by the Company at least 10 business days prior to the payday for +that paycheck. +(d) Terminating Participation. After a participant has begun participating +in the Plan by initiating payroll deductions, the participant may terminate +participation in the Plan by written notice received by the Company at least +some number of days prior to a Purchase Date, with the exact number of days +being established from time to time by the Personnel Committee by written notice +to participants. Participation in the Plan shall also terminate when a +participant ceases to be an Eligible Employee for any reason, including death or +retirement. A participant may not reinstate participation in the Plan with +respect to a particular Offering after once terminating participation in the +Plan with respect to that Offering. Upon termination of a participant's +participation in the Plan, all amounts deducted from the participant's +Compensation and not previously used to purchase shares under the Plan shall be +returned to the participant. +7. Option Price. The price at which shares shall be purchased in an +Offering shall be the lower of (a) 85% of the fair market value of a share of +Class B Common Stock on the Offering Date of the Offering or (b) 85% of the fair +market value of a share of Class B Common Stock on the Purchase Date of the +Offering. The fair market value of a share of Class B Common Stock on any date +shall be the closing price on the immediately preceding trading day of the Class +B Common Stock on the New York Stock Exchange or, if the Class B Common Stock is +not traded on the New York Stock Exchange, such other reported value of the +Class B Common Stock as shall be specified by the Board of Directors. +A-3 +35 +8. Purchase of Shares. All amounts withheld from the Compensation of a +participant shall be credited to his or her account under the Plan. No interest +will be paid on such accounts, unless otherwise determined by the Board of +Directors. On each Purchase Date, the amount of the account of each participant +will be applied to the purchase of shares (including fractional shares) by such +participant from the Company at the price determined under paragraph 7 above. +Any cash balance remaining in a participant's account after a Purchase Date as a +result of the limitations set forth in paragraph 5(b) above shall be repaid to +the participant. +9. Delivery and Custody of Shares. Shares purchased by participants +pursuant to the Plan will be delivered to and held in the custody of such +investment or financial firm (the "Custodian") as shall be appointed by the +Personnel Committee. The Custodian may hold in nominee or street name +certificates for shares purchased pursuant to the Plan, and may commingle shares +in its custody pursuant to the Plan in a single account without identification +as to individual participants. By appropriate instructions to the Custodian, a +participant may from time to time sell all or part of the shares held by the +Custodian for the participant's account at the market price at the time the +order is executed. If a participant desires to sell all of the shares in his or +her account, the Custodian or the Company will purchase any fraction of a share +in the account at the same price per share that the whole shares are sold on the +market. By appropriate instructions to the Custodian, a participant may obtain +(a) transfer into the participant's own name of all or part of the whole shares +held by the Custodian for the participant's account and delivery of such whole +shares to the participant, or (b) transfer of all or part of the whole shares +held for the participant's account by the Custodian to a regular individual +brokerage account in the participant's own name, either with the firm then +acting as Custodian or with another firm; provided, however, that no shares may +be transferred under (a) or (b) until two years after the Offering Date of the +Offering in which the shares were purchased. +10. Records and Statements. The Custodian will maintain the records of the +Plan. As soon as practicable after each Purchase Date each participant will +receive a statement showing the activity of his or her account since the +preceding Purchase Date and the balance on the Purchase Date as to both cash and +shares. Participants will be furnished such other reports and statements, and at +such intervals, as the Personnel Committee shall determine from time to time. +11. Expense of the Plan. The Company will pay all expenses incident to +operation of the Plan, including costs of record keeping, accounting fees, legal +fees, commissions and issue or transfer taxes on purchases pursuant to the Plan, +on dividend reinvestments and on delivery of shares to a participant or into his +or her brokerage account. The Company will not pay expenses, commissions or +taxes incurred in connection with sales of shares by the Custodian at the +request of a participant. Expenses to be paid by a participant will be deducted +from the proceeds of sale prior to remittance. +12. Rights Not Transferable. The right to purchase shares under this Plan +is not transferable by a participant, and such right is exercisable during the +participant's lifetime only by the participant. Upon the death of a participant, +any cash withheld and not previously applied to purchase shares, together with +A-4 +36 +any shares held by the Custodian for the participant's account shall be +transferred to the persons entitled thereto under the laws of the state of +domicile of the participant upon a proper showing of authority. +13. Dividends and Other Distributions; Reinvestment. Stock dividends and +other distributions in shares of Class B Common Stock of the Company on shares +held by the Custodian shall be issued to the Custodian and held by it for the +account of the respective participants entitled thereto. Cash distributions +other than dividends, if any, on shares held by the Custodian will be paid +currently to the participants entitled thereto. Cash dividends, if any, on +shares held by the Custodian will be reinvested in Class B Common Stock on +behalf of the participants entitled thereto. The Custodian shall establish a +separate account for each participant for the purpose of holding shares acquired +through reinvestment of the participant's dividends. On each dividend payment +date, the Custodian shall receive from the Company the aggregate amount of +dividends payable with respect to all shares held by the Custodian for +participants' accounts under the Plan. As soon as practicable thereafter, the +Custodian shall use all of the funds so received to purchase shares of Class B +Common Stock in the public market, and shall then allocate such shares +(including fractional shares) among the dividend reinvestment accounts of the +participants pro rata based on the amount of dividends reinvested for each +participant. A participant may sell or transfer shares in the participant's +dividend reinvestment account in accordance with paragraph 9 above, except that +there shall be no holding period required for a transfer from a dividend +reinvestment account. +14. Voting and Shareholder Communications. In connection with voting on any +matter submitted to the shareholders of the Company, the Custodian will cause +the shares held by the Custodian for each participant's accounts to be voted in +accordance with instructions from the participant or, if requested by a +participant, furnish to the participant a proxy authorizing the participant to +vote the shares held by the Custodian for his or her accounts. Copies of all +general communications to shareholders of the Company will be sent to +participants in the Plan. +15. Tax Withholding. Each participant who has purchased shares under the +Plan shall immediately upon notification of the amount due, if any, pay to the +Company in cash amounts necessary to satisfy any applicable federal, state and +local tax withholding determined by the Company to be required. If the Company +determines that additional withholding is required beyond any amount deposited +at the time of purchase, the participant shall pay such amount to the Company on +demand. If the participant fails to pay the amount demanded, the Company may +withhold that amount from other amounts payable by the Company to the +participant, including salary, subject to applicable law. +16. Responsibility and Indemnity. Neither the Company, its Board of +Directors, the Personnel Committee, the Custodian, any Participating Subsidiary, +nor any member, officer, agent, or employee of any of them, shall be liable to +any participant under the Plan for any mistake of judgment or for any omission +or wrongful act unless resulting from gross negligence, willful misconduct or +intentional misfeasance. The Company will indemnify and save harmless its Board +of Directors, the Personnel Committee, the Custodian and any such member, +officer, agent or employee against any claim, loss, +A-5 +37 +liability or expense arising out of the Plan, except such as may result from the +gross negligence, willful misconduct or intentional misfeasance of such entity +or person. +17. Conditions and Approvals. The obligations of the Company under the Plan +shall be subject to compliance with all applicable state and federal laws and +regulations, compliance with the rules of any stock exchange on which the +Company's securities may be listed, and approval of such federal and state +authorities or agencies as may have jurisdiction over the Plan or the Company. +The Company will use its best effort to comply with such laws, regulations and +rules and to obtain such approvals. +18. Amendment of the Plan. The Board of Directors of the Company may from +time to time amend the Plan in any and all respects, except that without the +approval of the shareholders of the Company, the Board of Directors may not +increase the number of shares reserved for the Plan (except for adjustments +authorized in paragraph 2 above) or decrease the purchase price of shares +offered pursuant to the Plan. +19. Termination of the Plan. The Plan shall terminate when all of the +shares reserved for purposes of the Plan have been purchased, provided that the +Board of Directors in its sole discretion may at any time terminate the Plan +without any obligation on account of such termination, except as hereinafter in +this paragraph provided. Upon termination of the Plan, the cash and shares, if +any, held in the accounts of each participant shall forthwith be distributed to +the participant or to the participant's order, provided that if prior to the +termination of the Plan, the Board of Directors and shareholders of the Company +shall have adopted and approved a substantially similar plan, the Board of +Directors may in its discretion determine that the accounts of each participant +under this Plan shall be carried forward and continued as the accounts of such +participant under such other plan, subject to the right of any participant to +request distribution of the cash and shares, if any, held for his accounts. +A-6 +38 +ANNUAL +MEETING +AND +PROXY STATEMENT +SEPTEMBER 17, 2001 +PORTLAND, MAINE +NIKE LOGO +This proxy statement is printed on recycled paper +39 +[NIKE SWOOSH LOGO] +NIKE, INC. +P.O. BOX 8094 +JERSEY CITY, NJ 08818-8094 +VOTE BY INTERNET - www.proxyvote.com +Use the Internet to transmit your voting instructions and for electronic +delivery of information up until 11:59 P.M. Eastern Time the day before the +meeting date. Have your proxy card in hand when you access the web site. You +will be prompted to enter your 12-digit Control Number which is located below +to obtain your records and to create an electronic voting instruction form. +VOTE BY PHONE - 1-800-690-6903 +Use any touch-tone telephone to transmit your voting instructions up until +11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card +in hand when you call. You will be prompted to enter your 12-digit Control +Number which is located below and then follow the simple instructions the Vote +Voice provides you. +VOTE BY MAIL +Mark, sign, and date your proxy card and return it in the postage-paid envelope +we have provided or return it to Nike, Inc., c/o ADP, 51 Mercedes Way, +Edgewood, NY 11717. +TO VOTE MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: [ ] NIKE01 KEEP THIS PORTION FOR YOUR RECORDS +----------------------------------------------------------------------------------------------------------------------- +THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION ONLY +NIKE, INC. +THE BOARD OF DIRECTORS RECOMMENDS A +VOTE FOR PROPOSALS 2 AND 4, AND AGAINST +PROPOSAL 3 For Withhold For All To withhold authority to vote, mark +All All Except "For All Except" and write the nominee's number +on the line below. +1. Election of Directors; [ ] [ ] [ ] ___________________________________ +Nominees: 01) Ralph D. DeNunzio, +02) Richard K. Donahue, (03) Douglas +G. Houser 04) John E. Jaqua, 05) Philip +K. Knight, 06) Charles W. Robinson, +07) Michael Spence, 08) John R. +Thompson, Jr. For Against Abstain +2. Proposal to approve the NIKE, Inc. +Employee Stock Purchase Plan. [ ] [ ] [ ] +3. Shareholder proposal regarding China +business principles. [ ] [ ] [ ] +4. Proposal to ratify the appointment of +PricewaterhouseCoopers LLP as independent +accountants. [ ] [ ] [ ] +THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED, BUT IF NO +SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES +FOR DIRECTOR, FOR PROPOSALS 2 AND 4, AND AGAINST PROPOSAL 3. THE PROXIES MAY +VOTE IN THEIR DISCRETION AS TO OTHER MATTERS WHICH MAY COME BEFORE THE MEETING. +YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE +BOXES, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE +WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXIES CANNOT VOTE +YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD. +For address changes and/or comments, please check [ ] +this box and write them on the back where indicated. +(Please date and sign below exactly as your name or names appear +hereon. Joint owners should each sign personally. Corporate proxies +should be signed in full corporate name by an authorized officer +and attested. Persons signing in a fiduciary capacity should indicate +their full titles in such capacity.) +____________________________________________ ___________________________________ +Signature (PLEASE SIGN WITHIN BOX) Date Signature (Joint Owners) Date +40 +------------------------------------------------------------------------------- +NIKE, INC. +CLASS A COMMON STOCK PROXY +SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +FOR THE 2001 MEETING OF SHAREHOLDERS +SEPTEMBER 17, 2001 +The undersigned hereby appoints Philip H. Knight, Delbert J. Hayes and Douglas +G. Houser, and each of them, proxies with full power of substitution, to vote, +as designated on the reverse side, on behalf of the undersigned all shares of +Class A Common Stock which the undersigned may be entitled to vote at the Annual +Meeting of Shareholders of NIKE, Inc. on September 17, 2001, and any +adjournments thereof, with all powers that the undersigned would possess if +personally present. A majority of the proxies or substitutes present at the +meeting may exercise all powers granted hereby. +ADDRESS CHANGE/COMMENTS: +------------------------------------------------------------------------------- +------------------------------------------------------------------------------- +------------------------------------------------------------------------------- +------------------------------------------------------------------------------- +------------------------------------------------------------------------------- +If you noted address changes or comments above, +please mark the corresponding box on the reverse side. +41 +[Nike logo] +NIKE, INC. +P.O. BOX 8094 +JERSEY CITY, NJ 08818-8094 +VOTE BY INTERNET - www.proxyvote.com +Use the internet to transmit your voting instructions and for electronic +delivery of information up until 11:59 P.M. Eastern Time the day before the +meeting date. Have your proxy card in hand when you access the web site. You +will be prompted to enter your 12-digit Control Number which is located below to +obtain your records and to create an electronic voting instruction form. +VOTE BY PHONE - 1-800-690-6903 +Use any touch-tone telephone to transmit your voting instructions up until 11:59 +P.M. Eastern Time the day before the meeting date. Have your proxy card in hand +when you call. You will be prompted to enter your 12-digit Control Number which +is located below and then follow the simple instructions the Vote Voice provides +you. +VOTE BY MAIL +Mark, sign, and date your proxy card and return it in the postage-paid envelope +we have provided or return it to Nike, Inc. c/o ADP, 51 Mercedes Way, Edgewood, +NY 11717. +TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: NIKE03 KEEP THIS PORTION FOR YOUR RECORDS. +-------------------------------------------------------------------------------------------------------- +DETACH AND RETURN THIS PORTION ONLY. +THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. +--------------------------------------------------------------------------------------------------------------------------------- +NIKE, INC. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 2 AND 4, AND AGAINST PROPOSALS 3. +1. Election of Directors: +Nominees: 01) Thomas E. Clarke, 02) Jill K. Conway, and +03) Delbert J. Hayes. +FOR WITHHOLD FOR ALL To withhold authority to vote, mark "For All Except" +ALL ALL EXCEPT and write the nominee's number on the line below. +[ ] [ ] [ ] +-------------------------------------------------- +2. Proposal to approve the NIKE, Inc. Employee Stock Purchase Plan +FOR AGAINST ABSTAIN +[ ] [ ] [ ] +3. Shareholder proposal regarding China business principles. +FOR AGAINST ABSTAIN +[ ] [ ] [ ] +4. Proposal to ratify the appointment of PricewaterhouseCoopers LLP as independent accountants. +FOR AGAINST ABSTAIN +[ ] [ ] [ ] +THESE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED, BUT IF NO +SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES +FOR DIRECTOR, FOR PROPOSALS 2 AND 4, AND AGAINST PROPOSAL 3. THE PROXIES MAY +VOTE IN THEIR DISCRETION AS TO OTHER MATTERS WHICH MAY COME BEFORE THE MEETING. +YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES, BUT +YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF +DIRECTORS' RECOMMENDATIONS. THE PROXIES CANNOT VOTE YOUR SHARES UNLESS YOU SIGN +AND RETURN THIS CARD. +For address changes and/or comments, please check [ ] +this box and write them on the back where indicated. +(Please date and sign below exactly as your name or names appear hereon. Joint +owners should each sign personally. Corporate proxies should be signed in full +corporate name by an authorized officer and attested. Persons signing in a +fiduciary capacity should indicate their full titles in such capacity.) +----------------------------------------- --------------------------------- +Signature (PLEASE SIGN WITHIN BOX) Date Signature (Joint Owners) Date +42 +------------------------------------------------------------------------------- +NIKE, INC. +CLASS B COMMON STOCK PROXY +SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +FOR THE 2001 MEETING OF SHAREHOLDERS +SEPTEMBER 17, 2001 +The undersigned hereby appoints Philip H. Knight, Delbert J. Hayes and Douglas +G. Houser, and each of them, proxies with full power of substitution, to vote, +as designated on the reverse side, on behalf of the undersigned all shares of +Class B Common Stock which the undersigned may be entitled to vote at the Annual +Meeting of Shareholders of NIKE, Inc. on September 17, 2001, and any +adjournments thereof, with all powers that the undersigned would possess if +personally present. A majority of the proxies or substitutes present at the +meeting may exercise all powers granted hereby. +ADDRESS CHANGE/COMMENTS: +------------------------------------------------------------------------------- +------------------------------------------------------------------------------- +------------------------------------------------------------------------------- +------------------------------------------------------------------------------- +------------------------------------------------------------------------------- +If you noted address changes or comments above, +please mark the corresponding box on the reverse side. \ No newline at end of file diff --git a/raw/proxies/0000320187/0001095811-01-503848/proxy_rpt.txt b/raw/proxies/0000320187/0001095811-01-503848/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000320187/0001193125-03-031034/proxy.txt b/raw/proxies/0000320187/0001193125-03-031034/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..8840a713524fb02d34f7aa238eafaf9379979c97 --- /dev/null +++ b/raw/proxies/0000320187/0001193125-03-031034/proxy.txt @@ -0,0 +1,1726 @@ +DEF 14A +1 +ddef14a.htm +DEFINITIVE PROXY STATEMENT +Definitive Proxy Statement +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of +1934 +(Amendment No. ) +Filed by the Registrant x +Filed by a Party other than the Registrant ¨ +Check the appropriate box: +¨ Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only +(as permitted by Rule 14a-6(e)(2)) +x Definitive Proxy Statement +¨ Definitive Additional Materials +¨ Soliciting Material Pursuant to § 240.14a-11(c) or § 240.14a-12 +NIKE, Inc. +(Name of Registrant as Specified in Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(I)(4) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was +determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the +previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +NIKE, Inc. +One Bowerman Drive +Beaverton, Oregon +97005-6453 +August 15, 2003 +To Our Shareholders: +You are cordially invited to attend the annual meeting of shareholders of NIKE, Inc. to be held at the Oregon Convention +Center, 777 N.E. Martin Luther King, Jr. Blvd., Portland, Oregon, on Monday, September 22, 2003, at 10:00 A.M. Pacific Time. Registration will begin at 9:00 A.M. +I believe that the annual meeting provides an excellent opportunity for shareholders to become better acquainted with NIKE +and its directors and officers. I hope that you will be able to attend. Highlights of the meeting will be available on videotape by calling 1-800-640-8007 following the meeting. +Whether or not you plan to attend, the prompt execution and return of your proxy card will both assure that your shares are +represented at the meeting and minimize the cost of proxy solicitation. +Sincerely, +Philip H. Knight +Chairman of the Board, +President, and Chief Executive Officer +Notice of Annual Meeting of Shareholders +September 22, 2003 +To the Shareholders of NIKE, Inc. +The annual meeting +of shareholders of NIKE, Inc., an Oregon corporation, will be held on Monday, September 22, 2003, at 10:00 A.M., at the Oregon Convention Center, 777 N.E. Martin Luther King, Jr. Blvd., Portland, Oregon, for the following purposes: +1. +To elect a Board of Directors for the ensuing year. +2. +To approve an amendment to the NIKE, Inc. 1990 Stock Incentive Plan. +3. +To ratify the appointment of PricewaterhouseCoopers LLP as independent accountants. +4. +To transact such other business as may properly come before the meeting. +All shareholders are invited to attend the meeting. Shareholders of record at the close of business on July 25, 2003, the record date fixed by the Board +of Directors, are entitled to notice of and to vote at the meeting. You must present an admission ticket enclosed in this Proxy Statement. +By Order of the Board of Directors +LINDSAY D. STEWART +Secretary +Beaverton, Oregon +August 15, 2003 +Whether or not you intend to be present at the meeting, please sign and date the enclosed proxy and return it in the enclosed envelope, or vote by telephone or over the internet following the instructions on the +proxy. +PROXY STATEMENT +The enclosed proxy is solicited by the Board of Directors of NIKE, Inc. (“NIKE” or the “Company”) for +use at the annual meeting of shareholders to be held on September 22, 2003, and at any adjournment thereof (the “Annual Meeting”). The Company expects to mail this proxy statement and the enclosed proxy to shareholders on or about August +15, 2003. +The Company will bear the cost of solicitation of +proxies. In addition to the solicitation of proxies by mail, certain officers and employees of the Company, without extra compensation, may also solicit proxies personally or by telephone. The Company has retained ADP Investor Communications +Services, 51 Mercedes Way, Edgewood, New York, to assist in the solicitation of proxies from nominees and brokers at an estimated fee of $5,000 plus related out-of-pocket expenses. Copies of proxy solicitation materials will be furnished to +fiduciaries, custodians and brokerage houses for forwarding to the beneficial owners of shares held in their names. +All valid proxies properly executed and received by the Company prior to the Annual Meeting will be voted in accordance with the instructions specified in +the proxy. Where no instructions are given, shares will be voted FOR the election of each of the named nominees for director, FOR approval of the amendment to the NIKE, Inc. 1990 Stock Incentive Plan, and FOR ratification of the appointment of +PricewaterhouseCoopers LLP as independent accountants. A shareholder may choose to strike the names of the proxy holders named in the enclosed proxy and insert other names. +A shareholder giving the enclosed proxy has the power to revoke it at any time before it is exercised by affirmatively +electing to vote in person at the meeting or by delivering to John F. Coburn III, Assistant Secretary of NIKE, either an instrument of revocation or an executed proxy bearing a later date. +VOTING SECURITIES +Holders of record of NIKE’s Class A Common Stock (“Class A +Stock”) and holders of record of NIKE’s Class B Common Stock (“Class B Stock”), at the close of business on July 25, 2003, will be entitled to vote at the Annual Meeting. On that date, 97,816,966 shares of Class A Stock and +165,916,126 shares of Class B Stock were issued and outstanding. Neither class of Common Stock has cumulative voting rights. +Each share of Class A Stock and each share of Class B Stock is entitled to one vote on every matter submitted to the shareholders at the Annual Meeting. +With regard to Proposal 1, the election of directors, the holders of Class A Stock and the holders of Class B Stock will vote separately. Holders of Class B Stock are currently entitled to elect 25 percent of the total Board, rounded up to the next +whole number. Holders of Class A Stock are currently entitled to elect the remaining directors. Under this formula, holders of Class B Stock, voting separately, will elect four directors, and holders of Class A Stock, voting separately, will elect +nine directors. Holders of Class A Stock and holders of Class B Stock will vote together as one class on Proposals 2 and 3. +PROPOSAL 1 +ELECTION OF DIRECTORS +A Board of 13 directors will be elected at the Annual Meeting. All of the nominees were elected at the 2002 annual meeting of shareholders, except for +Alan B. Graf, Jr., who was elected as a director by the Board of Directors in November 2002. Directors will hold office until the next annual meeting of shareholders or until their successors are elected and qualified. +Jill K. Conway, Alan B. Graf, Jr., John E. Jaqua, and A. Michael Spence are +nominated by management for election by the holders of Class B Stock. The other nine nominees are nominated by management for election by the holders of Class A Stock. +Under Oregon law, if a quorum of each class of shareholders is present at the Annual Meeting, the nine director nominees who +receive the greatest number of votes cast by holders of Class A Stock and the four director nominees who receive the greatest number of votes cast by holders of Class B Stock will be elected directors. Abstentions and broker non-votes will have no +effect on the results of the vote. Unless otherwise instructed, proxy holders will vote the proxies they receive for the nominees listed below. If any nominee becomes unable to serve, the holders of the proxies may, in their discretion, vote the +shares for a substitute nominee or nominees designated by the Board of Directors. +Background information on the nominees as of July 15, 2003, appears below: +Nominees for Election by Class A Shareholders +Thomas E. Clarke — Dr. Clarke, 52, a director since 1994, joined the Company in 1980, and serves as President of New Business Ventures of the Company. He was appointed divisional vice president +in charge of marketing in 1987, corporate Vice President in 1989, General Manager in 1990, and served as President and Chief Operating Officer from 1994 to 1999. Dr. Clarke previously held various positions with the Company, primarily in research, +design, development and marketing. Dr. Clarke holds a Doctorate degree in biomechanics. +Ralph D. DeNunzio — Mr. DeNunzio, 71, a director of the Company since 1988, is President of Harbor Point Associates, Inc., New York, New York, a private investment and consulting firm. Mr. +DeNunzio was employed by the investment banking firm of Kidder, Peabody & Co. Incorporated from 1953 to 1987, where he served as President from 1977 to 1986, as Chief Executive Officer from 1980 to 1987 and as Chairman of the Board of Directors +from 1986 to 1987. Mr. DeNunzio served as Vice Chairman and Chairman of the Board of Governors of the New York Stock Exchange from 1969 to 1972 and was President of the Securities Industry Association in 1981. In 1970, Mr. DeNunzio headed the +Securities Industry Task Force, which led to enactment of the Securities Investor Protection Act of 1970 +2 +and establishment of the Securities Investor Protection Corporation. He is also a director of FDX Corporation and Harris Corporation. +Richard K. Donahue — Mr. Donahue, 76, a director since +1977, is Vice Chairman of the Board. He served as President and Chief Operating Officer of the Company from 1990 until 1994. He has been a partner in the law firm of Donahue & Donahue, Lowell, Massachusetts, since 1951. From 1961 to 1963, Mr. +Donahue was an assistant to President John F. Kennedy. Mr. Donahue is a former President of the Massachusetts Bar Association and the New England Bar Association. He is a member of the John F. Kennedy Library Foundation. Mr. Donahue is a trustee of +the Joyce Foundation and is a director of Courier Corp. +Delbert J. Hayes — Mr. Hayes, 68, a director since 1975, served as Executive Vice President of NIKE from 1980 to 1995. Mr. Hayes served as Treasurer and in a number of other executive positions with the Company from +1975 to 1980. Mr. Hayes was a partner with Hayes, Nyman & Co., certified public accountants, from 1970 to 1975. Prior to 1970, Mr. Hayes was a certified public accountant with Price Waterhouse for eight years. +Douglas G. Houser — Mr. Houser, 68, a director since +1970, is an Assistant Secretary of the Company and has been a partner in the Portland, Oregon law firm of Bullivant, Houser, Bailey since 1965. Mr. Houser is a trustee of Willamette University and a Fellow in the American College of Trial Lawyers, +and has served as a member of the Board of Governors and Treasurer of the Oregon State Bar Association and as a Director of the Rand Corporation, Institute for Civil Justice Board of Overseers. +Jeanne P. Jackson — Ms. Jackson, 51, a director since +November 2001, is Founder and CEO of MSP Capital, a private investment company. Ms. Jackson was CEO of Walmart.com from March 2000 to January 2002. She was with Gap, Inc., as President and CEO of Banana Republic from 1995-2000, also serving as CEO +of Gap, Inc. Direct from 1998-2000. Since 1978, she has held various retail management positions with Victoria’s Secret, The Walt Disney Company, Saks Fifth Avenue, and Federated Department Stores. Ms. Jackson is a Trustee of the United States +Ski and Snowboard Team, and serves on the Board of Advisors of the Harvard Graduate School of Business. She is also a director of McDonald’s, Nordstrom, and Williams-Sonoma. +Philip H. Knight — Mr. Knight, 65, a director since 1968, is President, Chief Executive Officer and +Chairman of the Board of Directors of NIKE. Mr. Knight is a co-founder of the Company and, except for the period from June 1983 through September 1984, served as its President from 1968 to 1990, and from June 2000 to present. Prior to 1968, Mr. +Knight was a certified public accountant with Price Waterhouse and Coopers & Lybrand and was an Assistant Professor of Business Administration at Portland State University. +3 +Charles W. Robinson — Mr. Robinson, 83, a director since 1978, is Chairman and +President of Robinson & Associates, Inc., Santa Fe, New Mexico, a venture capital firm, and M Ship Co. and CBTF Co., San Diego, California, both boat and ship design companies. From January 1978 to January 1979, Mr. Robinson was Vice Chairman of +the Board of Blyth, Eastman, Dillon & Co., Inc. and from March 1977 to December 1977, was Senior Managing Director of Kuhn Loeb & Co., Incorporated. Mr. Robinson served as Under-secretary of State for Economic Affairs from 1974 to 1976, at +which time he was appointed Deputy Secretary of State. From 1964 to 1974, Mr. Robinson was President of Marcona Corporation. Mr. Robinson is also a trustee of The Brookings Institution and member of the President’s Circle of the National +Academy of Sciences. +John R. Thompson, +Jr. — Mr. Thompson, 62, a director since 1991, was head coach of the Georgetown University men’s basketball team from 1972 until 1998. Mr. Thompson serves as Assistant to the President of Georgetown for Urban Affairs. Mr. +Thompson was head coach of the 1988 United States Olympic basketball team. He is a past President of the National Association of Basketball Coaches and presently serves on its Board of Governors. +Nominees for Election by Class B Shareholders +Jill K. Conway — Dr. Conway, 68, a director since 1987, +is currently a Visiting Scholar with the Massachusetts Institute of Technology’s Program in Science, Technology and Society. Dr. Conway was a Professor of History and President of Smith College, Northampton, Massachusetts, from 1975 to 1985. +She was affiliated with the University of Toronto from 1964 to 1975, and held the position of Vice President, Internal Affairs from 1973 to 1975. Dr. Conway holds numerous Honorary Doctorates from North American universities. She is also a director +of Merrill Lynch & Co., Inc. and Colgate-Palmolive Company. +Alan B. Graf, Jr. — Mr. Graf, 49, a director since November 2002, is the Executive Vice President and Chief Financial Officer of FedEx Corporation, a position he has held since 1998, and is a member of FedEx +Corporation’s Executive Committee. Mr. Graf joined FedEx Corporation in 1980 and was Senior Vice President and Chief Financial Officer for FedEx Express, FedEx’s predecessor, from 1991 to 1998. Mr. Graf also serves as the Chairman of the +Board of FedEx Custom Critical. He is also a director of Kimball International, Inc. and Mid-America Apartment Communities, Inc. +John E. Jaqua — Mr. Jaqua, 82, a director since 1968, served as Secretary of NIKE from 1969 to 2002, and has been a principal in the +law firm of Jaqua & Wheatley, P.C., Eugene, Oregon, since 1962. Mr. Jaqua has served as President of the Oregon State Bar Association and as a State Delegate to the House of Delegates of the American Bar Association. +4 +A. Michael Spence — Dr. Spence, 59, a director since 1995, is a partner of Oak Hill +Venture Partners. He was the Philip H. Knight Professor and Dean of the Graduate School of Business at Stanford University from 1990 to 1999. From 1984 to 1990 he was Dean of the Faculty of Arts and Sciences at Harvard University. He was professor +of economics and business administration at Harvard University from 1977 to 1986. He is the author of three books and numerous articles on economics and business. He is a Fellow of the Econometric Society and was for six years Chairman of the +National Research Council Board on Science, Technology and Economic Policy. Dr. Spence received the Nobel Prize in Economics in 2001. Dr. Spence is also a director of Exult, Inc., General Mills, Inc., Siebel Systems, Inc., and Torstar Corporation. +Board of Directors and Committees +The Board currently has an Executive Committee, an Audit Committee, a +Nominating and Corporate Governance Committee, a Finance Committee, a Corporate Responsibility Committee, and a Compensation Committee, and may also appoint other committees from time to time. Each committee has a written charter; all such charters, +as well as the Company’s corporate governance guidelines, are available at the Company’s internet website ( www.nikebiz.com ) and will be provided in print to any shareholder who submits a request in writing to NIKE Investor +Relations, One Bowerman Drive, Beaverton, Oregon 97005-6453. There were five meetings of the Board of Directors during the last fiscal year. Each director attended at least 75 percent of the total number of meetings of the Board of Directors and +committees on which he or she served, except for Mr. Thompson who attended 45 percent. +Pursuant to proposed rules of the New York Stock Exchange, in order for a director to qualify as “independent,” the Board of Directors must affirmatively determine that the director has no material +relationship with the Company that would impair the director’s independence. The proposed rules permit the Board to adopt categorical standards under which relationships will be deemed immaterial without any specific Board determination. +Accordingly, the Board has determined that commercial or charitable relationships below the following thresholds will not be considered material relationships that impair a director’s independence: (i) if a NIKE director or immediate family +member is an executive officer of another company that does business with NIKE and the annual sales to, or purchases from, NIKE are less than one percent of the annual revenues of the other company; and (ii) if a NIKE director or immediate family +member serves as an officer, director or trustee of a charitable organization, and NIKE’s contributions to the organization are less than one percent of that organization’s total annual charitable receipts. In fiscal 2003 and prior years, +the Company paid compensation to Mr. DeNunzio, Ms. Jackson, and Mr. Thompson, or firms they own or control, for consulting services related to their areas of expertise (see the paragraph captioned “Certain Transactions and Business +Relationships” below). In response to the increased interest of regulators and investors in corporate governance matters, all those consulting relationships were terminated on or before January 1, 2003. Thus, based on the termination of those +consulting relationships and the application of the categorical immateriality standard set forth above, the +5 +Board of Directors has determined that all directors, except Mr. Knight and Dr. Clarke who are executive officers of the Company, have no material +relationship with the Company and, therefore, are independent. +Executive sessions of non-management directors (consisting of all directors other than Mr. Knight and Dr. Clarke) are regularly scheduled and held at least once each year. The position of presiding director at these executive sessions is +rotated among the Chairs of the various Board committees, other than the Executive Committee, so there is no single lead director. Shareholders desiring to communicate directly and confidentially with the non-management directors may do so in +writing sent to Non-Management Directors, c/o Lindsay D. Stewart, Secretary, NIKE, Inc., One Bowerman Drive, Beaverton, Oregon 97005-6453. +The Executive Committee of the Board is currently composed of Messrs. Knight (Chairman), Clarke, and Houser. The Executive Committee is authorized to act +on behalf of the Board on all corporate actions for which applicable law does not require participation by the full Board. In practice, the Executive Committee acts in place of the full Board only when emergency issues or scheduling make it +difficult or impracticable to assemble the full Board. All actions taken by the Executive Committee must be reported at the next Board meeting. The Executive Committee held no formal meetings during the fiscal year ended May 31, 2003, but took +actions from time to time pursuant to written consent resolutions. +The Audit Committee is currently composed of Mr. Graf (Chairman), Mr. Robinson, and Dr. Spence. The Board has determined that each member of the Audit Committee meets all applicable independence and financial literacy requirements under +both current and proposed New York Stock Exchange listing standards. The Board has also determined that Mr. Graf is an “audit committee financial expert” as defined in regulations adopted by the Securities and Exchange Commission. The +Audit Committee is responsible for the engagement or discharge of the independent accountants, reviews and approves services provided by the independent accountants, and reviews with the independent accountants the scope and results of their annual +examination of the Company’s consolidated financial statements and any recommendations they may have. The Audit Committee also reviews the Company’s procedures with respect to maintaining books and records, the adequacy and implementation +of internal auditing, accounting, disclosure, and financial controls, and the Company’s policies concerning financial reporting and business practices. In 2003, the Audit Committee adopted a new written charter, a copy of which is attached to +this Proxy Statement as Exhibit B. The Audit Committee met 11 times during the fiscal year ended May 31, 2003. +The Nominating and Corporate Governance Committee is currently composed of Mr. DeNunzio (Chairman), Ms. Conway, Mr. Donahue, and Mr. Houser. The +Nominating and Corporate Governance Committee identifies individuals qualified to become Board members, recommends director nominees for election at each annual shareholder meeting, and develops and recommends corporate governance guidelines and +standards for business conduct and ethics. The committee also oversees the annual self-evaluations of the Board and its committees and makes recommendations to the Board concerning the +6 +structure and membership of the other Board committees. The committee will consider shareholder recommendations for candidates for the Board sent to the +Nominating and Corporate Governance Committee, c/o Lindsay D. Stewart, Secretary, NIKE, Inc., One Bowerman Drive, Beaverton, Oregon 97005-6453. The Nominating and Corporate Governance Committee met three times during the fiscal year ended May 31, +2003. +The Finance Committee is currently composed of Messrs. +Robinson (Chairman), DeNunzio, and Hayes. The Finance Committee considers long-term financing options and needs of the Company, long-range tax and currency issues facing the Company, and management recommendations concerning major capital +expenditures and material acquisitions or divestments. The Finance Committee met five times during the fiscal year ended May 31, 2003. +The Corporate Responsibility Committee is currently composed of Dr. Conway (Chair), and Messrs. Donahue, Houser, and Thompson. The Corporate +Responsibility Committee reviews significant activities and policies regarding labor and environmental practices, community affairs, charitable and foundation activities, diversity and equal opportunity, and environmental and sustainability +initiatives, and makes recommendations to the Board of Directors. The Corporate Responsibility Committee met four times during the fiscal year ended May 31, 2003. +The Compensation Committee is currently composed of Mr. DeNunzio (Chairman), Ms. Jackson, Mr. Jaqua, Dr. Spence and Mr. +Thompson. The Compensation Committee makes recommendations to the Board regarding officers’ compensation, management incentive compensation arrangements and profit sharing plan contributions. The Compensation Committee also grants stock options +and restricted stock bonuses under the NIKE, Inc. 1990 Stock Incentive Plan, and determines targets and awards under the NIKE, Inc. Executive Performance Sharing Plan and the NIKE, Inc. Long-Term Incentive Plan. The Compensation Committee met four +times during the fiscal year ended May 31, 2003. +The +Compensation Plan Subcommittee of the Compensation Committee is currently composed of Dr. Spence and Mr. Jaqua. The Subcommittee grants stock options and restricted stock bonuses under the NIKE, Inc. 1990 Stock Incentive Plan, and determines targets +and awards under the NIKE, Inc. Executive Performance Sharing Plan and the NIKE, Inc. Long-Term Incentive Plan. +Code of Business Conduct and Ethics +The NIKE Code of Ethics (“Code”) is available at the Company’s internet website ( www.nikebiz.com ) and will be provided in print +without charge to any shareholder who submits a request in writing to NIKE Investor Relations, One Bowerman Drive, Beaverton, Oregon 97005-6453. The Code applies to the Company’s chief executive officer and senior financial officers, and to all +other Company directors, officers and employees. The Code provides that any waiver of the Code may be made only by the Board. +7 +Any such waiver in favor of a director or executive officer will be publicly disclosed. The Company plans to disclose amendments to, and waivers from, the +Code on the Company’s internet website: www.nikebiz.com . +Director Compensation and Retirement Plan +Messrs. Knight and Clarke do not receive additional compensation for their services as directors. Directors are reimbursed for travel and other expenses incurred in attending Board meetings. Pursuant to elections made in fiscal 2000, +Messrs. Donahue, Hayes, Jaqua, Robinson, and Thompson, and Dr. Conway receive an annual fee of $22,000 per year, plus $2,000 for each Board meeting attended, $1,000 for each committee meeting attended, an annual grant of an option to purchase 4,000 +shares of stock at the market price at grant, medical insurance, and $500,000 of life insurance coverage. Messrs. DeNunzio, Graf, Houser, Spence, and Ms. Jackson, and all directors first elected after fiscal 2000, receive a fee of $40,000 per year, +plus $2,000 for each Board meeting attended, $1,000 for each committee meeting attended, an annual grant of an option to purchase 4,000 shares of stock at the market price at grant. However, they receive no medical or life insurance benefits. In +exchange for electing the new compensation method in fiscal 2000, Messrs. DeNunzio, Houser and Spence also receive an annual grant of an option to purchase 1,000 shares of stock at the market price on the date of grant. +From 1989 to 1999, the Company provided certain retirement benefits to +non-employee directors who retire after serving for five years or more. The plan provided that after ten years of service by a director, the Company would provide such director for the remainder of his or her life with $500,000 of life insurance and +medical insurance at the levels provided by the Company to all of its employees at the time the director retires. The plan also provided that a director who had served for at least five years would receive an annual retirement cash payment for life, +commencing on the later of age 65 or the date the director retires or ceases to be a member of the Board. The annual retirement cash payment ranges from $9,000 for five years of service up to a maximum of $18,000 for 10 or more years of service. +In fiscal 2000, in an effort to reduce future retirement +obligations, the Board of Directors approved a new retirement plan that allowed directors to make a one-time election to waive their future rights to annual retirement cash payments in exchange for a credit to a stock account under the +Company’s Deferred Compensation Plan equal to the lump sum present value of the payments based on the actuarial life expectancy of each director. The number of shares of Class B Common Stock credited to each stock account was based on the +market price of the stock on September 1, 1999. All directors at that time, except for Messrs. Donahue and Robinson, elected the new plan. The number of shares of Class B Common Stock credited to the stock accounts of each director was: Dr. Conway, +4,165; Mr. DeNunzio, 3,852; Mr. Hayes, 4,217; Mr. Houser, 4,243; Mr. Jaqua, 2,610; Dr. Spence, 1,220; and Mr. Thompson, 3,271. Any non-employee directors first elected after fiscal 2000 do not receive retirement benefits. +Directors first elected after the 1993 fiscal year must retire at age 72. +8 +Stock Holdings of Certain Owners and Management +The following table sets forth the number of shares of each class of NIKE securities beneficially owned, as of July 15, +2003, by (i) each person known to the Company to be the beneficial owner of more than 5 percent of any class of the Company’s securities, (ii) each of the nominees for director, (iii) each executive officer listed in the Summary Compensation +Table (“Named Officers”), and (iv) all nominees, Named Officers, and other executive officers as a group. Because Class A Stock is convertible into Class B Stock on a share-for-share basis, each beneficial owner of Class A Stock is deemed +by the Securities and Exchange Commission to be a beneficial owner of the same number of shares of Class B Stock. Therefore, in indicating a person’s beneficial ownership of shares of Class B Stock in the table, it has been assumed that such +person has converted into Class B Stock all shares of Class A Stock of which such person is a beneficial owner. For these reasons the table contains substantial duplications in the numbers of shares and percentages of Class A and Class B Stock shown +for Messrs. Hayes, Jaqua and Knight; for Cardinal Fund I, L.P.; and for all directors and officers as a group. +Title of +Class +Shares +Beneficially +Owned (1) +Percent of +Class (2) +Thomas E. Clarke +Portland, Oregon +Class B +283,927 +(4) (5) (6) +0.2% +Jill K. Conway +Boston, Massachusetts +Class B +46,260 +(7) +Ralph D. DeNunzio +Riverside, Connecticut +Class B +110,416 +(4) (7) +Richard K. Donahue +Lowell, Massachusetts +Class B +115,202 +Alan B. Graf, Jr. +Memphis, Tennessee +Class B +4,000 +Delbert J. Hayes +Newberg, Oregon +Class A +Class B +590,000 +632,296 +(7) +0.6% +0.4% +Douglas G. Houser +Portland, Oregon +Class B +94,973 +(4) (7) +Jeanne Jackson +Newport Coast, California +Class B +5,000 +John E. Jaqua +Eugene, Oregon +Class A +Class B +569,214 +571,935 +(7) +0.6% +0.3% +Philip H. Knight (3) +Beaverton, Oregon +Class A +Class B +78,655,047 +78,664,568 +(8) +(6) (8) +80.4% +32.2% +9 +Title of +Class +Shares +Beneficially +Owned (1) +Percent of +Class (2) +Charles W. Robinson +Santa Fe, New Mexico +Class B +300,000 +0.2% +A. Michael Spence +Palo Alto, CA +Class B +24,272 +(4) (7) +John R. Thompson, Jr +Washington, D.C. +Class B +34,911 +(4) (7) +Charles Denson (3) +Portland, Oregon +Class B +178,733 +(4) (5) (6) +0.1% +Mindy Grossman (3) +Beaverton, Oregon +Class B +93,013 +(4) (6) +Mark G. Parker (3) +Beaverton, Oregon +Class B +388,346 +(4) (5) (6) +0.2% +Gary M. DeStefano (3) +Beaverton, Oregon +Class B +122,358 +(4) (5) (6) +Nissho Iwai American Corporation +Portland, Oregon +Preferred (9) +300,000 +100.0% +Cardinal Fund I, L.P +Fort Worth, Texas +Class A +Class B +14,718,131 +14,718,131 +(10) +15.0% +8.1% +Capital Research and Management Company +Los Angeles, California +Class B +8,389,600 +(11) +5.0% +Janus Capital Management LLC +Denver, Colorado +Class B +9,626,350 +(11) +5.8% +Wellington Management Company LLP +Boston, Massachusetts +Class B +13,211,432 +(11) +8.1% +All directors and executive officers as a +group (26 persons) +Class A +Class B +79,814,261 +82,432,005 +(4) +81.6% +33.5% +(1) +A person is considered to beneficially own any shares: (a) over which the person exercises sole or shared voting or investment power, or (b) of which the person has the right to +acquire beneficial ownership at any time within 60 days (such as through conversion of securities or exercise of stock options). Unless otherwise indicated, voting and investment power relating to the above shares is exercised solely by the +beneficial owner or shared by the owner and the owner’s spouse or children. +10 +(2) +Omitted if less than 0.1 percent. +(3) +Executive officer listed in the Summary Compensation Table. +(4) +These amounts include the right to acquire, pursuant to the exercise of stock options, within 60 days after July 15, 2003, the following numbers of shares: 273,750 shares for Dr. +Clarke, 3,000 shares for Mr. DeNunzio, 3,000 shares for Mr. Houser, 23,000 shares for Dr. Spence, 27,500 shares for Mr. Thompson, 154,500 shares for Mr. Denson, 91,667 shares for Ms. Grossman, 346,875 shares for Mr. Parker, 98,500 shares for Mr. +DeStefano and 1,702,292 shares for the executive officer and director group. +(5) +Includes shares held in accounts under the NIKE, Inc. Retirement Savings Plan for Dr. Clarke, Mr. Denson, Mr. Parker, and Mr. DeStefano in the amounts of 2,599, 4,279, 2,957, and +2,981 shares, respectively. +(6) +These amounts include (a) 5,719, 5,719, 1,430, 2,859, and 2,859 restricted shares granted to Mr. Knight, Dr. Clarke, Mr. Denson, Mr. Parker, and Mr. DeStefano respectively, under +the NIKE, Inc. Long-Term Incentive Plan, as to which the restrictions expire August 15, 2003; and (b) 1,859, 1,859, 929, 929, 929, and 929 shares granted to Mr. Knight, Dr. Clarke, Mr. Denson, Ms. Grossman, Mr. Parker, and Mr. DeStefano +respectively, under the NIKE, Inc. Long-Term Incentive Plan, as to which the restrictions expire August 15, 2004. +(7) +Includes shares credited to accounts under the NIKE, Inc. Deferred Compensation Plan in the following amounts: 4,342 for Dr. Conway; 4,016 for Mr. DeNunzio; 4,396 for Mr. Hayes; +4,423 for Mr. Houser; 2,721 for Mr. Jaqua; 1,272 for Dr. Spence; and 3,411 for Mr. Thompson. +(8) +Does not include: (a) 814,790 shares held by a limited partnership in which a corporation owned by Mr. Knight’s spouse is a co-general partner, (b) 65,224 shares owned by such +corporation, (c) 1,000,000 Class B shares held by the Knight Foundation, a charitable foundation in which Mr. Knight and his spouse are directors, (d) 1,950,000 shares held by Oak Hill Strategic Partners, L.P., a limited partnership in which a +company owned by Mr. Knight is a limited partner, and (e) 12,768,131 shares held by Cardinal Fund I, L.P., a limited partnership in which Mr. Knight is a limited partner. Mr. Knight has disclaimed ownership of all such shares. +(9) +Preferred Stock does not have general voting rights except as provided by law, and under certain circumstances as provided in the Company’s Restated Articles of Incorporation, +as amended. +(10) +Includes 1,950,000 shares of Class A Common Stock held by Oak Hill Strategic Partners, L.P., which is under common control with Cardinal Fund I, L.P. +(11) +Information provided as of December 31, 2002 in Schedule 13G filed by the shareholder. +11 +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934 requires the +Company’s directors and executive officers, and persons who own more than 10 percent of a registered class of the Company’s equity securities, to file with the Securities and Exchange Commission (the “SEC”) and the New York Stock +Exchange initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Officers, directors and greater than 10 percent shareholders are required by the regulations of the SEC to furnish +the Company with copies of all Section 16(a) forms they file. To the Company’s knowledge, based solely on review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the +fiscal year ended May 31, 2003 all Section 16(a) filing requirements applicable to its officers, directors and greater than 10 percent beneficial owners were complied with, except that one report, covering one transaction was filed one day late by +Mr. Hayes. +12 +EXECUTIVE COMPENSATION +The following table discloses compensation awarded to, earned by, or paid to the Company’s Chief Executive Officer and +its next four most highly compensated executive officers for all services rendered by them in all capacities to the Company and its subsidiaries during the fiscal year ended May 31, 2003 and the two preceding fiscal years. +Summary Compensation Table +Restricted +Stock +Awards ($) +Annual Compensation +Long-term +Compensation +Name and +Principal Position +Year +Salary ($) +Bonus ($) +Other Annual +Compensation ($) +Stock +Options +(#) +LTIP +Payouts ($) +All Other +Compensation +($) (1) +Philip H. Knight +Chairman, Chief +Executive +Officer and +President +2003 +2002 +2001 +1,350,000 +1,350,321 +1,300,000 +1,121,840 +1,377,327 +663,000 +— +— +— +— +— +— +— +— +— +320,000 +— +92,000 +87,195 +572,856 +586,427 +Mark G. Parker +President +NIKE Brand +2003 +2002 +2001 +942,308 +897,436 +772,756 +817,154 +595,000 +255,531 +(3) +— +— +— +— +— +— +70,000 +60,000 +— +160,000 +— +46,000 +59,079 +50,284 +55,686 +(2) +Charles Denson +President +NIKE Brand +2003 +2002 +2001 +834,615 +713,141 +458,333 +740,907 +472,812 +146,413 +(3) +— +108,502 +243,287 +— +— +— +70,000 +60,000 +— +160,000 +— +46,000 +46,933 +35,702 +27,837 +Mindy Grossman +Vice President +Apparel +2003 +2002 +2001 +734,615 +645,833 +404,615 +485,434 +395,250 +183,600 +— +— +— +— +— +999,985 +(5) +40,000 +30,000 +100,000 +160,000 +— +46,000 +96,719 +199,137 +302,646 +(4) +Gary M. DeStefano +President of USA +Operations +2003 +2002 +2001 +684,615 +603,846 +501,042 +420,080 +369,554 +153,319 +— +— +— +— +— +— +44,000 +40,000 +— +160,000 +— +46,000 +41,704 +34,271 +32,924 +(1) +Includes contributions by the Company to the NIKE, Inc. Retirement Savings Plan for the fiscal year ended May 31, 2003 in the amount of $6,394 each for Mr. Knight and Ms. Grossman, +$14,447, $11,528 and $14,394 for Mr. Parker, Mr. Denson and Mr. DeStefano, respectively. Also includes contributions by the Company to the Deferred Compensation Plan for Mr. Knight, Mr. Parker, Mr. Denson, Ms. Grossman and Mr. DeStefano of +$80,801, $42,755, $35,405, $29,728, and $27,308, respectively. +(2) +Includes above-market interest on deferred compensation for Mr. Parker in the amount of $1,877 for the 2003 fiscal year. +(3) +Includes $150,000 bonus outside the Executive Performance Sharing Plan. +(4) +Includes additional compensation to Ms. Grossman for transportation expenses, including gross up for taxes on such compensation, in the amount of $60,597 for fiscal 2003. +(5) +Represents the value of shares and restricted shares granted to Ms. Grossman based on the closing market price of the Class B Stock on the grant date. A stock grant was made to Ms. +Grossman in fiscal 2001 for 25,078 shares, of which 16,727 were restricted. The restrictions lapsed with respect to one-half of the shares on each of the first two anniversaries of the grant date. Dividends on restricted shares were paid currently +to the holder. On May 31, 2003, no shares remained subject to restrictions. +13 +Option Grants in the Fiscal Year Ended May 31, 2003 +Name +Options Granted +(#) (1) +% of Total +Options Granted +to Employees +in Fiscal Year +Exercise or +Base Price +($/share) (2) +Expiration +Date +Potential Realizable Value +at Assumed Annual Rates of +Stock Price Appreciation for +Option Term (3) +5% ($) +10% ($) +Philip H. Knight +— +— +— +— +— +— +Mark G. Parker +70,000 +1.3 +$ +48.98 +7/21/12 +$ +2,156,000 +$ +5,464,305 +Charles Denson +70,000 +1.3 +$ +48.98 +7/21/12 +$ +2,156,000 +$ +5,464,305 +Mindy Grossman +40,000 +0.7 +$ +48.98 +7/21/12 +$ +1,232,000 +$ +3,122,400 +Gary DeStefano +44,000 +0.8 +$ +48.98 +7/21/12 +$ +1,355,200 +$ +3,434,640 +(1) +The options shown in the table with the expiration date of July 21, 2012 become exercisable with respect to 25% of the total number of shares on each of July 22, 2003, 2004, 2005, +and 2006. All options for all individuals will become fully exercisable generally upon the approval by the Company’s shareholders of a merger, plan of exchange, sale of substantially all of the Company’s assets or plan of liquidation. +(2) +The exercise price is the market price of Class B Stock on the date the options were granted. +(3) +Assumed annual appreciation rates are set by the SEC and are not a forecast of future appreciation. The actual realized value depends on the market value of the Class B Stock on the +exercise date, and no gain to the optionees is possible without an increase in the price of the Class B Stock. All assumed values are before taxes and do not include dividends. +Aggregated Option Exercises in the Fiscal Year Ended May 31, 2003 and +Fiscal Year-End Option Values +Shares +Acquired on +Exercise (#) +Value +Realized ($) +Number of Unexercised +Options at +Fiscal Year-End (#) +Value of Unexercised +In-the-Money Options +at Fiscal Year-End ($) (1) +Name +Exercisable +Unexercisable +Exercisable +Unexercisable +Philip H. Knight +0 +0 +0 +0 +0 +0 +Mark G. Parker +85,252 +$ +2,821,836 +301,250 +141,250 +$ +4,347,680 +$ +1,498,358 +Charles Denson +0 +0 +117,000 +125,000 +$ +2,114,693 +$ +1,254,263 +Mindy Grossman +0 +0 +74,167 +95,833 +$ +1,176,564 +$ +1,124,236 +Gary DeStefano +0 +0 +70,000 +89,000 +$ +501,006 +$ +942,659 +(1) +Based on a fair market value as of May 31, 2003 of $55.99 per share. Values are stated on a pre-tax basis. +14 +Long-Term Incentive Plans Awards in Fiscal Year Ended May 31, 2003 +Name +Performance +or Other Period +Until Maturation +or Payout (1) +Threshold ($) +Target ($) +Maximum ($) +Philip H. Knight +Fiscal Years 2003 to 2005 +40,000 +400,000 +600,000 +Mark G. Parker +Fiscal Years 2003 to 2005 +20,000 +200,000 +300,000 +Charles Denson +Fiscal Years 2003 to 2005 +20,000 +200,000 +300,000 +Mindy Grossman +Fiscal Years 2003 to 2005 +20,000 +200,000 +300,000 +Gary DeStefano +Fiscal Years 2003 to 2005 +20,000 +200,000 +300,000 +(1) +In June 2002, the Compensation Committee established a series of performance targets based on fiscal 2003 through 2005 revenues and earnings per share corresponding to award payouts +ranging from 10% to 150% of the target awards. Participants will receive a payout at the average of the percentage levels corresponding to the results for the two targets, subject to the Committee’s discretion to reduce or eliminate any award +based on Company or individual performance. Under the terms of the awards, on August 15, 2005 the Company would issue in the name of each participant a number of shares of Class B Stock with a value equal to the award payout based on the closing +price of the Class B Stock on that date on the New York Stock Exchange, or pay all or part of that value in cash, at the election of the participant. The shares or cash will be 100% vested at that time. The Company’s performance in fiscal years +2001 to 2003 corresponded to an LTIP payout of 80% of the target awards for the performance period that ended on May 31, 2003. +15 +Equity Compensation Plans +The following table summarizes equity compensation plans approved by shareholders and equity compensation plans that were +not approved by the shareholders as of May 31, 2003: +Plan category +(a) +Number of Securities to +be Issued Upon +Exercise of Outstanding +Options, Warrants and +Rights +(b) +Weighted-Average +Exercise Price of +Outstanding Options, +Warrants and Rights +(c) +Number of Securities +Remaining Available for +Future Issuance Under +Equity Compensation +Plans (Excluding +Securities Reflected in +Column (a)) +Equity compensation plans approved by shareholders (1) +19,388,770 +$ +44.82 +9,657,733 +Equity compensation plans not approved by shareholders (2) +320,000 +42.63 +1,000,000 +Total +19,708,770 +$ +44.14 +10,657,733 +(1) +Includes 19,388,770 outstanding subject to the 1990 Stock Incentive Plan. Includes 6,080,406 available for future issuance under the 1990 Stock Incentive Plan, 903,909 available for +future issuance under the Long-Term Incentive Plan, and 2,673,418 available for future issuance under the Employee Stock Purchase Plan. +(2) +The Company has granted to a few consultants and directors nonqualified options to purchase NIKE Class B Stock. The options have terms ranging from 8 to 10 years, expiring at +various times from 2003 to 2009, with exercise prices ranging from $12.03 to $55.81. All of the options are exercisable. In 2003 the Company adopted the Foreign Subsidiary Employee Stock Purchase Plan for foreign employees. Includes 1,000,000 shares +available for future issuance under the Foreign Subsidiary Employee Stock Purchase Plan. +16 +Notwithstanding anything to the contrary set forth in any of the Company’s filings under the +Securities Act of 1933 or the Securities Exchange Act of 1934, the following Performance Graph and the Report of the Compensation Committee below shall not be incorporated by reference into any such filings and shall not otherwise be deemed filed +under such acts. +Performance Graph +The following graph demonstrates a five-year comparison of cumulative total +returns for NIKE’s Class B Stock, the Standard & Poor’s 500 Stock Index, and the Standard & Poor’s Footwear and Apparel, Accessories & Luxury Goods Indices. The graph assumes an investment of $100 on May 31, 1998 in each +of the Company’s Common Stock, and the stocks comprising the Standard & Poor’s 500 Stock Index and the Standard & Poor’s Footwear and Apparel and Accessories Indices. Each of the indices assumes that all dividends were +reinvested. +COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN +AMONG NIKE, INC., S&P 500 INDEX, +S&P FOOTWEAR INDEX AND S&P APPAREL, ACCESSORIES & LUXURY GOODS INDEX +The Standard & Poor’s +Footwear Index consists of NIKE and Reebok International. The Standard & Poor’s Apparel, Accessories & Luxury Goods Index consists of Liz Claiborne, Inc., VF Corp., and Jones Apparel. The Standard & Poor’s Footwear and Apparel, +Accessories, and Luxury Goods Indices include companies in two major lines of business in which the Company competes. The indices do not encompass all of the Company’s competitors, nor all product categories and lines of business in which the +Company is engaged. Because NIKE is part of the S&P Footwear Index, the price and returns of NIKE stock affect this index. +The Stock Performance shown on the Graph above is not necessarily indicative of future performance. The Company will not make nor endorse any +predictions as to future stock performance. +17 +REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD +OF DIRECTORS ON EXECUTIVE COMPENSATION +The Compensation Committee of the Board of Directors (the “Committee”), subject to the approval of the Board of Directors, determines the +compensation of the Company’s five most highly compensated executive officers, including the Chief Executive Officer, and oversees the administration of executive compensation programs, except that stock option grants, and targets and awards +under the Executive Performance Sharing Plan and the Long-Term Incentive Plan are made by the Compensation Plan Subcommittee (the “Subcommittee”), which is composed of outside directors. +Executive Compensation Policies and +Programs. The Company’s executive compensation programs are designed to attract and retain highly qualified executives and to motivate them to maximize shareholder returns by achieving both short- and long-term +strategic Company goals. The programs link each executive’s compensation directly to individual and Company performance. A significant portion of each executive’s total compensation is variable and dependent upon the attainment of +strategic and financial goals, individual performance objectives, and the appreciation in value of the Common Stock. +There are three basic components to the Company’s “pay for performance” system: base pay; annual incentive bonus; and long-term incentive +compensation. Each component is addressed in the context of individual and Company performance, competitive conditions and equity among employees. In determining competitive compensation levels, the Company analyzes information from several +independent surveys that include information regarding the general industry as well as other consumer product companies. Since the Company’s market for executive talent extends beyond the sports industry, the survey data includes global +name-brand consumer product companies with sales in excess of $2 billion. A comparison of the Company’s financial performance with that of the companies and indices shown in the Performance Graph is only one of many factors considered by the +Committee to determine executive compensation. +Base +Pay. Base pay is designed to be competitive, although conservative (generally in the second or third quartile) as compared to salary levels for equivalent executive positions at other global consumer product companies. An +executive’s actual salary within this competitive framework will vary based on responsibilities, experience, leadership, potential future contribution, and demonstrated individual performance (measured against strategic management objectives +such as maintaining customer satisfaction, developing innovative products, strengthening market share and profitability, and expanding the markets for the Company’s products). The types and relative importance of specific financial and other +business objectives vary among the Company’s executives depending on their positions and the particular operations or functions for which they are responsible. The Company’s philosophy and practice is to place a relatively greater emphasis +on the incentive components of compensation. +18 +Annual Incentive Bonus. Each executive is eligible to receive an annual +cash bonus under the Executive Performance Sharing Plan. The “target” level for that bonus, like the base salary level, is set with reference to Company-wide bonus programs, as well as competitive conditions. These target levels are +intended to motivate the Company’s executives by providing substantial bonus payments for the achievement of financial goals within the Company’s business plan. An executive receives a percentage of his or her target bonus depending on the +extent to which the Company achieves financial performance goals set by the Subcommittee, as measured by the Company’s net income before taxes. Bonuses may exceed the target if the Company’s performance exceeds the goal. +Long-Term Incentive Compensation. The long-term +compensation program is tied directly to shareholder return. Under the current program, long-term incentive compensation consists of stock options, 25% of which vest in each of the four years after grant, and performance-based stock or cash awards +under the Long-Term Incentive Plan (“LTIP”). +Stock +options are awarded with an exercise price equal to the fair market value of the Class B Stock on the date of grant. Accordingly, the executive is rewarded only if the market price of the Class B Stock appreciates. Since options vest over time, the +Company periodically grants new options to provide continuing incentives for future performance. The size of previous grants and the number of options held are considered by the Subcommittee, but are not entirely determinative of future grants. Like +base pay, the grant is set with regard to competitive considerations, and each executive’s actual grant is based upon individual performance measured against the criteria described in the preceding paragraphs and the executive’s potential +for future contributions. +Under the LTIP, the Subcommittee has +established a series of performance targets corresponding to awards of stock or cash ranging from 10% to 150% of the target awards. The performance targets have been based on revenues and earnings per share for performance periods of three years, in +order to provide an incentive to achieve the Company’s longer-term performance goals. If performance targets are achieved, shares of stock or cash issued to executives are fully vested upon payment. +Stock options and performance-based stock and cash awards under the LTIP are +designed to align the interests of the Company’s executives with those of shareholders by encouraging executives to enhance the value of the Company and, hence, the price of the Class B Stock and the shareholders’ return. In addition, +through deferred vesting and three-year performance periods, this component of the compensation system is designed to create an incentive for the individual executive to remain with the Company. +Other Plans. The Company maintains combined +profit sharing and 401(k) retirement plans, a non-qualified Deferred Compensation Plan, and Employee Stock Purchase Plans. Under the profit sharing retirement plan, the Company annually contributes to a trust on behalf of employees, including +executive officers, an amount that in the past five fiscal years has equaled an annual contribution of between 3.29% to 4.09% of each employee’s earnings. The percentage is determined by the Board of Directors. +19 +For fiscal 2003, under the terms of the profit sharing plan, each employee, including each executive +officer, received a contribution to his or her plan account of 3.1971% of the employee’s total eligible salary and bonus up to $200,000. Under the terms of the Deferred Compensation Plan, employees, including executive officers, whose total +eligible salary and bonus exceeds $200,000 receive a supplemental profit sharing contribution into a nonqualified deferred compensation account in an amount equal to the additional contribution they would have received under the profit sharing plan +if not for the $200,000 cap on salary and bonus considered for purposes of that plan as required under IRS regulations. Accordingly, those employees each received supplemental contributions equal to 3.1971% of their eligible salary and bonus in +excess of $200,000. These profit sharing plans serve to retain employees and executives, since funds do not fully vest until after five years of employment with the Company. +Under the 401(k) retirement plan, the Company contributes up to 4% of each employee’s earnings as a matching +contribution for pre-tax salary deferred into the plan. This matching contribution is initially invested in Class B Stock, which strengthens the linkage between employee and shareholder interests. +The Company’s Employee Stock Purchase Plan (“ESPP”) qualifies +under Section 423 of the Internal Revenue Code. The ESPP allows employees to defer up to 10% of their annual compensation for purchases of Class B Stock, subject to certain limitations. The stock is purchased every six months at 85% of the lower of +the price of the stock at the beginning and end of the six-month period. Pursuant to the Foreign Subsidiary Employee Stock Purchase Plan, the Company offers and sells Class B Stock on substantially identical terms to employees of selected non-U.S. +subsidiaries. These plans are intended to encourage employee investment in the Company and to provide an incentive for employees to increase shareholder returns. +Annual Reviews. Each year, the Committee reviews the executive compensation policies with +respect to the linkage between executive compensation and the creation of shareholder value, as well as the competitiveness of the programs. The Committee determines what changes, if any, are appropriate in the compensation programs for the +following year. In conducting the annual review, the Committee considers information provided by Human Resources staff and uses surveys and reports prepared by independent compensation consultants. +Each year, the Committee, with the Chairman and Human Resources staff, +reviews the individual performance of each of the other four most highly compensated executive officers, and the Chairman’s recommendations with respect to the appropriate compensation levels and awards. The Subcommittee sets performance and +bonus targets, and certifies awards, under the Executive Performance Sharing Plan and the LTIP, and makes stock option grants and restricted stock awards. The Committee makes recommendations to the Board of Directors for final approval of all other +compensation matters. The Committee also reviews with the Chairman and the Human Resources staff the financial and other strategic objectives, such as those identified above, for each of the named executive officers for the following year. +20 +For fiscal year 2003, the Company met targeted performance objectives set for named executive officers +sufficient for a payout under the Executive Performance Sharing Plan. This resulted from increased profitability due to aligning costs with revenues, and sales increases in key product categories and markets, more than offsetting reductions in +others. Furthermore, the Company’s competitive position in the industry remained strong. The Company’s financial performance corresponded to bonuses of 94.4% of the individual target bonuses under the Executive Performance Sharing Plan, +and 80% of the individual target payouts under the three-year LTIP. +Chief Executive Officer. In reviewing Mr. Knight’s performance, the Committee focused primarily on the Company’s performance in fiscal year 2003, which resulted in better earnings compared to the +performance of the previous year. The Committee noted continued progress toward the achievement of various strategic objectives such as earnings growth, operational efficiencies, and growth in key product categories and regions. The Committee also +considered the other factors described above. Consistent with the plans, Mr. Knight received a bonus of $1,121,840 under the Executive Performance Sharing Plan, $320,000 under the LTIP, and no stock option awards. The Committee increased Mr. +Knight’s base salary 3.7% to $1,400,000 for the 2004 fiscal year. +Section 162(m) of the Internal Revenue Code. In 2000 shareholders re-approved the Executive Performance Sharing Plan and the stock option plan, and in 2002 they re-approved the LTIP. It is proposed that +shareholders amend and re-approve the stock option plan this year. The plans are each designed to satisfy the performance-based exception to the Section 162(m) limitation on deductibility with respect to incentive compensation for named executive +officers, except that restricted stock bonuses do not qualify as performance based. +Members of the Compensation Committee: +Ralph D. DeNunzio, Chairman +Jeanne P. Jackson +John E. Jaqua +A. Michael Spence +John R. Thompson, Jr. +Personnel Committee Interlocks and Insider +Participation +The members of the Compensation Committee of +the Board of Directors during the fiscal year ended May 31, 2003 are listed above. The Committee is composed solely of non-employee directors. During the fiscal year ended May 31, 2003, the Company paid Jeanne Jackson $120,000 for consulting +services. Effective January 1, 2003, the consulting arrangement for Ms. Jackson was terminated. The Company does not expect to pay Ms. Jackson for consulting services during fiscal year 2004. +21 +Employment Contracts and Termination of Employment and Change-in-Control Arrangements +An agreement between the Company President of the NIKE Brand Mark G. Parker +that extends for one year following the termination of his employment with the Company. The agreement provides that if Mr. Parker voluntarily resigns, the Company will make monthly payments to him during the one-year noncompetition period in an +amount equal to the greater of (i) $20,833 or (ii) one-twenty-fourth of the total salary and bonuses received by Mr. Parker during the 12-month period immediately preceding his resignation. The agreement provides further that if Mr. Parker’s +employment is terminated by the Company, the Company will make monthly payments to him during the one-year noncompetition period in an amount equal to the greater of (i) $41,667 or (ii) one-twelfth of the total salary and bonuses received by Mr. +Parker during the 12-month period immediately preceding his termination. If Mr. Parker is terminated without cause, the parties may mutually agree to waive the covenant not to compete, and if Mr. Parker is terminated for cause, the Company may +unilaterally waive the covenant. If the covenant is waived, the Company will not be required to make the payments described above for the months as to which the waiver applies. +The Company has a similar agreement with President of NIKE Brand, Mr. Charles D. Denson, that extends for one year following +the termination of his employment with the Company. The agreement provides that if his employment is terminated by the Company, the Company will make monthly payments to him during the one-year noncompetition period in an amount equal to his last +monthly salary. The agreement provides further that if he voluntarily resigns, the Company will make monthly payments to him during the one-year noncompetition period in an amount equal to one-half of his last monthly salary. If Mr. Denson is +terminated without cause, the parties may mutually agree to waive the covenant not to compete, and if Mr. Denson is terminated for cause, the Company may unilaterally waive the covenant. If the covenant is waived, the Company will not be required to +make the payments described above for the months as to which the waiver applies. +The Company has an employment agreement and a covenant not to compete with Vice President Mindy Grossman that has been renewed for a three-year term as of September 28, 2003. Under the new agreement, the Company will +pay certain travel expenses for her and her family between New York City and Beaverton, Oregon, her target bonus under the Executive Performance Sharing Plan for fiscal 2004 and thereafter was set at 75 percent of her annual salary, and her target +award level under the Long-Term Incentive Plan for all awards made in or after fiscal 2004 was set at $400,000. Ms. Grossman will receive a grant of restricted stock on September 28, 2003 with a value of $750,000 based on the market price on that +date, which will vest with respect to one-third of the shares on the first three anniversaries of the date of grant. During the term of her contract, she is to be granted an option to purchase at least 30,000 shares of Class B Stock each year, which +will generally vest with respect to 25% of each option on the first four anniversaries of the date of grant. If Ms. Grossman’s employment is terminated (i) without cause, (ii) by her for good reason, or (iii) due to disability, she will receive +severance payments equal to one times her final annual salary and 60% of the salary earned year-to-date in the fiscal year of termination, and her +22 +initial option and restricted stock grants will be fully vested. In addition, if Ms. Grossman’s employment with the Company is terminated, the Company +will make monthly payments to her during a one-year period of a covenant not to compete in an amount equal to her last monthly salary. The Company may unilaterally waive the covenant not to compete. If the covenant is waived, the Company will not be +required to make the payments described above for the months as to which the waiver applies. +Certain Transactions and Business Relationships +During the fiscal year ended May 31, 2003, the Company paid Jeanne Jackson $120,000 for consulting services. Effective January 1, 2003, the consulting arrangement for Ms. Jackson was terminated. Accordingly, the +Company does not expect to pay Ms. Jackson for consulting services during fiscal year 2004. +Indebtedness of Management +In 1994 the Company loaned $500,000 at 5.65% per annum to President of New Business Ventures Thomas E. Clarke for the purchase of a second home. The loan is secured by the second home, and must be repaid within 180 days following +termination of employment. As an inducement to remain employed by the Company, the Company agreed to forgive $100,000 of the loan commencing January 1, 2000 and on each of the four anniversary dates thereafter, provided that Dr. Clarke remains +employed by the Company. In May 2003, the company forgave the remaining $100,000 balance of the loan, approximately seven months ahead of schedule. +23 +PROPOSAL 2 +APPROVAL OF AMENDMENT TO THE NIKE, INC. +1990 STOCK INCENTIVE PLAN +The Board of Directors believes that the availability of stock options and other stock-based incentives under the Company’s 1990 Stock Incentive Plan (the “Plan”) is important to the Company’s ability to attract and +retain experienced employees and to provide an incentive for them to exert their best efforts on behalf of the Company. As of May 31, 2003, out of a total of 37,500,000 shares of Class B Stock reserved for issuance under the Plan, 6,080,406 shares +remained available for grant. The Board of Directors believes additional shares will be needed under the Plan to provide appropriate incentives to key employees. Accordingly, on June 20, 2003 the Board of Directors approved an amendment to the Plan, +subject to shareholder approval, to reserve an additional 12,500,000 shares of Class B Stock for the Plan, thereby increasing the total number of shares reserved for issuance under the Plan from 37,500,000 to 50,000,000 shares. The additional +12,500,000 shares proposed for issuance under the Plan represent 4.7% of the total outstanding Class A Stock and Class B Stock as of July 25, 2003. In addition, shareholder approval of this proposal will constitute reapproval of the per-employee +limit on grants of options and stock appreciation rights under the Plan of 200,000 shares annually. This reapproval is required every five years for continued +compliance with regulations under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). See “Tax Consequences.” +The complete text of the Plan, marked to show the proposed amendment, is attached to this proxy statement as Exhibit A. The +following description of the Plan is a summary of certain provisions and is qualified in its entirety by reference to Exhibit A. +Description of the Plan +Eligibility. All employees, officers and directors of the Company and its subsidiaries, as well as consultants, advisors and +independent contractors to the Company, are eligible to be selected for awards under the Plan. The number of persons who currently hold options granted under the Plan is approximately 3,200. +Administration. The Plan is administered by the +Compensation Committee of the Board of Directors (the “Committee”). The Committee may promulgate rules and regulations for the operation of the Plan and related agreements and generally supervises the administration of the Plan. The +Committee determines the individuals to whom awards are made under the Plan, the amount of the awards, and the other terms and conditions of the awards, except that the Committee has delegated to the Chief Executive Officer the authority to grant +awards with respect to a maximum of 50,000 shares to any eligible employee who is not at the time of such grant subject to the reporting requirements and liability provisions contained in +24 +Section 16 of the Securities Exchange Act of 1934 and the regulations thereunder. The Committee may also advance the period, accelerate any exercise +date, waive or modify any restriction with respect to an award, or give an individual an election to surrender an existing award in exchange for the grant of a new award. +Term of Plan. The Plan will continue until all shares available for issuance under the Plan +have been issued and all restrictions on such shares have lapsed. The Board of Directors has the power to suspend, terminate, modify or amend the Plan at any time. +Stock Options. The Committee may grant stock options to eligible individuals under the Plan. +The Committee will determine the individuals to whom options will be granted, the exercise price of each option, the number of shares to be covered by each option, the period of each option, the times at which each option may be exercised, and +whether each option is an Incentive Stock Option (intended to meet all of the requirements of an Incentive Stock Option as defined in Section 422 of the Code) or a non-statutory stock option. If an option is an Incentive Stock Option, the exercise +price must be at least 100 percent of the fair market value of the underlying shares on the date of grant. If a grantee of an Incentive Stock Option at the time of grant owns stock possessing more than 10 percent of the combined voting power of all +classes of stock of the Company, the exercise price may not be less than 110 percent of the fair market value of the underlying shares on the date of grant. If the option is a non-statutory stock option, the exercise price may not be less than 75 +percent of the fair market value of the underlying shares on the date of grant. For purposes of determining the exercise price of options granted under the Plan, the fair market value of the Class B Stock will be deemed to be the closing price of +the Class B Stock as reported in the NYSE-Composite Transactions in The Wall Street Journal, or such other reported value of the Class B Stock as shall be specified by the Committee, on the last trading day preceding the date of grant. No monetary +consideration will be paid to the Company upon the granting of options. +Options may be granted for varying periods established at the time of grant, not to exceed 10 years from the date of grant for Incentive Stock Options. Incentive Stock Options are nontransferable except in the event of the death of the +holder. The Committee has discretion to allow non-statutory stock options to be transferred to immediate family members of the optionee, subject to certain limitations. Options will be exercisable in accordance with the terms of an option agreement +entered into at the time of the grant. In the event of the death or other termination of an optionee’s employment with the Company, the Plan provides that the optionee’s options may be exercised for specified periods thereafter (one year +in the case of termination by reason of death or disability and three months in the case of termination for any other reason). The Plan also provides that upon any termination of employment, the Committee may extend the exercise period for any +period up to the expiration date of the option and may increase the portion of the option that is exercisable. +The purchase price for shares purchased pursuant to the exercise of options must be paid in cash, including cash that may be the proceeds of a loan from +the Company, or, with the consent of the +25 +Committee, in whole or in part in shares of Class B Stock. With the consent of the Committee, an optionee may request the Company to apply the shares to be +received on exercise of a portion of an option to satisfy the exercise price for additional portions of the option. Upon the exercise of an option, the number of shares subject to the option and the number of shares available for issuance under the +Plan will be reduced by the number of shares issued upon exercise of the option. Option shares that are not purchased prior to the expiration, termination or cancellation of the related option will become available for future awards under the Plan. +Stock Appreciation Rights. The +Committee may grant stock appreciation rights (“SARs”) to eligible individuals under the Plan. SARs may, but need not, be granted in connection with an option. An SAR gives the holder the right to payment from the Company of an amount +equal in value to the excess of the fair market value on the date of exercise of one share of Class B Stock over its fair market value on the date of grant (or, if granted in connection with an option, the exercise price per share under the option +to which the SAR relates), multiplied by the number of shares covered by the portion of the SAR or option that is surrendered. The fair market value of the Class B Stock on the date of exercise shall be deemed to be the closing price of the Class B +Stock as reported in the NYSE-Composite Transactions in The Wall Street Journal, or such other reported value of the Class B Stock as shall be specified by the Committee, on the date of exercise, or if such date is not a trading day, then on the +immediately preceding trading day. An SAR holder will not pay the Company any cash consideration upon either the grant or exercise of an SAR, except for tax withholding amounts upon exercise. +An SAR is exercisable only at the time or times established by the Committee. +If an SAR is granted in connection with an option, it is exercisable only to the extent and on the same conditions that the related option is exercisable. Payment by the Company upon exercise of an SAR may be made in shares of Class B Stock valued +at fair market value, or in cash, or partly in stock and partly in cash, as determined by the Committee. The Committee may withdraw any SAR granted under the Plan at any time and may impose any conditions upon the exercise of an SAR or adopt rules +and regulations from time to time affecting he rights of holders of SARs. If an SAR is not exercised prior to the expiration, termination or cancellation of the SAR, the unissued shares subject to the SAR will become available for future awards +under the Plan. Cash payments for SARs will not reduce the number of shares available for awards under the Plan. The existence of exercisable SARs will require the Company to make periodic charges against the Company’s income to the extent of +the amount of appreciation, if any, in the market value of the Class B Stock over the exercise price of shares subject to such SARs. No SARs have been granted under the Plan. +Stock Bonuses. The Committee may award Class B Stock to eligible individuals as stock bonuses +under the Plan. The Committee will determine the individuals to receive stock bonuses, the number of shares to be awarded and the time of the award. No cash consideration (other than tax withholding amounts) will be paid by bonus recipients to the +Company in connection with stock bonuses. Shares received as a stock bonus may be subject to terms, conditions and restrictions as determined by the +26 +Committee. Restrictions may include restrictions concerning transferability, forfeiture of the shares issued, or such other restrictions as the Committee may +determine. Stock bonus shares that are forfeited to the Company will be available for future grant under the Plan. +Restricted Stock. The Committee may award restricted shares to eligible individuals in such amounts, for such consideration +(including promissory notes and services), subject to such restrictions, and on such terms as the Committee may determine. Restrictions may include restrictions concerning transferability, repurchase by the Company, forfeiture of the shares issued, +or such other restrictions as the Committee may determine. No restricted shares may be issued for consideration that is less than 75 percent of the fair market value of such shares at the time of issuance. Restricted shares that are forfeited to or +repurchased by the Company will be available for future grant under the Plan. +Acceleration in Certain Events. The Plan provides for automatic acceleration of the vesting of options and SARs granted under the Plan in the event that the shareholders of the Company +approve (i) certain transactions involving the Company and pursuant to which the Company is not the surviving entity or pursuant to which the Common Stock of the Company would be converted into cash, securities, or other property, (ii) a sale or +other transfer of all or substantially all of the assets of the Company or (iii) adoption of any plan or proposal for the liquidation or dissolution of the Company. Such acceleration may also be effected at the discretion of the Committee in the +event of a merger, consolidation or plan of exchange in which the Company is the surviving entity. These provisions relating to acceleration may, in certain circumstances, tend to discourage attempts to acquire the Company. +The Plan also provides for automatic acceleration of options and related SARs +held by any employee whose employment is terminated by reason of death, disability, or “retirement” as defined in the Plan. +Corporate Mergers. The Committee may make awards under the Plan that have terms and conditions that vary from those +specified in the Plan when such awards are granted in substitution for, or in connection with the assumption of, existing awards made by another corporation and assumed or otherwise agreed to be provided for by the Company in connection with a +corporate merger or other similar transaction to which the Company or an affiliated Company is a party. +Tax Consequences +Certain options authorized to be granted under the Plan are intended to qualify as “Incentive Stock Options” for federal income tax purposes. Under federal income tax law in effect as of the date of this proxy statement, an +optionee will recognize no regular income upon grant or exercise of an Incentive Stock Option. The amount by which the market value of shares issued upon exercise of an Incentive Stock Option exceeds the exercise price, however, is included in the +optionee’s alternative minimum taxable income and may, under certain conditions, be taxed under the alternative minimum tax. If an optionee exercises an +27 +Incentive Stock Option and does not dispose of any of the shares thereby acquired within two years following the date of grant and within one year following +the date of exercise, then any gain realized upon subsequent disposition of the shares will be treated as income from the sale or exchange of a capital asset. If an optionee disposes of shares acquired upon exercise of an Incentive Stock Option +before the expiration of either the one-year holding period or the two-year holding period specified in the foregoing sentence (a “disqualifying disposition”), the optionee will realize ordinary income in an amount equal to the lesser of +(i) the excess of the fair market value of the shares on the date of exercise over the option price or (ii) the excess of the fair market value of the shares on the date of disposition over the option price. Any additional gain realized upon the +disqualifying disposition will constitute capital gain. The Company will not be allowed any deduction for federal income tax purposes at either the time of grant or the time of exercise of an Incentive Stock Option. Upon any disqualifying +disposition by an optionee, the Company will generally be entitled to a deduction to the extent the optionee realizes ordinary income. +Certain options authorized to be granted under the Plan will be treated as non-statutory stock options for federal income tax purposes. Under federal +income tax law in effect as of the date of this proxy statement, no income is realized by the grantee of a non-statutory stock option until the option is exercised. At the time of exercise of a non-statutory stock option, the optionee will realize +ordinary income, and the Company will generally be entitled to a deduction, in the amount by which the fair market value of the shares subject to the option at the time of exercise exceeds the exercise price. The Company is required to withhold +income taxes on such income if the optionee is an employee. Upon the sale of shares acquired upon exercise of a non-statutory stock option, the optionee will realize capital gain or loss equal to the difference between the amount realized from the +sale and the fair market value of the shares on the date of exercise. +An individual who receives stock under the Plan will generally realize ordinary income at the time of receipt unless the shares are not substantially vested for purposes of Section 83 of the Code. Absent an election under Section 83(b), an +individual who receives shares that are not substantially vested will realize ordinary income in each year in which a portion of the shares substantially vests. The amount of ordinary income recognized in any such year will be the fair market value +of the shares that substantially vest in that year less any consideration paid for the shares. The Company will be entitled to a deduction in the amount includable as ordinary income by the recipient at the same time or times as the recipient +recognizes ordinary income with respect to the shares. The Company is required to withhold income taxes on such income if the recipient is an employee. +Section 162(m) of the Code limits to $1,000,000 per person the amount that the Company may deduct for compensation paid to any of its most highly +compensated officers in any year. Under IRS regulations, compensation received through the exercise of an option or stock appreciation right will not be subject to the $1,000,000 limit if the option or stock appreciation right and the plan pursuant +to which it is granted meet certain requirements. One requirement is shareholder approval at least once every five years of a per- +28 +employee limit on the number of shares as to which options and stock appreciation rights may be granted. Approval of this Proposal 2 will constitute +reapproval of the per-employee limit under the Plan previously approved by the shareholders. Other requirements are that the option or stock appreciation right be granted by a committee of at least two outside directors and that the exercise price +of the option or stock appreciation right be not less than fair market value of the Class B Stock on the date of grant. Accordingly, the Company believes that if this proposal is approved by shareholders, compensation received on exercise of options +and stock appreciation rights granted under the Plan in compliance with all of the above requirements will continue to be exempt from the $1,000,000 deduction limit. +Board Recommendation +The Board of Directors recommends that shareholders vote FOR approval of the amendments to the Plan. Holders of Class A Stock and Class B Stock will vote +together as a single class on Proposal 2. If holders of a majority of the shares of Common Stock vote on the proposal, Proposal 2 will be adopted if a majority of the votes cast are cast for the proposal. Abstentions are considered votes cast and +have the same effect as “no” votes in determining whether the proposal is adopted. Broker non-votes are not counted as voted on the proposal and therefore have no effect on the results of the vote. +29 +PROPOSAL 3 +RATIFICATION OF INDEPENDENT ACCOUNTANTS +The Audit Committee of the Board of Directors has appointed PricewaterhouseCoopers LLP as independent accountants to examine +the Company’s consolidated financial statements for the fiscal year ending May 31, 2004 and to render other professional services as required. +The Audit Committee is submitting the appointment of PricewaterhouseCoopers LLP to shareholders for ratification. +Representatives of PricewaterhouseCoopers will be present at the Annual +Meeting and are expected to be available to respond to questions. +Aggregate fees billed by the Company’s principal accountants, PricewaterhouseCoopers LLP, for audit services related to the most recent two fiscal years, and for other professional services billed in the most recent two fiscal years, +were as follows: +Type of Service +2003 +2002 +Audit Fees (1) +$ +2.4 million +$ +1.9 million +Audit-Related Fees (2) +$ +0.4 million +$ +0.7 million +Tax Fees (3) +$ +2.8 million +$ +2.3 million +Supply Chain System Development and Training Fees (4) +$ +2.8 million +$ +11.0 million +Miscellaneous Service Fees (5) +$ +0.8 million +$ +3.2 million +All Other Fees +$ +3.6 million +$ +14.2 million +Total +$ +9.2 million +$ +19.1 million +(1) +Comprised of the audit of the Company’s annual financial statements and reviews of the Company’s quarterly financial statements, as well as statutory audits of Company +subsidiaries, attest services, comfort letters and consents to SEC filings. +(2) +Comprised of employee benefit plan audits, acquisition due diligence, and consultations regarding financial accounting and reporting. +(3) +Comprised of services for tax compliance, tax return preparation, tax advice, and tax planning. +(4) +Beginning in late 1998, NIKE commenced a multi-year, $400 million project to replace and upgrade its supply chain systems, including design, production, sales, distribution and +finance. PricewaterhouseCoopers LLP was chosen through a competitive bidding process as one of several major contractors to work on a portion of that project. In October 2002, the Business Consulting Services unit of International Business Machines +Corporation acquired the consulting division of PricewaterhouseCoopers working on the supply chain project. Accordingly, such services are no longer performed by PricewaterhouseCoopers, and the amounts in the above table related to those projects +for 2003 only include amounts billed by PricewaterhouseCoopers through October 2002. +30 +(5) +Fiscal 2003 comprised of services for labor and corporate responsibility audits ($0.3 million) and other miscellaneous services ($0.5 million). Fiscal 2002 comprised of consulting +services on a sales incentive project ($2.2 million), labor and corporate responsibility audits ($0.5 million) and other miscellaneous services ($0.5 million). Costs for services for labor and corporate responsibility audits declined between fiscal +2003 and fiscal 2002 because the Company began engaging internal personnel to perform some of these services. +In accordance with the Sarbanes-Oxley Act of 2002, the Audit Committee established policies and procedures under which all audit and non-audit services +performed by the Company’s principal accountants must be approved in advance by the Audit Committee. As provided in the Sarbanes-Oxley Act, all audit and non-audit services to be provided after May 6, 2003 must be pre-approved by the Audit +Committee in accordance with these policies and procedures. Based in part on consideration of the non-audit services provided by PricewaterhouseCoopers during fiscal year 2003, the Audit Committee determined that such non-audit services were +compatible with maintaining the independence of PricewaterhouseCoopers. +31 +Notwithstanding anything to the contrary set forth in any of the Company’s filings under the +Securities Act of 1933 or the Securities Exchange Act of 1934, the following Report of the Audit Committee shall not be incorporated by reference into any such filings and shall not otherwise be deemed filed under such acts. +REPORT OF THE AUDIT COMMITTEE +The Audit Committee has: +• +Reviewed and discussed the audited financial statements with management. +• +Discussed with the independent auditors the matters required to be discussed by SAS 61. +• +Received the written disclosures and the letter from the independent auditors required by Independence Standards Board Standard No. 1, and has discussed with the independent +auditors the auditors’ independence. +• +Based on the review and discussions above, recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K +for the last fiscal year for filing with the Securities and Exchange Commission. +Members of the Audit Committee: +Alan B. Graf, Jr., Chairman +Charles W. Robinson +A. Michael Spence +OTHER +MATTERS +As of the time this proxy statement was printed, +management was unaware of any proposals to be presented for consideration at the Annual Meeting other than those set forth herein, but if other matters do properly come before the Annual Meeting, the persons named in the proxy will vote the shares +represented by such proxy according to their best judgment. +32 +SHAREHOLDER PROPOSALS +A proposal by a shareholder for inclusion in the Company’s proxy statement and form of proxy for the 2004 annual +meeting of shareholders must be received by John F. Coburn III, Assistant Secretary of NIKE, at One Bowerman Drive, Beaverton, Oregon 97005-6453, on or before April 17, 2004 in order to be eligible for inclusion. Rules under the Securities Exchange +Act of 1934 describe standards as to the submission of shareholder proposals. In addition, the Company’s bylaws require that any shareholder wishing to make a nomination for Director, or wishing to introduce a proposal or other business at a +shareholder meeting must give the Company at least 60 days’ advance written notice, and that notice must meet certain requirements described in the bylaws. +For the Board of Directors +LINDSAY D. STEWART +S ECRETARY +33 +EXHIBIT A +NIKE, Inc. 1990 Stock Incentive Plan* +1. Purpose . The purpose of this Stock Incentive Plan (the “Plan”) is to enable NIKE, Inc. +(the “Company”) to attract and retain as directors, officers, employees, consultants, advisors and independent contractors people of initiative and ability and to provide additional incentives to such persons. +2. Shares Subject to the +Plan . Subject to adjustment as provided below and in paragraph 10, the shares to be offered under the Plan shall consist of Class B Common Stock of the Company (“Shares”), and the total number of Shares that may +be issued under the Plan shall not exceed [ thirty-seven million five hundred thousand (37,500,000)] fifty million (50,000,000) Shares. If an option or stock appreciation right granted under the Plan expires, terminates or is +canceled, the unissued Shares subject to such option or stock appreciation right shall again be available under the Plan. If Shares sold or awarded as a bonus under the Plan are forfeited to the Company or repurchased by the Company, the number of +Shares forfeited or repurchased shall again be available under the Plan. +3. Effective Date and Duration of Plan . +(a) Effective Date . The Plan shall become effective when adopted by the Board of Directors of the +Company. However, no option or stock appreciation right granted under the Plan shall become exercisable until the Plan is approved by the affirmative vote of the holders of a majority of the Common Stock of the Company represented at a shareholders +meeting at which a quorum is present and any awards under the Plan prior to such approval shall be conditioned on and subject to such approval. Subject to this limitation, options and stock appreciation rights may be granted and Shares may be +awarded as bonuses or sold under the Plan at any time after the effective date and before termination of the Plan. +(b) Duration . The Plan shall continue in effect until all Shares available for issuance under the +Plan have been issued and all restrictions on such Shares have lapsed. The Board of Directors may suspend or terminate the Plan at any time except with respect to options and Shares subject to restrictions then outstanding under the Plan. +Termination shall not affect any outstanding options, any right of the Company to repurchase Shares or the forfeitability of Shares issued under the Plan. +4. Administration . +The Plan shall be administered by a committee appointed by the Board of Directors of the Company consisting of not less than two directors (the +“Committee”), which shall determine and designate from time to time the individuals to whom awards shall be made, the amount of the awards and the other terms and +* +Matter in bold and underlined is new; matter in brackets and italics is to be deleted. +A-1 +conditions of the awards, except that only the Board of Directors may amend or terminate the Plan as provided in paragraphs 3 and 13. Subject to the +provisions of the Plan, the Committee may from time to time adopt and amend rules and regulations relating to administration of the Plan, advance the lapse of any waiting period, accelerate any exercise date, waive or modify any restriction +applicable to Shares (except those restrictions imposed by law) and make all other determinations in the judgment of the Committee necessary or desirable for the administration of the Plan. The interpretation and construction of the provisions of +the Plan and related agreements by the Committee shall be final and conclusive. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any related agreement in the manner and to the extent it +shall deem expedient to carry the Plan into effect, and it shall be the sole and final judge of such expediency. Notwithstanding anything to the contrary contained in this Paragraph 4, the Committee may delegate to the Chief Executive Officer of the +Company the authority to grant awards with respect to a maximum of 50,000 Shares to any eligible employee who is not, at the time of such grant, subject to the reporting requirements and liability provisions contained in Section 16 of the Securities +Exchange Act of 1934 (the “Exchange Act”) and the regulations thereunder. +5. Types of Awards; Eligibility . The Committee may, from time to time, take the following action, separately or in combination, under the Plan: (i) grant Incentive +Stock Options, as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), as provided in paragraph 6(b); (ii) grant options other than Incentive Stock Options (“Non-Statutory Stock Options”) as +provided in paragraph 6(c); (iii) award stock bonuses as provided in paragraph 7; (iv) sell shares subject to restrictions as provided in paragraph 8; and (v) grant stock appreciation rights as provided in paragraph 9. Any such awards may be made to +employees, including employees who are officers or directors, of the Company or any parent or subsidiary corporation of the Company and to other individuals described in paragraph 1 who the Committee believes have made or will make an important +contribution to the Company or its subsidiaries; provided, however, that only employees of the Company shall be eligible to receive Incentive Stock Options under the Plan. The Committee shall select the individuals to whom awards shall be made. The +Committee shall specify the action taken with respect to each individual to whom an award is made under the Plan. At the discretion of the Committee, an individual may be given an election to surrender an award in exchange for the grant of a new +award. No employee may be granted options or stock appreciation rights under the Plan for more than 200,000 Shares in any calendar year. +6. Option Grants . +(a) Grant . The Committee may grant options under the Plan. With respect to each option grant, the +Committee shall determine the number of Shares subject to the option, the option price, the period of the option, the time or times at which the option may be exercised and whether the option is an Incentive Stock Option or a Non-Statutory Stock +Option. +A-2 +(b) Incentive Stock Options . Incentive Stock Options +shall be subject to the following terms and conditions: +(i) An Incentive Stock Option may be granted under the Plan to an employee possessing more than 10 percent of the total combined voting power of all classes of stock of the Company or of any parent or subsidiary of +the Company only if the option price is at least 110 percent of the fair market value of the Shares subject to the option on the date it is granted, as described in paragraph 6(b)(iii), and the option by its terms is not exercisable after the +expiration of five years from the date it is granted. +(ii) Subject to paragraphs 6(b)(i) and 6(d), Incentive Stock Options granted under the Plan shall continue in effect for the period fixed by the Committee, except that no Incentive Stock Option shall be exercisable +after the expiration of 10 years from the date it is granted. +(iii) The option price per share shall be determined by the Committee at the time of grant. Subject to paragraph 6(b)(i), the option price shall not be less than 100 percent of the fair market +value of the Shares covered by the Incentive Stock Option at the date the option is granted. The fair market value shall be deemed to be the closing price of the Class B Common Stock of the Company as reported in the New York Stock Exchange +Composite Transactions in the Wall Street Journal on the day preceding the date the option is granted, or if there has been no sale on that date, on the last preceding date on which a sale occurred, or such other reported value of the Class B Common +Stock of the Company as shall be specified by the Committee. +(iv) No Incentive Stock Option shall be granted on or after the tenth anniversary of the last action by the Board of Directors approving an increase in the number of shares available for +issuance under the Plan, which action was subsequently approved within 12 months by the shareholders. +(c) Non-Statutory Stock Options . The option price for Non-Statutory Stock Options shall be determined +by the Committee at the time of grant. The option price may not be less than 75 percent of the fair market value of the Shares covered by the Non-Statutory Stock Option on the date the option is granted. The fair market value of Shares covered by a +Non-Statutory Stock Option shall be determined pursuant to paragraph 6(b)(iii). +(d) Exercise of Options . Except as provided in paragraph 6(f), no option granted under the Plan may be exercised unless at the time of such exercise the optionee is +employed by the Company or any parent or subsidiary corporation of the Company and shall have been so employed continuously since the date such option was granted. Absence on leave or on account of illness or disability under rules established by +the Committee shall not, however, be deemed an interruption of employment for this purpose. Except as provided in paragraphs 6(f), 10 and 11, options granted under the Plan may be exercised from time to time over the period stated in each option in +such amounts and at such times as shall be +A-3 +prescribed by the Committee, provided that options shall not be exercised for fractional shares. Unless otherwise determined by the Committee, if the +optionee does not exercise an option in any one year with respect to the full number of Shares to which the optionee is entitled in that year, the optionee’s rights shall be cumulative and the optionee may purchase those Shares in any +subsequent year during the term of the option. +(e) Nontransferability . Except as provided below, each stock option granted under the Plan by its terms shall be nonassignable and nontransferable by the optionee, either voluntarily or +by operation of law, and each option by its terms shall be exercisable during the optionee’s lifetime only by the optionee. A stock option may be transferred by will or by the laws of descent and distribution of the state or country of the +optionee’s domicile at the time of death. A Non-Statutory Stock Option shall also be transferable pursuant to a qualified domestic relations order as defined under the Code or Title I of the Employee Retirement Income Security Act. The +Committee may, in its discretion, authorize all or a portion of a Non-Statutory Stock Option granted to an optionee to be on terms which permit transfer by the optionee to (i) the spouse, children or grandchildren of the optionee (“Immediate +Family Members”), (ii) a trust or trusts for the exclusive benefit of Immediate Family Members, or (iii) a partnership in which Immediate Family Members are the only partners, provided that (x) there may be no consideration for any transfer, +(y) the stock option agreement pursuant to which the options are granted must expressly provide for transferability in a manner consistent with this paragraph, and (z) subsequent transfers of transferred options shall be prohibited except by will or +by the laws of descent and distribution. Following any transfer, options shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of paragraphs 6(d), 6(g), 10 and 11 +the term “optionee” shall be deemed to refer to the transferee. The events of termination of employment of paragraph 6(f), shall continue to be applied with respect to the original optionee, following which the options shall be exercisable +by the transferee only to the extent, and for the periods specified, and all other references to employment, termination of employment, life or death of the optionee, shall continue to be applied with respect to the original optionee. +(f) Termination of Employment or Death . +(i) Unless otherwise +provided at the time of grant, in the event the employment of the optionee by the Company or a parent or subsidiary corporation of the Company terminates for any reason other than because of retirement, physical disability or death, the option may +be exercised at any time prior to the expiration date of the option or the expiration of three months after the date of such termination of employment, whichever is the shorter period, but only if and to the extent the optionee was entitled to +exercise the option at the date of such termination. +(ii) Unless otherwise provided at the time of grant, in the event the employment of the optionee by the Company or a parent or subsidiary corporation of the Company terminates as a result of the optionee’s +retirement, the option may be exercised by the optionee to the extent specified in this +A-4 +paragraph 6(f)(ii) at any time prior to the expiration date of the option or the expiration of three months after the date of such termination of employment, +whichever is the shorter period. For purposes of this paragraph 6(f), “retirement” means a termination of employment that occurs at a time when (A) the optionee’s retirement point total is at least 55, and (B) the optionee has at +least five full years of service as an employee of the Company or a parent or subsidiary corporation of the Company. For purposes of this paragraph 6(f), “retirement point total” means the sum of the optionee’s age in full years plus +the optionee’s full years of service as an employee of the Company or a parent or subsidiary corporation of the Company. Upon retirement, the optionee may exercise the portion of the option that the optionee was entitled to exercise immediately +prior to retirement plus a percentage of the remaining unvested portion of the option based on the optionee’s retirement point total at the time of retirement as set forth in the following table: +Retirement Point Total +Percent of Unvested Option +That Becomes Exercisable +55 or 56 +20% +57 +40% +58 +60% +59 +80% +60 +100% +(iii) Unless otherwise provided at the time of grant, in the event the employment of the optionee by the Company or a parent or subsidiary corporation of the Company terminates because the optionee becomes disabled +(within the meaning of Section 22(e)(3) of the Code), the option may be exercised by the optionee free of the limitations on the amount that may be purchased in any one year specified in the option agreement at any time prior to the expiration date +of the option or the expiration of one year after the date of such termination, whichever is the shorter period. +(iv) Unless otherwise provided at the time of grant, in the event of the death of the optionee while in the employ +of the Company or a parent or subsidiary corporation of the Company, the option may be exercised free of the limitations on the amount that may be purchased in any one year specified in the option agreement at any time prior to the expiration date +of the option or the expiration of one year after the date of such death, whichever is the shorter period, but only by the person or persons to whom such optionee’s rights under the option shall pass by the optionee’s will or by the laws +of descent and distribution of the state or country of domicile at the time of death. +(v) The Committee, at the time of grant or at any time thereafter, may extend the three-month and one-year +expiration periods any length of time not later than the original expiration date of the option, and may increase the portion of an option that is exercisable, subject to such terms and conditions as the Committee may determine. +A-5 +(vi) To the extent that the option of any deceased optionee or of +any optionee whose employment terminates is not exercised within the applicable period, all further rights to purchase Shares pursuant to such option shall cease and terminate. +(g) Purchase of Shares . Unless the Committee determines otherwise, +Shares may be acquired pursuant to an option granted under the Plan only upon receipt by the Company of notice in writing from the optionee of the optionee’s intention to exercise, specifying the number of Shares as to which the optionee +desires to exercise the option and the date on which the optionee desires to complete the transaction, and if required in order to comply with the Securities Act of 1933, as amended, containing a representation that it is the optionee’s present +intention to acquire the Shares for investment and not with a view to distribution. Unless the Committee determines otherwise, on or before the date specified for completion of the purchase of Shares pursuant to an option, the optionee must have +paid the Company the full purchase price of such Shares in cash (including, with the consent of the Committee, cash that may be the proceeds of a loan from the Company) or with the consent of the Committee, in whole or in part, in Common Stock of +the Company valued at fair market value. The fair market value of Common Stock of the Company provided in payment of the purchase price shall be the closing price of the Common Stock of the Company as reported in the New York Stock Exchange +Composite Transactions in the Wall Street Journal or such other reported value of the Common Stock of the Company as shall be specified by the Committee, on the date the option is exercised, or if such date is not a trading day, then on the +immediately preceding trading day. No Shares shall be issued until full payment therefor has been made. With the consent of the Committee, an optionee may request the Company to apply automatically the Shares to be received upon the exercise of a +portion of a stock option (even though stock certificates have not yet been issued) to satisfy the purchase price for additional portions of the option. Each optionee who has exercised an option shall immediately upon notification of the amount due, +if any, pay to the Company in cash amounts necessary to satisfy any applicable federal, state and local tax withholding requirements. If additional withholding is or becomes required beyond any amount deposited before delivery of the certificates, +the optionee shall pay such amount to the Company on demand. If the optionee fails to pay the amount demanded, the Company may withhold that amount from other amounts payable by the Company to the optionee, including salary, subject to applicable +law. With the consent of the Committee, an optionee may satisfy this obligation, in whole or in part, by having the Company withhold from the Shares to be issued upon the exercise that number of Shares that would satisfy the withholding amount due +or by delivering Common Stock of the Company to the Company to satisfy the withholding amount. Upon the exercise of an option, the number of Shares reserved for issuance under the Plan shall be reduced by the number of Shares issued upon exercise of +the option. +7. Stock +Bonuses . The Committee may award Shares under the Plan as stock bonuses. Shares awarded as a stock bonus shall be subject to the terms, conditions, and restrictions determined by the Committee. The restrictions may include +restrictions concerning transferability and forfeiture of the Shares awarded, together with such other restrictions as may be determined by the Committee. The Committee +A-6 +may require the recipient to sign an agreement as a condition of the award, but may not require the recipient to pay any monetary consideration other than +amounts necessary to satisfy tax withholding requirements. The agreement may contain any terms, conditions, restrictions, representations and warranties required by the Committee. The certificates representing the Shares awarded shall bear any +legends required by the Committee. The Company may require any recipient of a stock bonus to pay to the Company in cash upon demand amounts necessary to satisfy any applicable federal, state or local tax withholding requirements. If the recipient +fails to pay the amount demanded, the Company may withhold that amount from other amounts payable by the Company to the recipient, including salary, subject to applicable law. With the consent of the Committee, a recipient may deliver Common Stock +of the Company to the Company to satisfy this withholding obligation. Upon the issuance of a stock bonus, the number of Shares reserved for issuance under the Plan shall be reduced by the number of Shares issued. +8. Restricted Stock . The +Committee may issue Shares under the Plan for such consideration (including promissory notes and services) as determined by the Committee, provided that in no event shall the consideration be less than 75 percent of fair market value of the Shares +at the time of issuance. Shares issued under the Plan shall be subject to the terms, conditions and restrictions determined by the Committee. The restrictions may include restrictions concerning transferability, repurchase by the Company and +forfeiture of the Shares issued, together with such other restrictions as may be determined by the Committee. All Shares issued pursuant to this paragraph 8 shall be subject to a purchase agreement, which shall be executed by the Company and the +prospective recipient of the Shares prior to the delivery of certificates representing such Shares to the recipient. The purchase agreement may contain any terms, conditions, restrictions, representations and warranties required by the Committee. +The certificates representing the Shares shall bear any legends required by the Committee. The Company may require any purchaser of restricted stock to pay to the Company in cash upon demand amounts necessary to satisfy any applicable federal, state +or local tax withholding requirements. If the purchaser fails to pay the amount demanded, the Company may withhold that amount from other amounts payable by the Company to the purchaser, including salary, subject to applicable law. With the consent +of the Committee, a purchaser may deliver Common Stock of the Company to the Company to satisfy this withholding obligation. Upon the issuance of restricted stock, the number of Shares reserved for issuance under the Plan shall be reduced by the +number of Shares issued. +9. Stock +Appreciation Rights . +(a) Grant . Stock appreciation rights may be granted under the Plan by the Committee, subject to such rules, terms, and conditions as the Committee prescribes. +(b) Exercise . +(i) A stock appreciation right shall +be exercisable only at the time or times established by the Committee. If a stock appreciation right is granted in connection with an option, the stock +A-7 +appreciation right shall be exercisable only to the extent and on the same conditions that the related option could be exercised. Upon exercise of a stock +appreciation right, any option or portion thereof to which the stock appreciation right relates terminates. If a stock appreciation right is granted in connection with an option, upon exercise of the option, the stock appreciation right or portion +thereof to which the option relates terminates. +(ii) The Committee may withdraw any stock appreciation right granted under the Plan at any time and may impose any conditions upon the exercise of a stock appreciation right or adopt rules and regulations from time to +time affecting the rights of holders of stock appreciation rights. Such rules and regulations may govern the right to exercise stock appreciation rights granted before adoption or amendment of such rules and regulations as well as stock appreciation +rights granted thereafter. +(iii) Each stock appreciation right shall entitle the holder, upon exercise, to receive from the Company in exchange therefor an amount equal in value to the excess of the fair market value on the date of exercise of +one share of Class B Common Stock of the Company over its fair market value on the date of grant (or, in the case of a stock appreciation right granted in connection with an option, the option price per Share under the option to which the stock +appreciation right relates), multiplied by the number of Shares covered by the stock appreciation right or the option, or portion thereof, that is surrendered. Payment by the Company upon exercise of a stock appreciation right may be made in Shares +valued at fair market value, in cash, or partly in Shares and partly in cash, all as determined by the Committee. +(iv) For purposes of this paragraph 9, the fair market value of the Class B Common Stock of the Company on the date +a stock appreciation right is exercised shall be the closing price of the Class B Common Stock of the Company as reported in the New York Stock Exchange Composite Transactions in the Wall Street Journal, or such other reported value of the Class B +Common Stock of the Company as shall be specified by the Committee, on the date the stock appreciation right is exercised, or if such date is not a trading day, then on the immediately preceding trading day. +(v) No fractional shares shall be +issued upon exercise of a stock appreciation right. In lieu thereof, cash shall be paid in an amount equal to the value of the fractional share. +(vi) Each stock appreciation right granted under the Plan by its terms shall be nonassignable and nontransferable +by the holder, either voluntarily or by operation of law, except by will or by the laws of descent and distribution of the state or county of the holder’s domicile at the time of death, and each stock appreciation right by its terms shall be +exercisable during the holder’s lifetime only by the holder; provided, however, that a stock appreciation right not granted in connection with an Incentive Stock Option shall also be transferable pursuant to a qualified domestic relations order +as defined under the Code or Title I of the Employee Retirement Income Security Act. +A-8 +(vii) Each participant who has exercised a stock appreciation +right shall, upon notification of the amount due, pay to the Company in cash amounts necessary to satisfy any applicable federal, state or local tax withholding requirements. If the participant fails to pay the amount demanded, the Company may +withhold that amount from other amounts payable by the Company to the participant including salary, subject to applicable law. With the consent of the Committee a participant may satisfy this obligation, in whole or in part, by having the Company +withhold from any Shares to be issued upon the exercise that number of Shares that would satisfy the withholding amount due or by delivering Common Stock of the Company to the Company to satisfy the withholding amount. +(viii) Upon the exercise of a stock +appreciation right for Shares, the number of Shares reserved for issuance under the Plan shall be reduced by the number of Shares issued. Cash payments of stock appreciation rights shall not reduce the number of Shares reserved for issuance under +the Plan. +10. Changes in Capital +Structure . If the outstanding shares of Common Stock of the Company are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company or of +another corporation by reason of any reorganization, merger, consolidation, plan of exchange, recapitalization, reclassification, stock split-up, combination of shares or dividend payable in shares, appropriate adjustment shall be made by the +Committee in the number and kind of shares available for awards under the Plan, provided that this paragraph 10 shall not apply with respect to transactions referred to in paragraph 11. In addition, the Committee shall make appropriate adjustment in +the number and kind of shares as to which outstanding options and stock appreciation rights, or portions thereof then unexercised, shall be exercisable, to the end that the optionee’s proportionate interest is maintained as before the +occurrence of such event. The Committee may also require that any securities issued in respect of or exchanged for Shares issued hereunder that are subject to restrictions be subject to similar restrictions. Notwithstanding the foregoing, the +Committee shall have no obligation to effect any adjustment that would or might result in the issuance of fractional shares, and any fractional shares resulting from any adjustment may be disregarded or provided for in any manner determined by the +Committee. Any such adjustments made by the Committee shall be conclusive. In the event of a merger, consolidation or plan of exchange affecting the Company to which paragraph 11 does not apply, in lieu of providing for options and stock +appreciation rights as provided above in this paragraph 10, the Committee may, in its sole discretion, provide a 30-day period prior to such event during which optionees shall have the right to exercise options and stock appreciation rights in whole +or in part without any limitation on exercisability and upon the expiration of such 30-day period all unexercised options and stock appreciation rights shall immediately terminate. +11. Special Acceleration in Certain Events . +(a) Special +Acceleration . Notwithstanding any other provisions of the Plan, a special acceleration (“Special Acceleration”) of options and stock appreciation rights outstanding under the Plan shall occur +A-9 +with the effect set forth in paragraph 11(b) at any time when the shareholders of the Company approve one of the following (“Approved +Transactions”): +(i) Any consolidation, merger, plan of exchange, or transaction involving the Company (“Merger”) in which the Company is not the continuing or surviving corporation or pursuant to which the Common Stock of +the Company would be converted into cash, securities or other property, other than a Merger involving the Company in which the holders of the Common Stock of the Company immediately prior to the Merger have the same proportionate ownership of common +stock of the surviving corporation after the Merger; or +(ii) Any sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company or the adoption of any plan or proposal for the +liquidation or dissolution of the Company. +(b) Effect on Outstanding Options and Stock Appreciation Rights . Except as provided below in this paragraph 11(b), upon a Special Acceleration pursuant to paragraph 11(a), all options and +stock appreciation rights then outstanding under the Plan shall immediately become exercisable in full during the remainder of their terms; provided, the Committee may, in its sole discretion, provide a 30-day period prior to an Approved Transaction +during which optionees shall have the right to exercise options and stock appreciation rights, in whole or in part, without any limitation on exercisability, and upon the expiration of such 30-day period all unexercised options and stock +appreciation rights shall immediately terminate. +12. Corporate Mergers, Acquisitions, etc . The Committee may also grant options, stock appreciation rights, and stock bonuses and issue restricted stock under the Plan having terms, +conditions and provisions that vary from those specified in this Plan, provided that any such awards are granted in substitution for, or in connection with the assumption of, existing options, stock appreciation rights, stock bonuses, and restricted +stock, awarded or issued by another corporation and assumed or otherwise agreed to be provided for by the Company pursuant to or by reason of a transaction involving a corporate merger, consolidation, plan of exchange, acquisition of property or +stock, separation, reorganization or liquidation to which the Company or a parent or subsidiary corporation of the Company is a party. +13. Amendment of Plan . The Board of Directors may at any time, and from time to time, modify or amend +the Plan in such respects as it shall deem advisable because of changes in the law while the Plan is in effect or for any other reason. Except as provided in paragraphs 6(f), 9, 10 and 11, however, no change in an award already granted shall be made +without the written consent of the holder of such award. +14. Approvals . The obligations of the Company under the Plan are subject to the approval of state and federal authorities or agencies with jurisdiction in the matter. The Company will use +its best efforts to take steps required by state or federal law or applicable regulations, including rules and regulations of the Securities and Exchange Commission and any stock exchange or trading system on which the Company’s +A-10 +shares may then be listed or admitted for trading, in connection with the grants under the Plan. The foregoing notwithstanding, the Company shall not be +obligated to issue or deliver Class B Common Stock under the Plan if such issuance or delivery would violate applicable state or federal securities laws. +15. Employment and Service Rights . Nothing in the Plan or any award pursuant to the Plan shall (i) +confer upon any employee any right to be continued in the employment of the Company or any parent or subsidiary corporation of the Company or shall interfere in any way with the right of the Company or any parent or subsidiary corporation of the +Company by whom such employee is employed to terminate such employee’s employment at any time, for any reason, with or without cause, or to increase or decrease such employee’s compensation or benefits, or (ii) confer upon any person +engaged by the Company any right to be retained or employed by the Company or to the continuation, extension, renewal, or modification of any compensation, contract, or arrangement with or by the Company. +16. Rights as a +Shareholder . The recipient of any award under the Plan shall have no rights as a shareholder with respect to any Shares until the date of issue to the recipient of a stock certificate for such Shares. Except as otherwise +expressly provided in the Plan, no adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. +A-11 +EXHIBIT B +NIKE, Inc. +Charter of the Audit +Committee +Purpose +The purpose of the Audit Committee (the +“Committee”) of the Board of Directors (the “Board”) of NIKE, Inc. (the “Company”) is to provide assistance to the Board in fulfilling its legal and fiduciary obligations with respect to matters involving the +accounting, auditing, financial reporting, and internal controls of the Company. The Committee’s purpose includes assisting the Board’s oversight of: +• +The integrity of the Company’s financial statements; +• +The Company’s compliance with legal and regulatory requirements; +• +The independent auditor’s qualifications and independence; and +• +The performance of the Company’s internal audit function and independent auditor. +The Committee’s purpose also includes preparing the report of the Committee that the Securities and Exchange Commission +(“SEC”) rules require to be included in the Company’s annual proxy statement. +Membership +The +Audit Committee shall consist of at least three directors as determined by the Board. The Committee members shall meet the independence, financial literacy, and other requirements of the NYSE and all other applicable rules, regulations, and +statutes. At least one of the members must be a financial expert as defined by applicable rules, regulations, and statutes. The chair of the Committee shall be designated by the Board and shall have accounting or related financial management +expertise. A member of the Committee may not simultaneously serve on the audit committee of more than three public companies unless such service is approved by the Board upon its determination, based on the recommendation of the Nominating and +Corporate Governance Committee, that the simultaneous service would not impair the ability of the member to effectively serve on the Company’s Audit Committee. A member of the Committee may not, other than in his or her capacity as a member of +the Audit Committee, the Board, or any other Board committee, accept any consulting, advisory, or other compensatory fee from the Company, or be an affiliated person of the Company or a subsidiary thereof. The chair and the members of the Committee +shall be appointed by the Board of Directors approximately annually. +Meetings +The Committee shall meet with +such frequency and at such intervals as it determines is necessary to carry out its duties and responsibilities. The Committee may permit attendance at meetings by management and such ex officio members as the Committee may determine +appropriate or advisable from time to time. +B-1 +The Committee shall report regularly to the Board on matters within the Committee’s responsibilities, and shall maintain minutes of Committee meetings. +Duties and Responsibilities +Committee will have the following duties and responsibilities: +1. The sole authority to retain, subject to shareholder ratification, and +terminate the Company’s independent auditor, to approve all audit engagement fees, compensation and terms, and to directly oversee the work of the independent auditor with respect to the annual audit of the Company. +2. To instruct the Company’s independent auditor that it is to report +directly to the Committee. +3. The sole authority to approve in +advance all audit and legally permitted non-audit services to be provided by any independent public accountants; provided, however, that advance approval of non-audit services shall not be required if: +a. the aggregate amount of fees for all such non-audit +services provided to the Company constitutes not more than five percent of the total amount of revenues paid by the Company to its auditor during the fiscal year in which the non-audit services are provided; +b. the services were not recognized by the Company at the +time of the engagement to be non-audit services; and +c. the services are promptly brought to the attention of the Committee and approved prior to the completion of the audit by the Committee or by one or more members of the Committee who are members of the Board to whom authority to grant +such approvals has been delegated by the Committee. +4. The +sole authority to delegate to one or more designated members of the Committee who are independent directors of the Board, the authority to grant advance approvals of audit and non-audit services as described in Section 3 above. +5. At least annually, to obtain and review a report by the independent +auditor describing: the firm’s internal quality control procedures; any material issues raised by the most recent internal quality control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional +authorities, within the preceding five years, respecting one or more independent audits carried out by the firm and any steps taken to deal with any such issues; and all relationships between the independent auditor and the Company. +6. At least annually, to evaluate the independent auditor’s +qualifications, performance, and independence, which evaluation shall include the review and evaluation of the lead partner of the independent auditor and a review of the report referred to in Section 5 above. In making its +B-2 +evaluation, the Committee shall take into account the opinions of management and the Company’s internal auditors. The Committee shall further ensure the +rotation of the lead audit partner every five years. The Committee shall decide as to whether the Company is obtaining high quality audits and whether rotation of the auditor would be helpful. The Committee shall present its conclusions with respect +to the independent auditor to the Board. +7. To discuss the +annual audited financial statements and quarterly financial statements with management and the independent auditor, including the Company’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of +Operations.” +8. Review NIKE’s Annual Report filed +with the SEC on Form 10-K, and recommend to the Board that the audited financial statements be included in the Form 10-K. +9. Review with the independent auditor and management NIKE’s quarterly financial statements prior to filing and discuss with the independent auditor +any items required to be communicated by the independent auditor with respect to interim financial statements in accordance with SAS 61 and 71. +10. To discuss with the Chief Executive Officer and the Chief Financial Officer the individual certifications required to be filed with the Company’s +periodic reports to the SEC. +11. To discuss earnings press +releases, as well as financial information and earnings guidance provided to analysts and rating agencies. +12. To engage and compensate independent counsel and other advisors, as the Committee determines necessary to carry out its duties. +13. To discuss policies with respect to risk assessment and risk management +and to discuss the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures. +14. To meet separately, at least quarterly, with management, with internal auditors, and with the independent auditor. +15. To review with the independent auditor any audit problems or difficulties +and management’s response, including, but not limited to, any restriction on the scope of the independent auditor’s activities or on access to requested information, any significant disagreements with management, any accounting adjustments +that were noted or proposed by the auditor but were passed as immaterial or otherwise, any communications between the audit team and audit firm’s national office respecting auditing or accounting issues presented by the engagement, and any +“management” or “internal control” letter issued, or proposed to be issued, by the independent auditor to the Company. The review shall also include discussion of the responsibilities, budget and staffing of the Company’s +internal audit function. +B-3 +16. To resolve disagreements between management and the independent auditor regarding financial +reporting. +17. Obtain from the Company’s independent +auditor any information required to be provided pursuant to Section 10A of the Securities Exchange Act of 1934. +18. To review and approve, if appropriate, the internal audit charter and any changes thereto. +19. To ensure the independence of the chief internal auditor and to concur in +the selection, retention, and dismissal of the chief internal auditor. +20. To review the effectiveness of the Company’s accounting and internal control structure and procedures through inquiry and discussions with the Company’s independent auditor, internal auditors, and management of the Company, +and approve the internal control structure and procedures and any amendments thereto. +21. To establish procedures for (i) the receipt, retention, treatment, processing and resolution of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters, and (ii) +the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters. +22. To set hiring policies for employees or former employees of the independent auditor all in accordance with applicable legal requirements. +23. Meet periodically with the general counsel or other legal counsel to +review legal and regulatory matters, including any matters that may have a material effect on the financial statements of the Company. +24. To report regularly to the Board any material issues that arise with respect to the quality or integrity of the Company’s financial statements, +the Company’s compliance with legal or regulatory requirements, the performance and independence of the Company’s independent auditor, or the performance of the internal audit function. +25. Direct preparation of and approve the Audit Committee Report for +inclusion in the annual Proxy Statement that summarizes the Committee’s activities in compliance with Item 7 of Schedule 14A under the Securities Exchange Act of 1934. +26. Direct preparation and execution of the NYSE’s annual written affirmation of director independence and +qualifications to serve on the Committee as required by the NYSE Listed Company Manual. +27. Annually evaluate the performance of the Committee and report the results of the Committee performance evaluation to the Board. +28. Review and assess annually the adequacy of the Committee’s charter. +29. Perform such additional activities and consider such other matters within +the scope of its responsibilities as the Committee or the Board deems necessary or appropriate. +B-4 +ANNUAL +MEETING +AND +PROXY STATEMENT +September 22, 2003 +Portland, Oregon +This proxy statement is printed on +recycled paper +NIKE, INC. +P.O. BOX 43069 +PROVIDENCE, RI 02940-3069 +VOTE BY INTERNET - www.proxyvote.com +Use the Internet to transmit your voting instructions and for electronic delivery of information up until +11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you access the web site. You will be prompted to enter your 12-digit Control Number which is located below to obtain your records and to create an electronic +voting instruction form. +VOTE BY PHONE - 1-800-690-6903 +Use any touch-tone +telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you call. You will be prompted to enter your 12-digit Control Number which is located below and then +follow the simple instructions the Vote Voice provides you. +VOTE BY MAIL +Mark, sign, and date your proxy card and +return it in the postage-paid envelope we have provided or return it to NIKE, Inc., c/o ADP, 51 Mercedes Way, Edgewood, NY 11717. +TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: +NKINC1 +KEEP THIS PORTION FOR YOUR RECORDS +— — — — — — — — — — — — — — — — — — — — +— — — — — — — — — — — — — — — — — — — — +— — +THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. +DETACH AND RETURN THIS PORTION ONLY +NIKE, INC. +THE BOARD OF DIRECTORS RECOMMENDS A +VOTE FOR PROPOSALS 2 AND 3. +For +All +Withhold +All +For All +Except +To withhold authority to vote for any +nominee(s), mark “For All Except” and +write the nominee’s number on the line below. +1. +Election of Directors: +Nominees: 01) Thomas E. Clarke, +02) Ralph D. DeNunzio, +03) Richard K. Donahue, 04) Delbert J. Hayes, 05) Douglas G. Houser, +¨ +¨ +¨ +06) Jeanne P. Jackson, 07) Philip H. Knight, 08) Charles W. Robinson, +09) John R. Thompson, Jr. +For +Against +Abstain +2. +Proposal to approve an amendment to the NIKE, Inc. 1990 Stock Incentive Plan. +¨ +¨ +¨ +3. +Proposal to ratify the appointment of PricewaterhouseCoopers LLP as independent accountants. +¨ +¨ +¨ +THE SHARES REPRESENTED BY +THIS PROXY WILL BE VOTED AS SPECIFIED, BUT IF NO SPECIFICATION IS MADE, THIS +PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR +DIRECTOR, AND FOR PROPOSALS 2 AND 3. THE +PROXIES MAY VOTE IN THEIR DISCRETION AS TO OTHER MATTERS WHICH MAY COME BEFORE THE MEETING. +YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE +APPROPRIATE BOXES, BUT YOU NEED NOT MARK +ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS’ RECOMMENDATIONS. THE PROXIES +CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD. +For address changes and/or comments, please check this box and +write them on the back where +indicated. +¨ +(Please date and sign below exactly as your name or names appear +hereon. Joint owners should each sign personally. Corporate proxies +should be signed in full corporate name by an authorized officer +and attested. Persons signing in a fiduciary capacity should indicate +their full titles in such capacity.) +Signature [PLEASE SIGN WITHIN BOX] +Date +Signature (Joint +Owners) +Date +— — — — — — — — — — — — — — — — — — — — +— — — — — — — — — — — — — — — — — — — — +— — +NIKE, INC. +CLASS A COMMON STOCK PROXY +SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +FOR THE 2003 MEETING OF SHAREHOLDERS +SEPTEMBER 22, 2003 +The undersigned hereby appoints Philip H. Knight, Delbert J. Hayes and Douglas G. +Houser, and each of them, proxies with full power of substitution, to vote, as designated on the reverse side, on behalf of the undersigned, all shares of Class A Common Stock which the undersigned may be entitled to vote at the Annual Meeting of +Shareholders of NIKE, Inc. on September 22, 2003, and any adjournments thereof, with all powers that the undersigned would possess if personally present. A majority of the proxies or substitutes present at the meeting may exercise all powers granted +hereby. +Address Change/Comments: +If you noted address changes or comments above, please mark the corresponding +box on the reverse side. +NIKE, INC. +P.O. BOX 43069 +PROVIDENCE, RI 02940-3069 +VOTE BY INTERNET - www.proxyvote.com +Use the Internet to transmit your voting instructions and for electronic delivery of information up until +11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you access the web site. You will be prompted to enter your 12-digit Control Number which is located below to obtain your records and to create an electronic +voting instruction form. +VOTE BY PHONE - 1-800-690-6903 +Use any touch-tone +telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you call. You will be prompted to enter your 12-digit Control Number which is located below and then +follow the simple instructions the Vote Voice provides you. +VOTE BY MAIL +Mark, sign, and date your proxy card and +return it in the postage-paid envelope we have provided or return it to NIKE, Inc., c/o ADP, 51 Mercedes Way, Edgewood, NY 11717. +TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: +NKINC3 +KEEP THIS PORTION FOR YOUR RECORDS +— — — — — — — — — — — — — — — — — — — — +— — — — — — — — — — — — — — — — — — — — +— — +THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. +DETACH AND RETURN THIS PORTION ONLY +NIKE, INC. +THE BOARD OF DIRECTORS RECOMMENDS A +VOTE FOR PROPOSALS 2 AND 3. +For +All +Withhold +All +For All +Except +To withhold authority to vote for any +nominee(s), mark “For All Except” and +write the nominee’s number on the line below. +1. +Election of Directors: +Nominees: +01) Jill K. Conway +02) Alan B. Graf, Jr. +03) John E. Jaqua +04) A. Michael Spence +¨ +¨ +¨ +For +Against +Abstain +2. +Proposal to approve an amendment to the NIKE, Inc. 1990 Stock Incentive Plan. +¨ +¨ +¨ +3. +Proposal to ratify the appointment of PricewaterhouseCoopers LLP as independent accountants. +¨ +¨ +¨ +THE SHARES REPRESENTED BY +THIS PROXY WILL BE VOTED AS SPECIFIED, BUT IF NO SPECIFICATION IS MADE, THIS +PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR +DIRECTOR, AND FOR PROPOSALS 2 AND 3. THE +PROXIES MAY VOTE IN THEIR DISCRETION AS TO OTHER MATTERS WHICH MAY COME BEFORE THE MEETING. +YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE +APPROPRIATE BOXES, BUT YOU NEED NOT MARK +ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS’ RECOMMENDATIONS. THE PROXIES +CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD. +For address changes and/or comments, please check this box and +write them on the back where +indicated. +¨ +(Please date and sign below exactly as your name or names appear +hereon. Joint owners should each sign personally. Corporate proxies +should be signed in full corporate name by an authorized officer +and attested. Persons signing in a fiduciary capacity should indicate +their full titles in such capacity.) +Signature [PLEASE SIGN WITHIN BOX] +Date +Signature (Joint +Owners) +Date +— — — — — — — — — — — — — — — — — — — — +— — — — — — — — — — — — — — — — — — — — +— — +NIKE, INC. +CLASS B COMMON STOCK PROXY +SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +FOR THE 2003 MEETING OF SHAREHOLDERS +SEPTEMBER 22, 2003 +The undersigned hereby appoints Philip H. Knight, Delbert J. Hayes and Douglas G. +Houser, and each of them, proxies with full power of substitution, to vote, as designated on the reverse side, on behalf of the undersigned all shares of Class B Common Stock which the undersigned may be entitled to vote at the Annual Meeting of +Shareholders of NIKE, Inc. on September 22, 2003, and any adjournments thereof, with all powers that the undersigned, would possess if personally present. A majority of the proxies or substitutes present at the meeting may exercise all powers +granted hereby. +Address Change/Comments: +If you noted address changes or comments above, please mark the corresponding +box on the reverse side. \ No newline at end of file diff --git a/raw/proxies/0000320187/0001193125-03-031034/proxy_rpt.txt b/raw/proxies/0000320187/0001193125-03-031034/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000320187/0001193125-04-128274/proxy.txt b/raw/proxies/0000320187/0001193125-04-128274/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..797426eebe027bf9985bc797a57957339840d002 --- /dev/null +++ b/raw/proxies/0000320187/0001193125-04-128274/proxy.txt @@ -0,0 +1,1364 @@ +DEF 14A +1 +ddef14a.htm +DEFINITIVE PROXY STATEMENT +Definitive Proxy Statement +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of +1934 +(Amendment No. ) +Filed by the Registrant x +Filed by a Party other than the Registrant ¨ +Check the appropriate box: +¨ Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only +(as permitted by Rule 14a-6(e)(2)) +x Definitive Proxy Statement +¨ Definitive Additional Materials +¨ Soliciting Material Pursuant to § 240.14a-11(c) or § 240.14a-12 +NIKE, Inc. +(Name of Registrant as Specified in Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(I)(4) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was +determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the +previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +NIKE, Inc. +One Bowerman Drive +Beaverton, Oregon +97005-6453 +August 9, 2004 +To Our Shareholders: +You are cordially invited to attend the annual meeting of shareholders of NIKE, Inc. to be held at the Oregon Convention +Center, 777 N.E. Martin Luther King, Jr. Blvd., Portland, Oregon, on Monday, September 20, 2004, at 10:00 A.M. Pacific Time. Registration will begin at 9:00 A.M. +I believe that the annual meeting provides an excellent opportunity for shareholders to become better acquainted with NIKE +and its directors and officers. I hope that you will be able to attend. Highlights of the meeting will be available on videotape by calling 1-800-640-8007 following the meeting. +Whether or not you plan to attend, the prompt execution and return of your proxy card will both assure that your shares are +represented at the meeting and minimize the cost of proxy solicitation. +Sincerely, +Philip H. Knight +Chairman of the Board, +President, and Chief Executive Officer +Notice of Annual Meeting of Shareholders +September 20, 2004 +To the Shareholders of NIKE, Inc. +The annual meeting +of shareholders of NIKE, Inc., an Oregon corporation, will be held on Monday, September 20, 2004, at 10:00 A.M., at the Oregon Convention Center, 777 N.E. Martin Luther King, Jr. Blvd., Portland, Oregon, for the following purposes: +1. +To elect a Board of Directors for the ensuing year. +2. +To ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm. +3. +To transact such other business as may properly come before the meeting. +All shareholders are invited to attend the meeting. Shareholders of record at the close of business on July 26, 2004, the record date fixed by the Board +of Directors, are entitled to notice of and to vote at the meeting. You must present an admission ticket enclosed in this Proxy Statement. +By Order of the Board of Directors +LINDSAY D. STEWART +Secretary +Beaverton, Oregon +August 9, 2004 +Whether or not you intend to be present at the meeting, please sign and date the enclosed proxy and return it in the enclosed envelope, or vote by telephone or over the internet following the instructions on the +proxy. +PROXY STATEMENT +The enclosed proxy is solicited by the Board of Directors of NIKE, Inc. (“NIKE” or the “Company”) for +use at the annual meeting of shareholders to be held on September 20, 2004, and at any adjournment thereof (the “Annual Meeting”). The Company expects to mail this proxy statement and the enclosed proxy to shareholders on or about August +9, 2004. +The Company will bear the cost of solicitation of +proxies. In addition to the solicitation of proxies by mail, certain officers and employees of the Company, without extra compensation, may also solicit proxies personally or by telephone. The Company has retained ADP Investor Communications +Services, 51 Mercedes Way, Edgewood, New York, to assist in the solicitation of proxies from nominees and brokers at an estimated fee of $9,000 plus related out-of-pocket expenses. Copies of proxy solicitation materials will be furnished to +fiduciaries, custodians and brokerage houses for forwarding to the beneficial owners of shares held in their names. +All valid proxies properly executed and received by the Company prior to the Annual Meeting will be voted in accordance with the instructions specified in +the proxy. Where no instructions are given, shares will be voted FOR the election of each of the named nominees for director, and FOR ratification of the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm. A +shareholder may choose to strike the names of the proxy holders named in the enclosed proxy and insert other names. +A shareholder giving the enclosed proxy has the power to revoke it at any time before it is exercised by affirmatively electing to vote in person at the +meeting or by delivering to John F. Coburn III, Assistant Secretary of NIKE, either an instrument of revocation or an executed proxy bearing a later date. +VOTING SECURITIES +Holders of record of NIKE’s Class A Common Stock (“Class A Stock”) and holders of record of NIKE’s Class B Common Stock (“Class B +Stock”), at the close of business on July 26, 2004, will be entitled to vote at the Annual Meeting. On that date, 77,581,484 shares of Class A Stock and 185,783,487 shares of Class B Stock were issued and outstanding. Neither class of Common +Stock has cumulative voting rights. +Each share of Class A +Stock and each share of Class B Stock is entitled to one vote on every matter submitted to the shareholders at the Annual Meeting. With regard to Proposal 1, the election of directors, the holders of Class A Stock and the holders of Class B Stock +will vote separately. Holders of Class B Stock are currently entitled to elect 25 percent of the total Board, rounded up to the next whole number. Holders of Class A Stock are currently entitled to elect the remaining directors. Under this formula, +holders of Class B Stock, voting separately, will elect three directors, and holders of Class A Stock, voting separately, will elect six directors. Holders of Class A Stock and holders of Class B Stock will vote together as one class on Proposal 2. +PROPOSAL 1 +ELECTION OF DIRECTORS +A Board of 9 directors will be elected at the Annual Meeting. All of the nominees were elected at the 2003 annual meeting of shareholders. Directors will +hold office until the next annual meeting of shareholders or until their successors are elected and qualified. Three directors, John E. Jaqua, Richard K. Donahue, and Charles W. Robinson, who have served on the Board of Directors since +1968, 1977, and 1978, respectively, have chosen to retire from the Board at the Annual Meeting, and accordingly will not stand for election at the Annual Meeting. The Company appreciates greatly their distinguished service and valuable contributions +to NIKE. +Jill K. Conway, Alan B. Graf, Jr., and Jeanne P. +Jackson are nominated by the Board of Directors for election by the holders of Class B Stock. The other six nominees are nominated by the Board of Directors for election by the holders of Class A Stock. +Under Oregon law, if a quorum of each class of shareholders is present at the +Annual Meeting, the six director nominees who receive the greatest number of votes cast by holders of Class A Stock and the three director nominees who receive the greatest number of votes cast by holders of Class B Stock will be elected directors. +Abstentions and broker non-votes will have no effect on the results of the vote. Unless otherwise instructed, proxy holders will vote the proxies they receive for the nominees listed below. If any nominee becomes unable to serve, the holders of the +proxies may, in their discretion, vote the shares for a substitute nominee or nominees designated by the Board of Directors. +Background information on the nominees as of July 15, 2004, appears below: +Nominees for Election by Class A Shareholders +Thomas E. Clarke — Dr. Clarke, 53, a director since 1994, joined the Company in 1980, and serves as +President of New Business Ventures of the Company. He was appointed divisional vice president in charge of marketing in 1987, corporate Vice President in 1989, General Manager in 1990, and served as President and Chief Operating Officer from 1994 to +1999. Dr. Clarke previously held various positions with the Company, primarily in research, design, development and marketing. Dr. Clarke holds a Doctorate degree in biomechanics. +Ralph D. DeNunzio — Mr. DeNunzio, 72, a director of the Company since 1988, is President of Harbor +Point Associates, Inc., New York, New York, a private investment and consulting firm. Mr. DeNunzio was employed by the investment banking firm of Kidder, Peabody & Co. Incorporated from 1953 to 1987, where he served as President from 1977 +to 1986, as Chief Executive Officer from 1980 to 1987 and as Chairman of the Board of Directors from 1986 to 1987. Mr. DeNunzio served as Vice +2 +Chairman and Chairman of the Board of Governors of the New York Stock Exchange from 1969 to 1972 and was President of the Securities Industry Association in +1981. In 1970, Mr. DeNunzio headed the Securities Industry Task Force, which led to enactment of the Securities Investor Protection Act of 1970 and establishment of the Securities Investor Protection Corporation. +Delbert J. Hayes — Mr. Hayes, 69, a director since +1975, served as Executive Vice President of NIKE from 1980 to 1995. Mr. Hayes served as Treasurer and in a number of other executive positions with the Company from 1975 to 1980. Mr. Hayes was a partner with Hayes, Nyman & Co., certified public +accountants, from 1970 to 1975. Prior to 1970, Mr. Hayes was a certified public accountant with Price Waterhouse for eight years. +Douglas G. Houser — Mr. Houser, 69, a director since 1970, is an Assistant Secretary of the Company and has been a partner in the +Portland, Oregon law firm of Bullivant, Houser, Bailey since 1965. Mr. Houser is a trustee of Willamette University and a Fellow in the American College of Trial Lawyers, and has served as a member of the Board of Governors and Treasurer of the +Oregon State Bar Association and as a Director of the Rand Corporation, Institute for Civil Justice Board of Overseers. +Philip H. Knight — Mr. Knight, 66, a director since 1968, is President, Chief Executive Officer and Chairman of the Board of +Directors of NIKE. Mr. Knight is a co-founder of the Company and, except for the period from June 1983 through September 1984, served as its President from 1968 to 1990, and from June 2000 to present. Prior to 1968, Mr. Knight was a certified public +accountant with Price Waterhouse and Coopers & Lybrand and was an Assistant Professor of Business Administration at Portland State University. +John R. Thompson, Jr. — Mr. Thompson, 63, a director since 1991, was head coach of the Georgetown University men’s basketball +team from 1972 until 1998. Mr. Thompson serves as Assistant to the President of Georgetown for Urban Affairs. Mr. Thompson was head coach of the 1988 United States Olympic basketball team. He is a past President of the National Association of +Basketball Coaches and presently serves on its Board of Governors. +Nominees +for Election by Class B Shareholders +Jill K. +Conway — Dr. Conway, 69, a director since 1987, is currently a Visiting Scholar with the Massachusetts Institute of Technology’s Program in Science, Technology and Society. Dr. Conway was a Professor of History and President +of Smith College, Northampton, Massachusetts, from 1975 to 1985. She was affiliated with the University of Toronto from 1964 to 1975, and held the position of Vice President, Internal Affairs from 1973 to 1975. Dr. Conway holds numerous Honorary +Doctorates from North American universities. She is also a director of Merrill Lynch & Co., Inc. and Colgate-Palmolive Company. +3 +Alan B. Graf, Jr. — Mr. Graf, 50, a director since 2002, is the Executive Vice +President and Chief Financial Officer of FedEx Corporation, a position he has held since 1998, and is a member of FedEx Corporation’s Executive Committee. Mr. Graf joined FedEx Corporation in 1980 and was Senior Vice President and Chief +Financial Officer for FedEx Express, FedEx’s predecessor, from 1991 to 1998. He is also a director of Kimball International, Inc. and Mid-America Apartment Communities, Inc. +Jeanne P. Jackson — Ms. Jackson, 52, a director since 2001, is Founder and CEO of MSP Capital, a +private investment company. Ms. Jackson was CEO of Walmart.com from March 2000 to January 2002. She was with Gap, Inc., as President and CEO of Banana Republic from 1995-2000, also serving as CEO of Gap, Inc. Direct from 1998-2000. Since 1978, she +has held various retail management positions with Victoria’s Secret, The Walt Disney Company, Saks Fifth Avenue, and Federated Department Stores. Ms. Jackson is a Trustee of the United States Ski and Snowboard Team, and serves on the Board of +Advisors of the Harvard Graduate School of Business. She is also a director of McDonald’s, Nordstrom, and Williams-Sonoma. +Board of Directors and Committees +The Board currently has an Executive Committee, an Audit Committee, a Nominating and Corporate Governance Committee, a Finance Committee, a Corporate +Responsibility Committee, and a Compensation Committee, and may also appoint other committees from time to time. Each committee has a written charter; all such charters, as well as the Company’s corporate governance guidelines, are available at +the Company’s internet website (www.nikebiz.com) and will be provided in print to any shareholder who submits a request in writing to NIKE Investor Relations, One Bowerman Drive, Beaverton, Oregon 97005-6453. There were five meetings of the +Board of Directors during the last fiscal year. Each director attended at least 75 percent of the total number of meetings of the Board of Directors and committees on which he or she served, except for Mr. Thompson who attended 69 percent. The +Company encourages all directors to attend each annual meeting of shareholders, and all but one director attended the 2003 Annual Meeting. +Pursuant to New York Stock Exchange rules, in order for a director to qualify as “independent,” the Board of Directors must affirmatively +determine that the director has no material relationship with the Company that would impair the director’s independence. The rules permit the Board to adopt categorical standards under which relationships will be deemed immaterial without any +specific Board determination. Accordingly, the Board has determined that commercial or charitable relationships below the following thresholds will not be considered material relationships that impair a director’s independence: (i) if a NIKE +director or immediate family member is an executive officer of another company that does business with NIKE and the annual sales to, or purchases from, NIKE are less than one percent of the annual revenues of the other company; and (ii) if a NIKE +director or immediate family member serves as an officer, director or +4 +trustee of a charitable organization, and NIKE’s contributions to the organization are less than one percent of that organization’s total annual +charitable receipts. After applying this categorical standard, the Board of Directors has determined that all directors, except Mr. Knight and Dr. Clarke who are executive officers of the Company, have no material relationship with the Company and, +therefore, are independent. +Executive sessions of +non-management directors (consisting of all directors other than Mr. Knight and Dr. Clarke) are regularly scheduled and held at least once each year. The position of presiding director at these executive sessions is rotated among the Chairs of the +various Board committees, other than the Executive Committee, so there is no single lead director. +The Executive Committee of the Board is currently composed of Messrs. Knight (Chairman), Clarke, and Houser. The Executive Committee is authorized to act +on behalf of the Board on all corporate actions for which applicable law does not require participation by the full Board. In practice, the Executive Committee acts in place of the full Board only when emergency issues or scheduling make it +difficult or impracticable to assemble the full Board. All actions taken by the Executive Committee must be reported at the next Board meeting. The Executive Committee held no formal meetings during the fiscal year ended May 31, 2004, but took +actions from time to time pursuant to written consent resolutions. +The Audit Committee is currently composed of Mr. Graf (Chairman), Ms. Jackson, and Mr. Robinson. The Board has determined that each member of the Audit Committee meets all applicable independence and financial literacy requirements under +the New York Stock Exchange listing standards. The Board has also determined that Mr. Graf is an “audit committee financial expert” as defined in regulations adopted by the Securities and Exchange Commission. The Audit Committee is +responsible for the engagement or discharge of the independent registered public accountants, reviews and approves services provided by the independent registered public accountants, and reviews with the independent registered public accountants the +scope and results of their annual examination of the Company’s consolidated financial statements and any recommendations they may have. The Audit Committee also reviews the Company’s procedures with respect to maintaining books and +records, the adequacy and implementation of internal auditing, accounting, disclosure, and financial controls, and the Company’s policies concerning financial reporting and business practices. In 2004, the Charter of the Audit Committee was +amended. A copy of the Charter is attached to this Proxy Statement as Exhibit A. The Audit Committee met 14 times during the fiscal year ended May 31, 2004. +The Nominating and Corporate Governance Committee is currently composed of Mr. DeNunzio (Chairman), Dr. Conway, Mr. Donahue, and Mr. Houser. The Board has +determined that each member of the Nominating and Corporate Governance Committee meets all applicable independence requirements under the New York Stock Exchange listing standards. The Nominating and Corporate Governance Committee identifies +individuals qualified to become Board members, recommends director nominees for election at each annual shareholder meeting, and develops and recommends corporate governance guidelines and standards for business conduct and ethics. The committee +also oversees the annual self-evaluations of the Board and its committees and makes recommendations to the Board concerning the +5 +structure and membership of the other Board committees. The Nominating and Corporate Governance Committee met five times during the fiscal year ended May 31, +2004. +The Finance Committee is currently composed of Messrs. +Robinson (Chairman), DeNunzio, and Hayes. The Finance Committee considers long-term financing options and needs of the Company, long-range tax and currency issues facing the Company, and management recommendations concerning major capital +expenditures and material acquisitions or divestments. The Finance Committee met nine times during the fiscal year ended May 31, 2004. +The Corporate Responsibility Committee is currently composed of Dr. Conway (Chair), and Messrs. Donahue, Houser, and Thompson. The Corporate +Responsibility Committee reviews significant activities and policies regarding labor and environmental practices, community affairs, charitable and foundation activities, diversity and equal opportunity, and environmental and sustainability +initiatives, and makes recommendations to the Board of Directors. The Corporate Responsibility Committee met four times during the fiscal year ended May 31, 2004. +The Compensation Committee is currently composed of Mr. DeNunzio (Chairman), Ms. Jackson, Mr. Jaqua, and Mr. Thompson. +The Compensation Committee determines the Chief Executive Officer’s compensation and makes recommendations to the Board regarding other officers’ compensation, management incentive compensation arrangements and profit sharing plan +contributions. The Compensation Committee also grants stock options and restricted stock bonuses under the NIKE, Inc. 1990 Stock Incentive Plan, and determines targets and awards under the NIKE, Inc. Executive Performance Sharing Plan and the NIKE, +Inc. Long-Term Incentive Plan. The Compensation Committee met four times during the fiscal year ended May 31, 2004. +Director Nominations +The Nominating and Corporate Governance Committee identifies potential director candidates through a variety of means, including recommendations from +members of the Committee or the Board, suggestions from Company management, and shareholder recommendations. The committee also may, in its discretion, engage director search firms to identify candidates. Shareholders may recommend director +candidates for consideration by the Nominating and Corporate Governance Committee by submitting a written recommendation to the Committee, c/o John F. Coburn III, Assistant Secretary, NIKE, Inc., One Bowerman Drive, Beaverton, Oregon 97005-6453. The +recommendation should include the candidate’s name, age, qualifications (including principal occupation and employment history), and written consent to be named as a nominee in the Company’s proxy statement and to serve as a director, if +elected. +As provided in the Company’s Corporate +Governance Guidelines, nominees for director are selected on the basis of their character, judgment, business experience and acumen, understanding of the Company’s business, diversity, specific skills needed by the Board, and ability to devote +time to Board +6 +responsibilities. In considering the re-nomination of an incumbent director, the Nominating and Corporate Governance Committee reviews the director’s +overall service to the Company during his or her term, including the number of meetings attended, level of participation and quality of performance, as well as any special skills or diversity that such director brings to the Board. All potential new +director candidates, whether recommended by shareholders or identified by other means, are initially screened by the Chair of the Nominating and Corporate Governance Committee, who may seek additional information about the background and +qualifications of the candidate, and who may determine that a candidate does not have qualifications that merit further consideration by the full committee. With respect to new director candidates who pass the initial screening, the Nominating and +Corporate Governance Committee meets to discuss and consider each candidate’s qualifications and potential contributions to the Board, and determines by majority vote whether to recommend such candidates to the Board of Directors. The final +decision to either elect a candidate to fill a vacancy between Annual Meetings or include a candidate on the slate of nominees proposed at an Annual Meeting is made by the Board of Directors. +Shareholder Communications with Directors +Shareholders desiring to communicate directly with the Board of Directors, +with the non-management directors, or with any individual director, may do so in writing addressed to the intended recipient or recipients, c/o John F. Coburn III, Assistant Secretary, NIKE, Inc., One Bowerman Drive, Beaverton, Oregon 97005-6453. +All such communications will be reviewed, compiled as necessary, and then forwarded to the designated recipient or recipients in a timely manner. +Code of Business Conduct and Ethics +The NIKE Code of Ethics (“Code”) is available at the Company’s internet website ( www.nikebiz.com ) and will be provided in print +without charge to any shareholder who submits a request in writing to NIKE Investor Relations, One Bowerman Drive, Beaverton, Oregon 97005-6453. The Code applies to the Company’s chief executive officer and senior financial officers, and to all +other Company directors, officers and employees. The Code provides that any waiver of the Code may be made only by the Board. Any such waiver in favor of a director or executive officer will be publicly disclosed. The Company plans to disclose +amendments to, and waivers from, the Code on the Company’s internet website: www.nikebiz.com . +Director Compensation and Retirement Plan +Messrs. Knight and Clarke do not receive additional compensation for their services as directors. Directors are reimbursed for travel and other expenses incurred in attending Board meetings. Pursuant to elections made +in fiscal 2000, Messrs. Donahue, Hayes, Jaqua, Robinson, and Thompson, and Dr. Conway +7 +receive an annual fee of $22,000 per year, plus $2,000 for each Board meeting attended, $1,000 for each committee meeting attended, an annual grant of an +option to purchase 4,000 shares of stock at the market price at grant, medical insurance, and $500,000 of life insurance coverage. Messrs. DeNunzio, Graf, Houser, and Ms. Jackson, and all directors first elected after fiscal 2000, receive a fee of +$40,000 per year, plus $2,000 for each Board meeting attended, $1,000 for each committee meeting attended, and an annual grant of an option to purchase 4,000 shares of stock at the market price at grant. However, they receive no medical or life +insurance benefits. In exchange for electing the new compensation method in fiscal 2000, Messrs. DeNunzio and Houser also receive an annual grant of an option to purchase 1,000 shares of stock at the market price on the date of grant. +From 1989 to 1999, the Company provided certain retirement benefits to +non-employee directors who retired after serving for five years or more. The plan provided that after ten years of service by a director, the Company would provide such director for the remainder of his or her life with $500,000 of life insurance +and medical insurance at the levels provided by the Company to all of its employees at the time the director retires. The plan also provided that a director who had served for at least five years would receive an annual retirement cash payment for +life, commencing on the later of age 65 or the date the director retires or ceases to be a member of the Board. The annual retirement cash payment ranged from $9,000 for five years of service up to a maximum of $18,000 for 10 or more years of +service. +In fiscal 2000, in an effort to reduce future +retirement obligations, the Board of Directors approved a new retirement plan that allowed directors to make a one-time election to waive their future rights to annual retirement cash payments in exchange for a credit to a stock account under the +Company’s Deferred Compensation Plan equal to the lump sum present value of the payments based on the actuarial life expectancy of each director. The number of shares of Class B Common Stock credited to each stock account was based on the +market price of the stock on September 1, 1999. All directors at that time, except for Messrs. Donahue and Robinson, elected the new plan. The number of shares of Class B Common Stock credited to the stock accounts of each director was: Dr. Conway, +4,165; Mr. DeNunzio, 3,852; Mr. Hayes, 4,217; Mr. Houser, 4,243; Mr. Jaqua, 2,610; and Mr. Thompson, 3,271. Any non-employee directors first elected after fiscal 2000 do not receive retirement benefits. +Directors first elected after the 1993 fiscal year must retire at age 72. +8 +Stock Holdings of Certain Owners and Management +The following table sets forth the number of shares of each class of NIKE securities beneficially owned, as of July 15, +2004, by (i) each person known to the Company to be the beneficial owner of more than 5 percent of any class of the Company’s securities, (ii) each of the directors and nominees for director, (iii) each executive officer listed in the Summary +Compensation Table (“Named Officers”), and (iv) all nominees, Named Officers, and other executive officers as a group. Because Class A Stock is convertible into Class B Stock on a share-for-share basis, each beneficial owner of Class A +Stock is deemed by the Securities and Exchange Commission to be a beneficial owner of the same number of shares of Class B Stock. Therefore, in indicating a person’s beneficial ownership of shares of Class B Stock in the table, it has been +assumed that such person has converted into Class B Stock all shares of Class A Stock of which such person is a beneficial owner. For these reasons the table contains substantial duplications in the numbers of shares and percentages of Class A and +Class B Stock shown for Messrs. Hayes, Jaqua and Knight; for Cardinal Fund I, L.P.; and for all directors and officers as a group. +Title of +Class +Shares +Beneficially +Owned (1) +Percent of +Class (2) +Thomas E. Clarke +Portland, Oregon +Class B +223,276 +(3) (4) (5) +0.1% +Jill K. Conway +Boston, Massachusetts +Class B +29,455 +(6) +Ralph D. DeNunzio +Riverside, Connecticut +Class B +111,458 +(3) (6) +Richard K. Donahue +Lowell, Massachusetts +Class B +115,202 +Alan B. Graf, Jr. +Memphis, Tennessee +Class B +9,000 +(3) +Delbert J. Hayes +Newberg, Oregon +Class A +Class B +390,000 +597,342 +(6) +0.5% +0.3% +Douglas G. Houser +Portland, Oregon +Class B +95,724 +(3) (6) +Jeanne Jackson +Newport Coast, California +Class B +6,000 +(3) +John E. Jaqua +Eugene, Oregon +Class A +Class B +389,263 +570,564 +(6) (7) +0.5% +0.3% +Philip H. Knight (8) +Beaverton, Oregon +Class A +Class B +71,655,047 +71,662,541 +(9) +(5) (9) +92.4% +27.8% +9 +Title of +Class +Shares +Beneficially +Owned (1) +Percent of +Class (2) +Charles W. Robinson +Santa Fe, New Mexico +Class B +300,000 +0.2% +John R. Thompson, Jr +Washington, D.C. +Class B +17,446 +(3) (6) +Charles Denson (8) +Portland, Oregon +Class B +217,438 +(3) (4) (5) (10) +0.1% +Mindy Grossman (8) +Beaverton, Oregon +Class B +80,709 +(3) (5) (10) +Mark G. Parker (8) +Beaverton, Oregon +Class B +385,445 +(3) (4) (5) (10) +0.2% +Gary M. DeStefano (8) +Beaverton, Oregon +Class B +173,421 +(3) (4) (5) (10) +Sojitz Corporation of America +Portland, Oregon +Preferred (11) +300,000 +100.0% +Cardinal Fund I, L.P. +Fort Worth, Texas +Class A +Class B +1,950,000 +14,718,131 +(12) +(12) +2.5% +7.8% +FMR Corp +Boston, Massachusetts +Class B +11,100,980 +(13) +6.0% +Janus Capital Management LLC +Denver, Colorado +Class B +10,056,037 +(13) +5.4% +Wellington Management Company LLP +Boston, Massachusetts +Class B +10,052,287 +(13) +5.4% +All directors and executive officers as a group (24 persons) +Class A +Class B +72,434,310 +75,327,330 +(3) +93.4% +29.1% +(1) +A person is considered to beneficially own any shares: (a) over which the person exercises sole or shared voting or investment power, or (b) of which the person has the right to +acquire beneficial ownership at any time within 60 days (such as through conversion of securities or exercise of stock options). Unless otherwise indicated, voting and investment power relating to the above shares is exercised solely by the +beneficial owner or shared by the owner and the owner’s spouse or children. +(2) +Omitted if less than 0.1 percent. +(3) +These amounts include the right to acquire, pursuant to the exercise of stock options, within 60 days after July 15, 2004, the following numbers of shares: 215,000 +shares for Dr. Clarke, 4,000 shares for +10 +Mr. DeNunzio, 5,000 for Mr. Graf, 4,000 shares for Mr. Houser, 6,000 shares for Ms. Jackson, 10,000 shares for Mr. Thompson, 177,500 shares for Mr. Denson, +65,000 shares for Ms. Grossman, 330,000 shares for Mr. Parker, 138,000 shares for Mr. DeStefano and 1,565,250 shares for the executive officer and director group. +(4) +Includes shares held in accounts under the NIKE, Inc. 401(k) and Profit Sharing Plan for Dr. Clarke, Mr. Denson, Mr. Parker, and Mr. DeStefano in the amounts of 2,725, 4,397, 3,095, +and 3,118 shares, respectively. +(5) +These amounts include 1,859, 1,859, 929, 929, 929, and 929 shares granted to Mr. Knight, Dr. Clarke, Mr. Denson, Ms. Grossman, Mr. Parker, and Mr. DeStefano respectively, under the +NIKE, Inc. Long-Term Incentive Plan, as to which the restrictions expire August 15, 2004. +(6) +Includes shares credited to accounts under the NIKE, Inc. Deferred Compensation Plan in the following amounts: 4,387 for Dr. Conway; 4,058 for Mr. DeNunzio; 4,442 for Mr. Hayes; +4,469 for Mr. Houser; 2,749 for Mr. Jaqua; and 3,446 for Mr. Thompson. +(7) +Does not include 473,281 shares owned by Mr. Jaqua’s spouse. Mr. Jaqua has disclaimed ownership of these shares. +(8) +Executive officer listed in the Summary Compensation Table. +(9) +Does not include: (a) 814,790 Class A shares held by a limited partnership in which a corporation owned by Mr. Knight’s spouse is a co-general partner, (b) 65,224 Class A +shares owned by such corporation, (c) 1,000,000 Class B shares held by the Knight Foundation, a charitable foundation in which Mr. Knight and his spouse are directors, (d) 1,950,000 Class A shares held by Oak Hill Strategic Partners, L.P., a limited +partnership in which a company owned by Mr. Knight is a limited partner, and (e) 12,768,131 Class B shares held by Cardinal Fund I, L.P., a limited partnership in which Mr. Knight is a limited partner. Mr. Knight has disclaimed ownership of all such +shares. +(10) +These amounts include 15,314, 14,357, 15,314, and 11,485 restricted shares granted on July 18, 2003 to Mr. Denson, Ms. Grossman, Mr. Parker, and Mr. DeStefano respectively, under +the NIKE, Inc. Stock Incentive Plan. The restrictions lapse with respect to one third of the shares on each of the first three anniversaries of the grant date, with the exception of Mr. DeStefano’s grant which will vest 100% on the third +anniversary of the date, unless employment terminates before that date, in which case any remaining restricted shares are forfeited. +(11) +Preferred Stock does not have general voting rights except as provided by law, and under certain circumstances as provided in the Company’s Restated Articles of Incorporation, +as amended. +(12) +Includes 1,950,000 shares of Class A Common Stock held by Oak Hill Strategic Partners, L.P., which is under common control with Cardinal Fund I, L.P. +(13) +Information provided as of December 31, 2003 in Schedule 13G filed by the shareholder. +11 +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934 requires the +Company’s directors and executive officers, and persons who own more than 10 percent of a registered class of the Company’s equity securities, to file with the Securities and Exchange Commission (the “SEC”) and the New York Stock +Exchange initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Officers, directors and greater than 10 percent shareholders are required by the regulations of the SEC to furnish +the Company with copies of all Section 16(a) forms they file. To the Company’s knowledge, based solely on review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the +fiscal year ended May 31, 2004 all Section 16(a) filing requirements applicable to its officers, directors and greater than 10 percent beneficial owners were complied with, except that a report covering one transaction was filed one day late by Mr. +Hayes, a report covering one transaction was filed five days late by Mr. Parker, a report covering one transaction was filed five days late by Mr. Sprunk, a report covering one transaction was filed five days late by Dr. Clarke, and a report +covering one transaction was filed twelve days late by Mr. Edwards. Each resulted from broker clerical errors regarding notification of the Company. +12 +EXECUTIVE COMPENSATION +The following table discloses compensation awarded to, earned by, or paid to the Company’s Chief Executive Officer and +its next four most highly compensated executive officers for all services rendered by them in all capacities to the Company and its subsidiaries during the fiscal year ended May 31, 2004 and the two preceding fiscal years. +Summary Compensation Table +Annual Compensation +Restricted +Stock +Awards ($) +Long-term +Compensation +Name and +Principal Position +Year +Salary ($) +Bonus ($) +Other Annual +Compensation ($) +Stock +Options +(#) +LTIP +Payouts ($) +All Other +Compensation +($) (1) +Philip H. Knight +Chairman, Chief +Executive +Officer and +President +2004 +2003 +2002 +1,392,308 +1,350,000 +1,350,321 +2,278,282 +1,121,840 +1,377,327 +— +— +— +— +— +— +— +— +— +456,000 +320,000 +0 +99,053 +87,195 +572,856 +Mark G. Parker +President +NIKE Brand +2004 +2003 +2002 +992,308 +942,308 +897,436 +1,270,759 +817,154 +595,000 +— +— +— +800,000 +— +— +(3) +70,000 +70,000 +60,000 +228,000 +160,000 +0 +81,226 +59,079 +50,284 +(2) +Charles Denson +President +NIKE Brand +2004 +2003 +2002 +934,615 +834,615 +713,141 +1,196,878 +740,907 +472,812 +— +— +108,502 +800,000 +— +— +(3) +70,000 +70,000 +60,000 +228,000 +160,000 +0 +72,050 +46,933 +35,702 +Mindy Grossman +Vice President +Apparel +2004 +2003 +2002 +792,308 +734,615 +645,833 +845,531 +485,434 +395,250 +— +— +— +750,000 +— +— +(3) +50,000 +40,000 +30,000 +228,000 +160,000 +0 +50,341 +96,719 +199,137 +Gary M. DeStefano +President +USA Operations +2004 +2003 +2002 +742,308 +684,615 +603,846 +769,361 +420,080 +369,554 +(4) +— +— +— +600,000 +— +— +(3) +44,000 +44,000 +40,000 +228,000 +160,000 +0 +53,796 +41,704 +34,271 +(1) +Includes contributions by the Company to the NIKE, Inc. 401(k) and Profit Sharing Plan for the fiscal year ended May 31, 2004 in the amount of $7,880 each for Mr. Knight and Ms. +Grossman, $13,580 for Mr. Denson, and $15,880 each for Mr. Parker and Mr. DeStefano. Also includes contributions by the Company to the Deferred Compensation Plan for Mr. Knight, Mr. Parker, Mr. Denson, Ms. Grossman, and Mr. DeStefano of +$91,173, $63,410, $58,470, $42,461, and $37,916, respectively. +(2) +Includes above-market interest on deferred compensation for Mr. Parker in the amount of $1,936 for the 2004 fiscal year. +(3) +Represents the value of restricted shares granted based on the closing market price of the Class B Stock on the grant date. On July 18, 2003, restricted stock grants were made to +Mr. Parker and Mr. Denson for 15,314 shares, Ms. Grossman for 14,357 shares, and Mr. DeStefano for 11,485 shares. The restrictions lapse with respect to one third of the shares on each of the first three anniversaries of the grant date, with +the exception of Mr. DeStefano’s grant which will vest 100% on the third anniversary of the grant date, unless employment terminates before that date, in which case any remaining restricted shares are forfeited. Dividends on restricted shares +are paid currently to the holders. On May 31, 2004 the number of remaining restricted shares and the dollar value of those shares based on the fair market value of $71.15 per share on that date was 15,314 shares with a value of $1,089,591 for Mr. +Parker and Mr. Denson, 14,357 shares with a value of $1,021,501 for Ms. Grossman, and 11,485 shares with a value of $817,158 for Mr. DeStefano. +(4) +Includes $30,000 bonus outside the Executive Performance Sharing Plan. +13 +Option Grants in the Fiscal Year Ended May 31, 2004 +Name +Options Granted +(#) (1) +% of Total +Options Granted +to Employees +in Fiscal Year +Exercise or +Base Price +($/share) (2) +Expiration +Date +Potential Realizable Value +at Assumed Annual Rates of +Stock Price Appreciation for +Option Term (3) +5% ($) +10% ($) +Philip H. Knight +— +— +— +— +— +— +Mark G. Parker +70,000 +1.4 +$ +52.24 +7/17/13 +$ +2,299,742 +$ +5,827,997 +Charles Denson +70,000 +1.4 +$ +52.24 +7/17/13 +$ +2,299,742 +$ +5,827,997 +Mindy Grossman +50,000 +1.0 +$ +52.24 +7/17/13 +$ +1,642,673 +$ +4,162,855 +Gary DeStefano +44,000 +0.9 +$ +52.24 +7/17/13 +$ +1,445,552 +$ +3,663,313 +(1) +The options shown in the table with the expiration date of July 17, 2013 become exercisable with respect to 25% of the total number of shares on each of July 18, 2004, 2005, 2006, +and 2007. All options for all individuals will become fully exercisable generally upon the approval by the Company’s shareholders of a merger, plan of exchange, sale of substantially all of the Company’s assets or plan of liquidation. +(2) +The exercise price is the market price of Class B Stock on the date the options were granted. +(3) +Assumed annual appreciation rates are set by the SEC and are not a forecast of future appreciation. The actual realized value depends on the market value of the Class B Stock on the +exercise date, and no gain to the optionees is possible without an increase in the price of the Class B Stock. All assumed values are before taxes and do not include dividends. +Aggregated Option Exercises in the Fiscal Year +Ended May 31, 2004 and Fiscal Year-End Option Values +Name +Shares +Acquired on +Exercise (#) +Value +Realized ($) +Number of Unexercised +Options at +Fiscal Year-End (#) +Value of Unexercised +In-the-Money Options +at Fiscal Year-End ($) (1) +Exercisable +Unexercisable +Exercisable +Unexercisable +Philip H. Knight +0 +0 +0 +0 +0 +0 +Mark G. Parker +80,000 +$ +3,641,862 +280,000 +152,500 +$ +6,551,863 +$ +3,351,325 +Charles Denson +32,000 +$ +1,434,534 +127,500 +152,500 +$ +3,311,800 +$ +3,351,325 +Mindy Grossman +90,000 +$ +2,752,246 +35,000 +95,000 +$ +966,300 +$ +2,042,450 +Gary DeStefano +0 +0 +106,000 +97,000 +$ +2,505,295 +$ +2,139,450 +(1) +Based on a fair market value as of May 31, 2004 of $71.15 per share. Values are stated on a pre-tax basis. +14 +Long-Term Incentive Plans Awards in Fiscal Year Ended May 31, 2004 +Name +Performance +or Other Period +Until Maturation +or Payout (1) +Threshold ($) +Target ($) +Maximum ($) +Philip H. Knight +Fiscal Years 2004 to 2006 +40,000 +400,000 +600,000 +Mark G. Parker +Fiscal Years 2004 to 2006 +20,000 +200,000 +300,000 +Charles Denson +Fiscal Years 2004 to 2006 +20,000 +200,000 +300,000 +Mindy Grossman +Fiscal Years 2004 to 2006 +20,000 +200,000 +300,000 +Gary DeStefano +Fiscal Years 2004 to 2006 +20,000 +200,000 +300,000 +(1) +In June 2003, the Compensation Committee established a series of performance targets based on fiscal 2004 through 2006 revenues and earnings per share corresponding to award payouts +ranging from 10% to 150% of the target awards. Participants will receive a payout at the average of the percentage levels corresponding to the results for the two targets, subject to the Committee’s discretion to reduce or eliminate any award +based on Company or individual performance. Under the terms of the awards, on August 15, 2006 the Company would issue in the name of each participant a number of shares of Class B Stock with a value equal to the award payout based on the closing +price of the Class B Stock on that date on the New York Stock Exchange, or pay all or part of that value in cash, at the election of the participant. The shares or cash will be 100% vested at that time. The Company’s performance in fiscal years +2002 to 2004 corresponded to an LTIP payout of 114% of the target awards for the performance period that ended on May 31, 2004. +15 +Equity Compensation Plans +The following table summarizes equity compensation plans approved by shareholders and equity compensation plans that were +not approved by the shareholders as of May 31, 2004: +Plan category +(a) +Number of Securities to +be Issued Upon +Exercise of Outstanding +Options, Warrants +and +Rights +(b) +Weighted-Average +Exercise Price of +Outstanding Options, +Warrants and +Rights +(c) +Number of Securities +Remaining Available for +Future Issuance Under +Equity Compensation +Plans +(Excluding +Securities Reflected in +Column (a)) +Equity compensation plans approved by shareholders (1) +18,641,379 +$ +47.39 +17,112,719 +Equity compensation plans not approved by shareholders (2) +170,000 +50.43 +953,318 +Total +18,811,379 +$ +47.42 +18,066,037 +(1) +Includes 18,641,379 options outstanding subject to the 1990 Stock Incentive Plan. Includes 13,805,154 shares available for future issuance under the 1990 Stock Incentive Plan, +905,626 shares available for future issuance under the Long-Term Incentive Plan, and 2,401,939 shares available for future issuance under the Employee Stock Purchase Plan. +(2) +The Company has granted to a few consultants and directors nonqualified options to purchase NIKE Class B Stock. The options have terms ranging from 8 to 10 years, expiring at +various times from 2006 to 2009, with exercise prices ranging from $45.00 to $55.81. All of the options are exercisable. Includes 953,318 shares available for future issuance under the Foreign Subsidiary Employee Stock Purchase Plan, pursuant to +which shares are offered and sold to employees of selected non-U.S. subsidiaries of the Company on substantially the same terms as those offered to U.S. employees under the shareholder-approved Employee Stock Purchase Plan. +16 +Notwithstanding anything to the contrary set forth in any of the Company’s filings under the +Securities Act of 1933 or the Securities Exchange Act of 1934, the following Performance Graph and the Report of the Compensation Committee below shall not be incorporated by reference into any such filings and shall not otherwise be deemed filed +under such acts. +Performance Graph +The following graph demonstrates a five-year comparison of cumulative total +returns for NIKE’s Class B Stock, the Standard & Poor’s 500 Stock Index, the Standard & Poor’s Footwear Index, and the Standard & Poor’s Apparel, Accessories & Luxury Goods Index. The graph assumes an investment +of $100 on May 31, 1999 in each of the Company’s Common Stock, and the stocks comprising the Standard & Poor’s 500 Stock Index, the Standard & Poor’s Footwear Index, and the Standard & Poor’s Apparel, Accessories +& Luxury Goods Index. Each of the indices assumes that all dividends were reinvested. +COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN AMONG NIKE, INC., S&P 500 INDEX, +S&P +FOOTWEAR INDEX AND S&P APPAREL, ACCESSORIES & LUXURY GOODS INDEX +17 +The Standard & Poor’s Footwear Index consists of NIKE and Reebok International. The Standard +& Poor’s Apparel, Accessories & Luxury Goods Index consists of Liz Claiborne, Inc., VF Corp., and Jones Apparel. The Standard & Poor’s Footwear and Apparel, Accessories, and Luxury Goods Indices include companies in two major +lines of business in which the Company competes. The indices do not encompass all of the Company’s competitors, nor all product categories and lines of business in which the Company is engaged. Because NIKE is part of the S&P Footwear +Index, the price and returns of NIKE stock affect this index. +The Stock Performance shown on the Graph above is not necessarily indicative of future performance. The Company will not make nor endorse any predictions as to future stock performance. +18 +REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD +OF DIRECTORS ON EXECUTIVE COMPENSATION +The Compensation Committee of the Board of Directors (the “Committee”) determines the compensation of the Chief Executive Officer and, subject +to the approval of the Board of Directors, the compensation of the Company’s other four most highly compensated executive officers, and oversees the administration of executive compensation programs. +Executive Compensation Policies and +Programs. The Company’s executive compensation programs are designed to attract and retain highly qualified executives and to motivate them to maximize shareholder returns by achieving both short- and long-term +strategic Company goals. The programs link each executive’s compensation directly to individual and Company performance. A significant portion of each executive’s total compensation is variable and dependent upon the attainment of +strategic and financial goals, individual performance objectives, and the appreciation in value of the Common Stock. +There are three basic components to the Company’s “pay for performance” system: base pay; annual incentive bonus; and long-term incentive +compensation. Each component is addressed in the context of individual and Company performance, competitive conditions and equity among employees. In determining competitive compensation levels, the Company analyzes information from several +independent surveys that include information regarding the general industry as well as other consumer product companies. Since the Company’s market for executive talent extends beyond the sports industry, the survey data includes global +name-brand consumer product companies with sales in excess of $2 billion. A comparison of the Company’s financial performance with that of the companies and indices shown in the Performance Graph is only one of many factors considered by the +Committee to determine executive compensation. +Base +Pay. Base pay is designed to be competitive (generally in the second or third quartile) as compared to salary levels for equivalent executive positions at other global consumer product companies. An executive’s actual +salary within this competitive framework will vary based on responsibilities, experience, leadership, potential future contribution, and demonstrated individual performance (measured against strategic management objectives such as maintaining +customer satisfaction, developing innovative products, strengthening market share and profitability, and expanding the markets for the Company’s products). The types and relative importance of specific financial and other business objectives +vary among the Company’s executives depending on their positions and the particular operations or functions for which they are responsible. The Company’s philosophy and practice is to place a relatively greater emphasis on the incentive +components of compensation. +Annual Incentive +Bonus. Each executive is eligible to receive an annual cash bonus under the Executive Performance Sharing Plan. The “target” level for that bonus, like the base salary level, is set with reference to Company-wide +bonus programs, as well as competitive conditions. These target levels are +19 +intended to motivate the Company’s executives by providing substantial bonus payments for the achievement of financial goals within the Company’s +business plan. An executive receives a percentage of his or her target bonus depending on the extent to which the Company achieves financial performance goals set by the Committee, as measured by the Company’s net income before taxes. Bonuses +may exceed the target if the Company’s performance exceeds the goal. +Long-Term Incentive Compensation. The long-term compensation program is tied directly to shareholder return. Under the current program, long-term incentive compensation consists of stock +options, 25% of which vest in each of the four years after grant, and performance-based stock or cash awards under the Long-Term Incentive Plan (“LTIP”). +Stock options are awarded with an exercise price equal to the fair market value of the Class B Stock on the date of grant. +Accordingly, the executive is rewarded only if the market price of the Class B Stock appreciates. Since options vest over time, the Company periodically grants new options to provide continuing incentives for future performance. The size of previous +grants and the number of options held are considered by the Committee, but are not entirely determinative of future grants. Like base pay, the grant is set with regard to competitive considerations, and each executive’s actual grant is based +upon individual performance measured against the criteria described in the preceding paragraphs and the executive’s potential for future contributions. In limited instances, executives may receive restricted stock awards, which vest one-third +per year over three years. In July 2003, the Committee approved a one-time grant of restricted stock awards to executive officers to address deficiencies in the incentive components of compensation when compared to other consumer product companies. +These awards vest one-third per year over three years. +Under +the LTIP, the Committee has established a series of performance targets corresponding to awards of stock or cash ranging from 10% to 150% of the target awards. The performance targets have been based on revenues and earnings per share for +performance periods of three years, in order to provide an incentive to achieve the Company’s longer-term performance goals. If performance targets are achieved, shares of stock or cash issued to executives are fully vested upon payment. +Stock options and performance-based stock and cash awards +under the LTIP are designed to align the interests of the Company’s executives with those of shareholders by encouraging executives to enhance the value of the Company and, hence, the price of the Class B Stock and the shareholders’ +return. In addition, through deferred vesting and three-year performance periods, this component of the compensation system is designed to create an incentive for the individual executive to remain with the Company. +Other Plans. The Company maintains combined +profit sharing and 401(k) retirement plans, a non-qualified Deferred Compensation Plan, and Employee Stock Purchase Plans. Under the profit sharing retirement plan, the Company annually contributes to a trust on behalf of employees, including +executive officers, an amount that in the past five fiscal years has equaled an annual contribution of between 3.20% to 4.09% of each employee’s earnings. The percentage is determined by the Board of Directors. +20 +For fiscal 2004, under the terms of the profit sharing plan, each employee, including each executive +officer, received a contribution to his or her plan account of 3.94% of the employee’s total eligible salary and bonus up to $200,000. Under the terms of the Deferred Compensation Plan, employees, including executive officers, whose total +eligible salary and bonus exceeds $200,000 receive a supplemental profit sharing contribution into a nonqualified deferred compensation account in an amount equal to the additional contribution they would have received under the profit sharing plan +if not for the $200,000 cap on salary and bonus considered for purposes of that plan as required under IRS regulations. Accordingly, those employees each received supplemental contributions equal to 3.94% of their eligible salary and bonus in excess +of $200,000. These profit sharing plans serve to retain employees and executives, since funds do not fully vest until after five years of employment with the Company. +Under the 401(k) retirement plan, the Company contributes up to 4% of each employee’s earnings as a matching +contribution for pre-tax salary deferred into the plan. This matching contribution is initially invested in Class B Stock, which strengthens the linkage between employee and shareholder interests. +The Company’s Employee Stock Purchase Plan (“ESPP”) qualifies +under Section 423 of the Internal Revenue Code. The ESPP allows employees to defer up to 10% of their annual compensation for purchases of Class B Stock, subject to certain limitations. The stock is purchased every six months at 85% of the lower of +the price of the stock at the beginning or end of the six-month period. Pursuant to the Foreign Subsidiary Employee Stock Purchase Plan, the Company offers and sells Class B Stock on substantially identical terms to employees of selected non-U.S. +subsidiaries. These plans are intended to encourage employee investment in the Company and to provide an incentive for employees to increase shareholder returns. +Annual Reviews. Each year, the Committee reviews the executive compensation policies with +respect to the linkage between executive compensation and the creation of shareholder value, as well as the competitiveness of the programs. The Committee determines what changes, if any, are appropriate in the compensation programs for the +following year. In conducting the annual review, the Committee considers information provided by Human Resources staff and uses surveys and reports prepared by independent compensation consultants. +Each year, the Committee, with the Chairman and Human Resources staff, +reviews the individual performance of each of the other four most highly compensated executive officers, and the Chairman’s recommendations with respect to the appropriate compensation levels and awards. The Committee sets performance and bonus +targets, and certifies awards, under the Executive Performance Sharing Plan and the LTIP, makes stock option grants and restricted stock awards, determines the compensation of the Chief Executive Officer, and makes recommendations to the Board of +Directors for final approval of all other compensation matters. The Committee also reviews with the Chairman and the Human Resources staff the financial and other strategic objectives, such as those identified above, for each of the named executive +officers for the following year. +21 +For fiscal year 2004, the Company met targeted performance objectives set for named executive officers +sufficient for a payout under the Executive Performance Sharing Plan. This resulted from increased profitability due to aligning costs with revenues, and sales increases in key product categories and markets, more than offsetting reductions in +others. Furthermore, the Company’s competitive position in the industry remained strong. The Company’s financial performance corresponded to bonuses of 142% of the individual target bonuses under the Executive Performance Sharing Plan, and +114% of the individual target payouts under the three-year LTIP. +Chief Executive Officer. In reviewing Mr. Knight’s performance, the Committee focused primarily on the Company’s performance in fiscal year 2004, which resulted in strong revenue and earnings growth. +The Committee noted continued progress toward the achievement of various strategic objectives such as operational and supply chain efficiencies, growth in key product categories and regions, and revenue growth. The Committee also considered the +other factors described above. Consistent with the plans, Mr. Knight received a bonus of $1,392,308 under the Executive Performance Sharing Plan, $456,000 under the LTIP, and no stock option awards. The Committee did not change Mr. +Knight’s base salary for the 2005 fiscal year. +Section +162(m) of the Internal Revenue Code. In 2000 shareholders re-approved the Executive Performance Sharing Plan, in 2002 they re-approved the LTIP, and in 2003 they re-approved the stock incentive plan. The plans are each +designed to satisfy the performance-based exception to the Section 162(m) limitation on deductibility with respect to incentive compensation for named executive officers, except that restricted stock bonuses do not qualify as performance based. +Members of the Compensation Committee: +Ralph D. DeNunzio, Chairman +Jeanne P. Jackson +John E. Jaqua +John R. Thompson, Jr. +Compensation Committee Interlocks and Insider Participation +The members of the Compensation Committee of the Board of Directors during the fiscal year ended May 31, 2004 are listed +above. The Committee is composed solely of independent, non-employee directors. +22 +Employment Contracts and Termination of Employment and Change-in-Control Arrangements +An agreement between the Company and President of the NIKE Brand Mark G. +Parker contains a covenant not to compete that extends for one year following the termination of his employment with the Company. The agreement provides that if Mr. Parker voluntarily resigns, the Company will make monthly payments to him during the +one-year noncompetition period in an amount equal to the greater of (i) $20,833 or (ii) one-twenty-fourth of the total salary and bonuses received by Mr. Parker during the 12-month period immediately preceding his resignation. The agreement +provides further that if Mr. Parker’s employment is terminated by the Company, the Company will make monthly payments to him during the one-year noncompetition period in an amount equal to the greater of (i) $41,667 or +(ii) one-twelfth of the total salary and bonuses received by Mr. Parker during the 12-month period immediately preceding his termination. If Mr. Parker is terminated without cause, the parties may mutually agree to waive the covenant not to +compete, and if Mr. Parker is terminated for cause, the Company may unilaterally waive the covenant. If the covenant is waived, the Company will not be required to make the payments described above for the months as to which the waiver applies. +The Company has a similar agreement with President of NIKE +Brand, Mr. Charles D. Denson, that extends for one year following the termination of his employment with the Company. The agreement provides that if his employment is terminated by the Company, the Company will make monthly payments to him during +the one-year noncompetition period in an amount equal to the sum of Mr. Denson’s last salary plus 1/12 th of his +annual cash bonus (calculated at 100% of his targeted rate). The agreement provides further that if he voluntarily resigns, the Company will make monthly payments to him during the one-year noncompetition period in an amount equal to the sum of +one-half of his last salary plus 1/24 th of his annual cash bonus (calculated at 100% of his targeted rate). If Mr. +Denson is terminated without cause, the parties may mutually agree to waive the covenant not to compete, and if Mr. Denson is terminated for cause, the Company may unilaterally waive the covenant. If the covenant is waived, the Company will not be +required to make the payments described above for the months as to which the waiver applies. +The Company has an employment agreement and a covenant not to compete with Vice President Mindy Grossman that was renewed for a three-year term as of September 28, 2003. Under the new agreement, her base salary will +be $800,000 per year, subject to annual increases based on performance. The Company will pay certain travel expenses for her and her family between New York City and Beaverton, Oregon, her target bonus under the Executive Performance Sharing Plan +for fiscal 2004 and thereafter was set at 75 percent of her annual salary, and her target award level under the Long-Term Incentive Plan for all awards made in or after fiscal 2004 was set at $400,000. Ms. Grossman received a grant of 14,357 shares +of restricted stock as of July 18, 2003 with a value of $750,000 based on the closing market price on the prior day, which will vest with respect to one-third of the shares on the first three anniversaries of the date of grant. During the term of +her contract, she is to be granted an option to purchase at least 50,000 shares of Class B Stock each year, which will generally vest with respect to 25% +23 +of each option on the first four anniversaries of the date of grant. To align the timing of her grants with the timing of the grants made to other executive +officers of the Company, her restricted stock award and 50,000 share option was granted on July 18, 2003 rather than September 28, 2003. If Ms. Grossman’s employment is terminated (i) without cause, (ii) by her for good reason, or (iii) due to +disability, she will receive severance payments equal to one times her final annual salary and 60% of the salary earned year-to-date in the fiscal year of termination, and her initial option and restricted stock grants will be fully vested. In +addition, if Ms. Grossman’s employment with the Company is terminated, the Company will make monthly payments to her during a one-year period of a covenant not to compete in an amount equal to her last monthly salary. The Company may +unilaterally waive the covenant not to compete. If the covenant is waived, the Company will not be required to make the payments described above for the months as to which the waiver applies. +Certain Transactions and Business Relationships +Mr. Knight makes his airplane available for business use by the Company for +no charge. NIKE operates and maintains the aircraft. During fiscal 2004, Mr. Knight reimbursed the Company $391,176 for NIKE’s operating costs related to his personal use of this aircraft. +24 +PROPOSAL 2 +RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +The Audit Committee of the Board of Directors has appointed +PricewaterhouseCoopers LLP as independent registered public accounting firm to examine the Company’s consolidated financial statements for the fiscal year ending May 31, 2005 and to render other professional services as required. +The Audit Committee is submitting the appointment of PricewaterhouseCoopers +LLP to shareholders for ratification. +Representatives of +PricewaterhouseCoopers will be present at the Annual Meeting, will have the opportunity to make a statement if they desire to do so, and are expected to be available to respond to questions. +Aggregate fees billed by the Company’s independent registered public +accounting firm, PricewaterhouseCoopers LLP, for audit services related to the most recent two fiscal years, and for other professional services billed in the most recent two fiscal years, were as follows: +Type of Service +2004 +2003 +Audit Fees (1) +$ +3.1 million +$ +2.4 million +Audit-Related Fees (2) +$ +0.2 million +$ +0.4 million +Tax Fees (3) +$ +1.8 million +$ +2.6 million +Financial Information System Design and Implementation Fees (4) +— +$ +2.8 million +Miscellaneous Service Fees (5) +$ +0.7 million +$ +1.0 million +All Other Fees +$ +0.7 million +$ +3.8 million +Total +$ +5.8 million +$ +9.2 million +(1) +Comprised of the audit of the Company’s annual financial statements and reviews of the Company’s quarterly financial statements, as well as statutory audits of Company +subsidiaries, attest services, comfort letters and consents to SEC filings. +(2) +Comprised of employee benefit plan audits, acquisition due diligence, and consultations regarding financial accounting and reporting. +(3) +Comprised of services for tax compliance, tax planning, and tax advice. Tax compliance includes services related to the preparation or review of original and amended tax returns for +the Company and its consolidated subsidiaries and represents $1.2 million and $1.6 million of the tax fees for fiscal 2004 and 2003, respectively. The remaining tax fees primarily include tax advice. Included in the fiscal 2003 tax fees are +contingent fees of $0.2 million arising from services commenced in fiscal 2002 and completed in fiscal 2003. Services for contingent fees are no longer performed by PricewaterhouseCoopers. +25 +(4) +Beginning in late 1998, NIKE commenced a multi-year project to replace and upgrade its supply chain systems, including design, production, sales, distribution and finance. +PricewaterhouseCoopers LLP was chosen through a competitive bidding process as one of several major contractors to work on a portion of that project. In October 2002, the Business Consulting Services unit of International Business Machines +Corporation acquired the consulting division of PricewaterhouseCoopers working on the supply chain project. Accordingly, such services are no longer performed by PricewaterhouseCoopers. +(5) +Comprised of services for the preparation of tax returns for expatriate employees, labor and corporate responsibility audits, computer system access security (completed by May 6, +2004 in accordance with transition rules), and other miscellaneous services. +In accordance with the Sarbanes-Oxley Act of 2002, the Audit Committee established policies and procedures under which all audit and non-audit services performed by the Company’s independent registered public +accounting firm must be approved in advance by the Audit Committee. During fiscal 2004, fees totaling $39,100, or 0.7% of total fees, were paid to PricewaterhouseCoopers for several small engagements in foreign locations that were not pre-approved, +but were approved by the Audit Committee promptly after their inadvertent omission from pre-approval was noticed. +26 +Notwithstanding anything to the contrary set forth in any of the Company’s filings under the +Securities Act of 1933 or the Securities Exchange Act of 1934, the following Report of the Audit Committee shall not be incorporated by reference into any such filings and shall not otherwise be deemed filed under such acts. +REPORT OF THE AUDIT COMMITTEE +The Audit Committee has: +• +Reviewed and discussed the audited financial statements with management. +• +Discussed with the independent auditors the matters required to be discussed by SAS 61. +• +Received the written disclosures and the letter from the independent accountants required by Independence Standards Board Standard No. 1, and has discussed with the independent +accountant the independent accountant’s independence. +• +Based on the review and discussions above, recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K +for the last fiscal year for filing with the Securities and Exchange Commission. +Members of the Audit Committee: +Alan B. Graf, Jr., Chairman +Jeanne P. Jackson +Charles W. Robinson +OTHER +MATTERS +As of the time this proxy statement was printed, +management was unaware of any proposals to be presented for consideration at the Annual Meeting other than those set forth herein, but if other matters do properly come before the Annual Meeting, the persons named in the proxy will vote the shares +represented by such proxy according to their best judgment. +27 +SHAREHOLDER PROPOSALS +A proposal by a shareholder for inclusion in the Company’s proxy statement and form of proxy for the 2005 annual +meeting of shareholders must be received by John F. Coburn III, Assistant Secretary of NIKE, at One Bowerman Drive, Beaverton, Oregon 97005-6453, on or before April 11, 2005 in order to be eligible for inclusion. Rules under the Securities Exchange +Act of 1934 describe standards as to the submission of shareholder proposals. In addition, the Company’s bylaws require that any shareholder wishing to make a nomination for Director, or wishing to introduce a proposal or other business at a +shareholder meeting must give the Company at least 60 days’ advance written notice, and that notice must meet certain requirements described in the bylaws. +For the Board of Directors +LINDSAY D. STEWART +S ECRETARY +28 +EXHIBIT A +NIKE, Inc. +Charter of the Audit +Committee +Purpose +The purpose of the Audit Committee (the “Committee”) of the Board +of Directors (the “Board”) of NIKE, Inc. (the “Company”) is to provide assistance to the Board in fulfilling its legal and fiduciary obligations with respect to matters involving the accounting, auditing, financial reporting, and +internal controls of the Company. The Committee’s purpose includes assisting the Board’s oversight of: +• +The integrity of the Company’s financial statements; +• +The Company’s compliance with legal and regulatory requirements; +• +The independent auditor’s qualifications and independence; and +• +The performance of the Company’s internal audit function and independent auditor. +The Committee’s purpose also includes preparing the report of the Committee that the Securities and Exchange Commission +(“SEC”) rules require to be included in the Company’s annual proxy statement. +Membership +The Audit Committee shall consist of at least three directors as determined by the Board. The Committee members shall meet the independence, financial +literacy, and other requirements of the NYSE and all other applicable rules, regulations, and statutes. At least one of the members must be a financial expert as defined by applicable rules, regulations, and statutes. The chair of the Committee +shall be designated by the Board and shall have accounting or related financial management expertise. A member of the Committee may not simultaneously serve on the audit committee of more than three public companies unless such service is approved +by the Board upon its determination, based on the recommendation of the Nominating and Corporate Governance Committee, that the simultaneous service would not impair the ability of the member to effectively serve on the Company’s Audit +Committee. A member of the Committee may not, other than in his or her capacity as a member of the Audit Committee, the Board, or any other Board committee, accept any consulting, advisory, or other compensatory fee from the Company, or be an +affiliated person of the Company or a subsidiary thereof. The chair and the members of the Committee shall be appointed by the Board of Directors approximately annually. +Meetings +The Committee shall meet with such frequency and at such intervals as it determines is necessary to carry out its duties and responsibilities. The +Committee may permit attendance at meetings by management +A-1 +and such ex officio members as the Committee may determine appropriate or advisable from time to time. The Committee shall report regularly to the +Board on matters within the Committee’s responsibilities, and shall maintain minutes of Committee meetings. +Duties and Responsibilities +Committee will have the following duties and responsibilities: +1. The sole authority to retain, with shareholder ratification, and terminate the Company’s independent auditor, to approve all audit engagement +fees, compensation and terms, and to directly oversee the work of the independent auditor with respect to the annual audit of the Company. +2. To instruct the Company’s independent auditor that it is to report directly to the Committee. +3. The sole authority to approve in advance all audit and legally permitted +non-audit services to be provided by any independent public accountants; provided, however, that advance approval of non-audit services shall not be required if: +a. the aggregate amount of fees for all such non-audit services provided to the Company constitutes not more +than five percent of the total amount of revenues paid by the Company to its auditor during the fiscal year in which the non-audit services are provided; +b. the services were not recognized by the Company at the time of the engagement to be non-audit services; and +c. the services are promptly brought to the attention of the +Committee and approved prior to the completion of the audit by the Committee or by one or more members of the Committee who are members of the Board to whom authority to grant such approvals has been delegated by the Committee. +4. The sole authority to delegate to one or more designated members of the +Committee who are independent directors of the Board, the authority to grant advance approvals of audit and non-audit services as described in Section 3 above. +5. At least annually, to obtain and review a report by the independent auditor describing: the firm’s internal quality control procedures; any +material issues raised by the most recent internal quality control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more +independent audits carried out by the firm and any steps taken to deal with any such issues; and all relationships between the independent auditor and the Company. +A-2 +6. At least annually, to evaluate the independent auditor’s qualifications, performance, and +independence, which evaluation shall include the review and evaluation of the lead partner of the independent auditor and a review of the report referred to in Section 5 above. In making its evaluation, the Committee shall take into account the +opinions of management and the Company’s internal auditors. The Committee shall further ensure the rotation of the lead audit and review partners every five years, or more frequently as the Committee shall determine in its sole discretion. The +Committee shall decide as to whether the Company is obtaining high quality audits and whether rotation of the auditor would be helpful. The Committee shall present its conclusions with respect to the independent auditor to the Board. +7. To discuss the annual audited financial statements and quarterly financial +statements with management and the independent auditor, including the Company’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” +8. Review NIKE’s Annual Report filed with the SEC on Form 10-K, and +recommend to the Board that the audited financial statements be included in the Form 10-K. +9. Review with the independent auditor and management NIKE’s quarterly financial statements prior to filing and discuss with the independent auditor any items required to be communicated by the independent +auditor with respect to interim financial statements in accordance with SAS 61 and 71. +10. To discuss with the Chief Executive Officer and the Chief Financial Officer the individual certifications required to be filed with the Company’s periodic reports to the SEC. +11. To discuss earnings press releases, as well as financial information and +earnings guidance provided to analysts and rating agencies. +12. To engage and compensate independent counsel and other advisors, as the Committee determines necessary to carry out its duties. +13. To discuss policies with respect to risk assessment and risk management and to discuss the Company’s major financial risk exposures and the steps +management has taken to monitor and control such exposures. +14. To meet separately, at least quarterly, with management, with internal auditors, and with the independent auditor. +15. To review with the independent auditor any audit problems or difficulties and management’s response, including, but not limited to, any +restriction on the scope of the independent auditor’s activities or on access to requested information, any significant disagreements with management, any accounting adjustments that were noted or proposed by the auditor but were passed as +immaterial or otherwise, any communications between the audit team and audit firm’s national office respecting auditing or accounting +A-3 +issues presented by the engagement, and any “management” or “internal control” letter issued, or proposed to be issued, by the +independent auditor to the Company. The review shall also include discussion of the responsibilities, budget and staffing of the Company’s internal audit function. +16. To resolve disagreements between management and the independent auditor regarding financial reporting. +17. Obtain from the Company’s independent auditor any information +required to be provided pursuant to Section 10A of the Securities Exchange Act of 1934 (the “‘34 Act”). +18. To review and approve, if appropriate, the internal audit charter and any changes thereto. +19. To ensure the independence of the chief internal auditor and to concur in +the selection, retention, and dismissal of the chief internal auditor. +20. To review the effectiveness of the Company’s accounting and internal control structure and procedures through inquiry and discussions with the Company’s independent auditor, internal auditors, and management of the Company, +and approve the internal control structure and procedures and any amendments thereto. +21. To establish procedures for (i) the receipt, retention, treatment, processing and resolution of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters, and (ii) +the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters. +22. To set hiring policies for employees or former employees of the independent auditor all in accordance with applicable legal requirements. +23. Meet periodically with the general counsel or other legal counsel to +review legal and regulatory matters, including any matters that may have a material effect on the financial statements of the Company. +24. Meet periodically with the Company’s internal Clearance Director, who will (i) review and approve in advance all trades of NIKE common stock +owned by the Company’s directors and officers who are subject to Section 16 of the ‘34 Act, (ii) be a member of, and be provided with all information furnished to, the Disclosure Committee, (iii) meet at least annually with the +Company’s directors and officers to inform them of the stock trading policies and procedures applicable to them, and (iv) provide periodic reports to the Committee regarding the performance of his or her duties and any issues or problems +encountered. +25. Receive reports from the Company’s +internal Disclosure Committee, which is responsible for quarterly review of material issues regarding accounting, financial reporting, public disclosure, internal control, and fraud issues in respect of the financial statements of the Company. +A-4 +26. To report regularly to the Board any material issues that arise with respect to the quality or +integrity of the Company’s financial statements, the Company’s compliance with legal or regulatory requirements, the performance and independence of the Company’s independent auditor, or the performance of the internal audit function. +27. Direct preparation of and approve the Audit Committee +Report for inclusion in the annual Proxy Statement that summarizes the Committee’s activities in compliance with Item 7 of Schedule 14A under the Securities Exchange Act of 1934. +28. Direct preparation and execution of the NYSE’s annual written affirmation of director independence and +qualifications to serve on the Committee as required by the NYSE Listed Company Manual. +29. Annually evaluate the performance of the Committee and report the results of the Committee performance evaluation to the Board. +30. Review and assess annually the adequacy of the Committee’s charter. +31. Perform such additional activities and consider such other matters within +the scope of its responsibilities as the Committee or the Board deems necessary or appropriate. +A-5 +ANNUAL +MEETING +AND +PROXY STATEMENT +September 20, 2004 +Portland, Oregon +This proxy statement is printed on +recycled paper +NIKE, INC. +P.O. BOX 43069 +PROVIDENCE, RI +02940-3069 +VOTE BY INTERNET - www.proxyvote.com +Use the +Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the +instructions to obtain your records and to create an electronic voting instruction form. +VOTE BY PHONE - 1-800-690-6903 +Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day +before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. +VOTE BY MAIL +Mark, sign and date your proxy card and return it in the +postage-paid envelope we have provided or return it to NIKE, Inc., c/o ADP, 51 Mercedes Way, Edgewood, NY 11717. +TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: +NIKEA1 +KEEP THIS PORTION FOR YOUR RECORDS +DETACH AND RETURN THIS PORTION ONLY +THIS PROXY CARD IS +VALID ONLY WHEN SIGNED AND DATED. +NIKE, INC. +THE BOARD OF DIRECTORS RECOMMENDS A +VOTE FOR PROPOSAL 2. +For +All +Withhold +All +For All +Except +To withhold authority to vote for any nominee(s), mark “For All Except” and write the nominee’s number on the line +below. +1. +Election of Directors: +Nominees: 01) Thomas E. Clarke, 02) Ralph D. +DeNunzio, 03) Delbert J. Hayes, 04) Douglas G. +Houser, 05) Philip H. Knight, 06) John R. +Thompson, +Jr. +¨ +¨ +¨ +For +Against +Abstain +2. +Proposal to ratify the appointment of PricewaterhouseCoopers LLP as independent accountants. +¨ +¨ +¨ +THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED, BUT IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR, AND FOR +PROPOSAL 2. THE PROXIES MAY VOTE IN THEIR DISCRETION AS TO OTHER MATTERS WHICH MAY COME BEFORE THE MEETING. +YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS’ +RECOMMENDATIONS. THE PROXIES CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD. +For address changes and/or comments, please check this box and write them on the back where indicated. +¨ +(Please date and sign below exactly as your name or names appear hereon. Joint owners should each sign personally. Corporate proxies should be signed in full corporate name by an +authorized officer and attested. Persons signing in a fiduciary capacity should indicate their full titles in such capacity.) +Signature [PLEASE SIGN WITHIN BOX] +Date +Signature (Joint Owners) +Date +NIKE, INC. +CLASS A COMMON STOCK +PROXY +SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +FOR THE 2004 MEETING OF SHAREHOLDERS +SEPTEMBER 20, 2004 +The undersigned hereby appoints Philip H. Knight, +Delbert J. Hayes and Douglas G. Houser, and each of them, proxies with full power of substitution, to vote, as designated on the reverse side, on behalf of the undersigned, all shares of Class A Common Stock which the undersigned may be entitled to +vote at the Annual Meeting of Shareholders of NIKE, Inc. on September 20, 2004, and any adjournments thereof, with all powers that the undersigned would possess if personally present. A majority of the proxies or substitutes present at the meeting +may exercise all powers granted hereby. +Address +Change/Comments: +If you noted address changes or comments above, please mark the corresponding box on +the reverse side. +NIKE, INC. +P.O. BOX 43069 +PROVIDENCE, RI +02940-3069 +VOTE BY INTERNET - www.proxyvote.com +Use the +Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the +instructions to obtain your records and to create an electronic voting instruction form. +VOTE BY PHONE - 1-800-690-6903 +Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day +before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. +VOTE BY MAIL +Mark, sign and date your proxy card and return it in the +postage-paid envelope we have provided or return it to NIKE, Inc., c/o ADP, 51 Mercedes Way, Edgewood, NY 11717. +TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: +NIKEB1 +KEEP THIS PORTION FOR YOUR RECORDS +DETACH AND RETURN THIS PORTION ONLY +THIS PROXY CARD IS +VALID ONLY WHEN SIGNED AND DATED. +NIKE, INC. +THE BOARD OF DIRECTORS RECOMMENDS A +VOTE FOR PROPOSAL 2. +For +All +Withhold +All +For All +Except +To withhold authority to vote for any nominee(s), mark “For All Except” and write the nominee’s number on the line +below. +1. +Election of Directors: +Nominees: +01) Jill K. Conway +¨ +¨ +¨ +02) Alan B. Graf, Jr. +03) Jeanne P. Jackson +For +Against +Abstain +2. +Proposal to ratify the appointment of PricewaterhouseCoopers LLP as independent accountants. +¨ +¨ +¨ +THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED, BUT IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR, AND FOR +PROPOSAL 2. THE PROXIES MAY VOTE IN THEIR DISCRETION AS TO OTHER MATTERS WHICH MAY COME BEFORE THE MEETING. +YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS’ +RECOMMENDATIONS. THE PROXIES CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD. +For address changes and/or comments, please check this box and write them on the back where indicated. +¨ +(Please date and sign below exactly as your name or names appear hereon. Joint owners should each sign personally. Corporate proxies should be signed in full corporate name by an +authorized officer and attested. Persons signing in a fiduciary capacity should indicate their full titles in such capacity.) +Signature [PLEASE SIGN WITHIN BOX] +Date +Signature (Joint Owners) +Date +NIKE, INC. +CLASS B COMMON STOCK +PROXY +SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +FOR THE 2004 MEETING OF SHAREHOLDERS +SEPTEMBER 20, 2004 +The undersigned hereby appoints Philip H. Knight, +Delbert J. Hayes and Douglas G. Houser, and each of them, proxies with full power of substitution, to vote, as designated on the reverse side, on behalf of the undersigned all shares of Class B Common Stock which the undersigned may be entitled to +vote at the Annual Meeting of Shareholders of NIKE, Inc. on September 20, 2004, and any adjournments thereof, with all powers that the undersigned, would possess if personally present. A majority of the proxies or substitutes present at the meeting +may exercise all powers granted hereby. +Address +Change/Comments: +If you noted address changes or comments above, please mark the corresponding box on +the reverse side. \ No newline at end of file diff --git a/raw/proxies/0000320187/0001193125-04-128274/proxy_rpt.txt b/raw/proxies/0000320187/0001193125-04-128274/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000320187/0001193125-06-167800/proxy.txt b/raw/proxies/0000320187/0001193125-06-167800/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..2533041378c7da33c69ff54d54b5652f38e56eea --- /dev/null +++ b/raw/proxies/0000320187/0001193125-06-167800/proxy.txt @@ -0,0 +1,1496 @@ +DEF 14A +1 +ddef14a.htm +DEFINITIVE PROXY STATEMENT +Definitive Proxy Statement +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of +1934 +Filed by the Registrant x +Filed by a Party other than the +Registrant ¨ +Check the appropriate box: +¨ Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only +(as permitted by Rule 14a-6(e)(2)) +x Definitive Proxy Statement +¨ Definitive Additional Materials +¨ Soliciting Material Pursuant to § 240.14a-11(c) or § 240.14a-12 +NIKE, Inc. +(Name of Registrant as Specified in Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(I)(4) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was +determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the +previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +NIKE, Inc. +One Bowerman Drive +Beaverton, Oregon 97005-6453 +August 9, 2006 +To Our +Shareholders: +You are cordially invited to attend the annual meeting of shareholders of NIKE, Inc. to be held at the Tiger Woods +Conference Center, One Bowerman Drive, Beaverton, Oregon 97005-6453, on Monday, September 18, 2006, at 10:00 A.M. Pacific Time. Registration will begin at 9:00 A.M. +In an effort to shorten the annual meeting, the meeting will consist of a very brief presentation followed by the business items listed on the attached notice. A videotape of the meeting will be available by calling +1-800-640-8007 following the meeting. +Whether or not you plan to attend, the prompt execution and return of your proxy card will both +assure that your shares are represented at the meeting and minimize the cost of proxy solicitation. +Sincerely, +Philip H. Knight +Chairman of the Board +Notice of Annual Meeting of Shareholders +September 18, 2006 +To the Shareholders of NIKE, Inc. +The annual meeting of shareholders of NIKE, Inc., an Oregon corporation, will be held on Monday, September 18, 2006, at 10:00 A.M., +at the Tiger Woods Conference Center, One Bowerman Drive, Beaverton, Oregon 97005-6453, for the following purposes: +1. +To elect a Board of Directors for the ensuing year. +2. +To vote on a shareholder proposal regarding a charitable contributions report. +3. +To ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm. +4. +To transact such other business as may properly come before the meeting. +All shareholders are invited to attend the meeting. Shareholders of record at the close of business on July 25, 2006, the record date fixed by the Board of Directors, are entitled to notice of and to vote at the +meeting. You must present an admission ticket attached to your proxy or voter instruction card. +By Order of the Board of Directors +JOHN F. COBURN III +Secretary +Beaverton, Oregon +August 9, 2006 +Whether or not you intend to be present at the meeting, please sign and date +the enclosed proxy and return it in the enclosed envelope, or vote by telephone or over the internet following the instructions on the proxy. +PROXY STATEMENT +The enclosed proxy is solicited by the Board of Directors of NIKE, Inc. (“NIKE” or the “Company”) for use at the annual meeting of shareholders to be held on September 18, 2006, and at any +adjournment thereof (the “Annual Meeting”). The Company expects to mail this proxy statement and the enclosed proxy to shareholders on or about August 9, 2006. +The Company will bear the cost of solicitation of proxies. In addition to the solicitation of proxies by mail, certain officers and employees of the Company, without extra compensation, may also solicit proxies +personally or by telephone. Copies of proxy solicitation materials will be furnished to fiduciaries, custodians and brokerage houses for forwarding to the beneficial owners of shares held in their names. +All valid proxies properly executed and received by the Company prior to the Annual Meeting will be voted in accordance with the instructions specified +in the proxy. Where no instructions are given, shares will be voted (1) FOR the election of each of the named nominees for director, (2) AGAINST the shareholder proposal regarding charitable contributions, and (3) FOR ratification of +the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm. A shareholder may choose to strike the names of the proxy holders named in the enclosed proxy and insert other names. +A shareholder giving the enclosed proxy has the power to revoke it at any time before it is exercised by affirmatively electing to vote in person at the +meeting or by delivering to John F. Coburn III, Secretary of NIKE, either an instrument of revocation or an executed proxy bearing a later date. +VOTING SECURITIES +Holders of record of NIKE’s Class A Common Stock (“Class A Stock”) and holders of +record of NIKE’s Class B Common Stock (“Class B Stock”), at the close of business on July 25, 2006, will be entitled to vote at the Annual Meeting. On that date, 63,906,694 shares of Class A Stock and 191,491,507 shares of +Class B Stock were issued and outstanding. Neither class of Common Stock has cumulative voting rights. +Each share of Class A Stock +and each share of Class B Stock is entitled to one vote on every matter submitted to the shareholders at the Annual Meeting. With regard to Proposal 1, the election of directors, the holders of Class A Stock and the holders of Class B Stock +will vote separately. Holders of Class B Stock are currently entitled to elect 25 percent of the total Board, rounded up to the next whole number. Holders of Class A Stock are currently entitled to elect the remaining directors. Under this +formula, holders of Class B Stock, voting separately, will elect three directors, and holders of Class A Stock, voting separately, will elect eight directors. Holders of Class A Stock and holders of Class B Stock will vote together as one +class on Proposals 2 and 3. +PROPOSAL 1 +ELECTION OF DIRECTORS +A Board of 11 directors will be elected at the Annual Meeting. All of the +nominees were elected at the 2005 annual meeting of shareholders except for Timothy D. Cook and Mark G. Parker, who were appointed to the Board of Directors on November 17, 2005, and January 20, 2006, respectively. Directors will hold +office until the next annual meeting of shareholders or until their successors are elected and qualified. +Jill K. Conway, Alan B. Graf, +Jr., and Jeanne P. Jackson are nominated by the Board of Directors for election by the holders of Class B Stock. The other eight nominees are nominated by the Board of Directors for election by the holders of Class A Stock. +Under Oregon law, if a quorum of each class of shareholders is present at the Annual Meeting, the eight director nominees who receive the greatest number +of votes cast by holders of Class A Stock and the three director nominees who receive the greatest number of votes cast by holders of Class B Stock will be elected directors. Abstentions and broker non-votes will have no effect on the results +of the vote. Unless otherwise instructed, proxy holders will vote the proxies they receive for the nominees listed below. If any nominee becomes unable to serve, the holders of the proxies may, in their discretion, vote the shares for a substitute +nominee or nominees designated by the Board of Directors. +On February 16, 2006, the Board of Directors amended the Corporate +Governance Guidelines to provide that any nominee for director in an uncontested election who receives a greater number of votes “withheld” from his or her election than votes “for” such election shall tender his or her +resignation for consideration by the Nominating and Corporate Governance Committee. The Committee shall recommend to the Board the action to be taken with respect to the resignation. The Board will publicly disclose its decision within 90 days of +the certification of the election results. +Background information on the nominees as of July 15, 2006, appears below: +Nominees for Election by Class A Shareholders +John G. Connors — Mr. Connors, 47, a director since April 2005, is a partner in Ignition Partners LLC, a Seattle-area venture capital firm. Mr. Connors served as Senior Vice President and Chief Financial +Officer of Microsoft Corporation from December 1999 to May 2005. He joined Microsoft in 1989 and held various management positions, including Corporate Controller from 1994 to 1996, Vice President, Worldwide Enterprise Group in 1999, and Chief +Information Officer from 1996 to 1999. Mr. Connors is a member of the Board of Trustees — Nature Conservancy of Montana, and also member of the Board of Directors of Jobster, Inc., BioPassword, Inc., FiREapps, Inc. and the +Washington Policy Center. +2 +Timothy D. Cook — Mr. Cook, 45, a director since November 2005, is the Chief +Operating Officer of Apple Computer, Inc. Mr. Cook joined Apple in March 1998 as Senior Vice President of Worldwide Operations and also served as Executive Vice President, Worldwide Sales and Operations. Mr. Cook was Vice +President, Corporate Materials for Compaq Computer Corporation from 1997 to 1998. Previous to his work at Compaq, Mr. Cook served in the positions of Senior Vice President Fulfillment and Chief Operating Officer of the Reseller Division at +Intelligent Electronics from 1994 to 1997. Mr. Cook also worked for International Business Machines Corporation from 1983 to 1994, most recently as Director of North American Fulfillment. +Ralph D. DeNunzio — Mr. DeNunzio, 74, a director since 1988, is President of Harbor Point Associates, Inc., New York, New +York, a private investment and consulting firm. Mr. DeNunzio was employed by the investment banking firm of Kidder, Peabody & Co. Incorporated from 1953 to 1987, where he served as President from 1977 to 1986, as Chief Executive +Officer from 1980 to 1987 and as Chairman of the Board of Directors from 1986 to 1987. Mr. DeNunzio served as Vice Chairman and Chairman of the Board of Governors of the New York Stock Exchange from 1969 to 1972 and was President of the +Securities Industry Association in 1981. In 1970, Mr. DeNunzio headed the Securities Industry Task Force, which led to enactment of the Securities Investor Protection Act of 1970 and establishment of the Securities Investor Protection +Corporation. +Douglas G. Houser — Mr. Houser, 71, a director since 1970, has been a partner in the Portland, +Oregon law firm of Bullivant, Houser, Bailey since 1965. Mr. Houser is a trustee of Willamette University and a Fellow in the American College of Trial Lawyers, and has served as a member of the Board of Governors and Treasurer of the Oregon +State Bar Association and as a Director of the Rand Corporation, Institute for Civil Justice Board of Overseers. +Philip H. +Knight — Mr. Knight, 68, a director since 1968, is Chairman of the Board of Directors of NIKE. Mr. Knight is a co-founder of the Company and, except for the period from June 1983 through September 1984, served as its +President from 1968 to 1990, and from June 2000 to 2004. Prior to 1968, Mr. Knight was a certified public accountant with Price Waterhouse and Coopers & Lybrand and was an Assistant Professor of Business Administration at Portland +State University. +Mark G. Parker — Mr. Parker, 50, was appointed President and Chief Executive Officer and a +director in January 2006. He has been employed by NIKE since 1979 with primary responsibilities in product research, design and development, marketing, and brand management. Mr. Parker was appointed divisional Vice President in charge of +development in 1987, corporate Vice President in 1989, General Manager in 1993, Vice President of Global Footwear in 1998, and President of the NIKE Brand in 2001. +Orin C. Smith — Mr. Smith, 63, a director since September 2004, was President and Chief Executive Officer of Starbucks Corporation from 2000 to 2005. He joined Starbucks as Vice President +and Chief Financial Officer in 1990, became President and Chief Operating Officer in 1994, and became a director of Starbucks in 1996. Prior to joining Starbucks, Mr. Smith spent a total of 14 years with Deloitte & Touche. +3 +He was later the Executive Vice President and Chief Financial Officer of two transportation companies. Between these assignments, he was Chief Policy and +Finance Officer in the administrations of two Washington State Governors. Mr. Smith is also a member of the Board of Directors of Washington Mutual, Inc., and The Walt Disney Company. +John R. Thompson, Jr. — Mr. Thompson, 65, a director since 1991, was head coach of the Georgetown University men’s +basketball team from 1972 until 1998. Mr. Thompson serves as Assistant to the President of Georgetown for Urban Affairs. Mr. Thompson was head coach of the 1988 United States Olympic basketball team. He is a past President of the National +Association of Basketball Coaches and presently serves on its Board of Governors. +Nominees for Election by Class B Shareholders +Jill K. Conway — Dr. Conway, 72, a director since 1987, is currently a Visiting Scholar with the Massachusetts Institute of +Technology’s Program in Science, Technology and Society. Dr. Conway was a Professor of History and President of Smith College, Northampton, Massachusetts, from 1975 to 1985. She was affiliated with the University of Toronto from 1964 to +1975, and held the position of Vice President, Internal Affairs from 1973 to 1975. Dr. Conway holds numerous Honorary Doctorates from North American universities. She is also a director of Merrill Lynch & Co., Inc. and +Colgate-Palmolive Company. +Alan B. Graf, Jr . — Mr. Graf, 52, a director since 2002, is the Executive Vice +President and Chief Financial Officer of FedEx Corporation, a position he has held since 1998, and is a member of FedEx Corporation’s Executive Committee. Mr. Graf joined FedEx Corporation in 1980 and was Senior Vice President and Chief +Financial Officer for FedEx Express, FedEx’s predecessor, from 1991 to 1998. He is also a director of Mid-America Apartment Communities, Inc. +Jeanne P. Jackson — Ms. Jackson, 54, a director since 2001, is Founder and CEO of MSP Capital, a private investment company. Ms. Jackson was CEO of Walmart.com from March 2000 to January 2002. She was with +Gap, Inc., as President and CEO of Banana Republic from 1995-2000, also serving as CEO of Gap, Inc. Direct from 1998-2000. Since 1978, she has held various retail management positions with Victoria’s Secret, The Walt Disney Company, Saks Fifth +Avenue, and Federated Department Stores. Ms. Jackson is a Trustee of the United States Ski and Snowboard Team, and serves on the Board of Advisors of the Harvard Graduate School of Business. She is also a director of McDonald’s +Corporation, Nordstrom, Inc., and Williams-Sonoma, Inc. +Board of Directors and Committees +The Board currently has an Executive Committee, an Audit Committee, a Nominating and Corporate Governance Committee, a Finance Committee, a Corporate +Responsibility Committee, and a Compensation +4 +Committee, and may also appoint other committees from time to time. Each committee has a written charter; all such charters, as well as the Company’s +corporate governance guidelines, are available at the Company’s internet website ( www.nikebiz.com/investors ) and will be provided in print to any shareholder who submits a request in writing to NIKE Investor Relations, One Bowerman +Drive, Beaverton, Oregon 97005-6453. There were six meetings of the Board of Directors during the last fiscal year. Each director attended at least 75 percent of the total number of meetings of the Board of Directors and committees on which he or +she served, except for Mr. Thompson, who attended 73 percent. The Company encourages all directors to attend each annual meeting of shareholders, and all directors attended the 2005 Annual Meeting except for Delbert J. Hayes, who retired at +that meeting. +Pursuant to New York Stock Exchange rules, in order for a director to qualify as “independent,” the Board of +Directors must affirmatively determine that the director has no material relationship with the Company that would impair the director’s independence. The rules permit the Board to adopt categorical standards under which relationships will be +deemed immaterial without any specific Board determination. Accordingly, the Board has determined that commercial or charitable relationships below the following thresholds will not be considered material relationships that impair a director’s +independence: (i) if a NIKE director or immediate family member is an executive officer of another company that does business with NIKE and the annual sales to, or purchases from, NIKE are less than one percent of the annual revenues of the +other company; and (ii) if a NIKE director or immediate family member serves as an officer, director or trustee of a charitable organization, and NIKE’s contributions to the organization are less than one percent of that +organization’s total annual charitable receipts. After applying this categorical standard, the Board of Directors has determined that all directors, except Mr. Knight and Mr. Parker who are executive officers of the Company, have no +material relationship with the Company and, therefore, are independent. +Executive sessions of non-management directors (consisting of all +directors other than Mr. Knight and Mr. Parker) are regularly scheduled and held at least once each year. The position of presiding director at these executive sessions is rotated among the Chairs of the various Board committees, other +than the Executive Committee, so there is no single lead director. +The Executive Committee of the Board is currently composed of Messrs. +Knight (Chairman), Parker, and Houser. The Executive Committee is authorized to act on behalf of the Board on all corporate actions for which applicable law does not require participation by the full Board. In practice, the Executive Committee acts +in place of the full Board only when emergency issues or scheduling make it difficult or impracticable to assemble the full Board. All actions taken by the Executive Committee must be reported at the next Board meeting. The Executive Committee held +no formal meetings during the fiscal year ended May 31, 2006, but took actions from time to time pursuant to written consent resolutions. +The Audit Committee is currently composed of Messrs. Graf (Chairman), Connors, and Smith. The Board has determined that each member of the Audit Committee meets all applicable independence and financial literacy requirements under the New +York Stock Exchange listing standards. The Board has also +5 +determined that Mr. Graf is an “audit committee financial expert” as defined in regulations adopted by the Securities and Exchange Commission. +The Audit Committee is responsible for the engagement or discharge of the independent registered public accountants, reviews and approves services provided by the independent registered public accountants, and reviews with the independent registered +public accountants the scope and results of their annual examination of the Company’s consolidated financial statements and any recommendations they may have. The Audit Committee also reviews the Company’s procedures with respect to +maintaining books and records, the adequacy and implementation of internal auditing, accounting, disclosure, and financial controls, and the Company’s policies concerning financial reporting and business practices. The Audit Committee met 13 +times during the fiscal year ended May 31, 2006. +The Nominating and Corporate Governance Committee is currently composed of +Mr. DeNunzio (Chairman), Dr. Conway, and Mr. Houser. The Board has determined that each member of the Nominating and Corporate Governance Committee meets all applicable independence requirements under the New York Stock Exchange +listing standards. The Nominating and Corporate Governance Committee identifies individuals qualified to become Board members, recommends director nominees for election at each annual shareholder meeting, and develops and recommends corporate +governance guidelines and standards for business conduct and ethics. The Committee also oversees the annual self-evaluations of the Board and its committees and makes recommendations to the Board concerning the structure and membership of the other +Board committees. The Nominating and Corporate Governance Committee met five times during the fiscal year ended May 31, 2006. +The +Finance Committee is currently composed of Messrs. Smith (Chairman), Connors, and DeNunzio. The Finance Committee considers long-term financing options and needs of the Company, long-range tax and currency issues facing the Company, and management +recommendations concerning major capital expenditures and material acquisitions or divestments. The Finance Committee met five times during the fiscal year ended May 31, 2006. +The Corporate Responsibility Committee is currently composed of Dr. Conway (Chair), Ms. Jackson and Messrs. Houser and Thompson. The Corporate +Responsibility Committee reviews significant activities and policies regarding labor and environmental practices, community affairs, charitable and foundation activities, diversity and equal opportunity, and environmental and sustainability +initiatives, and makes recommendations to the Board of Directors. The Corporate Responsibility Committee met four times during the fiscal year ended May 31, 2006. +The Compensation Committee is currently composed of Mr. DeNunzio (Chairman), Mr. Cook, Ms. Jackson, and Mr. Thompson. The Compensation Committee determines the Chief Executive Officer’s +compensation and makes recommendations to the Board regarding other officers’ compensation, management incentive compensation arrangements and profit sharing plan contributions. The Compensation Committee also grants stock options and +restricted stock bonuses under the NIKE, Inc. 1990 Stock Incentive Plan, and +6 +determines targets and awards under the NIKE, Inc. Executive Performance Sharing Plan and the NIKE, Inc. Long-Term Incentive Plan. The Compensation Committee +met five times during the fiscal year ended May 31, 2006. +Director Nominations +The Nominating and Corporate Governance Committee identifies potential director candidates through a variety of means, including recommendations from +members of the Committee or the Board, suggestions from Company management, and shareholder recommendations. The Committee also may, in its discretion, engage director search firms to identify candidates. Shareholders may recommend director +candidates for consideration by the Nominating and Corporate Governance Committee by submitting a written recommendation to the Committee, c/o John F. Coburn III, Secretary, NIKE, Inc., One Bowerman Drive, Beaverton, Oregon 97005-6453. The +recommendation should include the candidate’s name, age, qualifications (including principal occupation and employment history), and written consent to be named as a nominee in the Company’s proxy statement and to serve as a director, if +elected. +The Board of Directors has adopted qualification standards for the selection of independent nominees for director which can be +found at our internet website, www.nikebiz.com/investors . As provided in the these standards and the Company’s Corporate Governance Guidelines, nominees for director are selected on the basis of, among other things, distinguished +business experience or other non-business achievements; education; significant knowledge of international business, finance, marketing, technology, law, or other fields which are complementary to, and balance the knowledge of other Board members; a +desire to represent the interests of all shareholders; independence; character; ethics; good judgment; diversity; and ability to devote substantial time to discharge Board responsibilities. In considering the re-nomination of an incumbent director, +the Nominating and Corporate Governance Committee reviews the director’s overall service to the Company during his or her term, including the number of meetings attended, level of participation and quality of performance, as well as any special +skills or diversity that such director brings to the Board. All potential new director candidates, whether recommended by shareholders or identified by other means, are initially screened by the Chair of the Nominating and Corporate Governance +Committee, who may seek additional information about the background and qualifications of the candidate, and who may determine that a candidate does not have qualifications that merit further consideration by the full committee. With respect to new +director candidates who pass the initial screening, the Nominating and Corporate Governance Committee meets to discuss and consider each candidate’s qualifications and potential contributions to the Board, and determines by majority vote +whether to recommend such candidates to the Board of Directors. The final decision to either elect a candidate to fill a vacancy between Annual Meetings or include a candidate on the slate of nominees proposed at an Annual Meeting is made by the +Board of Directors. +7 +Shareholder Communications with Directors +Shareholders desiring to communicate directly with the Board of Directors, with the non-management directors, or with any individual director, may do so +in writing addressed to the intended recipient or recipients, c/o John F. Coburn III, Secretary, NIKE, Inc., One Bowerman Drive, Beaverton, Oregon 97005-6453. All such communications will be reviewed, compiled as necessary, and then forwarded to the +designated recipient or recipients in a timely manner. +Code of Business Conduct and Ethics +The NIKE Code of Ethics (“Code”) is available at the Company’s internet website ( www.nikebiz.com ) and will be provided in print +without charge to any shareholder who submits a request in writing to NIKE Investor Relations, One Bowerman Drive, Beaverton, Oregon 97005-6453. The Code applies to the Company’s chief executive officer and senior financial officers, and to all +other Company directors, officers and employees. The Code provides that any waiver of the Code may be made only by the Board. Any such waiver in favor of a director or executive officer will be publicly disclosed. The Company plans to disclose +amendments to, and waivers from, the Code on the Company’s internet website: www.nikebiz.com/investors. +Director Compensation and +Retirement Plan +Messrs. Knight and Parker do not receive additional compensation for their services as directors. Directors are +reimbursed for travel and other expenses incurred in attending Board meetings. Pursuant to elections made in fiscal 2000, Mr. Thompson and Dr. Conway receive an annual fee of $22,000 per year, plus $2,000 for each Board meeting attended, +$1,000 for each committee meeting attended, an annual grant of an option to purchase 4,000 shares of stock at the market price at grant, medical insurance, and $500,000 of life insurance coverage. Messrs. Connors, Cook, DeNunzio, Graf, Houser, +Smith, and Ms. Jackson, and all directors first elected after fiscal 2000, receive a fee of $40,000 per year, plus $2,000 for each Board meeting attended, $1,000 for each committee meeting attended, and an annual grant of an option to purchase +4,000 shares of stock at the market price at grant. However, they receive no medical or life insurance benefits. In exchange for electing the new compensation method in fiscal 2000, Messrs. DeNunzio and Houser also receive an annual grant of an +option to purchase 1,000 shares of stock at the market price on the date of grant. Directors serving as chair to a Board committee, except the Executive Committee, also receive an annual fee of $5,000 for each committee chaired. +From 1989 to 1999, the Company provided certain retirement benefits to non-employee directors who retired after serving for five years or more. The plan +provided that after ten years of service by a director, the Company would provide such director for the remainder of his or her life with $500,000 of life insurance and medical insurance at the levels provided by the Company to all of its employees +at the time +8 +the director retires. The plan also provided that a director who had served for at least five years would receive an annual retirement cash payment for life, +commencing on the later of age 65 or the date the director retires or ceases to be a member of the Board. The annual retirement cash payment ranged from $9,000 for five years of service up to a maximum of $18,000 for 10 or more years of service. +In fiscal 2000, in an effort to reduce future retirement obligations, the Board of Directors approved a new retirement plan that allowed +directors to make a one-time election to waive their future rights to annual retirement cash payments in exchange for a credit to a stock account under the Company’s Deferred Compensation Plan equal to the lump sum present value of the payments +based on the actuarial life expectancy of each director. The number of shares of Class B Stock credited to each stock account was based on the market price of the stock on September 1, 1999. All current directors who were directors at that time +elected the new plan. The number of shares of Class B Stock credited to the stock accounts of each director was: Dr. Conway, 4,165; Mr. DeNunzio, 3,852; Mr. Houser, 4,243; and Mr. Thompson, 3,271. Any non-employee directors first +elected after fiscal 2000 do not receive retirement benefits. +Directors first elected after the 1993 fiscal year must retire at age 72. +9 +Stock Holdings of Certain Owners and Management +The following table sets forth the number of shares of each class of NIKE securities beneficially owned, as of July 18, 2006, by (i) each +person known to the Company to be the beneficial owner of more than 5 percent of any class of the Company’s securities, (ii) each of the directors and nominees for director, (iii) each executive officer listed in the Summary +Compensation Table (“Named Officers”), and (iv) all nominees, Named Officers, and other executive officers as a group. Because Class A Stock is convertible into Class B Stock on a share-for-share basis, each beneficial owner of +Class A Stock is deemed by the Securities and Exchange Commission to be a beneficial owner of the same number of shares of Class B Stock. Therefore, in indicating a person’s beneficial ownership of shares of Class B Stock in the table, it +has been assumed that such person has converted into Class B Stock all shares of Class A Stock of which such person is a beneficial owner. For these reasons the table contains substantial duplications in the numbers of shares and percentages of +Class A and Class B Stock shown for Mr. Knight, for Cardinal Investment Sub I L.P., and for all directors and officers as a group. +Title of +Class +Shares +Beneficially +Owned (1) +Percent of +Class (2) +John G. Connors +Bellevue, Washington +Class B +8,230 +(3) +Jill K. Conway +Boston, Massachusetts +Class B +31,068 +(3) (4) +Timothy D. Cook +Cupertino, California +Class B +— +Ralph D. DeNunzio +Riverside, Connecticut +Class B +121,562 +(3) (4) +Alan B. Graf, Jr +Memphis, Tennessee +Class B +17,000 +(3) +Douglas G. Houser +Portland, Oregon +Class B +102,494 +(3) (4) +Jeanne Jackson +Newport Coast, California +Class B +15,300 +(3) +Philip H. Knight +Beaverton, Oregon +Class A +Class B +59,955,047 +59,961,882 +(5) +(5) +93.9% +23.9% +Mark G. Parker (6) +Beaverton, Oregon +Class B +451,439 +(3) (7) (8) +0.2% +Orin C. Smith +Seattle, Washington +Class B +9,000 +(3) +10 +Title of +Class +Shares +Beneficially +Owned (1) +Percent of +Class (2) +John R. Thompson, Jr +Washington, D.C. +Class B +18,534 +(3) (4) +Donald W. Blair (6) +West Linn, Oregon +Class B +207,385 +(3) (7) (8) +0.1% +Charles Denson (6) +Portland, Oregon +Class B +246,636 +(3) (7) (8) (9) +0.1% +Gary M. DeStefano (6) +Beaverton, Oregon +Class B +101,172 +(3) (7) (8) +Lindsay D. Stewart (6) +Lake Oswego, Oregon +Class B +62,209 +(3) (7) (8) +William D. Perez (6) +Naples, Florida +Class B +297,439 +(3) +0.2% +Sojitz Corporation of America +Portland, Oregon +Preferred (10) +300,000 +100.0% +Cardinal Investment Sub I, L.P +Fort Worth, Texas +Class A +Class B +1,000,000 +14,718,131 +(11) +(11) +1.6% +5.9% +Janus Capital Management LLC +Denver, Colorado +Class B +11,536,907 +(12) +6.0% +FMR Corp +Boston, Massachusetts +Class B +11,756,601 +(12) +6.1% +All directors and executive officers as a group (27 persons) +Class A +Class B +59,955,047 +62,375,654 +(3) +93.9% +24.9% +(1) +A person is considered to beneficially own any shares: (a) over which the person exercises sole or shared voting or investment power, or (b) of which the person has the +right to acquire beneficial ownership at any time within 60 days (such as through conversion of securities or exercise of stock options). Unless otherwise indicated, voting and investment power relating to the above shares is exercised solely by the +beneficial owner or shared by the owner and the owner’s spouse or children. +(2) +Omitted if less than 0.1 percent. +(3) +These amounts include the right to acquire, pursuant to the exercise of stock options, within 60 days after July 18, 2006, the following numbers of shares: +1,250 shares for Mr. Connors, 8,000 shares for Dr. Conway, 14,000 shares for Mr. DeNunzio, 13,000 shares for Mr. Graf, 10,000 shares for Mr. Houser, 14,000 shares for Ms. Jackson, 377,500 shares for Mr. Parker, +9,000 shares for +11 +Mr. Smith, 11,000 shares for Mr. Thompson, 182,500 shares for Mr. Blair, 215,000 shares for Mr. Denson, 56,500 shares for +Mr. DeStefano, 37,500 shares for Mr. Stewart, 237,500 shares for Mr. Perez, and 1,759,750 shares for the executive officer and director group. +(4) +Includes shares credited to accounts under the NIKE, Inc. Deferred Compensation Plan in the following amounts: 4,500 for Dr. Conway, 4,162 for Mr. DeNunzio, 4,583 for +Mr. Houser, and 3,534 for Mr. Thompson. +(5) +Does not include: (a) 65,224 Class A shares owned by a corporation which is owned by Mr. Knight’s spouse, (b) 1,000,000 Class B shares held by the Knight +Foundation, a charitable foundation in which Mr. Knight and his spouse are directors, (c) 1,000,000 Class A shares and 950,000 Class B shares held by Oak Hill Strategic Partners, L.P., a limited partnership in which a company owned by +Mr. Knight is a limited partner, and (d) 12,768,131 Class B shares held by Cardinal Investment Sub I L.P., a limited partnership in which Mr. Knight is a limited partner. Mr. Knight has disclaimed ownership of all such shares. +(6) +Executive officer listed in the Summary Compensation Table. +(7) +Includes shares held in accounts under the NIKE, Inc. 401(k) and Profit Sharing Plan for Messrs. Parker, Blair, Denson, DeStefano, and Stewart in the amounts of 3,364, 857, 4,572, +3,406, and 1,076 shares, respectively. +(8) +These amounts include the following restricted shares granted under the NIKE, Inc. 1990 Stock Incentive Plan: 4,000 restricted shares granted to Mr. Stewart on +December 10, 2004, 10,000 restricted shares granted to each of Messrs. Parker and Denson on July 15, 2005, 11,867 restricted shares granted to Mr. Parker and 5,934 restricted shares granted to Mr. Denson on February 16, +2006, and 12,697, 9,523, and 12,697, restricted shares granted to Messrs. DeStefano, Stewart, and Blair, respectively, on July 14, 2006. The restrictions lapse with respect to one third of the shares on each of the first three anniversaries of +the grant date, unless employment terminates before that date, in which case any remaining restricted shares are forfeited. +(9) +Includes 100 shares held by a partnership in which Mr. Denson’s spouse is a general partner. +(10) +Preferred Stock does not have general voting rights except as provided by law, and under certain circumstances as provided in the Company’s Restated Articles of Incorporation, +as amended. +(11) +Includes 1,000,000 shares of Class A Common Stock and 950,000 shares of Class B Common Stock held by Oak Hill Strategic Partners, L.P., which is under common control with +Cardinal Investment Sub I, L.P. +(12) +Information provided as of December 31, 2005 in Schedule 13G filed by the shareholder. +12 +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors and executive officers, and persons who own more than 10 +percent of a registered class of the Company’s equity securities, to file with the Securities and Exchange Commission (the “SEC”) and the New York Stock Exchange initial reports of ownership and reports of changes in ownership of +Common Stock and other equity securities of the Company. Officers, directors and greater than 10 percent shareholders are required by the regulations of the SEC to furnish the Company with copies of all Section 16(a) forms they file. To the +Company’s knowledge, based solely on review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ended May 31, 2006 all Section 16(a) filing +requirements applicable to its officers, directors and greater than 10 percent beneficial owners were complied with, except that one report for Roland Wolfram covering the purchase of 100 shares was filed ten days late. +13 +EXECUTIVE COMPENSATION +The following table discloses compensation awarded to, earned by, or paid to the Company’s former and current Chief Executive Officer and its next +four most highly compensated executive officers for all services rendered by them in all capacities to the Company and its subsidiaries during the fiscal year ended May 31, 2006 and the two preceding fiscal years. +Summary Compensation Table +Annual Compensation +Restricted +Stock +Awards ($) (2) +Long-term +Compensation +Name and Principal Position +Year +Salary ($) +Bonus ($) +Other Annual +Compensation ($) +Stock +Options +(#) +LTIP +Payouts ($) +All Other +Compensation +($) (1) +Mark G. Parker +President and Chief +Executive Officer +2006 +2005 +2004 +1,144,231 +1,042,308 +992,308 +1,293,890 +1,338,167 +1,270,759 +— +— +— +2,313,882 +— +800,000 +195,000 +70,000 +70,000 +750,000 +290,000 +228,000 +207,167 +169,059 +81,226 +William D. Perez +Former President +and CEO +2006 +2005 +2004 +1,042,385 +467,308 +— +— +1,123,358 +— +167,111 +— +— +(3) +2,000,000 +9,085,000 +— +(4) +(4) +150,000 +200,000 +— +(4) +(4) +— +— +— +5,474,312 +18,602 +— +(5) +Charles D. Denson +President +NIKE Brand +2006 +2005 +2004 +1,076,923 +992,308 +934,615 +1,058,939 +1,273,974 +1,196,878 +66,723 +— +— +(6) +1,813,908 +— +800,000 +170,000 +70,000 +70,000 +750,000 +290,000 +228,000 +188,047 +155,612 +72,050 +Gary M. DeStefano +President +USA Operations +2006 +2005 +2004 +837,692 +783,846 +742,308 +626,592 +822,710 +769,361 +(7) +(7) +(7) +— +— +— +— +— +600,000 +50,000 +44,000 +44,000 +450,000 +290,000 +228,000 +140,157 +113,595 +53,796 +Lindsay D. Stewart +Vice President and +Chief of Staff +2006 +2005 +2004 +710,385 +679,615 +642,308 +488,965 +678,630 +639,758 +— +— +— +— +525,120 +750,000 +50,000 +— +50,000 +450,000 +290,000 +228,000 +118,033 +97,337 +47,439 +Donald W. Blair +Vice President and +Chief Financial +Officer +2006 +2005 +2004 +623,461 +553,846 +494,615 +429,135 +553,043 +457,462 +— +— +— +— +— +600,000 +33,000 +33,000 +33,000 +450,000 +290,000 +228,000 +100,709 +75,918 +37,829 +(1) +Includes contributions by the Company to the NIKE, Inc. 401(k) and Profit Sharing Plan for the fiscal year ended May 31, 2006 in the amount of $21,919 each for Messrs. Parker, +DeStefano, Stewart, and Blair, and $13,519 for Mr. Denson. Also includes contributions by the Company to the Deferred Compensation Plan for Messrs. Parker, Denson, DeStefano, Stewart, and Blair of $185,248, $174,528, $118,238, $96,114, and +$78,790, respectively. +(2) +Represents the value of restricted shares granted based on the closing market price of the Class B Stock on the grant date. On December 10, 2004, a restricted +stock grant was made to Mr. Stewart for 6,000 shares, as to which the restrictions lapse with respect to one-third of the shares on each of the first three anniversaries of the grant date. On December 28, 2004, a restricted stock grant was +made to Mr. Perez for 100,000 shares, as to which the restrictions lapsed in full when his employment was terminated by the Company without cause. On July 18, 2003, restricted stock grants were made to Mr. Parker and Mr. Denson +for 15,314 shares, Mr. Stewart for 14,357 shares, and Mr. DeStefano and Mr. Blair for 11,485 shares each, as to which the restrictions lapsed with respect to one-third of the shares on each of the first three anniversaries of the +grant date, except for the grant to Mr. DeStefano as to which the restrictions lapsed with respect to 100% of the shares on the third anniversary of the grant date. On July 15, 2005, restricted stock grants were made to Mr. Parker and +Mr. Denson for 15,000 shares each, and Mr. Perez for 22,834 shares. The restrictions on such shares granted to Mr Parker and +14 +Mr. Denson lapse with respect to one-third of the shares on each of the first three anniversaries of the grant date. The restrictions on such shares +granted to Mr. Perez lapsed with respect to one-fourth of the shares when his employment was terminated without cause. On February 16, 2006, restricted stock grants were made to Messrs. Parker and Denson for 11,867 and 5,934 shares, +respectively, as to which the restrictions lapse with respect to one-third of the shares on each of the first three anniversaries of the grant date. If employment terminates before the restrictions lapse, any remaining restricted shares are +forfeited. Dividends on restricted shares are paid currently to the holders. On May 31, 2006 the number of remaining restricted shares and the dollar value of those shares based on the fair market value of $80.31 per share on that date was +31,971 shares with a value of $2,567,591 for Mr. Parker, 26,038 shares with a value of $2,091,112 for Mr. Denson, 11,485 shares with a value of $922,360 for Mr. DeStefano, 8,785 shares with a value of $705,523 for Mr. Stewart, +and 3,828 shares with a value of $307,427 for Mr. Blair. +(3) +Includes $124,828 for moving, relocation, and temporary lodging expenses incurred during the fiscal year, and $42,283 representing the aggregate incremental cost of personal use of +the Company aircraft. +(4) +Under the terms of the initial employment agreement between the Company and Mr. Perez, and pursuant to a resignation letter agreement approved by the Compensation Committee and +the Board of Directors, certain restricted stock and stock options vested upon termination of employment. All restrictions lapsed with respect to (a) the remaining 66,667 unvested shares of a Class B Stock restricted stock bonus of 100,000 +shares granted to Mr. Perez on December 28, 2004 which were to vest over three years from the date of grant, and (b) one-fourth (or 5,709 shares) of a Class B Stock restricted stock bonus of 22,834 shares granted to Mr. Perez on +July 15, 2005, which originally was to vest over four years. The Company also vested (x) the remaining unvested 133,334 shares of his option to purchase 200,000 shares of Class B Common Stock at an exercise price of $90.85, which was also +granted on December 28, 2004 and was scheduled to vest over three years, as to which he may exercise such option for three years from the date of termination of employment, and (y) one-fourth (or 37,500 shares) of an option to purchase +150,000 shares of Class B Common Stock granted to Mr. Perez on July 15, 2005 at an exercise price of $87.59, as to which he may exercise such option until December 31, 2006. +(5) +Under the terms of the initial employment agreement between the Company and Mr. Perez, and pursuant to a resignation letter agreement approved by the Compensation Committee and +the Board of Directors, Mr. Perez received certain severance payments and reimbursements upon termination of employment. This amount includes (a) $2,800,000 representing two years’ of his then current annual base salary of $1.4 +million per year, (b) $1,750,000 representing 100% of his fiscal year 2006 target bonus under the Company’s Performance Sharing Plan, (c) $283,000 representing two-thirds of a 150% payout of his targeted Long-Term Incentive Plan award +for fiscal 2006, (d) $579,649 representing reimbursement for amounts Mr. Perez paid to remodel and furnish his Portland, Oregon home, which the Company purchased for his original purchase price of $3,178,258, (e) $56,500 accrued for +reimbursement to Mr. Perez of athletic club fees if he resigns such memberships, and (f) $5,163 representing a tax gross-up for an airplane flight for relocation. +(6) +Includes $66,546 representing the aggregate incremental cost of personal use of the Company aircraft. +(7) +Includes bonus outside the Executive Performance Sharing Plan for Mr. DeStefano in the amount of $50,000, $40,000 and $30,000 for fiscal years 2006, 2005 and 2004, +respectively. +15 +Option Grants in the Fiscal Year Ended May 31, 2006 +Name +Options Granted +(#) (1) +% of Total +Options Granted +to +Employees +in Fiscal Year +Exercise or +Base Price +($/Share) (2) +Expiration +Date +Potential Realizable Value +at Assumed Annual Rates +of Stock Price +Appreciation for +Option +Term (3) +5% ($) +10% ($) +Mark G. Parker +70,000 +1.2 +$ +87.59 +7/15/15 +$ +3,855,941 +$ +9,771,713 +125,000 +2.2 +$ +84.27 +2/16/16 +$ +6,885,610 +$ +17,449,488 +William D. Perez +150,000 +2.6 +$ +87.59 +7/15/15 +$ +8,262,732 +$ +20,939,385 +Charles D. Denson +70,000 +1.2 +$ +87.59 +7/15/15 +$ +3,855,941 +$ +9,771,713 +100,000 +1.7 +$ +84.27 +2/16/16 +$ +5,508,488 +$ +13,959,590 +Gary M. DeStefano +50,000 +0.9 +$ +87.59 +7/15/15 +$ +2,754,244 +$ +6,979,795 +Lindsay D. Stewart +50,000 +0.9 +$ +87.59 +7/15/15 +$ +2,754,244 +$ +6,979,795 +Donald W. Blair +33,000 +0.6 +$ +87.59 +7/15/15 +$ +1,817,801 +$ +4,606,664 +(1) +The options shown in the table for Mr. Perez were to become exercisable with respect to 25% of the total number of shares on each first four anniversaries of the date of grant. +Upon his termination by the Company without cause, the Compensation Committee vested 25% of the total number of shares, and such option expires on December 31, 2006. The other options shown in the table with the expiration date of July 15, 2015 +become exercisable with respect to 25% of the total number of shares on each of July 15, 2006, 2007, 2008, and 2009. The options shown in the table with the expiration date of February 16, 2016 become exercisable with respect to 25% of the +total number of shares on each of February 16, 2007, 2008, 2009, and 2010. All options for all individuals will become fully exercisable generally upon the approval by the Company’s shareholders of a merger, plan of exchange, sale of +substantially all of the Company’s assets or plan of liquidation. +(2) +The exercise price is the market price of Class B Stock on the date the options were granted. +(3) +Assumed annual appreciation rates are set by the SEC and are not a forecast of future appreciation. The actual realized value depends on the market value of the Class B Stock on the +exercise date, and no gain to the optionees is possible without an increase in the price of the Class B Stock. All assumed values are before taxes and do not include dividends. +Aggregated Option Exercises in the Fiscal Year +Ended May 31, 2006 and +Fiscal Year-End Option Values +Name +Shares +Acquired on +Exercise (#) +Value +Realized ($) +Number of Unexercised +Options at +Fiscal Year-End (#) +Value of Unexercised +In-the-Money Options at +Fiscal Year-End ($) (1) +Exercisable +Unexercisable +Exercisable +Unexercisable +Mark G. Parker +60,000 +2,439,375 +307,500 +300,000 +$ +9,578,638 +$ +1,903,475 +William D. Perez +0 +0 +237,500 +0 +$ +0 +$ +0 +Charles D. Denson +100,000 +4,080,927 +145,000 +275,000 +$ +4,269,525 +$ +1,903,475 +Gary M. DeStefano +170,000 +5,519,785 +11,000 +116,000 +$ +78,100 +$ +1,196,470 +Lindsay D. Stewart +32,500 +1,202,050 +0 +87,500 +$ +0 +$ +1,093,375 +Donald W. Blair +80,000 +3,444,848 +149,000 +82,500 +$ +5,614,848 +$ +897,353 +(1) +Based on a fair market value as of May 31, 2006 of $80.31 per share. Values are stated on a pre-tax basis. +16 +Long-Term Incentive Plans Awards in Fiscal Year Ended May 31, 2006 +Name +Performance +or Other Period +Until Maturation +or Payout (1) +Threshold ($) +Target ($) +Maximum ($) +Mark G. Parker +Fiscal Years 2006 to 2008 +50,000 +500,000 +750,000 +William D. Perez +Fiscal Years 2006 (2) +28,300 +283,000 +424,500 +Fiscal Years 2006 to 2007 (2) +60,000 +600,000 +900,000 +Fiscal Years 2006 to 2008 +60,000 +600,000 +900,000 +Charles D. Denson +Fiscal Years 2006 to 2008 +50,000 +500,000 +750,000 +Gary DeStefano +Fiscal Years 2006 to 2008 +30,000 +300,000 +450,000 +Lindsay D. Stewart +Fiscal Years 2006 to 2008 +30,000 +300,000 +450,000 +Donald W. Blair +Fiscal Years 2006 to 2008 +30,000 +300,000 +450,000 +(1) +In June 2005, the Compensation Committee established a series of performance targets based on fiscal 2006 through 2008 revenues and earnings per share corresponding to award payouts +ranging from 10% to 150% of the target awards. Participants will receive a payout at the average of the percentage levels corresponding to the results for the two targets, subject to the Committee’s discretion to reduce or eliminate any award +based on Company or individual performance. Under the terms of the awards, on August 15, 2008 the Company would issue in the name of each participant a number of shares of Class B Stock with a value equal to the award payout based on the +closing price of the Class B Stock on that date on the New York Stock Exchange, or pay all or part of that value in cash, at the election of the participant. The shares or cash will be 100% vested at that time. The Company’s performance in +fiscal years 2004 to 2006 corresponded to an LTIP payout of 150% of the target awards for the performance period that ended on May 31, 2006. +(2) +Consistent with the employment agreement between the Company and Mr. Perez, the Compensation Committee also set Long-Term Incentive Plan performance targets for Mr. Perez +for (a) fiscal year 2006, and (b) for the two fiscal years 2006 to 2007. Upon Mr. Perez’s termination of employment, as part of his severance agreement the Compensation Committee agreed to pay two-thirds of the target award for +fiscal 2006 at 150% of the target award. No payment was made to Mr. Perez with respect to the awards for performance periods 2006 to 2007, or 2006 to 2008, which awards expired upon his termination. +17 +Equity Compensation Plans +The following table summarizes equity compensation plans approved by shareholders and equity compensation plans that were not approved by the +shareholders as of May 31, 2006: +Plan Category +(a) +Number of Securities to +be Issued Upon +Exercise of Outstanding +Options, Warrants and +Rights +(b) +Weighted-Average +Exercise Price +of +Outstanding Options, +Warrants and Rights +(c) +Number of Securities +Remaining Available for +Future Issuance Under +Equity Compensation +Plans (Excluding +Securities Reflected +in +Column(a)) +Equity compensation plans approved by shareholders (1) +20,096,920 +$ +64.69 +22,494,515 +Equity compensation plans not approved by shareholders (2) +120,000 +52.69 +847,450 +Total +20,216,920 +$ +64.62 +23,341,965 +(1) +Includes 20,096,920 options outstanding subject to the 1990 Stock Incentive Plan. Includes 19,790,630 shares available for future issuance under the 1990 Stock Incentive Plan, +910,717 shares available for future issuance under the Long-Term Incentive Plan, and 1,793,168 shares available for future issuance under the Employee Stock Purchase Plan. +(2) +The Company has granted to a few consultants and directors nonqualified options to purchase NIKE Class B Stock. The options have terms ranging from 8 to 10 years, expiring at +various times from 2006 to 2009, with exercise prices ranging from $49.19 to $55.81. All of the options are exercisable. Includes 847,450 shares available for future issuance under the Foreign Subsidiary Employee Stock Purchase Plan, pursuant to +which shares are offered and sold to employees of selected non-U.S. subsidiaries of the Company on substantially the same terms as those offered to U.S. employees under the shareholder-approved Employee Stock Purchase Plan. +Notwithstanding anything to the contrary set forth in any of the Company’s filings under the Securities Act of 1933 or the Securities Exchange +Act of 1934, the following Performance Graph and the Report of the Compensation Committee below shall not be incorporated by reference into any such filings and shall not otherwise be deemed filed under such acts. +18 +Performance Graph +The following graph demonstrates a five-year comparison of cumulative total returns for NIKE’s Class B Stock, the Standard & Poor’s 500 Stock Index, the Dow Jones Footwear Index, and the +Standard & Poor’s Apparel, Accessories & Luxury Goods Index. The graph assumes an investment of $100 on May 31, 2001 in each of the Company’s Common Stock, and the stocks comprising the Standard & +Poor’s 500 Stock Index, the Dow Jones Footwear Index, and the Standard & Poor’s Apparel, Accessories & Luxury Goods Index. Each of the indices assumes that all dividends were reinvested. +COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN AMONG NIKE, INC., S&P 500 INDEX, +DOW JONES FOOTWEAR INDEX AND S&P APPAREL, ACCESSORIES & LUXURY GOODS INDEX +Effective in 2006, the Standard & Poor’s Footwear Index consisted only of NIKE, so the Company +has elected to replace that index with the Dow Jones Footwear Index, which consists of NIKE, Stride Rite Corp., Timberland Co., Wolverine World Wide, Inc., and Kenneth Cole Productions, Inc. Because NIKE is part of the Dow Jones Footwear Index, the +price and returns of NIKE stock have a substantial effect on this index. The Standard & Poor’s Apparel, Accessories & Luxury Goods Index consists of Liz Claiborne, Inc., VF Corp., Coach, Inc., and Jones Apparel. The Dow Jones +Footwear Index and the Standard & Poor’s Apparel, Accessories, and Luxury Goods Indices include companies in two major lines of business in which the Company competes. The indices do not encompass all of the Company’s competitors, +nor all product categories and lines of business in which the Company is engaged. +The Stock Performance shown on the Graph above is not +necessarily indicative of future performance. The Company will not make nor endorse any predictions as to future stock performance. +19 +REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD +OF DIRECTORS ON EXECUTIVE COMPENSATION +The Compensation Committee of the Board of Directors (the “Committee”) determines the compensation of the Chief Executive Officer and, subject to the approval of the Board of Directors, the compensation of the Company’s other +four most highly compensated executive officers, and oversees the administration of executive compensation programs. +Executive +Compensation Policies and Programs. The Company’s executive compensation programs are designed to attract and retain highly qualified executives and to motivate them to maximize shareholder returns by achieving both +short- and long-term strategic Company goals. The programs link each executive’s compensation directly to individual and Company performance. A significant portion of each executive’s total compensation is variable and dependent upon the +attainment of strategic and financial goals, individual performance objectives, and the appreciation in value of the Common Stock. +There +are three basic components to the Company’s “pay for performance” system: base pay; annual incentive bonus; and long-term incentive compensation. Each component is addressed in the context of individual and Company performance, +competitive conditions and equity among employees. In determining competitive compensation levels, the Company analyzes information from several independent surveys that include information regarding the general industry as well as other consumer +product companies. Since the Company’s market for executive talent extends beyond the sports industry, the survey data includes global name-brand consumer product companies with median revenues of approximately $15 billion. A comparison of the +Company’s financial performance with that of the companies and indices shown in the Performance Graph is only one of many factors considered by the Committee to determine executive compensation. +Base Pay. Base pay is designed to be competitive (generally in the second or third quartile) as compared to salary levels +for equivalent executive positions at other global consumer product companies. An executive’s actual salary within this competitive framework will vary based on responsibilities, experience, leadership, potential future contribution, and +demonstrated individual performance (measured against strategic management objectives such as maintaining customer satisfaction, developing innovative products, strengthening market share and profitability, and expanding the markets for the +Company’s products). The types and relative importance of specific financial and other business objectives vary among the Company’s executives depending on their positions and the particular operations or functions for which they are +responsible. The Company’s philosophy and practice is to place a relatively greater emphasis on the incentive components of compensation. +Annual Incentive Bonus. Each executive is eligible to receive an annual cash bonus under the Executive Performance Sharing Plan. The “target” level for that bonus, like the base salary level, is set +with reference to Company-wide bonus programs, as well as competitive conditions. These target levels are +20 +intended to motivate the Company’s executives by providing substantial bonus payments for the achievement of financial goals within the Company’s +business plan. An executive receives a percentage of his or her target bonus depending on the extent to which the Company achieves financial performance goals set by the Committee, as measured by the Company’s net income before taxes. Bonuses +may exceed the target if the Company’s performance exceeds the goal. +Long-Term Incentive +Compensation. The long-term compensation program is tied directly to shareholder return. Under the current program, long-term incentive compensation consists of stock options, 25% of which vest in each of the four years +after grant, restricted stock, one-third of which vests in each of the three years after grant, and performance-based stock or cash awards under the Long-Term Incentive Plan (“LTIP”). +Stock options are awarded with an exercise price equal to the fair market value of the Class B Stock on the date of grant. Accordingly, the executive is +rewarded only if the market price of the Class B Stock appreciates. Since options vest over time, the Company periodically grants new options to provide continuing incentives for future performance. The size of previous grants and the number of +options held are considered by the Committee, but are not entirely determinative of future grants. Like base pay, the grant is set with regard to competitive considerations, and each executive’s actual grant is based upon individual performance +measured against the criteria described in the preceding paragraphs and the executive’s potential for future contributions. +Executives receive restricted stock awards, which vest over three years. The awards are generally made once every three years or upon hiring or promotion, and are intended to provide incentives for retention and future performance. The +Committee determines the size of each award based on competitive and retention considerations, individual performance, prior grants of stock awards and stock options, and the executive’s potential for future contributions. +Under the LTIP, the Committee has established a series of performance targets corresponding to awards of stock or cash ranging from 10% to 150% of the +target awards. The performance targets have been based on revenues and earnings per share for performance periods of three years, in order to provide an incentive to achieve the Company’s longer-term performance goals. If performance targets +are achieved, shares of stock or cash issued to executives are fully vested upon payment. +Stock options, restricted stock awards, and +performance-based stock and cash awards under the LTIP are designed to align the interests of the Company’s executives with those of shareholders by encouraging executives to enhance the value of the Company and, hence, the price of the Class B +Stock and the shareholders’ return. In addition, through deferred vesting and three-year performance periods, this component of the compensation system is designed to create an incentive for the individual executive to remain with the Company. +Other Plans. The Company maintains combined profit sharing and 401(k) retirement plans, a non-qualified +Deferred Compensation Plan, and Employee Stock Purchase Plans. Under the profit sharing +21 +retirement plan, the Company annually contributes to a trust on behalf of employees, including executive officers, an amount that in the past five fiscal +years has equaled an annual contribution of between 3.20% to 6.44% of each employee’s eligible earnings. The percentage is determined by the Board of Directors. +For fiscal 2006, under the terms of the profit sharing plan, each employee, including each executive officer, received a contribution to his or her plan account of 4.15% of the employee’s total eligible salary +and bonus up to $210,000, and an additional 4.0% of the employee’s total eligible salary and bonus in excess of $90,000 and below $210,000. Under the terms of the Deferred Compensation Plan, employees, including executive officers, whose total +eligible salary and bonus exceeds $210,000 receive a supplemental profit sharing contribution into a nonqualified deferred compensation account in an amount equal to the additional contribution they would have received under the profit sharing plan +if not for the $210,000 cap on salary and bonus considered for purposes of that plan as required under IRS regulations. Accordingly, those employees each received supplemental contributions equal to 8.15% of their eligible salary and bonus in excess +of $210,000, including any deferrals of compensation into that plan. These profit sharing plans serve to retain employees and executives, since funds do not fully vest until after five years of employment with the Company. +Under the 401(k) retirement plan, the Company contributes up to 4% of each employee’s earnings as a matching contribution for pre-tax salary +deferred into the plan. This matching contribution is initially invested in Class B Stock, which strengthens the linkage between employee and shareholder interests. +The Company’s Employee Stock Purchase Plan (“ESPP”) qualifies under Section 423 of the Internal Revenue Code. The ESPP allows employees to defer up to 10% of their annual compensation for purchases +of Class B Stock, subject to certain limitations. The stock is purchased every six months at 85% of the lower of the price of the stock at the beginning or end of the six-month period. Pursuant to the Foreign Subsidiary Employee Stock Purchase Plan, +the Company offers and sells Class B Stock on substantially identical terms to employees of selected non-U.S. subsidiaries. These plans are intended to encourage employee investment in the Company and to provide an incentive for employees to +increase shareholder returns. +Annual Reviews. Each year, the Committee reviews the executive compensation +policies with respect to the linkage between executive compensation and the creation of shareholder value, as well as the competitiveness of the programs. The Committee determines what changes, if any, are appropriate in the compensation programs +for the following year. In conducting the annual review, the Committee considers information provided by Human Resources staff and uses surveys and reports prepared by independent compensation consultants. +Each year, the Committee, with the Chief Executive Officer and Human Resources staff, reviews the individual performance of each of the other four most +highly compensated executive officers, and the Chief Executive Officer’s recommendations with respect to the appropriate compensation levels and awards. The +22 +Committee sets performance and bonus targets, and certifies awards, under the Executive Performance Sharing Plan and the LTIP, makes stock option grants and +restricted stock awards, determines the compensation of the Chief Executive Officer, and makes recommendations to the Board of Directors for final approval of all other compensation matters. The Committee also reviews with the Chief Executive +Officer and the Human Resources staff the financial and other strategic objectives, such as those identified above, for each of the named executive officers for the following year. +For fiscal year 2006, the Company met targeted performance objectives set for named executive officers sufficient for a payout under the Executive +Performance Sharing Plan. This resulted from increased profitability due to costs that grew more slowly than revenues, which offset lower gross margins, and sales increases in key product categories and markets. Furthermore, the Company’s +balance sheet and competitive position in the industry remained strong. The Company’s financial performance corresponded to bonuses of 98% of the individual target bonuses under the Executive Performance Sharing Plan, and 150% of the individual +target payouts under the three-year LTIP. +Chief Executive Officer. The Company’s former Chief Executive +Officer, William D. Perez, resigned his position on January 20, 2006. Under the terms of the employment agreement between the Company and Mr. Perez, and pursuant to a resignation letter agreement approved by the Committee and the Board of +Directors, Mr. Perez received certain severance payments and vesting of restricted stock and stock options upon termination of employment. Upon termination, Mr. Perez received the following: (a) a payment of two years’ of his +then current annual base salary of $1.4 million per year, (b) a payment equal to 100% of his fiscal year 2006 target bonus of $1,750,000 under the Company’s Performance Sharing Plan, (c) all restrictions lapsed with respect to the +remaining 66,667 shares of a Class B Common Stock restricted stock bonus of 100,000 shares granted to Mr. Perez on December 28, 2004 which were to vest over three years from the date of grant, and (d) he vested in full with respect to +the remaining unvested 133,334 shares of his option to purchase 200,000 shares of Class B Common Stock at an exercise price of $90.85, which was also granted on December 28, 2004 and scheduled to vest over three years, and he will have three +years to exercise such option. +The Company agreed to provide certain administrative services, reimburse prepaid club expenses, and pay +certain transportation costs, transition costs, and moving costs which is estimated at less than $200,000. In addition, the Company purchased Mr. Perez’s Portland, Oregon house for his original purchase price of $3,178,258 and reimbursed +him $579,649 for payments incurred to remodel and furnish the house. +The Company also agreed to pay to Mr. Perez a cash bonus of +$283,000, determined by multiplying $188,667 (representing two-thirds of his targeted Long-Term Incentive Plan award for fiscal 2006) by the payout factor of 150% based on fiscal 2006 performance. The Company agreed to lapse restrictions with +respect to one-fourth (or 5,709 shares) of a Class B Common Stock restricted stock bonus of 22,834 shares granted to Mr. Perez on July 15, 2005, which originally was to vest over four years. The Company also +23 +agreed to accelerate vesting of one-fourth (or 37,500 shares) of an option to purchase NIKE Class B Common Stock granted to Mr. Perez on July 15, +2005 at an exercise price of $87.59, and to extend the time in which he can exercise such option until December 31, 2006. +Mr. Parker was appointed President and Chief Executive officer on January 20, 2006, succeeding Mr. Perez. On Febrary 16, 2006, shortly after his appointment, Mr. Parker’s annual salary was increased to $1,250,000, +his annual bonus target under the Company’s Performance Sharing Plan was increased from 90% to 115% of his base salary, and he was granted an option to purchase 150,000 shares of Class B Stock, which vests over 4 years, and a restricted stock +bonus of 11,867 shares of Class B Stock, which vests over three years. +In reviewing Mr. Parker’s performance, the Committee +focused primarily on the Company’s performance in fiscal year 2006. The Company’s financial results demonstrated strong earnings growth driven by revenue growth and expense leverage. The Committee also noted continued progress toward the +achievement of various strategic objectives such as operational and supply chain efficiencies, and growth in key product categories and emerging countries. The Committee also considered the other factors described above. Consistent with the plans, +Mr. Parker received a bonus of $1,293,890, of which $327,231 did not qualify as “performance-based” under Section 162(m) of the Internal Revenue Code because it resulted from the mid-fiscal year increase in his performance target +described above. +Section 162(m) of the Internal Revenue Code. In 2002 shareholders re-approved the +LTIP, and in 2005 they re-approved the Stock Incentive Plan and the Executive Performance Sharing Plan. The plans are each designed to satisfy the performance-based exception to the Section 162(m) limitation on deductibility with respect to +incentive compensation for named executive officers, except that restricted stock bonuses do not qualify as performance based. +Members of the Compensation Committee: +Ralph D. DeNunzio, Chairman +Timothy D. Cook +Jeanne P. Jackson +John R. Thompson, Jr. +Compensation Committee Interlocks and Insider Participation +The members of the Compensation +Committee of the Board of Directors during the fiscal year ended May 31, 2006 are listed above. The Committee is composed solely of independent, non-employee directors. +24 +Employment Contracts and Termination of Employment and Change-in-Control Arrangements +An agreement between the Company and President and Chief Executive Officer Mark G. Parker contains a covenant not to compete that extends for two years +following the termination of his employment with the Company. The agreement provides that if Mr. Parker’s employment is terminated by the Company, the Company will make monthly payments to him during the two-year noncompetition period in +an amount equal to one-twelfth of his then current annual salary and target performance bonus (“Annual Nike Income”). The agreement provides further that if Mr. Parker voluntarily resigns, the Company will make monthly payments to him +during the two-year noncompetition period in an amount equal to one-twenty-fourth of his then current Annual Nike Income. If Mr. Parker is terminated without cause, the parties may mutually agree to waive the covenant not to compete, and if +Mr. Parker is terminated for cause, the Company may unilaterally waive the covenant. If the covenant is waived, the Company will not be required to make the payments described above for the months as to which the waiver applies. +The Company had an employment agreement with former President and Chief Executive Officer William D. Perez which required the Company to make a cash +payment and vest certain stock options and restricted stock upon termination of employment without cause. Mr. Perez’s employment was terminated without cause on January 20, 2006. Under the terms of this agreement, and certain +severance terms approved by the Board of Directors, Mr. Perez received severance payments described on pages 23 and 24. In connection with Mr. Perez’s termination of employment, the Company also purchased his home in Portland, Oregon +for his original purchase price of $3,178,258. +The Company has an agreement with President of NIKE Brand Charles D. Denson that extends +for two years following the termination of his employment with the Company. The agreement provides that if Mr. Denson’s employment is terminated by the Company at any time, or if he voluntarily resigns after December 31, 2006 but +before December 31, 2007, the Company will make monthly payments to him during the two-year noncompetition period in an amount equal to one-twelfth of his then current annual salary and target performance bonus (“Annual Nike Income”). +The agreement provides further that if Mr. Denson voluntarily resigns on or prior to December 31, 2006 or on or after December 31, 2007, the Company will make monthly payments to him during the two-year noncompetition period in an +amount equal to one-twenty-fourth of his then current Annual Nike Income. If Mr. Denson is terminated without cause, the parties may mutually agree to waive the covenant not to compete, and if Mr. Denson is terminated for cause, the +Company may unilaterally waive the covenant. If the covenant is waived, the Company will not be required to make the payments described above for the months as to which the waiver applies. +The Company has an employment agreement and a covenant not to compete with Vice President and Chief Financial Officer Donald W. Blair. The covenant not +to compete provides that if Mr. Blair’s employment is terminated by the Company, the Company will make monthly payments to him during the one-year noncompetition period in an amount equal to one-twelfth of his then current annual salary. +The +25 +agreement provides further that if Mr. Blair voluntarily resigns, the Company will make monthly payments to him during the one-year noncompetition +period in an amount equal to one-twenty-fourth of his then current annual salary. The Company may waive the covenant. If the covenant is waived, the Company will not be required to make the payments described above for the months as to which the +waiver applies. In addition, under Mr. Blair’s initial employment agreement, if his employment is terminated by the Company other than for cause, the Company will pay to him (a) a lump sum equal to his then-current annual base salary +and any bonus that would have been earned for the fiscal year in which the termination occurs, and (b) monthly payments of his then-current monthly salary for twelve months, plus any bonus that he would have earned during that time. +Certain Transactions and Business Relationships +Mr. Knight makes his airplane available for business use by the Company for no charge. NIKE operates and maintains the aircraft. Mr. Knight has reimbursed the Company $516,782 for NIKE’s operating costs related to his +personal use of this aircraft during fiscal 2006. +When Mr. Perez was an executive officer, the Company and Mr. Perez were +parties to an aircraft time-sharing agreement, under which Mr. Perez could use the Company’s aircraft for personal use and reimburse the Company for its operating costs related to such use. Mr. Perez reimbursed the Company $135,429 +for NIKE’s operating costs related to his personal use of the aircraft during fiscal 2006. +26 +PROPOSAL 2 +SHAREHOLDER PROPOSAL REGARDING CHARITABLE CONTRIBUTIONS REPORT +The Free Enterprise Action Fund, +12309 Briarbush Lane, Potomac, Maryland 20854, a holder of 100 shares of Class B Stock, submitted the following resolution (the “Proposal”), for the reasons stated. The Board of Directors recommends a vote AGAINST the Proposal and asks +shareholders to read through NIKE’s response which follows the shareholder proposal. +Charitable Contributions Report +Resolved: That the shareholders request the Company report semi-annually, omitting proprietary information and at reasonable cost, +disclosing the Company’s: +1. +Policies and procedures for charitable contributions (both direct and indirect) made with corporate assets; +2. +Monetary and non-monetary contributions made to non-profit organizations operating under Section 501(c)(3) and 501 (c)(4) of the Internal Revenue Code, and any other public or +private charitable organizations; +3. +Business rationale for each of the charitable contributions, including a discussion of how the contribution advances shareholder interests; +4. +Company executive(s) who approved the contributions; and +5. +To the extent reasonably possible, a description of the actual or estimated benefits to the Company and beneficiaries produced by contributions. +To the extent reasonable and permissible, the report should include the type of information requested above for charities affiliated or controlled by the +Company or its executives, including The Nike Foundation. +This report may be posted on the company’s website to reduce costs. +Supporting Statement: +Nike’s assets belong to its shareholders. The expenditure or distribution of corporate assets, including charitable contributions, should advance shareholder interests. Company charitable contributions should +have a stated business rationale that describes how the contributions advance shareholder interests. +Company executives exercise wide +discretion over the use of corporate assets for charitable purposes. +27 +Absent a system of accountability for charitable contributions, Company executives may use Company’s +assets for objectives that are not shared by and may be inimical to the interests of the Company and its shareholders, potentially harming long-term shareholder value. +Corporate executives may disproportionately or improperly benefit personally from corporate charitable contributions. “Much corporate philanthropy is far more aligned with [company executives’] social +ambitions than with shareholder interests. There are no studies to prove this, of course. But the society pages hold a clue: It’s the CEO who is toasted at benefits and photographed for posterity. How often is the source of the funds – the +pockets of shareholders – even mentioned?” [Source: Wall Street Journal, “Green-Nosing,” April 3, 2006]. +Principles of transparency and accountability should apply to Company charitable contributions. Such disclosure is consistent with public policy in regard to disclosure by publicly-owned companies. +Nike contributed more than $37.3 million, according to the Company’s 2004 Corporate Responsibility Report. The Nike Foundation also made +contributions of approximately $5.2 million during fiscal year 2004. +Shareholders are entitled to know how their company is spending its +funds for charitable purposes. +Current disclosure is insufficient to allow the Company’s Board and its shareholders to fully evaluate +the charitable use of corporate assets, particularly with respect to how the contributions advance shareholder interests. +There is +currently no single source providing shareholders the information sought by this resolution. +Nike and the Nike Foundation appear to have +contributed shareholder assets to numerous organizations whose social and political agendas may be inimical to shareholder interests including: Better World Fund, Business for Social Responsibility, Ceres, Environmental Resources Trust, Population +Council, World Resources Institute, and World Wildlife Fund. +Recommendation of the Board +The Board of Directors recommends a vote AGAINST the Proposal for the following reasons: +The Board of Directors understands the need and desire for transparency and accountability on all matters including Company charitable contributions, and +appreciates the proponent raising this important issue. However, the Board believes that this proposal is unnecessary because the Board reviews NIKE’s charitable giving programs to be consistent with the best interests of shareholders. +Furthermore, NIKE already produces a corporate responsibility report that outlines the Company’s charitable giving programs, so producing the report called for in this proposal would be an unproductive use of Company resources. +28 +The Board believes that prudent and targeted charitable contribution programs can improve the quality of +life for our employees and consumers in the communities in which we do business, and also enhance shareholder value over the long-term. The Board also believes that there is a direct connection between NIKE’s charitable giving and the benefits +to the Company and its shareholders. +In general, NIKE’s charitable giving is focused on three principal areas: +1. NIKE supports charitable giving programs where there are substantial employee populations in the US, Europe, and elsewhere. One such program is the +NIKE Matching Gift Program, in which the Company matches employee volunteer hours and cash donations to tax-exempt charitable organizations. In the U.S., this comprises over 40 percent of NIKE’s cash charitable giving. By supporting the worthy +civic commitments of our employees, we improve the quality of life in the communities in which we do business, encourage volunteerism by employees, attract and retain dedicated employees, and enhance employee loyalty to the Company. It is part of +the reason that in employee surveys 84 percent of NIKE employees would recommend the Company as a good place to work. Such charitable activities also improve NIKE’s local brand image, generate tremendous goodwill, and improve the local business +climate for the Company. +2. NIKE makes charitable gifts to promote public participation in sports and recreation globally. Our business +rests on a worldwide interest in health and fitness. Advocating a culture of sport, access to recreation, and participation in sports activities not only benefits public health, it also enhances the NIKE brand image, creates emotional connections +with potential consumers, and benefits the Company and its shareholders. +3. The Company also contributes to the NIKE Foundation, which +works in partnership with governments, global agencies such as the World Bank, and local community leaders to advance health and fitness for women in selected developing countries. Young women comprise the majority of workers manufacturing NIKE +products across 49 countries. The Company believes that programs that seek to improve the health and well being of young women will benefit families and communities, improve their economic opportunities, and enhance their morale, productivity, and +participation in the workforce. +The Board of Directors approves the general categories in which NIKE contributes and receives regular +reports on the ways these principles of giving have been applied. The Board contends that charitable donations of $37 million are not excessive in relation to NIKE’s global revenues, given the fact that NIKE’s U.S. taxes do not support +public services in foreign communities where our products are made. Further, the Board firmly believes that the Company’s charitable giving programs have resulted in tangible benefits to the Company as described above, and will enhance +shareholder value over the long term. +In addition, the report sought by the proponent would duplicate much of what the Company already +reports. NIKE issues a corporate responsibility report that describes, among other things, NIKE’s general +29 +charitable contribution programs and the overall amount of contributions. This report, first issued for fiscal 2001, will be available for fiscal 2005 and +2006 later this year at www.nikebiz.com . The Board believes that describing NIKE’s charitable programs and guiding principles provides more context and is more instructive than a list of donations. Moreover, detailed descriptions of +every individual donation (for example, a donation of several t-shirts or shoes to a local charitable group) would involve an unnecessary and time-consuming expenditure of administrative cost and effort, which would produce no corresponding +meaningful information or benefit to our shareholders. +Accordingly, the Board of Directors recommends a vote AGAINST the shareholder +proposal. Holders of Class A Stock and Class B Stock will vote together as a single class on Proposal 2. If holders of a majority of the shares of Common Stock vote on the proposal, Proposal 2 will be adopted if the votes cast in favor of the +Proposal exceed the votes cast against the proposal. Accordingly, abstentions and broker non-votes will have no effect on the results of the vote. +30 +PROPOSAL 3 +RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +The Audit Committee of the Board of +Directors has appointed PricewaterhouseCoopers LLP as independent registered public accounting firm to examine the Company’s consolidated financial statements for the fiscal year ending May 31, 2007 and to render other professional +services as required. +The Audit Committee is submitting the appointment of PricewaterhouseCoopers LLP to shareholders for ratification. +Representatives of PricewaterhouseCoopers LLP will be present at the Annual Meeting, will have the opportunity to make a statement if they +desire to do so, and are expected to be available to respond to questions. +Aggregate fees billed by the Company’s independent +registered public accounting firm, PricewaterhouseCoopers LLP, for audit services related to the most recent two fiscal years, and for other professional services billed in the most recent two fiscal years, were as follows: +Type of Service +2006 +2005 +Audit Fees (1) +$ +5.4 million +$ +6.6 million +Audit-Related Fees (2) +$ +0.2 million +$ +0.4 million +Tax Fees (3) +$ +1.2 million +$ +2.1 million +All Other Fees (4) +$ +0.2 million +$ +0.7 million +Total +$ +7.0 million +$ +9.8 million +(1) +Comprised of the audits of the Company’s annual financial statements and reviews of the Company’s quarterly financial statements, as well as statutory audits of Company +subsidiaries, attest services, comfort letters and consents to SEC filings. Audit fees also include audit services related to the Company’s compliance with Section 404 of the Sarbanes-Oxley Act of 2002 regarding internal controls over +financial reporting. +(2) +Comprised of employee benefit plan audits, acquisition due diligence, and consultations regarding financial accounting and reporting. +(3) +Comprised of services for tax compliance, tax planning, and tax advice. Tax compliance includes services related to the preparation or review of original and amended tax returns for +the Company and its consolidated subsidiaries and represents $1.1 million and $1.3 million of the tax fees for fiscal 2006 and 2005, respectively. The remaining tax fees primarily include tax advice. +(4) +Comprised of services for the preparation of tax returns for expatriate employees and other miscellaneous services. +31 +In accordance with the Sarbanes-Oxley Act of 2002, the Audit Committee established policies and +procedures under which all audit and non-audit services performed by the Company’s independent registered public accounting firm must be approved in advance by the Audit Committee. During fiscal 2006, all such services were approved in advance. +During fiscal 2005, fees totaling $19,025, or 0.2% of total fees, were paid to PricewaterhouseCoopers LLP for several small engagements in foreign locations that were not pre-approved, but were approved by the Audit Committee promptly after their +inadvertent omission from pre-approval was noticed. +Notwithstanding anything to the contrary set forth in any of the Company’s +filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, the following Report of the Audit Committee shall not be incorporated by reference into any such filings and shall not otherwise be deemed filed under such acts. +REPORT OF THE AUDIT COMMITTEE +The Audit Committee has: +• +Reviewed and discussed the audited financial statements with management. +• +Discussed with the independent auditors the matters required to be discussed by SAS 61. +• +Received the written disclosures and the letter from the independent accountants required by Independence Standards Board Standard No. 1, and has discussed with the independent +accountant the independent accountant’s independence. +• +Based on the review and discussions above, recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K +for the last fiscal year for filing with the Securities and Exchange Commission. +Members of the Audit +Committee: +Alan B. Graf, Jr., Chairman +John G. Connors +Orin C. Smith +OTHER MATTERS +As of the time this proxy statement was printed, management was unaware of any +proposals to be presented for consideration at the Annual Meeting other than those set forth herein, but if other matters do properly come before the Annual Meeting, the persons named in the proxy will vote the shares represented by such proxy +according to their best judgment. +32 +SHAREHOLDER PROPOSALS +A proposal by a shareholder for inclusion in the Company’s proxy statement and form of proxy for the 2007 annual meeting of shareholders must be +received by John F. Coburn III, Secretary of NIKE, at One Bowerman Drive, Beaverton, Oregon 97005-6453, on or before April 11, 2007 to be eligible for inclusion. Rules under the Securities Exchange Act of 1934 describe standards as to the +submission of shareholder proposals. In addition, the Company’s bylaws require that any shareholder wishing to make a nomination for Director, or wishing to introduce a proposal or other business at a shareholder meeting must give the Company +at least 60 days’ advance written notice, and that notice must meet certain requirements described in the bylaws. +For the Board of Directors +JOHN F. COBURN III +S ECRETARY +33 +ANNUAL +MEETING +AND +PROXY STATEMENT +September 18, 2006 +Beaverton, Oregon +This proxy statement is printed on recycled paper +VOTE BY INTERNET - www.proxyvote.com +NIKE, INC. +P.O. BOX 43069 +PROVIDENCE, RI 02940-3069 +Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy +card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. +ELECTRONIC DELIVERY OF FUTURE SHAREHOLDER COMMUNICATIONS +If you would like to reduce the costs incurred by NIKE, Inc. in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically +via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access shareholder communications electronically in future +years. +VOTE BY PHONE - 1-800-690-6903 +Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and +then follow the instructions. +VOTE BY MAIL +Mark, sign and date your proxy card and return it in the postage- paid envelope we have provided or return it to NIKE, Inc., c/o ADP, 51 Mercedes Way, Edgewood, NY 11717. +TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: +NIKEA1 KEEP THIS PORTION FOR YOUR RECORDS +DETACH +AND RETURN THIS PORTION ONLY +THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. +NIKE, INC. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 3, AND A VOTE AGAINST PROPOSAL 2. +For +All +Withhold +All +For All +Except +To withhold authority to vote for any nominee(s), mark “For All Except” and write the nominee’s number on the line below. +1. Election of Directors: +Nominees: 01) John G. Connors, 02) Timothy D. Cook +03) Ralph D. DeNunzio, 04) Douglas G. Houser, +05) Philip H. Knight, 06) Mark G. Parker +07) Orin C. Smith, 08) John R. Thompson, Jr. +¨ +¨ +¨ +For +Against +Abstain +2. Shareholder proposal regarding charitable contributions report. +¨ +¨ +¨ +3. Proposal to ratify the appointment of PricewaterhouseCoopers LLP as independent registered public +accounting firm. +¨ +¨ +¨ +For address changes and/or comments, please check this box and write them on the back where indicated. +¨ +(Please date and sign below exactly as your name or names appear(s) hereon. Joint owners should each sign personally. Corporate proxies +should be signed in full corporate name by an authorized officer and attested. Persons signing in a fiduciary capacity should indicate their full titles in such capacity.) +Signature [PLEASE SIGN WITHIN BOX] +Date +Signature (Joint Owners) +Date +ADMISSION TICKET +NIKE, Inc. +2006 Annual Meeting of Shareholders +Monday, September 18, 2006 +10:00 a.m. Pacific Daylight Time +Tiger Woods Conference Center +One Bowerman +Drive +Beaverton, Oregon 97005 +This ticket +admits only the shareholder(s) listed on the reverse side and is not transferable. If you plan on attending the Annual Meeting in person, please bring, in addition to this Admission Ticket, a proper form of identification. If shares are held in the +name of a broker, trust, bank, or other nominee, you should bring with you a statement, proxy or a letter from the broker, trustee, bank or nominee confirming your beneficial ownership of the shares as of the record date. Cameras, recording devices +and other electronic devices will not be permitted at the meeting. For the safety of attendees, all bags, packages, and briefcases are subject to inspection. Your compliance is appreciated. +NIKE, +Inc. +CLASS A COMMON STOCK PROXY +SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +FOR THE 2006 MEETING OF SHAREHOLDERS +SEPTEMBER +18, 2006 +The undersigned hereby appoints Philip H. Knight, Mark G. Parker +and Douglas G. Houser, and each of them, proxies with full power of substitution, to vote, as designated on the reverse side, on behalf of the undersigned, all shares of Class A Common Stock which the undersigned may be entitled to vote at the +Annual Meeting of Shareholders of NIKE, Inc. on September 18, 2006, and any adjournments thereof, with all powers that the undersigned would possess if personally present. A majority of the proxies or substitutes present at the meeting may +exercise all powers granted hereby. +THE SHARES REPRESENTED BY THIS PROXY WILL BE +VOTED AS SPECIFIED, BUT IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR, AGAINST PROPOSAL 2, AND FOR PROPOSAL 3. THE PROXIES MAY VOTE IN THEIR DISCRETION AS TO OTHER MATTERS +WHICH MAY COME BEFORE THE MEETING. +YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY +MARKING THE APPROPRIATE BOXES, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS’ RECOMMENDATIONS. THE PROXIES CANNOT VOTE THESE SHARES UNLESS YOU SIGN AND RETURN THIS CARD OR PROPERLY VOTE BY PHONE +OR INTERNET. +Address Change/Comments: +If you noted address changes or comments above, please mark the corresponding box on the +reverse side. +VOTE BY INTERNET - www.proxyvote.com +NIKE, INC. +P.O. BOX 43069 +PROVIDENCE, RI 02940-3069 +Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy +card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. +ELECTRONIC DELIVERY OF FUTURE SHAREHOLDER COMMUNICATIONS +If you would like to reduce the costs incurred by NIKE, Inc. in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports +electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access shareholder communications electronically +in future years. +VOTE BY PHONE - 1-800-690-6903 +Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call +and then follow the instructions. +VOTE BY MAIL +Mark, sign and date your proxy card and return it in the postage- paid envelope we have provided or return it to NIKE, Inc., c/o ADP, 51 Mercedes Way, Edgewood, NY 11717. +TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: +NIKEI1 KEEP THIS PORTION FOR YOUR RECORDS +DETACH AND +RETURN THIS PORTION ONLY +THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. +NIKE, INC. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 3, AND A VOTE AGAINST PROPOSAL 2. +For +All +Withhold +All +For All Except +To withhold authority to vote for any nominee(s), mark “For All Except” and write the nominee’s number on the line below. +1. Election of Directors: +Nominees: +01) Jill K. Conway +02) +Alan B. Graf, Jr. +03) +Jeanne P. Jackson +¨ +¨ +¨ +For +Against +Abstain +2. Shareholder proposal regarding charitable contributions report. +¨ +¨ +¨ +3. Proposal to ratify the appointment of PricewaterhouseCoopers LLP as independent registered public +accounting firm. +¨ +¨ +¨ +For address changes and/or comments, please check this box and write them on the back where indicated. +¨ +(Please date and sign below exactly as your name or names appear(s) hereon. Joint owners should each sign personally. Corporate proxies +should be signed in full corporate name by an authorized officer and attested. Persons signing in a fiduciary capacity should indicate their full titles in such capacity.) +Signature [PLEASE SIGN WITHIN BOX] +Date +Signature (Joint Owners) +Date +ADMISSION TICKET +NIKE, INC. +2006 Annual Meeting of Shareholders +Monday, September 18, 2006 +10:00 a.m. Pacific Daylight Time +Tiger Woods Conference Center +One Bowerman +Drive +Beaverton, Oregon 97005 +This ticket +admits only the shareholder(s) listed on the reverse side and is not transferable. If you plan on attending the Annual Meeting in person, please bring, in addition to this Admission Ticket, a proper form of identification. If shares are held in the +name of a broker, trust, bank, or other nominee, you should bring with you a statement, proxy or a letter from the broker, trustee, bank or nominee confirming your beneficial ownership of the shares as of the record date. Cameras, recording devices +and other electronic devices will not be permitted at the meeting. For the safety of attendees, all bags, packages, and briefcases are subject to inspection. Your compliance is appreciated. +NIKE, +INC. +CLASS B COMMON STOCK PROXY +SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +FOR THE 2006 MEETING OF SHAREHOLDERS +SEPTEMBER +18, 2006 +The undersigned hereby appoints Philip H. Knight, Mark G. Parker +and Douglas G. Houser, and each of them, proxies with full power of substitution, to vote, as designated on the reverse side, on behalf of the undersigned all shares of Class B Common Stock which the undersigned may be entitled to vote at the Annual +Meeting of Shareholders of NIKE, Inc. on September 18, 2006, and any adjournments thereof, with all powers that the undersigned, would possess if personally present. A majority of the proxies or substitutes present at the meeting may exercise +all powers granted hereby. +THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS +SPECIFIED, BUT IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR, AGAINST PROPOSAL 2, AND FOR PROPOSAL 3. THE PROXIES MAY VOTE IN THEIR DISCRETION AS TO OTHER MATTERS WHICH MAY +COME BEFORE THE MEETING. +YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE +APPROPRIATE BOXES, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS’ RECOMMENDATIONS. THE PROXIES CANNOT VOTE THESE SHARES UNLESS YOU SIGN AND RETURN THIS CARD OR PROPERLY VOTE BY PHONE OR +INTERNET. +Address Change/Comments: +If you noted address changes or comments above, please mark the corresponding box on the +reverse side. \ No newline at end of file diff --git a/raw/proxies/0000320187/0001193125-06-167800/proxy_rpt.txt b/raw/proxies/0000320187/0001193125-06-167800/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000320187/0001193125-07-170688/proxy.txt b/raw/proxies/0000320187/0001193125-07-170688/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..ff86bfcef627f45182f075e140d21d6d81311405 --- /dev/null +++ b/raw/proxies/0000320187/0001193125-07-170688/proxy.txt @@ -0,0 +1,2176 @@ +DEF 14A +1 +ddef14a.htm +DEFINITIVE PROXY STATEMENT +Definitive Proxy Statement +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 +Filed by the +Registrant x +Filed by a Party other than the +Registrant ¨ +Check the appropriate box: +¨ Preliminary Proxy Statement +¨ Confidential, for Use of the Commission Only +(as permitted by Rule 14a-6(e)(2)) +x Definitive Proxy Statement +¨ Definitive Additional Materials +¨ Soliciting Material Pursuant to § 240.14a-11(c) or § 240.14a-12 +NIKE, Inc. +(Name of Registrant as Specified in Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the +Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(I)(4) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was +determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the +previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +NIKE, Inc. +One Bowerman Drive +Beaverton, Oregon 97005-6453 +August 3, 2007 +To Our Shareholders: +You are cordially invited to attend the annual meeting of shareholders of NIKE, Inc. to be held at the Tiger Woods Conference Center, One Bowerman Drive, +Beaverton, Oregon 97005-6453, on Monday, September 17, 2007, at 10:00 A.M. Pacific Time. Registration will begin at 9:00 A.M. +The +meeting will consist of a brief presentation followed by the business items listed on the attached notice. +Whether or not you plan to +attend, the prompt execution and return of your proxy card will both assure that your shares are represented at the meeting and minimize the cost of proxy solicitation. +Sincerely, +Philip H. Knight +Chairman of the Board +Notice of Annual Meeting of Shareholders +September 17, 2007 +To the Shareholders of NIKE, Inc. +The annual meeting of shareholders of NIKE, Inc., an Oregon corporation, will be held on Monday, September 17, 2007, at 10:00 A.M., +at the Tiger Woods Conference Center, One Bowerman Drive, Beaverton, Oregon 97005-6453, for the following purposes: +1. +To elect a Board of Directors for the ensuing year. +2. +To approve the extension of and amendments to the NIKE, Inc. Long-Term Incentive Plan. +3. +To ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm. +4. +To transact such other business as may properly come before the meeting. +All shareholders are invited to attend the meeting. Shareholders of record at the close of business on July 25, 2007, the record date fixed by the Board of Directors, are entitled to notice of and to vote at the +meeting. You must present an admission ticket included with your proxy or voter instruction card. +By Order of the Board of Directors +JOHN F. COBURN III +Secretary +Beaverton, Oregon +August 3, 2007 +Whether or not you intend to be present at the meeting, please sign and date +the enclosed proxy and return it in the enclosed envelope, or vote by telephone or over the internet following the instructions on the proxy. +PROXY STATEMENT +The enclosed proxy is solicited by the Board of Directors of NIKE, Inc. (“NIKE” or the “Company”) for use at the annual meeting of shareholders to be held on September 17, 2007, and at any +adjournment thereof (the “Annual Meeting”). The Company expects to either mail or provide notice and electronic delivery of this proxy statement and the enclosed proxy to shareholders on or about August 3, 2007. +The Company will bear the cost of solicitation of proxies. In addition to the solicitation of proxies by mail, certain officers and employees of the +Company, without extra compensation, may also solicit proxies personally or by telephone. Copies of proxy solicitation materials will be furnished to fiduciaries, custodians and brokerage houses for forwarding to the beneficial owners of shares held +in their names. +All valid proxies properly executed and received by the Company prior to the Annual Meeting will be voted in accordance +with the instructions specified in the proxy. Where no instructions are given, shares will be voted (1) FOR the election of each of the named nominees for director, (2) FOR approval of the extension of and amendments to the NIKE, Inc. +Long-Term Incentive Plan, and (3) FOR ratification of the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm. A shareholder may choose to strike the names of the proxy holders named in the enclosed proxy +and insert other names. +A shareholder giving the enclosed proxy has the power to revoke it at any time before it is exercised by +affirmatively electing to vote in person at the meeting or by delivering to John F. Coburn III, Secretary of NIKE, either an instrument of revocation or an executed proxy bearing a later date. +VOTING SECURITIES +Holders of record of NIKE’s Class A Common Stock +(“Class A Stock”) and holders of record of NIKE’s Class B Common Stock (“Class B Stock”), at the close of business on July 25, 2007, will be entitled to vote at the Annual Meeting. On that date, 117,560,234 shares of +Class A Stock and 384,548,464 shares of Class B Stock were issued and outstanding. Neither class of Common Stock has cumulative voting rights. All share and per-share amounts in this proxy statement have been adjusted to reflect the two-for-one +stock split of the Class A Stock and the Class B Stock effected on April 2, 2007 in the form of a 100 percent common stock dividend. +Each share of Class A Stock and each share of Class B Stock is entitled to one vote on every matter submitted to the shareholders at the Annual Meeting. With regard to Proposal 1, the election of directors, the holders of Class A +Stock and the holders of Class B Stock will vote separately. Holders of Class B Stock are currently entitled to elect 25 percent of the total Board, rounded up to the next whole number. Holders of Class A Stock are currently entitled to +elect the remaining directors. Under this formula, holders of Class B Stock, voting separately, will elect three directors, and holders of Class A Stock, voting separately, will elect nine directors. Holders of Class A Stock and holders of +Class B Stock will vote together as one class on Proposals 2 and 3. +PROPOSAL 1 +ELECTION OF DIRECTORS +A Board of 12 directors will be elected at the Annual Meeting. All of the +nominees were elected at the 2006 annual meeting of shareholders except for Johnathan A. Rodgers, who was appointed to the Board of Directors on November 16, 2006. Directors will hold office until the next annual meeting of shareholders or +until their successors are elected and qualified. +Jill K. Conway, Alan B. Graf, Jr., and Jeanne P. Jackson are nominated by the Board of +Directors for election by the holders of Class B Stock. The other nine nominees are nominated by the Board of Directors for election by the holders of Class A Stock. +Under Oregon law, if a quorum of each class of shareholders is present at the Annual Meeting, the nine director nominees who receive the greatest number of votes cast by holders of Class A Stock and the three +director nominees who receive the greatest number of votes cast by holders of Class B Stock will be elected directors. Abstentions and broker non-votes will have no effect on the results of the vote. Unless otherwise instructed, proxy holders will +vote the proxies they receive for the nominees listed below. If any nominee becomes unable to serve, the holders of the proxies may, in their discretion, vote the shares for a substitute nominee or nominees designated by the Board of Directors. +The Corporate Governance Guidelines adopted by the Board of Directors provide that any nominee for director in an uncontested election who +receives a greater number of votes “withheld” from his or her election than votes “for” such election shall tender his or her resignation for consideration by the Nominating and Corporate Governance Committee. The Committee shall +recommend to the Board the action to be taken with respect to the resignation. The Board will publicly disclose its decision within 90 days of the certification of the election results. +Background information on the nominees as of July 16, 2007, appears below: +Nominees for Election by Class A Shareholders +John G. +Connors — Mr. Connors, 48, a director since 2005, is a partner in Ignition Partners LLC, a Seattle-area venture capital firm. Mr. Connors served as Senior Vice President and Chief Financial Officer of Microsoft +Corporation from December 1999 to May 2005. He joined Microsoft in 1989 and held various management positions, including Corporate Controller from 1994 to 1996, Vice President, Worldwide Enterprise Group in 1999, and Chief Information +Officer from 1996 to 1999. Mr. Connors is a member of the Board of Trustees — Nature Conservancy of Montana, and also member of the Board of Directors of Jobster, Inc., BioPassword, Inc., FiREapps, Inc., SecondSpace, XenSource, +Inc., the Washington Policy Center, and the University of Washington Tyee Club. +2 +Timothy D. Cook — Mr. Cook, 46, a director since 2005, is the Chief Operating +Officer of Apple, Inc. Mr. Cook joined Apple in March 1998 as Senior Vice President of Worldwide Operations and also served as Executive Vice President, Worldwide Sales and Operations. Mr. Cook was Vice President, Corporate +Materials for Compaq Computer Corporation from 1997 to 1998. Previous to his work at Compaq, Mr. Cook served in the positions of Senior Vice President Fulfillment and Chief Operating Officer of the Reseller Division at Intelligent Electronics +from 1994 to 1997. Mr. Cook also worked for International Business Machines Corporation from 1983 to 1994, most recently as Director of North American Fulfillment. +Ralph D. DeNunzio — Mr. DeNunzio, 75, a director since 1988, is President of Harbor Point Associates, Inc., New York, New York, a private investment and consulting firm. Mr. DeNunzio +was employed by the investment banking firm of Kidder, Peabody & Co. Incorporated from 1953 to 1987, where he served as President from 1977 to 1986, as Chief Executive Officer from 1980 to 1987 and as Chairman of the Board of Directors from +1986 to 1987. Mr. DeNunzio served as Vice Chairman and Chairman of the Board of Governors of the New York Stock Exchange from 1969 to 1972 and was President of the Securities Industry Association in 1981. In 1970, Mr. DeNunzio headed the +Securities Industry Task Force, which led to enactment of the Securities Investor Protection Act of 1970 and establishment of the Securities Investor Protection Corporation. +Douglas G. Houser — Mr. Houser, 72, a director since 1970, has been a partner in the Portland, Oregon law firm of Bullivant, +Houser, Bailey since 1965. Mr. Houser is a trustee of Willamette University and a Fellow in the American College of Trial Lawyers, and has served as a member of the Board of Governors and Treasurer of the Oregon State Bar Association and as a +Director of the Rand Corporation, Institute for Civil Justice Board of Overseers. +Philip H. +Knight — Mr. Knight, 69, a director since 1968, is Chairman of the Board of Directors of NIKE. Mr. Knight is a co-founder of the Company and, except for the period from June 1983 through September 1984, served +as its President from 1968 to 1990, and from June 2000 to 2004. Prior to 1968, Mr. Knight was a certified public accountant with Price Waterhouse and Coopers & Lybrand and was an Assistant Professor of Business Administration at +Portland State University. +Mark G. Parker — Mr. Parker, 51, has been President and Chief Executive Officer and +a director since January 2006. He has been employed by NIKE since 1979 with primary responsibilities in product research, design and development, marketing, and brand management. Mr. Parker was appointed divisional Vice President in charge +of development in 1987, corporate Vice President in 1989, General Manager in 1993, Vice President of Global Footwear in 1998, and President of the NIKE Brand in 2001. +Johnathan A. Rodgers — Mr. Rodgers, 61, appointed to the Board in November 2006, is the President and Chief Executive Officer of TV One, LLC. Prior joining TV One, LLC in +March 2003, Mr. Rodgers was President, Discovery Networks US for Discovery Communications, Inc. from 1996 to 2003. Prior to +3 +his work at Discovery Communications, Mr. Rodgers had a 20-year career at CBS, Inc. where he held a variety of executive positions, including President, +CBS Television Stations. Mr. Rodgers is also a director of Procter & Gamble Company, a Trustee of the University of California — Berkeley, and a director of the National Cable Telecommunication Association. +Orin C. Smith — Mr. Smith, 64, a director since 2004, was President and Chief Executive Officer of Starbucks Corporation +from 2000 to 2005. He joined Starbucks as Vice President and Chief Financial Officer in 1990, became President and Chief Operating Officer in 1994, and became a director of Starbucks in 1996. Prior to joining Starbucks, Mr. Smith spent a total +of 14 years with Deloitte & Touche. He was later the Executive Vice President and Chief Financial Officer of two transportation companies. Between these assignments, he was Chief Policy and Finance Officer in the administrations of two +Washington State Governors. Mr. Smith is also a member of the Board of Directors of Washington Mutual, Inc., and The Walt Disney Company. +John R. Thompson, Jr. — Mr. Thompson, 66, a director since 1991, was head coach of the Georgetown University men’s basketball team from 1972 until 1998. Mr. Thompson was head coach of the 1988 United +States Olympic basketball team. He hosts a sports radio talk show in Washington, D.C., and is a nationally broadcast sports analyst for Turner Network Television (TNT) and the Westwood One, Inc. radio network. He serves as Assistant to the President +of Georgetown for Urban Affairs, and he is a past President of the National Association of Basketball Coaches and presently serves on its Board of Governors. +Nominees for Election by Class B Shareholders +Jill K. Conway — Dr. Conway, 73, a director since +1987, is currently a Visiting Scholar with the Massachusetts Institute of Technology’s Program in Science, Technology and Society. Dr. Conway was a Professor of History and President of Smith College, Northampton, Massachusetts, from 1975 +to 1985. She was affiliated with the University of Toronto from 1964 to 1975, and held the position of Vice President, Internal Affairs from 1973 to 1975. Dr. Conway holds numerous Honorary Doctorates from North American universities. She is +also a director of Colgate-Palmolive Company and a former director of Merrill Lynch & Co., Inc. +Alan B. Graf, +Jr . — Mr. Graf, 53, a director since 2002, is the Executive Vice President and Chief Financial Officer of FedEx Corporation, a position he has held since 1998, and is a member of FedEx Corporation’s Executive Committee. +Mr. Graf joined FedEx Corporation in 1980 and was Senior Vice President and Chief Financial Officer for FedEx Express, FedEx’s predecessor, from 1991 to 1998. He is also a director of Mid-America Apartment Communities, Inc. +Jeanne P. Jackson — Ms. Jackson, 55, a director since 2001, is Founder and CEO of MSP Capital, a private investment company. +Ms. Jackson was CEO of Walmart.com from March 2000 to January 2002. +4 +She was with Gap, Inc., as President and CEO of Banana Republic from 1995-2000, also serving as CEO of Gap, Inc. Direct from 1998-2000. Since 1978, she has +held various retail management positions with Victoria’s Secret, The Walt Disney Company, Saks Fifth Avenue, and Federated Department Stores. Ms. Jackson is the President of the United States Ski and Snowboard Foundation Board of Trustees, +and serves on the Board of Advisors of the Harvard Graduate School of Business. She is also a director of McDonald’s Corporation and Nordstrom, Inc. +Board of Directors and Committees +The Board currently has an Executive Committee, an Audit Committee, a Nominating and +Corporate Governance Committee, a Finance Committee, a Corporate Responsibility Committee, and a Compensation Committee, and may also appoint other committees from time to time. Each committee has a written charter; all such charters, as well as the +Company’s corporate governance guidelines, are available at the Company’s internet website ( www.nikebiz.com/investors ) and will be provided in print to any shareholder who submits a request in writing to NIKE Investor Relations, One +Bowerman Drive, Beaverton, Oregon 97005-6453. There were five meetings of the Board of Directors during the last fiscal year. Each director attended at least 75 percent of the total number of meetings of the Board of Directors and committees on +which he or she served. The Company encourages all directors to attend each annual meeting of shareholders, and all directors attended the 2006 Annual Meeting. +Pursuant to New York Stock Exchange rules, in order for a director to qualify as “independent,” the Board of Directors must affirmatively determine that the director has no material relationship with the +Company that would impair the director’s independence. The rules permit the Board to adopt categorical standards under which relationships will be deemed immaterial without any specific Board determination. Accordingly, the Board has determined +that commercial or charitable relationships below the following thresholds will not be considered material relationships that impair a director’s independence: (i) if a NIKE director or immediate family member is an executive officer of +another company that does business with NIKE and the annual sales to, or purchases from, NIKE are less than one percent of the annual revenues of the other company; and (ii) if a NIKE director or immediate family member serves as an officer, +director or trustee of a charitable organization, and NIKE’s contributions to the organization are less than one percent of that organization’s total annual charitable receipts. After applying this categorical standard, the Board of +Directors has determined that all directors, except Mr. Knight and Mr. Parker who are executive officers of the Company, have no material relationship with the Company and, therefore, are independent. +Executive sessions of non-management directors (consisting of all directors other than Mr. Knight and Mr. Parker) are regularly scheduled and +held at least once each year. The position of presiding director at these executive sessions is rotated among the Chairs of the various Board committees, other than the Executive Committee, so there is no single lead director. The current presiding +director at the executive sessions is Mr. Graf. +5 +The Executive Committee of the Board is currently composed of Messrs. Knight (Chairman), Parker, and +Houser. The Executive Committee is authorized to act on behalf of the Board on all corporate actions for which applicable law does not require participation by the full Board. In practice, the Executive Committee acts in place of the full Board only +when emergency issues or scheduling make it difficult or impracticable to assemble the full Board. All actions taken by the Executive Committee must be reported at the next Board meeting. The Executive Committee held no formal meetings during the +fiscal year ended May 31, 2007, but took actions from time to time pursuant to written consent resolutions. +The Audit Committee is +currently composed of Messrs. Graf (Chairman), Connors, and Smith. The Board has determined that each member of the Audit Committee meets all applicable independence and financial literacy requirements under the New York Stock Exchange listing +standards. The Board has also determined that Mr. Graf is an “audit committee financial expert” as defined in regulations adopted by the Securities and Exchange Commission. The Audit Committee is responsible for the engagement or +discharge of the independent registered public accountants, reviews and approves services provided by the independent registered public accountants, and reviews with the independent registered public accountants the scope and results of their annual +examination of the Company’s consolidated financial statements and any recommendations they may have. The Audit Committee also reviews the Company’s procedures with respect to maintaining books and records, the adequacy and implementation +of internal auditing, accounting, disclosure, and financial controls, and the Company’s policies concerning financial reporting and business practices. The Audit Committee met 13 times during the fiscal year ended May 31, 2007. +The Nominating and Corporate Governance Committee is currently composed of Mr. DeNunzio (Chairman), Dr. Conway, and Mr. Houser. The +Board has determined that each member of the Nominating and Corporate Governance Committee meets all applicable independence requirements under the New York Stock Exchange listing standards. The Nominating and Corporate Governance Committee +identifies individuals qualified to become Board members, recommends director nominees for election at each annual shareholder meeting, and develops and recommends corporate governance guidelines and standards for business conduct and ethics. The +Committee also oversees the annual self-evaluations of the Board and its committees and makes recommendations to the Board concerning the structure and membership of the other Board committees. Company policy requires the Nominating and Corporate +Governance Committee to review any transaction or proposed transaction with a related person and to determine whether to ratify or approve the transaction, with ratification or approval to occur only if the Committee determines that the transaction +is fair to the Company or that approval or ratification of the transaction is in the interest of the Company. The Nominating and Corporate Governance Committee met four times during the fiscal year ended May 31, 2007. +The Finance Committee is currently composed of Messrs. Smith (Chairman), Connors, and DeNunzio. The Finance Committee considers long-term financing +options and needs of the Company, long-range tax and currency issues facing the Company, and management recommendations concerning major capital +6 +expenditures and material acquisitions or divestments. The Finance Committee met five times during the fiscal year ended May 31, 2007. +The Corporate Responsibility Committee is currently composed of Dr. Conway (Chair), Ms. Jackson and Messrs. Houser, Rodgers, and Thompson. +The Corporate Responsibility Committee reviews significant activities and policies regarding labor and environmental practices, community affairs, charitable and foundation activities, diversity and equal opportunity, and environmental and +sustainability initiatives, and makes recommendations to the Board of Directors. The Corporate Responsibility Committee met four times during the fiscal year ended May 31, 2007. +The Compensation Committee is currently composed of Mr. DeNunzio (Chairman), Mr. Cook, Ms. Jackson, and Mr. Thompson. The +Compensation Committee determines the Chief Executive Officer’s compensation and makes recommendations to the Board regarding other officers’ compensation, management incentive compensation arrangements and profit sharing plan +contributions. The Compensation Committee also grants stock options and restricted stock bonuses under the NIKE, Inc. 1990 Stock Incentive Plan, and determines targets and awards under the NIKE, Inc. Executive Performance Sharing Plan and the NIKE, +Inc. Long-Term Incentive Plan. The Compensation Committee met six times during the fiscal year ended May 31, 2007. +Director Nominations +The Nominating and Corporate Governance Committee identifies potential director candidates through a variety of means, including +recommendations from members of the Committee or the Board, suggestions from Company management, and shareholder recommendations. The Committee also may, in its discretion, engage director search firms to identify candidates. Shareholders may +recommend director candidates for consideration by the Nominating and Corporate Governance Committee by submitting a written recommendation to the Committee, c/o John F. Coburn III, Secretary, NIKE, Inc., One Bowerman Drive, Beaverton, Oregon +97005-6453. The recommendation should include the candidate’s name, age, qualifications (including principal occupation and employment history), and written consent to be named as a nominee in the Company’s proxy statement and to serve as +a director, if elected. +The Board of Directors has adopted qualification standards for the selection of independent nominees for director +which can be found at our internet website, www.nikebiz.com/investors . As provided in the these standards and the Company’s Corporate Governance Guidelines, nominees for director are selected on the basis of, among other things, +distinguished business experience or other non-business achievements; education; significant knowledge of international business, finance, marketing, technology, law, or other fields which are complementary to, and balance the knowledge of other +Board members; a desire to represent the interests of all shareholders; independence; character; ethics; good judgment; diversity; and ability to devote substantial time to discharge Board responsibilities. In considering the re-nomination of an +7 +incumbent director, the Nominating and Corporate Governance Committee reviews the director’s overall service to the Company during his or her term, +including the number of meetings attended, level of participation and quality of performance, as well as any special skills or diversity that such director brings to the Board. All potential new director candidates, whether recommended by +shareholders or identified by other means, are initially screened by the Chair of the Nominating and Corporate Governance Committee, who may seek additional information about the background and qualifications of the candidate, and who may determine +that a candidate does not have qualifications that merit further consideration by the full committee. With respect to new director candidates who pass the initial screening, the Nominating and Corporate Governance Committee meets to discuss and +consider each candidate’s qualifications and potential contributions to the Board, and determines by majority vote whether to recommend such candidates to the Board of Directors. The final decision to either elect a candidate to fill a vacancy +between Annual Meetings or include a candidate on the slate of nominees proposed at an Annual Meeting is made by the Board of Directors. +Directors first elected after the 1993 fiscal year must retire at age 72. +Shareholder Communications with Directors +Shareholders or interested parties desiring to communicate directly with the Board of Directors, with the non-management directors, or with any +individual director, may do so in writing addressed to the intended recipient or recipients, c/o John F. Coburn III, Secretary, NIKE, Inc., One Bowerman Drive, Beaverton, Oregon 97005-6453. All such communications will be reviewed, compiled as +necessary, and then forwarded to the designated recipient or recipients in a timely manner. +Code of Business Conduct and Ethics +The NIKE Code of Ethics (“Code”) is available at the Company’s internet website ( www.nikebiz.com ) and will be provided in print +without charge to any shareholder who submits a request in writing to NIKE Investor Relations, One Bowerman Drive, Beaverton, Oregon 97005-6453. The Code applies to the Company’s chief executive officer and senior financial officers, and to all +other Company directors, officers and employees. The Code provides that any waiver of the Code may be made only by the Board. Any such waiver in favor of a director or executive officer will be publicly disclosed. The Company plans to disclose +amendments to, and waivers from, the Code on the Company’s internet website: www.nikebiz.com/investors. +8 +Director Compensation for Fiscal 2007 +Name +Fees Earned or +Paid in Cash +($) +Option +Awards (1) +($) +All Other +Compensation (2) +($) +Total +($) +John G. Connors +$ +63,500 +$ +71,670 +— +$ +135,170 +Jill K. Conway +41,000 +71,670 +$ +34,974 +147,644 +Timothy D. Cook +55,500 +93,374 +5,000 +153,874 +Ralph D. DeNunzio +74,500 +89,587 +20,000 +184,087 +Alan B. Graf, Jr. +65,500 +71,670 +— +137,170 +Douglas G. Houser +58,000 +89,587 +20,000 +167,587 +Jeanne P. Jackson +59,500 +71,670 +5,000 +136,170 +Johnathan A. Rodgers +33,000 +53,373 +— +86,373 +Orin C. Smith +65,500 +71,670 +20,000 +157,170 +John R. Thompson, Jr. +37,500 +71,670 +27,472 +136,642 +(1) +Represents the amount of compensation expense recognized under FAS 123R in fiscal 2007 with respect to annual director options granted in fiscal 2007 and fiscal 2006, +disregarding estimated forfeitures. Compensation expense is equal to the grant date fair value of the options estimated using the Black-Scholes option pricing model, and is recognized ratably over the one-year vesting period. On September 18, +2006, each listed director other than Messrs. DeNunzio, Houser and Rodgers was granted an option for 8,000 shares with an exercise price of $41.485 per share, which was the closing market price of our Class B Common Stock on +September 15, 2006, the last trading day prior to the grant date. The grant date fair value of each of these options was $70,300, or $8.79 per share covered by the option. On September 18, 2006, each of Messrs. DeNunzio and Houser was +granted an option for 10,000 shares with an exercise price of $41.485 per share, which was the closing market price of our Class B Common Stock on September 15, 2006, the last trading day prior to the grant date. The grant date fair +value of each of these options was $87,900, or $8.79 per share covered by the option. On November 16, 2006, Mr. Rodgers was granted an option for 10,000 shares with an exercise price of $47.745 per share, which was the closing market +price of our Class B Common Stock on November 15, 2006, the last trading day prior to the grant date. The grant date fair value of this option was $99,400, or $9.94 per share covered by the option. The assumptions made in determining the +grant date fair values of options under FAS 123R are disclosed in Note 10 of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended May 31, 2007. As of May 31, 2007, non-employee directors +held outstanding options for the following numbers of shares of our Class B Common Stock: Mr. Connors, 26,000; Dr. Conway, 32,000; Mr. Cook, 18,000; Mr. DeNunzio, 48,000; Mr. Graf, 42,000; Mr. Houser, 10,000; +Ms. Jackson, 44,000; Mr. Rodgers, 10,000; Mr. Smith, 34,000; and Mr. Thompson, 32,000. +9 +(2) +Includes medical and life insurance premiums paid by us of $14,974 for Dr. Conway and $14,972 for Mr. Thompson. Also includes matching charitable contributions by us under +the NIKE Matching Gift Program, under which directors are eligible to contribute to qualified charitable organizations and we provide a matching contribution to the charities in an equal amount, up to $20,000 in the aggregate for each director +annually. In fiscal 2007, we matched contributions to charities in the following amounts: Dr. Conway, $20,000, Mr. Cook, $5,000, Mr. DeNunzio, $20,000, Mr. Houser, $20,000, Ms. Jackson, $5,000, Mr. Smith, $20,000, and +Mr. Thompson, $12,500. +Director Fees and Arrangements +Under our standard director compensation program in effect in fiscal 2007, each non-employee director received an annual retainer fee of $40,000 per +year, a $2,000 meeting fee for each board meeting attended and a $1,000 meeting fee for each committee meeting attended. Mr. Rodgers received a retainer of $23,333 for seven months of service in fiscal 2007. Additionally, on the date of each +annual meeting of shareholders, each non-employee director receives an option to purchase 4,000 shares of our Class B Common Stock. The option has a term of ten years and an exercise price equal to the closing market price of our +Class B Common Stock on the last trading day prior to the grant date. The option becomes exercisable in full one year after the grant date. Effective September 1, 2007, our standard director compensation program has been modified to +increase the annual retainer fee to $50,000 per year. Messrs. Connors, Cook, Graf and Smith and Ms. Jackson participate in our standard director compensation program. Messrs. DeNunzio and Houser also participate in our standard +program, except that, in exchange for electing in fiscal 2000 to participate in the standard program when it was first instituted, they each receive an option to purchase 5,000 shares of our Class B Common Stock, instead of +4,000 shares. Consistent with the board’s policy, Mr. Rodgers received an option to purchase 10,000 shares (adjusted for the stock split) of our Class B Common Stock upon his appointment to the board. The option was granted on +November 16, 2006, the date he was appointed to the board. +Mr. Thompson and Dr. Conway do not participate in our standard +director compensation program. Pursuant to elections made in fiscal 2000, Mr. Thompson and Dr. Conway received in fiscal 2007 an annual retainer fee of $22,000 per year (instead of the $40,000 annual retainer fee paid under our standard +program), a $2,000 meeting fee for each board meeting attended and a $1,000 meeting fee for each committee meeting attended. Pursuant to these elections, Mr. Thompson and Dr. Conway also receive medical insurance and $500,000 of life +insurance coverage paid for by us. Additionally, on the date of each annual meeting of shareholders, Mr. Thompson and Dr. Conway each receive an option to purchase 4,000 shares of our Class B Common Stock on the same terms as +apply to the options granted pursuant to our standard program. In the future, we expect to set the exercise price of all director stock options we grant at 100 percent of the closing market price of our Class B Common Stock on the date of +grant. Effective September 1, 2007, director compensation for Mr. Thompson and Dr. Conway has been modified to increase the annual retainer fee to $32,000 per year. +10 +In fiscal 2007, non-employee directors serving as chair to a board committee, except the Executive +Committee, also received an annual fee of $5,000 for each committee chaired. Effective September 1, 2007, the annual fee for committee chairs has been increased to $10,000 for all board committees except the Executive Committee and Audit +Committee. The chair of the Audit Committee will receive an annual fee of $15,000. We also reimburse our non-employee directors for travel and other expenses incurred in attending board meetings. +Philip H. Knight, as the chairman of our board of directors, is one of our executive officers, but is not a Named Executive Officer. Mr. Knight does +not receive any additional compensation for services provided as a director. +Director Retirement Benefits +From 1989 to 1999, we provided certain retirement benefits to non-employee directors who retired after serving for five years or more. The plan provided +that after ten years of service by a director, we would provide the director for the remainder of his or her life with $500,000 of life insurance and medical insurance at the levels provided by us to all of our employees at the time the director +retires. The plan also provided that a director who had served for at least five years would receive an annual retirement cash payment for life, commencing on the later of age 65 or the date the director retires or ceases to be a member of the +board. The annual retirement cash payment ranged from $9,000 for five years of service up to a maximum of $18,000 for 10 or more years of service. +In fiscal 2000, in an effort to reduce future retirement obligations, our board of directors approved a new retirement plan that allowed directors to make a one-time election to waive their future rights to annual retirement cash payments +in exchange for a credit to a stock account under our Deferred Compensation Plan equal to the lump sum present value of the payments based on the actuarial life expectancy of each director. The number of shares of our Class B Common Stock +credited to each stock account was based on the market price of the stock on September 1, 1999. All current directors who were directors at that time elected the new plan. The number of shares of Class B Common Stock credited to the stock +accounts of each director was as follows: Dr. Conway, 8,330; Mr. DeNunzio, 7,704; Mr. Houser, 8,486; and Mr. Thompson, 6,542. Any non-employee directors first elected after fiscal 2000 do not receive retirement benefits. +Director Participation in Deferred Compensation Plan +Under our Deferred Compensation Plan, non-employee directors may elect in advance to defer up to 100 percent of the director fees paid by us, +including retainer fees, committee fees and meeting fees. For a description of the plan, see “Non-Qualified Deferred Compensation in Fiscal 2007” below. +11 +Stock Holdings of Certain Owners and Management +The following table sets forth the number of shares of each class of NIKE securities beneficially owned, as of July 16, 2007, by (i) each +person known to the Company to be the beneficial owner of more than 5 percent of any class of the Company’s securities, (ii) each of the directors and nominees for director, (iii) each executive officer listed in the Summary +Compensation Table (“Named Officers”), and (iv) all nominees, Named Officers, and other executive officers as a group. Because Class A Stock is convertible into Class B Stock on a share-for-share basis, each beneficial owner of +Class A Stock is deemed by the Securities and Exchange Commission to be a beneficial owner of the same number of shares of Class B Stock. Therefore, in indicating a person’s beneficial ownership of shares of Class B Stock in the table, it +has been assumed that such person has converted into Class B Stock all shares of Class A Stock of which such person is a beneficial owner. For these reasons the table contains substantial duplications in the numbers of shares and percentages of +Class A and Class B Stock shown for Mr. Knight, for Cardinal Investment Sub I L.P., and for all directors and officers as a group. +Title of +Class +Shares +Beneficially +Owned (1) +Percent of +Class (2) +John G. Connors +Bellevue, Washington +Class B +24,460 +(3) +— +Jill K. Conway +Boston, Massachusetts +Class B +70,261 +(3) (4) +— +Timothy D. Cook +Cupertino, California +Class B +10,000 +(3) +— +Ralph D. DeNunzio +Riverside, Connecticut +Class B +203,240 +(3) (4) +— +Alan B. Graf, Jr +Memphis, Tennessee +Class B +42,000 +(3) +— +Douglas G. Houser +Portland, Oregon +Class B +164,669 +(3) (4) +— +Jeanne Jackson +Newport Coast, California +Class B +38,600 +(3) +— +Philip H. Knight +Class A +109,910,094 +(5) +93.5 +% +Beaverton, Oregon +Class B +109,923,764 +(5) +22.3 +% +Mark G. Parker (6) +Beaverton, Oregon +Class B +747,498 +(3) (7) +0.2 +% +Johnathan A. Rodgers +Silver Spring, Maryland +Class B +— +— +Orin C. Smith +Seattle, Washington +Class B +26,000 +(3) +— +John R. Thompson, Jr +Washington, D.C. +Class B +78,334 +(3) (4) +— +12 +Title of +Class +Shares +Beneficially +Owned (1) +Percent of +Class (2) +Donald W. Blair (6) +West Linn, Oregon +Class B +337,911 +(3) (7) +0.1 +% +Charles Denson (6) +Portland, Oregon +Class B +643,886 +(3) (7) (8) +0.2 +% +Gary M. DeStefano (6) +Beaverton, Oregon +Class B +291,196 +(3) (7) +0.1 +% +Lindsay D. Stewart (6) +Portland, Oregon +Class B +123,940 +(3) (7) +— +Sojitz Corporation of America +Portland, Oregon +Preferred +(9) +300,000 +100.0 +% +Cardinal Investment Sub I, L.P +Class A +2,000,000 +(10) +1.7 +% +Fort Worth, Texas +Class B +28,486,262 +(10) +7.4 +% +Massachusetts Financial Services Company +Boston, Massachusetts +Class B +22,316,116 +(11) +5.8 +% +All directors and executive officers as a group (30 persons) +Class A +109,910,094 +93.5 +% +Class B +114,505,610 +(3) +23.2 +% +(1) +A person is considered to beneficially own any shares: (a) over which the person exercises sole or shared voting or investment power, or (b) of which the person has the +right to acquire beneficial ownership at any time within 60 days (such as through conversion of securities or exercise of stock options). Unless otherwise indicated, voting and investment power relating to the above shares is exercised solely +by the beneficial owner or shared by the owner and the owner’s spouse or children. +(2) +Omitted if less than 0.1 percent. +(3) +These amounts include the right to acquire, pursuant to the exercise of stock options, within 60 days after July 16, 2007, the following numbers of shares: 18,000 shares +for Mr. Connors, 24,000 shares for Dr. Conway, 10,000 shares for Mr. Cook, 38,000 shares for Mr. DeNunzio, 34,000 shares for Mr. Graf, 36,000 shares for Ms. Jackson, 607,500 shares for Mr. Parker, 26,000 shares for +Mr. Smith, 24,000 shares for Mr. Thompson, 291,000 shares for Mr. Blair, 585,000 shares for Mr. Denson, 207,000 shares for Mr. DeStefano, 100,000 shares for Mr. Stewart, and 3,505,500 shares for the executive officer +and director group. +(4) +Includes shares credited to accounts under the NIKE, Inc. Deferred Compensation Plan in the following amounts: 9,125 for Dr. Conway, 8,440 for Mr. DeNunzio, 9,295 for +Mr. Houser, and 7,167 for Mr. Thompson. +(5) +Does not include: (a) 130,448 Class A shares owned by a corporation which is owned by Mr. Knight’s spouse, (b) 2,000,000 Class B shares held by the Knight +Foundation, a charitable foundation in which Mr. Knight and his spouse are directors, (c) 2,000,000 Class A shares and 950,000 Class B shares held by Oak Hill Strategic Partners, L.P., a limited partnership in which a company owned by +Mr. Knight is a limited partner, and (d) 25,536,262 Class B shares held by Cardinal Investment Sub I L.P., a limited partnership in which Mr. Knight is a limited partner. Mr. Knight has disclaimed ownership of all such shares. +(6) +Executive officer listed in the Summary Compensation Table. +(7) +Includes shares held in accounts under the NIKE, Inc. 401(k) and Profit Sharing Plan for Messrs. Parker, Blair, Denson, DeStefano, and Stewart in the amounts of 6,989, 1,907, +9,261, 7,062, and 2,358 shares, respectively. +(8) +Includes 200 shares held by a partnership in which Mr. Denson’s spouse is a general partner. +13 +(9) +Preferred Stock does not have general voting rights except as provided by law, and under certain circumstances as provided in the Company’s Restated Articles of +Incorporation, as amended. +(10) +Includes 2,000,000 shares of Class A Common Stock and 950,000 shares of Class B Common Stock held by Oak Hill Strategic Partners, L.P., which is under common control with +Cardinal Investment Sub I, L.P. +(11) +Information provided as of December 31, 2006 in Schedule 13G filed by the shareholder (adjusted to reflect NIKE’s April 2, 2007 2-for-1 stock split). +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors and executive officers, and persons who own more than +10 percent of a registered class of the Company’s equity securities, to file with the Securities and Exchange Commission (the “SEC”) and the New York Stock Exchange initial reports of ownership and reports of changes in ownership +of Common Stock and other equity securities of the Company. Officers, directors and greater than 10 percent shareholders are required by the regulations of the SEC to furnish the Company with copies of all Section 16(a) forms they file. To +the Company’s knowledge, based solely on review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ended May 31, 2007 all Section 16(a) filing +requirements applicable to its officers, directors and greater than 10 percent beneficial owners were complied with. +Transactions with Related +Persons +Mr. Knight makes his airplane available for business use by the Company for no charge. NIKE operates and maintains the +aircraft. Mr. Knight has reimbursed the Company $659,100 for NIKE’s operating costs related to his personal use of this aircraft during fiscal 2007. +14 +EXECUTIVE COMPENSATION +Summary Compensation Table +The following table sets forth compensation paid to or earned by our +Chief Executive Officer, our Chief Financial Officer and our next three most highly compensated executive officers who were serving as executive officers on May 31, 2007, for fiscal 2007. These individuals are referred to throughout this proxy +statement as the “Named Executive Officers.” +Name and Principal Position +Year +Salary +($) +Stock +Awards (1) +($) +Option +Awards (2) +($) +Non-Equity +Incentive Plan +Compensation (3) +($) +Change in +Pension +Value +and +Nonqualified +Deferred +Compensation +Earnings (4) +($) +All Other +Compensation (5) +($) +Total +($) +Mark G. Parker +Chief Executive +Officer and President +2007 +$ +1,250,000 +$ +815,720 +$ +1,839,987 +$ +2,147,537 +$ +2,567 +$ +172,157 +$ +6,227,968 +Donald W. Blair +Vice President and +Chief Financial Officer +2007 +680,385 +311,115 +778,415 +913,029 +— +83,465 +2,766,409 +Charles D. Denson +President of the +NIKE Brand +2007 +1,150,000 +649,040 +1,718,331 +1,868,030 +— +133,907 +5,519,308 +Gary M. DeStefano +President, Global +Operations +2007 +916,346 +311,115 +1,680,174 +1,162,697 +— +111,336 +4,181,668 +Lindsay D. Stewart +Vice President and +Chief of Staff +2007 +740,385 +425,053 +1,403,504 +953,861 +2,404 +111,189 +3,636,396 +(1) +Represents the amount of compensation expense recognized under FAS 123R in fiscal 2007 with respect to restricted stock +awards granted in fiscal 2007 and prior years, disregarding estimated forfeitures. Compensation expense is equal to the value of the restricted shares based on the closing market price of our Class B Common Stock on the grant date, and is recognized +ratably over the vesting period, which is generally three years . +(2) +Represents the amount of compensation expense recognized under FAS 123R in fiscal 2007 with respect to options granted +in fiscal 2007 and prior fiscal years, disregarding estimated forfeitures. Compensation expense is equal to the grant date fair value of the options estimated using the Black-Scholes option pricing model, and is generally recognized ratably over the +four-year vesting period. However, for employees whose age plus years of service exceeds 60 (including Mr. Parker, Mr. Denson, Mr. DeStefano and Mr. Stewart), and who therefore are eligible to have all options become fully +exercisable on any termination of employment, all of the compensation expense for options granted after our adoption of FAS 123R on June 1, 2006 is recognized at the time the option is granted. The assumptions made in determining the grant date +fair values of options under FAS 123R are disclosed in Note 10 of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended May 31, 2007. +15 +(3) +Non-Equity Incentive Plan Compensation consists of the following: +Name +Annual Incentive +Compensation +($) +Long-Term Incentive +Compensation +($) +Total +($) +Mark G. Parker +$ +1,397,537 +$ +750,000 +$ +2,147,537 +Donald W. Blair +463,029 +450,000 +913,029 +Charles D. Denson +1,118,030 +750,000 +1,868,030 +Gary M. DeStefano +712,697 +450,000 +1,162,697 +Lindsay D. Stewart +503,861 +450,000 +953,861 +Amounts shown in the Annual Incentive Compensation column were earned for performance in fiscal 2007 under our Executive Performance Sharing Plan. Amounts shown in the Long-Term +Incentive Compensation column were earned for performance during the three-year period consisting of fiscal 2005-2007 under our Long-Term Incentive Plan. +(4) +Represents above-market earnings credited to the respective Executive Deferred Compensation Plan accounts of +Messrs. Parker and Stewart during fiscal 2007. +(5) +Includes profit-sharing contributions by us to the 401(k) Savings and Profit Sharing Plan for fiscal 2007 in the amount of $9,943 for each of +Messrs. Parker, Blair, DeStefano, and Stewart, and $7,073 for Mr. Denson. Includes matching contributions by us to the 401(k) Savings and Profit Sharing Plan for fiscal 2007 in the amount of $8,800 for each of +Messrs. Parker, Blair, DeStefano, and Stewart. Also includes profit-sharing contributions by us to the Deferred Compensation Plan in the following amounts: $105,032 for Mr. Parker; $40,203 for Mr. Blair; $92,763 for +Mr. Denson; $60,260 for Mr. DeStefano; and $45,970 for Mr. Stewart. Includes matching charitable contributions by us under the NIKE Matching Gift Program, under which executives are eligible to contribute to qualified charitable +organizations and we provide a matching contribution to the charities in an equal amount, up to $10,000 in the aggregate for each executive annually. In fiscal 2007, we matched contributions to charities in the following amounts: Mr. Blair, +$10,000, Mr. Denson, $10,000, Mr. DeStefano, $5,000, and Mr. Stewart, $10,000. Includes dividends on restricted stock in the following amounts: $31,408 for Mr. Parker, $14,519 for Mr. Blair, $24,071 for Mr. Denson, +$16,982 for Mr. DeStefano, and $16,181 for Mr. Stewart. The amount for Mr. Parker includes $16,974 for the aggregate incremental cost of personal use of the company aircraft, determined based on the cost of fuel and other variable +costs associated with the particular flights under FAR 91-501(d). The amounts for Messrs. DeStefano and Stewart include service anniversary awards in the amounts of $10,341 and $7,746, respectively. The amount for Mr. Stewart includes +reimbursements for financial advisory services and the cost of commercial air travel for his spouse to an industry organization meeting. +16 +Grants of Plan-Based Awards in Fiscal 2007 +The following table contains information concerning the long-term incentive bonus opportunities, annual incentive bonus opportunities, restricted stock +awards and stock options granted to the Named Executive Officers in fiscal 2007. +Name +Grant +Date +Estimated Possible Payouts Under Non-Equity +Incentive Plan Awards +All Other +Stock +Awards: +Number of +Shares of +Stock (3) +All Other +Option +Awards: +Number of +Shares +Underlying +Options (4) +Exercise or +Base Price +of Option +Awards (5) +Grant Date +Fair Value +of Stock +and Option +Awards (6) +Threshold +Target +Maximum +($) +($) +($) +(#) +(#) +($/Sh) +($) +Mark G. Parker +6/15/06 +$ +718,750 +(1) +$ +1,437,500 +(1) +$ +2,156,250 +(1) +6/15/06 +$ +60,000 +(2) +$ +600,000 +(2) +$ +900,000 +(2) +Donald W. Blair +6/15/06 +$ +238,135 +(1) +$ +476,270 +(1) +$ +714,405 +(1) +6/15/06 +$ +30,000 +(2) +$ +300,000 +(2) +$ +450,000 +(2) +7/14/06 +25,394 +$ +1,000,016 +7/14/06 +66,000 +$ +39.38 +$ +578,780 +Charles D. Denson +6/15/06 +$ +575,000 +(1) +$ +1,150,000 +(1) +$ +1,725,000 +(1) +6/15/06 +$ +50,000 +(2) +$ +500,000 +(2) +$ +750,000 +(2) +Gary M. DeStefano +6/15/06 +$ +366,538 +(1) +$ +733,077 +(1) +$ +1,099,615 +(1) +6/15/06 +$ +30,000 +(2) +$ +300,000 +(2) +$ +450,000 +(2) +7/14/06 +25,394 +$ +1,000,016 +7/14/06 +100,000 +$ +39.38 +$ +876,940 +Lindsay D. Stewart +6/15/06 +$ +259,135 +(1) +$ +518,270 +(1) +$ +777,405 +(1) +6/15/06 +$ +30,000 +(2) +$ +300,000 +(2) +$ +450,000 +(2) +7/14/06 +19,046 +$ +750,031 +7/14/06 +100,000 +$ +39.38 +$ +876,940 +(1) +These amounts represent the potential bonuses payable for performance during fiscal 2007 under our Executive Performance Sharing Plan. Under this plan, the Compensation Committee +approved target awards for fiscal 2007 based on a percentage of the executive’s base salary paid during fiscal 2007 as follows: Mr. Parker, 115%; Mr. Blair, 70%; Mr. Denson, 100%; Mr. DeStefano, 80%; and Mr. Stewart, +70%. The Committee also established a series of performance targets based on our income before income taxes (“PTI”) for fiscal 2007 (before the effect of acquisitions, divestitures and accounting changes) corresponding to award payouts +ranging from 50% to 150% of the target awards. The PTI for fiscal 2007 required to earn the target award payout was $2,212 million. The PTI for fiscal 2007 required to earn the 150% maximum payout was $2,433 million. The PTI for fiscal +2007 required to earn the 50% threshold payout was $1,991 million. Participants receive a payout at the percentage level at which the performance target is met, subject to the Committee’s discretion to reduce or eliminate any award based +on Company or individual performance. Actual award payouts earned in fiscal 2007 and paid in fiscal 2008 are shown in footnote 3 to the “Non-Equity Incentive Plan Compensation” column in the Summary Compensation Table. +(2) +These amounts represent the potential long-term incentive awards payable for performance during the three-year period consisting of fiscal 2007-2009 under our +Long-Term Incentive Plan. Under this plan, the Compensation Committee approved target awards for the performance period and also established a series of performance targets based on our cumulative revenues and cumulative diluted earnings per common +share (“EPS”) for the performance period (before the effect of acquisitions, divestitures and accounting changes not reflected in our business plan at the time of approval of the target awards) corresponding +17 +to award payouts ranging from 10% to 150% of the target awards. Participants will receive a payout at the average of the percentage levels at which the two +performance targets are met, subject to the Committee’s discretion to reduce or eliminate any award based on Company or individual performance. For cumulative revenues over the performance period, the target payout requires revenues of +$50,467 million, the 10% threshold payout requires revenues of $44,135 million, a 50% payout requires revenues of $48,391 million, and the 150% maximum payout requires revenues of $53,041 million. For cumulative EPS over the +performance period, the target payout requires EPS of $9.355, the 10% threshold payout requires EPS of $8.66, a 50% payout requires EPS of $8.97, and the 150% maximum payout requires EPS of $9.83. Under the terms of the awards, on August 15, +2009 we will issue the award payout to each participant, provided that the participant is employed by us on the last day of the performance period. +(3) +All amounts reported in this column represent grants of restricted stock under our 1990 Stock Incentive Plan. Restricted stock generally vests in three equal installments on the +first three anniversaries of the grant date. Vesting will be accelerated in certain circumstances as described below under “Potential Payments Upon Termination or Change in Control.” Dividends are payable on restricted stock at the same +rate paid on all other outstanding shares of our Class B Common Stock. +(4) +All amounts reported in this column represent options granted under our 1990 Stock Incentive Plan. Options generally become exercisable for option shares in four equal installments +on the first four anniversaries of the grant date. Options will become fully exercisable in certain circumstances, including any termination of employment for Mr. Parker, Mr. Denson, Mr. DeStefano and Mr. Stewart, as described +below under “Potential Payments Upon Termination or Change in Control.” Each option has a maximum term of 10 years, subject to earlier termination in the event of the optionee’s termination of employment. +(5) +In accordance with the terms of our 1990 Stock Incentive Plan, the exercise price of stock options we grant has consistently been set at 100 percent of the closing market price +of our Class B Common Stock on the last trading day prior to the grant date. Accordingly, the exercise price for the options granted on July 14, 2006 was set at $39.38 per share, which was the closing market price of our Class B Common Stock on +July 13, 2006, the last trading day prior to the grant date. This exercise price was more than the closing market price of our Class B Common Stock on the date of grant, which was $39.29. In the future, we expect to set the exercise price of +stock options we grant at 100 percent of the closing market price of our Class B Common Stock on the date of grant. +(6) +For restricted stock awards, represents the value of restricted shares granted based on the closing market price of our Class B Common Stock on the grant date. For option awards, +represents the grant date fair value of options granted based on a value of $8.77 per share calculated using the Black-Scholes option pricing model. These are the same values for these equity awards used under FAS 123R. The assumptions made in +determining option values are disclosed in Note 10 of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended May 31, 2007. +18 +Outstanding Equity Awards at May 31, 2007 +The following table sets forth information concerning outstanding stock options and unvested restricted stock held by the Named Executive Officers at +May 31, 2007. +Option Awards +Stock Awards +Name +Number of +Securities +Underlying +Unexercised +Options +(#) +Exercisable +Number +of +Securities +Underlying +Unexercised +Options +(#) +Unexercisable (1) +Option +Exercise +Price ($) +Option +Expiration +Date +Number of +Shares That +Have Not +Vested (#) +Market +Value of +Shares That +Have Not +Vested ($) +Mark G. Parker +120,000 +140,000 +105,000 +70,000 +35,000 +62,500 +— +— +35,000 +70,000 +105,000 +187,500 +(2) +(3) +(4) +(5) +$ +21.1800 +24.4900 +26.1200 +36.6050 +43.7950 +42.1350 +07/12/11 +07/22/12 +07/18/13 +07/16/14 +07/15/15 +02/16/16 +35,822 +(7) +$ +2,032,899 +Donald W. Blair +20,000 +60,000 +66,000 +49,500 +33,000 +16,500 +— +— +— +— +16,500 +33,000 +49,500 +66,000 +(2) +(3) +(4) +(6) +13.8438 +21.1800 +24.4900 +26.1200 +36.6050 +43.7950 +39.3800 +03/08/10 +07/12/11 +07/22/12 +07/18/13 +07/16/14 +07/15/15 +07/14/16 +25,394 +(8) +1,441,110 +Charles D. Denson +80,000 +140,000 +105,000 +70,000 +35,000 +50,000 +— +— +35,000 +70,000 +105,000 +150,000 +(2) +(3) +(4) +(5) +21.1800 +24.4900 +26.1200 +36.6050 +43.7950 +42.1350 +07/12/11 +07/22/12 +07/18/13 +07/16/14 +07/15/15 +02/16/16 +27,912 +(9) +1,584,006 +Gary M. DeStefano +22,000 +22,000 +44,000 +25,000 +— +— +22,000 +44,000 +75,000 +100,000 +(2) +(3) +(4) +(6) +24.4900 +26.1200 +36.6050 +43.7950 +39.3800 +07/22/12 +07/18/13 +07/16/14 +07/15/15 +07/14/16 +25,394 +(10) +1,441,110 +Lindsay D. Stewart +— +25,000 +— +25,000 +75,000 +100,000 +(2) +(4) +(6) +26.1200 +43.7950 +39.3800 +07/18/13 +07/15/15 +07/14/16 +23,046 +(11) +1,307,861 +(1) +Stock options generally become exercisable for option shares in four equal installments on each of the first four anniversaries of the grant date. +(2) +100% of these shares vested on July 18, 2007. +(3) +50% of these shares vested on July 16, 2007, and 50% will vest on July 16, 2008. +19 +(4) +33.3% of these shares vested on July 15, 2007, 33.3% will vest on July 15, 2008 and 33.3% will vest on July 15, 2009. +(5) +33.3% of these shares will vest on February 16, 2008, 33.3% will vest on February 16, 2009 and 33.3% will vest on February 16, 2010. +(6) +25% of these shares vested on July 14, 2007, 25% will vest on July 14, 2008, 25% will vest on July 14, 2009 and 25% will vest on July 14, 2010. +(7) +10,000 of these shares vested on July 15, 2007, and 10,000 of these shares will vest on July 15, 2008. 7,911 of these shares will vest on each of the following dates: +February 16, 2008 and February 16, 2009. +(8) +8,465 of these shares vested on July 14, 2007, 8,465 will vest on July 14, 2008 and 8,464 will vest on July 14, 2009. +(9) +10,000 of these shares vested on July 15, 2007, and 10,000 of these shares will vest on July 15, 2008. 3,956 of these shares will vest on each of the following dates: +February 16, 2008 and February 16, 2009. +(10) +8,465 of these shares vested on July 14, 2007, 8,465 will vest on July 14, 2008 and 8,464 will vest on July 14, 2009. +(11) +6,348 of these shares vested on July 14, 2007, 6,348 will vest on July 14, 2008 and 6,347 will vest on July 14, 2009. 4,000 of these shares will vest on +December 10, 2007. +Option Exercises and Stock Vested During Fiscal 2007 +The following table provides information concerning stock option exercises and vesting of restricted stock during fiscal 2007 for each of the Named +Executive Officers on an aggregated basis. +Option Awards +Stock Awards +Name +Number of +Shares +Acquired +on Exercise (#) +Value +Realized +on Exercise ($) +Number of +Shares +Acquired +on Vesting (#) +Value +Realized +on Vesting ($) +Mark G. Parker +285,000 +$ +7,379,670 +28,121 +$ +1,212,992 +Donald W. Blair +120,000 +$ +3,989,372 +7,656 +$ +301,991 +Charles D. Denson +— +— +24,165 +$ +1,004,293 +Gary M. DeStefano +— +— +22,970 +$ +906,052 +Lindsay D. Stewart +50,000 +$ +930,590 +13,571 +$ +571,608 +20 +Equity Compensation Plans +The following table summarizes equity compensation plans approved by shareholders and equity compensation plans that were not approved by the +shareholders as of May 31, 2007: +Plan Category +(a) +Number of Securities to +be Issued Upon +Exercise of Outstanding +Options, Warrants and +Rights +(b) +Weighted-Average +Exercise Price +of +Outstanding Options, +Warrants and Rights +(c) +Number of Securities +Remaining Available for +Future Issuance Under +Equity Compensation +Plans (Excluding +Securities Reflected +in +Column(a)) +Equity compensation plans approved by shareholders (1) +39,609,625 +$ +35.52 +34,563,487 +Equity compensation plans not approved by shareholders (2) +100,000 +27.91 +1,549,800 +Total +39,709,625 +$ +35.50 +36,113,287 +(1) +Includes 39,609,625 options outstanding subject to the 1990 Stock Incentive Plan. Includes 29,831,669 shares available for future issuance under the 1990 Stock Incentive Plan, +1,819,202 shares available for future issuance under the Long-Term Incentive Plan, and 2,912,616 shares available for future issuance under the Employee Stock Purchase Plan. +(2) +The Company has granted to a consultant a nonqualified option to purchase NIKE Class B Stock. The option has a term of 9 years, expiring in 2009, with an exercise price of $27.9065. +The option is fully exercisable. Includes 1,549,800 shares available for future issuance under the Foreign Subsidiary Employee Stock Purchase Plan, pursuant to which shares are offered and sold to employees of selected non-U.S. subsidiaries of +the Company on substantially the same terms as those offered to U.S. employees under the shareholder-approved Employee Stock Purchase Plan. +21 +Non-Qualified Deferred Compensation in Fiscal 2007 +Name +Plan +Name +Executive +Contributions +in Fiscal +2007 (1) +NIKE +Contributions +in Fiscal +2007 (1) +Aggregate +Earnings +in Fiscal +2007 (1) +Aggregate +Withdrawals/ +Distributions +in Fiscal 2007 +Aggregate +Balance at +5/31/2007 (1) +Mark G. Parker +DCP +$ +125,000 +$ +185,248 +$ +91,030 +— +$ +2,013,044 +1983 DCP +— +— +— +— +Donald W. Blair +DCP +128,740 +78,790 +485,826 +— +2,673,832 +Charles D. Denson +DCP +2,791,560 +174,528 +1,444,995 +— +9,891,508 +Gary M. DeStefano +DCP +— +118,238 +53,735 +— +1,085,936 +Lindsay D. Stewart +DCP +481,875 +96,114 +212,237 +— +1,299,268 +1983 DCP +— +— +— +— +(1) +All amounts reported in the Executive Contributions column are also included in amounts reported in the Summary Compensation Table above or in the Bonus or LTIP Payouts columns of +the Summary Compensation Table in our proxy statement for last year’s annual meeting. The amounts reported in the NIKE Contributions column represent profit sharing contributions made by us in early fiscal 2007 based on fiscal 2006 results; +these amounts were also included in amounts reported in the All Other Compensation column of the Summary Compensation Table in our proxy statement for last year’s annual meeting. The portion of the amounts reported in the Aggregate Earnings +column that represents above-market earnings is also included in the Summary Compensation Table above, and the amount of above-market earnings is set forth in footnote 4 to that table. Of the amounts reported in the Aggregate Balance column, the +following amounts have been reported in the Summary Compensation Tables in this proxy statement or in prior year proxy statements: Mr. Parker, $1,660,961; Mr. Blair, $867,020; Mr. Denson, $7,544,277; Mr. DeStefano, $533,892; and +Mr. Stewart, $710,454. +Non-qualified Deferred Compensation Plans +The Named Executive Officers are eligible to participate in our Deferred Compensation Plan (the “DCP”). Participants in the DCP may elect in +advance to defer up to 100 percent of their annual base salary, bonus, incentive payments related to the participant’s sales performance and long-term incentive payments. +Each year, we share profits with our employees in the form of profit sharing contributions to defined contribution retirement plans. The contributions +are allocated among eligible employees based on a percentage of their total salary and bonus for the year. To the fullest extent permitted under Internal Revenue Code limitations, these contributions are made to employees’ accounts under our +qualified 401(k) Savings and Profit Sharing Plan. Contributions based on salary and bonus in excess of the tax law limit ($210,000 for fiscal 2006) are made as NIKE contributions under the DCP. +Amounts deferred under the DCP are credited to a participant’s account under the DCP. Each participant may allocate his or her account among any +combination of the investment funds available under the DCP. Participants’ accounts are adjusted to reflect the investment performance of the funds selected by +22 +the participants. Participants can change the allocation of their account balances daily. The funds available under the DCP consist of 11 mutual funds with a +variety of investment objectives. The investment funds had annual returns in fiscal 2007 ranging from a 5.3% gain to a 29.5% gain. Amounts credited to participants’ accounts are invested by us in actual investments matching the investment +options selected by the participants to ensure that we do not bear any investment risk related to participants’ investment choices. +The portion of a participant’s account attributable to elective deferrals, including investment returns, is fully vested at all times. The portion of a participant’s account attributable to NIKE contributions, including investment +returns, is fully vested after the participant has been employed by us for five years. All of the Named Executive Officers are fully vested in their NIKE contributions. +Each time they elect to defer compensation, participants make an election regarding distribution of the compensation deferred under the election (as adjusted to reflect investment performance). Any NIKE contributions +credited to a participant’s account during a year will be subject to the same distribution method as applies with respect to the participant’s deferral election for that year. A participant may elect for distribution to be made in a lump +sum on a predetermined date while the participant is still employed or in service (but no sooner than the end of the third year after the year in which the distribution election is submitted). Alternatively, a participant may elect for distribution +to be made in a lump sum or in annual installments over five, ten or fifteen years after termination of employment or service. Participants have limited rights to change their distribution elections. Participants may make a hardship withdrawal under +certain circumstances. Subject to certain limitations, a participant may also at any time request to withdraw amounts from his or her account balance that was vested as of December 31, 2004 (and any subsequent investment returns on such +amount). If such request is approved, the participant may withdraw 90% of the amount requested, and the remaining 10% will be permanently forfeited. +Messrs. Parker and Stewart are the only Named Executive Officers who participated in our prior Executive Deferred Compensation Plan adopted in 1983 (the “1983 DCP”). While deferrals under the 1983 DCP were +discontinued in 1990, earnings continued to accrue on 1983 DCP account balances during fiscal 2007. Under the terms of the 1983 DCP, Messrs. Parker and Stewart received a guaranteed return equal to the current monthly rate of Moody’s seasoned +corporate bonds index, plus 4%, which paid an average interest rate of 10.03% in fiscal 2007. Pursuant to an election in April 2007 by Messrs. Parker and Stewart, their respective balances under the 1983 DCP were transferred to the current DCP, and +those balances are now subject to the terms of the current DCP described above, including investment returns based on selected investment funds. +23 +Potential Payments Upon Termination or Change-in-Control +Change-in-Control Compensation — Acceleration of Equity Awards +We have agreed to accelerate the vesting of restricted stock and stock options held by the Named Executive Officers upon the approval by our shareholders +of an “Approved Transaction.” This acceleration of vesting will occur whether or not their employment is terminated. In our agreements, “Approved Transaction” is generally defined to include: +• +an acquisition of NIKE through a merger, consolidation or plan of exchange, +• +a sale of all or substantially all of our assets, or +• +the adoption of a plan for our liquidation or dissolution. +The following table shows the estimated benefits that would have been received by the Named Executive Officers if our shareholders had approved an Approved Transaction on May 31, 2007. +Name +Restricted Stock +Acceleration (1) +Stock Option +Acceleration (2) +Total +Mark G. Parker +$ +2,032,899 +$ +9,393,575 +$ +11,426,474 +Donald W. Blair +1,441,110 +4,026,660 +5,467,770 +Charles D. Denson +1,584,006 +8,593,700 +10,177,706 +Gary M. DeStefano +1,441,110 +5,819,630 +7,260,740 +Lindsay D. Stewart +1,307,861 +4,624,000 +5,931,861 +(1) +Information regarding unvested restricted stock held by each Named Executive Officer is set forth in the Outstanding Equity Awards table above. The award agreements provide that all +shares will immediately vest upon the approval by our shareholders of an Approved Transaction. The amounts in the table above represent the number of unvested restricted shares multiplied by a stock price of $56.75 per share, which was the closing +price of our Class B Common Stock on May 31, 2007. +(2) +Information regarding outstanding unexercisable options held by each Named Executive Officer is set forth in the Outstanding Equity Awards table above. The stock +option agreements provide that all outstanding unexercisable options will immediately become exercisable upon the approval by our shareholders of an Approved Transaction and will remain exercisable during the remainder of the term of the options, +except that the Compensation Committee may provide a 30-day period prior to the Approved Transaction during which the optionees may exercise the options without any limitation on exercisability. At the end of the 30-day period, the options would +terminate. Amounts in the table above represent the aggregate value as of May 31, 2007 of each Named Executive Officer’s outstanding unexercisable options assuming a five-year average expected remaining term and otherwise calculated using +the Black-Scholes option pricing model with the same assumptions as +24 +those used for valuing our options under FAS 123R. Alternatively, if it is assumed that the Compensation Committee provides for only a 30-day period to +exercise accelerated options, the aggregate value as of May 31, 2007 of options that would have become exercisable if an Approved Transaction had been approved on that date, assuming a 30-day remaining term and otherwise calculated using the +Black-Scholes option pricing model with the same assumptions used for valuing our options under FAS 123R, for each Named Executive Officer was: Mr. Parker, $6,615,475; Mr. Blair, $2,970,825; Mr. Denson, $6,063,850; Mr. DeStefano, +$4,288,070; and Mr. Stewart, $3,490,750. +Benefits Triggered on Certain Employment Terminations +Stock Option Acceleration +As of May 31, 2007, each Named Executive Officer held unexercisable options to purchase Class B Common Stock as listed in the Outstanding Equity Awards table above. Under the terms of their stock option +agreements, all unexercisable options become fully exercisable for a maximum remaining term of one year upon the death or disability of the officer. The aggregate value as of May 31, 2007 of options that would have become exercisable if death +or disability had occurred on that date, assuming a one-year remaining term and otherwise calculated using the Black-Scholes option pricing model with the same assumptions used for valuing our options under FAS 123R, for each Named Executive Officer +was: Mr. Parker, $7,157,425; Mr. Blair, $3,175,425; Mr. Denson, $6,557,050; Mr. DeStefano, $4,585,110; and Mr. Stewart, $3,702,750. +As provided in stock option agreements for all employees, the terms of the Named Executive Officers’ stock option agreements also provide that, if termination of the officer’s employment occurs when the +officer’s retirement point total is at least 55 and the officer has been employed by us for at least five years, then a portion of the unexercisable options will become exercisable for a maximum remaining term of three months as follows: +Retirement Point Total +Percent of Unexercisable Option +That Becomes Exercisable +55 or 56 +20% +57 +40% +58 +60% +59 +80% +60 +100% +An officer’s “retirement point total” means the sum of the officer’s age plus the number of +years that the officer has been employed by us. As of May 31, 2007, the retirement point total for each of Messrs. Parker, Denson, DeStefano and Stewart was over 60, and these officers are therefore eligible to have all +25 +unexercisable options become fully exercisable on any termination of employment. As of May 31, 2007, the retirement point total for Mr. Blair was +56. Therefore, if Mr. Blair’s employment had terminated on May 31, 2007 for any reason other than death or disability, he would have been eligible to have 20% of his unexercisable options become fully exercisable. The aggregate value +as of May 31, 2007 of options that would have become exercisable if termination of employment (other than due to death or disability) had occurred on that date, assuming a three-month remaining term and otherwise calculated using the +Black-Scholes option pricing model with the same assumptions used for valuing our options under FAS 123R, for each Named Executive Officer was: Mr. Parker, $6,686,450; Mr. Blair, $599,742; Mr. Denson, $6,127,700; Mr. DeStefano, +$4,329,090; and Mr. Stewart, $3,523,500. +Restricted Stock Acceleration +As of May 31, 2007, each Named Executive Officer held unvested restricted stock as set forth in the Outstanding Equity Awards table above. Under the +terms of their award agreements, all unvested restricted shares will immediately vest upon the death or disability of the officer. The value of the unvested restricted shares held by each Named Executive Officer as of May 31, 2007 that would +have become vested if death or disability had occurred on that date is as set forth in the “Restricted Stock Acceleration” column of the Change-in-Control Compensation — Acceleration of Equity Awards table above. +Payments Under Noncompetition and Employment Agreements +An agreement with Mr. Parker contains a covenant not to compete that extends for two years following the termination of his employment with us. The agreement provides that if Mr. Parker’s employment is +terminated by us, we will make monthly payments to him during the two-year noncompetition period in an amount equal to one-twelfth of his then current annual salary and target Performance Sharing Plan bonus (“Annual Nike Income”). The +agreement provides further that if Mr. Parker voluntarily resigns, we will make monthly payments to him during the two-year noncompetition period in an amount equal to one-twenty-fourth of his then current Annual Nike Income. If +Mr. Parker’s employment is terminated without cause, the parties may mutually agree to waive the covenant not to compete, and if Mr. Parker’s employment is terminated for cause, we may unilaterally waive the covenant. If the +covenant is waived, we will not be required to make the payments described above for the months as to which the waiver applies. If Mr. Parker’s employment had been terminated by us on May 31, 2007 and assuming the covenant is not +waived, we would have been required to pay Mr. Parker $223,958 per month for the 24-month period ending May 31, 2009. If Mr. Parker voluntarily resigned on May 31, 2007 and assuming the covenant is not waived, we would have been +required to pay Mr. Parker $111,979 per month for the 24-month period ending May 31, 2009. +We have an agreement with +Mr. Blair that contains a covenant not to compete that extends for one year following the termination of his employment with us. The covenant not to compete provides that if +26 +Mr. Blair’s employment is terminated by us, we will make monthly payments to him during the one-year noncompetition period in an amount equal to +one-twelfth of his then current annual salary. The agreement provides further that if Mr. Blair voluntarily resigns, we will make monthly payments to him during the one-year noncompetition period in an amount equal to one-twenty-fourth of his +then current annual salary. We may unilaterally waive the covenant. If the covenant is waived, we will not be required to make the payments described above for the months as to which the waiver applies. If Mr. Blair’s employment had been +terminated by us on May 31, 2007 and assuming the covenant is not waived, we would have been required to pay Mr. Blair $57,084 per month for the 12-month period ending May 31, 2008. If Mr. Blair voluntarily resigned on +May 31, 2007 and assuming the covenant is not waived, we would have been required to pay Mr. Blair $28,542 per month for the 12-month period ending May 31, 2008. +An agreement with Mr. Denson contains a covenant not to compete that extends for two years following the termination of his employment with us. The +agreement provides that if Mr. Denson’s employment is terminated by us at any time, or if he voluntarily resigns before December 31, 2007, we will make monthly payments to him during the two-year noncompetition period in an amount +equal to one-twelfth of his then current Annual Nike Income. The agreement provides further that if Mr. Denson voluntarily resigns on or after December 31, 2007, we will make monthly payments to him during the two-year noncompetition +period in an amount equal to one-twenty-fourth of his then current Annual Nike Income. If Mr. Denson’s employment is terminated without cause, the parties may mutually agree to waive the covenant not to compete, and if Mr. Denson is +terminated for cause, we may unilaterally waive the covenant. If the covenant is waived, we will not be required to make the payments described above for the months as to which the waiver applies. If Mr. Denson’s employment had terminated +on May 31, 2007 and assuming the covenant is not waived, we would have been required to pay Mr. Denson $191,667 per month for the 24-month period ending May 31, 2009. +An agreement with Mr. DeStefano contains a covenant not to compete that extends for one year following the termination of his employment with us. +The agreement provides that if Mr. DeStefano’s employment is terminated by us at any time, we will make monthly payments to him during the one-year noncompetition period in an amount equal to one-twelfth of his then current Annual Nike +Income. The agreement provides further that if Mr. DeStefano voluntarily resigns, we will make monthly payments to him during the one-year noncompetition period in an amount equal to one-twenty-fourth of his then current annual salary. We may +unilaterally waive the covenant. If the covenant is waived, we will not be required to make the payments described above for the months as to which the waiver applies. If Mr. DeStefano’s employment had been terminated by us on May 31, +2007 and assuming the covenant is not waived, we would have been required to pay Mr. DeStefano $138,750 per month for the 12-month period ending May 31, 2008. If Mr. DeStefano voluntarily resigned on May 31, 2007 and assuming the +covenant is not waived, we would have been required to pay Mr. DeStefano $38,542 per month for the 12-month period ending May 31, 2008. +27 +COMPENSATION DISCUSSION AND ANALYSIS +Operation of the Compensation Committee +The Compensation Committee of the Board of Directors (the +“Committee”) exercises sole authority with respect to the performance evaluation and compensation of the CEO. The Committee may not delegate this authority. Subject to the approval of our Board of Directors, the Committee also determines +the compensation of our other Named Executive Officers. The Committee also oversees the performance evaluation of those officers and the administration of our executive compensation programs. The Committee receives recommendations from the CEO as to +compensation of other Named Executive Officers, and the CEO participates in Committee discussions regarding the compensation of those officers. The Committee meets in executive session without the CEO to determine his compensation. The Committee is +comprised of Ralph D. DeNunzio (Chairman), Timothy D. Cook, Jeanne P. Jackson and John R. Thompson, Jr., each of whom is an independent director under applicable New York Stock Exchange listing standards. The Committee operates pursuant to a written +charter that is available on our website at www.nikebiz.com/investors. +Each year, the Committee reviews our executive total compensation +programs to ensure that they continue to reflect the Committee’s commitment to link executive compensation with the creation of value for our shareholders. The programs have been designed to deliver total compensation that motivates and rewards +short and long-term financial performance to maximize shareholder value, and is externally competitive to attract and retain outstanding and diverse executive talent. In conducting the annual review, the Committee considers information provided by +our human resources staff. While the Committee has the sole authority under its charter to retain compensation consultants engaged to assist the Committee in evaluating the compensation of executive officers, the Committee has not retained any such +consultants. Our human resources staff retains Hewitt Associates and Towers Perrin, both independent compensation consulting firms, to provide surveys and reports containing competitive market data. The staff uses this information to make +recommendations to the Committee concerning executive compensation. These consultants do not, however, formulate executive compensation strategies for NIKE or recommend individual executive compensation. The Committee reviews summaries prepared by +our human resources staff and uses this data as well as reliance on the Committee’s collective experience and judgment to set executive compensation. +Objectives and Elements of Our Compensation Program +Our executive overall compensation strategy is accomplished through a +total compensation program that is aligned with our business strategy and culture to attract and retain top talent, reward business results and individual performance, and, most importantly, maximize shareholder returns. Our total compensation +philosophy is to “pay for performance,” so we place relatively greater emphasis on the incentive components of compensation to align the interests of our executives with shareholders, and motivate them +28 +to maximize shareholder returns. Our total compensation program for the Named Executive Officers consists of the following elements: +• +Base salary that reflects the executive’s accountabilities, skills, experience, performance, and future potential +• +Annual performance-based incentive bonus based on company performance results under our Executive Performance Sharing Plan +• +A portfolio approach to long-term incentive compensation to provide a balanced mix of equity and performance-based cash incentives +• +Performance-based awards payable in cash under the Long-Term Incentive Plan to encourage attainment of long-term financial objectives +• +Time vested stock options to align the interests of executives with those of shareholders +• +Time vested restricted stock awards to provide both upside and downside incentives consistent with shareholder returns, and to supply a strong retention incentive +• +Benefits +• +Profit sharing under defined contribution retirement plans +• +Post-termination payments under non-competition and/or employment agreements +Use of Market Survey Data +As +one tool to establish competitive ranges of base salary and incentive compensation opportunities for purposes of making recommendations to the Committee, our human resources staff uses competitive market data from surveys and reports prepared by +Hewitt Associates and Towers Perrin. We use two benchmarks. One is a broad group of companies across many industries with revenues of $10 billion or more. The second benchmark we use is a peer group comprised of 24 consumer product companies that +were selected based on factors such as having products or markets similar to ours, market capitalization or size similar to ours, or a common labor market for executive talent. +For purposes of setting executive compensation for fiscal 2007, the companies in this peer group were as follows: Abbott Laboratories, Apple Inc., The +Clorox Company, The Coca Cola Company, Colgate-Palmolive Company, Columbia Sportswear Company, Federated Department Stores Inc., Fedex Corp., Gap Inc., General Mills Inc., Hewlett Packard Company, Intel Corp., International Business Machines +Corporation, Kellogg Co., Limited Brands Inc., McDonald’s Corporation., Microsoft Corp., Pepsico, Inc., Polo Ralph Lauren Corporation, The Procter & Gamble Company, Starbucks Corp., Texas Instruments Incorporated, The Walt Disney +Company, and Williams-Sonoma, Inc. +The surveys that our human resources staff review for each of the two benchmarks show percentile +compensation levels for various executive positions. The Committee does not endeavor to set executive +29 +compensation at or near any particular percentile, and considers total compensation to be competitive if it is within the band of the 25 th to 75 th percentiles. Market data is only one of many factors +that the Committee considers in the determination of executive compensation levels. Other factors include internal pay equity, level of responsibility, the individual’s performance, expectations regarding the individual’s future +contributions, our own performance, and budget considerations. +Annual Cash Compensation +Base Salary +When making +recommendations to the Committee concerning base salary levels for our Named Executive Officers, our human resources staff considers the market data described above to recommend base salaries generally between the 25th and 75th percentiles of the +salaries for comparable positions reflected in the surveys and reports. Other factors considered in setting annual salary levels include the individual’s performance in the prior year, expectations regarding the individual’s future +performance, any anticipated increase in the individual’s responsibilities, and internal pay equity. The Committee reviews these factors each year and adjusts them to make sure that we are appropriately rewarding performance. In setting a Named +Executive Officer’s overall compensation package for the year, however, the Committee attempts to place a relatively greater emphasis on the incentive components of that compensation, than on base salary. +The Committee generally reviews and adjusts base salaries annually at a meeting in June, with salary adjustments becoming effective for the first pay +period ending in August. During the fiscal 2007 salary review in June 2006, the Committee decided not to increase Mr. Parker’s base salary, which remained at $1,250,000 for fiscal 2007. This was because Mr. Parker had already received +a $150,000 salary increase effective January 23, 2006 in connection with his promotion to President and Chief Executive Officer. Mr. Denson’s salary also did not increase for fiscal 2007, because he had received a $100,000 salary +increase effective January 23, 2006 in connection with his promotion to sole President of the NIKE Brand. The Committee decided to increase Mr. Blair’s base salary from $655,000 to $685,000, Mr. Stewart’s base salary from +$715,000 to $745,000 and Mr. DeStefano’s base salary from $875,000 to $925,000. The increases for Mr. Blair and Mr. Stewart were in line with the average company-wide 4% merit increase for fiscal 2007, while +Mr. DeStefano’s salary was further increased in connection with his promotion to President, Global Operations in August 2006. +Performance-Based Annual Incentive Bonus +Annual bonuses are paid to the Named Executive Officers under our +Executive Performance Sharing Plan (“PSP”). Our “pay for performance” philosophy for bonuses is simple: if we exceed our financial objectives, we will pay more; if we fail to reach them, we will pay less or nothing at all. The +PSP for all +30 +executives is based 100% on overall corporate performance each year as measured by income before income taxes before the effect of any acquisitions, +divestitures or accounting changes (“PTI”). Basing our bonus program for all executives on overall corporate performance is intended to foster teamwork and send the message to each executive that his or her role is to help ensure overall +organizational success and maximize shareholder returns. +Each year the Committee establishes a target bonus for each Named Executive +Officer under the PSP expressed as a percentage of base salary paid during the year. The threshold bonus under the PSP is 50% of the target bonus and the maximum bonus is 150% of target. For fiscal 2007, the Committee approved target bonuses as a +percentage of salary paid during the year of 115% for Mr. Parker, 100% for Mr. Denson, 80% for Mr. DeStefano, and 70% for Mr. Blair and Mr. Stewart. These were the same target bonus percentages approved for the Named +Executive Officers for fiscal 2006, except that Mr. DeStefano’s target bonus percentage was increased from 70% to 80% in connection with his promotion to President, Global Operations. The Committee sets these target bonus levels each year +based on its judgment of what it finds to be competitive with our peer group of companies and our competitors, while maintaining internal pay equity. +The Committee approved PSP performance goals for fiscal 2007 of $2,212 million of PTI for the target bonus payout, $1,991 million of PTI for a 50% threshold bonus payout, and $2,433 million of PTI for a +150% maximum bonus payout. In setting the target level PTI goal for 2007, the Committee recognized that the adoption of FAS 123R by us in fiscal 2007 would have a significant impact on 2007 PTI. The Committee determined that the fiscal 2007 PTI +target should represent a 10.0% increase over fiscal 2006 PTI of $2,142 million, before the effect of FAS 123R. Accordingly, the Committee adjusted the 2007 PTI target downward by $146 million, the anticipated FAS 123R charge, so that the 2007 +target would represent a 10% PTI increase over the prior year results on a comparable basis. The percentage increase in PTI over prior year results required to achieve the target bonus payout each year is not a uniform percentage, but is established +by the Committee based on its evaluation of our business plan and prospects for the year. The threshold and maximum PTI levels are also determined by the Committee based on similar factors. The Committee set the threshold PTI target level at 10% +below the target PTI, and set the maximum PTI target level at 10% above the target PTI. +The PSP payout for all executives as a percentage +of target bonus for fiscal 2007 was 97% based on our achievement of PTI of $2,200 million in fiscal 2007, which was 99.5% of the target payout level. +Long-Term Compensation +Performance-Based Long-Term Incentive Plan +The first component in our long-term portfolio mix is performance-based awards payable in cash under our Long-Term Incentive Plan (“LTIP”). As +with the annual bonus, the LTIP follows our “pay for +31 +performance’ philosophy. If we exceed our targets, we will pay more; if we fall short, we will pay less or nothing at all. This program causes our +executives to focus on overall, long-term financial performance, and is intended to reward them for improving shareholder returns. At the beginning of each fiscal year, the Committee establishes performance goals and potential cash payouts for the +next three fiscal years for all executive officers under the LTIP. LTIPs for all executives are based 50% on cumulative revenues for the three-year performance period and 50% on cumulative diluted earnings per share before the effect of +acquisitions, divestitures and accounting changes (“EPS”) for the period. +In June 2006, the Committee approved LTIP awards +to all Named Executive Officers for the fiscal 2007-2009 performance period. Target award levels were approved for each executive, with the threshold award equal to 10% of the target award and the maximum award equal to 150% of the target award. The +target awards were $600,000 for Mr. Parker, $500,000 for Mr. Denson and $300,000 for Mr. Blair, Mr. DeStefano and Mr. Stewart. These were the same LTIP target award levels approved for the Named Executive Officers each year +since 2003, except that Mr. Parker’s target LTIP award was $500,000 for his last three annual LTIP awards made prior to becoming Chief Executive Officer. The Committee sets these target LTIP levels each year based on the desired mix of +long-term compensation and its judgment of what it finds to be competitive with our peer group of companies and our competitors, while maintaining internal pay equity. +For the fiscal 2007-2009 performance period, the cumulative revenue necessary to achieve the target award payout corresponds to a compounded annual growth rate (“CAGR”) in revenues from fiscal 2006 results +of 6%, the 10% threshold payout requires cumulative revenues corresponding to a 1.4% CAGR, and the 150% maximum payout requires cumulative revenues corresponding to a 7.8% CAGR. The Committee set the CAGR for maximum payout levels to correspond to +our long-term financial goal of high single digit revenue growth. The target award payout level is lower than this long-term financial goal in part because the performance goal calculation excludes any benefit from acquisitions during the +performance period. +In setting the target level EPS goal for the fiscal 2007-2009 performance period, the Committee recognized that the +adoption of FAS 123R by us in fiscal 2007 would have a significant impact on EPS for this performance period. Our EPS for fiscal 2006 was $5.28, and we estimated that FAS 123R would have a $0.37 impact on fiscal 2007 results. The Committee desired +to set a three-year EPS target based on a 12% CAGR from fiscal 2006 results, adjusted for the effect of FAS 123R in 2007, to measure performance on a comparable basis. Accordingly, in calculating the CAGR for the first year of the performance +period, the target EPS was reduced by $0.37 to provide comparability. For EPS over the performance period, the target payout requires a FAS 123R-adjusted cumulative EPS corresponding to a 12% CAGR from fiscal 2006 results, the 50% threshold payout +requires cumulative EPS corresponding to an 9.2% CAGR, and the 200% maximum payout requires cumulative EPS corresponding to a 13.9% CAGR. The Committee set the CAGR for maximum payout levels to correspond to our long-term financial goal of mid-teens +EPS growth. The target award payout level is lower than this long-term financial goal in part because the performance goal calculation excludes any benefit from acquisitions during the performance period. The total payout +32 +percentage for all participants will be the average of the payout percentages determined for cumulative revenues and cumulative EPS, respectively. +As described in Proposal 2 in this proxy statement, in June 2007, the Committee set target award payout levels for the fiscal 2008-2010 +performance period based on higher three-year performance targets of an 8% CAGR in revenues, and a 13% CAGR in EPS, with higher payouts of up to 200% of the target payout for higher growth rates, and no payout below the 50% payout level. The +Committee intends the higher performance targets to be more aligned with our long-term growth goals, excluding acquisitions. The Committee also increased the target award amounts for Mr. Parker and Mr. Denson to $1,500,000 and $1,000,000, +respectively reflecting the Committee’s desire to have a higher portion of their compensation dependent on achievement relative to these long-term growth measures. +Our executive officers were eligible to receive similar LTIP awards set in June 2004 covering the fiscal 2005-2007 performance period. Based on our performance over the last three fiscal years, the maximum 150% +payout percentage under these awards was earned. Cumulative revenues for the period were $44,890 million after adjustment to eliminate revenues resulting from our August 2004 acquisition of Official Starter LLC (the “Exeter Acquisition”), +or 108.6% of the target payout level, which corresponded to the 150% payout level for revenues. Cumulative EPS for the period, after adjustment to eliminate FAS 123R expense from fiscal 2007 and EPS as a result of the Exeter Acquisition, was $15.97, +or 120.3% of the target payout level, which corresponded to the 150% payout level for EPS. The total payout percentage was the average of the payout percentages determined for cumulative revenues and cumulative EPS, respectively. +Performance-Based Stock Options +The second component in our long-term portfolio mix is stock options. Stock options are designed to align the interests of the Company’s executives with those of shareholders by encouraging executives to enhance the value of the +Company and, hence, the price of the Class B Stock. This is true “pay for performance”: executives are rewarded only if the market price of our stock rises, and they get nothing if the price does not rise. Our stock option program is +generally based on granting options for a consistent number of shares each year for each position. When determining the grants, the Committee focuses on the number of shares, not the value for accounting purposes. Our approach is based on our desire +to carefully control annual share usage and avoid fluctuations in grant levels due to share price changes. Our human resources staff periodically tests the reasonableness of our stock option grants against peer group market data. +Options are generally granted annually to all eligible employees, including the Named Executive Officers, in July of each year. Stock options for fiscal +2007 were granted by the Committee on July 14, 2006 with an exercise price based on the closing market price on July 13, 2006, the immediately preceding +33 +trading day. This option pricing was consistent with our long-time practice of using the closing market price on the preceding trading day as the exercise +price for options we grant, as expressly stated in our 1990 Stock Incentive Plan. For options granted in fiscal 2008 and in the future, we have modified our practice to use the closing market price on the grant date as the exercise price. +Mr. Parker and Mr. Denson did not receive stock options in the fiscal 2007 annual option grant. On a post-split basis, they each +received two option grants in fiscal 2006, one for 140,000 shares as part of the annual grant in July 2005 and another in February 2006 (250,000 shares for Mr. Parker and 200,000 shares for Mr. Denson) in connection with +Mr. Parker’s promotion to President and Chief Executive Officer and Mr. Denson’s promotion to sole President of the NIKE Brand. Accordingly, the Committee did not believe that additional option grants for them were appropriate in +July 2006. Options were granted in July 2006 to Mr. Blair for 66,000 shares and to Mr. DeStefano and Mr. Stewart for 100,000 shares each. This was the same number of options granted to each of them in July 2005. +Options we grant generally promote executive retention because they carry four-year vesting periods and are forfeited if the employee leaves before +vesting occurs. Our options provide, however, that under certain conditions optionees may receive accelerated vesting of all of their options upon retirement as described above under the heading “Potential Payments Upon Termination or +Change-in-Control.” Accordingly, based on their ages and years of service, Mr. Parker, Mr. Denson, Mr. DeStefano and Mr. Stewart could terminate employment at any time and receive full vesting of their options, and +Mr. Blair could terminate employment and be vested in 20% of his unvested options. This provision for accelerated vesting has been a standard feature of our stock option grants to all employees since 2002. +Restricted Stock Awards +The +third component in our long-term portfolio mix is restricted stock awards. Stock ownership and stock-based incentive awards align the interests of our Named Executive Officers with the interests of our shareholders. Restricted stock provides both +upside and downside potential returns, since the value of this incentive rises and falls with the stock price, consistent with shareholder returns. The Committee generally awards restricted stock to a Named Executive Officer once every three years, +except that the Committee has determined that restricted stock should be granted annually to Mr. Parker and Mr. Denson to provide a relatively greater alignment between their compensation and shareholder returns. However, the Committee may +also award restricted stock in connection with promotions or other special circumstances. Restricted stock awards on the regular three-year cycle are generally made in July at the same meeting at which stock options are granted. Awards generally +vest in three equal installments on each of the first three anniversaries of the grant date. The awards promote executive retention as unvested shares held at the time the executive’s employment is terminated are forfeited. Award recipients +receive dividends on the full number of restricted shares awarded, both vested and unvested. +34 +Mr. Parker and Mr. Denson did not receive restricted stock awards in fiscal 2007. However, +Mr. Parker received an award covering 23,734 shares of our Class B Stock on February 16, 2006 in connection with his promotion to President and Chief Executive Officer, and an award covering 30,000 shares of our Class B Stock on +July 15, 2005. In addition, Mr. Denson received an award covering 11,868 shares of our Class B Stock on February 16, 2006 in connection with his promotion to sole President of the NIKE Brand, and an award covering 30,000 shares of our +Class B Stock on July 15, 2005. In fiscal 2007, restricted stock awards were made as part of the standard three-year award cycle covering 25,394 shares to each of Mr. Blair and Mr. DeStefano, and 19,046 shares to Mr. Stewart. +These awards had a value based on the closing price of our Class B Stock on the grant date of $1,000,000 for Mr. Blair and Mr. DeStefano, and $750,000 for Mr. Stewart. The Committee set these restricted stock award levels based on the +desired mix of long-term compensation and its judgment of what it finds to be competitive with our peer group of companies and our competitors, while maintaining internal pay equity. Our human resources staff periodically tests the reasonableness of +our restricted stock awards against peer group market data. +Profit Sharing and Retirement Plans +The NIKE 401(k) Savings and Profit Sharing Plan is our tax qualified retirement savings plan pursuant to which our employees, including the Named +Executive Officers, are able to make pre-tax contributions from their cash compensation. We make matching contributions for all participants each year equal to 100% of their elective deferrals up to 4% of their total eligible compensation, which is +initially invested in Class B Stock. We also make annual profit sharing contributions to the accounts of our employees under the 401(k) Savings and Profit Sharing Plan. The contributions are allocated among eligible employees based on a percentage +of their total salary and bonus for the year. The total profit sharing contribution and the percentage of salary and bonus contributed for each employee is determined each year by the Board of Directors. For fiscal 2007, the Board of Directors +approved a profit sharing contribution for each employee equal to 4.52% of the employee’s total eligible salary and bonus. +The +Internal Revenue Code limits the amount of compensation that can be deferred under the 401(k) Savings and Profit Sharing Plan, and also limits the amount of salary and bonus ($220,000 for fiscal 2007) with respect to which matching contributions and +profit sharing contributions can be made under that plan. Accordingly, we provide our executive officers and other highly compensated employees with the opportunity to defer their compensation, including amounts in excess of the tax law limit, under +our nonqualified Deferred Compensation Plan. We also make profit sharing contributions under the Deferred Compensation Plan with respect to salary and bonus of any employee that exceeds the tax law limit, so for fiscal 2007 these contributions were +equal to 4.52% of the total salary and bonus of each Named Executive Officer in excess of $220,000. These contributions under the Deferred Compensation Plan allow our Named Executive Officers and other highly compensated employees to receive profit +sharing retirement contributions in the same percentage as our other employees. Our matching and profit sharing contributions for fiscal 2007 to the accounts of the Named Executive Officers under the qualified and nonqualified plans are included +under the heading “All Other Compensation” in the Summary Compensation Table above. +35 +Post-termination Payments Under Non-competition and/or Employment Agreements +In exchange for non-competition agreements from all of our Named Executive Officers other than Mr. Stewart, we have agreed to provide during the +non-competition period the monthly payments more specifically described in “Potential Payments upon Termination or Change-in-Control” above. We believe that it is appropriate to compensate individuals to refrain from working with +competitors following termination, and that compensation enhances the enforceability of such agreements. +Tax Deductibility of Executive Compensation +Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public companies for annual compensation over +$1 million paid to their chief executive officer and the next four most highly compensated executive officers. The Internal Revenue Code generally excludes from the calculation of the $1 million cap compensation that is based on the attainment of +pre-established, objective performance goals established under a shareholder-approved plan. Annual bonuses under our Executive Performance Sharing Plan, long-term incentive awards under our Long-Term Incentive Plan, and stock options under our 1990 +Stock Incentive Plan are all structured in a manner intended to qualify any compensation paid thereunder as “performance-based compensation” excluded from the calculation of the $1 million annual cap. However, base salary and compensation +on vesting of restricted stock awards are subject to the $1 million deductibility cap. Accordingly, in fiscal 2007 a portion of the compensation paid to Mr. Parker, Mr. Denson, Mr. DeStefano and Mr. Stewart was not deductible. +COMPENSATION COMMITTEE REPORT +The Compensation Committee of the Board of Directors (the “Committee”) has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K. Based on the review and +discussions, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement. +Members of the Compensation Committee: +Ralph D. DeNunzio, Chairman +Timothy D. Cook +Jeanne P. Jackson +John R. Thompson, Jr. +Compensation Committee Interlocks and Insider Participation +The members of the Compensation +Committee of the Board of Directors during the fiscal year ended May 31, 2007 are listed above. The Committee is composed solely of independent, non-employee directors. +36 +PROPOSAL 2 +APPROVAL OF EXTENSION OF AND AMENDMENTS TO THE NIKE, INC. LONG-TERM INCENTIVE PLAN +In 1997, the +Board of Directors adopted, and the shareholders approved, our Long-Term Incentive Plan (the “Plan”). Historically, we had relied exclusively on stock options to provide long-term incentives to officers and employees. To provide more +competitive compensation arrangements, particularly for officers and senior managers, the Board of Directors believes that we should have the flexibility to make long-term incentive awards payable in cash subject to such terms and restrictions as +may be determined at the time of the awards. The Plan gives us broad authority to make such awards and to qualify such awards as “performance-based compensation” as defined under Section 162(m) of the Internal Revenue Code of 1986 +(the “Code”), thereby permitting full deductibility of any amounts paid under the Plan to the Named Executive Officers. +The Code +requires that the Plan be re-approved by shareholders every five years in order for awards under the Plan to continue to qualify as performance-based compensation. See “Certain Tax Consequences.” The shareholders re-approved the Plan in +2002. Unless the shareholders again re-approve the Plan as requested in this proposal, the Plan will terminate at the Annual Meeting. If the shareholders re-approve the Plan, the Plan will be extended for an additional five years until the first +shareholder meeting in 2012. +The Plan as originally adopted authorized us to grant awards payable in either Class B Stock or in cash. +Since 2002, our awards have allowed participants to elect either cash or stock for their payouts, and nearly all have elected cash. The awards granted in June 2007 are payable solely in cash, and we expect all future awards under the Plan to be +payable solely in cash. Accordingly, the Board of Directors has adopted amendments to the Plan, subject to shareholder approval, to eliminate our ability to issue stock under the Plan. +The Board of Directors has also adopted an amendment to the Plan, subject to shareholder approval, to increase the maximum amount payable to any +participant under the Plan for performance periods ending in any year from $1,000,000 to $4,000,000. The current $1,000,000 limit has been unchanged since the Plan was originally adopted in 1997, and the Board of Directors believes that the +increased limit recognizes changes in executive compensation practices since then and provides flexibility to offer higher rewards for higher levels of performance. In June 2007, awards were made to Mr. Parker and Mr. Denson for the +2008-2010 performance period under which the maximums payable are $3,000,000 and $2,000,000, respectively, and all amounts payable under those awards over the current $1,000,000 maximum are subject to shareholder approval of Proposal 2. +The complete text of the Plan, marked to show the proposed amendments, is attached to this proxy statement as Exhibit A. The following +description of the proposed amended Plan is a summary of certain provisions and is qualified in its entirety by reference to Exhibit A. +37 +Description of the Plan +Eligibility. The Plan provides that all of our employees and the employees of our subsidiaries are eligible to receive awards under the Plan. Although this group currently consists of +approximately 25,000 persons, our current intent is to grant awards under the Plan to approximately 190 officers and senior managers. +Administration. Grants of target awards under the Plan and all other decisions regarding the administration of the Plan are made by a committee of the Board of Directors comprised solely of “outside +directors” as that term is defined in regulations under Section 162(m). Currently, the Plan is administered by the Compensation Committee (the “Committee”). +Target Awards. The Committee may grant target awards payable in cash and shall make such awards within 90 days after +the commencement of the period covered by the award (the “Performance Period”). All or part of the awards will be earned if performance targets established by the Committee for the Performance Period are met and the participant satisfies +any other restrictions established by the Committee. Performance targets must be expressed as an objectively determinable level of our performance or the performance of any of our subsidiaries, divisions or other units, based on one or more of the +following: net income, net income before taxes, operating income, revenues, return on sales, return on equity, earnings per share, total shareholder return, or any of the foregoing before the effect of acquisitions, divestitures, accounting changes, +restructuring, or other special charges, as determined by the Committee at the time of establishing the performance target. The Committee shall not establish target award opportunities for any participant such that the maximum amount payable under +target awards which have Performance Periods ending in any single fiscal year exceeds $4,000,000. +Determination of Award +Payouts. At the end of each Performance Period, the Committee will certify the attainment of the performance targets and the calculation of the payouts of the related target awards. No award shall be paid if the related +performance targets are not met. The Committee may also, in its discretion, reduce or eliminate a participant’s calculated award based on circumstances relating to our performance or the performance of the participant. +Amendment and Termination. The Plan may be amended by the Committee, with the approval of the Board of Directors, at any +time except to the extent that shareholder approval would be required to maintain the qualification of Plan awards as performance-based compensation. Unless again re-approved by the shareholders, the Plan will terminate at the first meeting of our +shareholders in the year 2012. +Certain Tax Consequences +Section 162(m) of the Code limits to $1,000,000 per person the amount that we may deduct for compensation paid to any of our most highly compensated officers in any year. Under IRS regulations, compensation +received through a performance-based award will not be subject to the $1,000,000 limit if +38 +the performance-based award and the plan meet certain requirements. One such requirement is shareholder approval at least once every five years of the +performance criteria upon which award payouts will be based and the maximum amount payable under awards, both of which are set forth in the Plan. Approval of this Proposal 2 will constitute re-approval of the performance criteria previously approved +by shareholders and approval of increased maximum amounts payable under the Plan. Other requirements are that objective performance goals and the amounts payable upon achievement of the goals be established by a committee of at least two outside +directors and that no discretion be retained to increase the amount payable under the awards. We believe that, if this proposal is approved by the shareholders, compensation received on payouts of awards granted under the Plan in compliance with all +of the above requirements will continue to be exempt from the $1,000,000 deduction limit. +Plan Benefits +In June 2007, the Committee made target awards under the Plan which are summarized in the following table. The Performance Period for these target +awards is the three-year period consisting of our 2008-2010 fiscal years. Since the Plan was adopted in 1997, similar target awards have been made for the three-year Performance Periods commencing each year. The payout for the fiscal 2005-2007 +Performance Period was 150% of target. The actual compensation received by the Named Executive Officers under the Plan for fiscal 2005-2007 is shown in footnote 3 to the “Non-Equity Incentive Plan Compensation” column in the Summary +Compensation Table. The actual compensation received by all current executive officers (including the Named Executive Officers) as a group under the Plan for fiscal 2005-2007 was $7.7 million. The actual compensation received by all other employees +as a group under the Plan for fiscal 2005-2007 was $17.3 million. +Long-Term Incentive Plan (1) +Dollar Value ($) +Name and Position +Threshold +Target +Maximum +Mark G. Parker +Chief Executive Officer and President +$ +750,000 +$ +1,500,000 +$ +3,000,000 +Donald W. Blair +Vice President and Chief Financial Officer +$ +150,000 +$ +300,000 +$ +600,000 +Charles D. Denson +President of the NIKE Brand +$ +500,000 +$ +1,000,000 +$ +2,000,000 +Gary M. DeStefano +President, Global Operations +$ +150,000 +$ +300,000 +$ +600,000 +Lindsay D. Stewart +Vice President and Chief of Staff +$ +150,000 +$ +300,000 +$ +600,000 +Executive Officer Group (includes above 5 officers) +$ +3,775,000 +$ +7,550,000 +$ +15,100,000 +All Other Employee Group +$ +8,287,500 +$ +16,575,000 +$ +33,150,000 +(1) +The Committee established a series of performance targets based on revenues and earnings per share for the three-year period consisting of fiscal 2008-2010 +corresponding to award payouts ranging from 50% to 200% of the target awards. For revenues +39 +over the performance period, the target payout requires cumulative revenues corresponding to a compounded annual growth rate (“CAGR”) in revenues +from fiscal 2007 results of 8%, the 50% threshold payout requires cumulative revenues corresponding to a 5.3% CAGR, and the 200% maximum payout requires cumulative revenues corresponding to an 11.5% CAGR. For EPS over the performance period, the +target payout requires cumulative EPS corresponding to a 13% CAGR, the 50% threshold payout requires cumulative EPS corresponding to an 8.5% CAGR, and the 200% maximum payout requires cumulative EPS corresponding to a 20.1% CAGR. Participants will +receive a payout at the average of the percentage levels at which the two performance targets are met, subject to the Committee’s discretion to reduce or eliminate any award based on our performance or individual performance. Under the terms of +the awards, on August 15, 2010 we would issue the award payout to each participant in cash. +Board Recommendation +The Board of Directors recommends that shareholders vote FOR approval of the extension of and amendments to the Plan. Holders of Class A Stock +and Class B Stock will vote together as a single class on Proposal 2. If holders of a majority of the shares of Common Stock vote on the proposal, Proposal 2 will be adopted if a majority of the votes cast are cast for the proposal. Abstentions are +considered votes cast and have the same effect as “no” votes in determining whether the proposal is adopted. Broker non-votes are not counted as voted on the proposal and therefore have no effect on the results of the vote. +40 +PROPOSAL 3 +RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +The Audit Committee of the Board of +Directors has appointed PricewaterhouseCoopers LLP as independent registered public accounting firm to examine the Company’s consolidated financial statements for the fiscal year ending May 31, 2008 and to render other professional +services as required. +The Audit Committee is submitting the appointment of PricewaterhouseCoopers LLP to shareholders for ratification. +Representatives of PricewaterhouseCoopers LLP will be present at the Annual Meeting, will have the opportunity to make a statement if they +desire to do so, and are expected to be available to respond to questions. +Aggregate fees billed by the Company’s independent +registered public accounting firm, PricewaterhouseCoopers LLP, for audit services related to the most recent two fiscal years, and for other professional services billed in the most recent two fiscal years, were as follows: +Type of Service +2007 +2006 +Audit Fees (1) +$ +6.6 million +$ +5.4 million +Audit-Related Fees (2) +$ +0.1 million +$ +0.2 million +Tax Fees (3) +$ +1.2 million +$ +1.2 million +All Other Fees (4) +$ +0.1 million +$ +0.2 million +Total +$ +8.0 million +$ +7.0 million +(1) +Comprised of the audits of the Company’s annual financial statements and reviews of the Company’s quarterly financial statements, as well as statutory audits of Company +subsidiaries, attest services, comfort letters and consents to SEC filings. Audit fees also include audit services related to the Company’s compliance with Section 404 of the Sarbanes-Oxley Act of 2002 regarding internal controls over +financial reporting. +(2) +Comprised of employee benefit plan audits, acquisition due diligence, and consultations regarding financial accounting and reporting. +(3) +Comprised of services for tax compliance, tax planning, and tax advice. Tax compliance includes services related to the preparation or review of original and amended tax returns for +the Company and its consolidated subsidiaries and represents $0.8 million and $1.1 million of the tax fees for fiscal 2007 and 2006, respectively. The remaining tax fees primarily include tax advice. +(4) +Comprised of services for the preparation of tax returns for expatriate employees and other miscellaneous services. +41 +In accordance with the Sarbanes-Oxley Act of 2002, the Audit Committee established policies and +procedures under which all audit and non-audit services performed by the Company’s independent registered public accounting firm must be approved in advance by the Audit Committee. During fiscal 2006, all such services were approved in advance. +During fiscal 2007, fees totaling $146,000, or 1.8% of total fees, were paid to PricewaterhouseCoopers LLP for several small engagements in foreign locations that were not pre-approved, but were approved by the Audit Committee promptly after their +inadvertent omission from pre-approval was noticed. +Notwithstanding anything to the contrary set forth in any of the Company’s +filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, the following Report of the Audit Committee shall not be incorporated by reference into any such filings and shall not otherwise be deemed filed under such acts. +REPORT OF THE AUDIT COMMITTEE +The Audit Committee has: +• +Reviewed and discussed the audited financial statements with management. +• +Discussed with the independent auditors the matters required to be discussed by SAS 61. +• +Received the written disclosures and the letter from the independent accountants required by Independence Standards Board Standard No. 1, and has discussed +with the independent accountant the independent accountant’s independence. +• +Based on the review and discussions above, recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual +Report on Form 10-K for the last fiscal year for filing with the Securities and Exchange Commission. +Members of the Audit Committee: +Alan B. Graf, Jr., Chairman +John G. Connors +Orin C. Smith +OTHER MATTERS +As of the time this +proxy statement was printed, management was unaware of any proposals to be presented for consideration at the Annual Meeting other than those set forth herein, but if other matters do properly come before the Annual Meeting, the persons named in the +proxy will vote the shares represented by such proxy according to their best judgment. +42 +SHAREHOLDER PROPOSALS +A proposal by a shareholder for inclusion in the Company’s proxy statement and form of proxy for the 2008 annual meeting of shareholders must be +received by John F. Coburn III, Secretary of NIKE, at One Bowerman Drive, Beaverton, Oregon 97005-6453, on or before April 5, 2008 to be eligible for inclusion. Rules under the Securities Exchange Act of 1934 describe standards as to the +submission of shareholder proposals. In addition, the Company’s bylaws require that any shareholder wishing to make a nomination for Director, or wishing to introduce a proposal or other business at a shareholder meeting must give the Company +at least 60 days’ advance written notice, and that notice must meet certain requirements described in the bylaws. +For the Board of Directors +JOHN F. COBURN III +S ECRETARY +43 +EXHIBIT A +NIKE, INC. LONG-TERM INCENTIVE PLAN* +This is the Long-Term Incentive Plan of NIKE, Inc. for the +payment of incentive compensation to designated employees. +Section 1. Definitions. +The following terms have the following meanings: +Board: The Board of Directors of the Company. +Code: The Internal Revenue Code of 1986, as amended. +Committee: The Compensation Personnel Committee of the Board, provided however, if the Compensation +Personnel Committee of the Board is not composed entirely of Outside Directors, the “Committee” shall mean a committee composed entirely of at least two Outside Directors appointed by the Board +from time to time. +Company: NIKE, Inc. +Outside Directors: The meaning ascribed to this term in Section 162(m) of the Code and the regulations +proposed or adopted thereunder. +Performance Period: The period of time for which Company +performance is measured for purposes of a Target Award. +Performance Target: An objectively +determinable level of performance as selected by the Committee to measure performance of the Company or any subsidiary, division, or other unit of the Company for the Performance Period based on one or more of the following: net income, net income +before taxes, operating income, revenues, return on sales, return on equity, earnings per share, total shareholder return, or any of the foregoing before the effect of acquisitions, divestitures, accounting changes, restructuring, or other special +charges, as determined by the Committee at the time of establishing a Performance Target. +Plan: The Long-Term Incentive Plan of the Company. +Target +Award: An amount of compensation to be paid in cash to a Plan participant based on achievement of a particular Performance Target level, as established by the Committee. Target +* +Matter in bold and underline is new; matter in italics and strikeout is to be deleted. +A-1 +Awards shall be denominated at the time of grant either in Class B Common Stock (“Stock Target Awards”) or in dollar amounts +(“Dollar Target Awards”). Payment under a Stock Target Award or a Dollar Target Award shall be made, at the discretion of the Committee, in Class B Common Stock or in cash or in any combination thereof. +Year: The fiscal year of the Company. +Section 2. Objectives. +The objectives of the Plan are to: +(a) recognize and reward on a long-term basis selected employees of the +Company and its subsidiaries for their contributions to the overall profitability and performance of the Company; and +(b) +qualify compensation under the Plan as “performance-based compensation” within the meaning of Section 162(m) of the Code and the regulations promulgated thereunder. +Section 3. Shares Subject to the Plan. +Subject to adjustment as provided +below and in Section 9, the shares to be awarded under the Plan shall consist of Class B Common Stock of the Company, and the total number of shares of Class B Common Stock that may be issued under the Plan shall not exceed 2,000,000 shares. If a +Target Award granted under the Plan expires, terminates or is cancelled, the unissued shares subject to such Target Award shall again be available under the Plan. If shares issued under a Target Award are forfeited to the Company, the number of +shares forfeited shall again be available under the Plan. +Section 3 4 . Administration. +The Plan will be administered by the Committee. +Subject to the provisions of the Plan, the Committee will have full authority to interpret the Plan, to establish and amend rules and regulations relating to it, to determine the terms and provisions for making awards and to make all other +determinations necessary or advisable for the administration of the Plan. +Section 4 5 . Participation . +Target Awards may be granted under the Plan only to +individuals selected by the Committee who are employees of the Company or a subsidiary of the Company. +A-2 +Section 5 6 . Determination of the +Performance Targets and Awards. +(a) Performance Targets and Awards. The Committee shall establish in +writing, in its sole discretion, the Performance Targets and Target Award opportunities for each participant, within 90 days of the beginning of the applicable Performance Period. The Committee may establish (i) several Performance Target +levels for each participant, each corresponding to a different Target Award opportunity, and (ii) different Performance Targets and Target Award opportunities for each participant in the Plan. For competitive reasons, the specific +Performance Targets determined by the Committee will not be publicly disclosed. +(b) Other Terms and +Restrictions. The Committee may establish other restrictions to payment under a Target Award, such as a continued employment requirement, in addition to satisfaction of the Performance Targets. Some or all of +any shares of Class B Common Stock issuable under any Target Award may be issued at the time of the award or any other time as restricted shares subject to forfeiture in whole or in part if Performance Targets or, if applicable, other restrictions +are not satisfied. +(c) Maximum Awards. The Committee shall not establish Target Award +opportunities for any participant such that the maximum under Stock Target Awards which have Performance Periods ending in any single Year exceeds the equivalent of 20,000 shares of Class B Common Stock or the maximum amount +payable under Dollar Target Awards which have Performance Periods ending in any single Year exceeds $4,000,000 $1,000,000 . +(d) Tax Withholding. Each participant who has received shares of Class B Common Stock upon payment of an award shall, upon notification of the +amount due, pay to the Company in cash amounts necessary to satisfy any applicable federal, state and local tax withholding requirements. If the participant fails to pay the amount demanded, the Company may withhold that amount from other amounts +payable by the Company to the participant, including salary, subject to applicable law. With the consent of the Committee, a participant may satisfy this obligation, in whole or in part, by having the Company withhold from any shares to be issued +that number of shares that would satisfy the withholding amount due or by delivering shares of Class B Common Stock to the Company to satisfy the withholding amount. +(e) Effect on Shares Available. The payment of a Target Award in cash shall not reduce the number of shares of Class B Common Stock reserved +for issuance under the Plan. The number of shares of Class B Common Stock reserved for issuance under the Plan shall be reduced by the number of shares issued upon payment of an award, less the number of shares surrendered or withheld to satisfy +withholding obligations. +Section 6 7 . Determination of Plan +Awards. +At the conclusion of the Performance Period, in accordance with Section 162(m)(4)(C)(iii) of the Code, prior to the +payment of any award under the Plan, the Committee shall certify in the Committee’s +A-3 +internal meeting minutes the attainment of the Performance Targets for the Performance Period and the calculation of the awards. No award shall be paid if +the related Performance Target is not met. The Committee may, in its sole discretion, reduce or eliminate any participant’s calculated award based on circumstances relating to the performance of the Company or the participant. Awards will be +paid in accordance with the terms of the awards as soon as practicable following the Committee’s certification of the awards. +Section 7 8 . Termination of Employment. +The terms of a Target Award may provide +that in the event of a participant’s termination of employment for any reason during a Performance Period, the participant (or his or her beneficiary) will receive, at the time provided in Section 6 7 , +all or any portion of the award to which the participant would otherwise have been entitled. +Section 9. Changes in Capital +Structure. +If the outstanding Class B Common Stock of the Company is hereafter increased or decreased or changed +into or exchanged for a different number or kind of shares or other securities of the Company by reason of any stock split, combination of shares or dividend payable in shares, recapitalization or reclassification, appropriate adjustment shall be +made by the Committee in the number and kind of shares available for grants under the Plan. In addition, the Committee shall make appropriate adjustment in the number and kind of shares subject to outstanding Target Awards so that the +recipient’s proportionate interest before and after the occurrence of the event is maintained. Notwithstanding the foregoing, the Committee shall have no obligation to effect any adjustment that would or might result in the issuance of +fractional shares, and any fractional shares resulting from any adjustment may be disregarded or provided for in any manner determined by the Committee. Any such adjustments made by the Committee shall be conclusive. +Section 8 10 . Miscellaneous. +(a) Amendment and Termination of the Plan. The Committee with the approval of the Board may amend, modify or terminate the +Plan at any time and from time to time except insofar as approval by the Company’s shareholders is required pursuant to Section 162(m)(4)(C)(ii) of the Code. The Plan shall terminate at the first shareholder meeting that occurs in the +fifth year after the Company’s shareholders approve the Plan. Notwithstanding the foregoing, no such amendment, modification or termination shall affect the payment of Target Awards previously established. +(b) No Assignment. Except as otherwise required by applicable law, no interest, benefit, payment, claim or right of any +participant under the plan shall be subject in any manner to any claims of any creditor +A-4 +of any participant or beneficiary, nor to alienation by anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment, charge or encumbrance of +any kind, and any attempt to take any such action shall be null and void. +(c) No Rights to +Employment. Nothing contained in the Plan shall give any person the right to be retained in the employment of the Company or any of its subsidiaries. The Company reserves the right to terminate a participant at any time +for any reason notwithstanding the existence of the Plan. +(d) Beneficiary Designation. The Committee shall +establish such procedures as it deems necessary for a participant to designate a beneficiary to whom any amounts would be payable in the event of a participant’s death. +(e) Plan Unfunded. The entire cost of the Plan shall be paid from the general assets of the Company. The rights of any +person to receive benefits under the Plan shall be only those of a general unsecured creditor, and neither the Company nor the Board nor the Committee shall be responsible for the adequacy of the general assets of the Company to meet and discharge +Plan liabilities, nor shall the Company be required to reserve or otherwise set aside funds for the payment of its obligations hereunder. +(f) Applicable Law. The Plan and all rights thereunder shall be governed by and construed in accordance with the laws of the State of Oregon. +A-5 +ANNUAL +MEETING +AND +PROXY STATEMENT +September 17, 2007 +Beaverton, Oregon +NIKE, INC. P.O. +BOX 43069 +PROVIDENCE, RI 02940-3069 +VOTE BY INTERNET—www.proxyvote.com +Use the Internet to transmit your +voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your +records and to create an electronic voting instruction form. +ELECTRONIC DELIVERY OF FUTURE SHAREHOLDER COMMUNICATIONS +If you would like to reduce the costs incurred by NIKE, Inc. in mailing proxy materials, you can consent to receiving all +future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to +receive or access shareholder communications electronically in future years. +VOTE BY PHONE—1-800-690-6903 +Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or +meeting date. Have your proxy card in hand when you call and then follow the instructions. +VOTE BY MAIL +Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to NIKE, Inc., c/o +Broadridge, 51 Mercedes Way, Edgewood, NY 11717. +TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: +NKINC1 +KEEP +THIS PORTION FOR YOUR RECORDS +DETACH AND RETURN THIS PORTION ONLY +THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. +NIKE, INC. +Vote on Directors +1. To elect a Board of Directors for the ensuing year. +Election by Class A: +For All +Withhold All +For All Except +To withhold authority to vote for any individual nominee(s), mark “For All Except” +and write the number(s) of the nominee(s) on the line below. +Nominees: 01) John G. Connors 06) Mark G. Parker +02) Timothy D. Cook 07) Johnathan A. Rodgers +03) Ralph D. DeNunzio 08) Orin C. Smith +04) Douglas G. Houser 09) John R. Thompson, Jr. +05) Philip H. Knight +Vote on Proposals +2. +To approve the extension of and amendments to the NIKE, Inc. Long-Term Incentive Plan. +3. +To ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm. +4. +To transact such other business as may properly come before the meeting. +For Against Abstain +For address changes and/or comments, please check this box and write them on the back where indicated. +(Please date and sign below exactly as your name or names appear(s) hereon. Joint owners should each sign personally. Corporate proxies +should be signed in full corporate name by an authorized officer and attested. Persons signing in a fiduciary capacity should indicate their full titles in such capacity.) +Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date +ADMISSION TICKET +NIKE, INC. +2007 Annual Meeting of Shareholders Monday, September 17, 2007 10:00 a.m. Pacific Daylight Time +Tiger Woods Conference Center One Bowerman Drive Beaverton, Oregon 97005 +This ticket admits only the shareholder(s) listed on the reverse side and is not transferable. If you plan on attending the Annual Meeting in person, please bring, in addition to this Admission Ticket, a proper form of +identification. If shares are held in the name of a broker, trust, bank, or other nominee, you should bring with you a statement, proxy or a letter from the broker, trustee, bank or nominee confirming your beneficial ownership of the shares as of +the record date. Cameras, recording devices and other electronic devices will not be permitted at the meeting. For the safety of attendees, all bags, packages, and briefcases are subject to inspection. Your compliance is appreciated. +Directions +From I-5 North: +I-5 North to 217 North Follow to Hwy 26 West. +From I-5 South: +I-5 South to I-405 South Follow to Hwy 26 West. +From I-84: +I-84 West to I-5 South to I-405 North Follow to Hwy 26 West. +Exit Hwy 26 at Murray Blvd. +Turn left onto Murray Blvd. +Drive one mile. +Turn right on Walker Road. +Turn left on Meadow Drive into NIKE World Headquarters (WHQ). +Meadow Drive becomes Thomas Paine Road as you enter NIKE WHQ. +Check-in with the Security bunker located at the top of the +entry. +The Tiger Woods Center is the building +you will see directly ahead of the Security bunker. +For patron drop off only, continue straight ahead on Thomas Paine Drive to the main entry. +To park, turn left at the Security bunker on Del Hayes Way. +Enter parking lots on either side of Del Hayes Way. +Follow the covered sidewalk to the main entry of the Tiger Woods Center. +Please note that the NIKE Campus is a non-smoking location +and smoking is not permitted on NIKE WHQ property. +NIKE, INC. +CLASS A COMMON STOCK PROXY +SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +FOR THE 2007 MEETING OF SHAREHOLDERS +SEPTEMBER 17, 2007 +The undersigned hereby appoints Philip H. Knight, Mark G. Parker and Douglas G. Houser, and each of them, proxies with full power of substitution, to vote, as designated on the reverse side, on behalf of the undersigned, all shares +of Class A Common Stock which the undersigned may be entitled to vote at the Annual Meeting of Shareholders of NIKE, Inc. on September 17, 2007, and any adjournments thereof, with all powers that the undersigned would possess if personally +present. A majority of the proxies or substitutes present at the meeting may exercise all powers granted hereby. +THE SHARES +REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED, BUT IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR, AND FOR PROPOSALS 2, AND 3. THE PROXIES MAY VOTE IN THEIR DISCRETION AS TO OTHER MATTERS +WHICH MAY COME BEFORE THE MEETING. +YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES, BUT YOU +NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS’ RECOMMENDATIONS. THE PROXIES CANNOT VOTE THESE SHARES UNLESS YOU SIGN AND RETURN THIS CARD OR PROPERLY VOTE BY PHONE OR INTERNET. +Address Change/Comments: +If you noted address changes or comments above, please mark the corresponding box on the reverse side. +NIKE, INC. P.O. +BOX 43069 +PROVIDENCE, RI 02940-3069 +VOTE BY INTERNET—www.proxyvote.com +Use the Internet to transmit your +voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your +records and to create an electronic voting instruction form. +ELECTRONIC DELIVERY OF FUTURE SHAREHOLDER COMMUNICATIONS +If you would like to reduce the costs incurred by NIKE, Inc. in mailing proxy materials, you can consent to receiving all +future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to +receive or access shareholder communications electronically in future years. +VOTE BY PHONE—1-800-690-6903 +Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or +meeting date. Have your proxy card in hand when you call and then follow the instructions. +VOTE BY MAIL +Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to NIKE, Inc., c/o +Broadridge, 51 Mercedes Way, Edgewood, NY 11717. +TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: +NIKEI1 +KEEP +THIS PORTION FOR YOUR RECORDS +DETACH AND RETURN THIS PORTION ONLY +THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. +NIKE, INC. +Vote on Directors +1. +To elect a Board of Directors for the ensuing year. +Election by Class B: +For All +Withhold All +For All Except +To withhold authority to vote for any individual nominee(s), +mark “For All Except” and write the number(s) of the nominee(s) on the line below. +Nominees: 01) Jill K. Conway +02) Alan B. Graf, Jr. +03) Jeanne P. Jackson +Vote on Proposals +2. +To approve the extension of and amendments to the NIKE, Inc. Long-Term Incentive Plan. +3. +To ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm. +4. +To transact such other business as may properly come before the meeting. +For Against Abstain +For address changes and/or comments, please check this box and write them on the back where indicated. +(Please date and sign below exactly as your name or names appear(s) hereon. Joint owners should each sign personally. Corporate proxies +should be signed in full corporate name by an authorized officer and attested. Persons signing in a fiduciary capacity should indicate their full titles in such capacity.) +Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date +ADMISSION TICKET +NIKE, INC. +2007 Annual Meeting of Shareholders Monday, September 17, 2007 10:00 a.m. Pacific Daylight Time +Tiger Woods Conference Center One Bowerman Drive Beaverton, Oregon 97005 +This ticket admits only the shareholder(s) listed on the reverse side and is not transferable. If you plan on attending the Annual Meeting in person, please bring, in addition to this Admission Ticket, a proper form of +identification. If shares are held in the name of a broker, trust, bank, or other nominee, you should bring with you a statement, proxy or a letter from the broker, trustee, bank or nominee confirming your beneficial ownership of the shares as of +the record date. Cameras, recording devices and other electronic devices will not be permitted at the meeting. For the safety of attendees, all bags, packages, and briefcases are subject to inspection. Your compliance is appreciated. +Directions +From I-5 North: +I-5 North to 217 North Follow to Hwy 26 West. +From I-5 South: +I-5 South to I-405 South Follow to Hwy 26 West. +From I-84: +I-84 West to I-5 South to I-405 North Follow to Hwy 26 West. +Exit Hwy 26 at Murray Blvd. +Turn left onto Murray Blvd. +Drive one mile. +Turn right on Walker Road. +Turn left on Meadow Drive into NIKE World Headquarters (WHQ). +Meadow Drive becomes Thomas Paine Road as you enter NIKE WHQ. +Check-in with the Security bunker located at the top of the +entry. +The Tiger Woods Center is the building +you will see directly ahead of the Security bunker. +For patron drop off only, continue straight ahead on Thomas Paine Drive to the main entry. +To park, turn left at the Security bunker on Del Hayes Way. +Enter parking lots on either side of Del Hayes Way. +Follow the covered sidewalk to the main entry of the Tiger Woods Center. +Please note that the NIKE Campus is a non-smoking location +and smoking is not permitted on NIKE WHQ property. +NIKE, INC. +CLASS B COMMON STOCK PROXY +SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +FOR THE 2007 MEETING OF SHAREHOLDERS +SEPTEMBER 17, 2007 +The undersigned hereby appoints Philip H. Knight, Mark G. Parker and Douglas G. Houser, and each of them, proxies with full power of substitution, to vote, as designated on the reverse side, on behalf of the undersigned all shares of +Class B Common Stock which the undersigned may be entitled to vote at the Annual Meeting of Shareholders of NIKE, Inc. on September 17, 2007, and any adjournments thereof, with all powers that the undersigned, would possess if personally +present. A majority of the proxies or substitutes present at the meeting may exercise all powers granted hereby. +THE SHARES +REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED, BUT IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR, AND FOR PROPOSALS 2, AND 3. THE PROXIES MAY VOTE IN THEIR DISCRETION AS TO OTHER MATTERS +WHICH MAY COME BEFORE THE MEETING. +YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES, BUT YOU +NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS’ RECOMMENDATIONS. THE PROXIES CANNOT VOTE THESE SHARES UNLESS YOU SIGN AND RETURN THIS CARD OR PROPERLY VOTE BY PHONE OR INTERNET. +Address Change/Comments: +If you noted address changes or comments above, please mark the corresponding box on the reverse side. \ No newline at end of file diff --git a/raw/proxies/0000320187/0001193125-07-170688/proxy_rpt.txt b/raw/proxies/0000320187/0001193125-07-170688/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000320187/0001193125-08-171939/proxy.txt b/raw/proxies/0000320187/0001193125-08-171939/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..19d42f025469cadcc1d63728fecec4ff4a50e22e --- /dev/null +++ b/raw/proxies/0000320187/0001193125-08-171939/proxy.txt @@ -0,0 +1,1879 @@ +DEF 14A +1 +ddef14a.htm +DEFINITIVE PROXY STATEMENT +Definitive Proxy Statement +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A INFORMATION +Proxy +Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 +Filed by the Registrant x +Filed by a Party other than the Registrant ¨ +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only +(as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material Pursuant to § 240.14a-11(c) or § 240.14a-12 +NIKE, Inc. +(Name of Registrant as Specified in Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(I)(4) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was +determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the +previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +NIKE, Inc. +One Bowerman Drive +Beaverton, Oregon 97005-6453 +August 8, 2008 +To Our Shareholders: +You are cordially invited to attend the annual meeting of shareholders of NIKE, Inc. to be held at the Tiger Woods Conference Center, One Bowerman Drive, +Beaverton, Oregon 97005-6453, on Monday, September 22, 2008, at 10:00 A.M. Pacific Time. Registration will begin at 9:00 A.M. +The +meeting will consist of a brief presentation followed by the business items listed on the attached notice. +Whether or not you plan to +attend, the prompt execution and return of your proxy card will both assure that your shares are represented at the meeting and minimize the cost of proxy solicitation. +Sincerely, +Philip H. Knight +Chairman of the Board +Notice of Annual Meeting of Shareholders +September 22, 2008 +To the Shareholders of NIKE, Inc. +The annual meeting of shareholders of NIKE, Inc., an Oregon corporation, will be held on Monday, September 22, 2008, at 10:00 A.M., at the Tiger +Woods Conference Center, One Bowerman Drive, Beaverton, Oregon 97005-6453, for the following purposes: +1. +To elect a Board of Directors for the ensuing year. +2. +To ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm. +3. +To transact such other business as may properly come before the meeting. +All shareholders are invited to attend the meeting. Shareholders of record at the close of business on July 25, 2008, the record date fixed by the Board of Directors, are entitled to notice of and to vote at the +meeting. You must present your proxy or voter instruction card or meeting notice for admission. +By Order of the Board of Directors +JOHN F. COBURN III +Secretary +Beaverton, Oregon +August 8, +2008 +Whether or not you intend to be present at the meeting, please sign and date +the enclosed proxy and return it in the enclosed envelope, or vote by telephone or over the internet following the instructions on the proxy. +PROXY STATEMENT +The enclosed proxy is solicited by the Board of Directors of NIKE, Inc. (“NIKE” or the “Company”) for use at the annual meeting of shareholders to be held on September 22, 2008, and at any +adjournment thereof (the “Annual Meeting”). The Company expects to provide notice and electronic delivery of this proxy statement and the enclosed proxy to shareholders on or about August 8, 2008. +The Company will bear the cost of solicitation of proxies. In addition to the solicitation of proxies by mail, certain officers and employees of the +Company, without extra compensation, may also solicit proxies personally or by telephone. Copies of proxy solicitation materials will be furnished to fiduciaries, custodians and brokerage houses for forwarding to the beneficial owners of shares held +in their names. +All valid proxies properly executed and received by the Company prior to the Annual Meeting will be voted in accordance +with the instructions specified in the proxy. Where no instructions are given, shares will be voted (1) FOR the election of each of the named nominees for director, and (2) FOR ratification of the appointment of PricewaterhouseCoopers LLP +as independent registered public accounting firm. +A shareholder giving the enclosed proxy has the power to revoke it at any time before it +is exercised by affirmatively electing to vote in person at the meeting or by delivering to John F. Coburn III, Secretary of NIKE, either an instrument of revocation or an executed proxy bearing a later date. +VOTING SECURITIES +Holders of record +of NIKE’s Class A Common Stock (“Class A Stock”) and holders of record of NIKE’s Class B Common Stock (“Class B Stock”), at the close of business on July 25, 2008, will be entitled to vote at the Annual +Meeting. On that date, 96,191,444 shares of Class A Stock and 394,220,937 shares of Class B Stock were issued and outstanding. Neither class of Common Stock has cumulative voting rights. All share and per-share amounts in this proxy statement +have been adjusted to reflect the two-for-one stock split of the Class A Stock and the Class B Stock effected on April 2, 2007 in the form of a 100 percent common stock dividend. +Each share of Class A Stock and each share of Class B Stock is entitled to one vote on every matter submitted to the shareholders at the Annual +Meeting. With regard to Proposal 1, the election of directors, the holders of Class A Stock and the holders of Class B Stock will vote separately. Holders of Class B Stock are currently entitled to elect 25 percent of the total Board, +rounded up to the next whole number. Holders of Class A Stock are currently entitled to elect the remaining directors. Under this formula, holders of Class B Stock, voting separately, will elect three directors, and holders of Class A +Stock, voting separately, will elect nine directors. Holders of Class A Stock and holders of Class B Stock will vote together as one class on Proposal 2. +PROPOSAL 1 +ELECTION OF DIRECTORS +A Board of 12 directors will be elected at the Annual Meeting. All of the +nominees were elected at the 2007 annual meeting of shareholders. Directors will hold office until the next annual meeting of shareholders or until their successors are elected and qualified. +Jill K. Conway, Alan B. Graf, Jr., and Jeanne P. Jackson are nominated by the Board of Directors for election by the holders of Class B Stock. The other +nine nominees are nominated by the Board of Directors for election by the holders of Class A Stock. +Under Oregon law, if a quorum of +each class of shareholders is present at the Annual Meeting, the nine director nominees who receive the greatest number of votes cast by holders of Class A Stock and the three director nominees who receive the greatest number of votes cast by +holders of Class B Stock will be elected directors. Abstentions and broker non-votes will have no effect on the results of the vote. Unless otherwise instructed, proxy holders will vote the proxies they receive for the nominees listed below. If any +nominee becomes unable to serve, the holders of the proxies may, in their discretion, vote the shares for a substitute nominee or nominees designated by the Board of Directors. +The Corporate Governance Guidelines adopted by the Board of Directors provide that any nominee for director in an uncontested election who receives a +greater number of votes “withheld” from his or her election than votes “for” such election shall tender his or her resignation for consideration by the Nominating and Corporate Governance Committee. The Committee shall recommend +to the Board the action to be taken with respect to the resignation. The Board will publicly disclose its decision within 90 days of the certification of the election results. +Background information on the nominees as of July 14, 2008, appears below: +Nominees for Election by Class A Shareholders +John G. +Connors — Mr. Connors, 49, a director since 2005, is a partner in Ignition Partners LLC, a Seattle-area venture capital firm. Mr. Connors served as Senior Vice President and Chief Financial Officer of Microsoft +Corporation from December 1999 to May 2005. He joined Microsoft in 1989 and held various management positions, including Corporate Controller from 1994 to 1996, Vice President, Worldwide Enterprise Group in 1999, and Chief Information +Officer from 1996 to 1999. Mr. Connors is a member of the Board of Trustees — Swedish Medical Center, and also member of the Board of Directors of Jobster, Inc., Admit One Security, Inc., FiREapps, Inc., SecondSpace, Splunk Inc., +the Washington Policy Center, and the University of Washington Tyee Club. +2 +Timothy D. Cook — Mr. Cook, 47, a director since 2005, is the Chief Operating +Officer of Apple, Inc. Mr. Cook joined Apple in March 1998 as Senior Vice President of Worldwide Operations and also served as Executive Vice President, Worldwide Sales and Operations. Mr. Cook was Vice President, Corporate +Materials for Compaq Computer Corporation from 1997 to 1998. Previous to his work at Compaq, Mr. Cook served in the positions of Senior Vice President Fulfillment and Chief Operating Officer of the Reseller Division at Intelligent Electronics +from 1994 to 1997. Mr. Cook also worked for International Business Machines Corporation from 1983 to 1994, most recently as Director of North American Fulfillment. +Ralph D. DeNunzio — Mr. DeNunzio, 76, a director since 1988, is President of Harbor Point Associates, Inc., New York, New York, a private investment and consulting firm. Mr. DeNunzio +was employed by the investment banking firm of Kidder, Peabody & Co. Incorporated from 1953 to 1987, where he served as President from 1977 to 1986, as Chief Executive Officer from 1980 to 1987 and as Chairman of the Board of Directors from +1986 to 1987. Mr. DeNunzio served as Vice Chairman and Chairman of the Board of Governors of the New York Stock Exchange from 1969 to 1972 and was President of the Securities Industry Association in 1981. In 1970, Mr. DeNunzio headed the +Securities Industry Task Force, which led to enactment of the Securities Investor Protection Act of 1970 and establishment of the Securities Investor Protection Corporation. +Douglas G. Houser — Mr. Houser, 73, a director since 1970, has been a partner in the Portland, Oregon law firm of Bullivant, +Houser, Bailey since 1965. Mr. Houser is a trustee of Willamette University and a Fellow in the American College of Trial Lawyers, and has served as a member of the Board of Governors and Treasurer of the Oregon State Bar Association and as a +Director of the Rand Corporation, Institute for Civil Justice Board of Overseers. +Philip H. +Knight — Mr. Knight, 70, a director since 1968, is Chairman of the Board of Directors of NIKE. Mr. Knight is a co-founder of the Company and, except for the period from June 1983 through September 1984, served +as its President from 1968 to 1990, and from June 2000 to 2004. Prior to 1968, Mr. Knight was a certified public accountant with Price Waterhouse and Coopers & Lybrand and was an Assistant Professor of Business Administration at +Portland State University. +Mark G. Parker — Mr. Parker, 52, has been President and Chief Executive Officer and +a director since January 2006. He has been employed by NIKE since 1979 with primary responsibilities in product research, design and development, marketing, and brand management. Mr. Parker was appointed divisional Vice President in charge +of development in 1987, corporate Vice President in 1989, General Manager in 1993, Vice President of Global Footwear in 1998, and President of the NIKE Brand in 2001. +Johnathan A. Rodgers — Mr. Rodgers, 62, a director since November 2006, is the President and Chief Executive Officer of TV One, LLC. Prior joining TV One, LLC in March 2003, +Mr. Rodgers was President, Discovery Networks US for Discovery Communications, Inc. from 1996 to 2003. Prior to his +3 +work at Discovery Communications, Mr. Rodgers had a 20-year career at CBS, Inc. where he held a variety of executive positions, including President, CBS +Television Stations. Mr. Rodgers is also a director of Procter & Gamble Company, a Trustee of the University of California — Berkeley, and a director of the National Cable Telecommunication Association. +Orin C. Smith — Mr. Smith, 65, a director since 2004, was President and Chief Executive Officer of Starbucks Corporation from +2000 to 2005. He joined Starbucks as Vice President and Chief Financial Officer in 1990, became President and Chief Operating Officer in 1994, and became a director of Starbucks in 1996. Prior to joining Starbucks, Mr. Smith spent a total of +14 years with Deloitte & Touche. He was later the Executive Vice President and Chief Financial Officer of two transportation companies. Between these assignments, he was Chief Policy and Finance Officer in the administrations of two +Washington State Governors. Mr. Smith is also a member of the Board of Directors of Washington Mutual, Inc., and The Walt Disney Company. +John R. Thompson, Jr. — Mr. Thompson, 67, a director since 1991, was head coach of the Georgetown University men’s basketball team from 1972 until 1998. Mr. Thompson was head coach of the 1988 United +States Olympic basketball team. He hosts a sports radio talk show in Washington, D.C., and is a nationally broadcast sports analyst for Turner Network Television (TNT) and the Westwood One, Inc. radio network. He serves as Assistant to the President +of Georgetown for Urban Affairs, and he is a past President of the National Association of Basketball Coaches and presently serves on its Board of Governors. +Nominees for Election by Class B Shareholders +Jill K. Conway — Dr. Conway, 74, a director since +1987, is currently a Visiting Scholar with the Massachusetts Institute of Technology’s Program in Science, Technology and Society. Dr. Conway was a Professor of History and President of Smith College, Northampton, Massachusetts, from 1975 +to 1985. She was affiliated with the University of Toronto from 1964 to 1975, and held the position of Vice President, Internal Affairs from 1973 to 1975. Dr. Conway holds numerous Honorary Doctorates from North American universities. She is +also a director of Colgate-Palmolive Company and a former director of Merrill Lynch & Co., Inc. +Alan B. Graf, +Jr . — Mr. Graf, 54, a director since 2002, is the Executive Vice President and Chief Financial Officer of FedEx Corporation, a position he has held since 1998, and is a member of FedEx Corporation’s Executive Committee. +Mr. Graf joined FedEx Corporation in 1980 and was Senior Vice President and Chief Financial Officer for FedEx Express, FedEx’s predecessor, from 1991 to 1998. He is also a director of Mid-America Apartment Communities, Inc. +Jeanne P. Jackson — Ms. Jackson, 56, a director since 2001, is Founder and CEO of MSP Capital, a private investment company. +Ms. Jackson was CEO of Walmart.com from March 2000 to January 2002. +4 +She was with Gap, Inc., as President and CEO of Banana Republic from 1995-2000, also serving as CEO of Gap, Inc. Direct from 1998-2000. Since 1978, she has +held various retail management positions with Victoria’s Secret, The Walt Disney Company, Saks Fifth Avenue, and Federated Department Stores. Ms. Jackson is the President of the United States Ski and Snowboard Foundation Board of Trustees, +and serves on the Board of Advisors of the University of California, Irvine. She is also a director of McDonald’s Corporation, Nordstrom, Inc., and Harrah’s Entertainment, Inc. +Board of Directors and Committees +The Board currently has an Executive Committee, an Audit +Committee, a Nominating and Corporate Governance Committee, a Finance Committee, a Corporate Responsibility Committee, and a Compensation Committee, and may also appoint other committees from time to time. Each committee has a written charter; all +such charters, as well as the Company’s corporate governance guidelines, are available at the Company’s internet website ( www.nikebiz.com/investors ) and will be provided in print to any shareholder who submits a request in writing +to NIKE Investor Relations, One Bowerman Drive, Beaverton, Oregon 97005-6453. There were five meetings of the Board of Directors during the last fiscal year. Each director attended at least 75 percent of the total number of meetings of the +Board of Directors and committees on which he or she served, except for Mr. Thompson, who attended 73 percent. The Company encourages all directors to attend each annual meeting of shareholders, and all directors attended the 2007 Annual +Meeting. +Pursuant to New York Stock Exchange rules, in order for a director to qualify as “independent,” the Board of Directors +must affirmatively determine that the director has no material relationship with the Company that would impair the director’s independence. The rules permit the Board to adopt categorical standards under which relationships will be deemed +immaterial without any specific Board determination. Accordingly, the Board has determined that commercial or charitable relationships below the following thresholds will not be considered material relationships that impair a director’s +independence: (i) if a NIKE director or immediate family member is an executive officer of another company that does business with NIKE and the annual sales to, or purchases from, NIKE are less than one percent of the annual revenues of the +other company; and (ii) if a NIKE director or immediate family member serves as an officer, director or trustee of a charitable organization, and NIKE’s contributions to the organization are less than one percent of that +organization’s total annual charitable receipts. After applying this categorical standard, the Board of Directors has determined that all directors have no material relationship with the Company and, therefore, are independent, except for +Messrs. Knight, Parker, and Thompson. Mr. Knight and Mr. Parker are executive officers of the Company, and Mr. Thompson is not independent pursuant to New York Stock Exchange rules as a result of the Company’s payments to his son +described below under the heading “Transactions with Related Persons.” +Executive sessions of non-management directors +(consisting of all directors other than Mr. Knight and Mr. Parker) are regularly scheduled and held at least once each year. The position of presiding director at +5 +these executive sessions is rotated among the Chairs of the various Board committees, other than the Executive Committee, so there is no single lead +director. The current presiding director at the executive sessions is Mr. Smith. +The Executive Committee of the Board is currently +composed of Messrs. Knight (Chairman), Parker, and Houser. The Executive Committee is authorized to act on behalf of the Board on all corporate actions for which applicable law does not require participation by the full Board. In practice, the +Executive Committee acts in place of the full Board only when emergency issues or scheduling make it difficult or impracticable to assemble the full Board. All actions taken by the Executive Committee must be reported at the next Board meeting. The +Executive Committee held no formal meetings during the fiscal year ended May 31, 2008, but took actions from time to time pursuant to written consent resolutions. +The Audit Committee is currently composed of Messrs. Graf (Chairman), Connors, and Smith. The Board has determined that each member of the Audit Committee meets all applicable independence and financial literacy +requirements under the New York Stock Exchange listing standards. The Board has also determined that Mr. Graf is an “audit committee financial expert” as defined in regulations adopted by the Securities and Exchange Commission. The +Audit Committee is responsible for the engagement or discharge of the independent registered public accountants, reviews and approves services provided by the independent registered public accountants, and reviews with the independent registered +public accountants the scope and results of their annual examination of the Company’s consolidated financial statements and any recommendations they may have. The Audit Committee also reviews the Company’s procedures with respect to +maintaining books and records, the adequacy and implementation of internal auditing, accounting, disclosure, and financial controls, and the Company’s policies concerning financial reporting and business practices. The Audit Committee met 12 +times during the fiscal year ended May 31, 2008. +The Nominating and Corporate Governance Committee is currently composed of +Mr. DeNunzio (Chairman), Dr. Conway, and Mr. Houser. The Board has determined that each member of the Nominating and Corporate Governance Committee meets all applicable independence requirements under the New York Stock Exchange +listing standards. The Nominating and Corporate Governance Committee identifies individuals qualified to become Board members, recommends director nominees for election at each annual shareholder meeting, and develops and recommends corporate +governance guidelines and standards for business conduct and ethics. The Committee also oversees the annual self-evaluations of the Board and its committees and makes recommendations to the Board concerning the structure and membership of the other +Board committees. Company policy requires the Nominating and Corporate Governance Committee to review any transaction or proposed transaction with a related person and to determine whether to ratify or approve the transaction, with ratification or +approval to occur only if the Committee determines that the transaction is fair to the Company or that approval or ratification of the transaction is in the interest of the Company. The Nominating and Corporate Governance Committee met three times +during the fiscal year ended May 31, 2008. +6 +The Finance Committee is currently composed of Messrs. Smith (Chairman), Connors, and DeNunzio. The +Finance Committee considers long-term financing options and needs of the Company, long-range tax and currency issues facing the Company, and management recommendations concerning major capital expenditures and material acquisitions or divestments. +The Finance Committee met eight times during the fiscal year ended May 31, 2008. +The Corporate Responsibility Committee is currently +composed of Dr. Conway (Chair), Ms. Jackson and Messrs. Houser, Rodgers, and Thompson. The Corporate Responsibility Committee reviews significant activities and policies regarding labor and environmental practices, community affairs, +charitable and foundation activities, diversity and equal opportunity, and environmental and sustainability initiatives, and makes recommendations to the Board of Directors. The Corporate Responsibility Committee met four times during the fiscal +year ended May 31, 2008. +The Compensation Committee is currently composed of Mr. DeNunzio (Chairman), Mr. Cook, and +Ms. Jackson. The Compensation Committee determines the Chief Executive Officer’s compensation and makes recommendations to the Board regarding other officers’ compensation, management incentive compensation arrangements and profit +sharing plan contributions. The Compensation Committee also grants stock options and restricted stock bonuses under the NIKE, Inc. 1990 Stock Incentive Plan, and determines targets and awards under the NIKE, Inc. Executive Performance Sharing Plan +and the NIKE, Inc. Long-Term Incentive Plan. The Compensation Committee met six times during the fiscal year ended May 31, 2008. +Director +Nominations +The Nominating and Corporate Governance Committee identifies potential director candidates through a variety of means, +including recommendations from members of the Committee or the Board, suggestions from Company management, and shareholder recommendations. The Committee also may, in its discretion, engage director search firms to identify candidates. Shareholders +may recommend director candidates for consideration by the Nominating and Corporate Governance Committee by submitting a written recommendation to the Committee, c/o John F. Coburn III, Secretary, NIKE, Inc., One Bowerman Drive, Beaverton, Oregon +97005-6453. The recommendation should include the candidate’s name, age, qualifications (including principal occupation and employment history), and written consent to be named as a nominee in the Company’s proxy statement and to serve as +a director, if elected. +The Board of Directors has adopted qualification standards for the selection of independent nominees for director +which can be found at our internet website: www.nikebiz.com/investors . As provided in the these standards and the Company’s Corporate Governance Guidelines, nominees for director are selected on the basis of, among other things, +distinguished business experience or other non-business achievements; education; significant knowledge of international business, finance, marketing, technology, law, or other fields which are complementary to, and balance the knowledge of other +Board members; a desire to +7 +represent the interests of all shareholders; independence; character; ethics; good judgment; diversity; and ability to devote substantial time to discharge +Board responsibilities. In considering the re-nomination of an incumbent director, the Nominating and Corporate Governance Committee reviews the director’s overall service to the Company during his or her term, including the number of meetings +attended, level of participation and quality of performance, as well as any special skills or diversity that such director brings to the Board. All potential new director candidates, whether recommended by shareholders or identified by other means, +are initially screened by the Chair of the Nominating and Corporate Governance Committee, who may seek additional information about the background and qualifications of the candidate, and who may determine that a candidate does not have +qualifications that merit further consideration by the full committee. With respect to new director candidates who pass the initial screening, the Nominating and Corporate Governance Committee meets to discuss and consider each candidate’s +qualifications and potential contributions to the Board, and determines by majority vote whether to recommend such candidates to the Board of Directors. The final decision to either elect a candidate to fill a vacancy between Annual Meetings or +include a candidate on the slate of nominees proposed at an Annual Meeting is made by the Board of Directors. +Directors first elected +after the 1993 fiscal year must retire at age 72. +Shareholder Communications with Directors +Shareholders or interested parties desiring to communicate directly with the Board of Directors, with the non-management directors, or with any +individual director, may do so in writing addressed to the intended recipient or recipients, c/o John F. Coburn III, Secretary, NIKE, Inc., One Bowerman Drive, Beaverton, Oregon 97005-6453. All such communications will be reviewed, compiled as +necessary, and then forwarded to the designated recipient or recipients in a timely manner. +Code of Business Conduct and Ethics +The NIKE Code of Ethics (“Code”) is available at the Company’s internet website ( www.nikebiz.com ) and will be provided in print +without charge to any shareholder who submits a request in writing to NIKE Investor Relations, One Bowerman Drive, Beaverton, Oregon 97005-6453. The Code applies to the Company’s chief executive officer and senior financial officers, and to all +other Company directors, officers and employees. The Code provides that any waiver of the Code may be made only by the Board. Any such waiver in favor of a director or executive officer will be publicly disclosed. The Company plans to disclose +amendments to, and waivers from, the Code on the Company’s internet website: www.nikebiz.com/investors. +8 +Director Compensation for Fiscal 2008 +Name +Fees Earned or +Paid in Cash +($) +Option +Awards (1) +($) +All Other +Compensation (2) +($) +Total +($) +John G. Connors +$ +66,000 +$ +59,093 +$ +11,500 +$ +136,593 +Jill K. Conway +58,667 +59,093 +14,980 +132,740 +Timothy D. Cook +58,000 +59,093 +7,800 +124,893 +Ralph D. DeNunzio +89,333 +73,866 +30,620 +193,819 +Alan B. Graf, Jr. +80,333 +59,093 +300 +139,726 +Douglas G. Houser +64,500 +73,866 +5,300 +143,666 +Jeanne P. Jackson +65,000 +59,093 +5,300 +129,393 +Johnathan A. Rodgers +58,500 +83,926 +13,508 +155,934 +Orin C. Smith +77,166 +59,093 +20,300 +156,559 +John R. Thompson, Jr. +40,000 +59,093 +40,658 +139,751 +(1) +Represents the amount of compensation expense recognized under FAS 123R in fiscal 2008 with respect to annual director options granted in fiscal 2008 and fiscal 2007, +disregarding estimated forfeitures. Compensation expense is equal to the grant date fair value of the options estimated using the Black-Scholes option pricing model, and is recognized ratably over the one-year vesting period. On September 17, +2007, each listed director other than Messrs. DeNunzio and Houser was granted an option for 4,000 shares with an exercise price of $56.31 per share, which was the closing market price of our Class B Common Stock on the grant date. The +grant date fair value of each of these options was $54,000, or $13.50 per share covered by the option. On September 17, 2007, each of Messrs. DeNunzio and Houser was granted an option for 5,000 shares with an exercise price of $56.31 +per share, which was the closing market price of our Class B Common Stock on the grant date. The grant date fair value of each of these options was $67,500, or $13.50 per share covered by the option. On November 16, 2006, Mr. Rodgers +was granted an option for 10,000 shares with an exercise price of $47.745 per share, which was the closing market price of our Class B Common Stock on November 15, 2006, the last trading day prior to the grant date. The grant date +fair value of this option was $99,400, or $9.94 per share covered by the option. The assumptions made in determining the grant date fair values of options under FAS 123R are disclosed in Note 10 of Notes to Consolidated Financial Statements in +our Annual Report on Form 10-K for the year ended May 31, 2008. As of May 31, 2008, non-employee directors held outstanding options for the following numbers of shares of our Class B Common Stock: Mr. Connors, 30,000; +Dr. Conway, 36,000; Mr. Cook, 22,000; Mr. DeNunzio, 53,000; Mr. Graf, 46,000; Mr. Houser, 15,000; Ms. Jackson, 48,000; Mr. Rodgers, 14,000; Mr. Smith, 38,000; and Mr. Thompson, 28,000. +(2) +Includes medical and life insurance premiums paid by us of $14,680 for Dr. Conway and $15,551 for Mr. Thompson. Also includes matching charitable +contributions by us under the NIKE Matching Gift +9 +Program, under which directors are eligible to contribute to qualified charitable organizations and we provide a matching contribution to the charities in an +equal amount, up to $20,000 in the aggregate for each director annually. In fiscal 2008, we matched contributions to charities in the following amounts: Mr. Connors, $11,200, Mr. Cook, $7,500, Mr. DeNunzio, $20,000, Mr. Houser, +$5,000, Ms. Jackson, $5,000, and Mr. Smith, $20,000. Also includes commercial airfare for family members who accompanied Messrs. DeNunzio, Rodgers, and Thompson to a board meeting, in the amounts of $10,320, $13,208, and $24,807, +respectively. Also includes sample and test products we provided to directors during the fiscal year, the value of which we estimate at $300 for each director based on our incremental cost. +Director Fees and Arrangements +Under our standard director compensation program in effect in fiscal 2008, each non-employee director received an annual retainer fee at the rate of $50,000 per year, a $2,000 meeting fee for each board meeting attended and a $1,000 meeting +fee for each committee meeting attended. Prior to September 1, 2007, the annual retainer fee was $40,000 per year. Additionally, on the date of each annual meeting of shareholders, each non-employee director receives an option to purchase +4,000 shares of our Class B Common Stock. The option has a term of ten years and an exercise price equal to the closing market price of our Class B Common Stock on the grant date. The option becomes exercisable in full on the date of +the next annual meeting of shareholders. Messrs. Connors, Cook, Graf, Rodgers and Smith and Ms. Jackson participate in our standard director compensation program. Messrs. DeNunzio and Houser also participate in our standard program, +except that, in exchange for electing in fiscal 2000 to participate in the standard program when it was first instituted, they each receive an option to purchase 5,000 shares of our Class B Common Stock, instead of 4,000 shares. +Mr. Thompson and Dr. Conway do not participate in our standard director compensation program. Pursuant to elections made in +fiscal 2000, Mr. Thompson and Dr. Conway received in fiscal 2008 an annual retainer fee at the rate of $32,000 per year (instead of the $50,000 annual retainer fee paid under our standard program), a $2,000 meeting fee for each board +meeting attended and a $1,000 meeting fee for each committee meeting attended. Prior to September 1, 2007, the annual retainer for Mr. Thompson and Dr. Conway was $22,000 per year. Pursuant to these elections, Mr. Thompson and +Dr. Conway also receive medical insurance and $500,000 of life insurance coverage paid for by us. Additionally, on the date of each annual meeting of shareholders, Mr. Thompson and Dr. Conway each receive an option to purchase +4,000 shares of our Class B Common Stock on the same terms as apply to the options granted pursuant to our standard program. +In +fiscal 2008, non-employee directors serving as chair to a board committee, except the Executive Committee, also received an annual fee at the rate of $10,000 for each committee chaired, and the chair of the Audit Committee received an annual fee at +the rate of $15,000. Prior to September 1, 2007, the annual +10 +fee for committee chairs was $5,000 for all board committees We also pay for or reimburse our non-employee directors for travel and other expenses incurred +in attending board meetings. Any fees that changed during the fiscal year were prorated, that is, paid at the lower rate for the period prior to September 1, 2007, and at the higher rate thereafter. +Philip H. Knight, as the chairman of our board of directors, is one of our executive officers, but is not a Named Executive Officer. Mr. Knight does +not receive any additional compensation for services provided as a director. +Director Participation in Deferred Compensation Plan +Under our Deferred Compensation Plan, non-employee directors may elect in advance to defer up to 100 percent of the director +fees paid by us, including retainer fees, committee fees and meeting fees. For a description of the plan, see “Non-Qualified Deferred Compensation in Fiscal 2008” below. In addition, in fiscal 2000, Dr. Conway and +Messrs. DeNunzio, Houser, and Thompson received credits to a fully vested NIKE stock account under the Deferred Compensation Plan in exchange for their waiver of rights to future payments under a former non-employee director retirement program. +The Class B shares credited to these directors’ accounts will be distributed to them upon their retirement from the Board, and the accounts are credited with quarterly dividends until distributed. +11 +Stock Holdings of Certain Owners and Management +The following table sets forth the number of shares of each class of NIKE securities beneficially owned, as of July 14, 2008, by (i) each +person known to the Company to be the beneficial owner of more than 5 percent of any class of the Company’s securities, (ii) each of the directors and nominees for director, (iii) each executive officer listed in the Summary +Compensation Table (“Named Officers”), and (iv) all nominees, Named Officers, and other executive officers as a group. Because Class A Stock is convertible into Class B Stock on a share-for-share basis, each beneficial owner of +Class A Stock is deemed by the Securities and Exchange Commission to be a beneficial owner of the same number of shares of Class B Stock. Therefore, in indicating a person’s beneficial ownership of shares of Class B Stock in the table, it +has been assumed that such person has converted into Class B Stock all shares of Class A Stock of which such person is a beneficial owner. For these reasons the table contains substantial duplications in the numbers of shares and percentages of +Class A and Class B Stock shown for Mr. Knight, for Cardinal Investment Sub I L.P., and for all directors and officers as a group. +Title of +Class +Shares +Beneficially +Owned (1) +Percent of +Class (2) +John G. Connors +Bellevue, Washington +Class B +32,460 +(3) +— +Jill K. Conway +Boston, Massachusetts +Class B +70,019 +(3) (4) +— +Timothy D. Cook +Cupertino, California +Class B +18,000 +(3) +— +Ralph D. DeNunzio +Riverside, Connecticut +Class B +213,359 +(3) (4) +— +Alan B. Graf, Jr +Memphis, Tennessee +Class B +50,000 +(3) +— +Douglas G. Houser +Portland, Oregon +Class B +174,800 +(3) (4) +— +Jeanne Jackson +Newport Coast, California +Class B +46,600 +(3) +— +Philip H. Knight +Beaverton, Oregon +Class A +Class B +91,910,094 +91,923,764 +(5) +(5) +95.5 +18.9 +% +% +Mark G. Parker (6) +Beaverton, Oregon +Class B +875,889 +(3) (7) +0.2 +% +Johnathan A. Rodgers +Silver Spring, Maryland +Class B +10,000 +(3) +— +Orin C. Smith +Seattle, Washington +Class B +34,000 +(3) +— +John R. Thompson, Jr +Washington, D.C. +Class B +39,268 +(3) (4) +— +12 +Title of +Class +Shares +Beneficially +Owned (1) +Percent of +Class (2) +Donald W. Blair (6) +West Linn, Oregon +Class B +382,374 +(3) (7) +— +Charles Denson (6) +Portland, Oregon +Class B +789,999 +(3) (7) (8) +0.2 +% +Trevor Edwards (6) +Portland, Oregon +Class B +395,220 +(3) (7) +0.1 +% +Gary M. DeStefano (6) +Beaverton, Oregon +Class B +173,429 +(3) (7) +— +Sojitz Corporation of America +Portland, Oregon +Preferred +(9) +300,000 +100 +% +Cardinal Investment Sub I, L.P +Fort Worth, Texas +Class A +Class B +2,000,000 +28,486,262 +(10) +(10) +2.1 +7.2 +% +% +FMR LLC +Boston, Massachusetts +Class B +24,207,637 +(11) +6.1 +% +All directors and executive officers as a group (23 persons) +Class A +Class B +91,910,094 +95,507,728 +(3) +95.5 +19.7 +% +% +(1) +A person is considered to beneficially own any shares: (a) over which the person exercises sole or shared voting or investment power, or (b) of which the person has the +right to acquire beneficial ownership at any time within 60 days (such as through conversion of securities or exercise of stock options). Unless otherwise indicated, voting and investment power relating to the above shares is exercised solely +by the beneficial owner or shared by the owner and the owner’s spouse or children. +(2) +Omitted if less than 0.1 percent. +(3) +These amounts include the right to acquire, pursuant to the exercise of stock options, within 60 days after July 14, 2008, the following numbers of shares: 26,000 shares +for Mr. Connors, 32,000 shares for Dr. Conway, 18,000 shares for Mr. Cook, 48,000 shares for Mr. DeNunzio, 42,000 shares for Mr. Graf, 10,000 shares for Mr. Houser, 44,000 shares for Ms. Jackson, 713,750 shares for +Mr. Parker, 10,000 shares for Mr. Rodgers, 34,000 shares for Mr. Smith, 24,000 shares for Mr. Thompson, 338,000 shares for Mr. Blair, 732,500 shares for Mr. Denson, 353,000 shares for Mr. Edwards, 134,500 shares +for Mr. DeStefano, and 2,766,200 shares for the executive officer and director group. +(4) +Includes shares credited to accounts under the NIKE, Inc. Deferred Compensation Plan in the following amounts: 9,253 for Dr. Conway, 8,559 for Mr. DeNunzio, 9,426 for +Mr. Houser, and 7,268 for Mr. Thompson. +(5) +Does not include: (a) 130,448 Class A shares owned by a corporation which is owned by Mr. Knight’s spouse, (b) 1,850,000 Class B shares held by the Knight +Foundation, a charitable foundation in which Mr. Knight and his spouse are directors, (c) 2,000,000 Class A shares and 950,000 Class B shares held by Oak Hill Strategic Partners, L.P., a limited partnership in which a company owned by +Mr. Knight is a limited partner, and (d) 25,536,262 Class B shares held by Cardinal Investment Sub I L.P., a limited partnership in which Mr. Knight is a limited partner. Mr. Knight has disclaimed ownership of all such shares. +(6) +Executive officer listed in the Summary Compensation Table. +(7) +Includes shares held in accounts under the NIKE, Inc. 401(k) and Profit Sharing Plan for Messrs. Parker, Blair, Denson, Edwards and DeStefano in the amounts of 6,301, 1,858, +8,134, 3,107, and 6,353 shares, respectively. +(8) +Includes 200 shares held by a partnership in which Mr. Denson’s spouse is a general partner. +13 +(9) +Preferred Stock does not have general voting rights except as provided by law, and under certain circumstances as provided in the Company’s Restated Articles of +Incorporation, as amended. +(10) +Includes 2,000,000 shares of Class A Common Stock and 950,000 shares of Class B Common Stock held by Oak Hill Strategic Partners, L.P., which is under common control with +Cardinal Investment Sub I, L.P. +(11) +Information provided as of December 31, 2007 in Schedule 13G filed by the shareholder. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors and executive officers, and persons who own more than +10 percent of a registered class of the Company’s equity securities, to file with the Securities and Exchange Commission (the “SEC”) and the New York Stock Exchange initial reports of ownership and reports of changes in ownership +of Common Stock and other equity securities of the Company. Officers, directors and greater than 10 percent shareholders are required by the regulations of the SEC to furnish the Company with copies of all Section 16(a) forms they file. To +the Company’s knowledge, based solely on review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ended May 31, 2008 all Section 16(a) filing +requirements applicable to its officers, directors and greater than 10 percent beneficial owners were complied with. +Transactions with Related +Persons +Mr. Knight makes his airplane available for business use by the Company for no charge. NIKE operates and maintains the +aircraft. Mr. Knight has reimbursed the Company $723,098 for NIKE’s operating costs related to his personal use of this aircraft during fiscal 2008, determined based on the cost of fuel and other variable costs associated with the flights +under FAR 91-501(d). +The Company engages the services of Howard Slusher, the father of John Slusher, Vice President of Sports Marketing, +to provide operational consulting services to the Company. Also, pursuant to the terms of a past consulting agreement with the Company, the Company agreed to pay for health insurance and for life insurance policies for Howard Slusher following +expiration of the agreement. During fiscal 2008 the Company paid Howard Slusher $157,992 for consulting services and health and life insurance premiums. In connection with that prior consulting agreement, in December 2000 he was also granted a stock +option to purchase 100,000 shares with an exercise price equal to the market price of $27.9065 per share at the time of grant, and during fiscal 2008 he paid the Company $2,790,650 to purchase the stock. +Three of Mr. Parker’s siblings are employed by the Company in non-executive roles. Bob Parker is a Strategic Account Manager, and has been +employed by the Company for over 24 years; Stephen Parker is the General Manager, China-Converse, and has been employed by the Company for over 20 years; and Ann Parker is a Senior Design Recruiter, and has been employed by the Company for over 19 +years. +14 +During fiscal year 2008, the Company paid aggregate compensation to Bob Parker, Stephen Parker and Ann Parker in the amounts of $280,058, $314,782, and +$195,578, respectively. The compensation was consistent with compensation paid to other employees holding similar positions, and was composed of salary, performance bonus, the grant date fair value of stock options granted during the fiscal year +estimated using the Black-Scholes pricing model, and profit sharing and matching contributions to Company-sponsored retirement plans. +Mr. Thompson’s son, John Thompson III, is the head basketball coach at Georgetown University, and the Company has a contract with him to provide endorsement and consulting services to the Company through August 2009. The Company +paid him $141,241 for services, product, and travel during fiscal year 2008 pursuant to the contract. The Company also donated $25,000 to a charitable foundation which provides education and healthcare services for underserved children and families, +and of which John Thompson III is the president and a board member. +Compensation Committee Interlocks and Insider Participation +The members of the Compensation Committee of the Board of Directors during the fiscal year ended May 31, 2008 were Ralph D. DeNunzio, Timothy D. +Cook, Jeanne P. Jackson and John R. Thompson, Jr. As described in the immediately preceding paragraph, the Company made payments to Mr. Thompson’s son in fiscal 2008 pursuant to an endorsement contract. Mr. Thompson resigned from the +Compensation Committee in May 2008. +15 +COMPENSATION DISCUSSION AND ANALYSIS +Operation of the Compensation Committee +The Compensation Committee of the Board of Directors (the +“Committee”) exercises sole authority with respect to the performance evaluation and compensation of the CEO. The Committee may not delegate this authority. Subject to the approval of our Board of Directors, the Committee also determines +the compensation of our other Named Executive Officers. The Committee also oversees the performance evaluation of those officers and the administration of our executive compensation programs. The Committee receives recommendations from the CEO as to +compensation of other Named Executive Officers, and the CEO participates in Committee discussions regarding the compensation of those officers. The Committee meets in executive session without the CEO to determine his compensation. The Committee is +comprised of Ralph D. DeNunzio (Chairman), Timothy D. Cook, and Jeanne P. Jackson, each of whom is an independent director under applicable New York Stock Exchange listing standards. The Committee operates pursuant to a written charter that is +available on our website at: www.nikebiz.com/investors . +Each year, the Committee reviews our executive total compensation programs +to ensure that they continue to reflect the Committee’s commitment to link executive compensation with the creation of value for our shareholders. The programs have been designed to deliver total compensation that motivates and rewards short +and long-term financial performance to maximize shareholder value, and to be externally competitive to attract and retain outstanding and diverse executive talent. The Committee has the sole authority under its charter to retain compensation +consultants engaged to assist the Committee in evaluating the compensation of executive officers, but the Committee has not retained any such consultants. In conducting the annual review, the Committee considers information provided by our human +resources staff. Our human resources staff retains Hewitt Associates and Towers Perrin, both independent compensation consulting firms, to provide surveys and reports containing competitive market data. The staff uses this information to make +recommendations to the Committee concerning executive compensation. These consultants do not, however, formulate executive compensation strategies for NIKE or recommend individual executive compensation. The Committee reviews summaries prepared by +our human resources staff and uses this data as well as reliance on the Committee’s collective experience and judgment to set executive compensation. +Use of Market Survey Data +To help establish competitive ranges of base salary and incentive +compensation opportunities for purposes of making recommendations to the Committee, our human resources staff uses competitive market data from surveys and reports prepared by Hewitt Associates and Towers Perrin. We use two benchmarks. One is a +broad group of companies across many industries with revenues of $10 billion or +16 +more. The second benchmark we use is a peer group comprised of 24 consumer product companies that were selected based on factors such as having products or +markets similar to ours, market capitalization or size similar to ours, or a common labor market for executive talent. +For purposes of +setting executive compensation for fiscal 2008, the companies in this peer group were as follows: Abbott Laboratories, Apple Inc., The Clorox Company, The Coca Cola Company, Colgate-Palmolive Company, Columbia Sportswear Company, Federated +Department Stores Inc., FedEx Corp., Gap Inc., General Mills Inc., Hewlett Packard Company, Intel Corp., International Business Machines Corporation, Kellogg Co., Limited Brands Inc., McDonald’s Corporation., Microsoft Corp., Pepsico, Inc., +Polo Ralph Lauren Corporation, The Procter & Gamble Company, Starbucks Corp., Texas Instruments Incorporated, The Walt Disney Company, and Williams-Sonoma, Inc. +The surveys that our human resources staff review for each of the two benchmarks show percentile +compensation levels for various executive positions. The Committee does not endeavor to set executive compensation at or near any particular percentile, and considers total compensation to be competitive if it is within the band of the +25 th to 75 th percentiles. Market data is only +one of many factors that the Committee considers in the determination of executive compensation levels. Other factors include internal pay equity, level of responsibility, the individual’s performance, expectations regarding the +individual’s future contributions, our own performance, budget considerations, and succession planning retention strategies. +Objectives and +Elements of Our Compensation Program +Our executive overall compensation strategy is accomplished through a total compensation program +that is aligned with our business strategy and culture to attract and retain top talent, reward business results and individual performance, and, most importantly, maximize shareholder returns. Our total compensation program for the Named Executive +Officers consists of the following elements: +• +Base salary that reflects the executive’s accountabilities, skills, experience, performance, and future potential +• +Annual performance-based incentive bonus based on company financial results under our Executive Performance Sharing Plan +• +A portfolio approach to long-term incentive compensation to provide a balanced mix of equity and performance-based cash incentives +• +Performance-based awards payable in cash under the Long-Term Incentive Plan to encourage attainment of long-term financial objectives +• +Time vested stock options to align the interests of executives with those of shareholders +• +Time vested restricted stock awards to provide incentives consistent with shareholder returns, and to supply a strong retention incentive +17 +• +Benefits +• +Profit sharing under defined contribution retirement plans +• +Post-termination payments under non-competition and/or employment agreements +In determining the award levels for each of the elements in our total compensation program, our philosophy is to “pay for performance,” so we +place relatively greater emphasis on the incentive components of compensation (Executive Performance Sharing Plan, Long-Term Incentive Plan, and Stock Options) to align the interests of our executives with shareholders, and motivate them to maximize +shareholder returns. This is balanced with retention incentives provided by base salary and restricted stock awards. We look to the experience and judgment of the Committee to determine what it believes to be the appropriate mix of compensation +elements for each executive, rather than applying fixed ratios or formulae, or relying solely on market data or quantitative measures. In allocating compensation among the various elements, the Committee considers market data, Company performance +and budget, the impact of the executive’s position in the Company, individual past performance, expectations for future performance, experience in the position, any anticipated increase in the individual’s responsibilities, internal pay +equity for comparable positions, and succession planning retention strategies. +Annual Cash Compensation +Base Salary +When making +recommendations to the Committee concerning base salary levels for our Named Executive Officers, our human resources staff considers the market data described above to recommend base salaries generally between the 25th and 75th percentiles of the +salaries for comparable positions reflected in the surveys and reports. Other factors considered in setting annual salary levels include the individual’s performance in the prior year, expectations regarding the individual’s future +performance, experience in the position, any anticipated increase in the individual’s responsibilities, internal pay equity for comparable positions, and succession planning strategies. The Committee reviews these factors each year and adjusts +base salary to make sure that we are appropriately rewarding performance. In setting a Named Executive Officer’s overall compensation package for the year, however, the Committee attempts to place a relatively greater emphasis on the incentive +components of that compensation, than on base salary. +The Committee generally reviews and adjusts base salaries annually based on a review +of individual performance at a meeting in June, with salary adjustments becoming effective for the first pay period ending in August. During the fiscal 2008 salary review in June 2007, the Committee decided to increase Mr. Parker’s base +salary from $1,250,000 to $1,400,000, because of his strong performance, increasing experience in the position, and to more closely align his salary with comparable salaries for CEO positions +18 +at our peer group of companies. The Committee decided to increase Mr. Denson’s base salary from $1,150,000 to $1,200,000, Mr. Blair’s +base salary from $685,000 to $750,000, and Mr. DeStefano’s base salary from $925,000 to $965,000. The increases for Mr. Denson and Mr. DeStefano were generally in line with average company-wide merit increases for fiscal 2008, +while Mr. Blair’s salary was further increased to more closely align his base salary with what the Committee believed to be comparable salaries for CFO positions at our peer group of companies. Mr. Edwards’ base salary was +increased from $725,000 to $775,000 per year in connection with his increasing responsibilities in managing our key product categories. +Performance-Based Annual Incentive Bonus +Annual bonuses are paid to the Named Executive Officers under our +Executive Performance Sharing Plan (“PSP”). Our “pay for performance” philosophy for bonuses is simple: if we exceed our financial objectives, we will pay more; if we fail to reach them, we will pay less or nothing at all. The +PSP for all executives is based 100% on overall corporate performance each year as measured by income before income taxes excluding the effect of any acquisitions, divestitures or accounting changes (“PTI”). Basing our bonus program for +all executives on overall corporate performance is intended to foster teamwork and send the message to each executive that his or her role is to help ensure overall organizational success and maximize shareholder returns. +Each year the Committee establishes a target bonus for each Named Executive Officer under the PSP expressed as a percentage of base salary paid during +the year. The threshold bonus under the PSP is 50% of the target bonus and the maximum bonus is 150% of target. For fiscal 2008, the Committee approved target bonuses as a percentage of salary paid during the year of 125% for Mr. Parker, 110% +for Mr. Denson, 80% for Mr. DeStefano, and 70% for Mr. Blair and Mr. Edwards. These were the same target bonus percentages approved for the Named Executive Officers for fiscal 2007, except that the target bonus for +Mr. Parker was increased from 110%, and the target bonus for Mr. Denson was increased from 100% because the Committee assessed the market compensation for similar positions in our peer group of companies and made a judgment that relatively +more of their total compensation should be incentive based. The Committee sets these target bonus levels each year based on its judgment of the impact of the position in the Company and what it finds to be competitive with our peer group of +companies and our competitors, while maintaining internal pay equity for comparable positions. +The Committee approved PSP performance +goals for fiscal 2008 of $2,412 million of PTI for the target bonus payout, $2,200 million of PTI for a 50% threshold bonus payout, and $2,624 million of PTI for a 150% maximum bonus payout. The Committee determined that the fiscal +2008 PTI target should represent a 9.6% increase over fiscal 2007 PTI of $2,200 million. The percentage increase in PTI over prior year results required to achieve the target bonus payout each year is not a uniform percentage, but is established by +the Committee based on its evaluation of our business plan and prospects for the year. The +19 +threshold and maximum PTI levels are also determined by the Committee based on similar factors. The Committee set the threshold PTI target level at 8.8% +below the target PTI, and set the maximum PTI target level at 8.8% above the target PTI. +The PSP payout for all executives as a percentage +of target bonus for fiscal 2008 was 112% based on our achievement of adjusted PTI of $2,465 million in fiscal 2008, which was 102% of the target payout level. To arrive at adjusted PTI, our actual income before income taxes of $2,503 reported for +fiscal 2008 was adjusted to eliminate the effects of the acquisition of Umbro plc, and the divestitures of NIKE Bauer Hockey and the Starter brand of Exeter Brands Group, all of which occurred in fiscal 2008. +Long-Term Compensation +Performance-Based +Long-Term Incentive Plan +The first component in our long-term portfolio mix is performance-based awards payable in cash under our +Long-Term Incentive Plan (“LTIP”). As with the annual bonus, the LTIP follows our “pay for performance’ philosophy. If we exceed our targets, we will pay more; if we fall short, we will pay less or nothing at all. This program +causes our executives to focus on overall, long-term financial performance, and is intended to reward them for improving shareholder returns. At the beginning of each fiscal year, the Committee establishes performance goals and potential cash +payouts for the next three fiscal years for all executives under the LTIP. LTIP measures for all executives are based 50% on cumulative revenues for the three-year performance period and 50% on cumulative diluted earnings per share (“EPS”) +for the period, in each case excluding the effect of acquisitions, divestitures and accounting changes. +In June 2007, the Committee +approved LTIP awards to all Named Executive Officers for the fiscal 2008-2010 performance period. Target award levels were approved for each Named Executive Officer, with the threshold award equal to 50% of the target award and the maximum award +equal to 200% of the target award. The target awards were $1,500,000 for Mr. Parker, $1,000,000 for Mr. Denson and $300,000 for Mr. Blair, Mr. DeStefano and Mr. Edwards. The target awards for Mr. Parker and +Mr. Denson were increased from $600,000 and $500,000, respectively, in the prior year, reflecting the Committee’s desire to have a higher portion of their compensation dependent on achievement of these long-term growth measures. Target +award levels for the other Named Executive Officers remained at the same levels approved each year since 2003. The Committee sets these target LTIP levels each year based on its judgment of what it believes to be a desirable mix of long-term +compensation, the impact of the position in the Company, and of what it finds to be competitive with our peer group of companies and our competitors, while maintaining internal pay equity for comparable positions. +For the fiscal 2008-2010 performance period, the cumulative revenue necessary to achieve the target award payout corresponds to a compounded annual +growth rate (“CAGR”) in revenues from fiscal 2007 results of 8%. The 50% threshold payout requires cumulative revenues corresponding to a 5.3% CAGR, +20 +and the 200% maximum payout requires cumulative revenues corresponding to a 11.5% CAGR. The Committee set the CAGR for the target award payout level (the +calculation of which excludes the effect of any acquisitions during the performance period) to correspond to our long-term financial goal of high single digit revenue growth including the effect of acquisitions. For EPS over the fiscal 2008-2010 +performance period, the target payout requires cumulative EPS corresponding to a 13% CAGR from fiscal 2007 results. The 50% threshold payout requires cumulative EPS corresponding to an 8.5% CAGR, and the 200% maximum payout requires cumulative EPS +corresponding to a 20.1% CAGR. The Committee set the CAGR for the target award payout level (the calculation of which excludes the effect of any acquisitions during the performance period) to correspond to our long-term financial goal of mid-teens +EPS growth including the effect of acquisitions. The total payout percentage will be the average of the payout percentages determined for cumulative revenues and cumulative EPS, respectively. +Our executive officers were eligible to receive similar LTIP awards set in June 2005 covering the fiscal 2006-2008 performance period. Based on our +performance over the last three fiscal years, the maximum 150% payout percentage under these awards was earned. Cumulative revenues for the period were $49,954 million after adjustment to eliminate the effects of the acquisition of Umbro plc, and +the divestitures of NIKE Bauer Hockey and the Starter brand of Exeter Brands Group, all of which occurred in fiscal 2008, or 108% of the target payout level for revenue and a 10.8% CAGR, which corresponded to a 150% payout level for revenues. +Cumulative EPS for the period, after adjustment to eliminate the effects of the acquisition of Umbro Ltd., and the divestitures of NIKE Bauer Hockey and the Starter brand of Exeter Brands Group, as well as FAS 123R expense from fiscal 2007 and 2008, +was $18.96, or 112% of the target payout level for EPS and an 18.5% CAGR, which corresponded to a 150% payout level for EPS. The total payout percentage was the average of the payout percentages determined for cumulative revenues and cumulative EPS, +respectively. +Performance-Based Stock Options +The second component in our long-term portfolio mix is stock options. Stock options are designed to align the interests of the Company’s executives with those of shareholders by encouraging executives to enhance +the value of the Company and, hence, the price of the Class B Stock. This is true “pay for performance”: executives are rewarded only if the market price of our stock rises, and they get nothing if the price does not rise. Our stock option +program is generally based on granting options for a consistent number of shares each year for each position. When determining the grants, the Committee focuses on the number of shares, not the value for accounting purposes. Our approach is based on +our desire to carefully control annual share usage and avoid fluctuations in grant levels due to share price changes. The Committee awards stock options to each executive based on its judgment of a desirable mix of long-term incentive compensation, +and what it believes to be competitive with our peer group of companies and our competitors, while maintaining internal pay equity for comparable positions. Our human resources staff periodically tests the reasonableness of our stock option grants +against peer group market data. +21 +Options are generally granted annually to all eligible employees, including the Named Executive Officers, +in July of each year. Stock options for fiscal 2008 were granted by the Committee on July 20, 2007 with an exercise price equal to the closing market price of our stock on that date. +Options were granted in July 2007 to Mr. Parker for 135,000 shares and to Mr. Denson for 110,000 shares. Mr. Parker and Mr. Denson +did not receive stock options in the July 2006 annual option grant, because they had each received two option grants in the prior fiscal year as a result of their promotions to Chief Executive Officer and sole President of the NIKE Brand, +respectively. The Committee believed that Mr. Parker and Mr. Denson should resume receiving stock options to continue to provide incentives to align their interests with those of shareholders, and in the Committee’s judgment it +determined that the number of shares were appropriate based on the Committee’s determination of a desirable mix of long-term compensation, Mr. Parker and Mr. Denson’s growing experience in their positions, the number of shares +granted in the past, and a review of grants to comparable executives in our peer group of companies. Options were granted in July 2007 to Messrs. Blair, DeStefano, and Edwards for 50,000 shares each. These numbers of option shares granted to these +executives appear lower than the number of shares granted in the prior year, because the prior year’s option shares were adjusted as a result of the April 2, 2007 two-for-one stock split (the number of shares doubled and the exercise price +halved). However, the Committee does not adjust the number of shares for new grants of stock options following a stock split. Accordingly, the number of option shares granted to Mr. DeStefano remained the same as the number granted in July +2006. The number of option shares granted to Mr. Edwards increased from 33,000 in July 2006 to 50,000 in July 2007 based on the Committee’s recognition of his increasing responsibilities in managing our key product categories, and the +number of option shares granted to Mr. Blair also increased from 33,000 in July 2006 to 50,000 in July 2007 based on the Committee’s determination that the grant should be increased due to what it believed to be higher equity incentive +compensation for his position in our peer group of companies. +Options we grant generally promote executive retention because they carry +four-year vesting periods and are forfeited if the employee leaves before vesting occurs. Under certain conditions optionees may receive accelerated vesting of all of their options upon retirement as described below under the heading “Potential +Payments Upon Termination or Change-in-Control.” Based on their ages and years of service, Mr. Parker, Mr. Denson, Mr. DeStefano and Mr. Edwards could terminate employment at any time and receive full vesting of their +options, and Mr. Blair could terminate employment and be vested in 60% of his unvested options. This provision for accelerated vesting has been a standard feature of our stock option grants to all employees since 2002. +Restricted Stock Awards +The +third component in our long-term portfolio mix is restricted stock awards. Stock ownership and stock-based incentive awards align the interests of our Named Executive Officers with the interests of our shareholders, as the value of this incentive +rises and falls with the stock price, consistent with shareholder +22 +returns. Historically, the Committee has generally awarded restricted stock to Named Executive Officers once every three years. However, the Committee has +decided to grant restricted stock annually to Mr. Parker and Mr. Denson to provide a relatively greater alignment between their compensation and shareholder returns, and to enhance retention incentives. In addition, the Committee may also +award restricted stock in connection with promotions or other special circumstances. Restricted stock awards are generally made in July at the same meeting at which stock options are granted. Awards generally vest in three equal installments on each +of the first three anniversaries of the grant date. The awards promote executive retention as unvested shares held at the time the executive’s employment is terminated are forfeited. Award recipients receive dividends on the full number of +restricted shares awarded, both vested and unvested. +Mr. Parker and Mr. Denson were the only Named Executive Officers that +received restricted stock awards in fiscal 2008. In July 2007, Mr. Parker received an award covering 25,633 shares of our Class B Stock valued at $1,500,000 based on the closing price of our Class B Stock on the grant date and Mr. Denson +received an award covering 17,089 shares of our Class B Stock valued at $1,000,000. Mr. Blair, Mr. DeStefano and Mr. Edwards did not receive restricted stock awards in fiscal 2008, because they received awards in fiscal 2007. The +Committee set the restricted stock award levels for Mr. Parker and Mr. Denson based on succession planning retention strategies, what the Committee believed to be a desirable mix of long-term compensation, and the Committee’s judgment +of what it found to be competitive with our peer group of companies and our competitors. Our human resources staff periodically tests the reasonableness of our restricted stock awards against peer group market data. +Profit Sharing and Retirement Plans +The NIKE 401(k) +Savings and Profit Sharing Plan is our tax qualified retirement savings plan pursuant to which our employees, including the Named Executive Officers, are able to make pre-tax contributions from their cash compensation. We make matching contributions +for all participants each year equal to 100% of their elective deferrals up to 5% of their total eligible compensation, which is initially invested in Class B Stock. We also make annual profit sharing contributions to the accounts of our employees +under the 401(k) Savings and Profit Sharing Plan. The contributions are allocated among eligible employees based on a percentage of their total salary and bonus for the year. The total profit sharing contribution and the percentage of salary and +bonus contributed for each employee is determined each year by the Board of Directors. For fiscal 2008, the Board of Directors approved a profit sharing contribution for each employee equal to 4.85% of the employee’s total eligible salary and +bonus. +The Internal Revenue Code limits the amount of compensation that can be deferred under the 401(k) Savings and Profit Sharing Plan, +and also limits the amount of salary and bonus ($225,000 for fiscal 2008) with respect to which matching contributions and profit sharing contributions can be made under that plan. Accordingly, we provide our executive officers and other highly +compensated employees with the +23 +opportunity to defer their compensation, including amounts in excess of the tax law limit, under our nonqualified Deferred Compensation Plan. We also make +profit sharing contributions under the Deferred Compensation Plan with respect to salary and bonus of any employee that exceeds the tax law limit, and for fiscal 2008 these contributions were equal to 4.85% of the total salary and bonus of each +Named Executive Officer in excess of $225,000. These contributions under the Deferred Compensation Plan allow our Named Executive Officers and other highly compensated employees to receive profit sharing retirement contributions in the same +percentage as our other employees. We do not match executive deferrals to the Deferred Compensation Plan. Executive officer balances in the Deferred Compensation Plan are unsecured and at-risk, meaning the balances may be forfeited in the event of +the Company’s financial distress such as bankruptcy. Our matching and profit sharing contributions for fiscal 2008 to the accounts of the Named Executive Officers under the qualified and nonqualified plans are included under the heading +“All Other Compensation” in the Summary Compensation Table below. +Post-termination Payments Under Non-competition and/or Employment +Agreements +In exchange for non-competition agreements from all of our Named Executive Officers, we have agreed to provide during the +non-competition period the monthly payments more specifically described in “Potential Payments upon Termination or Change-in-Control” below. We believe that it is appropriate to compensate individuals to refrain from working with +competitors following termination, and that compensation enhances the enforceability of such agreements. +Change in Control Provisions +Under the terms of stock option and restricted stock awards, any unvested awards would vest upon certain transactions that would result in a change in +control, such as shareholder approval of a liquidation, a sale, lease, exchange or transfer of substantially all of the assets of the Company, or a consolidation, merger, plan of exchange, or transaction in which the Company is not the surviving +corporation. These transactions are described below under the heading “Potential Payments Upon Termination or Change-in-Control.” This vesting feature, re-approved by shareholders in 2005, is in place because we believe +that utilizing a single event to vest awards provides a simple and certain approach for treatment of equity awards in a transaction that will likely result in the elimination or de-listing of our stock. This provision recognizes that +such transactions have the potential to cause a significant disruption or change in employment relationships and thus treats all employees the same regardless of their employment status after the transaction. In addition it provides our +employee option holders with the same opportunities as our other shareholders who are free to realize the value created at the time of the transaction by selling their equity. +24 +Tax Deductibility of Executive Compensation +Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public companies for annual compensation over $1 million paid to +their chief executive officer and the next three most highly compensated executive officers. The Internal Revenue Code generally excludes from the calculation of the $1 million cap compensation that is based on the attainment of pre-established, +objective performance goals established under a shareholder-approved plan. Annual bonuses under our Executive Performance Sharing Plan, long-term incentive awards under our Long-Term Incentive Plan, and stock options under our 1990 Stock Incentive +Plan are all structured in a manner intended to qualify any compensation paid thereunder as “performance-based compensation” excluded from the calculation of the $1 million annual cap. However, base salary and compensation on vesting of +restricted stock awards are subject to the $1 million deductibility cap. Accordingly, in fiscal 2008 a portion of the compensation paid to Mr. Parker, Mr. DeStefano, and Mr. Edwards was not deductible. +COMPENSATION COMMITTEE REPORT +The +Compensation Committee of the Board of Directors (the “Committee”) has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K. Based on the review and discussions, the +Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement. +Members of the Compensation Committee: +Ralph D. DeNunzio, Chairman +Timothy D. Cook +Jeanne P. Jackson +25 +EXECUTIVE COMPENSATION +Summary Compensation Table +The following table sets forth compensation paid to +or earned by our Chief Executive Officer, our Chief Financial Officer and our next three most highly compensated executive officers who were serving as executive officers on May 31, 2008, for fiscal 2008. These individuals are referred to +throughout this proxy statement as the “Named Executive Officers.” +Name and Principal Position +Year +Salary +($) +Stock +Awards (1) +($) +Option +Awards (2) +($) +Non-Equity +Incentive Plan +Compensation (3) +($) +Change in +Pension Value +and +Nonqualified +Deferred +Compensation +Earnings (4) +($) +All Other +Compensation (5) +($) +Total +($) +Mark G. Parker +2008 +$ +1,376,923 +$ +1,187,942 +$ +3,364,351 +$ +2,682,684 +— +$ +188,687 +$ +8,800,587 +Chief Executive Officer and President +2007 +1,250,000 +815,720 +1,839,987 +2,147,537 +$ +2,567 +172,157 +6,227,968 +Donald W. Blair +2008 +740,000 +333,338 +1,140,834 +1,031,662 +— +101,162 +3,346,996 +Vice President and Chief Financial Officer +2007 +680,385 +311,115 +778,415 +913,029 +— +83,465 +2,766,409 +Charles D. Denson +2008 +1,192,308 +882,389 +2,895,637 +2,222,727 +— +140,312 +7,333,373 +President of the NIKE Brand +2007 +1,150,000 +649,040 +1,718,331 +1,868,030 +— +133,907 +5,519,308 +Gary M. DeStefano +2008 +958,846 +333,338 +1,277,008 +1,311,351 +— +117,865 +3,998,408 +President, Global Operations +2007 +916,346 +311,115 +1,680,174 +1,162,697 +— +111,336 +4,181,668 +Trevor A. Edwards +Vice President, Global Brand and Category Management +2008 +767,308 +333,338 +1,233,324 +1,053,127 +— +90,928 +3,478,025 +(1) +Represents the amount of compensation expense recognized under FAS 123R with respect to restricted stock awards granted +in fiscal 2008 and prior years, disregarding estimated forfeitures. Compensation expense is equal to the value of the restricted shares based on the closing market price of our Class B Common Stock on the grant date, and is recognized ratably over +the vesting period, which is generally three years . +(2) +Represents the amount of compensation expense recognized under FAS 123R with respect to options granted in fiscal 2008 +and prior fiscal years, disregarding estimated forfeitures. Compensation expense is equal to the grant date fair value of the options estimated using the Black-Scholes option pricing model, and is generally recognized ratably over the four-year +vesting period. However, for employees whose age plus years of service exceeds 60 (including Mr. Parker, Mr. Denson, Mr. DeStefano, and, during fiscal 2008, Mr. Edwards), and who therefore are eligible to have all options become +fully exercisable on any termination of employment, all of the compensation expense for options granted after our adoption of FAS 123R on June 1, 2006 is recognized at the time the option is granted. The assumptions made in determining the +grant date fair values of options under FAS 123R are disclosed in Note 10 of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended May 31, 2008. +26 +(3) +Non-Equity Incentive Plan Compensation consists of the following: +Name +Fiscal +Year +Annual Incentive +Compensation +($) +Long-Term Incentive +Compensation +($) +Total +($) +Mark G. Parker +2008 +$ +1,932,684 +$ +750,000 +$ +2,682,684 +2007 +1,397,537 +750,000 +2,147,537 +Donald W. Blair +2008 +581,662 +450,000 +1,031,662 +2007 +463,029 +450,000 +913,029 +Charles D. Denson +2008 +1,472,727 +750,000 +2,222,727 +2007 +1,118,030 +750,000 +1,868,030 +Gary M. DeStefano +2008 +861,351 +450,000 +1,311,351 +2007 +712,697 +450,000 +1,162,697 +Trevor A. Edwards +2008 +603,127 +450,000 +1,053,127 +Amounts shown in the Annual Incentive Compensation column were earned for performance in the applicable fiscal year under our Executive Performance Sharing Plan. Amounts shown in +the Long-Term Incentive Compensation column were earned for performance during the three fiscal-year period ending with the applicable fiscal year under our Long-Term Incentive Plan. +(4) +Represents above-market earnings credited to the Executive Deferred Compensation Plan account of Mr. Parker during +fiscal 2007. +(5) +Includes profit-sharing contributions by us to the 401(k) Savings and Profit Sharing Plan for fiscal 2008 in the amount of $10,903 for each of +Messrs. Parker, Blair, DeStefano, and Edwards, and $8,121 for Mr. Denson. Includes matching contributions by us to the 401(k) Savings and Profit Sharing Plan for fiscal 2008 in the amount of $11,250 for each of +Messrs. Parker, Blair, DeStefano, and Edwards. Also includes profit-sharing contributions by us to the Deferred Compensation Plan for fiscal 2008 in the following amounts: $123,538 for Mr. Parker; $47,392 for Mr. Blair; +$103,830 for Mr. Denson; $70,095 for Mr. DeStefano; and $52,242 for Mr. Edwards. Includes dividends on restricted stock in the following amounts: $37,996 for Mr. Parker, $15,617 for Mr. Blair, $26,829 for Mr. Denson, +$15,617 for Mr. DeStefano, and $15,617 for Mr. Edwards. The amount for Mr. Blair includes reimbursements for financial advisory services in the amount of $10,000. +27 +Grants of Plan-Based Awards in Fiscal 2008 +The following table contains information concerning the long-term incentive bonus opportunities, annual incentive bonus opportunities, restricted stock +awards and stock options granted to the Named Executive Officers in fiscal 2008. +Name +Grant +Date +Estimated Possible Payouts Under Non-Equity +Incentive Plan Awards +All Other +Stock +Awards: +Number of +Shares of +Stock (3) +All Other +Option +Awards: +Number of +Shares +Underlying +Options (4) +Exercise or +Base Price +of Option +Awards +Grant Date +Fair Value +of Stock +and Option +Awards (5) +Threshold +Target +Maximum +($) +($) +($) +(#) +(#) +($/Sh) +($) +Mark G. Parker +6/21/07 +$ +860,577 +(1) +$ +1,721,154 +(1) +$ +2,581,731 +(1) +6/21/07 +$ +750,000 +(2) +$ +1,500,000 +(2) +$ +3,000,000 +(2) +7/20/07 +25,633 +$ +1,500,000 +7/20/07 +135,000 +$ +58.52 +$ +1,872,450 +Donald W. Blair +6/21/07 +$ +259,000 +(1) +$ +518,000 +(1) +$ +777,000 +(1) +6/21/07 +$ +150,000 +(2) +$ +300,000 +(2) +$ +600,000 +(2) +7/20/07 +50,000 +$ +58.52 +$ +693,500 +Charles D. Denson +6/21/07 +$ +655,769 +(1) +$ +1,311,539 +(1) +$ +1,967,308 +(1) +6/21/07 +$ +500,000 +(2) +$ +1,000,000 +(2) +$ +2,000,000 +(2) +7/20/07 +17,089 +$ +1,000,000 +7/20/07 +110,000 +$ +58.52 +$ +1,525,700 +Gary M. DeStefano +6/21/07 +$ +383,538 +(1) +$ +767,077 +(1) +$ +1,150,615 +(1) +6/21/07 +$ +150,000 +(2) +$ +300,000 +(2) +$ +600,000 +(2) +7/20/07 +50,000 +$ +58.52 +$ +693,500 +Trevor A. Edwards +6/21/07 +$ +268,558 +(1) +$ +537,116 +(1) +$ +805,673 +(1) +6/21/07 +$ +150,000 +(2) +$ +300,000 +(2) +$ +600,000 +(2) +7/20/07 +50,000 +$ +58.52 +$ +693,500 +(1) +These amounts represent the potential bonuses payable for performance during fiscal 2008 under our Executive Performance Sharing Plan. Under this plan, the Compensation Committee +approved target awards for fiscal 2008 based on a percentage of the executive’s base salary paid during fiscal 2008 as follows: Mr. Parker, 125%; Mr. Blair, 70%; Mr. Denson, 110%; Mr. DeStefano, 80%; and Mr. Edwards, +70%. The Committee also established a series of performance targets based on our income before income taxes (“PTI”) for fiscal 2008 (excluding the effect of acquisitions, divestitures and accounting changes) corresponding to award payouts +ranging from 50% to 150% of the target awards. The PTI for fiscal 2008 required to earn the target award payout was $2,412 million. The PTI for fiscal 2008 required to earn the 150% maximum payout was $2,624 million. The PTI for fiscal +2008 required to earn the 50% threshold payout was $2,200 million. Participants receive a payout at the percentage level at which the performance target is met, subject to the Committee’s discretion to reduce or eliminate any award based +on Company or individual performance. Actual award payouts earned in fiscal 2008 and paid in fiscal 2009 are shown in footnote 3 to the “Non-Equity Incentive Plan Compensation” column in the Summary Compensation Table. +(2) +These amounts represent the potential long-term incentive awards payable for performance during the three-year period consisting of fiscal 2008-2010 under our +Long-Term Incentive Plan. Under this plan, the Compensation Committee approved target awards for the performance period and also established a series of performance targets based on our cumulative revenues and cumulative diluted earnings per common +share (“EPS”) for the performance period (excluding the effect of acquisitions, +28 +divestitures and accounting changes not reflected in our business plan at the time of approval of the target awards) corresponding to award payouts ranging +from 50% to 200% of the target awards. Participants will receive a payout at the average of the percentage levels at which the two performance targets are met, subject to the Committee’s discretion to reduce or eliminate any award based on +Company or individual performance. For cumulative revenues over the performance period, the target payout requires revenues of $57,240 million, the 50% threshold payout requires revenues of $52,999 million, and the 200% maximum payout +requires revenues of $62,964 million. For cumulative EPS over the performance period, the target payout requires EPS of $11.28, the 50% threshold payout requires EPS of $9.98, and the 200% maximum payout requires EPS of $13.54. Under the terms +of the awards, on the first payroll period ending in August 2010 we will issue the award payout to each participant, provided that the participant is employed by us on the last day of the performance period. +(3) +All amounts reported in this column represent grants of restricted stock under our 1990 Stock Incentive Plan. Restricted stock generally vests in three equal installments on the +first three anniversaries of the grant date. Vesting will be accelerated in certain circumstances as described below under “Potential Payments Upon Termination or Change in Control.” Dividends are payable on restricted stock at the same +rate paid on all other outstanding shares of our Class B Common Stock. +(4) +All amounts reported in this column represent options granted under our 1990 Stock Incentive Plan. Options generally become exercisable for option shares in four equal installments +on the first four anniversaries of the grant date. Options will become fully exercisable in certain circumstances, including any termination of employment for Mr. Parker, Mr. Denson, Mr. DeStefano and Mr. Edwards, as described +below under “Potential Payments Upon Termination or Change in Control.” Each option has a maximum term of 10 years, subject to earlier termination in the event of the optionee’s termination of employment. +(5) +For restricted stock awards, represents the value of restricted shares granted based on the closing market price of our Class B Common Stock on the grant date. For option awards, +represents the grant date fair value of options granted based on a value of $13.87 per share calculated using the Black-Scholes option pricing model. These are the same values for these equity awards used under FAS 123R. The assumptions made in +determining option values are disclosed in Note 10 of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended May 31, 2008. +29 +Outstanding Equity Awards at May 31, 2008 +The following table sets forth information concerning outstanding stock options and unvested restricted stock held by the Named Executive Officers at +May 31, 2008. +Option Awards +Stock Awards +Name +Number of +Securities +Underlying +Unexercised +Options +(#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options +(#) +Unexercisable (1) +Option +Exercise +Price ($) +Option +Expiration +Date +Number of +Shares That +Have Not +Vested (#) +Market +Value of +Shares That +Have Not +Vested ($) +Mark G. Parker +30,000 +140,000 +140,000 +105,000 +70,000 +125,000 +— +— +— +— +35,000 +70,000 +125,000 +135,000 +(2) +(3) +(4) +(5) +$ +21.1800 +24.4900 +26.1200 +36.6050 +43.7950 +42.1350 +58.5200 +07/12/11 +07/22/12 +07/18/13 +07/16/14 +07/15/15 +02/16/16 +07/20/17 +43,544 +(7) +$ +2,977,103 +Donald W. Blair +45,000 +66,000 +66,000 +49,500 +33,000 +16,500 +— +— +— +— +16,500 +33,000 +49,500 +50,000 +(2) +(3) +(6) +(5) +21.1800 +24.4900 +26.1200 +36.6050 +43.7950 +39.3800 +58.5200 +07/12/11 +07/22/12 +07/18/13 +07/16/14 +07/15/15 +07/14/16 +07/20/17 +16,929 +(8) +1,157,436 +Charles D. Denson +80,000 +140,000 +140,000 +105,000 +70,000 +100,000 +— +— +— +— +35,000 +70,000 +100,000 +110,000 +(2) +(3) +(4) +(5) +21.1800 +24.4900 +26.1200 +36.6050 +43.7950 +42.1350 +58.5200 +07/12/11 +07/22/12 +07/18/13 +07/16/14 +07/15/15 +02/16/16 +07/20/17 +31,045 +(9) +2,122,547 +Gary M. DeStefano +— +50,000 +— +— +22,000 +50,000 +75,000 +50,000 +(2) +(3) +(6) +(5) +36.6050 +43.7950 +39.3800 +58.5200 +07/16/14 +07/15/15 +07/14/16 +07/20/17 +16,929 +(8) +1,157,436 +Trevor A. Edwards +16,000 +20,000 +40,000 +50,000 +66,000 +49,500 +33,000 +16,500 +— +— +— +— +— +— +16,500 +33,000 +49,500 +50,000 +(2) +(3) +(6) +(5) +27.1250 +13.8438 +21.1800 +24.4900 +26.1200 +36.6050 +43.7950 +39.3800 +58.5200 +07/23/09 +03/08/10 +07/12/11 +07/22/12 +07/18/13 +07/16/14 +07/15/15 +07/14/16 +07/20/17 +16,929 +(8) +1,157,436 +30 +(1) +Stock options generally become exercisable for option shares in four equal installments on each of the first four anniversaries of the grant date. +(2) +100% of these shares vested on July 16, 2008. +(3) +50% of these shares vested on July 15, 2008, and 50% will vest on July 15, 2009. +(4) +50% of these shares will vested on February 16, 2009, and 50% will vest on February 16, 2010. +(5) +25% of these shares vested on July 20, 2008, 25% will vest on July 20, 2009, 25% will vest on July 20, 2010 and 25% will vest on July 20, 2011. +(6) +33.3% of these shares vested on July 14, 2008, 33.3% will vest on July 14, 2009 and 33.3% will vest on July 14, 2010. +(7) +10,000 of these shares vested on July 15, 2008. 7,911 of these shares will vest on February 16, 2009. 8,544 of these shares vested on July 20, 2008, 8,544 will vest +on July 20, 2009 and 8,545 will vest on July 20, 2010. +(8) +8,465 of these shares vested on July 14, 2008 and 8,464 will vest on July 14, 2009. +(9) +10,000 of these shares vested on July 15, 2008. 3,956 of these shares will vest on February 16, 2009. 5,696 of these shares vested on July 20, 2008, 5,696 will vest +on July 20, 2009 and 5,697 will vest on July 20, 2010. +Option Exercises and Stock Vested During Fiscal 2008 +The following table provides information concerning stock option exercises and vesting of restricted stock during fiscal 2008 for each of +the Named Executive Officers on an aggregated basis. +Option Awards +Stock Awards +Name +Number of +Shares +Acquired +on Exercise (#) +Value +Realized +on Exercise ($) +Number of +Shares +Acquired +on Vesting (#) +Value +Realized +on Vesting ($) +Mark G. Parker +90,000 +$ +4,007,888 +17,911 +$ +1,082,876 +Donald W. Blair +35,000 +$ +1,507,924 +8,465 +$ +499,520 +Charles D. Denson +— +— +13,956 +$ +836,519 +Gary M. DeStefano +157,000 +$ +5,616,649 +8,465 +$ +499,520 +Trevor A. Edwards +19,000 +$ +743,473 +8,465 +$ +499,520 +31 +Equity Compensation Plans +The following table summarizes equity compensation plans approved by shareholders and equity compensation plans that were not approved by the +shareholders as of May 31, 2008: +Plan Category +(a) +Number of Securities to +be Issued Upon +Exercise of Outstanding +Options, Warrants +and +Rights +(b) +Weighted-Average +Exercise Price +of +Outstanding Options, +Warrants and Rights +(c) +Number of Securities +Remaining Available for +Future Issuance Under +Equity Compensation +Plans (Excluding +Securities Reflected in +Column(a)) +Equity compensation plans approved by shareholders (1) +36,630,096 +$ +40.14 +27,931,172 +Equity compensation plans not approved by shareholders (2) +— +— +1,359,903 +Total +36,630,096 +$ +40.14 +29,291,075 +(1) +Includes 36,630,096 options outstanding subject to the 1990 Stock Incentive Plan. Includes 25,658,124 shares available for future issuance under the 1990 Stock Incentive Plan, and +2,273,048 shares available for future issuance under the Employee Stock Purchase Plan. +(2) +Includes 1,359,903 shares available for future issuance under the Foreign Subsidiary Employee Stock Purchase Plan, pursuant to which shares are offered and sold to employees of +selected non-U.S. subsidiaries of the Company on substantially the same terms as those offered to U.S. employees under the shareholder-approved Employee Stock Purchase Plan. +32 +Non-Qualified Deferred Compensation in Fiscal 2008 +Name +Plan +Name +Executive +Contributions +in +Fiscal +2008 (1) +NIKE +Contributions +in Fiscal +2008 (1) +Aggregate +Earnings +in Fiscal +2008 (1) +Aggregate +Withdrawals/ +Distributions +in Fiscal 2008 +Aggregate +Balance at +5/31/2008 (1) +Mark G. Parker +DCP +$ +196,923 +$ +105,032 +$ +96,164 +— +$ +2,411,163 +Donald W. Blair +DCP +347,272 +40,203 +(63,492 +) +— +2,997,814 +Charles D. Denson +DCP +2,881,865 +92,763 +174,089 +— +13,040,590 +Gary M. DeStefano +DCP +— +60,260 +50,264 +— +1,196,460 +Trevor A. Edwards +DCP +537,538 +41,164 +(17,346 +) +— +2,325,085 +(1) +All amounts reported in the Executive Contributions column are also included in amounts reported in the Summary Compensation Table. The amounts reported in the NIKE Contributions +column represent profit sharing contributions made by us in early fiscal 2008 based on fiscal 2007 results; these amounts are also included in amounts reported for fiscal 2007 in the All Other Compensation column of the Summary Compensation Table. +Of the amounts reported in the Aggregate Balance column, the following amounts have been reported in the Summary Compensation Tables in this proxy statement or in prior year proxy statements, Mr. Parker, $1,962,916; Mr. Blair, $1,254,495; +Mr. Denson, $10,518,905; Mr. DeStefano, $594,152; and Mr. Edwards, $578,702. +Non-qualified Deferred +Compensation Plans +The Named Executive Officers are eligible to participate in our Deferred Compensation Plan (the +“DCP”). Participants in the DCP may elect in advance to defer up to 100 percent of their annual base salary, bonus and long-term incentive payments. +Each year, we share profits with our employees in the form of profit sharing contributions to defined contribution retirement plans. The contributions are allocated among eligible employees based on a percentage of +their total salary and bonus for the year. To the fullest extent permitted under Internal Revenue Code limitations, these contributions are made to employees’ accounts under our qualified 401(k) Savings and Profit Sharing Plan. Contributions +based on salary and bonus in excess of the tax law limit ($225,000 for fiscal 2008) are made as NIKE contributions under the DCP. +Amounts +deferred under the DCP are credited to a participant’s account under the DCP. Each participant may allocate his or her account among any combination of the investment funds available under the DCP. Participants’ accounts are adjusted to +reflect the investment performance of the funds selected by the participants. Participants can change the allocation of their account balances daily. The funds available under the DCP consist of 11 mutual funds with a variety of investment +objectives. The investment funds had annual returns in fiscal 2008 ranging from a 7.1% gain to a 13.6% loss. Amounts credited to participants’ accounts are invested by us in actual investments matching the investment options selected by the +participants to ensure that we do not bear any investment risk related to participants’ investment choices. +33 +The portion of a participant’s account attributable to elective deferrals, including investment +returns, is fully vested at all times. The portion of a participant’s account attributable to NIKE contributions, including investment returns, is fully vested after the participant has been employed by us for five years. All of the Named +Executive Officers are fully vested in their NIKE contributions. +Each time they elect to defer compensation, participants make an election +regarding distribution of the compensation deferred under the election (as adjusted to reflect investment performance). A participant may elect for distribution to be made in a lump sum on a predetermined date while the participant is still employed +or in service (but no sooner than the end of the third year after the year in which the distribution election is submitted). Alternatively, a participant may elect for distribution to be made in a lump sum or in annual installments over five, ten or +fifteen years after termination of employment or service. Participants have limited rights to change their distribution elections. Participants may make a hardship withdrawal under certain circumstances. Subject to certain limitations, a participant +may also at any time request to withdraw amounts from his or her account balance that were vested as of December 31, 2004 (and any subsequent investment returns on such amount). If such request is approved, the participant may withdraw 90% of +the amount requested, and the remaining 10% will be permanently forfeited. +Potential Payments Upon Termination or Change-in-Control +Change-in-Control Compensation — Acceleration of Equity Awards +We have agreed to accelerate the vesting of restricted stock and stock options held by the Named Executive Officers upon the approval by our shareholders +of an “Approved Transaction.” This acceleration of vesting will occur whether or not their employment is terminated. In our agreements, “Approved Transaction” is generally defined to include: +• +an acquisition of NIKE through a merger, consolidation or plan of exchange, +• +a sale of all or substantially all of our assets, or +• +the adoption of a plan for our liquidation or dissolution. +The following table shows the estimated benefits that would have been received by the Named Executive Officers if our shareholders had approved an Approved Transaction on May 31, 2008. +Name +Restricted Stock +Acceleration (1) +Stock Option +Acceleration (2) +Total +Mark G. Parker +$ +2,977,103 +$ +7,441,150 +$ +10,418,253 +Donald W. Blair +1,157,436 +3,262,603 +4,420,039 +Charles D. Denson +2,122,547 +6,539,025 +8,661,572 +Gary M. DeStefano +1,157,436 +4,594,330 +5,751,766 +Trevor A. Edwards +1,157,436 +3,262,603 +4,420,039 +34 +(1) +Information regarding unvested restricted stock held by each Named Executive Officer is set forth in the Outstanding Equity Awards table above. The award agreements provide that all +shares will immediately vest upon the approval by our shareholders of an Approved Transaction. The amounts in the table above represent the number of unvested restricted shares multiplied by a stock price of $68.37 per share, which was the closing +price of our Class B Common Stock on May 30, 2008. +(2) +Information regarding outstanding unexercisable options held by each Named Executive Officer is set forth in the Outstanding Equity Awards table above. The stock option agreements +provide that all outstanding unexercisable options will immediately become exercisable upon the approval by our shareholders of an Approved Transaction and will remain exercisable during the remainder of the term of the options, except that the +Compensation Committee may provide a 30-day period prior to the Approved Transaction during which the optionees may exercise the options without any limitation on exercisability. At the end of the 30-day period, the options would terminate. Amounts +in the table above represent the aggregate value as of May 31, 2008 of each Named Executive Officer’s outstanding unexercisable options based on the positive spread between the exercise price of each option and a stock price of $68.37 per +share, which was the closing price of our Class B Common Stock on May 30, 2008. +Benefits Triggered on Certain +Employment Terminations +Stock Option Acceleration +As of May 31, 2008, each Named Executive Officer held unexercisable options to purchase Class B Common Stock as listed in the Outstanding Equity +Awards table above. Under the terms of their stock option agreements, all unexercisable options become fully exercisable for a maximum remaining term of one year upon the death or disability of the officer. The aggregate value as of May 31, +2008 of options that would have become exercisable if death or disability had occurred on that date is as set forth in the “Stock Option Acceleration” column of the Change-in-Control Compensation — Acceleration of Equity +Awards table above. +As provided in stock option agreements for all employees, the terms of the Named Executive Officers’ stock option +agreements also provide that, if termination of the officer’s employment occurs when the officer’s retirement point total is at least 55 and the officer has been employed by us for at least five years, then a portion of the unexercisable +options will become exercisable for a maximum remaining term of three months as follows: +Retirement Point Total +Percent of Unexercisable Option +That Becomes +Exercisable +55 or 56 +20% +57 +40% +58 +60% +59 +80% +60 +100% +35 +An officer’s “retirement point total” means the sum of the officer’s age plus the number of years +that the officer has been employed by us. As of May 31, 2008, the retirement point total for each of Messrs. Parker, Denson, DeStefano and Edwards was over 60, and these officers are therefore eligible to have all unexercisable options +become fully exercisable on any termination of employment. As of May 31, 2008, the retirement point total for Mr. Blair was 58. Therefore, if Mr. Blair’s employment had terminated on May 31, 2008 for any reason other than +death or disability, he would have been eligible to have 60% of his unexercisable options become fully exercisable. The aggregate value as of May 31, 2008 of options held by Mr. Blair that would have become exercisable if termination of +employment (other than due to death or disability) had occurred on that date was $2,046,962. For all other Named Executive Officers, this value is as set forth in the “Stock Option Acceleration” column of the Change-in-Control +Compensation — Acceleration of Equity Awards table above. +Restricted Stock Acceleration +As of May 31, 2008, each Named Executive Officer held unvested restricted stock as set forth in the Outstanding Equity Awards table above. Under the +terms of their award agreements, all unvested restricted shares will immediately vest upon the death or disability of the officer. The value of the unvested restricted shares held by each Named Executive Officer as of May 31, 2008 that would +have become vested if death or disability had occurred on that date is as set forth in the “Restricted Stock Acceleration” column of the Change-in-Control Compensation — Acceleration of Equity Awards table above. +Payments Under Noncompetition Agreements +We have an agreement with each of Mr. Parker and Mr. Denson that contains a covenant not to compete that extends for two years following the termination of the officer’s employment with us. Each agreement provides that if the +officer’s employment is terminated by us, we will make monthly payments to him during the two-year noncompetition period in an amount equal to one-twelfth of his then current annual salary and target Performance Sharing Plan bonus (“Annual +Nike Income”). Each agreement provides further that if the officer voluntarily resigns, we will make monthly payments to him during the two-year noncompetition period in an amount equal to one-twenty-fourth of his then current Annual Nike +Income. However, commencement of the above-described monthly payments will be delayed until after the six-month period following the officer’s separation from service, and all payments that the officer would otherwise have received during that +period will be paid in a lump sum promptly following the end of the period, together with interest at the prime rate. If employment is terminated without cause, the parties may mutually agree to waive the covenant not to compete, and if employment +is terminated for cause, we may unilaterally waive the covenant. If the covenant is waived, we will not be required to make the payments described above for the months as to which the waiver applies. If the employment of these officers had been +terminated by us on May 31, 2008 and assuming the covenant is not waived, we would have been +36 +required to pay Mr. Parker $262,500 per month and Mr. Denson $210,000 per month for the 24-month period ending May 31, 2010. If these officers +had voluntarily resigned on May 31, 2008 and assuming the covenant is not waived, we would have been required to pay Mr. Parker $131,250 per month and Mr. Denson $105,000 per month for the 24-month period ending May 31, 2010. +We have noncompetition agreements with Mr. Blair, Mr. DeStefano and Mr. Edwards on the same terms, except that the +noncompetition period is one year instead of two years, the six month delay for commencement of payments does not apply and we may unilaterally waive the covenant in all cases including termination without cause. In addition, for Mr. Blair and +Mr. Edwards, the monthly payments are one-twelfth or one-twenty-fourth of their current annual salaries, instead of their Annual Nike Income, and for Mr. DeStefano, the monthly payments on voluntary resignation are one-twenty-fourth of his +current annual salary. If the employment of these officers had been terminated by us on May 31, 2008 and assuming the covenant is not waived, we would have been required to pay Mr. Blair $62,500 per month, Mr. DeStefano $144,750 per +month and Mr. Edwards $64,583 per month for the 12-month period ending May 31, 2009. If these officers had voluntarily resigned on May 31, 2008 and assuming the covenant is not waived, we would have been required to pay Mr. Blair +$31,250 per month, Mr. DeStefano $40,208 per month and Mr. Edwards $32,292 per month for the 12-month period ending May 31, 2009. +37 +PROPOSAL 2 +RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +The Audit Committee of the Board of +Directors has appointed PricewaterhouseCoopers LLP as independent registered public accounting firm to examine the Company’s consolidated financial statements for the fiscal year ending May 31, 2009 and to render other professional +services as required. +The Audit Committee is submitting the appointment of PricewaterhouseCoopers LLP to shareholders for ratification. +Representatives of PricewaterhouseCoopers LLP will be present at the Annual Meeting, will have the opportunity to make a statement if they +desire to do so, and are expected to be available to respond to questions. +Aggregate fees billed by the Company’s independent +registered public accounting firm, PricewaterhouseCoopers LLP, for audit services related to the most recent two fiscal years, and for other professional services billed in the most recent two fiscal years, were as follows: +Type of Service +2008 +2007 +Audit Fees (1) +$ +6.8 million +$ +6.6 million +Audit-Related Fees (2) +$ +0.3 million +$ +0.1 million +Tax Fees (3) +$ +0.9 million +$ +1.2 million +All Other Fees (4) +$ +0.1 million +$ +0.1 million +Total +$ +8.1 million +$ +8.0 million +(1) +Comprised of the audits of the Company’s annual financial statements and reviews of the Company’s quarterly financial statements, as well as statutory audits of Company +subsidiaries, attest services, comfort letters and consents to SEC filings. Audit fees also include audit services related to the Company’s compliance with Section 404 of the Sarbanes-Oxley Act of 2002 regarding internal controls over +financial reporting. +(2) +Comprised of employee benefit plan audits, acquisition due diligence, and consultations regarding financial accounting and reporting. +(3) +Comprised of services for tax compliance, tax planning, and tax advice. Tax compliance includes services related to the preparation or review of original and amended tax returns for +the Company and its consolidated subsidiaries and represents $0.4 million and $0.8 million of the tax fees for fiscal 2008 and 2007, respectively. The remaining tax fees primarily include tax advice. +(4) +Comprised of services for the preparation of tax returns for expatriate employees and other miscellaneous services. +38 +In accordance with the Sarbanes-Oxley Act of 2002, the Audit Committee established policies and +procedures under which all audit and non-audit services performed by the Company’s independent registered public accounting firm must be approved in advance by the Audit Committee. During fiscal 2008, all such services were approved in advance +except for one small engagement totaling $10,000, or less than 0.2% of total fees. During fiscal 2007, fees totaling $146,000, or 1.8% of total fees, were paid to PricewaterhouseCoopers LLP for several small engagements in foreign locations that +were not pre-approved. All such services were approved by the Audit Committee promptly after their inadvertent omission from pre-approval was noticed. +Notwithstanding anything to the contrary set forth in any of the Company’s filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, the following Report of the Audit Committee shall not +be incorporated by reference into any such filings and shall not otherwise be deemed filed under such acts. +REPORT OF THE AUDIT +COMMITTEE +The Audit Committee has: +• +Reviewed and discussed the audited financial statements with management. +• +Discussed with the independent auditors the matters required to be discussed by SAS 61. +• +Received the written disclosures and the letter from the independent accountants required by Independence Standards Board Standard No. 1, and has discussed +with the independent accountant the independent accountant’s independence. +• +Based on the review and discussions above, recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual +Report on Form 10-K for the last fiscal year for filing with the Securities and Exchange Commission. +Members of the Audit Committee: +Alan B. Graf, Jr., Chairman +John G. Connors +Orin C. Smith +OTHER MATTERS +As of the time this proxy statement was printed, management was unaware of any proposals to be presented for +consideration at the Annual Meeting other than those set forth herein, but if other matters do properly come before the Annual Meeting, the persons named in the proxy will vote the shares represented by such proxy according to their best judgment. +39 +SHAREHOLDER PROPOSALS +A proposal by a shareholder for inclusion in the Company’s proxy statement and form of proxy for the 2009 annual meeting of shareholders must be +received by John F. Coburn III, Secretary of NIKE, at One Bowerman Drive, Beaverton, Oregon 97005-6453, on or before April 10, 2009 to be eligible for inclusion. Rules under the Securities Exchange Act of 1934 describe standards as to the +submission of shareholder proposals. In addition, the Company’s bylaws require that any shareholder wishing to make a nomination for Director, or wishing to introduce a proposal or other business at a shareholder meeting must give the Company +at least 60 days’ advance written notice, and that notice must meet certain requirements described in the bylaws. +For the Board of Directors +JOHN F. COBURN III +S ECRETARY +40 +ANNUAL +MEETING +AND +PROXY STATEMENT +September 22, 2008 +Beaverton, Oregon +NIKE, INC. ONE +BOWERMAN DR. BEAVERTON, OR 97005-6453 VOTE BY INTERNET: www.proxyvote.com/nike Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. EDT September 21, 2008. Have your proxy card in +hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE SHAREHOLDER COMMUNICATIONS: If you would like to help NIKE, Inc. reduce the use +of paper, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, +when prompted, indicate that you agree to receive or access shareholder communications electronically in the future. VOTE BY PHONE: 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. EDT +September 21, 2008. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL: Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to NIKE, Inc., c/o +Broadridge, TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: NKINC1 KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. NIKE, INC. For Withhold For All To withhold +authority to vote for any individual All All Except nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. Vote On Directors 1. To elect a Board of Directors for the ensuing year. 0 0 0 Election by +Class A: Nominees: 01) John G. Connors 06) Mark G. Parker 02) Timothy D. Cook 07) Johnathan A. Rodgers 03) Ralph D. DeNunzio 08) Orin C. Smith 04) Douglas G. Houser 09) John R. Thompson, Jr. 05) Philip H. Knight For Against Abstain Vote On Proposal +2. To ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm. 0 0 0 3. To transact such other business as may properly come before the meeting. For address changes and/or comments, please check this box +and write them on 0 the back where indicated. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date +Important Notice +Regarding Internet Availability of Proxy Materials for the Annual Meeting: The Proxy Statement and Form 10K are available at www.proxyvote.com/nike. NIKE, INC. CLASS A COMMON STOCK PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE 2008 +MEETING OF SHAREHOLDERS SEPTEMBER 22, 2008 The undersigned hereby appoints Philip H. Knight, Mark G. Parker and Douglas G. Houser, and each of them, proxies with full power of substitution, to vote, as designated on the reverse side, on behalf of +the undersigned, all shares of Class A Common Stock which the undersigned may be entitled to vote at the Annual Meeting of Shareholders of NIKE, Inc. on September 22, 2008, and any adjournments thereof, with all powers that the undersigned would +possess if personally present. A majority of the proxies or substitutes present at the meeting may exercise all powers granted hereby. THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED, BUT IF NO SPECIFICATION IS MADE, THIS PROXY WILL +BE VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR, AND FOR PROPOSAL 2. THE PROXIES MAY VOTE IN THEIR DISCRETION AS TO OTHER MATTERS WHICH MAY COME BEFORE THE MEETING. YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES, +BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS RECOMMENDATIONS. THE PROXIES CANNOT VOTE THESE SHARES UNLESS YOU SIGN AND RETURN THIS CARD OR PROPERLY VOTE BY PHONE OR INTERNET. Address Change/Comments: +If you noted address changes or comments above, please mark the corresponding box on the reverse side. +NIKE, INC. ONE +BOWERMAN DR. BEAVERTON, OR 97005-6453 VOTE BY INTERNET: www.proxyvote.com/nike Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. EDT September 21, 2008. Have your proxy card in +hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE SHAREHOLDER COMMUNICATIONS: If you would like to help NIKE, Inc. reduce the use +of paper, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, +when prompted, indicate that you agree to receive or access shareholder communications electronically in the future. VOTE BY PHONE: 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. EDT +September 21, 2008. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL: Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to NIKE, Inc., c/o +Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: NKINC3 KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. NIKE, +INC. For Withhold For All To withhold authority to vote for any individual All All Except nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. Vote On Directors 1. To elect a Board of Directors for +the ensuing year. 0 0 0 Election by Class B: Nominees: 01) Jill K. Conway 02) Alan B. Graf, Jr. 03) Jeanne P. Jackson For Against Abstain Vote On Proposal 2. To ratify the appointment of PricewaterhouseCoopers LLP as independent registered public +accounting firm. 0 0 0 3. To transact such other business as may properly come before the meeting. For address changes and/or comments, please check this box and write them on 0 the back where indicated. Signature [PLEASE SIGN WITHIN BOX] Date +Signature (Joint Owners) Date +Important Notice +Regarding Internet Availability of Proxy Materials for the Annual Meeting: The Proxy Statement and Form 10K are available at www.proxyvote.com/nike. NIKE, INC. CLASS B COMMON STOCK PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE 2008 +MEETING OF SHAREHOLDERS SEPTEMBER 22, 2008 The undersigned hereby appoints Philip H. Knight, Mark G. Parker and Douglas G. Houser, and each of them, proxies with full power of substitution, to vote, as designated on the reverse side, on behalf of +the undersigned all shares of Class B Common Stock which the undersigned may be entitled to vote at the Annual Meeting of Shareholders of NIKE, Inc. on September 22, 2008, and any adjournments thereof, with all powers that the undersigned, +would possess if personally present. A majority of the proxies or substitutes present at the meeting may exercise all powers granted hereby. THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED, BUT IF NO SPECIFICATION IS MADE, THIS PROXY +WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR, AND FOR PROPOSAL 2. THE PROXIES MAY VOTE IN THEIR DISCRETION AS TO OTHER MATTERS WHICH MAY COME BEFORE THE MEETING. YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE +BOXES, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS’ RECOMMENDATIONS. THE PROXIES CANNOT VOTE THESE SHARES UNLESS YOU SIGN AND RETURN THIS CARD OR PROPERLY VOTE BY PHONE OR INTERNET. Address +Change/Comments: If you noted address changes or comments above, please mark the corresponding box on the reverse side. \ No newline at end of file diff --git a/raw/proxies/0000320187/0001193125-08-171939/proxy_rpt.txt b/raw/proxies/0000320187/0001193125-08-171939/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000320187/0001193125-09-155960/proxy.txt b/raw/proxies/0000320187/0001193125-09-155960/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..84834ea972df0a622a956ef1021f78de606330a5 --- /dev/null +++ b/raw/proxies/0000320187/0001193125-09-155960/proxy.txt @@ -0,0 +1,2362 @@ +DEF 14A +1 +ddef14a.htm +DEFINITIVE PROXY STATEMENT +Definitive Proxy Statement +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A INFORMATION +Proxy +Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 +Filed by the Registrant x +Filed by a Party other than the Registrant ¨ +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only +(as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material Pursuant to § 240.14a-11(c) or § 240.14a-12 +NIKE, Inc. +(Name of Registrant as Specified in Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(I)(4) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was +determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the +previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +NIKE, Inc. +One Bowerman Drive +Beaverton, Oregon 97005-6453 +July 27, 2009 +To Our Shareholders: +You are cordially invited to attend the annual meeting of shareholders of NIKE, Inc. to be held at the Tiger Woods Conference Center, One Bowerman Drive, +Beaverton, Oregon 97005-6453, on Monday, September 21, 2009, at 10:00 A.M. Pacific Time. Registration will begin at 9:00 A.M. +The +meeting will consist of a brief presentation followed by the business items listed on the attached notice. +Whether or not you plan to +attend, the prompt execution and return of your proxy card will both assure that your shares are represented at the meeting and minimize the cost of proxy solicitation. +Sincerely, +Philip H. Knight +Chairman of the Board +Notice of Annual Meeting of Shareholders +September 21, 2009 +To the Shareholders of NIKE, Inc. +The annual meeting of shareholders of NIKE, Inc., an Oregon corporation, will be held on +Monday, September 21, 2009, at 10:00 A.M., at the Tiger Woods Conference Center, One Bowerman Drive, Beaverton, Oregon 97005-6453, for the following purposes: +1. +To elect a Board of Directors for the ensuing year. +2. +To approve an amendment to the NIKE, Inc. Employee Stock Purchase Plan. +3. +To ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm. +4. +To transact such other business as may properly come before the meeting. +All shareholders are invited to attend the meeting. Shareholders of record at the close of business on July 24, 2009, the record date fixed by the Board of Directors, are entitled to notice of and to vote at the +meeting. You must present your proxy or voter instruction card or meeting notice for admission. +By Order of the Board of Directors +JOHN F. COBURN III +Secretary +Beaverton, Oregon +July 27, +2009 +Whether or not you intend to be present at the meeting, please sign and date +the enclosed proxy and return it in the enclosed envelope, or vote by telephone or over the internet following the instructions on the proxy. +PROXY STATEMENT +The enclosed proxy is solicited by the Board of Directors of NIKE, Inc. (“NIKE” or the “Company”) for use at the annual meeting of shareholders to be held on September 21, 2009, and at any +adjournment thereof (the “Annual Meeting”). The Company expects to provide notice and electronic delivery of this proxy statement and the enclosed proxy to shareholders on or about August 3, 2009. +The Company will bear the cost of solicitation of proxies. In addition to the solicitation of proxies by mail, certain officers and employees of the +Company, without extra compensation, may also solicit proxies personally or by telephone. Copies of proxy solicitation materials will be furnished to fiduciaries, custodians and brokerage houses for forwarding to the beneficial owners of shares held +in their names. +All valid proxies properly executed and received by the Company prior to the Annual Meeting will be voted in accordance +with the instructions specified in the proxy. Where no instructions are given, shares will be voted (1) FOR the election of each of the named nominees for director, (2) FOR the amendment of the NIKE, Inc. Employee Stock Purchase Plan, and +(3) FOR ratification of the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm. +A shareholder +giving the enclosed proxy has the power to revoke it at any time before it is exercised by affirmatively electing to vote in person at the meeting or by delivering to John F. Coburn III, Secretary of NIKE, either an instrument of revocation or an +executed proxy bearing a later date. +VOTING SECURITIES +Holders of record of NIKE’s Class A Common Stock (“Class A Stock”) and holders of record of NIKE’s Class B Common Stock +(“Class B Stock”), at the close of business on July 24, 2009, will be entitled to vote at the Annual Meeting. On that date, 95,299,318 shares of Class A Stock and 390,631,331 shares of Class B Stock were issued and outstanding. +Neither class of Common Stock has cumulative voting rights. All share and per-share amounts in this proxy statement have been adjusted to reflect the two-for-one stock split of the Class A Stock and the Class B Stock effected on April 2, +2007 in the form of a 100 percent common stock dividend. +Each share of Class A Stock and each share of Class B Stock is entitled +to one vote on every matter submitted to the shareholders at the Annual Meeting. With regard to Proposal 1, the election of directors, the holders of Class A Stock and the holders of Class B Stock will vote separately. Holders of Class B Stock +are currently entitled to elect 25 percent of the total Board, rounded up to the next whole number. Holders of Class A Stock are currently entitled to elect the remaining directors. Under this formula, holders of Class B Stock, voting +separately, will elect three directors, and holders of Class A Stock, voting separately, will elect nine directors. Holders of Class A Stock and holders of Class B Stock will vote together as one class on Proposals 2 and 3. +PROPOSAL 1 +ELECTION OF DIRECTORS +A Board of 12 directors will be elected at the Annual Meeting. All of the +nominees were elected at the 2008 annual meeting of shareholders, except for John C. Lechleiter, who was appointed to the Board of Directors on June 18, 2009. Directors will hold office until the next annual meeting of shareholders or until +their successors are elected and qualified. +Jill K. Conway, Alan B. Graf, Jr., and John C. Lechleiter are nominated by the Board of +Directors for election by the holders of Class B Stock. The other nine nominees are nominated by the Board of Directors for election by the holders of Class A Stock. +Under Oregon law, if a quorum of each class of shareholders is present at the Annual Meeting, the nine director nominees who receive the greatest number of votes cast by holders of Class A Stock and the three +director nominees who receive the greatest number of votes cast by holders of Class B Stock will be elected directors. Abstentions and broker non-votes will have no effect on the results of the vote. Unless otherwise instructed, proxy holders will +vote the proxies they receive for the nominees listed below. If any nominee becomes unable to serve, the holders of the proxies may, in their discretion, vote the shares for a substitute nominee or nominees designated by the Board of Directors. +The Corporate Governance Guidelines adopted by the Board of Directors provide that any nominee for director in an uncontested election who +receives a greater number of votes “withheld” from his or her election than votes “for” such election shall tender his or her resignation for consideration by the Nominating and Corporate Governance Committee. The Committee shall +recommend to the Board the action to be taken with respect to the resignation. The Board will publicly disclose its decision within 90 days of the certification of the election results. +Background information on the nominees as of July 15, 2009, appears below: +Nominees for Election by Class A Shareholders +John G. +Connors — Mr. Connors, 50, a director since 2005, is a partner in Ignition Partners LLC, a Seattle-area venture capital firm. Mr. Connors served as Senior Vice President and Chief Financial Officer of Microsoft +Corporation from December 1999 to May 2005. He joined Microsoft in 1989 and held various management positions, including Corporate Controller from 1994 to 1996, Vice President, Worldwide Enterprise Group in 1999, and Chief Information +Officer from 1996 to 1999. Mr. Connors is a member of the Board of Trustees — Swedish Medical Center, and also member of the Board of Directors of Jobster, Inc., Admit One Security, Inc., FiREapps, Inc., DataSphere Technologies, Inc., +Splunk Inc., the Washington Policy Center, and the University of Washington Tyee Club. +2 +Timothy D. Cook — Mr. Cook, 48, a director since 2005, is the Chief Operating +Officer of Apple, Inc. Mr. Cook joined Apple in March 1998 as Senior Vice President of Worldwide Operations and also served as Executive Vice President, Worldwide Sales and Operations. Mr. Cook was Vice President, Corporate +Materials for Compaq Computer Corporation from 1997 to 1998. Previous to his work at Compaq, Mr. Cook served in the positions of Senior Vice President Fulfillment and Chief Operating Officer of the Reseller Division at Intelligent Electronics +from 1994 to 1997. Mr. Cook also worked for International Business Machines Corporation from 1983 to 1994, most recently as Director of North American Fulfillment. +Ralph D. DeNunzio — Mr. DeNunzio, 77, a director since 1988, is President of Harbor Point Associates, Inc., Rye Brook, New York, a private investment and consulting firm. Mr. DeNunzio +was employed by the investment banking firm of Kidder, Peabody & Co. Incorporated from 1953 to 1987, where he served as President from 1977 to 1986, as Chief Executive Officer from 1980 to 1987 and as Chairman of the Board of Directors from +1986 to 1987. Mr. DeNunzio served as Vice Chairman and Chairman of the Board of Governors of the New York Stock Exchange from 1969 to 1972 and was President of the Securities Industry Association in 1981. In 1970, Mr. DeNunzio headed the +Securities Industry Task Force, which led to enactment of the Securities Investor Protection Act of 1970 and establishment of the Securities Investor Protection Corporation. +Douglas G. Houser — Mr. Houser, 74, a director since 1970, has been a partner in the Portland, Oregon law firm of Bullivant, +Houser, Bailey since 1965. Mr. Houser is a trustee of Willamette University and a Fellow in the American College of Trial Lawyers, and has served as a member of the Board of Governors and Treasurer of the Oregon State Bar Association and as a +Director of the Rand Corporation, Institute for Civil Justice Board of Overseers, and the National Judicial College Foundation Board. +Philip H. Knight — Mr. Knight, 71, a director since 1968, is Chairman of the Board of Directors of NIKE. Mr. Knight is a co-founder of the Company and, except for the period from June 1983 through +September 1984, served as its President from 1968 to 1990, and from June 2000 to 2004. Prior to 1968, Mr. Knight was a certified public accountant with Price Waterhouse and Coopers & Lybrand and was an Assistant Professor of +Business Administration at Portland State University. +Mark G. Parker — Mr. Parker, 53, has been President and +Chief Executive Officer and a director since 2006. He has been employed by NIKE since 1979 with primary responsibilities in product research, design and development, marketing, and brand management. Mr. Parker was appointed divisional Vice +President in charge of development in 1987, corporate Vice President in 1989, General Manager in 1993, Vice President of Global Footwear in 1998, and President of the NIKE Brand in 2001. +Johnathan A. Rodgers — Mr. Rodgers, 63, a director since 2006, is the President and Chief Executive Officer of TV One, LLC. +Prior joining TV One, LLC in March 2003, Mr. Rodgers was President, Discovery Networks US for Discovery Communications, Inc. from 1996 to 2003. Prior to his work at +3 +Discovery Communications, Mr. Rodgers had a 20-year career at CBS, Inc. where he held a variety of executive positions, including President, CBS +Television Stations. Mr. Rodgers is also a director of Procter & Gamble Company, a Trustee of the University of California — Berkeley, and a director of the National Cable Telecommunication Association. +Orin C. Smith — Mr. Smith, 67, a director since 2004, was President and Chief Executive Officer of Starbucks Corporation from +2000 to 2005. He joined Starbucks as Vice President and Chief Financial Officer in 1990, became President and Chief Operating Officer in 1994, and became a director of Starbucks in 1996. Prior to joining Starbucks, Mr. Smith spent a total of +14 years with Deloitte & Touche. He was later the Executive Vice President and Chief Financial Officer of two transportation companies. Between these assignments, he was Chief Policy and Finance Officer in the administrations of two +Washington State Governors. Mr. Smith is also a member of the Board of Directors of The Walt Disney Company. +John R. Thompson, +Jr. — Mr. Thompson, 68, a director since 1991, was head coach of the Georgetown University men’s basketball team from 1972 until 1998. Mr. Thompson was head coach of the 1988 United States Olympic basketball team. +He hosts a sports radio talk show in Washington, D.C., and is a nationally broadcast sports analyst for Turner Network Television (TNT) and the Westwood One, Inc. radio network. He serves as Assistant to the President of Georgetown for Urban +Affairs, and he is a past President of the National Association of Basketball Coaches and presently serves on its Board of Governors. +Nominees for +Election by Class B Shareholders +Jill K. Conway — Dr. Conway, 75, a director since 1987, served as a +Visiting Scholar with the Massachusetts Institute of Technology’s Program in Science, Technology and Society from 1985 to 2008. Dr. Conway was a Professor of History and President of Smith College, Northampton, Massachusetts, from 1975 to +1985. She was affiliated with the University of Toronto from 1964 to 1975, and held the position of Vice President, Internal Affairs from 1973 to 1975. Dr. Conway holds numerous Honorary Doctorates from North American universities. She is also +a director of Colgate-Palmolive Company and a former director of Merrill Lynch & Co., Inc. +Alan B. Graf, +Jr . — Mr. Graf, 55, a director since 2002, is the Executive Vice President and Chief Financial Officer of FedEx Corporation, a position he has held since 1998, and is a member of FedEx Corporation’s Executive Committee. +Mr. Graf joined FedEx Corporation in 1980 and was Senior Vice President and Chief Financial Officer for FedEx Express, FedEx’s predecessor, from 1991 to 1998. He is also a director of Mid-America Apartment Communities, Inc. +John C. Lechleiter — Dr. Lechleiter, 55, appointed a director on June 18, 2009, is Chairman of the Board, President, and +Chief Executive Officer of Eli Lilly and Company (“Lilly”). He joined Lilly in 1979 as a senior organic chemist in the process research and development division, and has held management +4 +positions in England and the U.S. He was appointed Vice President of pharmaceutical product development in 1993, Vice President of regulatory affairs in +1994, Vice President for development and regulatory affairs in 1996, Senior Vice President of pharmaceutical products in 1998, Executive Vice President of pharmaceutical products and corporate development in 2001, and Executive Vice President of +pharmaceutical operations in 2004. Dr. Lechleiter was appointed president and chief operating officer of Lilly in 2005, when he also joined Lilly’s board of directors. He was apppointed president and chief executive officer in April 2008 +and became chairman on January 1, 2009. He has a doctorate in organic chemistry from Harvard University and is a member of the Business Roundtable and the Business Council. Dr. Lechleiter serves on the board of directors of Pharmaceutical +Research and Manufacturers of America, Fairbanks Institute, the United Way of Central Indiana, and Indianapolis Downtown, Inc. He also serves as a member of the board of trustees of Xavier University (Cincinnati, Ohio). +Board of Directors and Committees +The Board +currently has an Executive Committee, an Audit Committee, a Nominating and Corporate Governance Committee, a Finance Committee, a Corporate Responsibility Committee, and a Compensation Committee, and may also appoint other committees from time to +time. Each committee has a written charter; all such charters, as well as the Company’s corporate governance guidelines, are available at the Company’s internet website ( www.nikebiz.com/investors ) and will be provided in print to +any shareholder who submits a request in writing to NIKE Investor Relations, One Bowerman Drive, Beaverton, Oregon 97005-6453. There were six meetings of the Board of Directors during the last fiscal year. Each director attended at least +75 percent of the total number of meetings of the Board of Directors and committees on which he or she served. The Company encourages all directors to attend each annual meeting of shareholders, and all directors attended the 2008 Annual +Meeting. +Pursuant to New York Stock Exchange rules, in order for a director to qualify as “independent,” the Board of Directors +must affirmatively determine that the director has no material relationship with the Company that would impair the director’s independence. The rules permit the Board to adopt categorical standards under which relationships will be deemed +immaterial without any specific Board determination. Accordingly, the Board has determined that commercial or charitable relationships below the following thresholds will not be considered material relationships that impair a director’s +independence: (i) if a NIKE director or immediate family member is an executive officer of another company that does business with NIKE and the annual sales to, or purchases from, NIKE are less than one percent of the annual revenues of the +other company; and (ii) if a NIKE director or immediate family member serves as an officer, director or trustee of a charitable organization, and NIKE’s contributions to the organization are less than one percent of that +organization’s total annual charitable receipts. After applying this categorical standard, the Board of Directors has determined that all directors have no material relationship with the Company and, therefore, are independent, except for +Messrs. Knight, Parker, and Thompson. Mr. Knight and Mr. Parker are executive officers of the Company. Mr. Thompson is not independent pursuant to New York Stock +5 +Exchange rules, because the Company has a contract with his son, who is the head basketball coach at Georgetown University, to provide endorsement and +consulting services to the Company through August 2009, under which the Company paid to him $141,241 for services, product, and travel in the prior fiscal year, fiscal 2008. It is anticipated that the Company will enter into a new contract with +Mr. Thompson’s son upon the expiration of his current contract. +Executive sessions of non-management directors (consisting of +all directors other than Mr. Knight and Mr. Parker) are regularly scheduled and held at least once each year. The position of presiding director at these executive sessions is rotated among the Chairs of the various Board committees, other +than the Executive Committee, so there is no single lead director. The current presiding director at the executive sessions is Dr. Conway. +The Executive Committee of the Board is currently composed of Messrs. Knight (Chairman), Parker, and Houser. The Executive Committee is authorized to act on behalf of the Board on all corporate actions for which applicable law does not +require participation by the full Board. In practice, the Executive Committee acts in place of the full Board only when emergency issues or scheduling make it difficult or impracticable to assemble the full Board. All actions taken by the Executive +Committee must be reported at the next Board meeting. The Executive Committee held no formal meetings during the fiscal year ended May 31, 2009, but took actions from time to time pursuant to written consent resolutions. +The Audit Committee is currently composed of Messrs. Graf (Chairman), Connors, and Smith. The Board has determined that each member of the Audit +Committee meets all applicable independence and financial literacy requirements under the New York Stock Exchange listing standards. The Board has also determined that Mr. Graf is an “audit committee financial expert” as defined in +regulations adopted by the Securities and Exchange Commission. The Audit Committee is responsible for the engagement or discharge of the independent registered public accountants, reviews and approves services provided by the independent registered +public accountants, and reviews with the independent registered public accountants the scope and results of their annual examination of the Company’s consolidated financial statements and any recommendations they may have. The Audit Committee +also reviews the Company’s procedures with respect to maintaining books and records, the adequacy and implementation of internal auditing, accounting, disclosure, and financial controls, and the Company’s policies concerning financial +reporting and business practices. The Audit Committee met 13 times during the fiscal year ended May 31, 2009. +The Nominating and +Corporate Governance Committee is currently composed of Mr. DeNunzio (Chairman), Dr. Conway, Mr. Houser, and Mr. Cook. The Board has determined that each member of the Nominating and Corporate Governance Committee meets all +applicable independence requirements under the New York Stock Exchange listing standards. The Nominating and Corporate Governance Committee identifies individuals qualified to become Board members, recommends director nominees for election at each +annual shareholder meeting, and develops and recommends corporate governance guidelines and standards for business conduct and ethics. The Committee also oversees the annual self-evaluations of the +6 +Board and its committees and makes recommendations to the Board concerning the structure and membership of the other Board committees. Company policy +requires the Nominating and Corporate Governance Committee to review any transaction or proposed transaction with a related person and to determine whether to ratify or approve the transaction, with ratification or approval to occur only if the +Committee determines that the transaction is fair to the Company or that approval or ratification of the transaction is in the interest of the Company. The Nominating and Corporate Governance Committee met four times during the fiscal year ended +May 31, 2009. +The Finance Committee is currently composed of Messrs. Smith (Chairman), Connors, and DeNunzio. The Finance +Committee considers long-term financing options and needs of the Company, long-range tax and currency issues facing the Company, and management recommendations concerning major capital expenditures and material acquisitions or divestments. The +Finance Committee met five times during the fiscal year ended May 31, 2009. +The Corporate Responsibility Committee is currently +composed of Dr. Conway (Chair), Mr. Houser, Dr. Lechleiter, Mr. Rodgers, and Mr. Thompson. The Corporate Responsibility Committee reviews significant activities and policies regarding labor and environmental practices, +community affairs, charitable and foundation activities, diversity and equal opportunity, and environmental and sustainability initiatives, and makes recommendations to the Board of Directors. The Corporate Responsibility Committee met four times +during the fiscal year ended May 31, 2009. +The Compensation Committee is currently composed of Mr. DeNunzio (Chairman), +Mr. Cook, Dr. Lechleiter, and Mr. Rodgers. The Compensation Committee oversees the performance evaluation of the Chief Executive Officer and our other Named Executive Officers, and recommends their compensation for approval by the +independent members of the Board of Directors. The Compensation Committee also grants stock options and restricted stock bonuses under the NIKE, Inc. 1990 Stock Incentive Plan, and determines targets and awards under the NIKE, Inc. Executive +Performance Sharing Plan and the NIKE, Inc. Long-Term Incentive Plan. The Committee also makes recommendations to the Board regarding other management incentive compensation arrangements and profit sharing plan contributions. The Compensation +Committee met seven times during the fiscal year ended May 31, 2009. +Director Nominations +The Nominating and Corporate Governance Committee identifies potential director candidates through a variety of means, including recommendations from +members of the Committee or the Board, suggestions from Company management, and shareholder recommendations. The Committee also may, in its discretion, engage director search firms to identify candidates. Dr. Lechleiter was identified by a +director search firm, which also provided information about his qualifications and experience. Shareholders may recommend director candidates for consideration by the Nominating and Corporate Governance Committee by submitting a written +recommendation to the Committee, c/o John F. Coburn III, Secretary, NIKE, Inc., One +7 +Bowerman Drive, Beaverton, Oregon 97005-6453. The recommendation should include the candidate’s name, age, qualifications (including principal +occupation and employment history), and written consent to be named as a nominee in the Company’s proxy statement and to serve as a director, if elected. +The Board of Directors has adopted qualification standards for the selection of independent nominees for director which can be found at our internet website: www.nikebiz.com/investors . As provided in the these +standards and the Company’s Corporate Governance Guidelines, nominees for director are selected on the basis of, among other things, distinguished business experience or other non-business achievements; education; significant knowledge of +international business, finance, marketing, technology, law, or other fields which are complementary to, and balance the knowledge of other Board members; a desire to represent the interests of all shareholders; independence; character; ethics; good +judgment; diversity; and ability to devote substantial time to discharge Board responsibilities. In considering the re-nomination of an incumbent director, the Nominating and Corporate Governance Committee reviews the director’s overall service +to the Company during his or her term, including the number of meetings attended, level of participation and quality of performance, as well as any special skills or diversity that such director brings to the Board. All potential new director +candidates, whether recommended by shareholders or identified by other means, are initially screened by the Chair of the Nominating and Corporate Governance Committee, who may seek additional information about the background and qualifications of +the candidate, and who may determine that a candidate does not have qualifications that merit further consideration by the full committee. With respect to new director candidates who pass the initial screening, the Nominating and Corporate +Governance Committee meets to discuss and consider each candidate’s qualifications and potential contributions to the Board, and determines by majority vote whether to recommend such candidates to the Board of Directors. The final decision to +either elect a candidate to fill a vacancy between Annual Meetings or include a candidate on the slate of nominees proposed at an Annual Meeting is made by the Board of Directors. +Directors first elected after the 1993 fiscal year must retire at age 72. +Shareholder Communications with Directors +Shareholders or interested parties desiring to +communicate directly with the Board of Directors, with the non-management directors, or with any individual director, may do so in writing addressed to the intended recipient or recipients, c/o John F. Coburn III, Secretary, NIKE, Inc., One Bowerman +Drive, Beaverton, Oregon 97005-6453. All such communications will be reviewed, compiled as necessary, and then forwarded to the designated recipient or recipients in a timely manner. +Code of Business Conduct and Ethics +The NIKE Code of Ethics (“Code”) is available at the +Company’s internet website ( www.nikebiz.com ) and will be provided in print without charge to any shareholder who submits a request in writing to NIKE +8 +Investor Relations, One Bowerman Drive, Beaverton, Oregon 97005-6453. The Code applies to the Company’s chief executive officer and senior financial +officers, and to all other Company directors, officers and employees. The Code provides that any waiver of the Code may be made only by the Board. Any such waiver in favor of a director or executive officer will be publicly disclosed. The Company +plans to disclose amendments to, and waivers from, the Code on the Company’s internet website: www.nikebiz.com/investors. +Director +Compensation for Fiscal 2009 +Name +Fees Earned or +Paid in Cash +($) +Option +Awards (1) +($) +Change in +Pension Value +and +Nonqualified +Deferred +Compensation +Earnings (2) +($) +All Other +Compensation (3) +($) +Total +($) +John G. Connors +$ +74,000 +$ +68,767 +— +$ +20,300 +$ +163,067 +Jill K. Conway +60,000 +68,767 +— +19,980 +148,747 +Timothy D. Cook +69,500 +68,767 +— +20,300 +158,567 +Ralph D. DeNunzio +95,500 +85,960 +— +20,300 +201,760 +Alan B. Graf, Jr. +83,000 +68,767 +— +5,300 +157,067 +Douglas G. Houser +68,000 +85,960 +$ +53,009 +10,300 +217,269 +Jeanne P. Jackson (4) +57,667 +68,767 +— +5,300 +131,734 +John C. Lechleiter (5) +0 +0 +— +0 +0 +Johnathan A. Rodgers +67,500 +68,767 +— +300 +136,567 +Orin C. Smith +83,000 +68,767 +— +20,300 +172,067 +John R. Thompson, Jr. +43,000 +68,767 +— +30,714 +142,481 +(1) +Represents the amount of compensation expense recognized under FAS 123R in fiscal 2009 with respect to annual director options granted in fiscal 2009 and +fiscal 2008, disregarding estimated forfeitures. Compensation expense is equal to the grant date fair value of the options estimated using the Black-Scholes option pricing model, and is recognized ratably over the one-year vesting period. On +September 22, 2008, each listed director other than Messrs. DeNunzio and Houser and Dr. Lechleiter was granted an option for 4,000 shares with an exercise price of $63.15 per share, which was the closing market price of our Class +B Common Stock on the grant date. The grant date fair value of each of these options was $76,640, or $19.16 per share covered by the option. On September 22, 2008, each of Messrs. DeNunzio and Houser was granted an option for +5,000 shares with an exercise price of $63.15 per share, which was the closing market price of our Class B Common Stock on the grant date. The grant date fair value of each of these options was $95,800, or +9 +$19.16 per share covered by the option. The assumptions made in determining the grant date fair values of options under FAS 123R are disclosed in Note +11 of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended May 31, 2009. As of May 31, 2009, non-employee directors held outstanding options for the following numbers of shares of our Class B +Common Stock: Mr. Connors, 34,000; Dr. Conway, 40,000; Mr. Cook, 26,000; Mr. DeNunzio, 58,000; Mr. Graf, 50,000; Mr. Houser, 20,000; Mr. Rodgers, 18,000; Mr. Smith, 42,000; and Mr. Thompson, 32,000. +(2) +Represents above-market earnings credited to the Executive Deferred Compensation Plan account of Mr. Houser during fiscal 2009. +(3) +Includes medical and life insurance premiums paid by us of $14,680 for Dr. Conway and $10,414 for Mr. Thompson. Also includes matching charitable contributions by us under +the NIKE Matching Gift Program, under which directors are eligible to contribute to qualified charitable organizations and we provide a matching contribution to the charities in an equal amount, up to $20,000 in the aggregate for each director +annually. In fiscal 2009, we matched contributions to charities in the following amounts: Mr. Connors, $20,000, Dr. Conway, $5,000, Mr. Cook, $20,000, Mr. DeNunzio, $20,000, Mr. Graf, $5,000, Mr. Houser, $10,000, +Ms. Jackson, $5,000, Mr. Smith, $20,000, and Mr. Thompson, $20,000. Also includes sample and test products we provided to directors during the fiscal year, the value of which we estimate at $300 for each director based on our +incremental cost. +(4) +On March 4, 2009, Ms. Jackson resigned as a director and commenced employment as an executive officer of the Company. Compensation for her disclosed in the above table is +limited to compensation received in her capacity as a director. +(5) +Dr. Lechleiter’s service as a director commenced on June 18, 2009, which was after the end of fiscal year 2009. +Director Fees and Arrangements +Under our standard director compensation program, each non-employee director receives an annual retainer fee at the rate of $50,000 per year, a $2,000 meeting fee for each board meeting attended and a $1,000 meeting fee for each committee +meeting attended. Additionally, on the date of each annual meeting of shareholders, each non-employee director receives an option to purchase 4,000 shares of our Class B Common Stock. The option has a term of ten years and an exercise +price equal to the closing market price of our Class B Common Stock on the grant date. The option becomes exercisable in full on the date of the next annual meeting of shareholders. Messrs. Connors, Cook, Graf, Rodgers and Smith +participate, and Ms. Jackson participated, in our standard director compensation program. Messrs. DeNunzio and Houser also participate in our standard program, except that, in exchange for electing in fiscal 2000 to participate in the +standard program when it was first instituted, they each receive an annual option to purchase 5,000 shares of our Class B Common Stock, instead of 4,000 shares. +10 +Mr. Thompson and Dr. Conway do not participate in our standard director compensation program. +Pursuant to elections made in fiscal 2000, Mr. Thompson and Dr. Conway receive an annual retainer fee at the rate of $32,000 per year (instead of the $50,000 annual retainer fee paid under our standard program), a $2,000 meeting fee for +each board meeting attended and a $1,000 meeting fee for each committee meeting attended. Pursuant to these elections, Mr. Thompson and Dr. Conway also receive medical insurance and $500,000 of life insurance coverage paid for by us. +Additionally, on the date of each annual meeting of shareholders, Mr. Thompson and Dr. Conway each receive an annual option to purchase 4,000 shares of our Class B Common Stock on the same terms as apply to the options granted +pursuant to our standard program. +Non-employee directors serving as chair to a board committee, except the Executive Committee, also +receive an annual fee at the rate of $10,000 for each committee chaired, and the chair of the Audit Committee receives an annual fee at the rate of $15,000. We also pay for or reimburse our non-employee directors for travel and other expenses +incurred in attending board meetings. +Philip H. Knight, as the chairman of our board of directors, is one of our executive officers, but +is not a Named Executive Officer. Mr. Knight does not receive any additional compensation for services provided as a director. +Director Participation in Deferred Compensation Plan +Under our Deferred Compensation Plan, non-employee directors +may elect in advance to defer up to 100 percent of the director fees paid by us, including retainer fees, committee fees and meeting fees. For a description of the plan, see “Non-Qualified Deferred Compensation in Fiscal 2009” below. +In addition, in fiscal 2000, Dr. Conway and Messrs. DeNunzio, Houser, and Thompson received credits to a fully vested NIKE stock account under the Deferred Compensation Plan in exchange for their waiver of rights to future payments under a +former non-employee director retirement program. The Class B shares credited to these directors’ accounts will be distributed to them upon their retirement from the Board, and the accounts are credited with quarterly dividends until +distributed. +11 +Stock Holdings of Certain Owners and Management +The following table sets forth the number of shares of each class of NIKE securities beneficially owned, as of July 15, 2009, by (i) each +person known to the Company to be the beneficial owner of more than 5 percent of any class of the Company’s securities, (ii) each of the directors and nominees for director, (iii) each executive officer listed in the Summary +Compensation Table (“Named Officers”), and (iv) all nominees, Named Officers, and other executive officers as a group. Because Class A Stock is convertible into Class B Stock on a share-for-share basis, each beneficial owner of +Class A Stock is deemed by the Securities and Exchange Commission to be a beneficial owner of the same number of shares of Class B Stock. Therefore, in indicating a person’s beneficial ownership of shares of Class B Stock in the table, it +has been assumed that such person has converted into Class B Stock all shares of Class A Stock of which such person is a beneficial owner. For these reasons the table contains substantial duplications in the numbers of shares and percentages of +Class A and Class B Stock shown for Mr. Knight, for Oak Hill Investment Management, L.P., and for all directors and officers as a group. +Title of +Class +Shares +Beneficially +Owned (1) +Percent of +Class (2) +John G. Connors +Bellevue, Washington +Class B +36,640 +(3) +— +Jill K. Conway +Boston, Massachusetts +Class B +70,395 +(3) (4) +— +Timothy D. Cook +Cupertino, California +Class B +22,000 +(3) +— +Ralph D. DeNunzio +Riverside, Connecticut +Class B +213,429 +(3) (4) +— +Alan B. Graf, Jr +Memphis, Tennessee +Class B +54,000 +— +Douglas G. Houser +Portland, Oregon +Class B +179,877 +(3) (4) +— +Philip H. Knight +Beaverton, Oregon +Class A +Class B +91,910,094 +91,923,764 +(5) +(5) +96.4 +19.1 +% +% +John C. Lechleiter +Indianapolis, Indiana +Class B +— +— +Mark G. Parker (6) +Beaverton, Oregon +Class B +1,068,535 +(3) (7) +0.3 +% +Johnathan A. Rodgers +Silver Spring, Maryland +Class B +14,000 +(3) +— +Orin C. Smith +Seattle, Washington +Class B +38,000 +(3) +— +John R. Thompson, Jr +Washington, D.C. +Class B +43,327 +(3) (4) +— +12 +Title of +Class +Shares +Beneficially +Owned (1) +Percent of +Class (2) +Donald W. Blair (6) +Portland, Oregon +Class B +437,960 +(3) (7) +0.1 +% +Charles Denson (6) +Portland, Oregon +Class B +873,723 +(3) (7) (8) +0.2 +% +Trevor Edwards (6) +Portland, Oregon +Class B +434,814 +(3) (7) +0.1 +% +Gary M. DeStefano (6) +Beaverton, Oregon +Class B +237,159 +(3) (7) +— +Sojitz Corporation of America +Portland, Oregon +Preferred +(9) +300,000 +100 +% +Oak Hill Investment Management, L.P. +Fort Worth, Texas +Class B +27,599,365 +(10) (11) +7.1 +% +FMR LLC +Boston, Massachusetts +Class B +23,551,373 +(11) +6.0 +% +All directors and executive officers as a group (23 persons) +Class A +Class B +91,910,094 +96,865,959 +(3) +96.4 +20.1 +% +% +(1) +A person is considered to beneficially own any shares: (a) over which the person exercises sole or shared voting or investment power, or (b) of which the person has the +right to acquire beneficial ownership at any time within 60 days (such as through conversion of securities or exercise of stock options). Unless otherwise indicated, voting and investment power relating to the above shares is exercised solely +by the beneficial owner or shared by the owner and the owner’s spouse or children. +(2) +Omitted if less than 0.1 percent. +(3) +These amounts include the right to acquire, pursuant to the exercise of stock options, within 60 days after July 15, 2009, the following numbers of shares: 30,000 shares for +Mr. Connors, 36,000 shares for Dr. Conway, 22,000 shares for Mr. Cook, 53,000 shares for Mr. DeNunzio, 46,000 shares for Mr. Graf, 15,000 shares for Mr. Houser, 878,750 shares for Mr. Parker, 14,000 shares for +Mr. Rodgers, 38,000 shares for Mr. Smith, 28,000 shares for Mr. Thompson, 396,000 shares for Mr. Blair, 797,500 shares for Mr. Denson, 395,000 shares for Mr. Edwards, 209,500 shares for Mr. DeStefano, and 3,961,075 +shares for the executive officer and director group. +(4) +Includes shares credited to accounts under the NIKE, Inc. Deferred Compensation Plan in the following amounts: 9,329 for Dr. Conway, 8,629 for Mr. DeNunzio, 9,503 for +Mr. Houser, and 7,327 for Mr. Thompson. +(5) +Does not include: (a) 130,448 Class A shares owned by a corporation which is owned by Mr. Knight’s spouse, (b) 1,850,000 Class B shares held by the Knight +Foundation, a charitable foundation in which Mr. Knight and his spouse are directors, (c) 2,063,103 Class B shares held by Oak Hill Strategic Partners, L.P., a limited partnership in which a company owned by Mr. Knight is a limited +partner, and (d) 25,536,262 Class B shares held by Cardinal Investment Sub I L.P., a limited partnership in which Mr. Knight is a limited partner. Mr. Knight has disclaimed ownership of all such shares. +(6) +Executive officer listed in the Summary Compensation Table. +(7) +Includes shares held in accounts under the NIKE, Inc. 401(k) and Profit Sharing Plan for Messrs. Parker, Blair, Denson, Edwards and DeStefano in the amounts of 6,447, 1,990, +8,324, 3,317, and 6,567 shares, respectively. +(8) +Includes 200 shares held by a partnership in which Mr. Denson’s spouse is a general partner. +13 +(9) +Preferred Stock does not have general voting rights except as provided by law, and under certain circumstances as provided in the Company’s Restated Articles of +Incorporation, as amended. +(10) +Includes 25,536,262 Class B shares held by Cardinal Investment Sub I, L.P. and 2,063,103 Class B shares held by Oak Hill Strategic Partners, L.P. Oak Hill Investment Management, +L.P. has the sole voting and dispositive power with respect to all of these Class B shares pursuant to investment management agreements. Because this power may be revoked upon notice of 60 days or less, each of Cardinal Investment Sub I., L.P. and +Oak Hill Strategic Partners, L.P. may be deemed to be the beneficial owner of the Class B shares held by it. +(11) +Information provided as of December 31, 2008 in Schedule 13G filed by the shareholder. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities +Exchange Act of 1934 requires the Company’s directors and executive officers, and persons who own more than 10 percent of a registered class of the Company’s equity securities, to file with the Securities and Exchange Commission (the +“SEC”) and the New York Stock Exchange initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Officers, directors and greater than 10 percent shareholders are +required by the regulations of the SEC to furnish the Company with copies of all Section 16(a) forms they file. To the Company’s knowledge, based solely on review of the copies of such reports furnished to the Company and written +representations that no other reports were required, during the fiscal year ended May 31, 2009 all Section 16(a) filing requirements applicable to its officers, directors and greater than 10 percent beneficial owners were complied +with. +Transactions with Related Persons +Mr. Knight makes his airplane available for business use by the Company for no charge. NIKE operates and maintains the aircraft. Mr. Knight has reimbursed the Company $578,158 for NIKE’s operating costs related to his +personal use of this aircraft during fiscal 2009, determined based on the cost of fuel and other variable costs associated with the flights under FAR 91-501(d). +Pursuant to the terms of a past consulting agreement with the Company, the Company agreed to pay for health insurance and for life insurance policies for Howard Slusher, the father of John Slusher, Vice President of +Sports Marketing, following expiration of the agreement. During fiscal 2009 the Company paid Howard Slusher $134,392 for health and life insurance premiums. +Three of Mr. Parker’s siblings are employed by the Company in non-executive roles. Bob Parker is a Strategic Account Manager, and has been employed by the Company for over 25 years; Stephen Parker is the +General Manager, China-Converse, and has been employed by the Company for over 21 years; and Ann Parker is a Senior Design Recruiter, and has been employed by the Company for over 20 years. During fiscal year 2009, the Company paid aggregate +compensation to Bob Parker, Stephen Parker and Ann Parker in the amounts of $321,636, $440,396, and $200,270, respectively. The compensation was consistent with compensation paid to other employees holding similar positions, and was composed of +14 +salary, performance bonus, the grant date fair value of stock options granted during the fiscal year estimated using the Black-Scholes pricing model, and +profit sharing and matching contributions to Company-sponsored retirement plans. +Compensation Committee Interlocks and Insider Participation +The members of the Compensation Committee of the Board of Directors during the fiscal year ended May 31, 2009 were Ralph D. +DeNunzio, Timothy D. Cook, Jeanne P. Jackson, and Johnathan A. Rodgers. Ms. Jackson resigned from the Compensation Committee and the board of directors on March 4, 2009, when she was appointed an officer of the Company. On June 18, +2009, the Board of Directors appointed John C. Lechleiter to the Board of Directors, and also to the Compensation Committee. The Committee is composed solely of independent, non-employee directors. +15 +COMPENSATION DISCUSSION AND ANALYSIS +Operation of the Compensation Committee +The Compensation Committee of the Board of Directors (the +“Committee”) oversees the performance evaluation of the CEO against goals and objectives set by the Committee, and based on the evaluation, recommends the CEO’s compensation to the independent members of the Board of Directors. +Subject to the approval of the independent members of the Board of Directors, the Committee also determines the compensation of our other Named Executive Officers. The Committee also oversees the performance evaluation of those officers and the +administration of our executive compensation programs. The Committee receives recommendations from the CEO as to compensation of other Named Executive Officers, and the CEO participates in Committee discussions regarding the compensation of those +officers. The Committee meets in executive session without the CEO to determine his compensation. The Committee is comprised of Ralph D. DeNunzio (Chairman), Timothy D. Cook, John C. Lechleiter, and Johnathan A. Rodgers, each of whom is an +independent director under applicable New York Stock Exchange listing standards. The Committee operates pursuant to a written charter that is available on our website at: www.nikebiz.com/investors . +Each year, the Committee reviews our executive total compensation programs to ensure that they continue to reflect the Committee’s commitment to +link executive compensation with the creation of value for our shareholders. The programs have been designed to deliver total compensation that motivates and rewards short and long-term financial performance to maximize shareholder value, and to be +externally competitive to attract and retain outstanding and diverse executive talent. The Committee has the sole authority under its charter to retain compensation consultants engaged to assist the Committee in evaluating the compensation of +executive officers, but the Committee has not retained any such consultants. In conducting the annual review, the Committee considers information provided by our human resources staff. Our human resources staff retains Hewitt Associates and Towers +Perrin, both independent compensation consulting firms, to provide surveys and reports containing competitive market data. The staff uses this information to make recommendations to the Committee concerning executive compensation. These consultants +do not, however, formulate executive compensation strategies for NIKE or recommend individual executive compensation. The Committee reviews summaries prepared by our human resources staff and uses this data as well as reliance on the +Committee’s collective experience and judgment to set executive compensation. +Use of Market Survey Data +To help establish competitive ranges of base salary and incentive compensation opportunities for purposes of making recommendations to the Committee, our +human resources staff uses competitive market data from surveys and reports prepared by Hewitt Associates and Towers Perrin. We use two benchmarks. One is a broad group of companies across many industries with revenues of $10 billion or +16 +more. The second benchmark we use is a peer group of companies with revenues of $9 billion or more. For fiscal 2009, the Committee revised the peer group to +more closely resemble companies that have similar size of revenue, have similar products or markets, or reflect the companies with which we compete for executive talent. As a result, our peer group was refined from 24 to 14 companies. +For purposes of setting executive compensation for fiscal 2009, the companies in this peer group were as follows: +Company +Reported +Fiscal Year +Revenue +(in millions) +Apple Inc. +09/08 +$ +32,479.0 +The Coca-Cola Company +12/08 +$ +31,994.0 +Colgate-Palmolive Company +12/08 +$ +15,329.9 +FedEx Corp. +05/08 +$ +37,953.0 +Gap Inc. +01/09 +$ +14,526.0 +General Mills Inc. +05/08 +$ +13,652.1 +Google Inc.* +12/08 +$ +21,795.6 +Kellogg Co. +12/08 +$ +12,822.0 +Limited Brands Inc. +01/09 +$ +9,043.0 +Macy’s, Inc. +01/09 +$ +24,892.0 +McDonald’s Corporation +12/08 +$ +23,522.4 +PepsiCo, Inc. +12/08 +$ +43,251.0 +Starbucks Corp. +09/08 +$ +10,383.0 +The Walt Disney Company +09/08 +$ +37,843.0 +* +Represents company added to peer group +The surveys that our human resources staff reviews for each of the two benchmarks show percentile compensation levels for various executive positions. The Committee does not endeavor to set executive compensation at or near any particular +percentile, and considers total compensation to be competitive if it is within the 25 th to 75 th percentiles. Market data is only one of many factors that the +Committee considers in the determination of executive compensation levels. Other factors include internal pay equity, level of responsibility, the individual’s performance, and expectations regarding the individual’s future contributions, +our own performance, budget considerations, and succession planning retention strategies. +Objectives and Elements of Our Compensation Program +Our overall executive compensation strategy is accomplished through a total compensation program that is aligned with our business +strategy and culture to attract and retain top talent, reward business results +17 +and individual performance, and, most importantly, maximize shareholder returns. Our total compensation program for the Named Executive Officers consists of +the following elements: +• +Base salary that reflects the executive’s accountabilities, skills, experience, performance, and future potential +• +Annual performance-based incentive bonus based on company financial results under our Executive Performance Sharing Plan +• +A portfolio approach to long-term incentive compensation to provide a balanced mix of equity and performance-based cash incentives +• +Performance-based awards payable in cash under the Long-Term Incentive Plan to encourage attainment of long-term financial objectives +• +Time vested stock options to align the interests of executives with those of shareholders +• +Time vested restricted stock awards to provide incentives consistent with shareholder returns, and to supply a strong retention incentive +• +Benefits +• +Profit sharing under defined contribution retirement plans +• +Post-termination payments under non-competition and/or employment agreements +In determining the award levels for each of the elements in our total compensation program, our philosophy is to “pay for performance,” so we +place relatively greater emphasis on the incentive components of compensation (Executive Performance Sharing Plan, Long-Term Incentive Plan, and stock options) to align the interests of our executives with shareholders, and motivate them to maximize +shareholder returns. This is balanced with retention incentives provided by base salary and restricted stock awards. Incentive components of pay account for 85% of the CEO’s pay, 84% of the NIKE Brand President’s pay, and approximately 74% +of the other Named Executive Officers’ pay, as shown in the chart below. We look to the experience and judgment of the Committee to determine what it believes to be the appropriate mix of compensation elements for each executive, rather than +applying fixed ratios or formulae, or relying solely on market data or quantitative measures. In allocating compensation among the various elements, the Committee considers market data, Company performance and budget, the impact of the +executive’s position in the Company, individual past performance, expectations for future performance, experience in the position, any anticipated increase in the individual’s responsibilities, internal pay equity for comparable positions, +and succession planning retention strategies. +18 +Annual Cash Compensation +Base Salary +When making recommendations to the Committee concerning base +salary levels for our Named Executive Officers, our human resources staff considers the market data described above to recommend base salaries generally between the 25 th and 75 th +percentiles of the salaries for comparable positions reflected in the surveys and reports. Other factors considered in setting annual salary levels include the individual’s performance in the prior +year, expectations regarding the individual’s future performance, experience in the position, any anticipated increase in the individual’s responsibilities, internal pay equity for comparable positions, and succession planning strategies. +The Committee reviews these factors each year and adjusts base salary to make sure that we are appropriately rewarding performance. In setting a Named Executive Officer’s overall compensation package for the year, however, the Committee +attempts to place a relatively greater emphasis on the incentive components of that compensation, than on base salary. +The Committee +generally reviews and adjusts base salaries annually based on a review of individual performance at a meeting in June, with salary adjustments becoming effective for the first pay period ending in August. During the fiscal 2009 salary review in June +2008, the Committee decided to increase Mr. Parker’s base salary from $1,400,000 to $1,475,000, to reflect his individual performance of goals and objectives established by the Committee, and the Company’s performance of long-term +strategic initiatives and financial targets for fiscal 2008. The Committee decided to increase Mr. Denson’s base salary from $1,200,000 to $1,260,000, Mr. Blair’s base salary from $750,000 to $810,000, Mr. DeStefano’s +base salary +19 +from $965,000 to $1,000,000, and Mr. Edwards’ base salary from $775,000 to $810,000 per year. The increases for Messrs. Parker, Denson, +DeStefano, and Edwards were generally in line with average Company-wide merit increases for fiscal 2009, while Mr. Blair’s salary was increased due to the level of his contributions relative to executive peers. +Performance-Based Annual Incentive Bonus +Annual bonuses are paid to the Named Executive Officers under our Executive Performance Sharing Plan (“PSP”). Our “pay for performance” philosophy for bonuses is simple: if we exceed our financial +objectives, we will pay more; if we fail to reach them, we will pay less or nothing at all. The PSP for all executives is based 100% on overall corporate performance each year as measured by income before income taxes excluding the effect of any +acquisitions, divestitures or accounting changes (“PTI”). Basing our bonus program for all executives on overall corporate performance is intended to foster teamwork and send the message to each executive that his or her role is to help +ensure overall organizational success and maximize shareholder returns. +Each year the Committee establishes a target bonus for each Named +Executive Officer under the PSP expressed as a percentage of base salary paid during the year. The threshold bonus under the PSP is 50% of the target bonus and the maximum bonus is 150% of target. For fiscal 2009, the Committee decided to increase +Mr. Parker’s target bonus from 125% to 135%, Mr. Denson’s target bonus from 110% to 120%, Mr. Blair’s target bonus from 70% to 80%, and Mr. Edwards’ target bonus from 70% to 80%. These changes support our +strategy to place more emphasis on the incentive components of pay. The target bonus for Mr. DeStefano remained the same at 80%. The Committee sets these target bonus levels each year based on its judgment of the impact of the position in the +Company and what it finds to be competitive with our peer group of companies and our competitors, while maintaining internal pay equity for comparable positions. +The Committee approved PSP performance goals for fiscal 2009 of $2,631 million of PTI for the target bonus payout, $2,465 million of PTI for a 50% threshold bonus payout, and $2,842 million of PTI for a +150% maximum bonus payout. The Committee determined that the fiscal 2009 PTI target should represent a 6.7% increase over fiscal 2008 adjusted PTI of $2,465 million. (Our PTI of $2,503 reported for fiscal 2008 was adjusted to eliminate the effects +of the acquisition of Umbro plc, and the divestitures of NIKE Bauer Hockey and the Starter brand of Exeter Brands Group, all of which occurred in fiscal 2008.) The percentage increase in PTI over prior year results required to achieve the target +bonus payout each year is not a uniform percentage, but is established by the Committee based on its evaluation of our business plan and prospects for the year. The threshold and maximum PTI levels are also determined by the Committee based on +similar factors. The Committee set the threshold PTI target level at the prior year adjusted PTI level, and set the maximum PTI target level at 8.1% above the target PTI. +20 +Based on actual PTI of $1,956.5 for fiscal 2009, there were no PSP payouts for executive officers for +fiscal 2009. PTI results were below target largely due to the extraordinary one-time charges for the impairment of intangible assets of our Umbro subsidiary and the Company restructuring to realign our organization. +Long-Term Compensation +Performance-Based +Long-Term Incentive Plan +The first component in our long-term portfolio mix is performance-based awards payable in cash under our +Long-Term Incentive Plan (“LTIP”). As with the annual bonus, the LTIP follows our “pay for performance’ philosophy. If we exceed our targets, we will pay more; if we fall short, we will pay less or nothing at all. This program +causes our executives to focus on overall, long-term financial performance, and is intended to reward them for improving shareholder returns. At the beginning of each fiscal year, the Committee establishes performance goals and potential cash +payouts for the next three fiscal years for all executives under the LTIP. LTIP measures for all executives are based 50% on cumulative revenues for the three-year performance period and 50% on cumulative diluted earnings per share (“EPS”) +for the period, in each case excluding the effect of acquisitions, divestitures and accounting changes. +In June 2008, the Committee +approved LTIP awards to all Named Executive Officers for the fiscal 2009-2011 performance period. Target award levels were approved for each Named Executive Officer, with the threshold award equal to 50% of the target award and the maximum award +equal to 200% of the target award. The target awards were $2,000,000 for Mr. Parker, $1,500,000 for Mr. Denson and $500,000 for Mr. Blair, Mr. DeStefano and Mr. Edwards. The target awards for Mr. Parker, +Mr. Denson, Mr. Blair, Mr. DeStefano, and Mr. Edwards were increased from the prior year target awards of $1,500,000, $1,000,000, $300,000, $300,000, and $300,000, respectively, reflecting the Committee’s desire to have a +higher portion of their compensation dependent on achievement of these long-term growth measures. The Committee sets these target LTIP levels each year based on its judgment of what it believes to be a desirable mix of long-term compensation, the +impact of the position in the Company, and of what it finds to be competitive with our peer group of companies and our competitors, while maintaining internal pay equity for comparable positions. +For the fiscal 2009-2011 performance period, the cumulative revenue necessary to achieve the target award payout corresponds to a compounded annual +growth rate (“CAGR”) in revenues of 8% from fiscal 2008 results of $18,557 million, which was adjusted to account for the acquisition of Umbro plc and the divestitures of NIKE Bauer Hockey and the Starter brand of Exeter Brands Group, all +of which occurred in fiscal 2008. The 50% threshold payout requires cumulative revenues corresponding to a 4% CAGR, and the 200% maximum payout requires cumulative revenues corresponding to an 13.1% CAGR. The Committee set the CAGR for the target +award payout level (the calculation of which excludes the effect of +21 +any acquisitions during the performance period) to correspond to our long-term financial goal of high single digit revenue growth including the effect of +acquisitions. For EPS over the fiscal 2009-2011 performance period, the target payout requires cumulative EPS corresponding to a 13% CAGR from fiscal 2008 results of $3.39, which was adjusted to account for the acquisition of Umbro plc and the +divestitures of NIKE Bauer Hockey and the Starter brand of Exeter Brands Group, all of which occurred in fiscal 2008. The 50% threshold payout requires cumulative EPS corresponding to an 6.5% CAGR, and the 200% maximum payout requires cumulative EPS +corresponding to a 23.2% CAGR. The Committee set the CAGR for the target award payout level (the calculation of which excludes the effect of any acquisitions during the performance period) to correspond to our long-term financial goal of mid-teens +EPS growth including the effect of acquisitions. The total payout percentage will be the average of the payout percentages determined for cumulative revenues and cumulative EPS, respectively. +Our executive officers were eligible to receive similar LTIP awards set in June 2006 covering the fiscal 2007-2009 performance period. Based on our +performance over the last three fiscal years, the maximum 150% payout percentage under these awards was earned. Cumulative revenues for the period were $54,260 million after adjustment to eliminate the effects of the acquisition of Umbro plc, and +the divestitures of NIKE Bauer Hockey and the Starter brand of Exeter Brands Group, all of which occurred in fiscal 2008, or 108% of the target payout level for revenue and a 9.8% CAGR, which corresponded to a 150% payout level for revenues. +Cumulative EPS for the period, after adjustment to eliminate the effects of the acquisition of Umbro Ltd. and the divestitures of NIKE Bauer Hockey and the Starter brand of Exeter Brands Group, was $10.09, or 108% of the target payout level for EPS +and a 12.6% CAGR, which corresponded to a 150% payout level for EPS. The total payout percentage was the average of the payout percentages determined for cumulative revenues and cumulative EPS, respectively. +Performance-Based Stock Options +The second component in our long-term portfolio mix is stock options. Stock options are designed to align the interests of the Company’s executives with those of shareholders by encouraging executives to enhance the value of the +Company and, hence, the price of the Class B Stock. This is true “pay for performance”: executives are rewarded only if the market price of our stock rises, and they get nothing if the price does not rise. Our stock option program is +generally based on granting options for a consistent number of shares each year for each position. When determining the grants, the Committee focuses on the number of shares, not the value for accounting purposes. Our approach is based on our desire +to carefully control annual share usage and avoid fluctuations in grant levels due to share price changes. The Committee awards stock options to each executive based on its judgment of a desirable mix of long-term incentive compensation, and what it +believes to be competitive with our peer group of companies and our competitors, while maintaining internal pay equity for comparable positions. Our human resources staff periodically tests the reasonableness of our stock option grants against peer +group market data. +22 +Options are generally granted annually to all eligible employees, including the Named Executive Officers, +in July of each year. Stock options for fiscal 2009 were granted by the Committee on July 18, 2008 with an exercise price equal to the closing market price of our stock on that date. +Options were granted in July 2008 to Mr. Parker for 135,000 shares, to Mr. Denson for 110,000 shares, and to Messrs. Blair, DeStefano, and +Edwards for 50,000 shares each. This was the same number of stock options granted to each of them in July 2007. The Committee determined in its judgment not to increase from the prior year the number of shares granted to the Named Executive Officers +based on the Committee’s determination of a desirable mix of long-term compensation, the number of shares granted to Named Executive Officers in the past, and a review of grants to comparable executives in our peer group of companies. +Options we grant generally promote executive retention because they carry four-year vesting periods and are forfeited if the employee +leaves before vesting occurs. Under certain conditions optionees may receive accelerated vesting of all of their options upon retirement as described below under the heading “Potential Payments Upon Termination or Change-in-Control.” Based +on their ages and years of service, Mr. Parker, Mr. Denson, Mr. DeStefano, Mr. Blair, and Mr. Edwards could terminate employment at any time and receive full vesting of their options. This provision for accelerated vesting +has been a standard feature of our stock option grants to all employees since 2002. +Restricted Stock Awards +The third component in our long-term portfolio mix is restricted stock awards. Stock ownership and stock-based incentive awards align the interests of +our Named Executive Officers with the interests of our shareholders, as the value of this incentive rises and falls with the stock price, consistent with shareholder returns. Historically, the Committee has generally awarded restricted stock to +Named Executive Officers once every three years. However, the Committee has decided to grant restricted stock annually to Mr. Parker and Mr. Denson to provide a relatively greater alignment between their compensation and shareholder +returns, and to enhance retention incentives. In addition, the Committee may also award restricted stock in connection with promotions or other special circumstances. Restricted stock awards are generally made in July at the same meeting at which +stock options are granted. Awards generally vest in three equal installments on each of the first three anniversaries of the grant date. The awards promote executive retention as unvested shares held at the time the executive’s employment is +terminated are forfeited. Award recipients receive dividends on the full number of restricted shares awarded, both vested and unvested. +Mr. Parker and Mr. Denson were the only Named Executive Officers that received restricted stock awards in fiscal 2009. In July 2008, Mr. Parker received an award covering 38,660 shares of our Class B Stock valued at +$2,250,000 based on the closing price of our Class B Stock on the grant date and Mr. Denson received an award covering 25,774 shares of our Class B Stock valued at $1,500,000. By +23 +comparison, in July 2007, Mr. Parker received an award covering 25,633 shares of our Class B Stock valued at $1,500,000 based on the closing price on +the grant date, and Mr. Denson received an award covering 17,089 shares valued at $1,000,000. The Committee increased the restricted stock award levels for Mr. Parker and Mr. Denson based on several factors, including but not limited +to what the Committee believed to be a desirable mix of long-term compensation, and the Committee’s judgment of competitive grants by our peer group of companies. Our human resources staff periodically tests the reasonableness of our restricted +stock awards against peer group market data. Mr. Blair, Mr. DeStefano and Mr. Edwards did not receive restricted stock awards in fiscal 2009. They received awards in fiscal 2007 consistent with the practice noted above of granting +awards once every three years. +Profit Sharing and Retirement Plans +The NIKE 401(k) Savings and Profit Sharing Plan is our tax qualified retirement savings plan pursuant to which our employees, including the Named Executive Officers, are able to make pre-tax contributions from their +cash compensation. We make matching contributions for all participants each year equal to 100% of their elective deferrals up to 5% of their total eligible compensation, which is initially invested in Class B Stock. We also make annual profit +sharing contributions to the accounts of our employees under the 401(k) Savings and Profit Sharing Plan. The contributions are allocated among eligible employees based on a percentage of their total salary and bonus for the year. The total profit +sharing contribution and the percentage of salary and bonus contributed for each employee is determined each year by the Board of Directors. For fiscal 2009, the Board of Directors approved a profit sharing contribution for each employee equal to +3.65% of the employee’s total eligible salary and bonus. +The Internal Revenue Code limits the amount of compensation that can be +deferred under the 401(k) Savings and Profit Sharing Plan, and also limits the amount of salary and bonus ($230,000 for fiscal 2009) with respect to which matching contributions and profit sharing contributions can be made under that plan. +Accordingly, we provide our executive officers and other highly compensated employees with the opportunity to defer their compensation, including amounts in excess of the tax law limit, under our nonqualified Deferred Compensation Plan. We also make +profit sharing contributions under the Deferred Compensation Plan with respect to salary and bonus of any employee that exceeds the tax law limit, and for fiscal 2009 these contributions were equal to 3.65% of the total salary and bonus of each +Named Executive Officer in excess of $230,000. These contributions under the Deferred Compensation Plan allow our Named Executive Officers and other highly compensated employees to receive profit sharing retirement contributions in the same +percentage as our other employees. We do not match executive deferrals to the Deferred Compensation Plan. Executive officer balances in the Deferred Compensation Plan are unsecured and at-risk, meaning the balances may be forfeited in the event of +the Company’s financial distress such as bankruptcy. Our matching and profit sharing contributions for fiscal 2009 to the accounts of the Named Executive Officers under the qualified and nonqualified plans are included under the heading +“All Other Compensation” in the Summary Compensation Table below. +24 +Post-termination Payments Under Non-competition and/or Employment Agreements +In exchange for non-competition agreements from all of our Named Executive Officers, we have agreed to provide during the non-competition period the +monthly payments described in “Potential Payments upon Termination or Change-in-Control” below, some of which are at the election of the Company. We believe that it is appropriate to compensate individuals to refrain from working with +competitors following termination, and that compensation enhances the enforceability of such agreements. +Change in Control Provisions +Under the terms of stock option and restricted stock awards, any unvested awards would vest upon certain transactions that would result in a change in +control, such as shareholder approval of a liquidation, a sale, lease, exchange or transfer of substantially all of the assets of the Company, or a consolidation, merger, plan of exchange, or transaction in which the Company is not the surviving +corporation. These transactions are described below under the heading “Potential Payments Upon Termination or Change-in-Control.” This vesting feature, re-approved by shareholders in 2005, is in place because we believe +that utilizing a single event to vest awards provides a simple and certain approach for treatment of equity awards in a transaction that will likely result in the elimination or de-listing of our stock. This provision recognizes that +such transactions have the potential to cause a significant disruption or change in employment relationships and thus treats all employees the same regardless of their employment status after the transaction. In addition it provides our +employee option holders with the same opportunities as our other shareholders who are free to realize the value created at the time of the transaction by selling their equity. +Tax Deductibility of Executive Compensation +Section 162(m) of the Internal Revenue Code +generally disallows a tax deduction to public companies for annual compensation over $1 million paid to their chief executive officer and the next three most highly compensated executive officers. The Internal Revenue Code generally excludes from +the calculation of the $1 million cap compensation that is based on the attainment of pre-established, objective performance goals established under a shareholder-approved plan. Annual bonuses under our Executive Performance Sharing Plan, long-term +incentive awards under our Long-Term Incentive Plan, and stock options under our 1990 Stock Incentive Plan are all structured in a manner intended to qualify any compensation paid thereunder as “performance-based compensation” excluded +from the calculation of the $1 million annual cap. However, base salary and compensation on vesting of restricted stock awards are subject to the $1 million deductibility cap. Accordingly, in fiscal 2009 a portion of the compensation paid to +Mr. Parker, Mr. Denson, Mr. DeStefano, and Mr. Edwards was not deductible. +25 +COMPENSATION COMMITTEE REPORT +The Compensation Committee of the Board of Directors (the “Committee”) has reviewed and discussed with management the Compensation Discussion +and Analysis required by Item 402(b) of Regulation S-K. Based on the review and discussions, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement. +Members of the Compensation Committee: +Ralph D. DeNunzio, Chairman +Timothy D. Cook +John C. Lechleiter +Johnathan A. Rodgers +26 +EXECUTIVE COMPENSATION +Summary Compensation Table +The following table sets forth compensation paid to +or earned by our Chief Executive Officer, our Chief Financial Officer and our next three most highly compensated executive officers who were serving as executive officers on May 31, 2009, for fiscal 2009. These individuals are referred to +throughout this proxy statement as the “Named Executive Officers.” +Name and Principal Position +Year +Salary +($) +Stock +Awards (1) +($) +Option +Awards (2) +($) +Non-Equity +Incentive Plan +Compensation (3) +($) +Change in +Pension Value +and +Nonqualified +Deferred +Compensation +Earnings (4) +($) +All Other +Compensation (5) +($) +Total +($) +Mark G. Parker +2009 +$ +1,463,462 +$ +1,434,102 +$ +3,319,005 +$ +900,000 +— +$ +190,125 +$ +7,306,694 +Chief Executive Officer and President +2008 +1,376,923 +1,187,942 +3,364,351 +2,682,684 +— +188,687 +8,800,587 +2007 +1,250,000 +815,720 +1,839,987 +2,147,537 +$ +2,567 +172,157 +6,227,968 +Donald W. Blair +2009 +800,769 +333,338 +1,242,751 +450,000 +— +82,095 +2,908,953 +Vice President and Chief Financial Officer +2008 +740,000 +333,338 +1,140,834 +1,031,662 +— +101,162 +3,346,996 +2007 +680,385 +311,115 +778,415 +913,029 +— +83,465 +2,766,409 +Charles D. Denson +2009 +1,250,769 +941,066 +2,769,609 +750,000 +— +188,104 +5,899,548 +President of the NIKE Brand +2008 +1,192,308 +882,389 +2,895,637 +2,222,727 +— +140,312 +7,333,373 +2007 +1,150,000 +649,040 +1,718,331 +1,868,030 +— +133,907 +5,519,308 +Gary M. DeStefano +2009 +994,615 +333,338 +1,136,516 +450,000 +— +94,401 +3,008,870 +President, Global Operations +2008 +958,846 +333,338 +1,277,008 +1,311,351 +— +117,865 +3,998,408 +2007 +916,346 +311,115 +1,680,174 +1,162,697 +— +111,336 +4,181,668 +Trevor A. Edwards +2009 +804,615 +333,338 +1,154,475 +450,000 +— +73,120 +2,815,548 +Vice President, Global Brand and Category Management +2008 +767,308 +333,338 +1,233,324 +1,053,127 +— +90,928 +3,478,025 +(1) +Represents the amount of compensation expense recognized under FAS 123R with respect to restricted stock awards granted in fiscal 2009 and prior years, disregarding estimated +forfeitures. Compensation expense is equal to the value of the restricted shares based on the closing market price of our Class B Common Stock on the grant date, and is recognized ratably over the vesting period, which is generally three years. +(2) +Represents the amount of compensation expense recognized under FAS 123R with respect to options granted in fiscal 2009 and prior fiscal years, disregarding estimated forfeitures. +Compensation expense is equal to the grant date fair value of the options estimated using the Black-Scholes option pricing model, and is generally recognized ratably over the four-year vesting period. However, for employees whose age plus years of +service exceeds 60 (including each of the Named Executive Officers), and who therefore are eligible to have all options become fully exercisable on any termination of employment, all of the compensation expense for options granted after our adoption +of FAS 123R on June 1, 2006 is recognized at the time the option is granted. The assumptions made in determining the grant date fair values of options under FAS 123R are disclosed in Note 11 of Notes to Consolidated Financial Statements in our +Annual Report on Form 10-K for the year ended May 31, 2009. +27 +(3) +Non-Equity Incentive Plan Compensation consists of the following: +Name +Fiscal +Year +Annual Incentive +Compensation +($) +Long-Term Incentive +Compensation +($) +Total +($) +Mark G. Parker +2009 +$ +0 +$ +900,000 +$ +900,000 +2008 +1,932,684 +750,000 +2,682,684 +2007 +1,397,537 +750,000 +2,147,537 +Donald W. Blair +2009 +0 +450,000 +450,000 +2008 +581,662 +450,000 +1,031,662 +2007 +463,029 +450,000 +913,029 +Charles D. Denson +2009 +0 +750,000 +750,000 +2008 +1,472,727 +750,000 +2,222,727 +2007 +1,118,030 +750,000 +1,868,030 +Gary M. DeStefano +2009 +0 +450,000 +450,000 +2008 +861,351 +450,000 +1,311,351 +2007 +712,697 +450,000 +1,162,697 +Trevor A. Edwards +2009 +0 +450,000 +450,000 +2008 +603,127 +450,000 +1,053,127 +Amounts shown in the Annual Incentive Compensation column were earned for performance in the applicable fiscal year under our Executive Performance Sharing Plan. Amounts shown in +the Long-Term Incentive Compensation column were earned for performance during the three fiscal-year period ending with the applicable fiscal year under our Long-Term Incentive Plan. +(4) +Represents above-market earnings credited to the Executive Deferred Compensation Plan account of Mr. Parker during fiscal 2007. +(5) +Includes profit-sharing contributions by us to the 401(k) Savings and Profit Sharing Plan for fiscal 2009 in the amount of $8,406 for each of the Named Executive Officers. Includes +matching contributions by us to the 401(k) Savings and Profit Sharing Plan for fiscal 2009 in the amount of $11,500 for each of Messrs. Parker, Blair, DeStefano, and Edwards, and $10,662 for Mr. Denson. Also includes +profit-sharing contributions by us to the Deferred Compensation Plan for fiscal 2009 in the following amounts: $115,711 for Mr. Parker; $42,117 for Mr. Blair; $91,128 for Mr. Denson; $59,423 for Mr. DeStefano; and $43,042 for +Mr. Edwards. Includes dividends on restricted stock in the following amounts: $54,508 for Mr. Parker, $10,072 for Mr. Blair, $36,170 for Mr. Denson, $10,072 for Mr. DeStefano, and $10,072 for Mr. Edwards. The amount for +Mr. Denson includes $15,492 for an anniversary service award and $16,632 for the aggregate incremental cost of a personal trip on a company aircraft. +28 +Grants of Plan-Based Awards in Fiscal 2009 +The following table contains information concerning the long-term incentive bonus opportunities, annual incentive bonus opportunities, restricted stock +awards and stock options granted to the Named Executive Officers in fiscal 2009. +Name +Grant +Date +Estimated Possible Payouts Under Non-Equity +Incentive Plan Awards +All Other +Stock +Awards: +Number of +Shares of +Stock (3) +All Other +Option +Awards: +Number of +Shares +Underlying +Options (4) +Exercise or +Base Price +of Option +Awards +Grant Date +Fair Value +of Stock +and Option +Awards (5) +Threshold +Target +Maximum +($) +($) +($) +(#) +(#) +($/Sh) +($) +Mark G. Parker +6/19/08 +$ +988,035 +(1) +$ +1,976,069 +(1) +$ +2,964,104 +(1) +6/19/08 +1,000,000 +(2) +2,000,000 +(2) +4,000,000 +(2) +7/18/08 +38,660 +$ +2,250,000 +7/18/08 +135,000 +$ +58.20 +2,309,796 +Donald W. Blair +6/19/08 +320,374 +(1) +640,749 +(1) +961,123 +(1) +6/19/08 +250,000 +(2) +500,000 +(2) +1,000,000 +(2) +7/18/08 +50,000 +58.20 +855,480 +Charles D. Denson +6/19/08 +750,700 +(1) +1,501,399 +(1) +2,252,099 +(1) +6/19/08 +750,000 +(2) +1,500,000 +(2) +3,000,000 +(2) +7/18/08 +25,774 +1,500,000 +7/18/08 +110,000 +58.20 +1,882,056 +Gary M. DeStefano +6/19/08 +398,022 +(1) +796,043 +(1) +1,194,065 +(1) +6/19/08 +250,000 +(2) +500,000 +(2) +1,000,000 +(2) +7/18/08 +50,000 +58.20 +855,480 +Trevor A. Edwards +6/19/08 +321,937 +(1) +643,875 +(1) +965,813 +(1) +6/19/08 +250,000 +(2) +500,000 +(2) +1,000,000 +(2) +7/18/08 +50,000 +58.20 +855,480 +(1) +These amounts represent the potential bonuses payable for performance during fiscal 2009 under our Executive Performance Sharing Plan. Under this plan, the Compensation Committee +approved target awards for fiscal 2009 based on a percentage of the executive’s base salary paid during fiscal 2009 as follows: Mr. Parker, 135%; Mr. Blair, 80%; Mr. Denson, 120%; Mr. DeStefano, 80%; and Mr. Edwards, +80%. The Committee also established a series of performance targets based on our income before income taxes (“PTI”) for fiscal 2009 (excluding the effect of acquisitions, divestitures and accounting changes) corresponding to award payouts +ranging from 50% to 150% of the target awards. The PTI for fiscal 2009 required to earn the target award payout was $2,631 million. The PTI for fiscal 2009 required to earn the 150% maximum payout was $2,842 million. The PTI for fiscal +2009 required to earn the 50% threshold payout was $2,465 million. Participants receive a payout at the percentage level at which the performance target is met, subject to the Committee’s discretion to reduce or eliminate any award based +on Company or individual performance. No award payouts were earned in fiscal 2009, as shown in footnote 3 to the “Non-Equity Incentive Plan Compensation” column in the Summary Compensation Table. +(2) +These amounts represent the potential long-term incentive awards payable for performance during the three-year period consisting of fiscal 2009-2011 under our +Long-Term Incentive Plan. Under this plan, the Compensation Committee approved target awards for the performance period and also established a series of performance targets based on our cumulative revenues and cumulative diluted earnings per common +share (“EPS”) for the performance period (excluding the effect of acquisitions, +29 +divestitures and accounting changes not reflected in our business plan at the time of approval of the target awards) corresponding to award payouts ranging +from 50% to 200% of the target awards. Participants will receive a payout at the average of the percentage levels at which the two performance targets are met, subject to the Committee’s discretion to reduce or eliminate any award based on +Company or individual performance. For cumulative revenues over the performance period, the target payout requires revenues of $65,064 million, the 50% threshold payout requires revenues of $60,243 million, and the 200% maximum payout +requires revenues of $71,571 million. For cumulative EPS over the performance period, the target payout requires EPS of $13.05, the 50% threshold payout requires EPS of $11.55, and the 200% maximum payout requires EPS of $15.66. Under the terms +of the awards, on the first payroll period ending in August 2011 we will issue the award payout to each participant, provided that the participant is employed by us on the last day of the performance period. +(3) +All amounts reported in this column represent grants of restricted stock under our 1990 Stock Incentive Plan. Restricted stock generally vests in three equal installments on the +first three anniversaries of the grant date. Vesting will be accelerated in certain circumstances as described below under “Potential Payments Upon Termination or Change in Control.” Dividends are payable on restricted stock at the same +rate paid on all other outstanding shares of our Class B Common Stock. +(4) +All amounts reported in this column represent options granted under our 1990 Stock Incentive Plan. Options generally become exercisable for option shares in four equal installments +on the first four anniversaries of the grant date. Options will become fully exercisable in certain circumstances, including any termination of employment for each of the Named Executive Officers, as described below under “Potential Payments +Upon Termination or Change in Control.” Each option has a maximum term of 10 years, subject to earlier termination in the event of the optionee’s termination of employment. +(5) +For restricted stock awards, represents the value of restricted shares granted based on the closing market price of our Class B Common Stock on the grant date. For option awards, +represents the grant date fair value of options granted based on a value of $17.11 per share calculated using the Black-Scholes option pricing model. These are the same values for these equity awards used under FAS 123R. The assumptions made in +determining option values are disclosed in Note 11 of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended May 31, 2009. +30 +Outstanding Equity Awards at May 31, 2009 +The following table sets forth information concerning outstanding stock options and unvested restricted stock held by the Named Executive Officers at +May 31, 2009. +Option Awards +Stock Awards +Name +Number of +Securities +Underlying +Unexercised +Options +(#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options +(#) +Unexercisable (1) +Option +Exercise +Price ($) +Option +Expiration +Date +Number of +Shares That +Have Not +Vested (#) +Market +Value of +Shares That +Have Not +Vested ($) +Mark G. Parker +30,000 +— +$ +21.1800 +07/12/11 +140,000 +— +24.4900 +07/22/12 +140,000 +— +26.1200 +07/18/13 +140,000 +— +36.6050 +07/16/14 +105,000 +35,000 +(2) +43.7950 +07/15/15 +187,500 +62,500 +(3) +42.1350 +02/16/16 +33,750 +101,250 +(4) +58.5200 +07/20/17 +— +135,000 +(5) +58.2000 +07/18/18 +55,748 +(7) +$ +3,180,423 +Donald W. Blair +45,000 +— +21.1800 +07/12/11 +66,000 +— +24.4900 +07/22/12 +66,000 +— +26.1200 +07/18/13 +66,000 +— +36.6050 +07/16/14 +49,500 +16,500 +(2) +43.7950 +07/15/15 +33,000 +33,000 +(6) +39.3800 +07/14/16 +12,500 +37,500 +(4) +58.5200 +07/20/17 +— +50,000 +(5) +58.2000 +07/18/18 +8,464 +(8) +482,871 +Charles D. Denson +40,000 +— +21.1800 +07/12/11 +105,000 +— +24.4900 +07/22/12 +140,000 +— +26.1200 +07/18/13 +140,000 +— +36.6050 +07/16/14 +105,000 +35,000 +(2) +43.7950 +07/15/15 +150,000 +50,000 +(3) +42.1350 +02/16/16 +27,500 +82,500 +(4) +58.5200 +07/20/17 +— +110,000 +(5) +58.2000 +07/18/18 +37,166 +(9) +2,120,320 +Gary M. DeStefano +22,000 +— +36.6050 +07/16/14 +75,000 +25,000 +(2) +43.7950 +07/15/15 +25,000 +50,000 +(6) +39.3800 +07/14/16 +12,500 +37,500 +(4) +58.5200 +07/20/17 +— +50,000 +(5) +58.2000 +07/18/18 +8,464 +(8) +482,871 +Trevor A. Edwards +16,000 +— +27.1250 +07/23/09 +20,000 +— +13.8438 +03/08/10 +40,000 +— +21.1800 +07/12/11 +50,000 +— +24.4900 +07/22/12 +66,000 +— +26.1200 +07/18/13 +66,000 +— +36.6050 +07/16/14 +49,500 +16,500 +(2) +43.7950 +07/15/15 +33,000 +33,000 +(6) +39.3800 +07/14/16 +12,500 +37,500 +(4) +58.5200 +07/20/17 +— +50,000 +(5) +58.2000 +07/18/18 +8,464 +(8) +482,871 +31 +(1) +Stock options generally become exercisable for option shares in four equal installments on each of the first four anniversaries of the grant date. +(2) +100% of these shares vested on July 15, 2009. +(3) +100% of these shares will vest on February 16, 2010. +(4) +33.3% of these shares vested on July 20, 2009, 33.3% will vest on July 20, 2010 and 33.3% will vest on July 20, 2011. +(5) +25% of these shares vested on July 18, 2009, 25% will vest on July 18, 2010, 25% will vest on July 18, 2011, and 25% will vest on July 18, 2012. +(6) +50% of these shares vested on July 14, 2009 and 50% will vest on July 14, 2010. +(7) +12,887 of these shares vested on July 18, 2009, 12,877 of these shares will vest on July 18, 2010 and 12,886 of these shares will vest on July 18, 2011. 8,544 of +these shares vested on July 20, 2009 and 8,544 will vest on July 20, 2010. +(8) +All of these shares vested on July 14, 2009. +(9) +8,592 of these shares vested on July 18, 2009, 8,591 of these shares will vest on July 18, 2010 and 8,591 of these shares will vest on July 18, 2011. 5,696 of these +shares vested on July 20, 2009 and 5,696 will vest on July 20, 2010. +Option Exercises and Stock Vested During +Fiscal 2009 +The following table provides information concerning stock option exercises and vesting of restricted stock during fiscal +2009 for each of the Named Executive Officers on an aggregated basis. +Option Awards +Stock Awards +Name +Number of +Shares +Acquired +on Exercise (#) +Value +Realized +on Exercise ($) +Number of +Shares +Acquired +on Vesting (#) +Value +Realized +on Vesting ($) +Mark G. Parker +— +— +26,456 +$ +1,398,994 +Donald W. Blair +— +— +8,465 +$ +476,241 +Charles D. Denson +75,000 +3,320,650 +19,653 +$ +1,061,474 +Gary M. DeStefano +— +— +8,465 +$ +476,241 +Trevor A. Edwards +— +— +8,465 +$ +476,241 +32 +Equity Compensation Plans +The following table summarizes equity compensation plans approved by shareholders and equity compensation plans that were not approved by the +shareholders as of May 31, 2009: +Plan Category +(a) +Number of Securities to +be Issued Upon +Exercise of Outstanding +Options, Warrants +and +Rights +(b) +Weighted-Average +Exercise Price of +Outstanding Options, +Warrants and Rights +(c) +Number of Securities +Remaining Available for +Future Issuance Under +Equity Compensation +Plans +(Excluding +Securities Reflected in +Column(a)) +Equity compensation plans approved by shareholders (1) +38,778,233 +$ +43.69 +19,167,812 +Equity compensation plans not approved by shareholders (2) +— +— +1,391,438 +Total +38,778,233 +$ +43.69 +20,559,250 +(1) +Includes 38,778,233 options outstanding subject to the 1990 Stock Incentive Plan. Includes 17,720,880 shares available for future issuance under the 1990 Stock Incentive Plan, and +1,446,932 shares available for future issuance under the Employee Stock Purchase Plan. +(2) +Includes 1,391,438 shares available for future issuance under the Foreign Subsidiary Employee Stock Purchase Plan, pursuant to which shares are offered and sold to employees of +selected non-U.S. subsidiaries of the Company on substantially the same terms as those offered to U.S. employees under the shareholder-approved Employee Stock Purchase Plan. +33 +Non-Qualified Deferred Compensation in Fiscal 2009 +Name +Plan +Name +Executive +Contributions +in Fiscal +2009 (1) +NIKE +Contributions +in Fiscal +2009 (1) +Aggregate +Earnings +in Fiscal +2009 +Aggregate +Withdrawals/ +Distributions +in Fiscal 2009 +Aggregate +Balance at +5/31/2009 (1) +Mark G. Parker +DCP +$ +623,364 +$ +123,538 +$ +52,613 +— +$ +3,210,679 +Donald W. Blair +DCP +573,228 +47,392 +-1,341,232 +— +2,458,604 +Charles D. Denson +DCP +2,789,792 +103,830 +-3,387,990 +— +13,250,500 +Gary M. DeStefano +DCP +— +70,095 +-23,134 +— +1,250,592 +Trevor A. Edwards +DCP +714,756 +52,242 +-736,856 +— +2,485,275 +(1) +All amounts reported in the Executive Contributions column are also included in amounts reported in the Summary Compensation Table. The amounts reported in the NIKE Contributions +column represent profit sharing contributions made by us in early fiscal 2009 based on fiscal 2008 results; these amounts are also included in amounts reported for fiscal 2008 in the All Other Compensation column of the Summary Compensation Table. +Of the amounts reported in the Aggregate Balance column, the following amounts have been reported in the Summary Compensation Tables in this proxy statement or in prior year proxy statements, Mr. Parker, $2,709,818; Mr. Blair, $1,875,115; +Mr. Denson, $13,412,527; Mr. DeStefano, $664,247; and Mr. Edwards, $1,345,700. +Non-qualified Deferred +Compensation Plans +The Named Executive Officers are eligible to participate in our Deferred Compensation Plan (the +“DCP”). Participants in the DCP may elect in advance to defer up to 100 percent of their annual base salary, bonus and long-term incentive payments. +Each year, we share profits with our employees in the form of profit sharing contributions to defined contribution retirement plans. The contributions are allocated among eligible employees based on a percentage of +their total salary and bonus for the year. To the fullest extent permitted under Internal Revenue Code limitations, these contributions are made to employees’ accounts under our qualified 401(k) Savings and Profit Sharing Plan. Contributions +based on salary and bonus in excess of the tax law limit ($230,000 for fiscal 2009) are made as NIKE contributions under the DCP. +Amounts +deferred under the DCP are credited to a participant’s account under the DCP. Each participant may allocate his or her account among any combination of the investment funds available under the DCP. Participants’ accounts are adjusted to +reflect the investment performance of the funds selected by the participants. Participants can change the allocation of their account balances daily. The funds available under the DCP consist of 11 mutual funds with a variety of investment +objectives. The investment funds had annual returns in fiscal 2009 ranging from a 5.6% gain to a 47.2% loss. Amounts credited to participants’ accounts are invested by us in actual investments matching the investment options selected by the +participants to ensure that we do not bear any investment risk related to participants’ investment choices. +34 +The portion of a participant’s account attributable to elective deferrals, including investment +returns, is fully vested at all times. The portion of a participant’s account attributable to NIKE contributions, including investment returns, is fully vested after the participant has been employed by us for five years. All of the Named +Executive Officers are fully vested in their NIKE contributions. +Each time they elect to defer compensation, participants make an election +regarding distribution of the compensation deferred under the election (as adjusted to reflect investment performance). A participant may elect for distribution to be made in a lump sum at the beginning of a predetermined year while the participant +is still employed or in service (but no sooner than the the fourth year after the year in which the distribution election is submitted). Alternatively, a participant may elect for distribution to be made in a lump sum or in annual installments over +five, ten or fifteen years after termination of employment or service. Participants have limited rights to change their distribution elections. Participants may make a hardship withdrawal under certain circumstances. Subject to certain limitations, +a participant may also at any time request to withdraw amounts from his or her account balance that were vested as of December 31, 2004 (and any subsequent investment returns on such amount). If such request is approved, the participant may +withdraw 90% of the amount requested, and the remaining 10% will be permanently forfeited. +Potential Payments Upon Termination or Change-in-Control +Change-in-Control Compensation — Acceleration of Equity Awards +We have agreed to accelerate the vesting of restricted stock and stock options held by the Named Executive Officers upon the approval by our shareholders +of an “Approved Transaction.” This acceleration of vesting will occur whether or not their employment is terminated. In our agreements, “Approved Transaction” is generally defined to include: +• +an acquisition of NIKE through a merger, consolidation or plan of exchange, +• +a sale of all or substantially all of our assets, or +• +the adoption of a plan for our liquidation or dissolution. +The following table shows the estimated benefits that would have been received by the Named Executive Officers if our shareholders had approved an Approved Transaction on May 31, 2009. +Name +Restricted Stock +Acceleration (1) +Stock Option +Acceleration (2) +Total +Mark G. Parker +$ +3,180,423 +$ +1,396,113 +$ +4,576,536 +Donald W. Blair +482,871 +801,817 +1,284,688 +Charles D. Denson +2,120,320 +1,209,675 +3,329,995 +Gary M. DeStefano +482,871 +1,214,875 +1,697,746 +Trevor A. Edwards +482,871 +801,817 +1,284,688 +35 +(1) +Information regarding unvested restricted stock held by each Named Executive Officer is set forth in the Outstanding Equity Awards table above. The award agreements provide that all +shares will immediately vest upon the approval by our shareholders of an Approved Transaction. The amounts in the table above represent the number of unvested restricted shares multiplied by a stock price of $57.05 per share, which was the closing +price of our Class B Common Stock on May 29, 2009. +(2) +Information regarding outstanding unexercisable options held by each Named Executive Officer is set forth in the Outstanding Equity Awards table above. The stock option agreements +provide that upon the approval by our shareholders of an Approved Transaction all outstanding unexercisable options will immediately become exercisable and all unexercised options will remain exercisable during the remainder of the term of the +options, except that the Compensation Committee may provide a 30-day period prior to the Approved Transaction during which the optionees may exercise the options without any limitation on exercisability. At the end of the 30-day period, the options +would terminate. Amounts in the table above represent the aggregate value as of May 31, 2009 of each Named Executive Officer’s outstanding unexercisable options based on the positive spread between the exercise price of each option and a +stock price of $57.05 per share, which was the closing price of our Class B Common Stock on May 29, 2009. +Benefits Triggered on Certain Employment Terminations +Stock Option Acceleration +As of May 31, 2009, each Named Executive Officer held options to purchase Class B Common Stock as listed in the Outstanding Equity Awards table +above. Under the terms of their stock option agreements, upon the death or disability of the officer, all unexercisable options become fully exercisable and the standard three-month period for exercising options following termination of employment +is extended to 12 months, but not beyond each option’s original 10-year term. The aggregate value as of May 31, 2009 of options that would have become exercisable if death or disability had occurred on that date based on the positive +spread between the exercise price of each option and a stock price of $57.05 per share, which was the closing price of our Class B Common Stock on May 29, 2009, is as set forth in the “Stock Option Acceleration” column of the +Change-in-Control Compensation — Acceleration of Equity Awards table above. In addition, the increase in value of outstanding options resulting from the extension of the post-termination exercise period from three months to 12 months, +with the option values as of May 31, 2009 for three-month and 12-month remaining terms calculated using the Black-Scholes option pricing model with assumptions consistent with those used by us for valuing our options under FAS 123R, is +$3,598,259 for Mr. Parker, $1,279,395 for Mr. Blair, $3,093,794 for Mr. Denson, $1,325,677 for Mr. DeStefano, and $1,266,866 for Mr. Edwards. +As provided in stock option agreements for all employees, the terms of the Named Executive Officers’ stock option agreements also provide that, if termination of the officer’s employment occurs when the +36 +officer’s retirement point total is at least 55 and the officer has been employed by us for at least five years, then a portion of the unexercisable +options will become exercisable for a maximum remaining term of three months as follows: +Retirement Point Total +Percent of Unexercisable Option +That Becomes +Exercisable +55 or 56 +20% +57 +40% +58 +60% +59 +80% +60 +100% +An officer’s “retirement point total” means the sum of the officer’s age plus the number of +years that the officer has been employed by us. As of May 31, 2009, the retirement point total for each of the Named Executive Officers was over 60, and these officers are therefore eligible to have all unexercisable options become fully +exercisable on any termination of employment. The aggregate value as of May 31, 2009 of options held by each of the Named Executive Officers that would have become exercisable if termination of employment (other than due to death or disability) +had occurred on that date is as set forth in the “Stock Option Acceleration” column of the Change-in-Control Compensation — Acceleration of Equity Awards table above. +Restricted Stock Acceleration +As of +May 31, 2009, each Named Executive Officer held unvested restricted stock as set forth in the Outstanding Equity Awards table above. Under the terms of their award agreements, all unvested restricted shares will immediately vest upon the death +or disability of the officer. The value of the unvested restricted shares held by each Named Executive Officer as of May 31, 2009 that would have become vested if death or disability had occurred on that date is as set forth in the +“Restricted Stock Acceleration” column of the Change-in-Control Compensation — Acceleration of Equity Awards table above. +Payments Under Noncompetition Agreements +We have an agreement with each of Mr. Parker and Mr. Denson that +contains a covenant not to compete that extends for two years following the termination of the officer’s employment with us. Each agreement provides that if the officer’s employment is terminated by us, we will make monthly payments to him +during the two-year noncompetition period in an amount equal to one-twelfth of his then current annual salary and target Performance Sharing Plan bonus (“Annual Nike Income”). Each agreement provides further that if the officer voluntarily +resigns, we will make monthly payments to him during the two-year noncompetition period in an amount equal to one-twenty-fourth of his then current Annual Nike +37 +Income. However, commencement of the above-described monthly payments will be delayed until after the six-month period following the officer’s +separation from service, and all payments that the officer would otherwise have received during that period will be paid in a lump sum promptly following the end of the period, together with interest at the prime rate. If employment is terminated +without cause, the parties may mutually agree to waive the covenant not to compete, and if employment is terminated for cause, we may unilaterally waive the covenant. If the covenant is waived, we will not be required to make the payments described +above for the months as to which the waiver applies. If the employment of these officers had been terminated by us on May 31, 2009 and assuming the covenant is not waived, we would have been required to pay Mr. Parker $287,589 per month +and Mr. Denson $230,117 per month for the 24-month period ending May 31, 2011. If these officers had voluntarily resigned on May 31, 2009 and assuming the covenant is not waived, we would have been required to pay Mr. Parker +$143,795 per month and Mr. Denson $115,058 per month for the 24-month period ending May 31, 2011. +We have noncompetition +agreements with Mr. Blair, Mr. DeStefano and Mr. Edwards on the same terms, except that the noncompetition period is one year instead of two years, the six month delay for commencement of payments does not apply and we may +unilaterally waive the covenant in all cases including termination without cause. In addition, for Mr. Blair and Mr. Edwards, the monthly payments are one-twelfth or one-twenty-fourth of their current annual salaries, instead of their +Annual Nike Income, and for Mr. DeStefano, the monthly payments on voluntary resignation are one-twenty-fourth of his current annual salary. If the employment of these officers had been terminated by us on May 31, 2009 and assuming the +covenant is not waived, we would have been required to pay Mr. Blair $67,500 per month, Mr. DeStefano $149,670 per month and Mr. Edwards $67,500 per month for the 12-month period ending May 31, 2011. If these officers had +voluntarily resigned on May 31, 2009 and assuming the covenant is not waived, we would have been required to pay Mr. Blair $33,750 per month, Mr. DeStefano $41,666 per month and Mr. Edwards $33,750 per month for the 12-month +period ending May 31, 2011. +38 +PROPOSAL 2 +APPROVAL OF AMENDMENT TO THE NIKE, INC. EMPLOYEE STOCK PURCHASE PLAN +The Company’s Employee +Stock Purchase Plan (the “ESPP”) was adopted by the Board of Directors and shareholders in 2001. The ESPP is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code of 1986, as +amended (the “Code”). The ESPP is intended to provide a convenient and practical means by which employees may participate in stock ownership of the Company. An aggregate of 6,000,000 shares of Class B Stock (as adjusted to reflect the +two-for-one stock split of Class B Stock effected on April 2, 2007) has been reserved for issuance under the ESPP. As of May 31, 2009, only 1,446,932 shares of Class B Stock were available for purchase under the ESPP. +The Board of Directors believes that the ESPP promotes the interests of the Company and its shareholders by encouraging employees of the Company and +participating subsidiaries to become shareholders, and therefore promotes the Company’s growth and success. The Board also believes that the opportunity to acquire a proprietary interest in the success of the Company through the acquisition of +shares of Class B Stock pursuant to the ESPP is an important aspect of the Company’s ability to attract and retain highly qualified and motivated employees. The Board believes that it is desirable and in the best interests of the Company and +its shareholders to continue to provide employees of the Company and its participating subsidiaries with benefits under the ESPP and that additional shares must be reserved for use under the ESPP. Accordingly, on June 18, 2009, the Board +approved, subject to shareholder approval, an amendment to the ESPP to reserve an additional 4,000,000 shares of Class B Stock for issuance under the ESPP. A copy of the ESPP, as proposed to be amended, is attached to this proxy statement as Exhibit +A. +The following description of the ESPP is a summary of certain provisions and is qualified in its entirety by reference to Exhibit A. +Description of the ESPP +Eligibility. All active employees of the Company and its participating subsidiaries are eligible to participate in the ESPP, except for the following: (a) any employee who has been employed less than one month when an offering +commences, (b) any employee whose customary employment is less than 20 hours per week, and (c) any employee who would, immediately after an offering, and after including the number of shares that could be purchased in that offering, own or +be deemed to own five percent or more of the voting power or value of all classes of stock of the Company or any subsidiary of the Company. Approximately 14,470 employees are currently eligible to participate in the ESPP. +Administration . The Board of Directors has delegated to the Company’s senior human resources executive (the “Authorized Officer”) +all authority for administration of the ESPP. The Authorized Officer +39 +may promulgate rules and regulations, adopt forms, decide any question of interpretation or rights arising under, and generally supervises the administration +of, the ESPP. The Company pays all expenses of the ESPP. +ESPP Offerings. The ESPP is implemented by a series of six-month +offerings, with a new offering commencing on April 1 and October 1 of each year. The first day of each offering is the “offering date” for that offering, and the last day of each offering is the “purchase date” for that +offering. An employee may purchase shares only through payroll deductions permitted under the ESPP. Payroll deductions must be not less than 1% nor more than 10% of the participant’s eligible compensation. +The maximum number of shares that any employee may purchase in any single offering is 1,000 shares. In addition, the terms of an offering may not allow +an employee’s right to purchase shares under all stock purchase plans of the Company and its subsidiaries to which Section 423 of the Code applies to accrue at a rate that exceeds $25,000 of fair market value of shares, as determined on +the offering date, for each calendar year in which the offering is outstanding. +An employee may terminate participation in the ESPP by +written notice to the Company submitted no later than the “change deadline” for that offering, which is the number of days before the purchase date established by the Authorized Officer. An employee may not reinstate participation in the +ESPP with respect to a particular offering after once terminating participation in the ESPP with respect to that offering, but may participate in subsequent offerings. Generally, upon termination of an employee’s participation in the ESPP, all +amounts deducted from the employee’s pay that had not yet been used to purchase shares shall be returned to the employee. The rights of employees under the ESPP are not transferable. +Purchase Price. The price at which shares may be purchased in an offering is the lower of (a) 85 percent of the fair market value of a share +of Class B Stock on the offering date of the offering or (b) 85 percent of the fair market value of a share of Class B Stock on the purchase date of the offering. The fair market value of a share of Class B Stock on any date is the closing +price on the immediately preceding trading day of the Class B Stock on the New York Stock Exchange or, if the Class B Stock is not traded on the New York Stock Exchange, such other reported value of the Class B Stock as may be specified by the Board +of Directors. +Custodian . Shares purchased under the ESPP are delivered to and held in the custody of a custodian (the +“Custodian”), which is an investment or financial firm appointed by the Authorized Officer. By appropriate instructions to the Custodian, an employee may from time to time sell all or part of the shares held by the Custodian for the +participant’s account in the public market at the market price at the time the order is executed. Also by appropriate instructions, the employee may transfer all or part of the shares held for that employee by the Custodian to the employee or +to a regular individual brokerage account in the employee’s own name, except that no shares may be so transferred until two years after the offering date of the offering in which the shares were purchased. +40 +Termination and Amendment. The ESPP will terminate when all of the shares reserved for purposes of +the ESPP have been purchased, provided that the Board of Directors or the Authorized Officer in their sole discretion may terminate the ESPP at any time with respect to any participating subsidiary and the Board of Directors in its sole discretion +may at any time terminate the ESPP completely. +The Board or the Authorized Officer may at any time amend the ESPP in any and all respects, +except that only the Board may change (a) the number of shares reserved for the ESPP, (b) the maximum percentage of an employee’s eligible compensation that may be deducted from an employee’s paycheck during an offering, +(c) the purchase price of shares offered pursuant to the ESPP, (d) the maximum number of shares that any participant may purchase in any single offering or certain other purchase limitations, or (e) certain other terms of the ESPP +relating to the offering and purchase dates. Notwithstanding the foregoing, the Board may not without shareholder approval increase the number of shares reserved for the ESPP (except for adjustments in the event of stock dividends, reverse or +forward stock splits, combinations of shares, recapitalizations or other changes in the outstanding Class B Stock) or decrease the purchase price of shares offered pursuant to the ESPP. +Tax Consequences +The ESPP is intended to qualify as an “employee stock purchase plan” +within the meaning of Section 423 of the Code. Under the Code, employees will not recognize taxable income or gain with respect to shares purchased under the ESPP either at the offering date or the purchase date of an offering. If an employee +disposes of shares purchased under the ESPP more than two years after the offering date, or in the event of the employee’s death at any time, the employee or the employee’s estate generally will be required to report as ordinary +compensation income for the taxable year of disposition or death an amount equal to the lesser of (a) the excess of the fair market value of the shares at the time of disposition or death over the applicable purchase price, or (b) 15 +percent of the fair market value of the shares on the offering date. In the case of such a disposition or death, the Company will not be entitled to any deduction from income. Any gain on the disposition in excess of the amount treated as ordinary +compensation income generally will be capital gain. +If an employee disposes of shares purchased under the ESPP within two years after the +offering date, the employee generally will be required to report the excess of the fair market value of the shares on the purchase date over the applicable purchase price as ordinary compensation income for the year of disposition. If the +disposition is by sale, any difference between the fair market value of the shares on the purchase date and the disposition price generally will be capital gain or loss. In the event of a disposition within two years after the offering date, subject +to certain limitations such as the $1,000,000 cap on deductibility under Section 162(m) of the Code, the Company generally will be entitled to a deduction from income in the year of such disposition equal to the amount the employee is required +to report as ordinary compensation income. +41 +Foreign Subsidiary Employee Stock Purchase Plan +The Company also operates a Foreign Subsidiary Employee Stock Purchase Plan (the “Foreign ESPP” and, when referred to herein collectively with +the ESPP, the “Plans”) pursuant to which selected groups of employees of the Company’s foreign subsidiaries are provided an opportunity to purchase shares of Class B Stock that is similar to the opportunity to purchase shares afforded +under the ESPP. An aggregate of 2,000,000 shares of Class B Stock has been reserved for issuance under the Foreign ESPP. +Purchases Under the ESPP and +the Foreign ESPP +The following table indicates shares purchased under the Plans during the last fiscal year by the Named Executive +Officers, by all executive officers as a group and by all employees (excluding executive officers) as a group: +Shares Purchased in Fiscal 2009 +Name and Position +Dollar +Value (1) +Number of +Shares +Mark G. Parker, Chief Executive Officer and President +— +— +Donald W. Blair, Vice President and Chief Financial Officer +$ +2,339 +$ +309 +Charles D. Denson, President of the NIKE Brand +3,481 +430 +Gary M. DeStefano, President, Global Operations +— +— +Trevor A. Edwards, Global Brand and Category Management +2,828 +374 +All Executive Officers (13 persons) +33,382 +3,859 +All Employees, excluding Executive Officers +9,175,988 +970,721 +(1) +“Dollar Value” equals the difference between the price paid for shares purchased under the Plans and the fair market value of the shares on the date the shares were +purchased. +Vote Required for Approval and Recommendation by the Board of Directors +The Board of Directors recommends that shareholders vote FOR approval of the amendment to the ESPP. Holders of Class A Stock and Class B Stock will +vote together as a single class on Proposal 2. If a quorum is present at the Annual Meeting, Proposal 2 will be approved if the votes cast in favor of the proposal exceed the votes cast against the proposal. Abstentions and broker nonvotes are +counted for purposes of determining whether a quorum exists at the Annual Meeting, but are not counted and have no effect on the results of the vote on this proposal. +42 +PROPOSAL 3 +RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +The Audit Committee of the Board of +Directors has appointed PricewaterhouseCoopers LLP as independent registered public accounting firm to examine the Company’s consolidated financial statements for the fiscal year ending May 31, 2010 and to render other professional +services as required. +The Audit Committee is submitting the appointment of PricewaterhouseCoopers LLP to shareholders for ratification. +Representatives of PricewaterhouseCoopers LLP will be present at the Annual Meeting, will have the opportunity to make a statement if they +desire to do so, and are expected to be available to respond to questions. +Aggregate fees billed by the Company’s independent +registered public accounting firm, PricewaterhouseCoopers LLP, for audit services related to the most recent two fiscal years, and for other professional services billed in the most recent two fiscal years, were as follows: +Type of Service +2009 +2008 +Audit Fees (1) +$ +7.2 million +$ +6.8 million +Audit-Related Fees (2) +$ +0.4 million +$ +0.3 million +Tax Fees (3) +$ +2.1 million +$ +0.9 million +All Other Fees (4) +$ +0.1 million +$ +0.1 million +Total +$ +9.8 million +$ +8.1 million +(1) +Comprised of the audits of the Company’s annual financial statements and reviews of the Company’s quarterly financial statements, as well as statutory audits of Company +subsidiaries, attest services, comfort letters and consents to SEC filings. Audit fees also include audit services related to the Company’s compliance with Section 404 of the Sarbanes-Oxley Act of 2002 regarding internal controls over +financial reporting. +(2) +Comprised of employee benefit plan audits, acquisition due diligence, and consultations regarding financial accounting and reporting. +(3) +Comprised of services for tax compliance, tax planning, and tax advice. Tax compliance includes services related to the preparation or review of original and amended tax returns for +the Company and its consolidated subsidiaries and represents $1.2 million and $0.4 million of the tax fees for fiscal 2009 and 2008, respectively. The remaining tax fees primarily include tax advice. +(4) +Comprised of services for the preparation of tax returns for expatriate employees and other miscellaneous services. +43 +In accordance with the Sarbanes-Oxley Act of 2002, the Audit Committee established policies and +procedures under which all audit and non-audit services performed by the Company’s independent registered public accounting firm must be approved in advance by the Audit Committee. During fiscal 2009, all such services were approved in advance +except for one small engagement totaling $900. During fiscal 2008, fees totaling $10,000, or less than 0.2% of total fees, were paid to PricewaterhouseCoopers LLP for one engagement that was not pre-approved. All such services were approved by the +Audit Committee promptly after their inadvertent omission from pre-approval was noticed. +Notwithstanding anything to the contrary set +forth in any of the Company’s filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, the following Report of the Audit Committee shall not be incorporated by reference into any such filings and shall not otherwise be +deemed filed under such acts. +REPORT OF THE AUDIT COMMITTEE +The Audit Committee has: +• +Reviewed and discussed the audited financial statements with management. +• +Discussed with the independent auditors the matters required to be discussed by SAS 61, as amended. +• +Received the written disclosures and the letter from the independent accountants required by applicable requirements of the Public Company Accounting Oversight +Board regarding the independent accountants’ communications concerning independence, and has discussed with the independent accountant the independent accountant’s independence. +• +Based on the review and discussions above, recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual +Report on Form 10-K for the last fiscal year for filing with the Securities and Exchange Commission. +Members of the Audit Committee: +Alan B. Graf, Jr., Chairman +John G. Connors +Orin C. Smith +OTHER MATTERS +As of the time this proxy statement was printed, management was unaware of any proposals to be presented for +consideration at the Annual Meeting other than those set forth herein, but if other matters do properly come before the Annual Meeting, the persons named in the proxy will vote the shares represented by such proxy according to their best judgment. +44 +SHAREHOLDER PROPOSALS +A proposal by a shareholder for inclusion in the Company’s proxy statement and form of proxy for the 2010 annual meeting of shareholders must be +received by John F. Coburn III, Secretary of NIKE, at One Bowerman Drive, Beaverton, Oregon 97005-6453, on or before April 6, 2010 to be eligible for inclusion. Rules under the Securities Exchange Act of 1934 describe standards as to the +submission of shareholder proposals. In addition, the Company’s bylaws require that any shareholder wishing to make a nomination for Director, or wishing to introduce a proposal or other business at a shareholder meeting must give the Company +at least 60 days’ advance written notice, and that notice must meet certain requirements described in the bylaws. +For the Board of Directors +JOHN F. COBURN III +S ECRETARY +45 +EXHIBIT A +NIKE, INC. EMPLOYEE STOCK PURCHASE PLAN * +1. Purpose of the Plan. NIKE, Inc. (the +“Company”) believes that ownership of shares of its common stock by employees of the Company and its Participating Subsidiaries (as defined below) is desirable as an incentive to better performance and improvement of profits, and as a +means by which employees may share in the rewards of growth and success. The purpose of the Company’s Employee Stock Purchase Plan (the “Plan”) is to provide a convenient means by which employees of the Company and Participating +Subsidiaries may purchase the Company’s shares through payroll deductions and a method by which the Company may assist and encourage such employees to become share owners. The Company operates a Foreign Subsidiary Employee Stock Purchase Plan +(as amended from time to time, the “Foreign ESPP”) pursuant to which selected groups of employees of the Company’s foreign subsidiaries (“Foreign Subsidiaries”) are provided a similar opportunity to purchase Company shares. +Such groups of employees designated as participating groups for purposes of the Foreign ESPP are hereinafter referred to as “Participating Foreign ESPP Groups.” +2. Shares Reserved for the Plan. There are 10,000,000 6,000,000 shares of the Company’s authorized but unissued or reacquired Class B Common Stock reserved for +purposes of the Plan. The number of shares reserved for the Plan is subject to adjustment in the event of any stock dividend, stock split, combination of shares, recapitalization or other change in the outstanding Class B Common Stock of the +Company. The determination of whether an adjustment shall be made and the manner of any such adjustment shall be made by the Board of Directors of the Company (the “Board”), which determination shall be conclusive. +3. Administration of the Plan. The Board has delegated to the Vice President of Global Human Resources of the Company (or, if the officer who is +the Company’s senior human resources executive shall have a title other than Vice President of Global Human Resources, then such other officer) all authority for administration of the Plan and, in connection with such delegation and unless +otherwise determined by the Board, the Plan shall be administered by or under the direction of such officer (the “Authorized Officer”), who may delegate some or all of his or her duties and authority to one or more Company employees. The +Authorized Officer may promulgate rules and regulations for the operation of the Plan, adopt forms for use in connection with the Plan, and decide any question of interpretation of the Plan or rights arising thereunder. The Authorized Officer may +consult with counsel for the Company on any matter arising under the Plan. Unless otherwise determined by the Board, all determinations and decisions of the Authorized Officer or the Board shall be conclusive. +4. Eligible Employees. The Board hereby authorizes the purchase of shares of Class B Common Stock pursuant to the Plan by employees of the Company +and of each corporate subsidiary of the +* +Matter in bold and underline is new; matter in italics and strikeout is to be deleted. +A-1 +Company, but has delegated to the Authorized Officer the authority to designate from time to time those subsidiaries which shall be participants in the Plan +(each such participating subsidiary being hereinafter called a “Participating Subsidiary”). All Eligible Employees (as defined below) of the Company and all Eligible Employees of each Participating Subsidiary are eligible to participate in +the Plan. An “Eligible Employee” is an employee of the Company or a Participating Subsidiary who has been employed by the Company or a Participating Subsidiary for at least one full month prior to the Offering Date (as defined below) +excluding, however, (a) any employee whose customary employment is less than 20 hours per week, and (b) any employee who would, after a purchase of shares under the Plan, own or be deemed (under Section 424(d) of the Internal Revenue +Code of 1986, as amended (the “Code”)) to own stock (including stock subject to any outstanding options held by the employee) possessing 5 percent or more of the total combined voting power or value of all classes of stock of the Company +or any parent or subsidiary of the Company. +5. Offerings. +(a) Offering and Purchase Dates. The Plan shall be implemented by a series of six-month offerings (the “Offerings”), +with a new Offering commencing on April 1 and October 1 of each year. Each Offering commencing on April 1 of any year shall end on September 30 of that year, and each Offering commencing on October 1 of any year shall end on +March 31 of the following year. The first day of each Offering is the “Offering Date” for that Offering and the last day of each Offering is the “Purchase Date” for that Offering. +(b) Grants; Limitations. On each Offering Date, each Eligible Employee shall be granted an option under the Plan to purchase shares +of Class B Common Stock on the Purchase Date for the Offering for the price determined under paragraph 7 of the Plan exclusively through payroll deductions authorized under paragraph 6 of the Plan; provided, however, that (i) no option shall +permit the purchase of more than 1,000 shares, and (ii) no option may be granted under the Plan that would allow an employee’s right to purchase shares under all stock purchase plans of the Company and its parents and subsidiaries to which +Section 423 of the Code applies to accrue at a rate that exceeds $25,000 of fair market value of shares (determined at the date of grant) for each calendar year in which such option is outstanding. +6. Participation in the Plan. +(a) Initiating Participation. An Eligible Employee may participate in an Offering under the Plan by submitting to the Company or its agent a subscription and payroll deduction authorization in the form +specified by the Company. The subscription and payroll deduction authorization must be submitted no later than the “Subscription Deadline,” which shall be a number of days prior to the Offering Date with the exact number of days being +established from time to time by the Authorized Officer by written notice to Eligible Employees. Once submitted, a subscription and payroll deduction +A-2 +authorization shall remain in effect unless amended or terminated, and upon the expiration of an Offering the participants in that Offering will be +automatically enrolled in the new Offering starting the following day. The payroll deduction authorization will authorize the employing corporation to make payroll deductions in an amount designated by the participant from each of the +participant’s paychecks during the Offering. The designated amount to be deducted from each paycheck must be a whole percentage of not less than one percent or more than 10 percent of the participant’s Compensation (as defined below) for +the period covered by the paycheck; provided, however, that the amount actually deducted from any paycheck shall not exceed the amount remaining after deduction of all other required or elective withholdings and deductions from that paycheck. If +payroll deductions are made by a Participating Subsidiary, that corporation will promptly remit the amount of the deductions to the Company. +(b) Definition of Compensation. “Compensation” means amounts received by the participant from the Company or Participating Subsidiary to the extent that the amounts are subject to federal income tax +withholding on wages under Section 3401(a) of the Code, determined without regard to any limitations based on the nature or location of the employment or the services performed, and adjusted as follows: +(i) Before-tax contributions to a non-qualified deferred compensation arrangement, contributions to a plan qualified under +Section 401(k) of the Code, and any amounts set aside by the participant from otherwise taxable pay under a welfare benefit plan qualified under Section 125 of the Code or for qualified transportation fringe benefits under Section 132 +of the Code shall be included. +(ii) Taxable expense reimbursements, any amount paid in lieu of unused paid-time off (before +or after termination of employment), moving expenses, welfare benefits, payments from a nonqualified deferred compensation plan, amounts realized from the exercise of a stock option or lapse of restrictions on restricted property, payments made in +any form under the Company’s Long Term Incentive Plan (or similar long term incentive arrangements maintained by a Participating Subsidiary), and adjustments for overseas employment (other than any transfer premium) shall be excluded. +(c) Amending Participation. After a participant has begun participating in the Plan by initiating payroll +deductions, the participant may amend the payroll deduction authorization (i) once during any Offering to decrease the amount of payroll deductions, and (ii) effective for the first paycheck of a new Offering to either increase or decrease +the amount of payroll deductions. A request for a decrease in payroll deductions during an Offering must be submitted to the Company in the form specified by the Company no later than the Change Deadline (as defined below) for that Offering, and +shall be effective for any paycheck only if the request is received by the Company at least 10 business days prior to the payday for that paycheck. A request for an increase or decrease in payroll deductions effective for the first paycheck of a new +Offering must be submitted to the Company in the form +A-3 +specified by the Company no later than the Subscription Deadline for the new Offering. In addition, if the amount of payroll deductions from any participant +during an Offering exceeds the maximum amount that can be applied to purchase shares in that Offering under the limitations set forth in paragraph 5(b) above, then (x) as soon as practicable following a written request from the participant, +payroll deductions from the participant shall cease and all such excess amounts shall be refunded to the participant, and (y) payroll deductions from the participant shall restart as of the commencement of the next Offering at the rate set +forth in the participant’s then effective payroll deduction authorization. +(d) Terminating Participation. After +a participant has begun participating in the Plan by initiating payroll deductions, the participant may terminate participation in the Plan by notice to the Company in the form specified by the Company. To be effective to terminate participation in +an Offering, a notice of termination must be submitted no later than the “Change Deadline,” which shall be a number of days prior to the Purchase Date for that Offering with the exact number of days being established from time to time by +the Authorized Officer by written notice to participants. Participation in the Plan shall also terminate when a participant ceases to be an Eligible Employee for any reason, including death or retirement. A participant may not reinstate +participation in the Plan with respect to a particular Offering after once terminating participation in the Plan with respect to that Offering. Upon termination of a participant’s participation in the Plan, all amounts deducted from the +participant’s Compensation and not previously used to purchase shares under the Plan shall be returned to the participant; provided, however, that, if an employee’s participation in the Plan terminates because he or she has become an +employee in a Participating Foreign ESPP Group (and has therefore ceased to be an Eligible Employee), then, if such event occurs during an offering under the Foreign ESPP (but after the offering date for that offering), (i) such amounts shall +not be returned to the participant, but shall instead be contributed and applied to the purchase of shares under the Foreign ESPP, subject to the terms and conditions of the Foreign ESPP, and (ii) the employee shall otherwise participate in the +Foreign ESPP, subject to the terms and conditions of the Foreign ESPP. +7. Option Price. The price at which shares shall be +purchased in an Offering shall be the lower of (a) 85% of the fair market value of a share of Class B Common Stock on the Offering Date of the Offering or (b) 85% of the fair market value of a share of Class B Common Stock on the Purchase +Date of the Offering. The fair market value of a share of Class B Common Stock on any date shall be the closing price on the immediately preceding trading day of the Class B Common Stock on the New York Stock Exchange or, if the Class B Common Stock +is not traded on the New York Stock Exchange, such other reported value of the Class B Common Stock as shall be specified by the Board. +8. +Purchase of Shares. All amounts withheld from the Compensation of a participant shall be credited to his or her account under the Plan. No interest will be paid on such accounts, unless otherwise determined by the Authorized Officer. On each +Purchase Date, the amount of the account of each participant will be applied to the purchase of shares (including fractional shares) by such participant from the Company at the +A-4 +price determined under paragraph 7 above. Any cash balance remaining in a participant’s account after a Purchase Date as a result of the +limitations set forth in paragraph 5(b) above shall be repaid to the participant. +9. Delivery and Custody of Shares. Shares +purchased by participants pursuant to the Plan will be delivered to and held in the custody of such investment or financial firm (the “Custodian”) as shall be appointed by the Authorized Officer. The Custodian may hold in nominee or street +name certificates for shares purchased pursuant to the Plan, and may commingle shares in its custody pursuant to the Plan in a single account without identification as to individual participants. By appropriate instructions to the Custodian, a +participant may from time to time sell all or part of the shares held by the Custodian for the participant’s account at the market price at the time the order is executed. If a participant desires to sell all of the shares in his or her +account, the Custodian or the Company will purchase any fraction of a share in the account at the same price per share that the whole shares are sold on the market. By appropriate instructions to the Custodian, a participant may obtain +(a) transfer into the participant’s own name of all or part of the whole shares held by the Custodian for the participant’s account and delivery of such whole shares to the participant, or (b) transfer of all or part of the whole +shares held for the participant’s account by the Custodian to a regular individual brokerage account in the participant’s own name, either with the firm then acting as Custodian or with another firm; provided, however, that no shares may +be transferred under (a) or (b) until two years after the Offering Date of the Offering in which the shares were purchased. +10. +Records and Statements. The Custodian will maintain the records of the Plan. As soon as practicable after each Purchase Date each participant will receive a statement showing the activity of his or her account since the preceding Purchase +Date and the balance on the Purchase Date as to both cash and shares. Participants will be furnished such other reports and statements, and at such intervals, as the Authorized Officer shall determine from time to time. +11. Expense of the Plan. The Company will pay all expenses incident to operation of the Plan, including costs of record keeping, accounting fees, +legal fees, commissions and issue or transfer taxes on purchases pursuant to the Plan, on dividend reinvestments and on delivery of shares to a participant or into his or her brokerage account. The Company will not pay expenses, commissions or taxes +incurred in connection with sales of shares by the Custodian at the request of a participant. Expenses to be paid by a participant will be deducted from the proceeds of sale prior to remittance. +12. Rights Not Transferable. The right to purchase shares under this Plan is not transferable by a participant, and such right is exercisable +during the participant’s lifetime only by the participant. Upon the death of a participant, any cash withheld and not previously applied to purchase shares, together with any shares held by the Custodian for the participant’s account shall +be transferred to the persons entitled thereto under the laws of the state of domicile of the participant upon a proper showing of authority. +13. Dividends and Other Distributions; Reinvestment. Stock dividends and other distributions in shares of Class B Common Stock of the Company on shares held by the Custodian shall be issued to the +A-5 +Custodian and held by it for the account of the respective participants entitled thereto. Cash distributions other than dividends, if any, on shares held by +the Custodian will be paid currently to the participants entitled thereto. Cash dividends, if any, on shares held by the Custodian will be reinvested in Class B Common Stock on behalf of the participants entitled thereto. The Custodian shall +establish a separate account for each participant for the purpose of holding shares acquired through reinvestment of the participant’s dividends. On each dividend payment date, the Custodian shall receive from the Company the aggregate amount +of dividends payable with respect to all shares held by the Custodian for participants’ accounts under the Plan. As soon as practicable thereafter, the Custodian shall use all of the funds so received to purchase shares of Class B Common Stock +in the public market, and shall then allocate such shares (including fractional shares) among the dividend reinvestment accounts of the participants pro rata based on the amount of dividends reinvested for each participant. A participant may sell or +transfer shares in the participant’s dividend reinvestment account in accordance with paragraph 9 above, except that there shall be no holding period required for a transfer from a dividend reinvestment account. +14. Voting and Shareholder Communications. In connection with voting on any matter submitted to the shareholders of the Company, the Custodian +will cause the shares held by the Custodian for each participant’s accounts to be voted in accordance with instructions from the participant or, if requested by a participant, furnish to the participant a proxy authorizing the participant to +vote the shares held by the Custodian for his or her accounts. Copies of all general communications to shareholders of the Company will be sent to participants in the Plan. +15. Tax Withholding. Each participant who has purchased shares under the Plan shall immediately upon notification of the amount due, if any, pay +to the Company in cash amounts necessary to satisfy any applicable federal, state and local tax withholding determined by the Company to be required. If the Company determines that additional withholding is required beyond any amount deposited at +the time of purchase, the participant shall pay such amount to the Company on demand. If the participant fails to pay the amount demanded, the Company may withhold that amount from other amounts payable by the Company to the participant, including +salary, subject to applicable law. +16. Responsibility and Indemnity. Neither the Company, the Board, the Custodian, any +Participating Subsidiary, any Foreign Subsidiary, nor any member, officer, agent, or employee of any of them, shall be liable to any participant under the Plan for any mistake of judgment or for any omission or wrongful act unless resulting from +gross negligence, willful misconduct or intentional misfeasance. The Company will indemnify and save harmless the Board, the Custodian and any such member, officer, agent or employee against any claim, loss, liability or expense arising out of the +Plan, except such as may result from the gross negligence, willful misconduct or intentional misfeasance of such entity or person. +17. +Conditions and Approvals. The obligations of the Company under the Plan shall be subject to compliance with all applicable state and federal laws and regulations, compliance with the rules of any stock exchange on which the Company’s +securities may be listed, and approval of such federal and state +A-6 +authorities or agencies as may have jurisdiction over the Plan or the Company. The Company will use its best effort to comply with such laws, regulations and +rules and to obtain such approvals. +18. Amendment of the Plan. Unless otherwise determined by the Board, the Board or the +Authorized Officer may from time to time amend the Plan in any and all respects; provided, however, that only the Board may change (a) the number of shares reserved for purposes of the Plan, (b) the purchase price of shares offered +pursuant to the Plan, (c) the terms of paragraph 5 above, or (d) in paragraph 6(a) above the maximum percentage of a participant’s Compensation that may be deducted from a participant’s paycheck during an Offering. +Notwithstanding the foregoing, the Board may not without the approval of the shareholders of the Company increase the number of shares reserved for purposes of the Plan (except for adjustments authorized in paragraph 2 above) or decrease the +purchase price of shares offered pursuant to the Plan. +19. Termination of the Plan. The Plan shall terminate when all of the shares +reserved for purposes of the Plan have been purchased, provided that (a) the Board or the Authorized Officer in their sole discretion may at any time terminate the Plan with respect to any Participating Subsidiary, without any obligation on +account of such termination, except as set forth in the following sentence, and (b) the Board in its sole discretion may at any time terminate the Plan completely, without any obligation on account of such termination, except as set forth in +the following sentence. Upon any such termination, the cash and shares, if any, held in the accounts of each participant to whom the termination applies shall forthwith be distributed to the participant or to the participant’s order, provided +that if prior to such termination, the Board and shareholders of the Company shall have adopted and approved a substantially similar plan, the Board may in its discretion determine that the accounts of each participant under this Plan to whom the +termination applies shall be carried forward and continued as the accounts of such participant under such other plan, subject to the right of any participant to request distribution of the cash and shares, if any, held for his or her accounts. +A-7 +ANNUAL +MEETING +AND +PROXY STATEMENT +September 21, 2009 +Beaverton, Oregon +VOTE BY INTERNET - www.proxyvote.com +Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. EDT September 20, 2009. Have your proxy card in hand when you access the +web site and follow the instructions to obtain your records and to create an electronic voting instruction form. +ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS +If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports +electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future +years. +VOTE BY PHONE - 1-800-690-6903 +Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. EDT September 20, 2009. Have your proxy card in hand when you call and then follow the +instructions. +VOTE BY MAIL +Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY +11717. +TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: +M16101-Z50168 +KEEP THIS PORTION FOR YOUR RECORDS +DETACH AND RETURN THIS PORTION ONLY +THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. +NIKE, INC. +For All +Withhold All +For All +Except +To withhold authority to vote for any individual nominee(s), mark “For All +Except” and write the number(s) of the nominee(s) on the line below. +Vote On Directors +1. +To elect a Board of Directors for the ensuing year. +¨ +¨ +¨ +Election by Class A: +Nominees: +01) John G. Connors +06) Mark G. Parker +02) Timothy D. Cook +07) Johnathan A. Rodgers +03) Ralph D. DeNunzio +08) Orin C. Smith +04) Douglas G. Houser +09) John R. Thompson, Jr. +05) Philip H. Knight +Vote On Proposals +For +Against +Abstain +2. +To approve an amendment to the Nike, Inc. Employee Stock Purchase Plan. +¨ +¨ +¨ +3. +To ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm. +¨ +¨ +¨ +4. +To transact such other business as may properly come before the meeting. +For address changes and/or comments, please check this box and +write them on the back where indicated. +¨ +Signature [PLEASE SIGN WITHIN BOX] +Date +Signature (Joint Owners) +Date +Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: +The Notice and Proxy Statement, Form 10-K and Letter to Shareholders are available at www.proxyvote.com/nike09. +M16102-Z50168 +NIKE, INC. +CLASS A COMMON STOCK PROXY +SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +FOR THE 2009 MEETING OF SHAREHOLDERS +SEPTEMBER +21, 2009 +The undersigned hereby appoints Philip H. Knight, Mark G. Parker +and Douglas G. Houser, and each of them, proxies with full power of substitution, to vote, as designated on the reverse side, on behalf of the undersigned, all shares of Class A Common Stock which the undersigned may be entitled to vote at the +Annual Meeting of Shareholders of NIKE, Inc. on September 21, 2009, and any adjournments thereof, with all powers that the undersigned would possess if personally present. A majority of the proxies or substitutes present at the meeting may exercise +all powers granted hereby. +THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS +SPECIFIED, BUT IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR, AND FOR PROPOSALS 2, AND 3. THE PROXIES MAY VOTE IN THEIR DISCRETION AS TO OTHER MATTERS WHICH MAY COME BEFORE THE +MEETING. +YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE +BOXES, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS’ RECOMMENDATIONS. THE PROXIES CANNOT VOTE THESE SHARES UNLESS YOU SIGN AND RETURN THIS CARD OR PROPERLY VOTE BY PHONE OR INTERNET. +Address Changes/Comments: +(If you noted any Address Changes/Comments above, +please mark corresponding box on the reverse side.) +VOTE BY INTERNET - www.proxyvote.com +Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. EDT September 20, 2009. Have your proxy card in hand when you access the +web site and follow the instructions to obtain your records and to create an electronic voting instruction form. +ELECTRONIC DELIVERY OF FUTURE SHAREHOLDER +COMMUNICATIONS +If you would like to reduce the costs incurred by NIKE, Inc. in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports +electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access shareholder communications electronically +in the future. +VOTE BY PHONE - 1-800-690-6903 +Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. EDT September 20, 2009. Have your proxy card in hand when you call and then follow the +instructions. +VOTE BY MAIL +Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to NIKE, Inc., c/o Broadridge, 51 Mercedes Way, Edgewood, NY +11717. +TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: +M16099-P83970 +KEEP THIS PORTION FOR YOUR RECORDS +DETACH AND RETURN THIS PORTION ONLY +THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. +NIKE, INC. +For All +Withhold All +For All +Except +To withhold authority to vote for any individual nominee(s), mark “For All +Except” and write the number(s) of the nominee(s) on the line below. +Vote on Directors +1. +To elect a Board of Directors for the ensuing year. +¨ +¨ +¨ +Election by Class B: +Nominees: +01) Jill K. Conway +02) Alan B. Graf, Jr. +03) John C. Lechleiter +Vote on Proposals +For +Against +Abstain +2. +To approve an amendment to the NIKE, Inc. Employee Stock Purchase Plan. +¨ +¨ +¨ +3. +To ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm. +¨ +¨ +¨ +4. +To transact such other business as may properly come before the meeting. +For address changes and/or comments, please check this box and +write them on the back where indicated. +¨ +Signature [PLEASE SIGN WITHIN BOX] +Date +Signature (Joint Owners) +Date +Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: +The Notice and Proxy Statement, Form 10-K and Letter to Shareholders are available at www.proxyvote.com/nike09. +M16100-P83970 +NIKE, INC. +CLASS B COMMON STOCK PROXY +SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +FOR THE 2009 MEETING OF SHAREHOLDERS +SEPTEMBER +21, 2009 +The undersigned hereby appoints Philip H. Knight, Mark G. Parker +and Douglas G. Houser, and each of them, proxies with full power of substitution, to vote, as designated on the reverse side, on behalf of the undersigned, all shares of Class B Common Stock which the undersigned may be entitled to vote at the +Annual Meeting of Shareholders of NIKE, Inc. on September 21, 2009, and any adjournments thereof, with all powers that the undersigned would possess if personally present. A majority of the proxies or substitutes present at the meeting may exercise +all powers granted hereby. +THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS +SPECIFIED, BUT IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR, AND FOR PROPOSALS 2, AND 3. THE PROXIES MAY VOTE IN THEIR DISCRETION AS TO OTHER MATTERS WHICH MAY COME BEFORE THE +MEETING. +YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE +BOXES, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS’ RECOMMENDATIONS. THE PROXIES CANNOT VOTE THESE SHARES UNLESS YOU SIGN AND RETURN THIS CARD OR PROPERLY VOTE BY PHONE OR INTERNET. +Address Changes/Comments: +(If you noted any Address Changes/Comments above, +please mark corresponding box on the reverse side.) \ No newline at end of file diff --git a/raw/proxies/0000320187/0001193125-09-155960/proxy_rpt.txt b/raw/proxies/0000320187/0001193125-09-155960/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..49616f3f0479ad389097a88de3b69063afd690d5 --- /dev/null +++ b/raw/proxies/0000320187/0001193125-09-155960/proxy_rpt.txt @@ -0,0 +1,16 @@ +Transactions with Related Persons +Mr. Knight makes his airplane available for business use by the Company for no charge. NIKE operates and maintains the aircraft. Mr. Knight has reimbursed the Company $578,158 for NIKE’s operating costs related to his +personal use of this aircraft during fiscal 2009, determined based on the cost of fuel and other variable costs associated with the flights under FAR 91-501(d). +Pursuant to the terms of a past consulting agreement with the Company, the Company agreed to pay for health insurance and for life insurance policies for Howard Slusher, the father of John Slusher, Vice President of +Sports Marketing, following expiration of the agreement. During fiscal 2009 the Company paid Howard Slusher $134,392 for health and life insurance premiums. +Three of Mr. Parker’s siblings are employed by the Company in non-executive roles. Bob Parker is a Strategic Account Manager, and has been employed by the Company for over 25 years; Stephen Parker is the +General Manager, China-Converse, and has been employed by the Company for over 21 years; and Ann Parker is a Senior Design Recruiter, and has been employed by the Company for over 20 years. During fiscal year 2009, the Company paid aggregate +compensation to Bob Parker, Stephen Parker and Ann Parker in the amounts of $321,636, $440,396, and $200,270, respectively. The compensation was consistent with compensation paid to other employees holding similar positions, and was composed of +14 +salary, performance bonus, the grant date fair value of stock options granted during the fiscal year estimated using the Black-Scholes pricing model, and +profit sharing and matching contributions to Company-sponsored retirement plans. +Compensation Committee Interlocks and Insider Participation +The members of the Compensation Committee of the Board of Directors during the fiscal year ended May 31, 2009 were Ralph D. +DeNunzio, Timothy D. Cook, Jeanne P. Jackson, and Johnathan A. Rodgers. Ms. Jackson resigned from the Compensation Committee and the board of directors on March 4, 2009, when she was appointed an officer of the Company. On June 18, +2009, the Board of Directors appointed John C. Lechleiter to the Board of Directors, and also to the Compensation Committee. The Committee is composed solely of independent, non-employee directors. +15 \ No newline at end of file diff --git a/raw/proxies/0000320187/0001193125-10-173707/proxy.txt b/raw/proxies/0000320187/0001193125-10-173707/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..7c9d8419816789ea3b92d4d091d93ec361fafa2c --- /dev/null +++ b/raw/proxies/0000320187/0001193125-10-173707/proxy.txt @@ -0,0 +1,2878 @@ +DEF 14A +1 +ddef14a.htm +DEFINITIVE PROXY STATEMENT +Definitive Proxy Statement +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 +Filed by the Registrant x +Filed by a Party other than the Registrant ¨ +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only +(as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material Pursuant to § 240.14a-11(c) or § 240.14a-12 +NIKE, Inc. +(Name of +Registrant as Specified in Its Charter) +(Name of +Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate +box): +x +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(I)(4) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and +state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. +Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +NIKE, Inc. +One Bowerman Drive +Beaverton, Oregon 97005-6453 +August 2, 2010 +To Our +Shareholders: +You are cordially invited to attend the annual meeting of shareholders of NIKE, Inc. to be held at the Tiger +Woods Conference Center, One Bowerman Drive, Beaverton, Oregon 97005-6453, on Monday, September 20, 2010, at 10:00 A.M. Pacific Time. Registration will begin at 9:00 A.M. +The meeting will consist of a brief presentation followed by the business items listed on the attached notice. +Whether or not you plan to attend, the prompt execution and return of your proxy card will both assure that your shares are represented +at the meeting and minimize the cost of proxy solicitation. +Sincerely, +Philip H. Knight +Chairman of the Board +Notice of Annual Meeting of Shareholders +September 20, 2010 +To the Shareholders of NIKE, Inc. +The annual meeting of shareholders of NIKE, Inc., an Oregon corporation, will be held on Monday, September 20, 2010, at 10:00 A.M., +at the Tiger Woods Conference Center, One Bowerman Drive, Beaverton, Oregon 97005-6453, for the following purposes: +1. +To elect a Board of Directors for the ensuing year. +2. +To re-approve and amend the NIKE, Inc. Executive Performance Sharing Plan. +3. +To re-approve and amend the NIKE, Inc. 1990 Stock Incentive Plan. +4. +To ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm. +5. +To transact such other business as may properly come before the meeting. +All shareholders are invited to attend the meeting. Shareholders of record at the close of business on July 26, 2010, the record +date fixed by the Board of Directors, are entitled to notice of and to vote at the meeting. You must present your proxy or voter instruction card or meeting notice for admission. +By Order of the Board of Directors +JOHN F. COBURN III +Secretary +Beaverton, +Oregon +August 2, 2010 +Whether or not you intend to be present at the meeting, please +sign and date the enclosed proxy and return it in the enclosed envelope, or vote by telephone or over the internet following the instructions on the proxy. +PROXY STATEMENT +The enclosed proxy is solicited by the Board of Directors of NIKE, Inc. (“NIKE” or the “Company”) for use at the +annual meeting of shareholders to be held on September 20, 2010, and at any adjournment thereof (the “Annual Meeting”). The Company expects to provide notice and electronic delivery of this proxy statement and the enclosed proxy to +shareholders on or about August 2, 2010. +The Company will bear the cost of solicitation of proxies. In addition to the +solicitation of proxies by mail, certain officers and employees of the Company, without extra compensation, may also solicit proxies personally or by telephone. Copies of proxy solicitation materials will be furnished to fiduciaries, custodians and +brokerage houses for forwarding to the beneficial owners of shares held in their names. +All valid proxies properly executed +and received by the Company prior to the Annual Meeting will be voted in accordance with the instructions specified in the proxy. Where no instructions are given, shares will be voted FOR (1) the election of each of the named nominees for +director, (2) re-approval and amendment of the NIKE, Inc. Executive Performance Sharing Plan, (3) re-approval and amendment of the NIKE, Inc. 1990 Stock Incentive Plan, and (4) ratification of the appointment of PricewaterhouseCoopers +LLP as independent registered public accounting firm. +A shareholder giving the enclosed proxy has the power to revoke it at +any time before it is exercised by affirmatively electing to vote in person at the meeting or by delivering to John F. Coburn III, Secretary of NIKE, either an instrument of revocation or an executed proxy bearing a later date. +VOTING SECURITIES +Holders of record of NIKE’s Class A Common Stock (“Class A Stock”) and holders of record of NIKE’s Class B +Common Stock (“Class B Stock”), at the close of business on July 26, 2010, will be entitled to vote at the Annual Meeting. On that date, 89,989,448 shares of Class A Stock and 390,892,443 shares of Class B Stock were issued and +outstanding. Neither class of Common Stock has cumulative voting rights. All share and per-share amounts in this proxy statement have been adjusted to reflect the two-for-one stock split of the Class A Stock and the Class B Stock effected on +April 2, 2007 in the form of a 100 percent common stock dividend. +Each share of Class A Stock and each share +of Class B Stock is entitled to one vote on every matter submitted to the shareholders at the Annual Meeting. With regard to Proposal 1, the election of directors, the holders of Class A Stock and the holders of Class B Stock will vote +separately. Holders of Class B Stock are currently entitled to elect 25 percent of the total Board, rounded up to the next whole number. Holders of Class A Stock are currently entitled to elect the remaining directors. Under this formula, +holders of Class B Stock, voting separately, will elect four directors, and holders of Class A Stock, voting separately, will elect nine directors. Holders of Class A Stock and holders of Class B Stock will vote together as one class on +Proposals 2, 3, and 4. +CORPORATE GOVERNANCE +Board of Directors +The +Board of Directors is composed of 10 independent directors, one outside director who is not independent, Philip H. Knight, the Chairman of the Board, and Mark G. Parker, President and Chief Executive Officer. There were six meetings of the Board of +Directors during the last fiscal year. Each director attended at least 75 percent of the total number of meetings of the Board of Directors and committees on which he or she served. The Company encourages all directors to attend each annual +meeting of shareholders, and all who were directors at the time attended the 2009 Annual Meeting. +Board Committees +The Board currently has an Executive Committee, an Audit Committee, a Nominating and Corporate Governance Committee, a Finance Committee, +a Corporate Responsibility Committee, and a Compensation Committee, and may also appoint other committees from time to time. Each committee has a written charter; all such charters, as well as the Company’s corporate governance guidelines, are +available at the Company’s internet website ( www.nikebiz.com/investors ) and will be provided in print to any shareholder who submits a request in writing to NIKE Investor Relations, One Bowerman Drive, Beaverton, Oregon 97005-6453. +The Executive Committee is authorized to act on behalf of the Board on all corporate actions for which applicable law does +not require participation by the full Board. In practice, the Executive Committee acts in place of the full Board only when emergency issues or scheduling make it difficult or impracticable to assemble the full Board. All actions taken by the +Executive Committee must be reported at the next Board meeting. The Executive Committee held no formal meetings during the fiscal year ended May 31, 2010, but took actions from time to time pursuant to written consent resolutions. +The Audit Committee is responsible for the engagement or discharge of the independent registered public accountants, reviews and approves +services provided by the independent registered public accountants, and reviews with the independent registered public accountants the scope and results of their annual examination of the Company’s consolidated financial statements and any +recommendations they may have. The Audit Committee also reviews the Company’s procedures with respect to maintaining books and records, the adequacy and implementation of internal auditing, accounting, disclosure, and financial controls, and +the Company’s policies concerning financial reporting and business practices. The Board has determined that each member of the Audit Committee meets all applicable independence and financial literacy requirements under the New York Stock +Exchange listing standards. The Board has also determined that Mr. Graf is an “audit committee financial expert” as defined in regulations adopted by the Securities and Exchange Commission. +2 +The Nominating and Corporate Governance Committee identifies individuals qualified to become +Board members, recommends director nominees for election at each annual shareholder meeting, and develops and recommends corporate governance guidelines and standards for business conduct and ethics. The Committee also oversees the annual +self-evaluations of the Board and its committees and makes recommendations to the Board concerning the structure and membership of the other Board committees. The Company’s written policy requires the Nominating and Corporate Governance +Committee to review any transaction or proposed transaction with a related person that would be required to be reported under Item 404(a) of Regulation S-K, and to determine whether to ratify or approve the transaction, with ratification or +approval to occur only if the Committee determines that the transaction is fair to the Company or that approval or ratification of the transaction is in the interest of the Company. The Board has determined that each member of the Nominating and +Corporate Governance Committee meets all applicable independence requirements under the New York Stock Exchange listing standards. +The Finance Committee considers long-term financing options and needs of the Company, long-range tax and currency issues facing the +Company, and management recommendations concerning major capital expenditures and material acquisitions or divestments. +The +Corporate Responsibility Committee reviews significant activities and policies regarding labor and environmental practices, community affairs, charitable and foundation activities, diversity and equal opportunity, and environmental and +sustainability initiatives, and makes recommendations to the Board of Directors. +The Compensation Committee oversees the +performance evaluation of the Chief Executive Officer and our other Named Executive Officers, and recommends their compensation for approval by the independent members of the Board of Directors. The Compensation Committee also grants stock options +and restricted stock awards under the NIKE, Inc. 1990 Stock Incentive Plan, and determines targets and awards under the NIKE, Inc. Executive Performance Sharing Plan and the NIKE, Inc. Long-Term Incentive Plan. The Committee also makes +recommendations to the Board regarding other management incentive compensation arrangements and profit sharing plan contributions. The Board has determined that each member of the Compensation Committee meets all applicable independence requirements +under the New York Stock Exchange listing standards. +3 +The table below provides information regarding membership of each Board committee as of +May 31, 2010 and meetings held during fiscal 2010: +Director Name +Audit +Compensation +Nominating and +Corporate +Governance +Corporate +Responsibility +Finance +Executive +John G. Connors +ü +ü +Jill K. Conway +ü +Chair +Timothy D. Cook +ü +ü +Ralph D. DeNunzio +Chair +Chair +ü +Alan B. Graf, Jr. +Chair +Douglas G. Houser +ü +ü +ü +Philip H. Knight +Chair +John C. Lechleiter +ü +ü +Mark G. Parker +ü +Johnathan A. Rodgers +ü +ü +Orin C. Smith +ü +Chair +John R. Thompson, Jr. +ü +Phyllis M. Wise +ü +Meetings in Fiscal 2010 +13 +7 +4 +5 +5 +0 +Director Independence +Pursuant to New York Stock Exchange rules, in order for a director to qualify as “independent,” the Board of Directors must +affirmatively determine that the director has no material relationship with the Company that would impair the director’s independence. The Board affirmatively determined that commercial or charitable relationships below the following thresholds +will not be considered material relationships that impair a director’s independence: (i) if a NIKE director or immediate family member is an executive officer of another company that does business with NIKE and the annual sales to, or +purchases from, NIKE are less than one percent of the annual revenues of the other company; and (ii) if a NIKE director or immediate family member serves as an officer, director or trustee of a charitable organization, and NIKE’s +contributions to the organization are less than one percent of that organization’s total annual charitable receipts. After applying this categorical standard, the Board of Directors has determined that all directors have no material +relationship with the Company and, therefore, are independent, except for Messrs. Knight, Parker, and Thompson. Mr. Knight and Mr. Parker are executive officers of the Company. Mr. Thompson is not independent pursuant to New York +Stock Exchange rules, because the Company has a contract with his son, who is the head basketball coach at Georgetown University, to provide endorsement and consulting services to the Company, under which the Company paid to him $141,241 for +services, product, and travel in fiscal 2008. +4 +Director Nominations +The Nominating and Corporate Governance Committee identifies potential director candidates through a variety of means, including +recommendations from members of the Committee or the Board, suggestions from Company management, and shareholder recommendations. The Committee also may, in its discretion, engage director search firms to identify candidates. Dr. Wise was +identified by a director search firm, which also provided information about her qualifications and experience. Shareholders may recommend director candidates for consideration by the Nominating and Corporate Governance Committee by submitting a +written recommendation to the Committee, c/o John F. Coburn III, Secretary, NIKE, Inc., One Bowerman Drive, Beaverton, Oregon 97005-6453. The recommendation should include the candidate’s name, age, qualifications (including principal +occupation and employment history), and written consent to be named as a nominee in the Company’s proxy statement and to serve as a director, if elected. +The Board of Directors has adopted qualification standards for the selection of independent nominees for director which can be found at +our internet website: www.nikebiz.com/investors . As provided in the these standards and the Company’s Corporate Governance Guidelines, nominees for director are selected on the basis of, among other things, distinguished business +experience or other non-business achievements; education; significant knowledge of international business, finance, marketing, technology, law, or other fields which are complementary to, and balance the knowledge of, other Board members; a desire +to represent the interests of all shareholders; independence; character; ethics; good judgment; diversity; and ability to devote substantial time to discharge Board responsibilities. +The Nominating and Corporate Governance Committee identifies qualified potential candidates without regard to their age, gender, race, +national origin, sexual orientation, or religion. While the Board has no formal policy regarding Board member diversity, the Nominating and Corporate Governance Committee considers and discusses diversity in selecting nominees for director and in +the re-nomination of an incumbent director. The Committee views diversity broadly, including gender, ethnicity, differences of viewpoint, geographic location, skills, education, and professional and industry experience, among others. The Board +believes that a variety and balance of perspectives on the Board can result in more thoughtful deliberations. +In considering +the re-nomination of an incumbent director, the Nominating and Corporate Governance Committee reviews the director’s overall service to the Company during his or her term, including the number of meetings attended, level of participation and +quality of performance, as well as any special skills or diversity that such director brings to the Board. All potential new director candidates, whether recommended by shareholders or identified by other means, are initially screened by the Chair +of the Nominating and Corporate Governance Committee, who may seek additional information about the background and qualifications of the candidate, and who may determine that a candidate does not have qualifications that merit further consideration +by the full Committee. With respect to new director candidates who pass the initial screening, the Nominating and Corporate Governance Committee meets to +5 +discuss and consider each candidate’s qualifications and potential contributions to the Board, and determines by majority vote whether to recommend such candidates to the Board of Directors. +The final decision to either appoint a candidate to fill a vacancy between Annual Meetings or include a candidate on the slate of nominees proposed at an Annual Meeting is made by the Board of Directors. +Directors first elected after the 1993 fiscal year must retire at age 72. +Shareholder Communications with Directors +Shareholders or interested parties desiring to communicate directly with the Board of Directors, with the non-management directors, or +with any individual director, may do so in writing addressed to the intended recipient or recipients, c/o John F. Coburn III, Secretary, NIKE, Inc., One Bowerman Drive, Beaverton, Oregon 97005-6453. All such communications will be reviewed, compiled +as necessary, and then forwarded to the designated recipient or recipients in a timely manner. +Board Leadership Structure +NIKE’s governance documents provide the Board with flexibility to select the appropriate leadership structure of the Company. In +determining the leadership structure, the Board considers many factors, including the specific needs of the business, fulfilling the duties of the Board, and the best interests of the Company’s shareholders. In 2004, the Board of Directors +chose to separate the position of Chairman of the Board from the position of President and Chief Executive Officer (“CEO”), although this is not a permanent policy of the Board. The Chairman, Mr. Knight, presides over meetings of the +Board of Directors and shareholders, and serves as an ex officio member of all committees of the Board. The CEO, Mr. Parker, is in charge of the general supervision, direction, and control of the business and affairs of the Company, subject to +the overall direction and supervision of the Board of Directors and its committees, and also serves as an ex officio member of all committees of the Board. +The Board believes this leadership structure is appropriate for the Company because it separates the leadership of the Board from the +duties of day-to-day leadership of the Company. In particular, it permits Mr. Parker to focus his full time and attention to the business, the supervision of which has become increasingly important as the Company has grown. In addition, the +structure permits Mr. Knight to direct his attention to the broad strategic issues considered by the Board of Directors. Further, with his significant Company experience and ownership of Common Stock, Mr. Knight is particularly well-suited +as Chairman, helping to align the Board with the interests of shareholders. +The chairs of Board committees play an active +role in the leadership structure of the Board. The Nominating and Corporate Governance Committee, and the Board, endeavor to select independent committee chairs who will provide strong leadership to guide the important work of the Board committees. +Committee chairs work with senior executives to ensure that committees are discussing the key strategic risks and opportunities for the Company. +6 +The Nominating and Corporate Governance Committee has determined that given the separation +of the positions of Chairman and CEO, and the strong leadership of experienced chairs of each of the Board committees, a lead director would not improve the effectiveness of the Board at this time. A presiding director is appointed to chair +executive sessions of non-management directors (consisting of all directors other than Mr. Knight and Mr. Parker). The position of presiding director is rotated among the Chairs of the various Board committees, other than the Executive +Committee. The current presiding director at the executive sessions is Dr. Conway. Executive sessions are regularly scheduled and held at least once each year. For all of these reasons, the Board believes this leadership structure is optimal +and has worked well for many years. +The Board’s Role in Risk Oversight +While the Company’s management is responsible for day-to-day management of the various risks facing the Company, the Board of +Directors takes an active role in the oversight of the management of critical business risks. The Board does not view risk in isolation. Risks are considered in virtually every business decision and as part of NIKE’s business strategy. The +Board recognizes that it is neither possible nor prudent to eliminate all risk. Purposeful and appropriate risk-taking is essential for the Company to be competitive on a global basis and to achieve its strategic objectives. +The Board implements its risk oversight function both as a whole and through committees, which play a significant role in carrying out +risk oversight. While the Audit Committee is responsible for oversight of management’s risk management policies, oversight responsibility for particular areas of risk is allocated among the Board committees according to the committee’s +area of responsibility as reflected in the committee charters. In particular: +• +The Audit Committee oversees risks related to the Company’s financial statements, the financial reporting process, accounting, and legal matters. +The Committee oversees the internal audit function, reviews a risk-based plan of internal audits, and a risk-based integrated audit of internal controls over financial reporting. The Committee meets separately with each of the Vice President of +Corporate Audit, representatives of the independent external auditor, and senior management. +• +The Compensation Committee oversees risks and rewards associated with the Company’s compensation philosophy and programs, management succession +plans, and management development. +• +The Finance Committee oversees financial matters and risks relating to budgeting, investments, access to capital, capital deployment, acquisitions and +divestitures, currency risk and hedging programs, and significant capital projects. +7 +• +The Corporate Responsibility Committee oversees issues that involve reputational risk to the Company, including community engagement, manufacturing +health and safety, environmental sustainability, and diversity. +• +The Nominating and Corporate Governance Committee oversees risks associated with company governance, including NIKE’s code of business conduct and +ethics, compliance programs, and the structure and performance of the Board and its committees. +Each +committee chair works with the senior executive assigned to assist the committee to develop agendas for the year and for each meeting, paying particular attention to areas of business risk identified by management, Board members, internal and +external auditors, and in their committee charter, and schedule agenda topics, presentations, and discussions periodically regarding business risks within their area of responsibility. At meetings, the committees discuss areas of business risk, the +potential impact, and management’s initiatives to manage it, often within the context of important business decisions. Through this process key business risk areas are reviewed at appropriate times, with some topics reviewed on several +occasions throughout the year. At every Board meeting the chair of each committee reports to the full Board its discussions and actions, including those affecting the oversight of various risks. +The Company believes that its leadership structure, discussed in detail above, supports the risk oversight function of the Board. Strong +directors chair the various committees involved in risk oversight, there is open communication between management and directors, and all directors are involved in the risk oversight function. +Code of Business Conduct and Ethics +The NIKE Code of Ethics (“Code”) is available at the Company’s internet website ( www.nikebiz.com ) and will be +provided in print without charge to any shareholder who submits a request in writing to NIKE Investor Relations, One Bowerman Drive, Beaverton, Oregon 97005-6453. The Code applies to the Company’s chief executive officer and senior financial +officers, and to all other Company directors, officers and employees. The Code provides that any waiver of the Code may be made only by the Board. Any such waiver in favor of a director or executive officer will be publicly disclosed. The Company +plans to disclose amendments to, and waivers from, the Code on the Company’s internet website: www.nikebiz.com/investors. +8 +PROPOSAL 1 +ELECTION OF DIRECTORS +A Board of 13 directors will be elected at the Annual Meeting. All of the nominees were elected at the 2009 annual meeting of +shareholders, except for Phyllis M. Wise, who was appointed to the Board of Directors on November 19, 2009. Directors will hold office until the next annual meeting of shareholders or until their successors are elected and qualified. +Jill K. Conway, Alan B. Graf, Jr., John C. Lechleiter, and Phyllis M. Wise are nominated by the Board of Directors for +election by the holders of Class B Stock. The other nine nominees are nominated by the Board of Directors for election by the holders of Class A Stock. +Under Oregon law, if a quorum of each class of shareholders is present at the Annual Meeting, the nine director nominees who receive the +greatest number of votes cast by holders of Class A Stock and the four director nominees who receive the greatest number of votes cast by holders of Class B Stock will be elected directors. Abstentions and broker non-votes will have no effect +on the results of the vote. Unless otherwise instructed, proxy holders will vote the proxies they receive for the nominees listed below. If any nominee becomes unable to serve, the holders of the proxies may, in their discretion, vote the shares for +a substitute nominee or nominees designated by the Board of Directors. +The Corporate Governance Guidelines adopted by the +Board of Directors provide that any nominee for director in an uncontested election who receives a greater number of votes “withheld” from his or her election than votes “for” such election shall tender his or her resignation for +consideration by the Nominating and Corporate Governance Committee. The Committee shall recommend to the Board the action to be taken with respect to the resignation. The Board will publicly disclose its decision within 90 days of the +certification of the election results. +Background information on the nominees as of July 15, 2010, including some of the +attributes that led to their selection, appears below. The Nominating and Corporate Governance Committee has determined that each director meets the qualification standards described in the section entitled “Director Nominations” above. In +addition, the Board firmly believes that the experience, attributes, and skills of any single director should not be viewed in isolation, but rather in the context of the experience, attributes, and skills that all director nominees bring to the +Board as a whole, each of which contributes to the function of an effective Board. +Nominees for Election by Class A Shareholders +John G. Connors — Mr. Connors, 51, a director since 2005, is a partner in Ignition Partners LLC, a +Seattle-area venture capital firm. Mr. Connors served as Senior Vice President and Chief Financial Officer +9 +of Microsoft Corporation from December 1999 to May 2005. He joined Microsoft in 1989 and held various management positions, including Corporate Controller from 1994 to 1996, Vice +President, Worldwide Enterprise Group in 1999, and Chief Information Officer from 1996 to 1999. Mr. Connors is a certified public accountant. Mr. Connors is a member of the Board of Trustees — Swedish Medical Center, and is +currently a member of the Board of Directors of Recruiting.com, Inc., Scout Analytics Inc., FiREapps, Inc., DataSphere Technologies, Inc., Splunk, Inc., Heroku, Inc. the Washington Policy Center, and the University of Washington Tyee Club. +Mr. Connors was selected to serve on the Board because his experience and skills in accounting, financial leadership, venture capital, technology, and international operations enable him to make valuable contributions to NIKE’s Audit +Committee and Finance Committee. +Timothy D. Cook — Mr. Cook, 49, a director since 2005, is the +Chief Operating Officer of Apple, Inc. Mr. Cook joined Apple in March 1998 as Senior Vice President of Worldwide Operations and also served as Executive Vice President, Worldwide Sales and Operations. Mr. Cook was Vice President, +Corporate Materials for Compaq Computer Corporation from 1997 to 1998. Previous to his work at Compaq, Mr. Cook served in the positions of Senior Vice President Fulfillment and Chief Operating Officer of the Reseller Division at Intelligent +Electronics from 1994 to 1997. Mr. Cook also worked for International Business Machines Corporation from 1983 to 1994, most recently as Director of North American Fulfillment. Mr. Cook is currently a member of the Board of Directors of the +National Football Foundation. Mr. Cook was selected to serve on the Board because his operational executive experience and his knowledge of technology, marketing, and international business allow him to provide the Board with valuable +perspectives and insights. +Ralph D. DeNunzio — Mr. DeNunzio, 78, a director since 1988, is +President of Harbor Point Associates, Inc., Rye Brook, New York, a private investment and consulting firm. Mr. DeNunzio was employed by the investment banking firm of Kidder, Peabody & Co. Incorporated from 1953 to 1987, where he +served as President from 1977 to 1986, as Chief Executive Officer from 1980 to 1987 and as Chairman of the Board of Directors from 1986 to 1987. Mr. DeNunzio served as Vice Chairman and Chairman of the Board of Governors of the New York Stock +Exchange from 1969 to 1972 and was President of the Securities Industry Association in 1981. In 1970, Mr. DeNunzio headed the Securities Industry Task Force, which led to enactment of the Securities Investor Protection Act of 1970 and +establishment of the Securities Investor Protection Corporation. He formerly served on the boards of directors of FedEx Corporation and Harris Corporation. Mr. DeNunzio was selected to serve on the Board because his extensive experience and +knowledge of financial markets, compensation, and board governance enable him to provide leadership to the NIKE Board as chair of the Compensation Committee and the Nominating and Corporate Governance Committee, and provide significant insights on +important financial matters. +Douglas G. Houser — Mr. Houser, 75, a director since 1970, has been a +partner in the Portland, Oregon law firm of Bullivant, Houser, Bailey since 1965 and is presently Senior Counsel. Mr. Houser is a trustee of Willamette University and a Fellow in the American College of Trial Lawyers, and has served as +10 +a member of the Board of Governors and Treasurer of the Oregon State Bar Association and as a Director of the Rand Corporation, Institute for Civil Justice Board of Overseers, and the National +Judicial College Foundation Board. Mr. Houser was selected to serve on the Board because his knowledge of NIKE and its Board, together with his experience as a principal of a significant law firm, allow him to provide beneficial contributions +regarding legal issues, corporate responsibility, and board governance. +Philip H. +Knight — Mr. Knight, 72, a director since 1968, is Chairman of the Board of Directors of NIKE. Mr. Knight is a co-founder of the Company and, except for the period from June 1983 through September 1984, served +as its President from 1968 to 1990, and from June 2000 to 2004. Prior to 1968, Mr. Knight was a certified public accountant with Price Waterhouse and Coopers & Lybrand and was an Assistant Professor of Business Administration at +Portland State University. Mr. Knight led NIKE from a small partnership founded on a handshake to the world’s largest footwear, apparel, and equipment company. He has extensive knowledge of and experience in Company operations, sports +marketing, manufacturing, management, accounting, and financial matters, which make him uniquely qualified to serve as Chairman of the Board. +Mark G. Parker — Mr. Parker, 54, has been President and Chief Executive Officer and a director since 2006. He +has been employed by NIKE since 1979 with primary responsibilities in product research, design and development, marketing, and brand management. Mr. Parker was appointed divisional Vice President in charge of development in 1987, corporate Vice +President in 1989, General Manager in 1993, Vice President of Global Footwear in 1998, and President of the NIKE Brand in 2001. He has extensive knowledge and experience regarding Company operations, sports marketing, manufacturing, research, +design, development, and management, and is an effective leader of NIKE. His position as CEO makes his participation on the Board critical. +Johnathan A. Rodgers — Mr. Rodgers, 64, a director since 2006, is the President and Chief Executive Officer of +TV One, LLC. Prior joining TV One, LLC in March 2003, Mr. Rodgers was President, Discovery Networks US for Discovery Communications, Inc. from 1996 to 2003. Prior to his work at Discovery Communications, Mr. Rodgers had a 20-year +career at CBS, Inc. where he held a variety of executive positions, including President, CBS Television Stations. Mr. Rodgers is also a director of Procter & Gamble Company, a Trustee of the University of +California — Berkeley, and a director of the National Cable Telecommunication Association. Mr. Rodgers was selected to serve on the Board because his experience and knowledge in media, broadcasting, and telecommunications, his +skills in executive leadership, and knowledge of multicultural media allow him to provide valuable insights to the Board regarding corporate responsibility, diversity, compensation, and marketing. +Orin C. Smith — Mr. Smith, 68, a director since 2004, was President and Chief Executive Officer of Starbucks +Corporation from 2000 to 2005. He joined Starbucks as Vice President and Chief Financial Officer in 1990, became President and Chief Operating Officer in 1994, and became a director of Starbucks in 1996. Prior to joining Starbucks, Mr. Smith +spent a total of 14 years with Deloitte & Touche. He was +11 +later the Executive Vice President and Chief Financial Officer of two transportation companies. Between these assignments, he was Chief Policy and Finance Officer in the administrations of two +Washington State Governors. Mr. Smith previously served on the board of directors of Washington Mutual Inc., and is currently a member of the board of directors of The Walt Disney Company, and serves on the Board of Regents of the University of +Washington. Mr. Smith was selected to serve on the Board because his experience and skills in accounting, financial leadership, marketing, international and retail operations enable him to make valuable contributions to NIKE’s Audit +Committee and Finance Committee. +John R. Thompson, Jr. — Mr. Thompson, 69, a director since 1991, +was head coach of the Georgetown University men’s basketball team from 1972 until 1998. Mr. Thompson was head coach of the 1988 United States Olympic basketball team. He hosts a sports radio talk show in Washington, D.C., and is a +nationally broadcast sports analyst for Turner Network Television (TNT) and the Westwood One, Inc. radio network. He serves as Assistant to the President of Georgetown for Urban Affairs, and he is a past President of the National Association of +Basketball Coaches and presently serves on its Board of Governors. Mr. Thompson was selected to serve on the Board because his extensive experience and knowledge of education, college and professional sports, media, broadcasting, and knowledge +of urban issues allow him to provide valuable insights to the Board regarding sports marketing, corporate responsibility, and diversity. +Nominees for Election by Class B Shareholders +Jill K. Conway — Dr. Conway, 76, a director since 1987, served as a Visiting Scholar with the Massachusetts +Institute of Technology’s Program in Science, Technology and Society from 1985 to 2008. Dr. Conway was a Professor of History and President of Smith College, Northampton, Massachusetts, from 1975 to 1985. She was affiliated with the +University of Toronto from 1964 to 1975, and held the position of Vice President, Internal Affairs from 1973 to 1975. Dr. Conway has a Ph.D. in history from Harvard University, and holds numerous Honorary Doctorates from North American and +Australian universities. She previously served on the boards of directors of Merrill Lynch & Co., Inc. and Colgate Palmolive Company, and is currently a trustee of the Boston Museum Project and the John F. Kennedy Library Foundation. +Dr. Conway was selected to serve on the Board because her extensive experience in higher education, multicultural issues, and women’s history allows her to effectively lead NIKE’s Corporate Responsibility Committee, serving as its +Chair, and to provide significant contributions to the Board regarding societal, cultural, and educational issues that affect the Company. +Alan B. Graf, Jr . — Mr. Graf, 56, a director since 2002, is the Executive Vice President and Chief Financial +Officer of FedEx Corporation, a position he has held since 1998, and is a member of FedEx Corporation’s Executive Committee. Mr. Graf joined FedEx Corporation in 1980 and was Senior Vice President and Chief Financial Officer for FedEx +Express, FedEx’s predecessor, from 1991 to 1998. He previously served on the boards of directors of Kimball International Inc., Storage USA, Inc. and +12 +Arkwright Mutual Insurance Co., and he is currently a director of Mid-America Apartment Communities, Inc. Mr. Graf was selected to serve on the Board because his experience and skills in +auditing accounting, financial management, and international operations enable him to effectively lead NIKE’s Audit Committee, serving as its Chair and financial expert. +John C. Lechleiter — Dr. Lechleiter, 56, a director since June 18, 2009, is Chairman of the Board, +President, and Chief Executive Officer of Eli Lilly and Company (“Lilly”). He joined Lilly in 1979 as a senior organic chemist in the process research and development division, and has held management positions in England and the U.S. He +was appointed Vice President of pharmaceutical product development in 1993, Vice President of regulatory affairs in 1994, Vice President for development and regulatory affairs in 1996, Senior Vice President of pharmaceutical products in 1998, +Executive Vice President of pharmaceutical products and corporate development in 2001, and Executive Vice President of pharmaceutical operations in 2004. Dr. Lechleiter was appointed president and chief operating officer of Lilly in 2005, when +he also joined Lilly’s board of directors. He was appointed president and chief executive officer in April 2008 and became chairman on January 1, 2009. He has a doctorate in organic chemistry from Harvard University and is a member of the +Business Roundtable and the Business Council. Dr. Lechleiter serves on the board of directors of Pharmaceutical Research and Manufacturers of America, Fairbanks Institute, the United Way of Central Indiana, and Indianapolis Downtown, Inc. He +also serves as a member of the board of trustees of Xavier University (Cincinnati, Ohio). He previously served on the board of directors of Great Lakes Chemical Corporation. Dr. Lechleiter was selected to serve on the Board because his +operational executive experience and his knowledge of science, marketing, management, and international business allow him to provide the Board with significant contributions in those strategic areas. +Phyllis M. Wise — Dr. Wise, 65, appointed as director on November 19, 2009, is Interim President of the +University of Washington, where she is also professor of physiology and biophysics, biology, and obstetrics and gynecology. She joined the University of Maryland School of Medicine as an assistant professor in 1976, was appointed associate +professor in 1982, and professor in 1987. Dr. Wise was appointed a professor and chair of the department of physiology at the University of Kentucky in 1993, and was appointed dean of the division of biological sciences and distinguished +professor of neurobiology at the University of California Davis in 2002. In 2005, she was appointed Vice President and Provost at the University of Washington, and was appointed Executive Vice President and Provost in 2007. Dr. Wise has a +doctorate in zoology from the University of Michigan, has an honorary doctorate from Swarthmore College, and is an elected member of the Institute of Medicine. Dr. Wise was selected to serve on the Board because her extensive experience in +medical science, health, higher education, and societal issues allow her to provide valuable contributions to the Board’s deliberations of strategic importance. +13 +Director Compensation for Fiscal 2010 +Name +Fees Earned or +Paid in Cash +($) +Option +Awards (1) +($) +Change in +Pension +Value +and +Nonqualified +Deferred +Compensation +Earnings (2) +($) +All Other +Compensation (3) +($) +Total +($) +John G. Connors +$ +75,000 +$ +91,120 +— +$ +10,400 +$ +176,520 +Jill K. Conway +62,000 +91,120 +— +15,109 +168,229 +Timothy D. Cook +71,000 +91,120 +— +20,400 +182,520 +Ralph D. DeNunzio +96,000 +113,900 +— +20,400 +230,300 +Alan B. Graf, Jr. +81,500 +91,120 +— +400 +173,020 +Douglas G. Houser +70,000 +113,900 +$ +38,526 +13,900 +236,326 +John C. Lechleiter +66,000 +216,720 +— +400 +283,120 +Johnathan A. Rodgers +68,000 +91,120 +— +400 +159,520 +Orin C. Smith +83,000 +91,120 +— +20,400 +194,520 +John R. Thompson, Jr. +44,000 +91,120 +— +30,843 +165,963 +Phyllis M. Wise +35,083 +123,150 +— +240 +158,473 +(1) +Represents the grant date fair value of annual director options granted in fiscal 2010 computed in accordance with accounting guidance applicable to stock-based +compensation. The grant date fair value of the options was estimated using the Black-Scholes option pricing model. On September 21, 2009, each listed director other than Messrs. DeNunzio and Houser and Dr. Wise was granted an option +for 4,000 shares with an exercise price of $58.59 per share, which was the closing market price of our Class B Common Stock on the grant date. On September 21, 2009, each of Messrs. DeNunzio and Houser was granted an option for +5,000 shares with an exercise price of $58.59 per share. On June 18, 2009, Dr. Lechleiter was granted an option for 5,000 shares with an exercise price of $56.30 per share, and on November 19, 2009, Dr. Wise was granted +an option for 5,000 shares with an exercise price of $63.56 per share. The assumptions made in determining the grant date fair values of options under applicable accounting guidance are disclosed in Note 11 of Notes to Consolidated Financial +Statements in our Annual Report on Form 10-K for the year ended May 31, 2010. As of May 31, 2010, non-employee directors held outstanding options for the following numbers of shares of our Class B Common Stock: Mr. Connors, +38,000; Dr. Conway, 36,000; Mr. Cook, 30,000; Mr. DeNunzio, 61,000; Mr. Graf, 44,000; Mr. Houser, 25,000; Dr. Lechleiter, 9,000, Mr. Rodgers, 22,000; Mr. Smith, 46,000; Mr. Thompson, 28,000; and +Dr. Wise 5,000. +(2) +Represents above-market earnings credited during fiscal 2010 to the account of Mr. Houser under our prior Executive Deferred Compensation Plan +adopted in 1983 (the “1983 DCP”). While deferrals +14 +under the 1983 DCP were discontinued in 1990, earnings have continued to accrue on the 1983 DCP account balances. Under the terms of the 1983 DCP, Mr. Houser received a guaranteed return +equal to the current monthly rate of Moody’s seasoned corporate bonds index, plus 4%, which paid an average interest rate of 9.83% in fiscal 2010. +(3) +Includes medical and life insurance premiums paid by us of $14,709 for Dr. Conway and $10,443 for Mr. Thompson. Also includes matching charitable +contributions by us under the NIKE Matching Gift Program, under which directors are eligible to contribute to qualified charitable organizations and we provide a matching contribution to the charities in an equal amount, up to $20,000 in the +aggregate for each director annually. In fiscal 2010, we matched contributions to charities in the following amounts: Mr. Connors, $10,000, Mr. Cook, $20,000, Mr. DeNunzio, $20,000, Mr. Houser, $13,500, Mr. Smith, $20,000, +and Mr. Thompson, $20,000. Also includes sample and test products we provided to directors during the fiscal year, the value of which we estimate at $240 for Dr. Wise, and $400 each for all other directors based on our incremental cost. +Director Fees and Arrangements +Under our standard director compensation program in effect in 2010, each non-employee director receives an annual retainer fee at the +rate of $50,000 per year, a $2,000 meeting fee for each board meeting attended and a $1,000 meeting fee for each committee meeting attended. Dr. Wise received a retainer of $29,167 for seven months of service in fiscal 2010. Additionally, on +the date of each annual meeting of shareholders, each non-employee director receives an option to purchase 4,000 shares of our Class B Common Stock. The option has a term of ten years and an exercise price equal to the closing market price +of our Class B Common Stock on the grant date. The option becomes exercisable in full on the date of the next annual meeting of shareholders. Messrs. Connors, Cook, Graf, Lechleiter, Rodgers and Smith, and Dr. Wise participate in our +standard director compensation program. Messrs. DeNunzio and Houser also participate in our standard program, except that, in exchange for electing in fiscal 2000 to participate in the standard program when it was first instituted, they each +receive an annual option to purchase 5,000 shares of our Class B Common Stock, instead of 4,000 shares. Effective June 1, 2010, our standard director compensation program has been modified to increase the annual retainer fee to +$60,000 per year, and an option to purchase 6,000 shares of our Class B Common Stock, or 7,000 shares for Messrs, DeNunzio and Houser. Consistent with the Board’s policy, Dr. Lechleiter and Dr. Wise each received an option to purchase +5,000 shares of our Class B Common Stock upon their appointment to the Board. The options were granted on June 18, 2009 for Dr. Lechleiter and on November 19, 2009 for Dr. Wise, the dates they were appointed to the Board. +Mr. Thompson and Dr. Conway do not participate in our standard director compensation program. Pursuant to elections +made in fiscal 2000, Mr. Thompson and Dr. Conway receive an annual retainer fee at the rate of $32,000 per year (instead of the $50,000 annual retainer fee paid under our standard program), a +15 +$2,000 meeting fee for each board meeting attended and a $1,000 meeting fee for each committee meeting attended. Pursuant to these elections, Mr. Thompson and Dr. Conway also receive +medical insurance and $500,000 of life insurance coverage paid for by us. Additionally, on the date of each annual meeting of shareholders, Mr. Thompson and Dr. Conway each receive an annual option to purchase 4,000 shares of our +Class B Common Stock on the same terms as apply to the options granted pursuant to our standard program. Effective June 1, 2010, director compensation for Mr. Thompson and Dr. Conway has been modified to increase the annual +retainer fee to $42,000 per year, and an option to purchase 6,000 shares of our Class B Common Stock. +Non-employee directors +serving as chair to a board committee, except the Executive Committee, also receive an annual fee at the rate of $10,000 for each committee chaired, and the chair of the Audit Committee receives an annual fee at the rate of $15,000. We also pay for +or reimburse our non-employee directors for travel and other expenses incurred in attending board meetings. +Philip H. Knight, +as the chairman of our board of directors, is one of our executive officers, but is not a Named Executive Officer. Mr. Knight does not receive any additional compensation for services provided as a director. +Director Participation in Deferred Compensation Plan +Under our Deferred Compensation Plan, non-employee directors may elect in advance to defer up to 100 percent of the director fees +paid by us, including retainer fees, committee fees and meeting fees. For a description of the plan, see “Non-Qualified Deferred Compensation in Fiscal 2010” below. In addition, in fiscal 2000, Dr. Conway and Messrs. DeNunzio, +Houser, and Thompson received credits to a fully vested NIKE stock account under the Deferred Compensation Plan in exchange for their waiver of rights to future payments under a former non-employee director retirement program. The Class B shares +credited to these directors’ accounts will be distributed to them upon their retirement from the Board, and the accounts are credited with quarterly dividends until distributed. +16 +Stock Holdings of Certain Owners and Management +The following table sets forth the number of shares of each class of NIKE securities beneficially owned, as of July 15, 2010, by +(i) each person known to the Company to be the beneficial owner of more than 5 percent of any class of the Company’s securities, (ii) each of the directors and nominees for director, (iii) each executive officer listed in +the Summary Compensation Table (“Named Officers”), and (iv) all nominees, Named Officers, and other executive officers as a group. Because Class A Stock is convertible into Class B Stock on a share-for-share basis, each +beneficial owner of Class A Stock is deemed by the Securities and Exchange Commission to be a beneficial owner of the same number of shares of Class B Stock. Therefore, in indicating a person’s beneficial ownership of shares of Class B +Stock in the table, it has been assumed that such person has converted into Class B Stock all shares of Class A Stock of which such person is a beneficial owner. For these reasons the table contains substantial duplications in the numbers of +shares and percentages of Class A and Class B Stock shown for Mr. Knight and for all directors and officers as a group. +Title of +Class +Shares +Beneficially +Owned (1) +Percent of +Class (2) +John G. Connors +Class B +40,640 +(3) +— +Bellevue, Washington +Jill K. Conway +Class B +62,839 +(3) (4) +— +Boston, Massachusetts +Timothy D. Cook +Class B +26,000 +(3) +— +Cupertino, California +Ralph D. DeNunzio +Class B +216,654 +(3) (4) +— +Riverside, Connecticut +Alan B. Graf, Jr +Class B +58,000 +— +Memphis, Tennessee +Douglas G. Houser +Class B +185,125 +(3) (4) +— +Portland, Oregon +Philip H. Knight +Class A +66,701,024 +(5) +74.1 +% +One Bowerman Drive, Beaverton, Oregon 97005 +Class B +66,708,764 +(5) +14.5 +% +John C. Lechleiter +Class B +5,500 +(3) +— +Indianapolis, Indiana +Mark G. Parker (6) +Class B +1,124,257 +(3) (7) +0.3 +% +Portland, Oregon +Johnathan A. Rodgers +Class B +18,000 +(3) +— +Silver Spring, Maryland +Orin C. Smith +Class B +42,000 +(3) +— +Seattle, Washington +John R. Thompson, Jr +Class B +39,518 +(3) (4) +— +Arlington, Virginia +17 +Title of +Class +Shares +Beneficially +Owned (1) +Percent of +Class (2) +Phyllis M. Wise +Class B +— +— +Seattle, Washington +Donald W. Blair (6) +Class B +453,787 +(3) (7) +0.1 +% +Portland, Oregon +Charles Denson (6) +Class B +957,046 +(3) (7) +0.2 +% +Portland, Oregon +Eric Sprunk (6) +Class B +328,906 +(3) (7) +— +Tigard, Oregon +Gary M. DeStefano (6) +Class B +290,811 +(3) (7) +— +Lake Oswego, Oregon +Sojitz Corporation of America +Preferred +(8) +300,000 +100 +% +Portland, Oregon +Oak Hill Investment Management, L.P. +Class B +26,830,665 +(9) (10) +6.8 +% +2775 Sand Hill Road, Menlo Park, California 94025 +BlackRock, Inc +Class B +25,756,041 +(10) +6.6 +% +40 East 57 th Street, New York, NY +10022 +All directors and executive officers as a group (24 persons) +Class A +66,701,024 +74.1 +% +Class B +71,977,458 +(3) +15.7 +% +(1) +A person is considered to beneficially own any shares: (a) over which the person exercises sole or shared voting or investment power, or (b) of which the +person has the right to acquire beneficial ownership at any time within 60 days (such as through conversion of securities or exercise of stock options). Unless otherwise indicated, voting and investment power relating to the above shares is +exercised solely by the beneficial owner or shared by the owner and the owner’s spouse or children. +(2) +Omitted if less than 0.1 percent. +(3) +These amounts include the right to acquire, pursuant to the exercise of stock options, within 60 days after July 15, 2010, the following numbers of shares: 34,000 +shares for Mr. Connors, 32,000 shares for Dr. Conway, 26,000 shares for Mr. Cook, 56,000 shares for Mr. DeNunzio, 40,000 shares for Mr. Graf, 20,000 shares for Mr. Houser, 5,000 shares for Dr. Lechleiter, 876,250 +shares for Mr. Parker, 18,000 shares for Mr. Rodgers, 42,000 shares for Mr. Smith, 24,000 shares for Mr. Thompson, 382,500 shares for Mr. Blair, 847,500 shares for Mr. Denson, 293,000 shares for Mr. Sprunk, 234,500 +shares for Mr. DeStefano, and 5,276,434 shares for the executive officer and director group. +(4) +Includes shares credited to accounts under the NIKE, Inc. Deferred Compensation Plan in the following amounts: 9,573 for Dr. Conway, 8,854 for Mr. DeNunzio, +9,750 for Mr. Houser, and 7,518 for Mr. Thompson. +(5) +Does not include: (a) 130,448 Class A shares owned by a corporation which is owned by Mr. Knight’s spouse, (b) 20,000,000 Class A shares +held by three grantor annuity trusts for the benefit of Mr. Knight’s children, (c) 1,850,000 Class B shares held by the Knight Foundation, a charitable foundation in which Mr. Knight and his spouse are directors, +(d) 1,294,403 Class B shares held by Oak Hill Strategic Partners, L.P., a limited partnership in which a company owned by Mr. Knight is a limited partner, and (e) 25,536,262 Class B shares held by Cardinal Investment Sub I L.P., a +limited partnership in which Mr. Knight is a limited partner. Mr. Knight has disclaimed ownership of all such shares. +(6) +Executive officer listed in the Summary Compensation Table. +(7) +Includes shares held in accounts under the NIKE, Inc. 401(k) and Profit Sharing Plan for Messrs. Parker, Blair, Denson, Sprunk and DeStefano in the amounts of +6,646, 2,161, 8,369, 713, 6,581 shares, respectively. +18 +(8) +Preferred Stock does not have general voting rights except as provided by law, and under certain circumstances as provided in the Company’s Restated +Articles of Incorporation, as amended. +(9) +Includes 25,536,262 Class B shares held by Cardinal Investment Sub I, L.P. and 1,294,403 Class B shares held by Oak Hill Strategic Partners, L.P. Oak Hill Investment +Management, L.P. has the sole voting and dispositive power with respect to all of these Class B shares pursuant to investment management agreements. Because this power may be revoked upon notice of 60 days or less, each of Cardinal Investment Sub +I., L.P. and Oak Hill Strategic Partners, L.P. may be deemed to be the beneficial owner of the Class B shares held by it. +(10) +Information provided as of December 31, 2009 in Schedule 13G filed by the shareholder. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors and executive officers, and persons who +own more than 10 percent of a registered class of the Company’s equity securities, to file with the Securities and Exchange Commission (the “SEC”) and the New York Stock Exchange initial reports of ownership and reports of +changes in ownership of Common Stock and other equity securities of the Company. Officers, directors and greater than 10 percent shareholders are required by the regulations of the SEC to furnish the Company with copies of all +Section 16(a) forms they file. To the Company’s knowledge, based solely on review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ended +May 31, 2010 all Section 16(a) filing requirements applicable to its officers, directors and greater than 10 percent beneficial owners were complied with, except that each of the stock option grants to directors in September 2009 +covering a total of 42,000 shares was reported late due to administrative error, and a sale of 3,720 shares on April 15, 2010 by Jeanne Jackson was reported late due to broker error. +Transactions with Related Persons +Mr. Knight makes his airplane available for business use by the Company for no charge. NIKE operates and maintains the aircraft. +Mr. Knight has reimbursed the Company $720,633 for NIKE’s operating costs related to his personal use of this aircraft during fiscal 2010, determined based on the cost of fuel and other variable costs associated with the flights under FAR +91-501(d). +Pursuant to the terms of a past consulting agreement with the Company, the Company agreed to pay for health +insurance and for life insurance policies for Howard Slusher, the father of John Slusher, Vice President of Sports Marketing, following expiration of the agreement. During fiscal 2010 the Company paid Howard Slusher $129,568 for health and life +insurance premiums. +Three of Mr. Parker’s siblings are employed by the Company in non-executive roles. Bob Parker +is a Strategic Sales Director, and has been employed by the Company for over 26 years; Stephen Parker is the General Manager, China-Converse, and has been employed by the Company for over 22 years; and Ann +19 +Parker is a Talent Development and Community Relations Director at Hurley LLC, and has been employed by the Company for over 20 years. During fiscal year 2010, the Company paid aggregate +compensation to Bob Parker, Stephen Parker and Ann Parker in the amounts of $378,898, $487,789, $253,874, respectively. The compensation was consistent with compensation paid to other employees holding similar positions, and was composed of salary, +performance bonus, the grant date fair value of stock options granted during the fiscal year estimated using the Black-Scholes pricing model, and profit sharing and matching contributions to Company-sponsored retirement plans. +Mr. Thompson’s son, John Thompson III, is the head basketball coach at Georgetown University, and the Company has a contract +with him to provide endorsement and consulting services to the Company through August 2014, with base compensation over the 5-year term of the contract of $500,000, and up to $80,000 per year of product and other performance incentives. +Compensation Committee Interlocks and Insider Participation +The members of the Compensation Committee of the Board of Directors during the fiscal year ended May 31, 2010 were Ralph D. +DeNunzio, Timothy D. Cook, John C. Lechleiter, and Johnathan A. Rodgers. The Committee is composed solely of independent, non-employee directors. +20 +COMPENSATION DISCUSSION AND ANALYSIS +Operation of the Compensation Committee +The Compensation Committee of the Board of Directors (the “Committee”) oversees the performance evaluation of the CEO against +goals and objectives set by the Committee, and based on the evaluation, recommends the CEO’s compensation to the independent members of the Board of Directors. Subject to the approval of the independent members of the Board of Directors, the +Committee also determines the compensation of our other Named Executive Officers. The Committee also oversees the performance evaluation of those officers and the administration of our executive compensation programs. The Committee receives +recommendations from the CEO as to compensation of other Named Executive Officers, and the CEO participates in Committee discussions regarding the compensation of those officers. The Committee meets in executive session without the CEO to determine +his compensation. The Committee is comprised of Ralph D. DeNunzio (Chairman), Timothy D. Cook, John C. Lechleiter, and Johnathan A. Rodgers, each of whom is an independent director under applicable New York Stock Exchange listing standards. The +Committee operates pursuant to a written charter that is available on our website at: www.nikebiz.com/investors . +Each +year, the Committee reviews our executive total compensation programs to ensure that they continue to reflect the Committee’s commitment to align the objectives and rewards of our executive officers with the creation of value for our +shareholders. The programs have been designed to reinforce our pay-for-performance philosophy by delivering total compensation that motivates and rewards short and long-term financial performance to maximize shareholder value, and to be externally +competitive to attract and retain outstanding and diverse executive talent. The Committee has the sole authority under its charter to retain compensation consultants to assist the Committee in evaluating the compensation of executive officers. The +Committee has not retained any such consultants. In conducting their annual review, the Committee considers information provided by our human resources staff. Our human resources staff retains Hewitt Associates and Towers Watson, both independent +compensation consulting firms, to provide surveys and reports containing competitive market data. The staff uses this information to make recommendations to the Committee concerning executive compensation. These consultants do not, however, +formulate executive compensation strategies for NIKE or recommend individual executive compensation. The Committee reviews summaries prepared by our human resources staff and uses this data as well as reliance on the Committee’s collective +experience and judgment to set executive compensation. +Use of Market Survey Data +To help establish competitive ranges of base salary, incentive compensation opportunities, and target total compensation for the purpose +of making recommendations to the Committee, our human resources +21 +staff uses competitive market data from surveys and reports prepared by Hewitt Associates and Towers Watson. We use two benchmarks. One is a broad group of companies across many industries with +revenues of $10 billion or more. The second benchmark used is a peer group of 14 companies which have similar revenue size, have similar products or markets, or reflect the companies with which we compete for executive talent. +For purposes of setting executive compensation for fiscal 2010, the companies in this peer group were unchanged from fiscal 2009 and +consisted of the following: +Company +Reported +Fiscal Year +Revenue +(in millions) +Apple Inc. +09/09 +$ +36,537.0 +The Coca-Cola Company +12/09 +$ +30,990.0 +Colgate-Palmolive Company +12/09 +$ +15,327.0 +FedEx Corp. +05/09 +$ +35,497.0 +Gap Inc. +01/10 +$ +14,197.0 +General Mills Inc. +05/09 +$ +14,691.3 +Google Inc. +12/09 +$ +23,650.6 +Kellogg Co. +12/09 +$ +12,575.0 +Limited Brands Inc. +01/10 +$ +8,632.0 +Macy’s, Inc. +01/10 +$ +23,489.0 +McDonald’s Corporation +12/09 +$ +22,745.0 +PepsiCo, Inc. +12/09 +$ +43,232.0 +Starbucks Corp. +09/09 +$ +9,774.6 +The Walt Disney Company +09/09 +$ +36,149.0 +The surveys that our human resources staff reviews for each of the two benchmarks show percentile compensation levels +for various executive positions with comparable job responsibilities. The Committee does not endeavor to set executive compensation at or near any particular percentile, and considers target total compensation to be competitive if it is within the +50 th to +75 th percentiles. Market data is only one of many factors +that the Committee considers in the determination of executive compensation levels. Other factors include internal pay equity, level of responsibility, the individual’s performance, expectations regarding the individual’s future +contributions, succession planning and retention strategies, budget considerations, and our performance. +Objectives and Elements of Our +Compensation Program +Our overall executive compensation strategy is accomplished through a total compensation program +that is aligned with our business strategy and culture to attract and retain top talent, reward business results +22 +and individual performance, and, most importantly, maximize shareholder returns. Our total compensation program for the Named Executive Officers is highly incentive-based and competitive in the +marketplace, with Company performance determining a significant portion of total compensation. Our program consists of the following elements: +• +Base salary that reflects the executive’s accountabilities, skills, experience, performance, and future potential +• +Annual performance-based incentive cash bonus based on Company financial results under our Executive Performance Sharing Plan +• +A portfolio approach to long-term incentive compensation to provide a balanced mix of equity and performance-based cash incentives, including: +• +Performance-based cash awards based on Company financial results under the Long-Term Incentive Plan to encourage attainment of long-term financial +objectives +• +Stock options to align the interests of executives with those of shareholders +• +Restricted stock awards to provide incentives consistent with shareholder returns, and to supply a strong retention incentive +• +Benefits +• +Profit sharing contributions to defined contribution retirement plans +• +Post-termination payments under non-competition or employment agreements +23 +In determining the award levels for each of the elements in our total compensation program, +our philosophy is to “pay for performance.” As a result, we place relatively greater emphasis on the incentive components of compensation (Executive Performance Sharing Plan, Long-Term Incentive Plan, and stock options) to align the +interests of our executives with shareholders, and motivate them to maximize shareholder returns. This is balanced with retention incentives provided by base salary and restricted stock awards. In fiscal 2010, incentive components (including +restricted stock) accounted for 87% of the CEO’s target compensation, 85% of the NIKE Brand President’s target compensation, and approximately 76% of the other Named Executive Officers’ target compensation, as shown in the following +chart: +* +Includes Executive Performance Sharing Plan, Long-term Incentive Plan, stock options, and restricted stock +We look to the experience and judgment of the Committee to determine what +it believes to be the appropriate target compensation mix for each Named Executive Officer. We do not apply fixed ratios or formulae, or rely solely on market data or quantitative measures. In allocating compensation among the various elements, the +Committee considers market data, Company performance and budget, the impact of the executive’s position in the Company, individual past performance, expectations for future performance, experience in the position, any anticipated increase in +the individual’s responsibilities, internal pay equity for comparable positions, and retention incentives for succession planning. +24 +Total Compensation Changes (fiscal 2010 versus fiscal 2009) +The total compensation for each of the Named Executive Officers is shown in the Summary Compensation Table on page 34. The increase in +total compensation from fiscal 2009 to fiscal 2010 is primarily attributable to the following: +• +Recent changes in disclosure rules that require 100% of the fair value of restricted stock grants to be reported in the year granted, instead of +reporting the compensation evenly over the vesting period. +• +Messrs. Blair, DeStefano, and Sprunk received restricted stock grants in fiscal 2010 but no such awards in fiscal 2009. Each of these officers had last +received a restricted stock award in fiscal 2007 consistent with the Committee’s practice prior to fiscal 2010 of granting restricted stock every three years. +• +Each of the Named Executive Officers earned the maximum payout of the annual cash bonus for fiscal 2010 due to their achievement of profit objectives +set by the Committee. None of the Named Executive Officers received a bonus in fiscal 2009. +Annual Cash Compensation +Base Salary +When making recommendations to the Committee concerning base salary levels for our Named Executive Officers, our +human resources staff considers the market data described above to recommend base salaries generally between the +50 th and +75 th percentiles of the salaries for comparable positions +reflected in the surveys and reports. Other factors considered in setting annual salary levels include the individual’s performance in the prior year, expectations regarding the individual’s future performance, experience in the position, +any anticipated increase in the individual’s responsibilities, internal pay equity for comparable positions, succession planning strategies, and our annual salary budget. The Committee reviews these factors each year and adjusts base salary +levels to ensure that we are appropriately rewarding performance. +The Committee generally reviews base salaries of the Named +Executive Officers annually based on a review of individual performance at a meeting in June, with salary adjustments becoming effective for the first pay period ending in August. During the salary review in June 2009, the Committee decided not to +increase any of the base salaries for the Named Executive Officers based on the uncertain external and internal economic conditions at that time. Accordingly, the annual salary rates of Messrs. Parker, Denson, Blair, DeStefano, and Sprunk remained +the same at $1,475,000, $1,260,000, $810,000, $1,000,000, and $810,000. +25 +In setting a Named Executive Officer’s overall compensation package for the year, the +Committee attempts to place a relatively greater emphasis on the incentive components of compensation described below. +Performance-Based Annual Incentive Bonus +Annual bonuses are paid to the Named Executive Officers under our Executive Performance Sharing Plan (“PSP”). Our “pay for +performance” philosophy for bonuses is simple: if we exceed our financial objectives, we will pay more; if we fail to reach them, we will pay less or nothing at all. The PSP for all executives is based 100% on overall corporate performance each +year as measured by income before income taxes excluding the effect of any acquisitions, divestitures or accounting changes (“PTI”). Basing our bonus program for all executives on overall corporate performance is intended to foster +teamwork and send the message to each executive that his or her role is to help ensure overall organizational success and maximize shareholder returns. +Each year the Committee establishes a target bonus for each Named Executive Officer under the PSP expressed as a percentage of base +salary paid during the year. For fiscal 2010, the Committee set Mr. Parker’s target bonus at 135%, Mr. Denson’s target bonus at 120%, and the target bonus for Messrs. Blair, DeStefano, and Sprunk at 80%, which were the same +target bonus percentages as in fiscal 2009. The Committee sets these target bonus levels each year based on its judgment of the impact of the position in the Company and what it finds to be competitive with our peer group of companies and our +competitors, while maintaining internal pay equity for comparable positions. +The maximum bonus possible under the PSP is 150% +of the target bonus, and the threshold bonus is 50% of the target bonus. If we do not achieve the threshold performance goal, the bonus payout would be zero, and if we exceed the maximum performance goal, the bonus payout would be capped at 150% of +the target bonus. In August 2009, the Committee approved PSP performance goals for fiscal 2010 of $2,168 million of PTI for the target bonus payout, $2,341 million of PTI for the 150% maximum bonus payout, and $1,994 million of PTI for the +50% threshold bonus payout. The performance goal for the target payout represented a 10.8% increase over fiscal 2009 PTI of $1,957 million. The performance goal for the maximum payout represented a 19.6% increase above the prior year PTI, and the +performance goal for the threshold payout represented a 1.9% increase. The percentage increases in PTI over prior year results required to achieve the target, maximum, and threshold bonus payouts each year are not uniform percentages, but are +established by the Committee based on its evaluation of our business plan and prospects for the year. +NIKE delivered strong +operating performance in fiscal 2010, achieving PTI of $2,517 million, which exceeded the maximum payout performance target by 7.5% or $176 million. As a result, each executive officer’s bonus payout was capped at 150% of the target bonus. +26 +Long-Term Compensation +Performance-Based Long-Term Incentive Plan +The first component in our long-term portfolio mix is performance-based awards payable in cash under our Long-Term Incentive Plan +(“LTIP”). As with the annual bonus, the LTIP follows our “pay for performance’ philosophy. If we exceed our targets, we will pay more; if we fall short, we will pay less or nothing at all. This program focuses executives on +overall, long-term financial performance, and is intended to reward them for improving shareholder returns. At the beginning of each fiscal year, the Committee establishes performance goals and potential cash payouts for the next three fiscal years +for all executives under the LTIP. LTIP measures for all executives are based 50% on cumulative revenues for the three-year performance period and 50% on cumulative diluted earnings per share (“EPS”) for the period, in each case excluding +the effect of acquisitions, divestitures and accounting changes. +During the compensation review in August 2009, the Committee +decided to not increase the LTIP target awards for any of the Named Executive Officers. As such, the target awards for the fiscal 2010-12 performance period were set at $2,000,000 for Mr. Parker, $1,500,000 for Mr. Denson and $500,000 for +Mr. Blair, Mr. DeStefano and Mr. Sprunk. The Committee sets individual Named Executive Officer target LTIP levels each year based on its judgment of what it believes to be a desirable mix of long-term compensation, the impact of the +position in the Company, and what it finds to be competitive with our peer group of companies and our competitors, while maintaining internal pay equity for comparable positions. +The Committee set the maximum possible payout under the LTIP equal to 200% of the target award and the threshold payout equal to 50% of +the target award. For the fiscal 2010-2012 performance period, the cumulative EPS necessary to achieve the target award payout requires a compounded annual growth rate (“CAGR”) in EPS of 10% from fiscal 2009 results of $3.03. The 200% +maximum payout requires cumulative EPS corresponding to an 18.0% CAGR and the 50% threshold payout requires cumulative EPS corresponding to a 6.0% CAGR. For revenue over the fiscal 2010-2012 performance period, the cumulative revenue necessary to +achieve the target award payout requires a CAGR in revenues of 0.5% from fiscal 2009 results of $19,176 million. The 200% maximum payout requires cumulative revenues corresponding to a 3.0% CAGR. The 50% threshold payout requires cumulative revenues +corresponding to a -1.0% CAGR. The total payout percentage will be the average of the payout percentages determined for cumulative revenues and cumulative EPS, respectively. +In setting the LTIP performance targets for the fiscal 2010-2012 performance period, the Committee convened a special meeting to +carefully analyze and consider the impact the uncertain worldwide economy would have on future business over the following three fiscal years. The Committee determined at the time that strong EPS and revenue performance in that environment could be +below our long-term financial goals of mid-teens percentage growth in EPS, and high single-digit percentage growth in revenue, so the Committee set the target CAGRs accordingly to be achievable but challenging. +27 +Our executive officers were eligible to receive LTIP award payouts based on performance +targets set in June 2007 covering the fiscal 2008-2010 performance period. Based on our performance over the last three fiscal years, a payout of 97% under these awards was earned. Cumulative revenues for the period were $57,037 million after +adjustment to eliminate the effects of the acquisition of Umbro plc, and the divestitures of NIKE Bauer Hockey and the Starter brand of Exeter Brands Group, all of which occurred in fiscal 2008, or 98.6% of the target payout level for revenue and a +7.8% CAGR, which corresponded to a 98% payout level for revenues. Cumulative EPS for the period, after adjustment to eliminate the effects of the acquisition of Umbro Ltd. and the divestitures of NIKE Bauer Hockey and the Starter brand of Exeter +Brands Group, was $11.17 or 99% of the target payout level for EPS and a 12.5% CAGR, which corresponded to a 96% payout level for EPS. The total payout of 97% was the average of the payout percentages determined for cumulative revenues and +cumulative EPS, respectively. +Performance-Based Stock Options +The second component in our long-term portfolio mix is stock options. Stock options are designed to align the interests of the +Company’s executives with those of shareholders by encouraging executives to enhance the value of the Company and, hence, the price of the Class B Stock. This is true “pay for performance”: executives are rewarded only if the market +price of our stock rises, and they get nothing if the price does not rise. Our stock option program is generally based on granting options for a consistent number of shares each year for each position. When determining the grants, the Committee +focuses on the number of shares, not the value for accounting purposes. Our approach is based on our desire to carefully control annual share usage and avoid fluctuations in grant levels due to share price changes. The Committee awards stock options +to each executive based on its judgment. The Committee considers a number of factors including the individual’s performance, management succession, competitive market data as described above under Use of Market Survey Data, internal pay equity +for comparable positions, and a desirable mix of long-term incentives. Our human resources staff periodically tests the reasonableness of our stock option grants against peer group market data. +Options are generally granted annually to selected employees, including the Named Executive Officers, in July of each year under our +shareholder-approved Stock Incentive Plan. Stock options for fiscal 2010 were granted by the Committee on July 17, 2009 with an exercise price equal to the closing market price of our stock on that date. +Options were granted in July 2009 to Mr. Parker for 150,000 shares and to Mr. Denson for 120,000 shares. This was an increase +of 15,000 shares for Mr. Parker and 10,000 shares for Mr. Denson in comparison to the number of options granted in July 2008. The Committee increased the number of stock options granted to them to reflect the Committee’s desire to +align a higher portion of their compensation with shareholder returns, consistent with their review of grants to comparable executives in our peer group of companies. The Committee granted options to Messrs. Blair, DeStefano, and Edwards for 50,000 +shares +28 +each. This was the same number of stock options granted to each of them in July 2008. The Committee, in its judgment, decided not to increase from the prior year the number of shares granted to +Messrs. Blair, DeStefano, and Sprunk based on a review of each of the factors described above, and the Committee’s determination that the relative weighting of equity incentive compensation to target total compensation remained appropriate. +Options we grant generally vest over a four year period, and are forfeited if the employee leaves before vesting occurs, to +promote executive retention. A standard retirement feature of our stock option grants for all employees since 2002 has been to accelerate vesting of some or all options for any employee with at least five years of service where the sum of the +employee’s age plus years of service totaled a minimum of 55, as described below under the heading “Potential Payments Upon Termination or Change-in-Control”. Based on their ages and years of service, Mr. Parker, Mr. Denson, +Mr. DeStefano, Mr. Blair, and Mr. Sprunk could terminate employment at any time and receive full vesting of their options. +In June 2010, after a review of the Company’s succession plans, the Committee and the Board of Directors amended the Stock Incentive +Plan for future option grants, to remove this accelerated vesting feature and replaced it with a strengthened provision to encourage employees to delay retirement, thus strengthening retention. Beginning with the July 2010 grants, only those +employees with a minimum of five years of service who are age 55 and above at the time of termination of employment will be eligible for the strengthened provision. Under the provision, only unvested stock options that have been granted for at least +one full year to employees between the ages of 55 to 59 at the time of termination of employment will continue to vest, and may be exercised for up to four years after termination. If an employee is age 60 or older and has at least five years of +service at termination, unvested stock options that have been granted for at least one full year, will receive accelerated vesting, and may be exercised for up to four years after termination. The features related to accelerated vesting are +described below on page 42 under the heading “Potential Payments upon Termination or Change-in-Control.” +Restricted Stock Awards +The third component in our long-term portfolio mix is restricted stock awards. Stock ownership and stock-based incentive awards align the +interests of our Named Executive Officers with the interests of our shareholders, as the value of this incentive rises and falls with the stock price, consistent with shareholder returns. Restricted stock awards are generally granted in July at the +same meeting at which stock options are granted under our shareholder-approved Stock Incentive Plan. Awards generally vest in three equal installments on each of the first three anniversaries of the grant date. The awards promote executive retention +as unvested shares held at the time the executive’s employment is terminated are forfeited. Award recipients receive dividends on the full number of restricted shares awarded, both vested and unvested. +29 +Historically, the Committee has generally awarded restricted stock to Named Executive +Officers once every three years, with our human resources staff periodically testing the reasonableness of our restricted stock awards against competitive market data as described above under Use of Market Survey Data. In June 2010, after a review +of long-term incentive compensation, the Committee determined that beginning with July 2010 grants, restricted stock awards to Named Executive Officers will be awarded annually. This supports our succession plans by helping ensure retention of key +leaders critical to growing the business. This practice aligns with our current practice of granting restricted stock annually to Mr. Parker and Mr. Denson to provide a greater alignment between their compensation and shareholder returns. +The Committee also believes that this change will provide greater consistency and comparability of executive compensation disclosure from year-to-year. The Committee may also award restricted stock in connection with promotions or other special +circumstances. +In July 2009, the Committee granted a restricted stock award to Mr. Parker valued at $3,500,000, and +granted an award to Mr. Denson valued at $2,000,000, representing 66,743 shares of our Class B Stock for Mr. Parker and 38,139 shares for Mr. Denson, based on the closing price of our Class B Stock on the grant date. For +Mr. Parker this represented an increase over the prior year of $1,250,000 in stock value, and for Mr. Denson this represented an increase over the prior year of $500,000 of stock value, based on the closing price on the grant dates. The +Committee increased the restricted stock award levels for Mr. Parker and Mr. Denson based on several factors, particularly what the Committee believed to be a desirable mix of long-term compensation, and the Committee’s judgment of +competitive grants by our peer group of companies. Messrs. Blair and DeStefano each received an award valued at $1,500,000 and Mr. Sprunk received an award valued at $1,750,000, representing 28,605 shares of our Class B Stock for Messrs. Blair +and DeStefano and 33,372 shares for Mr. Sprunk, based on the closing price of our Class B Stock on the grant date. The Committee set these award levels based on their determination of an appropriate weighting of potential future contribution to +the Company, retention incentives, and competitive grants by our peer group of companies. They last received awards in fiscal 2007 consistent with the practice noted above of granting awards once every three years. +Profit Sharing and Retirement Plans +The NIKE 401(k) Savings and Profit Sharing Plan is our tax qualified retirement savings plan pursuant to which our employees, including +the Named Executive Officers, are able to make pre-tax contributions from their cash compensation. We make matching contributions for all participants each year equal to 100% of their elective deferrals up to 5% of their total eligible compensation, +which is initially invested in Class B Stock. We also make annual profit sharing contributions to the accounts of our employees under the 401(k) Savings and Profit Sharing Plan. The contributions are allocated among eligible employees based on a +percentage of their total salary and bonus for the year. The total profit sharing contribution and the percentage of salary and bonus contributed for each employee is determined each year by the Board of Directors. For fiscal 2010, the Board of +Directors approved a profit sharing contribution for each employee equal to 4.56% of the employee’s total eligible salary and bonus. +30 +The Internal Revenue Code limits the amount of compensation that can be deferred under the +401(k) Savings and Profit Sharing Plan, and also limits the amount of salary and bonus ($245,000 for fiscal 2010) with respect to which matching contributions and profit sharing contributions can be made under that plan. Accordingly, we provide our +executive officers and other highly compensated employees with the opportunity to defer their compensation, including amounts in excess of the tax law limit, under our nonqualified Deferred Compensation Plan. We also make profit sharing +contributions under the Deferred Compensation Plan with respect to salary and bonus of any employee that exceeds the tax law limit, and for fiscal 2010 these contributions were equal to 4.56% of the total salary and bonus of each Named Executive +Officer in excess of $245,000. These contributions under the Deferred Compensation Plan allow our Named Executive Officers and other highly compensated employees to receive profit sharing retirement contributions in the same percentage as our other +employees. We do not match executive deferrals to the Deferred Compensation Plan. Executive officer balances in the Deferred Compensation Plan are unsecured and at-risk, meaning the balances may be forfeited in the event of the Company’s +financial distress such as bankruptcy. Our matching and profit sharing contributions for fiscal 2010 to the accounts of the Named Executive Officers under the qualified and nonqualified plans are included under the heading “All Other +Compensation” in the Summary Compensation Table below. +Post-termination Payments under Non-competition and/or Employment Agreements +In exchange for non-competition agreements from all of our Named Executive Officers, we have agreed to provide during the +non-competition period the monthly payments described in “Potential Payments upon Termination or Change-in-Control” below on page 42, some of which are at the election of the Company. We believe that it is appropriate to compensate +individuals to refrain from working with competitors following termination, and that compensation enhances the enforceability of such agreements. +Change-in Control-Provisions +Under the terms of stock option and restricted stock awards granted before fiscal 2011, any unvested awards would vest upon certain +transactions that would result in a change in control, such as shareholder approval of a liquidation, a sale, lease, exchange or transfer of substantially all of the assets of the Company, or a consolidation, merger, plan of exchange, or transaction +in which the Company is not the surviving corporation. These transactions are described below under the heading “Potential Payments Upon Termination or Change-in-Control.” This vesting feature, re-approved by shareholders in +2005, was in place because we believed that utilizing a single event to vest awards provides a simple and certain approach for treatment of equity awards in a transaction that would likely result in the elimination or de-listing of +our stock. This provision recognized that such transactions have the potential to cause a significant disruption or change in employment relationships and thus treated all employees the same regardless of their employment status after the +transaction. In addition it provided our employee option +31 +holders with the same opportunities as our other shareholders who are free to realize the value created at the time of the transaction by selling their equity. +In June 2010, the Committee approved a revision to our change-in-control vesting provision under which future stock option and restricted +stock awards will be subject to accelerated vesting only when two events (a “double trigger”) occur. Beginning with grants made in July 2010, vesting of grants will generally be accelerated only if there is a change in control of the +Company and either the acquiring entity fails to assume the awards or their employment is terminated by the acquirer without cause or by the employee for good reason within two years following a change in control. This double trigger was adopted to +encourage executive retention through a period of uncertainty and a subsequent integration with an acquirer. The Committee believes that this approach will enhance shareholder value in the context of an acquisition, and align executives with the +interests of investors. +Risk Assessment +At the Committee’s request, in fiscal 2010 management prepared and discussed with the Committee, an assessment of potential risk +associated with the Company’s compensation programs, including any risk that would be reasonably likely to have a material adverse effect on the Company. This included an assessment of risks associated with each element of employee +compensation. The assessment considered certain design features of the compensation programs that reduce the likelihood of excessive risk taking, such as reasonable performance targets, capped payouts of incentive compensation, a balance of short- +and long-term incentives, a balance of cash and equity incentives, vesting of awards over time, and the potential for clawback of incentive compensation. In addition, for equity compensation the Committee and the Board restricted both the future +eligibility for accelerated vesting of stock options upon termination of employment and the accelerated vesting of all equity awards upon change in control (as described above). +Clawback Policy +In +June 2010, the Committee and Board of Directors approved a policy for recoupment of incentive compensation (the “clawback policy”). The Board of Directors adopted the clawback policy to prevent executives involved in certain wrongful +conduct from unjustly benefiting from that conduct, and to remove the financial incentives to engage in that conduct. The clawback policy generally requires an executive officer who is involved in wrongful conduct that results in a restatement of +the Company’s financial statements to repay to the Company up to the full amount of any incentive compensation based on the financial statements that were subsequently restated. Incentive compensation includes the annual PSP bonus, LTIP payout, +profit sharing contributions to the Deferred Compensation Plan, and excess proceeds from sales of stock and stock option awards that occurred during a restated period. +32 +Tax Deductibility of Executive Compensation +Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public companies for annual compensation over $1 +million paid to their chief executive officer and the next three most highly compensated executive officers. The Internal Revenue Code generally excludes from the calculation of the $1 million cap compensation that is based on the attainment of +pre-established, objective performance goals established under a shareholder-approved plan. Annual bonuses under our Executive Performance Sharing Plan, long-term incentive awards under our Long-Term Incentive Plan and stock options under our 1990 +Stock Incentive Plan are all structured in a manner intended to qualify any compensation paid thereunder as “performance-based compensation” excluded from the calculation of the $1 million annual cap. However, base salary and compensation +on vesting of restricted stock awards are subject to the $1 million deductibility cap. Accordingly, in fiscal 2010 a portion of the compensation paid to Mr. Parker, Mr. Denson, Mr. DeStefano, and Mr. Sprunk was not deductible. +COMPENSATION COMMITTEE REPORT +The Compensation Committee of the Board of Directors (the “Committee”) has reviewed and discussed with management the +Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K. Based on the review and discussions, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy +statement. +Members of the Compensation Committee: +Ralph D. DeNunzio, Chairman +Timothy D. Cook +John C. Lechleiter +Johnathan A. Rodgers +33 +EXECUTIVE COMPENSATION +Summary Compensation Table +The following table sets forth compensation paid to or earned by our Chief Executive Officer, our Chief Financial Officer and our next +three most highly compensated executive officers who were serving as executive officers on May 31, 2010, for fiscal 2010. These individuals are referred to throughout this proxy statement as the “Named Executive Officers.” +Name and Principal Position +Year +Salary +($) +Stock +Awards (1) +($) +Option +Awards (2) +($) +Non-Equity +Incentive Plan +Compensation (3) +($) +All Other +Compensation (4) +($) +Total +($) +Mark G. Parker +2010 +$ +1,475,000 +$ +3,500,003 +$ +3,510,270 +$ +4,441,875 +$ +191,686 +$ +13,118,834 +Chief Executive Officer and President +2009 +1,463,462 +2,250,012 +2,309,796 +900,000 +190,125 +7,113,395 +2008 +1,376,923 +1,500,043 +1,872,315 +2,682,684 +188,687 +7,620,652 +Donald W. Blair +2010 +810,000 +1,500,046 +1,170,090 +1,263,000 +93,939 +4,837,075 +Vice President and Chief Financial Officer +2009 +800,769 +— +855,480 +450,000 +82,095 +2,188,344 +2008 +740,000 +— +693,450 +1,031,662 +101,162 +2,566,274 +Charles D. Denson +2010 +1,260,000 +2,000,009 +2,808,216 +3,238,000 +127,261 +9,433,486 +President of the NIKE Brand +2009 +1,250,769 +1,500,047 +1,882,056 +750,000 +188,104 +5,570,976 +2008 +1,192,308 +1,000,048 +1,525,590 +2,222,727 +140,312 +6,080,985 +Gary M. DeStefano +2010 +1,000,000 +1,500,046 +1,170,090 +1,491,000 +87,612 +5,248,748 +President, Global Operations +2009 +994,615 +— +855,480 +450,000 +94,401 +2,394,496 +2008 +958,846 +— +693,450 +1,311,351 +117,865 +3,081,512 +Eric D. Sprunk +2010 +810,000 +1,750,028 +1,170,090 +1,263,000 +77,176 +5,070,294 +Vice President, Merchandising and Product Management +(1) +Represents the grant date fair value of restricted stock awards granted in the applicable year computed in accordance with accounting guidance applicable to stock-based +compensation. The grant date fair value is based on the closing market price of our Class B Common Stock on the grant date. +(2) +Represents the grant date fair value of options granted in the applicable year computed in accordance with accounting guidance applicable to stock-based compensation. +The grant date fair value of the options was estimated using the Black-Scholes option pricing model. The assumptions made in determining the grant date fair values of options under applicable accounting guidance are disclosed in Note 11 of Notes to +Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended May 31, 2010. +34 +(3) +Non-Equity Incentive Plan Compensation consists of the following: +Name +Fiscal +Year +Annual Incentive +Compensation +($) +Long-Term Incentive +Compensation +($) +Total +($) +Mark G. Parker +2010 +$ +2,986,875 +$ +1,455,000 +$ +4,441,875 +2009 +— +900,000 +900,000 +2008 +1,932,684 +750,000 +2,682,684 +Donald W. Blair +2010 +972,000 +291,000 +1,263,000 +2009 +— +450,000 +450,000 +2008 +581,662 +450,000 +1,031,662 +Charles D. Denson +2010 +2,268,000 +970,000 +3,238,000 +2009 +— +750,000 +750,000 +2008 +1,472,727 +750,000 +2,222,727 +Gary M. DeStefano +2010 +1,200,000 +291,000 +1,491,000 +2009 +— +450,000 +450,000 +2008 +861,351 +450,000 +1,311,351 +Eric D. Sprunk +2010 +972,000 +291,000 +1,263,000 +Amounts shown in the Annual Incentive Compensation column were earned for performance in the applicable fiscal year under our Executive Performance Sharing Plan. +Amounts shown in the Long-Term Incentive Compensation column were earned for performance during the three fiscal-year period ending with the applicable fiscal year under our Long-Term Incentive Plan. +(4) +For each of the Named Executive Officers, this includes profit-sharing contributions by us to the 401(k) Savings and Profit Sharing Plan for fiscal 2010 in the amount +of $11,184 and matching contributions by us to the 401(k) Savings and Profit Sharing Plan for fiscal 2010 in the amount of $12,250. Also includes profit-sharing contributions by us to the Deferred Compensation Plan for fiscal 2010 in the following +amounts: $56,146 for Mr. Parker; $25,791 for Mr. Blair; $46,332 for Mr. Denson; $34,464 for Mr. DeStefano; and $25,791 for Mr. Sprunk. Includes dividends on restricted stock in the following amounts: $93,774 for +Mr. Parker, $24,714 for Mr. Blair, $57,495 for Mr. Denson, $24,714 for Mr. DeStefano, and $27,951 for Mr. Sprunk. The amount for Mr. Parker includes $18,332 for an anniversary service award. The amount for +Mr. Blair includes $20,000 in matching contributions by us to charities under the NIKE Matching Gift Program, under which employees are eligible to contribute to qualified charitable organizations and we provide a matching contribution in an +equal amount. +35 +Grants of Plan-Based Awards in Fiscal 2010 +The following table contains information concerning the long-term incentive bonus opportunities, annual incentive bonus opportunities, +restricted stock awards and stock options granted to the Named Executive Officers in fiscal 2010. +Name +Grant +Date +Estimated Possible Payouts Under Non- +Equity +Incentive Plan Awards +All Other +Stock +Awards: +Number of +Shares of +Stock (3) +All Other +Option +Awards: +Number +of +Shares +Underlying +Options (4) +Exercise or +Base Price +of Option +Awards +Grant Date +Fair Value +of +Stock +and Option +Awards (5) +Threshold +Target +Maximum +($) +($) +($) +(#) +(#) +($/Sh) +($) +Mark G. Parker +8/26/09 +$ +995,625 +(1) +$ +1,991,250 +(1) +$ +2,986,875 +(1) +8/26/09 +1,000,000 +(2) +2,000,000 +(2) +4,000,000 +(2) +7/17/09 +66,743 +$ +3,500,003 +7/17/09 +150,000 +$ +52.44 +3,510,270 +Donald W. Blair +8/26/09 +324,000 +(1) +648,000 +(1) +972,000 +(1) +8/26/09 +250,000 +(2) +500,000 +(2) +1,000,000 +(2) +7/17/09 +28,605 +1,500,046 +7/17/09 +50,000 +52.44 +1,170,090 +Charles D. Denson +8/26/09 +756,000 +(1) +1,512,000 +(1) +2,268,000 +(1) +8/26/09 +750,000 +(2) +1,500,000 +(2) +3,000,000 +(2) +7/17/09 +38,139 +2,000,009 +7/17/09 +120,000 +52.44 +2,808,216 +Gary M. DeStefano +8/26/09 +400,000 +(1) +800,000 +(1) +1,200,000 +(1) +8/26/09 +250,000 +(2) +500,000 +(2) +1,000,000 +(2) +7/17/09 +28,605 +1,500,046 +7/17/09 +50,000 +52.44 +1,170,090 +Eric D. Sprunk +8/26/09 +324,000 +(1) +648,000 +(1) +972,000 +(1) +8/26/09 +250,000 +(2) +500,000 +(2) +1,000,000 +(2) +7/17/09 +33,372 +1,750,028 +7/17/09 +50,000 +52.44 +1,170,090 +(1) +These amounts represent the potential bonuses payable for performance during fiscal 2010 under our Executive Performance Sharing Plan. Under this plan, the Compensation +Committee approved target awards for fiscal 2010 based on a percentage of the executive’s base salary paid during fiscal 2010 as follows: Mr. Parker, 135%; Mr. Blair, 80%; Mr. Denson, 120%; Mr. DeStefano, 80%; and +Mr. Sprunk, 80%. The Committee also established a series of performance targets based on our income before income taxes (“PTI”) for fiscal 2010 (excluding the effect of acquisitions, divestitures and accounting changes) corresponding +to award payouts ranging from 50% to 150% of the target awards. The PTI for fiscal 2010 required to earn the target award payout was $2,168 million. The PTI for fiscal 2010 required to earn the 150% maximum payout was $2,341 million. The +PTI for fiscal 2010 required to earn the 50% threshold payout was $1,994 million. Participants receive a payout at the percentage level at which the performance target is met, subject to the Committee’s discretion to reduce or eliminate +any award based on Company or individual performance. Actual award payouts earned in fiscal 2009 and paid in fiscal 2010 are shown in footnote 3 to the “Non-Equity Incentive Plan Compensation” column in the Summary Compensation Table. +36 +(2) +These amounts represent the potential long-term incentive awards payable for performance during the three-year period consisting of fiscal 2010-2012 under our Long-Term +Incentive Plan. Under this plan, the Compensation Committee approved target awards for the performance period and also established a series of performance targets based on our cumulative revenues and cumulative diluted earnings per common share +(“EPS”) for the performance period (excluding the effect of acquisitions, divestitures and accounting changes not reflected in our business plan at the time of approval of the target awards) corresponding to award payouts ranging from 50% +to 200% of the target awards. Participants will receive a payout at the average of the percentage levels at which the two performance targets are met, subject to the Committee’s discretion to reduce or eliminate any award based on Company or +individual performance. For cumulative revenues over the performance period, the target payout requires revenues of $58,105 million, the 50% threshold payout requires revenues of $56,385 million, and the 200% maximum payout requires +revenues of $61,049 million. For cumulative EPS over the performance period, the target payout requires EPS of $11.03, the 50% threshold payout requires EPS of $10.23, and the 200% maximum payout requires EPS of $12.77. Under the terms of the +awards, on the first payroll period ending in August 2012 we will issue the award payout to each participant, provided that the participant is employed by us on the last day of the performance period. +(3) +All amounts reported in this column represent grants of restricted stock under our 1990 Stock Incentive Plan. Restricted stock generally vests in three equal +installments on the first three anniversaries of the grant date. Vesting will be accelerated in certain circumstances as described below under “Potential Payments Upon Termination or Change in Control.” Dividends are payable on restricted +stock at the same rate paid on all other outstanding shares of our Class B Common Stock. +(4) +All amounts reported in this column represent options granted under our 1990 Stock Incentive Plan. Options generally become exercisable for option shares in four equal +installments on the first four anniversaries of the grant date. Options will become fully exercisable in certain circumstances, including any termination of employment for each of the Named Executive Officers, as described below under +“Potential Payments Upon Termination or Change in Control.” Each option has a maximum term of 10 years, subject to earlier termination in the event of the optionee’s termination of employment. +(5) +For restricted stock awards, represents the value of restricted shares granted based on the closing market price of our Class B Common Stock on the grant date. For +option awards, represents the grant date fair value of options granted based on a value of $23.40 per share calculated using the Black-Scholes option pricing model. These are the same values for these equity awards used under accounting guidance +applicable to stock-based compensation. The assumptions made in determining option values are disclosed in Note 11 of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended May 31, 2010. +37 +Outstanding Equity Awards at May 31, 2010 +The following table sets forth information concerning outstanding stock options and unvested restricted stock held by the Named Executive +Officers at May 31, 2010. +Option Awards +Stock Awards +Name +Number of +Securities +Underlying +Unexercised +Options +(#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options +(#) +Unexercisable (1) +Option +Exercise +Price +($) +Option +Expiration +Date +Number of +Shares That +Have Not +Vested (#) +Market +Value of +Shares That +Have Not +Vested ($) +Mark G. Parker +140,000 +— +26.1200 +07/18/13 +140,000 +— +36.6050 +07/16/14 +140,000 +— +43.7950 +07/15/15 +250,000 +— +42.1350 +02/16/16 +67,500 +67,500 +(3) +58.5200 +07/20/17 +33,750 +101,250 +(4) +58.2000 +07/18/18 +— +150,000 +(5) +52.4400 +07/17/19 +101,060 +(6) +$ +7,314,723 +Donald W. Blair +15,000 +— +21.1800 +07/12/11 +66,000 +— +24.4900 +07/22/12 +66,000 +— +26.1200 +07/18/13 +66,000 +— +36.6050 +07/16/14 +66,000 +— +43.7950 +07/15/15 +49,500 +16,500 +(2) +39.3800 +07/14/16 +25,000 +25,000 +(3) +58.5200 +07/20/17 +12,500 +37,500 +(4) +58.2000 +07/18/18 +— +50,000 +(5) +52.4400 +07/17/19 +28,605 +(7) +2,070,430 +Charles D. Denson +40,000 +— +21.1800 +07/12/11 +105,000 +— +24.4900 +07/22/12 +140,000 +— +26.1200 +07/18/13 +140,000 +— +36.6050 +07/16/14 +140,000 +— +43.7950 +07/15/15 +200,000 +— +42.1350 +02/16/16 +55,000 +55,000 +(3) +58.5200 +07/20/17 +27,500 +82,500 +(4) +58.2000 +07/18/18 +— +120,000 +(5) +52.4400 +07/17/19 +61,017 +(8) +4,416,410 +Gary M. DeStefano +22,000 +— +36.6050 +07/16/14 +100,000 +— +43.7950 +07/15/15 +50,000 +25,000 +(2) +39.3800 +07/14/16 +25,000 +25,000 +(3) +58.5200 +07/20/17 +12,500 +37,500 +(4) +58.2000 +07/18/18 +— +50,000 +(5) +52.4400 +07/17/19 +28,605 +(7) +2,070,430 +Eric D. Sprunk +66,000 +— +26.1200 +07/18/13 +66,000 +— +36.6050 +07/16/14 +66,000 +— +43.7950 +07/15/15 +49,500 +16,500 +(2) +39.3800 +07/14/16 +16,500 +16,500 +(3) +58.5200 +07/20/17 +12,500 +37,500 +(4) +58.2000 +07/18/18 +— +50,000 +(5) +52.4400 +07/17/19 +33,372 +(9) +2,415,465 +38 +(1) +Stock options generally become exercisable for option shares in four equal installments on each of the first four anniversaries of the grant date. +(2) +100% of these shares vested on July 14, 2010. +(3) +50% of these shares vested on July 20, 2010 and 50% will vest on July 20, 2011. +(4) +33.3% of these shares vested on July 18, 2010, 33.3% will vest on July 18, 2011 and 33.3% will vest on July 20, 2012. +(5) +25% of these shares vested on July 17, 2010, 25% will vest on July 17, 2011, 25% will vest on July 17, 2012, and 25% will vest on July 17, 2013. +(6) +22,248 of these shares vested on July 17, 2010, 22,248 of these shares will vest on July 17, 2011, and 22,247 of these shares will vest on July 17, 2012. +12,887 of these shares vested on July 18, 2010, and 12,886 will vest on July 18, 2011. 8,544 of these shares vested on July 20, 2010. +(7) +9,535 of these shares vested on July 17, 2010, 9,535 of these shares will vest on July 17, 2011 and 9,535 of these shares will vest on July 17, 2012. +(8) +12,713 of these shares vested on July 17, 2010, 12,713 of these shares will vest on July 17, 2011 and 12,713 of these shares will vest on July 17, 2012. +8,591 of these shares vested on July 18, 2010 and 8,591 of these shares will vest on July 18, 2011. 5,696 of these shares vested on July 20, 2010. +(9) +11,124 of these shares vested on July 17, 2010, 11,124 of these shares will vest on July 17, 2011 and 11,124 of these shares will vest on July 17, 2012. +Option Exercises and Stock Vested During Fiscal 2010 +The following table provides information concerning stock option exercises and vesting of restricted stock during fiscal 2010 for each of +the Named Executive Officers on an aggregated basis. +Option Awards +Stock Awards +Name +Number of +Shares +Acquired +on Exercise (#) +Value +Realized +on Exercise ($) +Number of +Shares +Acquired +on Vesting (#) +Value +Realized +on Vesting ($) +Mark G. Parker +170,000 +7,295,953 +21,431 +$ +1,123,842 +Donald W. Blair +30,000 +1,644,641 +8,464 +$ +436,235 +Charles D. Denson +— +— +14,288 +$ +749,263 +Gary M. DeStefano +— +— +8,464 +$ +436,235 +Eric D. Sprunk +32,000 +1,570,800 +6,348 +$ +327,176 +39 +Equity Compensation Plans +The following table summarizes equity compensation plans approved by shareholders and equity compensation plans that were not approved by +the shareholders as of May 31, 2010: +Plan Category +(a) +Number of Securities to +be Issued Upon +Exercise of Outstanding +Options, +Warrants and +Rights +(b) +Weighted-Average +Exercise Price of +Outstanding Options, +Warrants and +Rights +(c) +Number of Securities +Remaining Available for +Future Issuance Under +Equity +Compensation +Plans (Excluding +Securities Reflected in +Column(a)) +Equity compensation plans approved by shareholders (1) +35,944,946 +$ +46.60 +16,279,324 +Equity compensation plans not approved by shareholders (2) +— +— +1,221,787 +Total +35,944,946 +$ +46.60 +17,501,111 +(1) +Includes 35,944,946 options outstanding subject to the 1990 Stock Incentive Plan. Includes 11,537,134 shares available for future issuance under the 1990 Stock +Incentive Plan, and 4,742,190 shares available for future issuance under the Employee Stock Purchase Plan. On July 16, 2010, the Compensation Committee granted options for a total of 6,197,154 shares of Class B Stock and granted restricted stock +awards for a total of 193,835 shares of Class B Stock. These grants were made under the 1990 Plan and reduced the remaining shares available for future grants under the 1990 Plan. After these additional grants, as well as option exercises, +cancellations, shares withheld for taxes on vesting restricted stock awards, and additional vesting of restricted stock after the end of fiscal 2010, the following is a summary of our 1990 Plan as of July 26, 2010: +• +There are 41,430,775 shares of Class B Stock to be issued upon exercise of outstanding options, with a weight average price of $49.97 and a average +remaining term of 6.84 years. +• +The number of outstanding and unvested shares of restricted stock granted under the 1990 Plan is 556,436. +• +The number of shares available for making future grants under the 1990 Plan is 5,270,537. +If shareholders approve Proposal 3 to increase the number of shares authorized under the 1990 Plan by 31,000,000, the total number of +shares available under for future grants the plan would be 36,270,537 as of July 26, 2010. +(2) +Includes 1,221,787 shares available for future issuance under the Foreign Subsidiary Employee Stock Purchase Plan, pursuant to which shares are offered and sold to +employees of selected non-U.S. subsidiaries of the Company on substantially the same terms as those offered to U.S. employees under the shareholder-approved Employee Stock Purchase Plan. +40 +Non-Qualified Deferred Compensation in Fiscal 2010 +Name +Plan +Name +Executive +Contributions +in Fiscal +2010 (1) +NIKE +Contributions +in Fiscal +2010 (1) +Aggregate +Earnings +in Fiscal +2010 +Aggregate +Withdrawals/ +Distributions +in Fiscal 2010 +Aggregate +Balance at +5/31/2010 (1) +Mark G. Parker +DCP +$ +532,500 +$ +115,711 +$ +9,423 +— +$ +3,868,313 +Donald W. Blair +DCP +— +42,117 +489,680 +$ +652,056 +2,338,345 +Charles D. Denson +DCP +922,523 +91,128 +269,871 +— +14,502,163 +Gary M. DeStefano +DCP +— +59,423 +25,912 +— +1,335,927 +Eric D. Sprunk +DCP +225,000 +41,589 +351,536 +— +2,306,667 +(1) +All amounts reported in the Executive Contributions column are also included in amounts reported in the Summary Compensation Table. The amounts reported in the NIKE +Contributions column represent profit sharing contributions made by us in early fiscal 2010 based on fiscal 2009 results; these amounts are also included in amounts reported for fiscal 2009 in the All Other Compensation column of the Summary +Compensation Table. Of the amounts reported in the Aggregate Balance column, the following amounts have been reported in the Summary Compensation Tables in this proxy statement or in prior year proxy statements: Mr. Parker, $3,358,029; +Mr. Blair, $1,917,232; Mr. Denson, $14,426,178; Mr. DeStefano, $723,670; and Mr. Sprunk, $266,589. +Non-qualified Deferred Compensation Plans +The Named Executive Officers are eligible to participate in our Deferred Compensation Plan (the “DCP”). Participants in the DCP +may elect in advance to defer up to 100 percent of their annual base salary, bonus and long-term incentive payments. +Each year, we share profits with our employees in the form of profit sharing contributions to defined contribution retirement plans. The +contributions are allocated among eligible employees based on a percentage of their total salary and bonus for the year. To the fullest extent permitted under Internal Revenue Code limitations, these contributions are made to employees’ +accounts under our qualified 401(k) Savings and Profit Sharing Plan. Contributions based on salary and bonus in excess of the tax law limit ($245,000 for fiscal 2010) are made as NIKE contributions under the DCP. +Amounts deferred under the DCP are credited to a participant’s account under the DCP. Each participant may allocate his or her +account among any combination of the investment funds available under the DCP. Participants’ accounts are adjusted to reflect the investment performance of the funds selected by the participants. Participants can change the allocation of their +account balances daily. The funds available under the DCP consist of 11 mutual funds with a variety of investment objectives. The investment funds had annual returns in fiscal 2010 ranging from 0.3% to 58.05%. Amounts credited to participants’ +accounts are invested by us in actual investments matching the investment options selected by the participants to ensure that we do not bear any investment risk related to participants’ investment choices. +41 +The portion of a participant’s account attributable to elective deferrals, including +investment returns, is fully vested at all times. The portion of a participant’s account attributable to NIKE contributions, including investment returns, is fully vested after the participant has been employed by us for five years. All of the +Named Executive Officers are fully vested in their NIKE contributions. +Each time they elect to defer compensation, +participants make an election regarding distribution of the compensation deferred under the election (as adjusted to reflect investment performance). A participant may elect for distribution to be made in a lump sum at the beginning of a +predetermined year while the participant is still employed or in service (but no sooner than the fourth year after the year in which the distribution election is submitted). Alternatively, a participant may elect for distribution to be made in a +lump sum or in annual installments over five, ten or fifteen years after termination of employment or service. Participants have limited rights to change their distribution elections. Participants may make a hardship withdrawal under certain +circumstances. Subject to certain limitations, a participant may also at any time request to withdraw amounts from his or her account balance that were vested as of December 31, 2004 (and any subsequent investment returns on such amount). If +such request is approved, the participant may withdraw 90% of the amount requested, and the remaining 10% will be permanently forfeited. +Potential Payments Upon Termination or Change-in-Control +Change-in-Control Compensation — Acceleration of Equity Awards +We have agreed to accelerate the vesting of restricted stock and stock options held by the Named Executive Officers upon the approval by +our shareholders of an “Approved Transaction.” This acceleration of vesting will occur whether or not their employment is terminated. In our agreements, “Approved Transaction” is generally defined to include: +• +an acquisition of NIKE through a merger, consolidation or plan of exchange, +• +a sale of all or substantially all of our assets, or +• +the adoption of a plan for our liquidation or dissolution. +42 +The following table shows the estimated benefits that would have been received by the Named +Executive Officers if our shareholders had approved an Approved Transaction on May 31, 2010. +Name +Restricted Stock +Acceleration (1) +Stock Option +Acceleration (2) +Total +Mark G. Parker +$ +7,314,723 +$ +5,362,275 +$ +12,677,047 +Donald W. Blair +2,070,430 +2,419,750 +4,490,180 +Charles D. Denson +4,416,410 +4,324,950 +8,741,360 +Gary M. DeStefano +2,070,430 +2,700,250 +4,770,680 +Eric D. Sprunk +2,415,465 +2,301,940 +4,717,405 +(1) +Information regarding unvested restricted stock held by each Named Executive Officer is set forth in the Outstanding Equity Awards table above. The award agreements +provide that all shares will immediately vest upon the approval by our shareholders of an Approved Transaction. The amounts in the table above represent the number of unvested restricted shares multiplied by a stock price of $72.38 per share, which +was the closing price of our Class B Common Stock on May 28, 2010. +(2) +Information regarding outstanding unexercisable options held by each Named Executive Officer is set forth in the Outstanding Equity Awards table above. The stock option +agreements provide that upon the approval by our shareholders of an Approved Transaction all outstanding unexercisable options will immediately become exercisable and all unexercised options will remain exercisable during the remainder of the term +of the options, except that the Compensation Committee may provide a 30-day period prior to the Approved Transaction during which the optionees may exercise the options without any limitation on exercisability. At the end of the 30-day period, the +options would terminate. Amounts in the table above represent the aggregate value as of May 31, 2009 of each Named Executive Officer’s outstanding unexercisable options based on the positive spread between the exercise price of each option +and a stock price of $72.38 per share, which was the closing price of our Class B Common Stock on May 28, 2010. +Benefits Triggered on Certain Employment Terminations +Stock Option Acceleration +As of May 31, 2010, each Named Executive Officer held options to purchase Class B Common Stock as listed in the Outstanding Equity +Awards table above. Under the terms of their stock option agreements, upon the death or disability of the officer, all unexercisable options become fully exercisable and the standard three-month period for exercising options following termination of +employment is extended to 12 months, but not beyond each option’s original 10-year term. The aggregate value as of May 31, 2010 of options that would have become exercisable if death or disability had occurred on that date based on the +43 +positive spread between the exercise price of each option and a stock price of $72.38 per share, which was the closing price of our Class B Common Stock on May 31, 2010, is as set forth in +the “Stock Option Acceleration” column of the Change-in-Control Compensation — Acceleration of Equity Awards table above. In addition, the increase in value of outstanding options resulting from the extension of the +post-termination exercise period from three months to 12 months, with the option values as of May 31, 2010 for three-month and 12-month remaining terms calculated using the Black-Scholes option pricing model with assumptions consistent with +those used by us for valuing our options under accounting guidance applicable to stock-based compensation, is $575,744 for Mr. Parker, $122,130 for Mr. Blair, $325,804 for Mr. Denson, $246,423 for Mr. DeStefano, and $139,915 for +Mr. Sprunk. +As provided in stock option agreements for all employees, the terms of the Named Executive Officers’ +stock option agreements also provide that, if termination of the officer’s employment occurs when the officer’s retirement point total is at least 55 and the officer has been employed by us for at least five years, then a portion of the +unexercisable options will become exercisable for a maximum remaining term of three months as follows: +Retirement Point Total +Percent of Unexercisable Option +That Becomes +Exercisable +55 or 56 +20% +57 +40% +58 +60% +59 +80% +60 +100% +An officer’s “retirement +point total” means the sum of the officer’s age plus the number of years that the officer has been employed by us. As of May 31, 2010, the retirement point total for each of the Named Executive Officers was over 60, and these officers +are therefore eligible to have all unexercisable options become fully exercisable on any termination of employment. The aggregate value as of May 31, 2010 of options held by each of the Named Executive Officers that would have become +exercisable if termination of employment (other than due to death or disability) had occurred on that date is as set forth in the “Stock Option Acceleration” column of the Change-in-Control Compensation — Acceleration of +Equity Awards table above. +Restricted Stock Acceleration +As of May 31, 2010, each Named Executive Officer held unvested restricted stock as set forth in the Outstanding Equity Awards table +above. Under the terms of their award agreements, all unvested restricted shares will immediately vest upon the death or disability of the officer. The value of the unvested restricted shares held by each Named Executive Officer as of May 31, +2010 that would have become vested if death or disability had occurred on that date is as set forth in the “Restricted Stock Acceleration” column of the Change-in-Control Compensation — Acceleration of Equity Awards table +above. +44 +Payments Under Noncompetition Agreements +We have an agreement with each of Mr. Parker and Mr. Denson that contains a covenant not to compete that extends for two years +following the termination of the officer’s employment with us. Each agreement provides that if the officer’s employment is terminated by us, we will make monthly payments to him during the two-year noncompetition period in an amount equal +to one-twelfth of his then current annual salary and target Performance Sharing Plan bonus (“Annual Nike Income”). Each agreement provides further that if the officer voluntarily resigns, we will make monthly payments to him during the +two-year noncompetition period in an amount equal to one-twenty-fourth of his then current Annual Nike Income. However, commencement of the above-described monthly payments will be delayed until after the six-month period following the +officer’s separation from service, and all payments that the officer would otherwise have received during that period will be paid in a lump sum promptly following the end of the period, together with interest at the prime rate. If employment +is terminated without cause, the parties may mutually agree to waive the covenant not to compete, and if employment is terminated for cause, we may unilaterally waive the covenant. If the covenant is waived, we will not be required to make the +payments described above for the months as to which the waiver applies. If the employment of these officers had been terminated by us on May 31, 2010 and assuming the covenant is not waived, we would have been required to pay Mr. Parker +$288,854 per month and Mr. Denson $231,000 per month for the 24-month period ending May 31, 2012. If these officers had voluntarily resigned on May 31, 2010 and assuming the covenant is not waived, we would have been required to pay +Mr. Parker $144,427 per month and Mr. Denson $115,500 per month for the 24-month period ending May 31, 2012. +We have noncompetition agreements with Mr. Blair, Mr. DeStefano and Mr. Sprunk on the same terms, except that the +noncompetition period is one year instead of two years, the six month delay for commencement of payments does not apply and we may unilaterally waive the covenant in all cases including termination without cause. In addition, for Mr. Blair and +Mr. Sprunk, the monthly payments are one-twelfth or one-twenty-fourth of their current annual salaries, instead of their Annual Nike Income, and for Mr. DeStefano, the monthly payments on voluntary resignation are one-twenty-fourth of his +current annual salary. If the employment of these officers had been terminated by us on May 31, 2010 and assuming the covenant is not waived, we would have been required to pay Mr. Blair $67,500 per month, Mr. DeStefano $150,000 per +month and Mr. Sprunk $67,500 per month for the 12-month period ending May 31, 2012. If these officers had voluntarily resigned on May 31, 2010 and assuming the covenant is not waived, we would have been required to pay Mr. Blair +$33,750 per month, Mr. DeStefano $41,667, month and Mr. Sprunk $33,750 per month for the 12-month period ending May 31, 2011. +45 +PROPOSAL 2 +RE-APPROVAL AND AMENDMENT OF THE NIKE, INC. EXECUTIVE PERFORMANCE SHARING PLAN +Section 162(m) of the Internal Revenue Code (the “Code”) prevents a publicly held corporation from taking federal income +tax deductions for compensation in excess of $1 million per year paid to any of its chief executive officer or three other most highly compensated executive officers. The Code, however, exempts compensation that qualifies as +“performance-based” as defined in regulations. +The Board of Directors responded to this 1993 tax law by adopting +the Executive Performance Sharing Plan (the “Plan”), which was approved by the shareholders at the fiscal 1996 annual meeting and then re-approved by the shareholders at the fiscal 2001 and 2006 annual meetings. The purpose of the Plan is +to satisfy Code requirements for shareholder-approved, performance-based compensation to preserve the Company’s income tax deduction for annual incentive bonus payments to its most highly compensated executive officers. The Plan is a +continuation of the previously existing incentive bonus program for corporate officers, and is similar to the incentive bonus program for all employees of the Company. +The Plan provides that it will terminate at the first shareholder meeting that occurs in the fifth fiscal year after the Company’s +shareholders last approved the Plan. This provision is consistent with the tax law requirement that the Plan be re-approved by shareholders every five years in order for awards under the Plan to continue to qualify as performance-based compensation. +Accordingly, unless the shareholders re-approve the Plan as requested in this proposal, the Plan will terminate at the Annual Meeting. If the shareholders re-approve the Plan, the Plan will be extended for an additional five years until the fiscal +2016 annual meeting. +In addition, on June 16, 2010, the Board of Directors approved an amendment to the Plan, subject to +shareholder approval, to add to the permissible performance measurements earnings before interest and taxes (“EBIT”). +The following summary of the Plan, as proposed to be amended, is qualified in its entirety by reference to the terms of the Plan, a copy +of which is attached to this Proxy Statement as Exhibit A. +Description of the Plan +Persons Covered. The persons covered by the Plan are all corporate officers of the Company. Under the Company’s Bylaws, +corporate officers are those elected by the Board of Directors. The corporate officers currently comprise a total of 13 persons, all of whom are executive officers. Other officers and employees of the Company continue to be eligible to receive +annual cash incentive bonuses outside of the Plan. +46 +Administration. Grants of target awards under the Plan and all other decisions +regarding the administration of the Plan are made by the Compensation Committee of the Board of Directors (the “Committee”). The Committee is comprised solely of “outside directors” as that term is defined in regulations under +Section 162(m). +Target Awards. Within 90 days of the beginning of each fiscal year of the Company, the Committee +establishes for each corporate officer the performance target or targets and related target awards payable in cash upon meeting the performance targets for the year. Performance targets must be expressed as an objectively determinable level of +performance of the Company or any subsidiary, division or other unit of the Company, based on one or more of the following: net income, net income before taxes, operating income, earnings before interest and taxes, revenues, return on sales, return +on equity, earnings per share, total shareholder return, or any of the foregoing before the effect of acquisitions, divestitures, accounting changes, restructuring, or other special charges, as determined by the Committee at the time of establishing +the performance target. The maximum target award for a corporate officer in any year is the lesser of 200% of the officer’s base salary established at the beginning of the year, or $5 million. +Determination of Award Payouts. At the end of each fiscal year, the Committee certifies the attainment of the performance targets +and the calculation of the payouts of the related target awards. No award shall be paid if the related performance target is not met, but the Committee may, in its discretion, reduce or eliminate an officer’s calculated award based on +circumstances relating to the performance of the Company or the officer. +Clawback Policy. In 2010, the Board amended +the Plan to provide that all future awards under the Plan will be subject to the Company’s Policy for Recoupment of Incentive Compensation and that, by acceptance of any payment under the Plan each participant expressly agrees to repay to the +Company any amount that may be required to be repaid under this clawback policy. The clawback policy generally requires executive officers who are involved in wrongful conduct that results in a restatement of the Company’s financial statements +to repay to the Company up to the full amount of the bonus received for any year that was restated, as determined by the Board of Directors. +Amendment and Termination. The Plan may be amended by the Committee, with the approval of the Board of Directors, at any time +except to the extent that shareholder approval would be required to maintain the qualification of Plan awards as performance-based compensation. Unless again re-approved by the shareholders, the Plan will terminate at the first meeting of +shareholders of the Company in the Company’s 2016 fiscal year. +Fiscal 2011 Target Awards. In June 2010, the +Committee established performance targets and target awards under the Plan for the corporate officers for fiscal 2011. As in prior years, target awards for fiscal 2011 are based on the achievement of pre-established target levels of net income +before taxes. The actual amounts to be paid under those awards cannot be determined at this time, as such amounts are dependent +47 +upon the Company’s performance for the current fiscal year. However, the actual bonus compensation received by the Named Officers under the Plan in fiscal 2010 is shown in the Summary +Compensation Table on page 34. All corporate officers as a group, including the Named Officers, received bonus compensation under the Plan for fiscal 2010 of $13,914,433. +Board Recommendation +The Board of Directors recommends that shareholders vote FOR re-approval and amendment of the Plan. Holders of Class A Stock and +Class B Stock will vote together as a single class on Proposal 2. If a quorum is present at the Annual Meeting, Proposal 2 will be approved if the number of shares voted in favor of the proposal exceeds the number of shares voting against the +proposal. Abstentions and broker non-votes are counted for purposes of determining whether a quorum exists, but are not counted as voting either for or against and therefore have no effect on the results of the vote. +48 +PROPOSAL 3 +RE-APPROVAL AND AMENDMENT OF THE 1990 STOCK INCENTIVE PLAN +The Board of Directors believes that the availability of stock options and other stock-based incentives under the Company’s 1990 +Stock Incentive Plan (the “1990 Plan”) is important to the Company’s ability to attract and retain experienced employees and to provide an incentive for them to exert their best efforts on behalf of the Company. As of July 26, +2010, out of a total of 132,000,000 shares of Class B Stock reserved for issuance under the 1990 Plan, only 5,270,537 shares remained available for grant. The Board of Directors believes additional shares will be needed under the 1990 Plan to +provide appropriate incentives to key employees. Accordingly, on June 17, 2010 the Board of Directors approved an amendment to the 1990 Plan, subject to shareholder approval, to reserve an additional 31,000,000 shares of Class B Stock for the +1990 Plan, thereby increasing the total number of shares reserved for issuance under the 1990 Plan from 132,000,000 to 163,000,000 shares. The additional 31,000,000 shares proposed for issuance under the 1990 Plan represent 6.4% of the total +outstanding Class A Stock and Class B Stock as of July 26, 2010. +The Board of Directors also approved an amendment +to the 1990 Plan, subject to shareholder approval, to authorize the issuance of shares of Class B Stock pursuant to performance-based awards intended to qualify as “performance-based compensation” eligible for full deductibility despite +the deduction limit under Section 162(m) of the Code. Similar to the long-term performance-based awards payable in cash under its Long-Term Incentive Plan, the proposed amendment will give the Company flexibility to make similar +performance-based awards payable in Class B Stock pursuant to the 1990 Plan. The Company currently makes long-term performance-based awards payable in cash under its Long-Term Incentive Plan, and the proposed amendment will give the Company +flexibility to make similar awards payable in Class B Stock pursuant to the 1990 Plan. The Company has no current intention to make such awards payable in stock. In addition, shareholder approval of this proposal will constitute re-approval of the +per-employee limit on grants of options and stock appreciation rights under the Plan of 400,000 shares annually. This re-approval is required every five years for continued compliance with regulations under Section 162(m) of the Code. See +“Tax Consequences.” +The proposed amendment to increase the number of shares reserved for issuance under the 1990 +Plan includes a limitation on the grant of full value performance-based awards and other stock awards. If the net number of shares issued pursuant to such full value awards granted after July 16, 2010 exceeds 3,000,000 shares (plus the number +of shares forfeited or withheld to satisfy tax withholding obligations under stock awards outstanding as of that date), any excess shares issued under full value awards will be counted against the available shares as 2.8 shares for each share +issued. +Grants of stock options under the 1990 Plan, net of option cancellations, totaled 5,740,979 shares in fiscal 2010, +6,118,860 shares in fiscal 2009 and 5,986,820 shares in fiscal 2008, or an average of 1.3% of the outstanding Common Stock per year. Grants of restricted stock awards under the 1990 Plan totaled +49 +498,510 shares in fiscal 2010, 74,606 shares in fiscal 2009 and 109,755 shares in fiscal 2008. On July 16, 2010, the Compensation Committee granted options for a total of 6,197,154 shares of +Class B Stock and restricted stock awards for a total of 193,807 shares of Class B Stock. +The Board of Directors approved a +number of amendments to the 1990 Plan in 2010 that did not require shareholder approval under either the terms of the 1990 Plan or applicable rules. These amendments generally included (a) adding an express prohibition on option repricing, +(b) requiring that the exercise price of options be no less than 100% of fair market value on the date of grant and that the term of options be no more than 10 years from the date of grant, (c) adding provisions for so-called “double +trigger” acceleration on change in control, (d) modifying standard provisions applicable on death, disability and retirement of optionees, (e) adding an express authorization for the grant of restricted stock units, and +(f) providing that awards will be subject to the Company’s clawback policy. +The complete text of the 1990 Plan, +marked to show the proposed amendment, is attached to this proxy statement as Exhibit B. The following description of the 1990 Plan is a summary of certain provisions of the 1990 Plan as amended and as proposed to be amended, and is qualified in its +entirety by reference to Exhibit B. +Description of the 1990 Plan +Eligibility. All employees, officers and directors of the Company and its subsidiaries, as well as consultants, advisors and +independent contractors to the Company, are eligible to be selected for awards under the 1990 Plan. The number of persons who currently hold options granted under the Plan is approximately 3,547. +Administration. The 1990 Plan is administered by the Compensation Committee of the Board of Directors (the “Committee”). +The Committee may promulgate rules and regulations for the operation of the 1990 Plan and related agreements and generally supervises the administration of the 1990 Plan. The Committee determines the individuals to whom awards are made under the +1990 Plan, the amount of the awards, and the other terms and conditions of the awards, except that the Committee has delegated to a board committee consisting of the Chief Executive Officer the authority to grant awards with respect to a maximum of +50,000 shares to any eligible employee who is not at the time of such grant subject to the reporting requirements and liability provisions contained in Section 16 of the Securities Exchange Act of 1934 and the regulations thereunder. The +Committee may also advance any waiting period, accelerate any exercise date, or waive or modify any restriction with respect to an award. +Term of 1990 Plan. The Plan will continue until all shares available for issuance under the 1990 Plan have been issued and all +restrictions on such shares have lapsed. No awards may be made under the 1990 Plan on or after the tenth anniversary of the last action by shareholders re-approving the 1990 Plan; approval of this Proposal 3 will extend the term in which awards may +be made under the 1990 Plan to +50 +September 19, 2020. The Board of Directors has the power to suspend, terminate, modify or amend the 1990 Plan at any time. +Stock Options. The Committee may grant stock options to eligible individuals under the 1990 Plan. The Committee will determine the +individuals to whom options will be granted, the exercise price of each option, the number of shares to be covered by each option, the period of each option, the times at which each option may be exercised, and whether each option is an Incentive +Stock Option (intended to meet all of the requirements of an Incentive Stock Option as defined in Section 422 of the Code) or a non-statutory stock option. The exercise price of each option may not be less than 100 percent of the fair market +value of the underlying shares on the date of grant, except that if a grantee of an Incentive Stock Option at the time of grant owns stock possessing more than 10 percent of the combined voting power of all classes of stock of the Company, the +exercise price may not be less than 110 percent of the fair market value of the underlying shares on the date of grant. For purposes of determining the exercise price of options granted under the 1990 Plan, the fair market value of the Class B Stock +will be deemed to be the closing price of the Class B Stock as reported in the NYSE-Composite Transactions in The Wall Street Journal, or such other reported value of the Class B Stock as shall be specified by the Committee, on the date of grant. No +monetary consideration will be paid to the Company upon the granting of options. +Options may be granted for varying periods +established at the time of grant, not to exceed 10 years from the date of grant. Incentive Stock Options are nontransferable except in the event of the death of the holder. The Committee has discretion to allow non-statutory stock options to be +transferred to immediate family members of the optionee, subject to certain limitations. Options will be exercisable in accordance with the terms of an option agreement entered into at the time of the grant. In the event of the death or other +termination of an optionee’s employment with the Company, the 1990 Plan provides that, unless otherwise determined by the Committee, the optionee’s options may be exercised for specified periods thereafter (four years in the case of +termination by reason of retirement (after reaching age 55 with 5 years of service), death or disability and three months in the case of termination for any other reason). The 1990 Plan also provides that upon any termination of employment, the +Committee may extend the exercise period for any period up to the expiration date of the option and may increase the portion of the option that is exercisable. +The purchase price for shares purchased pursuant to the exercise of options must be paid in cash or, with the consent of the Committee, +in whole or in part in shares of Class B Stock. With the consent of the Committee, an optionee may request the Company to withhold shares from the exercise to cover required tax withholding or to apply the shares to be received on exercise of a +portion of an option to satisfy the exercise price for additional portions of the option. Upon the exercise of an option, the number of shares subject to the option and the number of shares available for issuance under the 1990 Plan will be reduced +by the number of shares issued upon exercise of the option plus the number of shares, if any, withheld upon exercise to satisfy required tax withholding. Option shares that are not purchased prior to the expiration, termination or cancellation of +the related option will become available for future awards under the 1990 Plan. +51 +Repricing Prohibition. The 1990 Plan provides that, unless shareholder approval is +obtained, no stock option or stock option granted in connection with a stock appreciation right may be (1) amended to reduce the exercise price, or (2) canceled in exchange for cash, another award or any other consideration at a time when +the exercise price of the option exceeds the fair market value of the Class B Stock. +Stock Appreciation Rights. The +Committee may grant stock appreciation rights (“SARs”) to eligible individuals under the 1990 Plan. SARs may, but need not, be granted in connection with an option. An SAR gives the holder the right to payment from the Company of an amount +equal in value to the excess of the fair market value on the date of exercise of one share of Class B Stock over its fair market value on the date of grant (or, if granted in connection with an option, the exercise price per share under the option +to which the SAR relates), multiplied by the number of shares covered by the portion of the SAR or option that is surrendered. The fair market value of the Class B Stock on the date of exercise shall be deemed to be the closing price of the Class B +Stock as reported in the NYSE-Composite Transactions in The Wall Street Journal, or such other reported value of the Class B Stock as shall be specified by the Committee, on the date of exercise, or if such date is not a trading day, then on the +immediately preceding trading day. An SAR holder will not pay the Company any cash consideration upon either the grant or exercise of an SAR, except for tax withholding amounts upon exercise. +An SAR is exercisable only at the time or times established by the Committee, but not after 10 years from the date of grant. If an SAR is +granted in connection with an option, it is exercisable only to the extent and on the same conditions that the related option is exercisable. Payment by the Company upon exercise of an SAR may be made in shares of Class B Stock valued at fair market +value, or in cash, or partly in stock and partly in cash, as determined by the Committee. The Committee may withdraw any SAR granted under the 1990 Plan at any time and may impose any conditions upon the exercise of an SAR or adopt rules and +regulations from time to time affecting the rights of holders of SARs. If an SAR is not exercised prior to the expiration, termination or cancellation of the SAR, the unissued shares subject to the SAR will become available for future awards under +the 1990 Plan. Cash payments for SARs will not reduce the number of shares available for awards under the 1990 Plan. No SARs have been granted under the 1990 Plan. +Stock Awards, including Restricted Stock and Restricted Stock Units. The Committee may grant shares of Class B Stock to eligible +individuals as stock awards under the 1990 Plan. The Committee will determine the individuals to receive stock awards, the number of shares to be awarded and the time of the award. No cash consideration (other than tax withholding amounts) will be +paid by award recipients to the Company in connection with stock awards. Stock awards shall be subject to the terms, conditions and restrictions determined by the Committee. Restrictions may include restrictions concerning transferability, +forfeiture of the shares issued, or such other restrictions as the Committee may determine. Stock awards subject to restrictions may be either restricted stock awards under which shares are issued immediately upon grant subject to forfeiture if +vesting conditions are not satisfied, or restricted stock unit awards under which shares are not issued until after vesting conditions are satisfied. +52 +Performance-Based Awards . The Committee may grant performance-based awards. All or +part of the shares of Class B Stock subject to the awards will be earned if performance targets established by the Committee for the period covered by the award are met and the recipient satisfies any other restrictions established by the Committee. +The performance targets may be expressed as one or more targeted levels of performance with respect to one or more of the following objective measures with respect to the Company or any subsidiary, division or other unit of the Company: net income, +net income before taxes, operating income, earnings before interest and taxes, revenues, return on sales, return on equity, earnings per share, total shareholder return, or any of the foregoing before the effect of acquisitions, divestitures, +accounting changes, restructuring or other special charges. Performance-based awards may be made as awards of restricted shares subject to forfeiture if performance goals are not satisfied. No recipient may be granted in any fiscal year +performance-based awards under which the maximum number of shares that may be issued exceeds 400,000 shares. +The proposed +amendment to increase the number of shares reserved for issuance under the 19990 Plan includes a limitation on the grant of full value performance-based awards and other stock awards. If the net number of shares issued pursuant to stock awards and +performance-based awards after July 16, 2010 exceeds 3,000,000 shares (plus the number of shares forfeited or withheld to satisfy tax withholding obligations under stock awards outstanding as of that date), any excess shares issued under such +awards will be counted against the shares available under the 1990 Plan as 2.8 shares for each share issued. The number of shares issued pursuant to stock awards and performance-based awards that are forfeited to the Company or withheld to satisfy +tax withholding obligations will become available for future grants under the 1990 Plan; provided that if any stock awards or performance-based awards are counted against the shares available as 2.8 shares for each share issued, an equal number of +forfeitures and tax withholdings will be counted as 2.8 shares in determining the number of shares that again become available under the 1990 Plan. +Acceleration in Certain Events. The 1990 Plan generally provides that, unless otherwise determined by the Committee, vesting of +options, SARs and stock awards granted under the 1990 Plan will be accelerated if, within two years after a change in control, a participant’s employment is terminated by the Company without cause or by the participant for good reason. Vesting +will also be accelerated if the Company is acquired and the acquiring company does not assume outstanding options, SARs and restricted stock units. A “change in control” is generally defined to include (i) completion of a sale of all +or substantially all of the assets of the Company or an acquisition of the Company through a merger, consolidation or share exchange, (ii) the nomination (and subsequent election) in a two-year period of a majority of our directors by persons +other than the incumbent directors, (iii) the acquisition by any person of more than 50% of the outstanding Class A Stock while the Class A Stock elects a majority of our directors, and (iv) if the Class A Stock ceases to +elect a majority of our directors, the acquisition by any person of more than 30% of the total outstanding Class A Stock and Class B Stock. +The 1990 Plan also provides that, unless otherwise determined by the Committee, vesting of all options will be accelerated if the +optionee’s employment is terminated by reason of death or disability, and vesting of all options outstanding for at least one year will be accelerated if the optionee retires after +53 +reaching age 60 with 5 years of service. Unless otherwise determined by the Committee, if an optionee retires after reaching age 55 with 5 years of service, his or her options granted at least +one year prior to retirement will continue to vest according to their vesting schedules notwithstanding termination of employment. +Clawback Policy. Awards under the Plan granted after June 16, 2010 are subject to the Company’s Policy for Recoupment of +Incentive Compensation. This clawback policy generally requires executive officers who are involved in wrongful conduct that results in a restatement of the Company’s financial statements and who, after the initial release of the financial +statements and prior to the announcement of the restatement, sell any shares acquired under the Plan, to repay to the Company the amount determined by the Board of Directors to be the excess amount received from such sales. +Corporate Mergers. The Committee may make awards under the 1990 Plan that have terms and conditions that vary from those specified +in the Plan when such awards are granted in substitution for, or in connection with the assumption of, existing awards made by another corporation and assumed or otherwise agreed to be provided for by the Company in connection with a corporate +merger or other similar transaction to which the Company or an affiliated Company is a party. +Tax Consequences +Certain options authorized to be granted under the 1990 Plan are intended to qualify as “Incentive Stock Options” for federal +income tax purposes. Under federal income tax law in effect as of the date of this proxy statement, an optionee will recognize no regular income upon grant or exercise of an Incentive Stock Option. The amount by which the market value of shares +issued upon exercise of an Incentive Stock Option exceeds the exercise price, however, is included in the optionee’s alternative minimum taxable income and may, under certain conditions, be taxed under the alternative minimum tax. If an +optionee exercises an Incentive Stock Option and does not dispose of any of the shares thereby acquired within two years following the date of grant and within one year following the date of exercise, then any gain realized upon subsequent +disposition of the shares will be treated as income from the sale or exchange of a capital asset. If an optionee disposes of shares acquired upon exercise of an Incentive Stock Option before the expiration of either the one-year holding period or +the two-year holding period specified in the foregoing sentence (a “disqualifying disposition”), the optionee will realize ordinary income in an amount equal to the lesser of (i) the excess of the fair market value of the shares on +the date of exercise over the option price or (ii) the excess of the fair market value of the shares on the date of disposition over the option price. Any additional gain realized upon the disqualifying disposition will constitute capital gain. +The Company will not be allowed any deduction for federal income tax purposes at either the time of grant or the time of exercise of an Incentive Stock Option. Upon any disqualifying disposition by an optionee, the Company will generally be entitled +to a deduction to the extent the optionee realizes ordinary income. +54 +Certain options authorized to be granted under the 1990 Plan will be treated as +non-statutory stock options for federal income tax purposes. Under federal income tax law in effect as of the date of this proxy statement, no income is generally realized by the grantee of a non-statutory stock option until the option is exercised. +At the time of exercise of a non-statutory stock option, the optionee will realize ordinary income, and the Company will generally be entitled to a deduction, in the amount by which the fair market value of the shares subject to the option at the +time of exercise exceeds the exercise price. The Company is required to withhold income taxes on such income if the optionee is an employee. Upon the sale of shares acquired upon exercise of a non-statutory stock option, the optionee will realize +capital gain or loss equal to the difference between the amount realized from the sale and the fair market value of the shares on the date of exercise. +An individual who receives stock under the 1990 Plan will generally realize ordinary income at the time of receipt unless the shares are +not substantially vested for purposes of Section 83 of the Code. Absent an election under Section 83(b), an individual who receives shares that are not substantially vested will realize ordinary income in each year in which a portion of +the shares substantially vests. The amount of ordinary income recognized in any such year will be the fair market value of the shares that substantially vest in that year less any consideration paid for the shares. The Company will generally be +entitled to a deduction in the amount includable as ordinary income by the recipient at the same time or times as the recipient recognizes ordinary income with respect to the shares. The Company is required to withhold income taxes on such income if +the recipient is an employee. +Section 162(m) of the Code limits to $1,000,000 per person the amount that the Company may +deduct for compensation paid to any of its most highly compensated officers in any year. Under IRS regulations, compensation received through the exercise of an option or stock appreciation right will not be subject to the $1,000,000 limit if the +option or stock appreciation right and the plan pursuant to which it is granted meet certain requirements. One requirement is shareholder approval at least once every five years of a per-employee limit on the number of shares as to which options and +stock appreciation rights may be granted. Approval of this Proposal 3 will constitute approval of the per-employee limit under the 1990 Plan. Other requirements are that the option or stock appreciation right be granted by a committee of at least +two outside directors and that the exercise price of the option or stock appreciation right be not less than fair market value of the Class B Stock on the date of grant. Accordingly, the Company believes that if this proposal is approved by +shareholders, compensation received on exercise of options and stock appreciation rights granted under the 1990 Plan in compliance with all of the above requirements will continue to be exempt from the $1,000,000 deduction limit. +Under IRS regulations, compensation received through a performance-based award will not be subject to the $1,000,000 limit under +Section 162(m) of the Code if the performance-based award and the plan meet certain requirements. One of these requirements is shareholder approval of the performance criteria upon which award payouts may be based and the maximum amount payable +under awards, both of which +55 +are set forth in Section 8 of the proposed amended 1990 Plan. Other requirements are that objective performance goals and the amounts payable upon achievement of the goals be established by +a committee of at least two outside directors and that no discretion be retained to increase the amount payable under the awards. The Company believes that, if this proposal is approved by the shareholders, compensation received on vesting of +performance-based awards granted under the 1990 Plan in compliance with all of the above requirements will be exempt from the $1,000,000 deduction limit. +Board Recommendation +The Board of Directors recommends that shareholders vote FOR re-approval and amendment of the 1990 Plan. Holders of Class A Stock +and Class B Stock will vote together as a single class on Proposal 3. If holders of a majority of the shares of Common Stock vote on the proposal, Proposal 3 will be approved if a majority of the votes cast are cast for the proposal. Abstentions are +considered votes cast and have the same effect as “no” votes in determining whether the proposal is adopted. Broker non-votes are not counted as voted on the proposal and therefore have no effect on the results of the vote. +56 +PROPOSAL 4 +RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +The Audit Committee of the Board of Directors has appointed PricewaterhouseCoopers LLP as independent registered public accounting firm +to examine the Company’s consolidated financial statements for the fiscal year ending May 31, 2011 and to render other professional services as required. +The Audit Committee is submitting the appointment of PricewaterhouseCoopers LLP to shareholders for ratification. +Representatives of PricewaterhouseCoopers LLP will be present at the Annual Meeting, will have the opportunity to make a statement if +they desire to do so, and are expected to be available to respond to questions. +Aggregate fees billed by the Company’s +independent registered public accounting firm, PricewaterhouseCoopers LLP, for audit services related to the most recent two fiscal years, and for other professional services billed in the most recent two fiscal years, were as follows: +Type of Service +2010 +2009 +Audit Fees (1) +$ +7.0 million +$ +7.2 million +Audit-Related Fees (2) +$ +0.5 million +$ +0.4 million +Tax Fees (3) +$ +2.2 million +$ +2.1 million +All Other Fees (4) +$ +0.2 million +$ +0.1 million +Total +$ +9.9 million +$ +9.8 million +(1) +Comprised of the audits of the Company’s annual financial statements and internal controls over financial reporting, and reviews of the Company’s quarterly +financial statements, as well as statutory audits of Company subsidiaries, attest services, comfort letters and consents to SEC filings. +(2) +Comprised of employee benefit plan audits, acquisition due diligence, and consultations regarding financial accounting and reporting. +(3) +Comprised of services for tax compliance, tax planning, and tax advice. Tax compliance includes services related to the preparation or review of original and amended +tax returns for the Company and its consolidated subsidiaries and represents $1.6 million and $1.2 million of the tax fees for fiscal 2010 and 2009, respectively. The remaining tax fees primarily include tax advice. +(4) +Comprised of services for the preparation of tax returns for expatriate employees and other miscellaneous services. +57 +In accordance with the Sarbanes-Oxley Act of 2002, the Audit Committee established policies +and procedures under which all audit and non-audit services performed by the Company’s independent registered public accounting firm must be approved in advance by the Audit Committee. During fiscal 2010, all such services were approved in +advance except for two engagements totaling $37,000, or less than 0.4% of total fees. During fiscal 2009, fees totaling $23,000, or 0.2% of total fees, were paid to PricewaterhouseCoopers LLP for two engagements that were not pre-approved. All such +services were approved by the Audit Committee promptly after their inadvertent omission from pre-approval was noticed. +Notwithstanding anything to the contrary set forth in any of the Company’s filings under the Securities Act of 1933 or the +Securities Exchange Act of 1934, the following Report of the Audit Committee shall not be incorporated by reference into any such filings and shall not otherwise be deemed filed under such acts. +58 +REPORT OF THE AUDIT COMMITTEE +The Audit Committee has: +• +Reviewed and discussed the audited financial statements with management. +• +Discussed with the independent auditors the matters required to be discussed by SAS 61, as amended. +• +Received the written disclosures and the letter from the independent accountants required by applicable requirements of the Public Company Accounting +Oversight Board regarding the independent accountants’ communications concerning independence, and has discussed with the independent accountant the independent accountant’s independence. +• +Based on the review and discussions above, recommended to the Board of Directors that the audited financial statements be included in the +Company’s Annual Report on Form 10-K for the last fiscal year for filing with the Securities and Exchange Commission. +Members of the Audit Committee: +Alan B. Graf, Jr., Chairman +John G. Connors +Orin C. Smith +OTHER MATTERS +As of the time this proxy statement was printed, management was unaware of any proposals to be presented for consideration at the Annual +Meeting other than those set forth herein, but if other matters do properly come before the Annual Meeting, the persons named in the proxy will vote the shares represented by such proxy according to their best judgment. +59 +SHAREHOLDER PROPOSALS +A proposal by a shareholder for inclusion in the Company’s proxy statement and form of proxy for the 2011 annual meeting of +shareholders must be received by John F. Coburn III, Secretary of NIKE, at One Bowerman Drive, Beaverton, Oregon 97005-6453, on or before April 4, 2011 to be eligible for inclusion. Rules under the Securities Exchange Act of 1934 describe +standards as to the submission of shareholder proposals. In addition, the Company’s bylaws require that any shareholder wishing to make a nomination for Director, or wishing to introduce a proposal or other business at a shareholder meeting +must give the Company at least 60 days’ advance written notice, and that notice must meet certain requirements described in the bylaws. +For the Board of Directors +JOHN F. COBURN III +S ECRETARY +60 +EXHIBIT A +NIKE, INC. EXECUTIVE PERFORMANCE SHARING +PLAN * +This is the Executive Performance Sharing Plan of NIKE, Inc. for the payment of incentive compensation to designated employees. +Section 1. Definitions. The following terms have the following meanings: +Board: The Board of Directors of the Company. +Code : The Internal Revenue Code of 1986, as amended. +Committee : The Compensation Committee of the Board, provided however, if the Compensation Committee of the Board is not composed +entirely of Outside Directors, the “Committee” shall mean a committee composed entirely of at least two Outside Directors appointed by the Board from time to time. +Company : NIKE, Inc. +Exchange Act : The Securities Exchange Act of 1934, as amended. +Outside Directors : The meaning ascribed to this term in Section 162(m) of the Code and the regulations proposed or adopted +thereunder. +Performance Target : An objectively determinable level of performance as selected by the Committee to +measure performance of the Company or any subsidiary, division, or other unit of the Company for the Year based on one or more of the following: net income, net income before taxes, operating income, earnings before interest and taxes, +revenues, return on sales, return on equity, earnings per share, total shareholder return, or any of the foregoing before the effect of acquisitions, divestitures, accounting changes, restructuring, or other special charges, as determined by +the Committee at the time of establishing a Performance Target. +Plan : The Executive Performance Sharing Plan of the +Company. +Target Award : An amount of cash compensation to be paid to a Plan participant based on achievement of a +particular Performance Target level established by the Committee, expressed as a percentage of the participant’s base salary at the beginning of the Year, determined in accordance with guidelines established by the Committee. +Year : The fiscal year of the Company. +Section 2. Objectives . The objectives of the Plan are to: +(a) recognize and reward on an annual basis the Company’s corporate officers for their contributions to the overall +profitability and performance of the Company; and +* +Matters in bold and underline are new; matters in italics and strikeout are to be deleted. +A-1 +(b) qualify compensation under the Plan as “performance-based +compensation” within the meaning of Section 162(m) of the Code and the regulations promulgated thereunder. +Section 3. Administration . The Plan will be administered by the Committee. Subject to the provisions of the Plan, the +Committee will have full authority to interpret the Plan, to establish and amend rules and regulations relating to it, to determine the terms and provisions for making awards and to make all other determinations necessary or advisable for the +administration of the Plan. +Section 4. Participation . Participation in the Plan shall be limited to individuals +who are corporate officers of the Company. +Section 5. Determination of the Performance Targets and Awards . The +Committee shall determine, in its sole discretion, the Performance Targets and Target Award opportunities for each participant, within 90 days of the beginning of each Year. The Committee may establish (i) several Performance Target levels for +each participant, each corresponding to a different Target Award opportunity, and (ii) different Performance Targets and Target Award opportunities for each participant in the Plan. The maximum Target Award opportunity under the Plan for a +participant in any Year shall be the lesser of 200% of the participant’s base salary established at the beginning of the Year, or $5 million. +Section 6. Determination of Plan Awards . At the conclusion of the Year, in accordance with Section 162(m)(4)(C)(iii) of +the Code, prior to the payment of any award under the Plan, the Committee shall certify in the Committee’s internal meeting minutes the attainment of the Performance Targets for the Year and the calculation of the awards. No award shall be paid +if the related Performance Target is not met. In no event shall an award to any participant exceed the lesser of 200% of the participant’s base salary, or $5 million. The Committee may, in its sole discretion, reduce or eliminate any +participant’s calculated award based on circumstances relating to the performance of the Company or the participant. Awards will be paid in cash as soon as practicable following the Committee’s certification of the awards. +Section 7. Termination of Employment . The terms of a Target Award may provide that in the event of a participant’s +termination of employment for any reason during a Year, the participant (or his or her beneficiary) will receive, at the time provided in Section 6, all or any portion of the award to which the participant would otherwise have been entitled. +Section 8. Clawback Policy. Unless otherwise provided at the time of establishing a Target Award, all awards under +the Plan shall be subject to the NIKE, Inc. Policy for Recoupment of Incentive Compensation as approved by the Committee and in effect at the time the Target Award is established, or such other policy for “clawback” of incentive +compensation as may be approved from time to time by the Committee, and by acceptance of any payment of any Award each participant expressly agrees to repay to the Company any amount that may be required to be repaid under the applicable policy. +A-2 +Section 8 9. Miscellaneous. +(a) Amendment and Termination of the Plan . The Committee with the approval of the Board may amend, modify or +terminate the Plan at any time and from time to time except insofar as approval by the Company’s shareholders is required pursuant to Section 162(m)(4)(C)(ii) of the Code. The Plan shall terminate at the first shareholder meeting that +occurs in the fifth Year after the Company’s shareholders approve the Plan. Notwithstanding the foregoing, no such amendment, modification or termination shall affect the payment of Target Awards previously established. +(b) No Assignment . Except as otherwise required by applicable law, no interest, benefit, payment, claim or right of +any participant under the plan shall be subject in any manner to any claims of any creditor of any participant or beneficiary, nor to alienation by anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment, charge or encumbrance of +any kind, and any attempt to take any such action shall be null and void. +(c) No Rights to Employment . +Nothing contained in the Plan shall give any person the right to be retained in the employment of the Company or any of its subsidiaries. The Company reserves the right to terminate a participant at any time for any reason notwithstanding the +existence of the Plan. +(d) Beneficiary Designation . The Committee shall establish such procedures as it +deems necessary for a participant to designate a beneficiary to whom any amounts would be payable in the event of a participant’s death. +(e) Plan Unfunded . The entire cost of the Plan shall be paid from the general assets of the Company. The rights of +any person to receive benefits under the Plan shall be only those of a general unsecured creditor, and neither the Company nor the Board nor the Committee shall be responsible for the adequacy of the general assets of the Company to meet and +discharge Plan liabilities, nor shall the Company be required to reserve or otherwise set aside funds for the payment of its obligations hereunder. +(f) Applicable Law . The Plan and all rights thereunder shall be governed by and construed in accordance with the +laws of the State of Oregon. +A-3 +EXHIBIT B +NIKE, INC. 1990 STOCK INCENTIVE +PLAN * +1. Purpose . The purpose of this Stock Incentive Plan (the “Plan”) is to enable NIKE, Inc. (the “Company”) to +attract and retain as directors, officers, employees, consultants, advisors and independent contractors people of initiative and ability and to provide additional incentives to such persons. +2. Shares Subject to the Plan . Subject to adjustment as provided below and in paragraph 10, the shares to be offered under the +Plan shall consist of Class B Common Stock of the Company (“Shares”), and the total number of Shares that may be issued under the Plan shall not exceed one hundred sixty-three +one hundred thirty-two million ( 163 132 ,000,000) Shares (the “Plan Limit”). Any Shares subject to an option or stock +appreciation right granted under the Plan shall be counted against the Plan Limit as one Share for every one Share subject to such option or stock appreciation right, except that a stock appreciation right payable solely in cash shall not be counted +against the Plan Limit. If an option or stock appreciation right granted under the Plan expires, terminates or is canceled, the unissued Shares subject to such option or stock appreciation right shall again be available under the Plan. +Any Shares issued pursuant to a Stock Award (as defined in paragraph 7 below) or a Performance-Based Award (as defined in paragraph 8 below) shall be counted against the Plan Limit as one Share for every one Share so issued; provided, however, +that if the aggregate number of Shares issued pursuant to Stock Awards and Performance-Based Awards granted after July 16, 2010 exceeds the Full Value Limit (as defined below), any excess Shares issued under those awards shall be counted +against the Plan Limit as two and eight-tenths (2.8) Shares for every one Share so issued. For all purposes of this paragraph 2, the number of shares “issued” pursuant to a Stock Award or a Performance-Based Award shall be net of any +shares withheld to satisfy tax withholding obligations with respect to the award. Except as provided in the next sentence, if If any Shares sold or awarded +as a bonus under the plan issued pursuant to a Stock Award or a Performance-Based Award are forfeited to the Company or repurchased by the Company , the number of Shares forfeited or +repurchased shall again be available under the Plan. If any Shares issued pursuant to a Stock Award or a Performance-Based Award are counted against the Plan Limit as two and eight-tenths (2.8) Shares as provided above, and +any Shares issued pursuant to a Stock Award or a Performance-Based Award are subsequently forfeited to the Company, the number of Shares that again become available under the Plan shall be equal to the number of Shares forfeited (up to the aggregate +number of Shares previously counted against the Plan Limit as two and eight-tenths (2.8) Shares) multiplied by two and eight-tenths (2.8). The “Full Value Limit” shall equal three million (3,000,000) Shares plus the number of +Shares issued pursuant to Stock Awards granted on or before July 16, 2010 that are forfeited to the Company or withheld to satisfy tax withholding obligations after July 16, 2010. +* +Matters in bold and underline are new; matters in italics and strikeout are to be deleted. +B-1 +3. Duration of Plan . The Plan shall continue in effect until all Shares available for +issuance under the Plan have been issued and all restrictions on such Shares have lapsed; provided, however, that no awards shall be made under the Plan on or after the 10th anniversary of the last action by the shareholders approving or +re-approving the Plan. The Board of Directors may suspend or terminate the Plan at any time except with respect to awards and Shares subject to restrictions then outstanding under the Plan. Termination shall not affect any outstanding awards or the +forfeitability of Shares issued under the Plan. +4. Administration . The Plan shall be administered by a committee +appointed by the Board of Directors of the Company consisting of not less than two directors (the “Committee”), which shall determine and designate from time to time the individuals to whom awards shall be made, the amount of the awards +and the other terms and conditions of the awards, except that only the Board of Directors may amend or terminate the Plan as provided in paragraphs 3 and 14. Subject to the provisions of the Plan, the Committee may from time to time adopt and amend +rules and regulations relating to administration of the Plan, advance the lapse of any waiting period, accelerate any exercise date, waive or modify any restriction applicable to Shares (except those restrictions imposed by law) and make all other +determinations in the judgment of the Committee necessary or desirable for the administration of the Plan. The interpretation and construction of the provisions of the Plan and related agreements by the Committee shall be final and conclusive. The +Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any related agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect, and it shall be the sole and final +judge of such expediency. Notwithstanding anything to the contrary contained in this Paragraph 4, the Board of Directors may delegate to the Chief Executive Officer of the Company, as a one-member committee of the Board of Directors, the authority +to grant awards with respect to a maximum of 50,000 Shares to any eligible employee who is not, at the time of such grant, subject to the reporting requirements and liability provisions contained in Section 16 of the Securities Exchange Act of +1934 (the “Exchange Act”) and the regulations thereunder. +5. Types of Awards; Eligibility . The Committee +may, from time to time, take the following actions, separately or in combination, under the Plan: (i) grant Incentive Stock Options, as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), as +provided in paragraph 6(b); (ii) grant options other than Incentive Stock Options (“Non-Statutory Stock Options”) as provided in paragraph 6(c); (iii) grant Stock Awards, including restricted stock and restricted stock units, as +provided in paragraph 7; (iv) grant Performance-Based Awards sell shares subject to restrictions as provided in paragraph 8; and (v) grant stock appreciation rights as provided in paragraph 9. +Any such awards may be made to employees, including employees who are officers or directors, of the Company or any parent or subsidiary corporation of the Company and to other individuals described in paragraph 1 who the Committee believes have made +or will make an important contribution to the Company or its subsidiaries; provided, however, that only employees of the Company shall be eligible to receive Incentive Stock Options under the Plan. The Committee shall select the individuals to whom +awards shall be made. The Committee shall specify the action taken with respect to each individual to whom an award is made under the Plan. No employee +B-2 +may be granted options or stock appreciation rights under the Plan for more than 400,000 Shares in any calendar year. +6. Option Grants . +(a) Grant . The Committee may grant options under the Plan. With respect to each option grant, the Committee shall +determine the number of Shares subject to the option, the option price, the period of the option, the time or times at which the option may be exercised and whether the option is an Incentive Stock Option or a Non-Statutory Stock Option. +(b) Incentive Stock Options . Incentive Stock Options shall be subject to the following terms and conditions: +(i) An Incentive Stock Option may be granted under the Plan to an employee possessing more than 10 percent of +the total combined voting power of all classes of stock of the Company or of any parent or subsidiary of the Company only if the option price is at least 110 percent of the fair market value of the Shares subject to the option on the date it is +granted, as described in paragraph 6(b)(iii), and the option by its terms is not exercisable after the expiration of five years from the date it is granted. +(ii) Subject to paragraphs 6(b)(i) and 6(d), Incentive Stock Options granted under the Plan shall continue in effect for +the period fixed by the Committee, except that no Incentive Stock Option shall be exercisable after the expiration of 10 years from the date it is granted. +(iii) The option price per share shall be determined by the Committee at the time of grant. Subject to paragraph 6(b)(i), +the option price shall not be less than 100 percent of the fair market value of the Shares covered by the Incentive Stock Option at the date the option is granted. The fair market value shall be deemed to be the closing price of the Class B Common +Stock of the Company as reported in the New York Stock Exchange Composite Transactions in the Wall Street Journal on the date the option is granted, or if there has been no sale on that date, on the last preceding date on which a sale occurred, or +such other reported value of the Class B Common Stock of the Company as shall be specified by the Committee. +(iv) No Incentive Stock Option shall be granted on or after the tenth anniversary of the last action by the Board of +Directors approving an increase in the number of shares available for issuance under the Plan, which action was subsequently approved within 12 months by the shareholders. +(c) Non-Statutory Stock Options . The option price for Non-Statutory Stock Options shall be determined by the +Committee at the time of grant. The option price may not be less than 100 percent of the fair market value of the Shares covered by the Non-Statutory Stock Option on the date the +B-3 +option is granted. The fair market value of Shares covered by a Non-Statutory Stock Option shall be determined pursuant to paragraph 6(b)(iii). No Non-Statutory Stock Option shall be exercisable +after the expiration of 10 years from the date it is granted. +(d) Exercise of Options . Except as +provided in paragraph 6(f), no option granted under the Plan may be exercised unless at the time of such exercise the optionee is employed by the Company or any parent or subsidiary corporation of the Company and shall have been so employed +continuously since the date such option was granted. Absence on leave or on account of illness or disability under rules established by the Committee shall not, however, be deemed an interruption of employment for this purpose. Except as provided in +paragraphs 6(f), 10 and 11, options granted under the Plan may be exercised from time to time over the period stated in each option in such amounts and at such times as shall be prescribed by the Committee, provided that options shall not be +exercised for fractional shares. Unless otherwise determined by the Committee, if the optionee does not exercise an option in any one year with respect to the full number of Shares to which the optionee is entitled in that year, the optionee’s +rights shall be cumulative and the optionee may purchase those Shares in any subsequent year during the term of the option. +(e) Nontransferability . Except as provided below, each stock option granted under the Plan by its terms shall be +nonassignable and nontransferable by the optionee, either voluntarily or by operation of law, and each option by its terms shall be exercisable during the optionee’s lifetime only by the optionee. A stock option may be transferred by will or by +the laws of descent and distribution of the state or country of the optionee’s domicile at the time of death. A Non-Statutory Stock Option shall also be transferable pursuant to a qualified domestic relations order as defined under the Code or +Title I of the Employee Retirement Income Security Act. The Committee may, in its discretion, authorize all or a portion of a Non-Statutory Stock Option granted to an optionee to be on terms which permit transfer by the optionee to (i) the +spouse, children or grandchildren of the optionee (“Immediate Family Members”), (ii) a trust or trusts for the exclusive benefit of Immediate Family Members, or (iii) a partnership in which Immediate Family Members are the only +partners, provided that (x) there may be no consideration for any transfer, (y) the stock option agreement pursuant to which the options are granted must expressly provide for transferability in a manner consistent with this paragraph, and +(z) subsequent transfers of transferred options shall be prohibited except by will or by the laws of descent and distribution. Following any transfer, options shall continue to be subject to the same terms and conditions as were applicable +immediately prior to transfer, provided that for purposes of paragraphs 6(d), 6(g), 10 and 11 the term “optionee” shall be deemed to refer to the transferee. The events of termination of employment of paragraph 6(f), shall continue to be +applied with respect to the original optionee, following which the options shall be exercisable by the transferee only to the extent, and for the periods specified, and all other references to employment, termination of employment, life or death of +the optionee, shall continue to be applied with respect to the original optionee. +B-4 +(f) Termination of Employment or Death . +(i) Unless otherwise provided at the time of grant, in the event the employment of the optionee by the Company or a parent +or subsidiary corporation of the Company terminates for any reason other than because of normal retirement, early retirement, physical disability or death, the option may be exercised at any time prior to the expiration date of the option or the +expiration of three months after the date of such termination of employment, whichever is the shorter period, but only if and to the extent the optionee was entitled to exercise the option at the date of such termination. +(ii) Unless otherwise provided at the time of grant, in the event the employment of the optionee by the Company or a +parent or subsidiary corporation of the Company terminates as a result of the optionee’s normal retirement, any option granted to the optionee less than one year prior to the date of such termination of employment shall immediately terminate, +and any option granted to the optionee at least one year prior to the date of such termination of employment may be exercised by the optionee free of the limitations on the amount that may be purchased in any one year specified in the option +agreement at any time prior to the expiration date of the option or the expiration of four years after the date of such termination of employment, whichever is the shorter period. For purposes of this paragraph 6(f), “normal retirement” +means a termination of employment that occurs at a time when (A) the optionee’s age is at least 60 years, and (B) the optionee has at least five full years of service as an employee of the Company or a parent or subsidiary corporation +of the Company. +(iii) Unless otherwise provided at the time of grant, in the event the employment of the +optionee by the Company or a parent or subsidiary corporation of the Company terminates as a result of the optionee’s early retirement, any option granted to the optionee less than one year prior to the date of such termination of employment +shall immediately terminate, and any option granted to the optionee at least one year prior to the date of such termination of employment may be exercised by the optionee in the amounts and according to the schedule specified in the option agreement +with no forfeiture of any portion of the option resulting from such termination of employment, except that the option may not be exercised after the earlier of the expiration date of the option or the expiration of four years after the date of such +termination of employment. For purposes of this paragraph 6(f), “early retirement” means a termination of employment that occurs at a time when (A) the optionee’s age is at least 55 years and less than 60 years, and (B) the +optionee has at least five full years of service as an employee of the Company or a parent or subsidiary corporation of the Company. +(iv) Unless otherwise provided at the time of grant, in the event the employment of the optionee by the Company or a +parent or subsidiary corporation of the Company terminates because the optionee becomes disabled (within the meaning of Section 22(e)(3) of the Code), the option may be exercised by the optionee free of the limitations on the amount that may be +B-5 +purchased in any one year specified in the option agreement at any time prior to the expiration date of the option or the expiration of four years after the date of such termination, whichever is +the shorter period. +(v) Unless otherwise provided at the time of grant, in the event of the death of the +optionee while in the employ of the Company or a parent or subsidiary corporation of the Company, the option may be exercised free of the limitations on the amount that may be purchased in any one year specified in the option agreement at any time +prior to the expiration date of the option or the expiration of four years after the date of such death, whichever is the shorter period, but only by the person or persons to whom such optionee’s rights under the option shall pass by the +optionee’s will or by the laws of descent and distribution of the state or country of domicile at the time of death. +(vi) The Committee, at the time of grant or at any time thereafter, may extend the three-month and four-year expiration +periods any length of time not later than the original expiration date of the option, and may increase the portion of an option that is exercisable, subject to such terms and conditions as the Committee may determine. +(vii) To the extent that the option of any deceased optionee or of any optionee whose employment terminates is not +exercised within the applicable period, all further rights to purchase Shares pursuant to such option shall cease and terminate. +(g) Purchase of Shares . Unless the Committee determines otherwise, Shares may be acquired pursuant to an option +granted under the Plan only upon receipt by the Company of notice from the optionee of the optionee’s intention to exercise, specifying the number of Shares as to which the optionee desires to exercise the option and the date on which the +optionee desires to complete the transaction, and if required in order to comply with the Securities Act of 1933, as amended, containing a representation that it is the optionee’s present intention to acquire the Shares for investment and not +with a view to distribution. Unless the Committee determines otherwise, on or before the date specified for completion of the purchase of Shares pursuant to an option, the optionee must have paid the Company the full purchase price of such Shares in +cash or with the consent of the Committee, in whole or in part, in Common Stock of the Company valued at fair market value. The fair market value of Common Stock of the Company provided in payment of the purchase price shall be the closing price of +the Common Stock of the Company as reported in the New York Stock Exchange Composite Transactions in the Wall Street Journal or such other reported value of the Common Stock of the Company as shall be specified by the Committee, on the date the +option is exercised, or if such date is not a trading day, then on the immediately preceding trading day. No Shares shall be issued until full payment therefor has been made. With the consent of the Committee, an optionee may request the Company to +apply automatically the Shares to be received upon the exercise of a portion of a stock option (even though stock certificates have not yet been issued) to satisfy the purchase price for additional portions of the option. Each optionee who has +exercised an option shall immediately upon +B-6 +notification of the amount due, if any, pay to the Company in cash amounts necessary to satisfy any applicable federal, state and local tax withholding requirements. If additional withholding is +or becomes required beyond any amount deposited before delivery of the certificates, the optionee shall pay such amount to the Company on demand. If the optionee fails to pay the amount demanded, the Company may withhold that amount from other +amounts payable by the Company to the optionee, including salary, subject to applicable law. With the consent of the Committee, an optionee may satisfy the minimum statutory withholding obligation, in whole or in part, by having the Company withhold +from the Shares to be issued upon the exercise that number of Shares that would satisfy the withholding amount due or by delivering Common Stock of the Company to the Company to satisfy the withholding amount. Upon the exercise of an option, the +number of Shares reserved for issuance under the Plan shall be reduced by the number of Shares issued upon exercise of the option, plus the number of Shares, if any, withheld upon exercise to satisfy the tax withholding amount. +(h) No Repricing . Except for actions approved by the shareholders of the Company or adjustments made pursuant to +paragraph 10, the option price for an outstanding option granted under the Plan may not be decreased after the date of grant nor may the Company grant a new option or pay any cash or other consideration (including another award under the Plan) in +exchange for any outstanding option granted under the Plan at a time when the option price of the outstanding option exceeds the fair market value of the Shares covered by the option. +7. Stock Awards, including Restricted Stock and Restricted Stock Units . The Committee may grant Shares as stock awards under the +Plan (“Stock Awards”). Stock Awards shall be subject to the terms, conditions, and restrictions determined by the Committee. The restrictions may include restrictions concerning transferability and forfeiture of the Shares awarded, +together with such other restrictions as may be determined by the Committee. Stock Awards subject to restrictions may be either restricted stock awards under which shares are issued immediately upon grant subject to forfeiture if vesting conditions +are not satisfied, or restricted stock unit awards under which shares are not issued until after vesting conditions are satisfied. The Committee may require the recipient to sign an agreement as a condition of the award, but may not require the +recipient to pay any monetary consideration other than amounts necessary to satisfy tax withholding requirements. The agreement may contain any terms, conditions, restrictions, representations and warranties required by the Committee. The +certificates representing the Shares awarded shall bear any legends required by the Committee. The Company may require any recipient of a Stock Award to pay to the Company in cash upon demand amounts necessary to satisfy any applicable federal, +state or local tax withholding requirements. If the recipient fails to pay the amount demanded, the Company may withhold that amount from other amounts payable by the Company to the recipient, including salary, subject to applicable law. With the +consent of the Committee, a recipient may satisfy the minimum statutory withholding obligation, in whole or in part, by having the Company withhold from the awarded Shares that number of Shares that would satisfy the withholding amount due or by +delivering Common Stock of the Company to the Company to satisfy the withholding amount. Upon the issuance of Shares under a Stock Award, the number of Shares reserved for issuance under the Plan shall, except as +B-7 +otherwise provided in paragraph 2, be reduced by the number of Shares issued, net of any shares withheld to satisfy tax withholding obligations. +8. Performance-Based Awards. The Committee may grant awards intended to qualify as qualified performance-based compensation under +Section 162(m) of the Code and the regulations thereunder (“Performance-Based Awards”). Performance-Based Awards shall be subject to the following terms and conditions: +(a) Award Period. The Committee shall determine the period of time for which a Performance-Based Award is made (the +“Award Period”). +(b) Performance Targets and Payment. The Committee shall establish in +writing objectives (“Performance Targets”) that must be met by the Company or any subsidiary, division or other unit of the Company (“Business Unit”) during the Award Period as a condition to payment being made under the +Performance-Based Award. The Performance Targets for each award shall be one or more targeted levels of performance with respect to one or more of the following objective measures with respect to the Company or any Business Unit: net income, net +income before taxes, operating income, earnings before interest and taxes, revenues, return on sales, return on equity, earnings per share, total shareholder return, or any of the foregoing before the effect of acquisitions, divestitures, accounting +changes, restructuring or other special charges, as determined by the Committee at the time of establishing a Performance Target. The Committee shall also establish the number of Shares to be issued under a Performance-Based Award if the Performance +Targets are met or exceeded, including the fixing of a maximum number of Shares (subject to paragraph 8(d)). The Committee may establish other restrictions to payment under a Performance-Based Award, such as a continued employment requirement, in +addition to satisfaction of the Performance Targets. Some or all of the Shares subject to a Performance-Based Award may be issued at the time of the award as restricted shares subject to forfeiture in whole or in part if Performance Targets or, if +applicable, other restrictions are not satisfied. +(c) Computation of Payment. During or after an +Award Period, the performance of the Company or Business Unit, as applicable, during the period shall be measured against the Performance Targets. If the Performance Targets are not met, no payment shall be made under a Performance-Based Award. If +the Performance Targets are met or exceeded, the Committee shall certify that fact in writing and certify the number of Shares earned under the terms of the Performance-Based Award. +(d) Maximum Awards. No recipient may be granted in any fiscal year Performance-Based Awards under which the maximum +number of Shares that may be issued exceeds 400,000 Shares. +(e) Tax Withholding. The Company may +require any recipient of a Performance-Based Award to pay to the Company in cash upon demand amounts necessary to satisfy any applicable +B-8 +federal, state or local tax withholding requirements. If the recipient fails to pay the amount demanded, the Company may withhold that amount from other amounts payable by the Company to the +recipient, including salary, subject to applicable law. With the consent of the Committee, a recipient may satisfy the minimum statutory withholding obligation, in whole or in part, by having the Company withhold from the awarded Shares that number +of Shares that would satisfy the withholding amount due or by delivering Common Stock of the Company to the Company to satisfy the withholding amount. +(f) Effect on Shares Available. Upon the issuance of Shares under a Performance-Based Award, the number of Shares +reserved for issuance under the Plan shall, except as otherwise provided in paragraph 2, be reduced by the number of Shares issued, net of any shares withheld to satisfy tax withholding obligations. +8. Restricted Stock. The Committee may issue Shares under the Plan for such consideration (including +promissory notes and services) as determined by the Committee, provided that in no event shall the consideration be less than 75 percent of fair market value of the Shares at the time of issuance. Shares issued under the Plan shall be subject to the +terms, conditions and restrictions determined by the Committee. The restrictions may include restrictions concerning transferability, repurchase by the Company and forfeiture of the Shares issued, together with such other restrictions as may be +determined by the Committee. All Shares issued pursuant to this paragraph 8 shall be subject to a purchase agreement, which shall be executed by the Company and the prospective recipient of the Shares prior to the delivery of certificates +representing such Shares to the recipient. The purchase agreement may contain any terms, conditions, restrictions, representations and warranties required by the Committee. The certificates representing the Shares shall bear any legends required by +the Committee. The Company may require any purchaser of restricted stock to pay to the Company in cash upon demand amounts necessary to satisfy any applicable federal, state or local tax withholding requirements. If the purchaser fails to pay the +amount demanded, the Company may withhold that amount from other amounts payable by the Company to the purchaser, including salary, subject to applicable law. With the consent of the Committee, a purchaser may deliver Common Stock of the Company to +the Company to satisfy this withholding obligation. Upon the issuance of restricted stock, the number of Shares reserved for issuance under the Plan shall be reduced by the number of Shares issued. +9. Stock Appreciation Rights . +(a) Grant . Stock appreciation rights may be granted under the Plan by the Committee, subject to such rules, terms, +and conditions as the Committee prescribes. +(b) Exercise . +(i) A stock appreciation right shall be exercisable only at the time or times established by the Committee, except that no +stock appreciation right shall be exercisable after the expiration of +B-9 +10 years from the date it is granted. If a stock appreciation right is granted in connection with an option, the stock appreciation right shall be exercisable only to the extent and on the +same conditions that the related option could be exercised. Upon exercise of a stock appreciation right, any option or portion thereof to which the stock appreciation right relates terminates. If a stock appreciation right is granted in connection +with an option, upon exercise of the option, the stock appreciation right or portion thereof to which the option relates terminates. +(ii) The Committee may withdraw any stock appreciation right granted under the Plan at any time and may impose any +conditions upon the exercise of a stock appreciation right or adopt rules and regulations from time to time affecting the rights of holders of stock appreciation rights. Such rules and regulations may govern the right to exercise stock appreciation +rights granted before adoption or amendment of such rules and regulations as well as stock appreciation rights granted thereafter. +(iii) Each stock appreciation right shall entitle the holder, upon exercise, to receive from the Company in exchange +therefor an amount equal in value to the excess of the fair market value on the date of exercise of one share of Class B Common Stock of the Company over its fair market value on the date of grant or such higher amount as the Committee may determine +(or, in the case of a stock appreciation right granted in connection with an option, the option price per Share under the option to which the stock appreciation right relates), multiplied by the number of Shares covered by the stock appreciation +right or the option, or portion thereof, that is surrendered. Payment by the Company upon exercise of a stock appreciation right may be made in Shares valued at fair market value, in cash, or partly in Shares and partly in cash, all as determined by +the Committee. +(iv) For purposes of this paragraph 9, the fair market value of the Class B Common Stock of the +Company on the date a stock appreciation right is exercised shall be the closing price of the Class B Common Stock of the Company as reported in the New York Stock Exchange Composite Transactions in the Wall Street Journal, or such other reported +value of the Class B Common Stock of the Company as shall be specified by the Committee, on the date the stock appreciation right is exercised, or if such date is not a trading day, then on the immediately preceding trading day. +(v) No fractional shares shall be issued upon exercise of a stock appreciation right. In lieu thereof, cash shall be paid +in an amount equal to the value of the fractional share. +(vi) Each stock appreciation right granted under the +Plan by its terms shall be nonassignable and nontransferable by the holder, either voluntarily or by operation of law, except by will or by the laws of descent and distribution of the state or county of the holder’s domicile at the time of +death, and each stock appreciation right by its terms shall be exercisable during the holder’s lifetime only by the holder; provided, however, that a stock appreciation right not granted in +B-10 +connection with an Incentive Stock Option shall also be transferable pursuant to a qualified domestic relations order as defined under the Code or Title I of the Employee Retirement Income +Security Act. +(vii) Each participant who has exercised a stock appreciation right shall, upon notification of +the amount due, pay to the Company in cash amounts necessary to satisfy any applicable federal, state or local tax withholding requirements. If the participant fails to pay the amount demanded, the Company may withhold that amount from other amounts +payable by the Company to the participant including salary, subject to applicable law. With the consent of the Committee a participant may satisfy the minimum statutory obligation, in whole or in part, by having the Company withhold from any Shares +to be issued upon the exercise that number of Shares that would satisfy the withholding amount due or by delivering Common Stock of the Company to the Company to satisfy the withholding amount. +(viii) Upon the exercise of a stock appreciation right for Shares, the number of Shares reserved for issuance under the +Plan shall be reduced by the number of Shares covered by the stock appreciation right. Cash payments of stock appreciation rights shall not reduce the number of Shares reserved for issuance under the Plan. +10. Changes in Capital Structure . If the outstanding shares of Common Stock of the Company are hereafter increased or decreased or +changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of any recapitalization, reclassification, stock split, combination of shares or dividend payable in shares, appropriate adjustment shall +be made by the Committee in the number and kind of shares available for awards under the Plan. In addition, the Committee shall make appropriate adjustment in the number and kind of shares subject to outstanding awards, and the exercise price of +outstanding options and stock appreciation rights, to the end that the recipient’s proportionate interest is maintained as before the occurrence of such event. The Committee may also require that any securities issued in respect of or exchanged +for Shares issued hereunder that are subject to restrictions be subject to similar restrictions. Notwithstanding the foregoing, the Committee shall have no obligation to effect any adjustment that would or might result in the issuance of fractional +shares, and any fractional shares resulting from any adjustment may be disregarded or provided for in any manner determined by the Committee. Any such adjustments made by the Committee shall be conclusive. +B-11 +11. Sale of the Company; Change in Control . +(a) Sale of the Company . Unless otherwise provided at the time of grant, if during the term of an option, stock +appreciation right or restricted stock unit award, there shall occur a merger, consolidation or plan of exchange involving the Company pursuant to which outstanding Shares are converted into cash or other stock, securities or property, or a sale, +lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, the assets of the Company, then either: +(i) the option, stock appreciation right or restricted stock unit award shall be converted into an option, stock +appreciation right or restricted stock unit award to acquire stock of the surviving or acquiring corporation in the applicable transaction for a total purchase price equal to the total price applicable to the unexercised portion of the option, stock +appreciation right or restricted stock unit award, and with the amount and type of shares subject thereto and exercise price per share thereof to be conclusively determined by the Committee, taking into account the relative values of the companies +involved in the applicable transaction and the exchange rate, if any, used in determining shares of the surviving corporation to be held by holders of Shares following the applicable transaction, and disregarding fractional shares; or +(ii) all unissued Shares subject to restricted stock unit awards shall be issued immediately prior to the consummation of +such transaction, all options and stock appreciation rights will become exercisable for 100 percent of the Shares subject to the option or stock appreciation right effective as of the consummation of such transaction, and the Committee shall approve +some arrangement by which holders of options and stock appreciation rights shall have a reasonable opportunity to exercise all such options and stock appreciation rights effective as of the consummation of such transaction or otherwise realize the +value of these awards, as determined by the Committee. Any option or stock appreciation right that is not exercised in accordance with procedures approved by the Committee shall terminate. +B-12 +(b) Change in Control . Unless otherwise provided at the time of +grant, if paragraph 11(a)(ii) does not apply, all options and stock appreciation rights granted under this Plan shall become exercisable in full for a remaining term extending until the earlier of the expiration date of the applicable option or +stock appreciation right or the expiration of four years after the date of termination of employment, and all Stock Awards shall become fully vested, if a Change in Control (as defined below) occurs and at any time after the earlier of Shareholder +Approval (as defined below), if any, or the Change in Control and on or before the second anniversary of the Change in Control, (i) the award holder’s employment is terminated by the Company (or its successor) without Cause (as defined +below), or (ii) the award holder’s employment is terminated by the award holder for Good Reason (as defined below). +(i) For purposes of this Plan, a “Change in Control” of the Company shall mean the occurrence of any of the +following events: +(A) At any time during a period of two consecutive years, individuals who at the beginning +of such period constituted the Board of Directors of the Company (“Incumbent Directors”) shall cease for any reason to constitute at least a majority thereof; provided, however, that the term “Incumbent Director” shall also +include each new director elected during such two-year period whose nomination or election was approved by two-thirds of the Incumbent Directors then in office; +(B) At any time that the holders of the Class A Common Stock of the Company have the right to elect (voting as a +separate class) a majority of the members of the Board of Directors of the Company, any “person” or “group” (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) shall, as a result of a tender or exchange offer, +open market purchases or privately negotiated purchases from anyone other than the Company, have become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, of more than fifty percent (50%) of +the then outstanding Class A Common Stock of the Company; +(C) At any time after such time as the holders +of the Class A Common Stock of the Company cease to have the right to elect (voting as a separate class) a majority of the members of the Board of Directors of the Company, any “person” or “group” (within the meaning of +Sections 13(d) and 14(d)(2) of the Exchange Act) shall, as a result of a tender or exchange offer, open market purchases or privately negotiated purchases from anyone other than the Company, have become the beneficial owner (within the meaning of +Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company ordinarily having the right to vote for the election of directors (“Voting Securities”) representing thirty percent (30%) or more of the combined +voting power of the then outstanding Voting Securities; +B-13 +(D) A consolidation, merger or plan of exchange involving the Company +(“Merger”) as a result of which the holders of outstanding Voting Securities immediately prior to the Merger do not continue to hold at least 50% of the combined voting power of the outstanding Voting Securities of the surviving +corporation or a parent corporation of the surviving corporation immediately after the Merger, disregarding any Voting Securities issued to or retained by such holders in respect of securities of any other party to the Merger; or +(E) A sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all or +substantially all of the assets of the Company. +(ii) For purposes of this Plan, “Shareholder +Approval” shall mean approval by the shareholders of the Company of a transaction, the consummation of which would be a Change in Control. +(iii) For purposes of this Plan, “Cause” shall mean (A) the willful and continued failure to perform +substantially the award holder’s reasonably assigned duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness) after a demand for substantial performance is delivered to the award holder +by the Company which specifically identifies the manner in which the Company believes that the award holder has not substantially performed the award holder’s duties, or (B) the willful engagement in illegal conduct which is materially and +demonstrably injurious to the Company. No act, or failure to act, shall be considered “willful” if the award holder reasonably believed that the action or omission was in, or not opposed to, the best interests of the Company. +(iv) For purposes of this Plan, “Good Reason” shall mean (A) the assignment of a different title, job or +responsibilities that results in a decrease in the level of responsibility of the award holder after Shareholder Approval, if applicable, or the Change in Control when compared to the award holder’s level of responsibility for the +Company’s operations prior to Shareholder Approval, if applicable, or the Change in Control; provided that Good Reason shall not exist if the award holder continues to have the same or a greater general level of responsibility for Company +operations after the Change in Control as the award holder had prior to the Change in Control even if the Company operations are a subsidiary or division of the surviving company, (B) a reduction in the award holder’s base pay as in effect +immediately prior to Shareholder Approval, if applicable, or the Change in Control, (C) a material reduction in total benefits available to the award holder under cash incentive, stock incentive and other employee benefit plans after +Shareholder Approval, if applicable, or the Change in Control compared to the total package of such benefits as in effect prior to Shareholder Approval, if applicable, or the Change in Control, or (D) the award holder is required to be based +more than 50 miles from where the award holder’s office is located immediately prior to Shareholder Approval, if applicable, or the Change in Control except for required travel on company business to an extent substantially consistent with the +business travel obligations which the award holder undertook on behalf of the Company prior to Shareholder Approval, if applicable, or the Change in Control. +B-14 +12. Corporate Mergers, Acquisitions, etc . The Committee may also grant options, stock +appreciation rights and Stock Awards under the Plan having terms, conditions and provisions that vary from those specified in this Plan, provided that any such awards are granted in substitution for, or in connection with the assumption of, existing +options, stock appreciation rights or Stock Awards issued by another corporation and assumed or otherwise agreed to be provided for by the Company pursuant to or by reason of a transaction involving a corporate merger, consolidation, plan of +exchange, acquisition of property or stock, separation, reorganization or liquidation to which the Company or a parent or subsidiary corporation of the Company is a party. +13. Clawback Policy . Unless otherwise provided at the time of grant, all awards under the Plan shall be subject to the NIKE, Inc. +Policy for Recoupment of Incentive Compensation as approved by the Committee and in effect at the time of grant, or such other policy for “clawback” of incentive compensation as may be approved from time to time by the Committee. +14. Amendment of Plan . The Board of Directors may at any time, and from time to time, modify or amend the Plan in such +respects as it shall deem advisable because of changes in the law while the Plan is in effect or for any other reason. Except as provided in paragraphs 6(f), 9, 10 and 11, however, no change in an award already granted shall be made without the +written consent of the holder of such award. +15. Approvals . The obligations of the Company under the Plan are subject +to the approval of state and federal authorities or agencies with jurisdiction in the matter. The Company will use its best efforts to take steps required by state or federal law or applicable regulations, including rules and regulations of the +Securities and Exchange Commission and any stock exchange or trading system on which the Company’s shares may then be listed or admitted for trading, in connection with the grants under the Plan. The foregoing notwithstanding, the Company shall +not be obligated to issue or deliver Class B Common Stock under the Plan if such issuance or delivery would violate applicable state or federal securities laws. +16. Employment and Service Rights . Nothing in the Plan or any award pursuant to the Plan shall (i) confer upon any employee +any right to be continued in the employment of the Company or any parent or subsidiary corporation of the Company or interfere in any way with the right of the Company or any parent or subsidiary corporation of the Company by whom such employee is +employed to terminate such employee’s employment at any time, for any reason, with or without cause, or to increase or decrease such employee’s compensation or benefits, or (ii) confer upon any person engaged by the Company any right +to be retained or employed by the Company or to the continuation, extension, renewal, or modification of any compensation, contract, or arrangement with or by the Company. +17. Rights as a Shareholder . The recipient of any award under the Plan shall have no rights as a shareholder with respect to any +Shares until the date of issue to the recipient of a stock certificate for such Shares. Except as otherwise expressly provided in the Plan, no adjustment shall be made for dividends or other rights for which the record date is prior to the date such +stock certificate is issued. +B-15 +ANNUAL +MEETING +AND +PROXY STATEMENT +September 20, 2010 +Beaverton, Oregon +VOTE BY INTERNET - www.proxyvote.com +Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. EDT September 19, 2010. Have your +proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. +ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS +If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy +cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials +electronically in future years. +VOTE BY PHONE - +1-800-690-6903 +Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. EDT September 19, 2010. Have your +proxy card in hand when you call and then follow the instructions. +VOTE +BY MAIL +Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, +c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. +TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: +M26337-Z53710 KEEP THIS PORTION FOR YOUR RECORDS +DETACH AND RETURN THIS PORTION +ONLY +THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. +NIKE, INC. +Vote On Directors +For +All +Withhold +All +For All +Except +To withhold authority to vote for any individual +nominee(s), mark “For All Except” and write the +number(s) of the nominee(s) on the line below. +1. +To elect a Board of Directors for the ensuing year. +¨ +¨ +¨ +Election by Class A: +Nominees: +01) John G. Connors +06) Mark G. Parker +02) Timothy D. Cook +07) Johnathan A. Rodgers +03) Ralph D. DeNunzio +08) Orin C. Smith +04) Douglas G. Houser +09) John R. Thompson, Jr. +05) Philip H. Knight +Vote On Proposals +For +Against +Abstain +2. +To re-approve and amend the NIKE, Inc. Executive +Performance Sharing Plan. +¨ +¨ +¨ +3. +To re-approve and amend the NIKE, Inc. 1990 Stock +Incentive Plan. +¨ +¨ +¨ +4. +To ratify the appointment of PricewaterhouseCoopers +LLP as independent registered public accounting firm. +¨ +¨ +¨ +5. +To transact such other business as may properly come +before the meeting. +Please indicate if you plan to attend this meeting +¨ +¨ +Yes +No +Signature [PLEASE SIGN WITHIN BOX] +Date +Signature (Joint Owners) +Date +Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: +The Notice and Proxy Statement, Form 10-K and Letter to Shareholders are available at www.proxyvote.com/nike10. +M26338-Z53710 +NIKE, INC. +CLASS A COMMON STOCK PROXY +SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +FOR THE 2010 MEETING OF SHAREHOLDERS +SEPTEMBER 20, 2010 +The undersigned hereby appoints Philip H. Knight, Mark G. Parker and Douglas G. Houser, and each of them, proxies with full power of +substitution, to vote, as designated on the reverse side, on behalf of the undersigned, all shares of Class A Common Stock which the undersigned may be entitled to vote at the Annual Meeting of Shareholders of NIKE, Inc. on September 20, +2010, and any adjournments thereof, with all powers that the undersigned would possess if personally present. A majority of the proxies or substitutes present at the meeting may exercise all powers granted hereby. +THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS +SPECIFIED, BUT IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR, AND FOR PROPOSALS 2, 3, AND 4. THE PROXIES MAY VOTE IN THEIR DISCRETION AS TO OTHER MATTERS WHICH MAY COME BEFORE THE +MEETING. +YOU ARE ENCOURAGED TO SPECIFY YOUR +CHOICES BY MARKING THE APPROPRIATE BOXES, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS’ RECOMMENDATIONS. THE PROXIES CANNOT VOTE THESE SHARES UNLESS YOU SIGN AND RETURN THIS CARD OR PROPERLY VOTE +BY PHONE OR INTERNET. +VOTE BY INTERNET - www.proxyvote.com +Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. EDT September 19, 2010. Have your +proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. +ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS +If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy +cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials +electronically in future years. +VOTE BY PHONE - +1-800-690-6903 +Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. EDT September 19, 2010. Have your +proxy card in hand when you call and then follow the instructions. +VOTE +BY MAIL +Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, +c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. +TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: +M26339-P00096 KEEP THIS PORTION FOR YOUR RECORDS +DETACH AND RETURN THIS PORTION +ONLY +THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. +NIKE, INC. +Vote On Directors +For +All +Withhold +All +For All +Except +To withhold authority to vote for any individual +nominee(s), mark “For All Except” and write the +number(s) of the nominee(s) on the line below. +1. +To elect a Board of Directors for the ensuing year. +¨ +¨ +¨ +Election by Class B: +Nominees: +01) Jill K. Conway +02) Alan B. Graf, Jr. +03) John C. Lechleiter +04) Phyllis M. Wise +Vote On Proposals +For +Against +Abstain +2. +To re-approve and amend the NIKE, Inc. Executive +Performance Sharing Plan. +¨ +¨ +¨ +3. +To re-approve and amend the NIKE, Inc. 1990 Stock +Incentive Plan. +¨ +¨ +¨ +4. +To ratify the appointment of PricewaterhouseCoopers +LLP as independent registered public accounting firm. +¨ +¨ +¨ +5. +To transact such other business as may properly come +before the meeting. +Please indicate if you plan to attend this meeting +¨ +¨ +Yes +No +Signature [PLEASE SIGN WITHIN BOX] +Date +Signature (Joint Owners) +Date +Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: +The Notice and Proxy Statement, Form 10-K and Letter to Shareholders are available at www.proxyvote.com/nike10. +M26340-P00096 +NIKE, INC. +CLASS B COMMON STOCK PROXY +SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +FOR THE 2010 MEETING OF SHAREHOLDERS +SEPTEMBER 20, 2010 +The undersigned hereby appoints Philip H. Knight, Mark G. Parker and Douglas G. Houser, and each of them, proxies with full power of +substitution, to vote, as designated on the reverse side, on behalf of the undersigned, all shares of Class B Common Stock which the undersigned may be entitled to vote at the Annual Meeting of Shareholders of NIKE, Inc. on September 20, 2010, +and any adjournments thereof, with all powers that the undersigned would possess if personally present. A majority of the proxies or substitutes present at the meeting may exercise all powers granted hereby. +THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS +SPECIFIED, BUT IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR, AND FOR PROPOSALS 2, 3, AND 4. THE PROXIES MAY VOTE IN THEIR DISCRETION AS TO OTHER MATTERS WHICH MAY COME BEFORE THE +MEETING. +YOU ARE ENCOURAGED TO SPECIFY YOUR +CHOICES BY MARKING THE APPROPRIATE BOXES, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS’ RECOMMENDATIONS. THE PROXIES CANNOT VOTE THESE SHARES UNLESS YOU SIGN AND RETURN THIS CARD OR PROPERLY VOTE +BY PHONE OR INTERNET. \ No newline at end of file diff --git a/raw/proxies/0000320187/0001193125-10-173707/proxy_rpt.txt b/raw/proxies/0000320187/0001193125-10-173707/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..f8b602387052ecc694d78c5c009b9fef9950f0b2 --- /dev/null +++ b/raw/proxies/0000320187/0001193125-10-173707/proxy_rpt.txt @@ -0,0 +1,19 @@ +Transactions with Related Persons +Mr. Knight makes his airplane available for business use by the Company for no charge. NIKE operates and maintains the aircraft. +Mr. Knight has reimbursed the Company $720,633 for NIKE’s operating costs related to his personal use of this aircraft during fiscal 2010, determined based on the cost of fuel and other variable costs associated with the flights under FAR +91-501(d). +Pursuant to the terms of a past consulting agreement with the Company, the Company agreed to pay for health +insurance and for life insurance policies for Howard Slusher, the father of John Slusher, Vice President of Sports Marketing, following expiration of the agreement. During fiscal 2010 the Company paid Howard Slusher $129,568 for health and life +insurance premiums. +Three of Mr. Parker’s siblings are employed by the Company in non-executive roles. Bob Parker +is a Strategic Sales Director, and has been employed by the Company for over 26 years; Stephen Parker is the General Manager, China-Converse, and has been employed by the Company for over 22 years; and Ann +19 +Parker is a Talent Development and Community Relations Director at Hurley LLC, and has been employed by the Company for over 20 years. During fiscal year 2010, the Company paid aggregate +compensation to Bob Parker, Stephen Parker and Ann Parker in the amounts of $378,898, $487,789, $253,874, respectively. The compensation was consistent with compensation paid to other employees holding similar positions, and was composed of salary, +performance bonus, the grant date fair value of stock options granted during the fiscal year estimated using the Black-Scholes pricing model, and profit sharing and matching contributions to Company-sponsored retirement plans. +Mr. Thompson’s son, John Thompson III, is the head basketball coach at Georgetown University, and the Company has a contract +with him to provide endorsement and consulting services to the Company through August 2014, with base compensation over the 5-year term of the contract of $500,000, and up to $80,000 per year of product and other performance incentives. +Compensation Committee Interlocks and Insider Participation +The members of the Compensation Committee of the Board of Directors during the fiscal year ended May 31, 2010 were Ralph D. +DeNunzio, Timothy D. Cook, John C. Lechleiter, and Johnathan A. Rodgers. The Committee is composed solely of independent, non-employee directors. +20 \ No newline at end of file diff --git a/raw/proxies/0000320187/0001193125-11-197477/proxy.txt b/raw/proxies/0000320187/0001193125-11-197477/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..a14ad61c4717d0a5aa5b697ab9d4d0aadb72db12 --- /dev/null +++ b/raw/proxies/0000320187/0001193125-11-197477/proxy.txt @@ -0,0 +1,2419 @@ +DEF 14A +1 +ddef14a.htm +DEFINITIVE PROXY STATEMENT +Definitive Proxy Statement +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 +Filed by the Registrant x +Filed by a Party other than the Registrant ¨ +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only +(as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material Pursuant to § 240.14a-11(c) or § 240.14a-12 +NIKE, Inc. +(Name of +Registrant as Specified in Its Charter) +(Name of +Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate +box): +x +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(I)(4) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and +state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. +Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +NIKE, Inc. +One Bowerman Drive +Beaverton, Oregon 97005-6453 +July 26, 2011 +To Our +Shareholders: +You are cordially invited to attend the annual meeting of shareholders of NIKE, Inc. to be held at the Tiger +Woods Conference Center, One Bowerman Drive, Beaverton, Oregon 97005-6453, on Monday, September 19, 2011, at 10:00 A.M. Pacific Time. Registration will begin at 9:00 A.M. +The meeting will consist of a brief presentation followed by the business items listed on the attached notice. +Whether or not you plan to attend, the prompt execution and return of your proxy card will both assure that your shares are represented at the meeting and minimize the cost of proxy solicitation. +Sincerely, +Philip H. Knight +Chairman of the Board +Notice of Annual Meeting of Shareholders +September 19, 2011 +To the Shareholders of NIKE, Inc. +The annual meeting of shareholders of NIKE, Inc., an Oregon corporation, will be held on Monday, September 19, 2011, at 10:00 A.M., at the Tiger Woods Conference Center, One Bowerman Drive, +Beaverton, Oregon 97005-6453, for the following purposes: +1. +To elect a Board of Directors for the ensuing year. +2. +To hold an advisory vote on executive compensation. +3. +To hold an advisory vote on the frequency of future advisory votes on executive compensation. +4. +To ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm. +5. +To transact such other business as may properly come before the meeting. +All shareholders are invited to attend the meeting. Shareholders of record at the close of business on July 25, 2011, the record date fixed by the Board of Directors, are entitled to notice of and to +vote at the meeting. You must present your proxy or voter instruction card or meeting notice for admission. +By Order of the +Board of Directors +JOHN F. COBURN III +Secretary +Beaverton, Oregon +July 26, 2011 +Whether or not you intend to be present at the meeting, please +sign and date the enclosed proxy and return it in the enclosed envelope, or vote by telephone or over the internet following the instructions on the proxy. +PROXY STATEMENT +The enclosed proxy is solicited by the Board of Directors of NIKE, Inc. (“NIKE” or the “Company”) for use at the +annual meeting of shareholders to be held on September 19, 2011, and at any adjournment thereof (the “Annual Meeting”). The Company expects to provide notice and electronic delivery of this proxy statement and the enclosed proxy to +shareholders on or about July 26, 2011. +The Company will bear the cost of solicitation of proxies. In addition to the +solicitation of proxies by mail, certain officers and employees of the Company, without extra compensation, may also solicit proxies personally or by telephone. Copies of proxy solicitation materials will be furnished to fiduciaries, custodians and +brokerage houses for forwarding to the beneficial owners of shares held in their names. +All valid proxies properly executed +and received by the Company prior to the Annual Meeting will be voted in accordance with the instructions specified in the proxy. Where no instructions are given, shares will be voted “FOR” the election of each of the named nominees +for director (Proposal No. 1), “FOR” the proposal regarding an advisory vote on executive compensation (Proposal No. 2), “EVERY YEAR” for the proposal regarding an advisory vote on the frequency of future advisory votes +on executive compensation (Proposal No. 3), and “FOR” the ratification of the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm (Proposal No. 4). +A shareholder giving the enclosed proxy has the power to revoke it at any time before it is exercised by affirmatively electing to vote +in person at the meeting or by delivering to John F. Coburn III, Secretary of NIKE, either an instrument of revocation or an executed proxy bearing a later date. +VOTING SECURITIES +Holders of record of NIKE’s Class A Common +Stock (“Class A Stock”) and holders of record of NIKE’s Class B Common Stock (“Class B Stock”), at the close of business on July 25, 2011, will be entitled to vote at the Annual Meeting. On that date, 89,989,448 shares +of Class A Stock and 376,982,556 shares of Class B Stock were issued and outstanding. Neither class of Common Stock has cumulative voting rights. +Each share of Class A Stock and each share of Class B Stock is entitled to one vote on every matter submitted to the shareholders at the Annual Meeting. With regard to Proposal No. 1, the +election of directors, the holders of Class A Stock and the holders of Class B Stock will vote separately. Holders of Class B Stock are currently entitled to elect 25 percent of the total Board, rounded up to the next whole number. Holders +of Class A Stock are currently entitled to elect the remaining directors. Under this formula, holders of Class B Stock, voting separately, will elect three directors, and holders of Class A Stock, voting separately, will elect nine +directors. Holders of Class A Stock and holders of Class B Stock will vote together as one class on Proposal Nos. 2, 3, and 4. +CORPORATE GOVERNANCE +Board of Directors +The Board of Directors is currently composed of 11 independent directors, one outside director who is not independent, Philip H. Knight, +the Chairman of the Board, and Mark G. Parker, President and Chief Executive Officer. There were five meetings of the Board of Directors during the last fiscal year. Each director attended at least 75 percent of the total number of meetings of +the Board of Directors and committees on which he or she served, except for Phyllis M. Wise, who attended 70 percent, due to scheduling conflicts with certain Board of Regents meetings of the University of Washington, where Dr. Wise is +Executive Vice President and Provost. The Company encourages all directors to attend each annual meeting of shareholders, and all who were directors at the time attended the 2010 Annual Meeting. +Board Committees +The +Board currently has an Executive Committee, an Audit Committee, a Nominating and Corporate Governance Committee, a Finance Committee, a Corporate Responsibility Committee, and a Compensation Committee, and may also appoint other committees from time +to time. Each committee has a written charter; all such charters, as well as the Company’s corporate governance guidelines, are available at the Company’s internet website ( www.nikebiz.com/investors ) and will be provided in print to +any shareholder who submits a request in writing to NIKE Investor Relations, One Bowerman Drive, Beaverton, Oregon 97005-6453. +The Executive Committee is authorized to act on behalf of the Board on all corporate actions for which applicable law does not require +participation by the full Board. In practice, the Executive Committee acts in place of the full Board only when emergency issues or scheduling make it difficult or impracticable to assemble the full Board. All actions taken by the Executive +Committee must be reported at the next Board meeting. The Executive Committee held no formal meetings during the fiscal year ended May 31, 2011, but took actions from time to time pursuant to written consent resolutions. +The Audit Committee is responsible for the engagement or discharge of the independent +registered public accountants, reviews and approves services provided by the independent registered public accountants, and reviews with the independent registered public accountants the scope and results of their annual examination of the +Company’s consolidated financial statements and any recommendations they may have. The Audit Committee also reviews the Company’s procedures with respect to maintaining books and records, the adequacy and implementation of internal +auditing, accounting, disclosure, and financial controls, and the Company’s policies concerning financial reporting and business practices. The Board has determined that each member of the Audit Committee meets all applicable independence and +financial literacy requirements under the New York Stock Exchange (the “NYSE”) listing standards and applicable regulations adopted by the Securities and Exchange Commission (the “SEC”). The Board has also determined that +Mr. Graf is an “audit committee financial expert” as defined in regulations adopted by the SEC. +The Nominating +and Corporate Governance Committee identifies individuals qualified to become Board members, recommends director nominees for election at each annual shareholder meeting, and develops and recommends corporate governance guidelines and standards for +business conduct and ethics. The Committee also oversees the annual self-evaluations of the Board and its committees and makes recommendations to the Board concerning the structure and membership of the other Board committees. The Company’s +written policy requires the Nominating and Corporate Governance Committee to review any transaction or proposed transaction with a related person that would be required to be reported under Item 404(a) of Regulation S-K, and to determine +whether to ratify or approve the transaction, with ratification or approval to occur only if the Committee determines that the transaction is fair to the Company or that approval or ratification of the transaction is in the interest of the Company. +The Board has determined that each member of the Nominating and Corporate Governance Committee meets all applicable independence requirements under the NYSE listing standards. +The Finance Committee considers long-term financing options and needs of the Company, long-range tax and currency issues facing the Company, and management recommendations concerning major capital +expenditures and material acquisitions or divestments. +The Corporate Responsibility Committee reviews significant activities +and policies regarding labor and environmental practices, community affairs, charitable and foundation activities, diversity and equal opportunity, and environmental and sustainability initiatives, and makes recommendations to the Board of +Directors. +The Compensation Committee oversees the performance evaluation of the Chief Executive Officer and our other Named +Executive Officers, and recommends their compensation for approval by the independent members of the Board of Directors. The Compensation Committee also grants equity incentive awards under the NIKE, Inc. 1990 Stock Incentive Plan, and determines +targets and awards under the NIKE, Inc. Executive Performance Sharing Plan and the NIKE, Inc. Long-Term Incentive Plan. The Committee also makes recommendations to the Board regarding other management incentive compensation arrangements and profit +sharing plan contributions. The Board has determined that each member of the Compensation Committee meets all applicable independence requirements under the NYSE listing standards. +The table below provides information regarding membership of each Board committee as of May 31, 2011 and meetings held during fiscal +2011: +Director Name +Audit +Compensation +Nominating and +Corporate +Governance +Corporate +Responsibility +Finance +Executive +Elizabeth J. Comstock +John G. Connors +ü +ü +Jill K. Conway +ü +Chair +Timothy D. Cook +ü +ü +Ralph D. DeNunzio +Chair +Chair +ü +Alan B. Graf, Jr. +Chair +Douglas G. Houser +ü +ü +ü +Philip H. Knight +Chair +John C. Lechleiter +ü +ü +Mark G. Parker +ü +Johnathan A. Rodgers +ü +ü +Orin C. Smith +ü +Chair +John R. Thompson, Jr. +ü +Phyllis M. Wise +ü +Meetings in Fiscal 2011 +13 +5 +4 +5 +6 +0 +2 +Director Independence +Pursuant to NYSE rules, in order for a director to qualify as “independent,” the Board of Directors must affirmatively determine that the director has no material relationship with the Company +that would impair the director’s independence. The Board affirmatively determined that commercial or charitable relationships below the following thresholds will not be considered material relationships that impair a director’s +independence: (i) if a NIKE director or immediate family member is an executive officer of another company that does business with NIKE and the annual sales to, or purchases from, NIKE are less than one percent of the annual revenues of the +other company; and (ii) if a NIKE director or immediate family member serves as an officer, director or trustee of a charitable organization, and NIKE’s contributions to the organization are less than one percent of that +organization’s total annual charitable receipts. After applying this categorical standard, the Board of Directors has determined that all directors have no material relationship with the Company and, therefore, are independent, except for +Messrs. Knight, Parker, and Thompson. Mr. Knight and Mr. Parker are executive officers of the Company. Mr. Thompson is not independent pursuant to NYSE rules, because the Company has a contract with his son, who is the head basketball +coach at Georgetown University, to provide endorsement and consulting services to the Company, under which the Company paid to him $155,000 for services, product, and travel in fiscal 2011. +Director Nominations +The Nominating and Corporate Governance Committee +identifies potential director candidates through a variety of means, including recommendations from members of the Committee or the Board, suggestions from Company management, and shareholder recommendations. The Committee also may, in its +discretion, engage director search firms to identify candidates. Elizabeth J. Comstock, appointed as a director on April 21, 2011, was identified by a director search firm, which also provided information about her qualifications and +experience. Shareholders may recommend director candidates for consideration by the Nominating and Corporate Governance Committee by submitting a written recommendation to the Committee, c/o John F. Coburn III, Secretary, NIKE, Inc., One Bowerman +Drive, Beaverton, Oregon 97005-6453. The recommendation should include the candidate’s name, age, qualifications (including principal occupation and employment history), and written consent to be named as a nominee in the Company’s proxy +statement and to serve as a director, if elected. +The Board of Directors has adopted qualification standards for the +selection of independent nominees for director which can be found at our internet website: www.nikebiz.com/investors . As provided in these standards and the Company’s Corporate Governance Guidelines, nominees for director are selected on +the basis of, among other things, distinguished business experience or other non-business achievements; education; significant knowledge of international business, finance, marketing, technology, law, or other fields which are complementary to, and +balance the knowledge of, other Board members; a desire to represent the interests of all shareholders; independence; character; ethics; good judgment; diversity; and ability to devote substantial time to discharge Board responsibilities. +The Nominating and Corporate Governance Committee identifies qualified potential candidates without regard to their age, +gender, race, national origin, sexual orientation, or religion. While the Board has no policy regarding Board member diversity, the Nominating and Corporate Governance Committee considers and discusses diversity in selecting nominees for director +and in the re-nomination of an incumbent director. The Committee views diversity broadly, including gender, ethnicity, differences of viewpoint, geographic location, skills, education, and professional and industry experience, among others. The +Board believes that a variety and balance of perspectives on the Board can result in more thoughtful deliberations. +In +considering the re-nomination of an incumbent director, the Nominating and Corporate Governance Committee reviews the director’s overall service to the Company during his or her term, including the number of meetings attended, level of +participation and quality of performance, as well as any special skills or diversity that such director brings to the Board. All potential new director candidates, whether recommended by shareholders or identified by other means, are initially +screened by the Chair of the Nominating and Corporate Governance Committee, who may seek additional information about the background and qualifications of the candidate, and who may determine that a candidate does not have qualifications that merit +further consideration by the full Committee. With respect to new director candidates who pass the initial screening, the Nominating and Corporate Governance Committee meets to discuss and consider each candidate’s qualifications and potential +contributions to the Board, and determines by majority vote whether to recommend such candidates to the Board of Directors. The final decision to either appoint a candidate to fill a vacancy between Annual Meetings or include a candidate on the +slate of nominees proposed at an Annual Meeting is made by the Board of Directors. +Directors first elected after the 1993 +fiscal year must retire at age 72. +Shareholder Communications with Directors +Shareholders or interested parties desiring to communicate directly with the Board of Directors, with the non-management directors, or +with any individual director, may do so in writing addressed to the intended recipient or recipients, c/o John F. Coburn III, Secretary, NIKE, Inc., One Bowerman Drive, Beaverton, Oregon 97005-6453. All such communications will be reviewed, compiled +as necessary, and then forwarded to the designated recipient or recipients in a timely manner. +3 +Board Leadership Structure +NIKE’s governance documents provide the Board with flexibility to select the appropriate leadership structure of the Company. In determining the leadership structure, the Board considers many +factors, including the specific needs of the business, fulfilling the duties of the Board, and the best interests of the Company’s shareholders. In 2004, the Board of Directors chose to separate the position of Chairman of the Board from the +position of President and Chief Executive Officer (“CEO”), although this is not a permanent policy of the Board. The Chairman, Mr. Knight, presides over meetings of the Board of Directors and shareholders. The CEO, Mr. Parker, is +in charge of the general supervision, direction, and control of the business and affairs of the Company, subject to the overall direction and supervision of the Board of Directors and its committees. +The Board believes this leadership structure is appropriate for the Company because it separates the leadership of the Board from the +duties of day-to-day leadership of the Company. In particular, it permits Mr. Parker to focus his full time and attention to the business, the supervision of which has become increasingly important as the Company has grown. In addition, the +structure permits Mr. Knight to direct his attention to the broad strategic issues considered by the Board of Directors. Further, with his significant Company experience and ownership of Common Stock, Mr. Knight is particularly well-suited +as Chairman, helping to align the Board with the interests of shareholders. +The chairs of Board committees play an active +role in the leadership structure of the Board. The Nominating and Corporate Governance Committee and the Board endeavor to select independent committee chairs who will provide strong leadership to guide the important work of the Board committees. +Committee chairs work with senior executives to ensure that committees are discussing the key strategic risks and opportunities for the Company. +The Nominating and Corporate Governance Committee has determined that given the separation of the positions of Chairman and CEO, and the strong leadership of experienced chairs of each of the Board +committees, a lead director would not improve the effectiveness of the Board at this time. A presiding director is appointed to chair executive sessions of non-management directors (consisting of all directors other than Mr. Knight and +Mr. Parker). The position of presiding director is rotated among the Chairs of the various Board committees, other than the Executive Committee. The current presiding director at the executive sessions is Dr. Conway. Executive sessions are +regularly scheduled and held at least once each year. For all of these reasons, the Board believes this leadership structure is optimal and has worked well for many years. +The Board’s Role in Risk Oversight +While the Company’s +management is responsible for day-to-day management of the various risks facing the Company, the Board of Directors takes an active role in the oversight of the management of critical business risks. The Board does not view risk in isolation. Risks +are considered in virtually every business decision and as part of NIKE’s business strategy. The Board recognizes that it is neither possible nor prudent to eliminate all risk. Purposeful and appropriate risk-taking is essential for the Company +to be competitive on a global basis and to achieve its strategic objectives. +The Board implements its risk oversight function +both as a whole and through committees, which play a significant role in carrying out risk oversight. While the Audit Committee is responsible for oversight of management’s risk management policies, oversight responsibility for particular areas +of risk is allocated among the Board committees according to the committee’s area of responsibility as reflected in the committee charters. In particular: +• +The Audit Committee oversees risks related to the Company’s financial statements, the financial reporting process, accounting, and legal matters. +The Committee oversees the internal audit function, reviews a risk-based plan of internal audits, and a risk-based integrated audit of internal controls over financial reporting. The Committee meets separately with each of the Vice President of +Corporate Audit, representatives of the independent external auditor, and senior management. +• +The Compensation Committee oversees risks and rewards associated with the Company’s compensation philosophy and programs, management succession +plans, and management development. +• +The Finance Committee oversees financial matters and risks relating to budgeting, investments, access to capital, capital deployment, acquisitions and +divestitures, currency risk and hedging programs, and significant capital projects. +• +The Corporate Responsibility Committee oversees issues that involve reputational risk to the Company, including community engagement, manufacturing +health and safety, environmental sustainability, and diversity. +• +The Nominating and Corporate Governance Committee oversees risks associated with company governance, including NIKE’s code of business conduct and +ethics, compliance programs, and the structure and performance of the Board and its committees. +4 +Each committee chair works with the senior executive assigned to assist the committee to +develop agendas for the year and for each meeting, paying particular attention to areas of business risk identified by management, Board members, internal and external auditors, and in their committee charter, and schedule agenda topics, +presentations, and discussions periodically regarding business risks within their area of responsibility. At meetings, the committees discuss areas of business risk, the potential impact, and management’s initiatives to manage it, often within +the context of important business decisions. Through this process key business risk areas are reviewed at appropriate times, with some topics reviewed on several occasions throughout the year. At every Board meeting the chair of each committee +reports to the full Board its discussions and actions, including those affecting the oversight of various risks. +The Company +believes that its leadership structure, discussed in detail above, supports the risk oversight function of the Board. Strong directors chair the various committees involved in risk oversight, there is open communication between management and +directors, and all directors are involved in the risk oversight function. +Code of Business Conduct and Ethics +The NIKE Code of Ethics (“Code”) is available at the Company’s internet website ( www.nikebiz.com ) and will be +provided in print without charge to any shareholder who submits a request in writing to NIKE Investor Relations, One Bowerman Drive, Beaverton, Oregon 97005-6453. The Code applies to the Company’s chief executive officer and senior financial +officers, and to all other Company directors, officers and employees. The Code provides that any waiver of the Code may be made only by the Board. Any such waiver in favor of a director or executive officer will be publicly disclosed. The Company +plans to disclose amendments to, and waivers from, the Code on the Company’s internet website: www.nikebiz.com/investors. +PROPOSAL 1 +ELECTION OF DIRECTORS +A Board of 12 directors will be elected at the Annual Meeting. All of the nominees were elected at the 2010 annual meeting of +shareholders, except for Elizabeth J. Comstock, who was appointed to the Board of Directors on April 21, 2011. Directors will hold office until the next annual meeting of shareholders or until their successors are elected and qualified. Two +directors, Jill K. Conway and Ralph D. DeNunzio, who have served on the Board of Directors since 1987 and 1988, respectively, have chosen to retire from the Board at the Annual Meeting, and accordingly will not stand for election at the Annual +Meeting. The Company appreciates greatly their distinguished service and valuable contributions to NIKE. +Alan B. Graf, Jr., +John C. Lechleiter, and Phyllis M. Wise are nominated by the Board of Directors for election by the holders of Class B Stock. The other nine nominees are nominated by the Board of Directors for election by the holders of Class A Stock. +Under Oregon law, if a quorum of each class of shareholders is present at the Annual Meeting, the nine director nominees who +receive the greatest number of votes cast by holders of Class A Stock and the three director nominees who receive the greatest number of votes cast by holders of Class B Stock will be elected directors. Abstentions and broker non-votes will +have no effect on the results of the vote. Unless otherwise instructed, proxy holders will vote the proxies they receive for the nominees listed below. If any nominee becomes unable to serve, the holders of the proxies may, in their discretion, vote +the shares for a substitute nominee or nominees designated by the Board of Directors. +The Corporate Governance Guidelines +adopted by the Board of Directors provide that any nominee for director in an uncontested election who receives a greater number of votes “withheld” from his or her election than votes “for” such election shall tender his or her +resignation for consideration by the Nominating and Corporate Governance Committee. The Committee shall recommend to the Board the action to be taken with respect to the resignation. The Board will publicly disclose its decision within 90 days +of the certification of the election results. +Background information on the nominees as of July 15, 2011, including some +of the attributes that led to their selection, appears below. The Nominating and Corporate Governance Committee has determined that each director meets the qualification standards described in the section entitled “Director Nominations” +above. In addition, the Board firmly believes that the experience, attributes, and skills of any single director should not be viewed in isolation, but rather in the context of the experience, attributes, and skills that all director nominees bring +to the Board as a whole, each of which contributes to the function of an effective Board. +Nominees for Election by Class A +Shareholders +Elizabeth J. Comstock — Ms. Comstock, 50, appointed a director on April 21, 2011, is +Senior Vice President and Chief Marketing Officer of General Electric Company (“GE”). At GE, she was appointed Vice President, Communications, NBC News Communications in 1994, Senior Vice President, NBC Corporate Communications in +1996, Vice President of Corporate Communications in 1998, Corporate Vice President and Chief Marketing Officer in 2003, President, NBC Universal Integrated Media in 2006, and Senior Vice President and Chief Marketing Officer in 2008. Prior to +joining GE in 1994, Ms. Comstock held a succession of publicity and promotions positions at GE, NBC, CBS, and Turner Broadcasting. She began her career in local television production in Virginia. Ms. Comstock is a trustee of the +Smithsonian’s Cooper-Hewitt National Design Museum. Ms. Comstock was selected to serve on the Board because her broad experience in, and understanding of, media and marketing aligns well with the Company’s business model, which involves a +great deal of each. +5 +John G. Connors — Mr. Connors, 52, a director since 2005, is a +partner in Ignition Partners LLC, a Seattle-area venture capital firm. Mr. Connors served as Senior Vice President and Chief Financial Officer of Microsoft Corporation from December 1999 to May 2005. He joined Microsoft in 1989 and +held various management positions, including Corporate Controller from 1994 to 1996, Vice President, Worldwide Enterprise Group in 1999, and Chief Information Officer from 1996 to 1999. Mr. Connors is a certified public accountant. +Mr. Connors is a member of the Board of Trustees — Swedish Medical Center, and is currently a member of the Board of Directors of Scout Analytics Inc., FiREapps, Inc., DataSphere Technologies, Inc., Splunk, Inc., Tier 3, Inc., +Korrio, Inc., the Washington Policy Center, and the University of Washington Tyee Club. Mr. Connors was selected to serve on the Board because his experience and skills in accounting, financial leadership, venture capital, technology, and +international operations enable him to make valuable contributions to NIKE’s Audit Committee and Finance Committee. +Timothy D. Cook — Mr. Cook, 50, a director since 2005, is the Chief Operating Officer of Apple, Inc. +Mr. Cook joined Apple in March 1998 as Senior Vice President of Worldwide Operations and also served as Executive Vice President, Worldwide Sales and Operations. Mr. Cook was Vice President, Corporate Materials for Compaq +Computer Corporation from 1997 to 1998. Previous to his work at Compaq, Mr. Cook served in the positions of Senior Vice President Fulfillment and Chief Operating Officer of the Reseller Division at Intelligent Electronics from 1994 to 1997. +Mr. Cook also worked for International Business Machines Corporation from 1983 to 1994, most recently as Director of North American Fulfillment. Mr. Cook is currently a member of the Board of Directors of the National Football Foundation. +Mr. Cook was selected to serve on the Board because his operational executive experience and his knowledge of technology, marketing, and international business allow him to provide the Board with valuable perspectives and insights. +Douglas G. Houser — Mr. Houser, 76, a director since 1970, has been a partner in the Portland, Oregon law firm +of Bullivant, Houser, Bailey since 1965 and is presently Senior Counsel. Mr. Houser is a trustee of Willamette University and a Fellow in the American College of Trial Lawyers, and has served as a member of the Board of Governors and Treasurer +of the Oregon State Bar Association and as a Director of the Rand Corporation, Institute for Civil Justice Board of Overseers, and the National Judicial College Foundation Board. Mr. Houser was selected to serve on the Board because his +knowledge of NIKE and its Board, together with his experience as a principal of a significant law firm, allow him to provide beneficial contributions regarding legal issues, corporate responsibility, and board governance. +Philip H. Knight — Mr. Knight, 73, a director since 1968, is Chairman of the Board of Directors of NIKE. +Mr. Knight is a co-founder of the Company and, except for the period from June 1983 through September 1984, served as its President from 1968 to 1990, and from June 2000 to 2004. Prior to 1968, Mr. Knight was a certified +public accountant with Price Waterhouse and Coopers & Lybrand and was an Assistant Professor of Business Administration at Portland State University. Mr. Knight led NIKE from a small partnership founded on a handshake to the +world’s largest footwear, apparel, and equipment company. He has extensive knowledge of and experience in Company operations, sports marketing, manufacturing, management, accounting, and financial matters, which make him uniquely qualified to +serve as Chairman of the Board. +Mark G. Parker — Mr. Parker, 55, has been President and Chief +Executive Officer and a director since 2006. He has been employed by NIKE since 1979 with primary responsibilities in product research, design and development, marketing, and brand management. Mr. Parker was appointed divisional Vice President +in charge of development in 1987, corporate Vice President in 1989, General Manager in 1993, Vice President of Global Footwear in 1998, and President of the NIKE Brand in 2001. He has extensive knowledge and experience regarding Company operations, +sports marketing, manufacturing, research, design, development, and management, and is an effective leader of NIKE. His position as CEO makes his participation on the Board critical. +Johnathan A. Rodgers — Mr. Rodgers, 65, a director since 2006, is the President and Chief Executive Officer of +TV One, LLC. Prior to joining TV One, LLC in March 2003, Mr. Rodgers was President, Discovery Networks US for Discovery Communications, Inc. from 1996 to 2003. Prior to his work at Discovery Communications, Mr. Rodgers had a 20-year +career at CBS, Inc. where he held a variety of executive positions, including President, CBS Television Stations. Mr. Rodgers is also a director of Procter & Gamble Company, a Trustee of the University of +California — Berkeley. Mr. Rodgers was selected to serve on the Board because his experience and knowledge in media, broadcasting, and telecommunications, his skills in executive leadership, and knowledge of multicultural media +allow him to provide valuable insights to the Board regarding corporate responsibility, diversity, compensation, and marketing. +Orin C. Smith — Mr. Smith, 69, a director since 2004, was President and Chief Executive Officer of Starbucks +Corporation from 2000 to 2005. He joined Starbucks as Vice President and Chief Financial Officer in 1990, became President and Chief Operating Officer in 1994, and became a director of Starbucks in 1996. Prior to joining Starbucks, Mr. Smith +spent a total of 14 years with Deloitte & Touche. He was later the Executive Vice President and Chief Financial Officer of two transportation companies. Between these assignments, he was Chief Policy and Finance Officer in the +administrations of two Washington State Governors. Mr. Smith is currently a member of the board of directors of Washington Mutual Inc. and The Walt Disney Company, and serves on the Board of Regents of the University of Washington. +Mr. Smith was selected to serve on the Board because his experience and skills in accounting, financial leadership, marketing, international and retail operations enable him to make valuable contributions to NIKE’s Audit Committee and +Finance Committee. +6 +John R. Thompson, Jr. — Mr. Thompson, 70, a director since 1991, +was head coach of the Georgetown University men’s basketball team from 1972 until 1998. Mr. Thompson was head coach of the 1988 United States Olympic basketball team. He hosts a sports radio talk show in Washington, D.C., and is a +nationally broadcast sports analyst for Turner Network Television (TNT) and the Westwood One, Inc. radio network. He serves as Assistant to the President of Georgetown for Urban Affairs, and he is a past President of the National Association of +Basketball Coaches and presently serves on its Board of Governors. Mr. Thompson was selected to serve on the Board because his extensive experience and knowledge of education, college and professional sports, media, broadcasting, and knowledge +of urban issues allow him to provide valuable insights to the Board regarding sports marketing, corporate responsibility, and diversity. +Nominees for Election by Class B Shareholders +Alan B. Graf, Jr . — Mr. Graf, 57, a director since 2002, is the Executive Vice President and Chief Financial Officer of FedEx Corporation, a position he has held since 1998, and +is a member of FedEx Corporation’s Executive Committee. Mr. Graf joined FedEx Corporation in 1980 and was Senior Vice President and Chief Financial Officer for FedEx Express, FedEx’s predecessor, from 1991 to 1998. He previously +served on the boards of directors of Kimball International Inc., Storage USA, Inc. and Arkwright Mutual Insurance Co., and he is currently a director of Mid-America Apartment Communities, Inc. Mr. Graf was selected to serve on the Board because +his experience and skills in auditing accounting, financial management, and international operations enable him to effectively lead NIKE’s Audit Committee, serving as its Chair and financial expert. +John C. Lechleiter — Dr. Lechleiter, 57, a director since 2009, is Chairman of the Board, President, and Chief +Executive Officer of Eli Lilly and Company (“Lilly”). He has served as president and chief executive officer since April 2008. He has been a member of Lilly’s board of directors since 2005 and was named chairman in +2008. Dr. Lechleiter began work at Lilly as a senior organic chemist in Lilly’s process research and development division in 1979. He is a member of the American Chemical Society, Business Roundtable, and Business +Council. He serves on the boards of Pharmaceutical Research and Manufacturers of America (PhRMA), United Way Worldwide, Xavier University, the Life Sciences Foundation, Central Indiana Corporate Partnership, and the 2012 Indianapolis Super Bowl +Host Committee. Dr. Lechleiter was selected to serve on the Board because his operational executive experience and his knowledge of science, marketing, management, and international business allow him to provide the Board with significant +contributions in those strategic areas. +Phyllis M. Wise — Dr. Wise, 66, a director since 2009, is +Executive Vice President and Provost of the University of Washington, where she is also professor of physiology and biophysics, biology, and obstetrics and gynecology. She joined the University of Maryland School of Medicine as an assistant +professor in 1976, was appointed associate professor in 1982, and professor in 1987. Dr. Wise was appointed a professor and chair of the department of physiology at the University of Kentucky in 1993, and was appointed dean of the division of +biological sciences and distinguished professor of neurobiology at the University of California Davis in 2002. In 2005, she was appointed Vice President and Provost at the University of Washington, and was appointed Executive Vice President and +Provost in 2007. Dr. Wise has a doctorate in zoology from the University of Michigan, has an honorary doctorate from Swarthmore College, and is an elected member of the Institute of Medicine. Dr. Wise was selected to serve on the Board +because her extensive experience in medical science, health, higher education, and societal issues allow her to provide valuable contributions to the Board’s deliberations of strategic importance. +7 +Director Compensation for Fiscal 2011 +Name +Fees Earned or +Paid in +Cash +($) +Option +Awards (1) +($) +Change +in +Pension +Value +and +Nonqualified +Deferred +Compensation +Earnings (2) +($) +All +Other +Compensation (3) +($) +Total +($) +Elizabeth J. Comstock +$ +8,685 +$ +111,360 +— +— +$ +120,045 +John G. Connors +82,500 +100,560 +— +$ +259 +183,319 +Jill K. Conway +71,000 +100,560 +— +20,402 +191,962 +Timothy D. Cook +77,500 +100,560 +— +20,298 +198,358 +Ralph D. DeNunzio +104,000 +117,320 +— +20,298 +241,618 +Alan B. Graf, Jr. +94,000 +100,560 +— +298 +194,858 +Douglas G. Houser +77,000 +117,320 +$ +32,535 +15,745 +242,600 +John C. Lechleiter +79,000 +100,560 +— +298 +179,858 +Johnathan A. Rodgers +79,500 +100,560 +— +429 +180,489 +Orin C. Smith +90,500 +100,560 +— +20,178 +211,238 +John R. Thompson, Jr. +54,000 +100,560 +— +20,930 +175,490 +Phyllis M. Wise +70,000 +100,560 +— +20,214 +190,774 +(1) +Represents the grant date fair value of annual director options granted in fiscal 2011 computed in accordance with accounting guidance applicable to stock-based +compensation. The grant date fair value of the options was estimated using the Black-Scholes option pricing model. On September 20, 2010, each listed director other than Messrs. DeNunzio and Houser and Ms. Comstock was granted an +option for 6,000 shares with an exercise price of $78.37 per share, which was the closing market price of our Class B Common Stock on the grant date. On September 20, 2010, each of Messrs. DeNunzio and Houser was granted an option for +7,000 shares with an exercise price of $78.37 per share. On April 21, 2011, Ms. Comstock was granted an option for 6,000 shares with an exercise price of $80.19 per share. The assumptions made in determining the grant date fair +values of options under applicable accounting guidance are disclosed in Note 11 of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended May 31, 2011. As of May 31, 2011, non-employee +directors held outstanding options for the following numbers of shares of our Class B Common Stock: Ms. Comstock 6,000; Mr. Connors, 44,000; Dr. Conway, 26,000; Mr. Cook, 26,000; Mr. DeNunzio, 66,000; Mr. Graf, 50,000; +Mr. Houser, 32,000; Dr. Lechleiter, 15,000; Mr. Rodgers, 28,000; Mr. Smith, 52,000; Mr. Thompson, 34,000; and Dr. Wise, 11,000. +(2) +Represents above-market earnings credited during fiscal 2011 to the account of Mr. Houser under our prior Executive Deferred Compensation Plan adopted in 1983 (the +“1983 DCP”). While deferrals under the 1983 DCP were discontinued in 1990, earnings have continued to accrue on the 1983 DCP account balances. Under the terms of the 1983 DCP, Mr. Houser received a guaranteed return equal to the +current monthly rate of Moody’s seasoned corporate bonds index, plus 4%, which paid an average interest rate of 9.39% in fiscal 2011. +(3) +Includes medical and life insurance premiums paid by us of $20,227 for each of Dr. Conway and Mr. Thompson. Also includes matching charitable contributions by +us under the NIKE Matching Gift Program, under which directors are eligible to contribute to qualified charitable organizations and we provide a matching contribution to the charities in an equal amount, up to $20,000 in the aggregate for each +director annually. In fiscal 2011, we matched contributions to charities in the following amounts: Mr. Cook, $20,000, Mr. DeNunzio, $20,000, Mr. Houser, $15,584, Mr. Smith, $20,000, and Dr. Wise, $20,000. Also includes +sample and test products we provided to directors during the fiscal year, the value of which we estimate at $259 for Mr. Connors, $175 for Dr. Conway, $298 for Messrs. Cook, DeNunzio and Graf and Dr. Lechleiter, $161 for +Mr. Houser, $429 for Mr. Rodgers, $178 for Mr. Smith, $703 for Mr. Thompson and $214 for Dr. Wise based on our incremental cost. +Director Fees and Arrangements +Under our standard director +compensation program in effect in fiscal 2011, each non-employee director receives an annual retainer fee at the rate of $60,000 per year, a $2,000 meeting fee for each board meeting attended ($1,000 for each telephonic meeting) and a $1,000 meeting +fee for each committee meeting attended ($500 for each telephonic meeting). Ms. Comstock received a retainer of $6,685 for six weeks of service in fiscal 2011. Additionally, on the date of each annual meeting of shareholders, each non-employee +director receives an option to purchase 6,000 shares of our Class B Common Stock. The option has a term of ten years and an exercise price equal to the closing market price of our Class B Common Stock on the grant date. The option +becomes exercisable in full on the date of the next annual meeting of shareholders. Ms. Comstock, Messrs. Connors, Cook, Graf, Lechleiter, Rodgers and Smith, and Dr. Wise participate in our standard director compensation program. +Messrs. DeNunzio and Houser also participate in our standard program, except that, in exchange for electing in fiscal 2000 to participate in the standard program when it was first instituted, they each receive an annual option to purchase +7,000 shares of our Class B Common Stock, instead of 6,000 shares. Consistent with the Board’s policy, Ms. Comstock received an option to purchase 6,000 shares of our Class B Common Stock upon her appointment to the Board. +The option was granted on April 21, 2011 for Ms. Comstock, the date she was appointed to the Board. +8 +Mr. Thompson and Dr. Conway do not participate in our standard director +compensation program. Pursuant to elections made in fiscal 2000, Mr. Thompson and Dr. Conway receive an annual retainer fee at the rate of $42,000 per year (instead of the $60,000 annual retainer fee paid under our standard program), a +$2,000 meeting fee for each board meeting attended ($1,000 for each telephonic meeting) and a $1,000 meeting fee for each committee meeting attended ($500 for each telephonic meeting). Pursuant to these elections, Mr. Thompson and +Dr. Conway also receive medical insurance and $500,000 of life insurance coverage paid for by us. Additionally, on the date of each annual meeting of shareholders, Mr. Thompson and Dr. Conway each receive an annual option to purchase +6,000 shares of our Class B Common Stock on the same terms as apply to the options granted pursuant to our standard program. +Non-employee directors serving as chair to a board committee, except the Executive Committee, also receive an annual fee at the rate of $10,000 for each committee chaired, and the chair of the Audit +Committee receives an annual fee at the rate of $15,000. We also pay for or reimburse our non-employee directors for travel and other expenses incurred in attending board meetings. +Philip H. Knight, as the chairman of our board of directors, is one of our executive officers, but is not a Named Executive Officer. +Mr. Knight does not receive any additional compensation for services provided as a director. +Director +Participation in Deferred Compensation Plan +Under our Deferred Compensation Plan, non-employee directors may elect in +advance to defer up to 100 percent of the director fees paid by us, including retainer fees, committee fees and meeting fees. For a description of the plan, see “Non-Qualified Deferred Compensation in Fiscal 2011” below. In addition, +in fiscal 2000, Dr. Conway and Messrs. DeNunzio, Houser, and Thompson received credits to a fully vested NIKE stock account under the Deferred Compensation Plan in exchange for their waiver of rights to future payments under a former +non-employee director retirement program. The Class B Stock credited to these directors’ accounts will be distributed to them upon their retirement from the Board, and the accounts are credited with quarterly dividends until distributed. +Stock Holdings of Certain Owners and Management +The following table sets forth the number of shares of each class of NIKE securities beneficially owned, as of July 15, 2011, by (i) each person known to the Company to be the beneficial owner +of more than 5 percent of any class of the Company’s securities, (ii) each of the directors and nominees for director, (iii) each executive officer listed in the Summary Compensation Table (“Named Officers”), and +(iv) all nominees, Named Officers, and other executive officers as a group. Because Class A Stock is convertible into Class B Stock on a share-for-share basis, each beneficial owner of Class A Stock is deemed by the SEC to be a +beneficial owner of the same number of shares of Class B Stock. Therefore, in indicating a person’s beneficial ownership of shares of Class B Stock in the table, it has been assumed that such person has converted into Class B Stock all shares +of Class A Stock of which such person is a beneficial owner. For these reasons the table contains substantial duplications in the numbers of shares and percentages of Class A and Class B Stock shown for Mr. Knight and for all +directors and officers as a group. In addition, unless otherwise indicated, all persons named below can be reached at c/o John F. Coburn III, Secretary, NIKE, Inc., One Bowerman Drive, Beaverton, Oregon 97005. +Title of +Class +Shares +Beneficially +Owned (1) +Percent of +Class +(2) +Elizabeth J. Comstock +Class B +— +— +John G. Connors +Class B +44,460 +(3) +— +Jill K. Conway +Class B +41,462 +(3) (4) +— +Timothy D. Cook +Class B +20,000 +(3) +— +Ralph D. DeNunzio +Class B +217,752 +(3) (4) +— +Alan B. Graf, Jr +Class B +62,000 +(3) +— +Douglas G. Houser +Class B +190,232 +(3) (4) +— +Philip H. Knight +Class A +67,097,005 +(5) +74.6 +% +One Bowerman Drive, Beaverton, Oregon 97005 +Class B +67,104,745 +(5) +17.8 +% +John C. Lechleiter +Class B +10,500 +(3) +— +Mark G. Parker (6) +Class B +1,189,464 +(3) (7) +0.3 +% +Johnathan A. Rodgers +Class B +22,000 +(3) +— +Orin C. Smith +Class B +48,700 +(3) +— +John R. Thompson, Jr +Class B +35,601 +(3) (4) +— +Phyllis M. Wise +Class B +5,000 +(3) +— +Donald W. Blair (6) +Class B +507,723 +(3) (7) (8) +0.1 +% +Charles Denson (6) +Class B +1,029,425 +(3) (7) +0.3 +% +9 +Title of +Class +Shares +Beneficially +Owned (1) +Percent of +Class (2) +Trevor A. Edwards (6) +Class B +512,289 +(3) (7) +— +Gary M. DeStefano (6) +Class B +88,808 +(3) (7) +— +Sojitz Corporation of America +Preferred +(9) +300,000 +100 +% +1211 S.W. 5 th Ave, Pacwest Center, Ste. 2220, +Portland, OR 97204 +FMR LLC +Class B +20,951,837 +(10) +5.5 +% +82 Devonshire Street, Boston, MA 02109 +BlackRock, Inc +Class B +18,932,752 +(11) +5.0 +% +40 East 57 th Street, New York, NY +10022 +All directors and executive officers as a group (26 persons) +Class A +67,097,005 +74.6 +% +Class B +72,072,394 +(3) +19.1 +% +(1) +A person is considered to beneficially own any shares: (a) over which the person exercises sole or shared voting or investment power, or (b) of which the +person has the right to acquire beneficial ownership at any time within 60 days (such as through conversion of securities or exercise of stock options). Unless otherwise indicated, voting and investment power relating to the above shares is +exercised solely by the beneficial owner or shared by the owner and the owner’s spouse or children. +(2) +Omitted if less than 0.1 percent. +(3) +These amounts include the right to acquire, pursuant to the exercise of stock options, within 60 days after July 15, 2011, the following numbers of shares: 38,000 +shares for Mr. Connors, 12,000 shares for Dr. Conway, 20,000 shares for Mr. Cook, 57,000 shares for Mr. DeNunzio, 44,000 shares for Mr. Graf, 25,000 shares for Mr. Houser, 9,000 shares for Mr. Lechleiter, 922,500 +shares for Mr. Parker, 22,000 shares for Mr. Rodgers, 46,000 shares for Mr. Smith, 20,000 shares for Mr. Thompson, 5,000 shares for Dr. Wise, 433,000 shares for Mr. Blair, 902,500 shares for Mr. Denson, 439,000 +shares for Mr. Edwards, 50,000 shares for Mr. DeStefano, and 4,975,389 shares for the executive officer and director group. +(4) +Includes shares credited to accounts under the NIKE, Inc. Deferred Compensation Plan in the following amounts: 9,678 for Dr. Conway, 8,952 for Mr. DeNunzio, +9,858 for Mr. Houser, and 7,601 for Mr. Thompson. +(5) +Does not include: (a) 130,448 Class A Stock owned by a corporation which is owned by Mr. Knight’s spouse, (b) 19,604,019 Class A Stock +held by four grantor annuity trusts for the benefit of Mr. Knight’s children, (c) 796,145 Class B Stock held by the Knight Foundation, a charitable foundation in which Mr. Knight and his spouse are directors, (d) 1,294,403 +Class B Stock held by Oak Hill Strategic Partners, L.P., a limited partnership in which a company owned by Mr. Knight is a limited partner, and (e) 6,243,804 Class B Stock held by Cardinal Investment Sub I L.P., a limited partnership in +which Mr. Knight is a limited partner. Mr. Knight has disclaimed ownership of all such shares. +(6) +Executive officer listed in the Summary Compensation Table. +(7) +Includes shares held in accounts under the NIKE, Inc. 401(k) and Profit Sharing Plan for Messrs. Parker, Blair, Denson, Edwards and DeStefano in the amounts of +6,792, 2,294, 8,649, 3,590 and 6,850 shares, respectively. +(8) +Includes 29,779 shares pledged as security. +(9) +Preferred Stock does not have general voting rights except as provided by law, and under certain circumstances as provided in the Company’s Restated +Articles of Incorporation, as amended. +(10) +Information provided as of December 31, 2010 in Schedule 13G filed by the shareholder. +(11) +Information provided as of July 8, 2011 in Schedule 13G filed by the shareholder. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors and executive officers, and persons who +own more than 10 percent of a registered class of the Company’s equity securities, to file with the SEC and the NYSE initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the +Company. Officers, directors and greater than 10 percent shareholders are required by the regulations of the SEC to furnish the Company with copies of all Section 16(a) forms they file. To the Company’s knowledge, based solely on +review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ended May 31, 2011 all Section 16(a) filing requirements applicable to its officers, +directors and greater than 10 percent beneficial owners were complied with, except that a sale of 16,500 shares on September 29, 2010 by Hans van Albeeck was reported late, and a sale of 10,000 shares on December 21, 2010 by Timothy +Cook was reported late, in each case due to an administrative error. +10 +Transactions with Related Persons +Mr. Knight makes his airplane available for business use by the Company for no charge. NIKE operates and maintains the aircraft. +Mr. Knight has reimbursed the Company $729,433 for NIKE’s operating costs related to his personal use of this aircraft during fiscal 2011, determined based on the cost of fuel and other variable costs associated with the flights under FAR +91-501(d). +Pursuant to the terms of a past consulting agreement with the Company, the Company agreed to pay for health +insurance and for life insurance policies for Howard Slusher, the father of John Slusher, Vice President of Sports Marketing, following expiration of the agreement. During fiscal 2011, the Company paid Howard Slusher $129,870 for health and life +insurance premiums. +Three of Mr. Parker’s siblings are employed by the Company in non-executive roles. Bob Parker +is a Strategic Sales Director, and has been employed by the Company for over 27 years; Stephen Parker is the General Manager, China-Converse, and has been employed by the Company for over 23 years; and Ann Parker is a Talent Development and +Community Relations Director at Hurley LLC, and has been employed by the Company for over 21 years. During fiscal year 2011, the Company paid aggregate compensation to Bob Parker, Stephen Parker and Ann Parker in the amounts of $409,833, $476,330, +$206,201, respectively. The compensation was consistent with compensation paid to other employees holding similar positions, and was composed of salary, performance bonus, the grant date fair value of stock options granted during the fiscal year +estimated using the Black-Scholes pricing model, and profit sharing and matching contributions to Company-sponsored retirement plans. +Mr. Thompson’s son, John Thompson III, is the head basketball coach at Georgetown University, and the Company has a contract with him to provide endorsement and consulting services to the +Company through August 2014, with base compensation over the 5-year term of the contract of $500,000, and up to $80,000 per year of product and other performance incentives. +Compensation Committee Interlocks and Insider Participation +The members +of the Compensation Committee of the Board of Directors during the fiscal year ended May 31, 2011 were Ralph D. DeNunzio, Timothy D. Cook, John C. Lechleiter, and Johnathan A. Rodgers. The Committee is composed solely of independent, +non-employee directors. No member of the Compensation Committee has been an executive officer of the Company, and no member of the Compensation Committee had any relationships requiring disclosure by the Company under the SEC’s rules requiring +disclosure of certain relationships and related-party transactions. None of the Company’s executive officers served as a director or member of a compensation committee (or other committee serving an equivalent function) of any other entity, the +executive officers of which served as a director or member of the Compensation Committee of the Company during the fiscal year ended May 31, 2011. +11 +COMPENSATION DISCUSSION AND ANALYSIS +Operation of the Compensation Committee +The Compensation Committee of the Board of Directors (the “Committee”) oversees the performance evaluation of the CEO against goals and objectives set by the Committee, and based on the +evaluation, recommends the CEO’s compensation to the independent members of the Board of Directors. Subject to the approval of the independent members of the Board of Directors, the Committee also determines the compensation of our other Named +Executive Officers. The Committee also oversees the performance evaluation of those officers and the administration of our executive compensation programs. The Committee receives recommendations from the CEO as to compensation of other Named +Executive Officers, and the CEO participates in Committee discussions regarding the compensation of those officers. The Committee meets in executive session without the CEO to determine his compensation. The Committee is comprised of Ralph D. +DeNunzio (Chairman), Timothy D. Cook, John C. Lechleiter, and Johnathan A. Rodgers, each of whom is an independent director under applicable NYSE listing standards. The Committee operates pursuant to a written charter that is available on our +website at: www.nikebiz.com/investors . +Each year, the Committee reviews our executive total compensation programs to +ensure they continue to reflect the Committee’s commitment to align the objectives and rewards of our executive officers with the creation of value for our shareholders. The programs have been designed to reinforce our pay-for-performance +philosophy by delivering total compensation that motivates and rewards short and long-term financial performance to maximize shareholder value, and to be externally competitive to attract and retain outstanding and diverse executive talent. In +conducting their annual review, the Committee considers information provided by our human resources staff. Our human resources staff retains Aon Hewitt Associates and Towers Watson, both independent compensation consulting firms, to provide surveys +and reports containing competitive market data. These consultants do not formulate executive compensation strategies for NIKE or recommend individual executive compensation. The human resources staff uses the surveys and reports to make +recommendations to the Committee concerning executive compensation. The Committee has the sole authority under its charter to retain compensation consultants to assist the Committee in evaluating the compensation of executive officers, but chose to +not retain any such consultants. The Committee relies on its collective experience and judgment along with the recommendations prepared by our human resources staff to set executive compensation. +Use of Market Survey Data +To help establish competitive ranges of base salary, incentive compensation opportunities, and target total compensation for the purpose of making recommendations to the Committee, our human resources +staff uses competitive market data from surveys and reports prepared by Aon Hewitt Associates and Towers Watson. We consider market survey data from a peer group of 14 companies which have similar revenue size, have similar products or markets, or +reflect the companies with which we compete for executive talent. In addition, we consider market data across many industries focusing on companies with revenues of $10 billion or more. +For purposes of setting executive compensation for fiscal 2011, the companies in this peer group were unchanged from fiscal 2010 and +consisted of the following: +Company +Reported +Fiscal +Year +Revenue +(in +millions) +Apple Inc. +09/10 +$ +65,225.0 +The Coca-Cola Company +12/10 +35,119.0 +Colgate-Palmolive Company +12/10 +15,564.0 +FedEx Corp. +05/10 +34,734.0 +Gap Inc. +01/11 +14,664.0 +General Mills Inc. +05/10 +14,796.5 +Google Inc. +12/10 +29,321.0 +Kellogg Co. +12/10 +12,397.0 +Limited Brands Inc. +01/11 +9,613.0 +Macy’s, Inc. +01/11 +25,003.0 +McDonald’s Corporation +12/10 +24,074.6 +PepsiCo, Inc. +12/10 +57,838.0 +Starbucks Corp. +09/10 +10,707.4 +The Walt Disney Company +09/10 +38,063.0 +The surveys that our human resources staff reviews show percentile compensation +levels for various executive positions with comparable job responsibilities. The Committee does not endeavor to set executive compensation at or near any particular percentile, and considers target total compensation to be competitive if it is +within the 50 th to 75 th percentiles. Market data is one of many factors that the Committee +considers in the determination of executive compensation levels. Other factors include internal pay equity, level of responsibility, the individual’s performance, expectations regarding the individual’s future potential contributions, +succession planning and retention strategies, budget considerations, and our performance. +12 +Objectives and Elements of Our Compensation Program +Our executive compensation program is aligned with our business strategy and culture to attract and retain top talent, reward business +results and individual performance, and most importantly, maximize shareholder returns. Our total compensation program for the Named Executive Officers is highly incentive-based and competitive in the marketplace, with Company performance +determining a significant portion of total compensation. Our program consists of the following elements: +• +Base salary that reflects the executive’s accountabilities, skills, experience, performance, and future potential +• +Annual performance-based incentive cash bonus based on Company financial results under our Executive Performance Sharing Plan +• +A portfolio approach to long-term incentive compensation to provide a balanced mix of equity and performance-based cash incentives, including: +• +Performance-based cash awards based on Company financial results under the Long-Term Incentive Plan to encourage attainment of long-term financial +objectives +• +Stock options to align the interests of executives with those of shareholders +• +Restricted stock awards to provide incentives consistent with shareholder returns, and to supply a strong retention incentive +• +Benefits +• +Profit sharing contributions to defined contribution retirement plans +• +Post-termination payments under non-competition or employment agreements +In determining the award levels for each of the elements in our total compensation program, our philosophy is to “pay for +performance.” As a result, we place relatively greater emphasis on the incentive components of compensation (Executive Performance Sharing Plan, Long-Term Incentive Plan, and stock options) to align the interests of our executives with +shareholders, and motivate them to maximize shareholder returns. This is balanced with retention incentives provided by base salary and restricted stock awards. In fiscal 2011, incentive components (including restricted stock) accounted for 87% of +the CEO’s target compensation, 85% of the NIKE Brand President’s target compensation, and approximately 75% of the other Named Executive Officers’ target compensation, as shown in the following chart: +* +Includes Executive Performance Sharing Plan, Long-Term Incentive Plan, stock options, and restricted stock +We look to the experience and judgment of the Committee to determine what +it believes to be the appropriate target compensation mix for each Named Executive Officer. We do not apply fixed ratios or formulae, or rely solely on market data or quantitative measures. In allocating compensation among the various elements, the +Committee considers market data, Company performance and budget, the impact of the executive’s position in the Company, individual past performance, expectations for future performance, experience in the position, any anticipated increase in +the individual’s responsibilities, internal pay equity for comparable positions, and retention incentives for succession planning. +Total Compensation Changes (fiscal 2011 versus fiscal 2010) +The total compensation for each of the Named Executive Officers is shown in the Summary Compensation Table on page 19. The decrease in total compensation from fiscal 2010 to fiscal 2011 is primarily due +to the following: +• +Each of the Named Executive Officers earned an annual cash payment under the Executive Performance Sharing Plan at 132% for fiscal 2011 versus 150% for +fiscal 2010 +13 +• +For fiscal 2011, there were no Long-term Incentive Plan payouts for any of the Named Executive Officers compared to a 97% payout to each of them in +fiscal 2010 +• +The restricted stock grants in fiscal 2011 for Messrs. Blair, DeStefano, and Edwards represent the first grants made under the new practice to award +restricted stock annually to all Named Executive Officers versus the previous practice of making grants every three years +• +The accounting fair value of stock options of $17.67 per share in fiscal 2011 was lower than the accounting fair value of $23.40 per share in fiscal +2010 +Annual Cash Compensation +Base Salary +When making recommendations to the +Committee concerning base salary levels for our Named Executive Officers, our human resources staff considers the market data described above to recommend base salaries generally between the +50 th and 75 th percentiles of the salaries for comparable positions reflected in +the surveys and reports. Other factors considered in setting annual salary levels include the individual’s performance in the prior year, expectations regarding the individual’s future performance, experience in the position, any +anticipated increase in the individual’s responsibilities, internal pay equity for comparable positions, succession planning strategies, and our annual salary budget. The Committee reviews these factors each year and adjusts base salary levels +to ensure that we are appropriately rewarding performance. +The Committee generally reviews base salaries of the Named +Executive Officers annually based on a review of individual performance at a meeting in June, with salary adjustments becoming effective for the first pay period ending in August. During the salary review in June 2010, the Committee decided to +increase Mr. Parker’s annual salary 5% from $1,475,000 to $1,550,000, to reflect his individual performance results against goals and objectives established by the Committee, and his leadership in achieving the Company’s performance +of long-term strategic initiatives and financial targets for fiscal 2010. The Committee also decided to increase Mr. Denson’s annual salary 4.8% from $1,260,000 to $1,320,000, Mr. DeStefano’s annual salary 3% from $1,000,000 to +$1,030,000, and the annual salaries for Messrs. Blair and Edwards 4.9% from $810,000 to $850,000. The increases were generally in line with average Company-wide merit increases for fiscal 2010. +In setting a Named Executive Officer’s overall compensation package, the Committee attempts to place a relatively greater emphasis +on the incentive components of compensation described below. +Performance-Based Annual Incentive Bonus +Annual bonuses are paid to the Named Executive Officers under our Executive Performance Sharing Plan +(“PSP”). Our “pay for performance” philosophy for bonuses is simple: if we exceed our financial objectives, we will pay more; if we fail to reach them, we will pay less or nothing at all. The PSP for all executives is based 100% +on overall corporate performance each year as measured by income before income taxes excluding the effect of any acquisitions, divestitures or accounting changes (“PTI”). Basing our bonus program for all executives on overall corporate +performance is intended to foster teamwork and send the message to each executive that his or her role is to help ensure overall organizational success and maximize shareholder returns. +Each year the Committee establishes a target bonus for each Named Executive Officer under the PSP expressed as a percentage of base +salary paid during the year. For fiscal 2011, the Committee set Mr. Parker’s target bonus at 135%, Mr. Denson’s target bonus at 120%, and the target bonus for Messrs. Blair, DeStefano, and Edwards at 80%, which were the same +target bonus percentages as in fiscal 2010 and 2009. The Committee sets these target bonus levels each year based on its judgment of the impact of the position in the Company and what it believes to be competitive against market data as described +above under Use of Market Survey Data, while maintaining internal pay equity for comparable positions. +The maximum bonus +possible under the PSP is 150% of the target bonus, and the threshold bonus is 50% of the target bonus. If we do not achieve the threshold performance goal, the bonus payout would be zero, and if we exceed the maximum performance goal, the bonus +payout would be capped at 150% of the target bonus. In June 2010, the Committee approved PSP performance goals for fiscal 2011 of $2,705 million of PTI for the target bonus payout, $2,921 million of PTI for the 150% maximum bonus payout, and +$2,505 million of PTI for the 50% threshold bonus payout. The performance goal for the target payout represented a 7.5% increase over fiscal 2010 PTI of $2,517 million. The performance goal for the maximum payout represented a 16.1% increase +above the prior year PTI, and the performance goal for the threshold payout represented a 0.5% decrease. The percentage changes in PTI over prior year results required to achieve the target, maximum, and threshold bonus payouts each year are not +uniform percentages, but are established by the Committee based on its evaluation of our business plan and prospects for the year. +14 +NIKE delivered strong operating performance in fiscal 2011, achieving PTI of $2,844 +million, a 13% increase over fiscal 2010 PTI. As a result, each executive officer’s bonus was paid out at 132% of the target bonus. +Long-Term Compensation +Performance-Based Long-Term Incentive Plan +The first component in our long-term portfolio mix is performance-based awards payable in cash under our Long-Term Incentive Plan (“LTIP”). As with the annual bonus, the LTIP follows our +“pay for performance” philosophy. If we exceed our targets, we will pay more; if we fall short, we will pay less or nothing at all. This program focuses executives on overall, long-term financial performance, and is intended to reward them +for improving shareholder returns. At the beginning of each fiscal year, the Committee establishes performance goals and potential cash payouts for the next three fiscal years for all executives under the LTIP. LTIP measures for all executives are +based 50% on cumulative revenues for the three-year performance period and 50% on cumulative diluted earnings per share (“EPS”) for the period, in each case excluding the effect of acquisitions, divestitures and accounting changes. +During the compensation review in June 2010, the Committee decided to not change the LTIP target awards for any of the Named +Executive Officers. As such, the target awards for the fiscal 2011-13 performance period were set at $2,000,000 for Mr. Parker, $1,500,000 for Mr. Denson and $500,000 for Messrs. Blair, DeStefano and Edwards. The Committee sets +individual Named Executive Officer target LTIP levels each year based on its judgment of what it believes to be a desirable mix of long-term compensation, the impact of the position in the Company, and what it finds to be competitive against market +data as described above under Use of Market Survey Data, while maintaining internal pay equity for comparable positions. +The +Committee set the maximum possible payout under the LTIP equal to 200% of the target award and the threshold payout equal to 50% of the target award. For the fiscal 2011-13 performance period, the cumulative EPS necessary to achieve the target award +payout requires a compounded annual growth rate (“CAGR”) in EPS of 11.9% from fiscal 2010 results of $3.86. The 200% maximum payout requires cumulative EPS corresponding to an 18.4% CAGR and the 50% threshold payout requires cumulative EPS +corresponding to a 7.7% CAGR. For revenue over the fiscal 2011-13 performance period, the cumulative revenue necessary to achieve the target award payout requires a CAGR in revenues of 8.0% from fiscal 2010 results of $19,014 million. The 200% +maximum payout requires cumulative revenues corresponding to a 11.5% CAGR. The 50% threshold payout requires cumulative revenues corresponding to a 5.3% CAGR. The total payout percentage will be the average of the payout percentages determined for +cumulative revenues and cumulative EPS, respectively. Payout below the threshold payout level may occur if either the revenue or EPS related percentage achievement is less than 50%. If both revenue and EPS fall below the threshold level, there is no +payment. +In setting the LTIP performance targets for the fiscal 2011-13 performance period, the Committee carefully +considered the impact of continuing instability in the worldwide economy on future business over the following three fiscal years. After deliberation, the Committee set revenue and EPS performance targets closer to our long-term financial goals of +mid-teens percentage growth in EPS and mid-to-high single-digit percentage revenue growth. In setting these targets, the Committee set target CAGRs that in its view were achievable but appropriately challenging to motivate executives to exceed +goals. +Our executive officers were eligible to receive LTIP award payouts based on performance targets set in June 2008 +covering the fiscal 2009-11 performance period. Based on our performance over the last three fiscal years, there was no payout to any of the executive officers. Cumulative revenues for the period were $59,052 million and cumulative EPS for the +period was $11.28, which for both measures was below the 50% minimum threshold payout level set by the Committee. Revenue and EPS results were below the threshold largely due to the economic downturn during that period (which affected revenue), and +extraordinary one-time charges in fiscal 2009 for the impairment of intangible assets of our Umbro subsidiary and the Company restructuring to realign our organization. +Performance-Based Stock Options +The second component in our +long-term portfolio mix is stock options. Stock options are designed to align the interests of the Company’s executives with those of shareholders by encouraging executives to enhance the value of the Company and, hence, the price of the Class +B Stock. This is true “pay for performance”: executives are rewarded only if the market price of our stock rises, and they get nothing if the price does not rise. Our stock option program is generally based on granting options for a +consistent number of shares each year for each position. When determining the grants, the Committee focuses on the number of shares, not the value for accounting purposes. Our approach is based on our desire to carefully control annual share usage +and avoid fluctuations in grant levels due to share price changes. The Committee awards stock options to each executive based on its judgment. The Committee considers a number of factors including the individual’s performance, management +succession, competitive market data as described above under Use of Market Survey Data, internal pay equity for comparable positions, and a desirable mix of long-term incentives. Our human resources staff periodically tests the reasonableness of our +stock option grants against competitive market data and may make recommendations to the Committee. +15 +Options are generally granted annually to selected employees, including the Named Executive +Officers, in July of each year under our shareholder-approved Stock Incentive Plan. Stock options for fiscal 2011 were granted by the Committee on July 16, 2010 with an exercise price equal to the closing market price of our stock on that date. +Options were granted in July 2010 to Mr. Parker for 165,000 shares. This was an increase of 15,000 shares for +Mr. Parker in comparison to the number of options granted in July 2009. The Committee increased the number of stock options granted to Mr. Parker to reflect the Committee’s desire to align a higher portion of his compensation with +shareholder returns, consistent with their review of grants to comparable executives in our competitive market data. The Committee granted options to Mr. Denson for 120,000 shares and to Messrs. Blair, DeStefano, and Edwards for 50,000 shares +which were the same number of stock options granted to each of them in July 2009. The Committee, in its judgment, decided not to change from the prior year the number of shares granted to Messrs. Denson, Blair, DeStefano, and Edwards based on a +review of each of the factors described above, and the Committee’s determination that the relative weighting of equity incentive compensation to target total compensation remained appropriate. +Options we grant generally vest over a four year period, and are forfeited if the employee leaves before vesting occurs, to promote +executive retention. A standard retirement feature of stock options granted to all employees from 2002 through 2009 was to accelerate vesting of some or all options for any employee with at least five years of service where the sum of the +employee’s age plus years of service totaled a minimum of 55, as described below under the heading “Potential Payments Upon Termination or Change-in-Control”. Based on their ages and years of service, Messrs. Parker, Denson, +DeStefano, Blair, and Edwards could terminate employment at any time and receive full vesting of their options granted prior to July 2010. +In June 2010, after a review of the Company’s succession plans, the Committee and the Board of Directors amended the Stock Incentive Plan for future option grants, to remove this accelerated vesting +feature and replaced it with a strengthened provision to encourage employees to delay retirement, thus enhancing retention. Beginning with the July 2010 grants, only those employees with a minimum of five years of service who are age 55 and above at +the time of termination of employment will be eligible for the provision. Under the provision, only unvested stock options that have been granted for at least one full year to employees between the ages of 55 to 59 at the time of termination of +employment will continue to vest, and may be exercised for up to four years after termination. If an employee is age 60 or older and has at least five years of service at termination, unvested stock options that have been granted for at least one +full year, will receive accelerated vesting, and may be exercised for up to four years after termination. The features related to accelerated vesting are described below on page 23 under the heading “Potential Payments upon Termination or +Change-in-Control.” +Restricted Stock Awards +The third component in our long-term portfolio mix is restricted stock awards. Stock ownership and stock-based incentive awards align the +interests of our Named Executive Officers with the interests of our shareholders, as the value of this incentive rises and falls with the stock price, consistent with shareholder returns. Restricted stock awards are generally granted in July at the +same meeting at which stock options are granted under our shareholder-approved Stock Incentive Plan. Awards generally vest in three equal installments on each of the first three anniversaries of the grant date. The awards promote executive retention +as unvested shares held at the time the executive’s employment is terminated are forfeited. Award recipients receive dividends on the full number of restricted shares awarded, both vested and unvested. +Historically, the Committee has generally awarded restricted stock to Named Executive Officers once every three years. Our human +resources staff periodically reviews the value and frequency of grants against competitive market data as described above under Use of Market Survey Data, and may recommend changes to the Committee. In June 2010, after a review of long-term +incentive compensation, the Committee determined that beginning with July 2010 grants, restricted stock awards to Named Executive Officers will be awarded annually. This supports our succession plans by helping ensure retention of key leaders +critical to growing the business. This practice aligns with our practice prior to fiscal 2011 of granting restricted stock annually to Mr. Parker and Mr. Denson to provide a greater alignment between their compensation and shareholder +returns. The Committee also believes that this change will provide greater consistency and comparability of executive compensation disclosure from year-to-year. The Committee may also award restricted stock in connection with promotions or other +special circumstances. +In July 2010, the Committee granted a restricted stock award to Mr. Parker valued at $3,500,000, +and granted an award to Mr. Denson valued at $2,000,000, representing 50,755 shares of our Class B Stock for Mr. Parker and 29,003 shares for Mr. Denson, based on the closing price of our Class B Stock on the grant date. This was the +same value of restricted stock granted to each of them in 2009. Messrs. Blair, DeStefano, and Edwards each received an award valued at $500,000, representing 7,251 shares of our Class B Stock, based on the closing price of our Class B Stock on the +grant date. This represented a $1,000,000 decrease compared to the value of restricted stock granted to each of them in July 2009 because this represented the first grant under the new practice to provide them annual grants instead of triennial +grants. The Committee, in its judgment, set these award levels based on several factors, including what the Committee believed to be a desirable mix of long-term compensation, their determination of an appropriate weighting of potential future +contribution to the Company, retention incentives, and competitive grants based on competitive market data. +16 +Profit Sharing and Retirement Plans +The NIKE 401(k) Savings and Profit Sharing Plan is our tax qualified retirement savings plan pursuant to which our employees, including +the Named Executive Officers, are able to make pre-tax contributions from their cash compensation. We make matching contributions for all participants each year equal to 100% of their elective deferrals up to 5% of their total eligible compensation. +We also make annual profit sharing contributions to the accounts of our employees under the 401(k) Savings and Profit Sharing Plan. The contributions are allocated among eligible employees based on a percentage of their total salary and bonus for +the year. The total profit sharing contribution and the percentage of salary and bonus contributed for each employee is determined each year by the Board of Directors. For fiscal 2011, the Board of Directors approved a profit sharing contribution +for each employee equal to 4.58% of the employee’s total eligible salary and bonus. +The Internal Revenue Code limits the +amount of compensation that can be deferred under the 401(k) Savings and Profit Sharing Plan, and also limits the amount of salary and bonus ($245,000 for fiscal 2011) with respect to which matching contributions and profit sharing contributions can +be made under that plan. Accordingly, we provide our executive officers and other highly compensated employees with the opportunity to defer their compensation, including amounts in excess of the tax law limit, under our nonqualified Deferred +Compensation Plan. We also make profit sharing contributions under the Deferred Compensation Plan with respect to salary and bonus of any employee that exceeds the tax law limit, and for fiscal 2011 these contributions were equal to 4.58% of the +total salary and bonus of each Named Executive Officer in excess of $245,000. These contributions under the Deferred Compensation Plan allow our Named Executive Officers and other highly compensated employees to receive profit sharing retirement +contributions in the same percentage as our other employees. We do not match executive deferrals to the Deferred Compensation Plan. Executive officer balances in the Deferred Compensation Plan are unsecured and at-risk, meaning the balances may be +forfeited in the event of the Company’s financial distress such as bankruptcy. Our matching and profit sharing contributions for fiscal 2011 to the accounts of the Named Executive Officers under the qualified and nonqualified plans are included +under the heading “All Other Compensation” in the Summary Compensation Table below. +Post-termination Payments under +Non-competition and/or Employment Agreements +In exchange for non-competition agreements from all of our Named Executive +Officers, we have agreed to provide during the non-competition period the monthly payments described in “Potential Payments upon Termination or Change-in-Control” below on page 23, some of which are at the election of the Company. We +believe that it is appropriate to compensate individuals to refrain from working with competitors following termination, and that compensation enhances the enforceability of such agreements. +Change-in-Control Provisions +Under the terms of stock option and +restricted stock awards granted before fiscal 2011, any unvested awards would vest upon certain transactions that would result in a change in control, such as shareholder approval of a liquidation, a sale, lease, exchange or transfer of +substantially all of the assets of the Company, or a consolidation, merger, plan of exchange, or transaction in which the Company is not the surviving corporation. These transactions are described below under the heading “Potential +Payments Upon Termination or Change-in-Control.” This vesting feature, re-approved by shareholders in 2005, was in place because we believed that utilizing a single event to vest awards provided a simple and certain approach for +treatment of equity awards in a transaction that would likely result in the elimination or de-listing of our stock. This provision recognized that such transactions have the potential to cause a significant disruption or change in +employment relationships and thus treated all employees the same regardless of their employment status after the transaction. In addition, it provided our employee option holders with the same opportunities as our other shareholders who are +free to realize the value created at the time of the transaction by selling their equity. +In June 2010, the Committee +approved a revision to our change-in-control vesting provision under which future stock option and restricted stock awards are subject to accelerated vesting only when two events (a “double trigger”) occur. Beginning with grants made in +July 2010, vesting of grants are generally accelerated only if there is a change in control of the Company and either the acquiring entity fails to assume the awards or the employee’s employment is terminated by the acquirer without cause or by +the employee for good reason within two years following a change in control. This double trigger was adopted to encourage executive retention through a period of uncertainty and a subsequent integration with an acquirer. The Committee believes that +this approach will enhance shareholder value in the context of an acquisition, and align executives with the interests of investors. +Risk +Assessment +At the Committee’s request, in fiscal 2011 management prepared and discussed with the Committee, an +assessment of potential risk associated with the Company’s compensation programs, including any risk that would be reasonably likely to have a material adverse effect on the Company. This included an assessment of risks associated with each +element of employee compensation. The assessment considered certain design features of the compensation programs that reduce the likelihood of excessive risk taking, such as reasonable performance targets, capped payouts of incentive compensation, a +balance of short- and long-term incentives, a balance of cash and equity incentives, vesting of awards over time, and the potential for clawback of incentive compensation. In addition, for equity compensation the Committee and the Board restricted +both the future eligibility for accelerated vesting of stock options upon termination of employment and the accelerated vesting of all equity awards upon change in control (as described above). +17 +Clawback Policy +In June 2010, the Committee and Board of Directors approved a policy for recoupment of incentive compensation (the “clawback policy”). The Board of Directors adopted the clawback policy to +prevent executives involved in certain wrongful conduct from unjustly benefiting from that conduct, and to remove the financial incentives to engage in that conduct. The clawback policy generally requires an executive officer who is involved in +wrongful conduct that results in a restatement of the Company’s financial statements to repay to the Company up to the full amount of any incentive compensation based on the financial statements that were subsequently restated. Incentive +compensation includes the annual PSP bonus, LTIP payout, profit sharing contributions to the Deferred Compensation Plan, and excess proceeds from sales of stock acquired under stock option and restricted stock awards that occurred prior to the +restatement. +Tax Deductibility of Executive Compensation +Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public companies for annual compensation over $1 million paid to their chief executive officer and the next three +most highly compensated executive officers. The Internal Revenue Code generally excludes from the calculation of the $1 million cap compensation that is based on the attainment of pre-established, objective performance goals established under a +shareholder-approved plan. Annual bonuses under our Executive Performance Sharing Plan, long-term incentive awards under our Long-Term Incentive Plan and stock options under our 1990 Stock Incentive Plan are all structured in a manner intended to +qualify any compensation paid thereunder as “performance-based compensation” excluded from the calculation of the $1 million annual cap. However, base salary and compensation on vesting of restricted stock awards are subject to the $1 +million deductibility cap. Accordingly, in fiscal 2011 a portion of the compensation paid to Messrs. Parker, Denson, DeStefano, and Edwards was not deductible. +COMPENSATION COMMITTEE REPORT +The Compensation Committee of the Board of +Directors (the “Committee”) has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K. Based on the review and discussions, the Committee recommended to the Board of +Directors that the Compensation Discussion and Analysis be included in this proxy statement. +Members of the +Compensation Committee: +Ralph D. DeNunzio, Chairman +Timothy D. Cook +John C. Lechleiter +Johnathan A. Rodgers +18 +EXECUTIVE COMPENSATION +Summary Compensation Table +The following table sets forth compensation paid to or earned by our Chief Executive Officer, our Chief Financial Officer and our next three most highly compensated executive officers who were serving as +executive officers on May 31, 2011, for fiscal 2011. These individuals are referred to throughout this proxy statement as the “Named Executive Officers.” +Name and Principal Position +Year +Salary +($) +Stock +Awards (1) +($) +Option +Awards (2) +($) +Non-Equity +Incentive Plan +Compensation (3) +($) +All +Other +Compensation (4) +($) +Total +($) +Mark G. Parker +2011 +$ +1,535,557 +$ +3,500,065 +$ +2,916,095 +$ +2,735,569 +$ +343,395 +$ +11,030,681 +Chief Executive Officer and President +2010 +1,475,000 +3,500,003 +3,510,270 +4,441,875 +191,686 +13,118,834 +2009 +1,463,462 +2,250,012 +2,309,796 +900,000 +190,125 +7,113,395 +Donald W. Blair +2011 +842,308 +500,029 +883,665 +889,207 +140,669 +3,255,878 +Vice President and Chief Financial Officer +2010 +810,000 +1,500,046 +1,170,090 +1,263,000 +93,939 +4,837,075 +2009 +800,769 +— +855,480 +450,000 +82,095 +2,188,344 +Charles D. Denson +2011 +1,308,462 +2,000,047 +2,120,796 +2,071,975 +248,764 +7,750,044 +President of the NIKE Brand +2010 +1,260,000 +2,000,009 +2,808,216 +3,238,000 +127,261 +9,433,486 +2009 +1,250,769 +1,500,047 +1,882,056 +750,000 +188,104 +5,570,976 +Gary M. DeStefano +2011 +1,024,231 +500,029 +883,665 +1,081,260 +150,362 +3,639,547 +President, Global Operations +2010 +1,000,000 +1,500,046 +1,170,090 +1,491,000 +87,612 +5,248,748 +2009 +994,615 +— +855,480 +450,000 +94,401 +2,394,496 +Trevor A. Edwards +2011 +842,308 +500,029 +883,665 +889,207 +126,570 +3,241,779 +Vice President, Global Brand & Category Management +2010 +810,000 +1,500,046 +1,170,090 +1,263,000 +73,938 +4,817,074 +2009 +804,615 +— +855,480 +450,000 +73,120 +2,183,215 +(1) +Represents the grant date fair value of restricted stock awards granted in the applicable year computed in accordance with accounting guidance applicable to stock-based +compensation. The grant date fair value is based on the closing market price of our Class B Stock on the grant date. +(2) +Represents the grant date fair value of options granted in the applicable year computed in accordance with accounting guidance applicable to stock-based compensation. +The grant date fair value of the options was estimated using the Black-Scholes option pricing model. The assumptions made in determining the grant date fair values of options under applicable accounting guidance are disclosed in Note 11 of Notes to +Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended May 31, 2011. +(3) +Non-Equity Incentive Plan Compensation consists of the following: +Name +Fiscal +Year +Annual +Incentive +Compensation +($) +Long-Term +Incentive +Compensation +($) +Total +($) +Mark G. Parker +2011 +$ +2,735,569 +$ +— +$ +2,735,569 +2010 +2,986,875 +1,455,000 +4,441,875 +2009 +— +900,000 +900,000 +Donald W. Blair +2011 +889,207 +— +889,207 +2010 +972,000 +291,000 +1,263,000 +2009 +— +450,000 +450,000 +Charles D. Denson +2011 +2,071,975 +— +2,071,975 +2010 +2,268,000 +970,000 +3,238,000 +2009 +— +750,000 +750,000 +Gary M. DeStefano +2011 +1,081,260 +— +1,081,260 +2010 +1,200,000 +291,000 +1,491,000 +2009 +— +450,000 +450,000 +Trevor A. Edwards +2011 +889,207 +— +889,207 +2010 +972,000 +291,000 +1,263,000 +2009 +— +450,000 +450,000 +Amounts shown in the Annual Incentive Compensation column were earned for performance in the applicable +fiscal year under our Executive Performance Sharing Plan. Amounts shown in the Long-Term Incentive Compensation column were earned for performance during the three fiscal-year period ending with the applicable fiscal year under our Long-Term +Incentive Plan. +(4) +For each of the Named Executive Officers, this includes profit-sharing contributions by us to the 401(k) Savings and Profit Sharing Plan for fiscal 2011 in the amount +of $11,231 and matching contributions by us to the 401(k) Savings and Profit Sharing Plan for fiscal 2011 in the amount of $12,250. Also includes profit-sharing contributions by us to the Deferred Compensation Plan for fiscal 2011 in the following +amounts: $196,087 for Mr. Parker; $71,940 for Mr. Blair; $152,721 for Mr. Denson; $90,732 for Mr. DeStefano; and $71,940 for Mr. Edwards. Includes dividends on restricted stock in the following amounts: $123,527 for +Mr. Parker, $31,149 for Mr. Blair, $72,562 for Mr. Denson, $31,149 for Mr. DeStefano, and $31,149 for Mr. Edwards. The amount for Mr. Blair includes $14,065 for reimbursements of club dues and financial advisory +services. +19 +Grants of Plan-Based Awards in Fiscal 2011 +The following table contains information concerning the long-term incentive bonus opportunities, annual incentive bonus opportunities, +restricted stock awards and stock options granted to the Named Executive Officers in fiscal 2011. +Name +Grant +Date +All Other +Stock +Awards: +Number of +Shares +of +Stock (3) +All Other +Option +Awards: +Number +of +Shares +Underlying +Options (4) +Exercise or +Base Price +of Option +Awards +Grant Date +Fair Value +of Stock +and Option +Awards (5) +Estimated Possible Payouts Under Non- +Equity +Incentive Plan Awards +Threshold +Target +Maximum +($) +($) +($) +(#) +(#) +($/Sh) +($) +Mark G. Parker +6/16/10 +$ +1,036,501 +(1) +$ +2,073,002 +(1) +$ +3,109,503 +(1) +6/16/10 +1,000,000 +(2) +2,000,000 +(2) +4,000,000 +(2) +7/16/10 +50,755 +$ +3,500,065 +7/16/10 +165,000 +$ +68.96 +2,916,095 +Donald W. Blair +6/16/10 +336,923 +(1) +673,846 +(1) +1,010,770 +(1) +6/16/10 +250,000 +(2) +500,000 +(2) +1,000,000 +(2) +7/16/10 +7,251 +500,029 +7/16/10 +50,000 +68.96 +883,665 +Charles D. Denson +6/16/10 +785,077 +(1) +1,570,154 +(1) +2,355,232 +(1) +6/16/10 +750,000 +(2) +1,500,000 +(2) +3,000,000 +(2) +7/16/10 +29,003 +2,000,047 +7/16/10 +120,000 +68.96 +2,120,796 +Gary M. DeStefano +6/16/10 +409,692 +(1) +819,385 +(1) +1,229,077 +(1) +6/16/10 +250,000 +(2) +500,000 +(2) +1,000,000 +(2) +7/16/10 +7,251 +500,029 +7/16/10 +50,000 +68.96 +883,665 +Trevor A. Edwards +6/16/10 +336,923 +(1) +673,846 +(1) +1,010,770 +(1) +6/16/10 +250,000 +(2) +500,000 +(2) +1,000,000 +(2) +7/16/10 +7,251 +500,029 +7/16/10 +50,000 +68.96 +883,665 +(1) +These amounts represent the potential bonuses payable for performance during fiscal 2011 under our Executive Performance Sharing Plan. Under this plan, the Compensation +Committee approved target awards for fiscal 2011 based on a percentage of the executive’s base salary paid during fiscal 2011 as follows: Mr. Parker, 135%; Mr. Blair, 80%; Mr. Denson, 120%; Mr. DeStefano, 80%; and +Mr. Edwards, 80%. The Committee also established a series of performance targets based on our income before income taxes (“PTI”) for fiscal 2011 (excluding the effect of acquisitions, divestitures and accounting changes) corresponding +to award payouts ranging from 50% to 150% of the target awards. The PTI for fiscal 2011 required to earn the target award payout was $2,705 million. The PTI for fiscal 2011 required to earn the 150% maximum payout was $2,921 million. The +PTI for fiscal 2011 required to earn the 50% threshold payout was $2,505 million. Participants receive a payout at the percentage level at which the performance target is met, subject to the Committee’s discretion to reduce or eliminate +any award based on Company or individual performance. Actual award payouts earned in fiscal 2011 and paid in fiscal 2012 are shown in footnote 3 to the “Non-Equity Incentive Plan Compensation” column in the Summary Compensation Table. +(2) +These amounts represent the potential long-term incentive awards payable for performance during the three-year period consisting of fiscal 2011-2013 under our Long-Term +Incentive Plan. Under this plan, the Compensation Committee approved target awards for the performance period and also established a series of performance targets based on our cumulative revenues and cumulative diluted earnings per common share +(“EPS”) for the performance period (excluding the effect of acquisitions, divestitures and accounting changes not reflected in our business plan at the time of approval of the target awards) corresponding to award payouts ranging from 50% +to 200% of the target awards. Participants will receive a payout at the average of the percentage levels at which the two performance targets are met, subject to the Committee’s discretion to reduce or eliminate any award based on Company or +individual performance. For cumulative revenues over the performance period, the target payout requires revenues of $66,665 million, the 50% threshold payout requires revenues of $63,305 million, and the 200% maximum payout requires +revenues of $71,196 million. For cumulative EPS over the performance period, the target payout requires EPS of $14.55, the 50% threshold payout requires EPS of $13.45, and the 200% maximum payout requires EPS of $16.37. Under the terms of the +awards, on the first payroll period ending in August 2013 we will issue the award payout to each participant, provided that the participant is employed by us on the last day of the performance period. +(3) +All amounts reported in this column represent grants of restricted stock under our 1990 Stock Incentive Plan. Restricted stock generally vests in three equal +installments on the first three anniversaries of the grant date. Vesting will be accelerated in certain circumstances as described below under “Potential Payments Upon Termination or Change-in-Control.” Dividends are payable on restricted +stock at the same rate paid on all other outstanding shares of our Class B Stock. +(4) +All amounts reported in this column represent options granted under our 1990 Stock Incentive Plan. Options generally become exercisable for option shares in four equal +installments on the first four anniversaries of the grant date. Options will become fully exercisable in certain circumstances as described below under “Potential Payments Upon Termination or Change-in-Control.” Each option has a maximum +term of 10 years, subject to earlier termination in the event of the optionee’s termination of employment. +(5) +For restricted stock awards, represents the value of restricted shares granted based on the closing market price of our Class B Stock on the grant date. For option +awards, represents the grant date fair value of options granted based on a value of $17.67 per share calculated using the Black-Scholes option pricing model. These are the same values for these equity awards used under accounting guidance applicable +to stock-based compensation. The assumptions made in determining option values are disclosed in Note 11 of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended May 31, 2011. +20 +Outstanding Equity Awards at May 31, 2011 +The following table sets forth information concerning outstanding stock options and unvested restricted stock held by the Named Executive +Officers at May 31, 2011. +Option Awards +Stock Awards +Name +Number of +Securities +Underlying +Unexercised +Options +(#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options +(#) +Unexercisable (1) +Option +Exercise +Price +($) +Option +Expiration +Date +Number of +Shares That +Have Not +Vested (#) +Market +Value of +Shares That +Have Not +Vested ($) +Mark G. Parker +90,000 +— +26.1200 +07/18/13 +140,000 +— +36.6050 +07/16/14 +140,000 +— +43.7950 +07/15/15 +250,000 +— +42.1350 +02/16/16 +101,250 +33,750 +(2) +58.5200 +07/20/17 +67,500 +67,500 +(3) +58.2000 +07/18/18 +37,500 +112,500 +(4) +52.4400 +07/17/19 +— +165,000 +(5) +68.9600 +07/16/20 +108,136 +(6) +$ +9,132,085 +Donald W. Blair +66,000 +— +24.4900 +07/22/12 +66,000 +— +26.1200 +07/18/13 +66,000 +— +36.6050 +07/16/14 +66,000 +— +43.7950 +07/15/15 +66,000 +— +39.3800 +07/14/16 +37,500 +12,500 +(2) +58.5200 +07/20/17 +25,000 +25,000 +(3) +58.2000 +07/18/18 +12,500 +37,500 +(4) +52.4400 +07/17/19 +— +50,000 +(5) +68.9600 +07/16/20 +26,321 +(7) +2,222,808 +Charles D. Denson +140,000 +— +26.1200 +07/18/13 +140,000 +— +36.6050 +07/16/14 +140,000 +— +43.7950 +07/15/15 +200,000 +— +42.1350 +02/16/16 +82,500 +27,500 +(2) +58.5200 +07/20/17 +55,000 +55,000 +(3) +58.2000 +07/18/18 +30,000 +90,000 +(4) +52.4400 +07/17/19 +— +120,000 +(5) +68.9600 +07/16/20 +63,020 +(8) +5,322,039 +Gary M. DeStefano +— +12,500 +(2) +58.5200 +07/20/17 +— +25,000 +(3) +58.2000 +07/18/18 +— +37,500 +(4) +52.4400 +07/17/19 +— +50,000 +(5) +68.9600 +07/16/20 +26,321 +(7) +2,222,808 +Trevor A. Edwards +50,000 +— +24.4900 +07/22/12 +66,000 +— +26.1200 +07/18/13 +66,000 +— +36.6050 +07/16/14 +66,000 +— +43.7950 +07/15/15 +66,000 +— +39.3800 +07/14/16 +37,500 +12,500 +(2) +58.5200 +07/20/17 +25,000 +25,000 +(3) +58.2000 +07/18/18 +12,500 +37,500 +(4) +52.4400 +07/17/19 +— +50,000 +(5) +68.9600 +07/16/20 +26,321 +(7) +2,222,808 +(1) +Stock options generally become exercisable for option shares in four equal installments on each of the first four anniversaries of the grant date. +(2) +100% of these shares vested on July 20, 2011. +(3) +50% of these shares vested on July 18, 2011 and 50% will vest on July 18, 2012. +(4) +33.3% of these shares vested on July 17, 2011, 33.3% will vest on July 17, 2012 and 33.3% will vest on July 17, 2013. +(5) +25% of these shares vested on July 16, 2011, 25% will vest on July 16, 2012, 25% will vest on July 16, 2013, and 25% will vest on July 16, 2014. +(6) +16,919 of these shares vested on July 16, 2011, 16,918 of these shares will vest on July 16, 2012 and 16,918 of these shares will vest on July 16, 2013. +22,248 of these shares vested on July 17, 2011 and 22,248 of these shares will vest on July 17, 2012. 12,886 of these shares vested on July 18, 2011. +(7) +2,417 of these shares vested on July 16, 2011, 2,417 of these shares will vest on July 16, 2012 and 2,417 of these shares will vest on July 16, 2013. +9,535 of these shares vested on July 17, 2011 and 9,535 of these shares will vest on July 17, 2012. +(8) +9,668 of these shares vested on July 16, 2011, 9,668 of these shares will vest on July 16, 2012 and 9,667 of these shares will vest on July 16, 2013. +12,713 of these shares vested on July 17, 2011 and 12,713 of these shares will vest on July 17, 2012. 8,591 of these shares vested on July 18, 2011. +21 +Option Exercises and Stock Vested During Fiscal 2011 +The following table provides information concerning stock option exercises and vesting of restricted stock during fiscal 2011 for each of +the Named Executive Officers on an aggregated basis. +Option Awards +Stock Awards +Name +Number of +Shares +Acquired +on Exercise (#) +Value +Realized +on Exercise ($) +Number of +Shares +Acquired +on Vesting (#) +Value +Realized +on Vesting ($) +Mark G. Parker +50,000 +$ +3,194,000 +43,679 +$ +3,019,623 +Donald W. Blair +15,000 +851,366 +9,535 +657,534 +Charles D. Denson +145,000 +8,624,850 +27,000 +1,866,933 +Gary M. DeStefano +272,000 +9,000,120 +9,535 +657,534 +Trevor A. Edwards +40,000 +2,089,437 +9,535 +657,534 +Equity Compensation Plans +The following table summarizes equity compensation plans approved by shareholders and equity compensation plans that were not approved by the shareholders as of May 31, 2011: +Plan Category +(a) +Number of Securities to +be Issued Upon +Exercise of Outstanding +Options, +Warrants and +Rights +(b) +Weighted-Average +Exercise Price +of +Outstanding Options, +Warrants and Rights +(c) +Number of +Securities +Remaining Available for +Future Issuance Under +Equity Compensation +Plans (Excluding +Securities Reflected in +Column(a)) +Equity compensation plans approved by shareholders (1) +34,800,874 +$ +51.29 +40,696,136 +Equity compensation plans not approved by shareholders (2) +— +— +1,042,641 +Total +34,800,874 +$ +51.29 +41,738,777 +(1) +Includes 34,800,874 options outstanding subject to the 1990 Stock Incentive Plan. Includes 36,555,310 shares available for future issuance under the 1990 Stock +Incentive Plan, and 4,140,826 shares available for future issuance under the Employee Stock Purchase Plan. +(2) +Includes 1,042,641 shares available for future issuance under the Foreign Subsidiary Employee Stock Purchase Plan, pursuant to which shares are offered and sold to +employees of selected non-U.S. subsidiaries of the Company on substantially the same terms as those offered to U.S. employees under the shareholder-approved Employee Stock Purchase Plan. +22 +Non-Qualified Deferred Compensation in Fiscal 2011 +Name +Plan +Name +Executive +Contributions +in Fiscal +2011 (1) +NIKE +Contributions +in Fiscal +2011 (1) +Aggregate +Earnings +in Fiscal +2011 +Aggregate +Withdrawals/ +Distributions +in Fiscal 2011 +Aggregate +Balance at +5/31/2011 (1) +Mark G. Parker +DCP +$ +1,173,740 +$ +56,146 +$ +11,985 +— +$ +5,110,185 +Donald W. Blair +DCP +1,159,332 +25,791 +1,107,122 +— +4,630,590 +Charles D. Denson +DCP +1,663,338 +46,332 +3,067,414 +— +19,279,246 +Gary M. DeStefano +DCP +— +34,464 +93,445 +— +1,463,835 +Trevor A. Edwards +DCP +801,496 +25,791 +898,485 +— +5,194,919 +(1) +All amounts reported in the Executive Contributions column are also included in amounts reported in the Summary Compensation Table. The amounts reported in the NIKE +Contributions column represent profit sharing contributions made by us in early fiscal 2011 based on fiscal 2010 results; these amounts are also included in amounts reported for fiscal 2010 in the All Other Compensation column of the Summary +Compensation Table. Of the amounts reported in the Aggregate Balance column, the following amounts have been reported in the Summary Compensation Tables in this proxy statement or in prior year proxy statements: Mr. Parker, $4,587,915; +Mr. Blair, $3,102,355; Mr. Denson, $16,135,848; Mr. DeStefano, $758,134; and Mr. Edwards, $2,172,987. +Non-Qualified Deferred Compensation Plans +The Named Executive +Officers are eligible to participate in our Deferred Compensation Plan (the “DCP”). Participants in the DCP may elect in advance to defer up to 100 percent of their annual base salary, bonus and long-term incentive payments. +Each year, we share profits with our employees in the form of profit sharing contributions to defined contribution retirement +plans. The contributions are allocated among eligible employees based on a percentage of their total salary and bonus for the year. To the fullest extent permitted under Internal Revenue Code limitations, these contributions are made to +employees’ accounts under our qualified 401(k) Savings and Profit Sharing Plan. Contributions based on salary and bonus in excess of the tax law limit ($245,000 for fiscal 2011) are made as NIKE contributions under the DCP. +Amounts deferred under the DCP are credited to a participant’s account under the DCP. Each participant may allocate his or her +account among any combination of the investment funds available under the DCP. Participants’ accounts are adjusted to reflect the investment performance of the funds selected by the participants. Participants can change the allocation of their +account balances daily. The funds available under the DCP consist of 11 mutual funds with a variety of investment objectives. The investment funds had annual returns in fiscal 2011 ranging from 0.24% to 39.89%. Amounts credited to participants’ +accounts are invested by us in actual investments matching the investment options selected by the participants to ensure that we do not bear any investment risk related to participants’ investment choices. +The portion of a participant’s account attributable to elective deferrals, including investment returns, is fully vested at all +times. The portion of a participant’s account attributable to NIKE contributions, including investment returns, is fully vested after the participant has been employed by us for five years. All of the Named Executive Officers are fully vested +in their NIKE contributions. +Each time they elect to defer compensation, participants make an election regarding distribution +of the compensation deferred under the election (as adjusted to reflect investment performance). A participant may elect for distribution to be made in a lump sum at the beginning of a predetermined year while the participant is still employed or in +service (but no sooner than the fourth year after the year in which the distribution election is submitted). Alternatively, a participant may elect for distribution to be made in a lump sum or in annual installments over five, ten or fifteen years +after termination of employment or service. Participants have limited rights to change their distribution elections. Participants may make a hardship withdrawal under certain circumstances. Subject to certain limitations, a participant may also at +any time request to withdraw amounts from his or her account balance that were vested as of December 31, 2004 (and any subsequent investment returns on such amount). If such request is approved, the participant may withdraw 90% of the amount +requested, and the remaining 10% will be permanently forfeited. +Potential Payments Upon Termination or Change-in-Control +Change-in-Control Compensation — Acceleration of Equity Awards +Under the terms of stock option and restricted stock awards granted before fiscal 2011, we have agreed to accelerate the vesting of +unvested awards held by the Named Executive Officers upon the approval by our shareholders of an “approved transaction.” This acceleration of vesting will occur whether or not their employment is terminated. In our agreements, +“approved transaction” is generally defined to include an acquisition of NIKE through a merger, consolidation or plan of exchange, a sale of all or substantially all of our assets, or the adoption of a plan for our liquidation or +dissolution. +Beginning with grants in fiscal 2011, we have agreed to accelerate the vesting of restricted stock and stock +options and to extend the standard period for exercising options following termination of employment from three months to four years, but not beyond each option’s original 10-year term, when two events (a “double trigger”) occur: +there is a “change in control” and the Named Executive Officer’s employment is terminated by us without “cause” or by the Named Executive Officer for “good reason”, in each case on or before the second anniversary +of the change in control. A double trigger with respect to vesting of stock options will also occur if we are acquired and the acquiring company does not assume outstanding options. In our agreements, “change in control” is generally +defined to include: +• +the acquisition by any person of 50% or more of our outstanding Class A Stock or, if the Class A Stock no longer elects a majority of +directors, the acquisition by any person of 30% or more of our total outstanding Common Stock, +23 +• +the nomination (and subsequent election) in a two year period of a majority of our directors by persons other than the incumbent directors, and +• +a sale of all or substantially all of our assets, or an acquisition of NIKE through a merger, consolidation or share exchange. +In our agreements, “cause” generally includes willful and continued failure to substantially +perform assigned duties and willful engagement in illegal conduct materially injurious to us. In our agreements, “good reason” generally includes a material diminution in position or duties, a salary reduction or material reduction in +other benefits, and a home office relocation of over 50 miles. +The following table shows the estimated benefits that would +have been received by the Named Executive Officers if a double trigger including an approved transaction had occurred on May 31, 2011. +Name +Restricted Stock +Acceleration +(1) +Stock +Option +Acceleration (2) +Total +Mark G. Parker +$ +9,132,085 +$ +10,104,322 +$ +19,236,407 +Donald W. Blair +2,222,808 +3,349,291 +5,572,099 +Charles D. Denson +5,322,039 +7,842,222 +13,164,261 +Gary M. DeStefano +2,222,208 +3,349,291 +5,572,099 +Trevor A. Edwards +2,222,208 +3,349,291 +5,572,099 +(1) +Information regarding unvested restricted stock held by each Named Executive Officer is set forth in the Outstanding Equity Awards table above. The award agreements +granted before fiscal 2011 provide that all shares will immediately vest upon the approval by our shareholders of an approved transaction. The award agreements granted in and after fiscal 2011 provide that all shares will immediately vest upon the +occurrence of a double trigger. If an approved transaction but not a double trigger had occurred on May 31, 2011, then shares representing only $4,845,825 of the total $9,132,085 would have immediately vested with respect to Mr. Parker; +shares representing only $2,872,736 of the total $5,322,039 would have immediately vested with respect to Mr. Denson; and shares representing only $1,610,462 of the total $2,222,808 would have immediately vested with respect to each of Messrs. +Blair, DeStefano and Edwards. The amounts in the table and discussion above represent the number of unvested restricted shares multiplied by a stock price of $84.45 per share, which was the closing price of our Class B Stock on May 31, 2011. +(2) +Information regarding outstanding unexercisable options held by each Named Executive Officer is set forth in the Outstanding Equity Awards table above. The stock option +agreements granted before fiscal 2011 provide that upon the approval by our shareholders of an approved transaction all outstanding unexercisable options will immediately become exercisable and all unexercised options will remain exercisable during +the remainder of the term of the options, except that the Compensation Committee may provide a 30-day period prior to the change of control during which the optionees may exercise the options without any limitation on exercisability. At the end of +the 30-day period, the options would terminate. Amounts in the table above with respect to options granted before fiscal 2011 represent the aggregate value as of May 31, 2011 of each Named Executive Officer’s outstanding unexercisable +pre-2011 options based on the positive spread between the exercise price of each such option and a stock price of $84.45 per share, which was the closing price of our Class B Stock on May 31, 2011. The stock option agreements granted in and +after fiscal 2011 provide that upon the occurrence of a double trigger all unexercisable options will immediately become fully exercisable and the standard three-month period for exercising options following termination of employment will be +extended to four years, but not beyond each option’s original 10-year term. Amounts in the table above with respect to options granted in fiscal 2011 represent the sum of (i) for each Named Executive Officer’s outstanding +unexercisable post-2010 options, the aggregate value as of May 31, 2011 of those options assuming a four-year remaining term and otherwise calculated using the Black-Scholes option pricing model with assumptions consistent with those used by us +for valuing our options under accounting guidance applicable to stock-based compensation, plus (ii) for each Named Executive Officer’s outstanding exercisable post-2010 options, the increase in value of those options resulting from the +extension of the post-termination exercise period from three months to four years, if applicable, with the option values for three-month and four-year remaining terms calculated using the Black-Scholes option pricing model with assumptions +consistent with those used for valuing our options under accounting guidance applicable to stock-based compensation. If an approved transaction but not a double trigger had occurred on May 31, 2011, then the amounts in the table above would be +only $6,248,138 for Mr. Parker; $5,037,725 for Mr. Denson; and $2,180,750 for each of Messrs. Blair, DeStefano and Edwards. +24 +Benefits Triggered on Certain Employment Terminations +Stock Option Acceleration and Extension +As of May 31, 2011, each Named Executive Officer held options to purchase Class B Stock as listed in the Outstanding Equity Awards table above. Under the terms of the stock options granted to each +Named Executive Officer before fiscal 2011, upon the death or disability of the officer, all unexercisable options become fully exercisable and the standard three-month period for exercising options following termination of employment is extended to +12 months, but not beyond each option’s original 10-year term. Under the terms of the stock options granted to each Named Executive Officer in and after fiscal 2011, upon the death or disability of the officer, all unexercisable options become +fully exercisable and the standard three-month period for exercising options following termination of employment is extended to four years, but not beyond each option’s original 10-year term. If death or disability of a Named Executive Officer +had occurred on May 31, 2011, the sum of (i) for outstanding unexercisable options that would have become exercisable, the aggregate value as of May 31, 2011 of those options assuming a 12-month term, in the case of options granted +before fiscal 2011, and a four-year remaining term, in the case of options granted in or after fiscal 2011, and otherwise calculated using the Black-Scholes option pricing model with assumptions consistent with those used by us for valuing our +options under accounting guidance applicable to stock-based compensation, plus (ii) for outstanding exercisable options, the increase in value, if any, of those options resulting from the extension of the post-termination exercise period from +three months to 12 months, in the case of options granted before fiscal 2011, and from three months to four years, in the case of options granted in or after fiscal 2011, with the option values as of May 31, 2011 for three-month, 12-month and +four-year remaining terms calculated using the Black-Scholes option pricing model with assumptions consistent with those used by us for valuing our options under accounting guidance applicable to stock-based compensation, is $10,104,322 for +Mr. Parker, $7,842,222 for Mr. Denson, and $3,349,291 for Messrs. Blair, DeStefano and Edwards. +Under the terms of +the stock options granted to Named Executive Officers before fiscal 2011, if termination of the officer’s employment occurs when the officer’s retirement point total is at least 55 and the officer has been employed by us for at least five +years, then a portion of the unexercisable options will become exercisable for a maximum remaining term of three months as follows: +Retirement Point Total +Percent of Unexercisable Option +That Becomes +Exercisable +55 or 56 +20% +57 +40% +58 +60% +59 +80% +60 +100% +An officer’s “retirement point total” means the sum of the officer’s age plus the number of years +that the officer has been employed by us. As of May 31, 2011, the retirement point total for each of the Named Executive Officers was over 60, and these officers are therefore eligible to have all unexercisable pre-2011 options become fully +exercisable on any termination of employment. The aggregate value as of May 31, 2011 of pre-2011 options held by each of the Named Executive Officers that would have become exercisable if termination of employment (other than due to death or +disability) had occurred on that date based on the positive spread between the exercise price of each option and a stock price of $84.45 per share, which was the closing price of our Class B Stock on May 31, 2011, is $6,248,138 for +Mr. Parker; $5,037,725 for Mr. Denson; and $2,180,750 for Messrs. Blair, DeStefano and Edwards. +Under the terms of +the stock options granted to Named Executive Officers in or after fiscal 2011, the treatment of stock options on retirement is modified. Under these agreements, vesting of options that have been outstanding for at least one year will be accelerated +if the holder retires after reaching age 60 with at least 5 years of service, and vesting of options that have been outstanding for at least one year will continue notwithstanding termination of employment if the holder retires after reaching age 55 +with at least 5 years of service. In addition, for any holder who retires after reaching age 55 with at least 5 years of service, the standard three-month period for exercising these options following termination of employment will be extended to +four years, but not beyond the option’s original 10-year term. The aggregate value as of May 31, 2011 of options held by each of the Named Executive Officers pursuant to stock option agreements granted in or after fiscal 2011 that would +have become exercisable if termination of employment (other than due to death or disability) had occurred on that date is zero since none of these options had been outstanding for a full year. +Restricted Stock Acceleration +As of May 31, 2011, each Named Executive Officer held unvested restricted stock as set forth in the Outstanding Equity Awards table above. Under the terms of their award agreements, all unvested +restricted shares will immediately vest upon the death or disability of the officer. The value of the unvested restricted shares held by each Named Executive Officer as of May 31, 2011 that would have become vested if death or disability had +occurred on that date is as set forth in the “Restricted Stock Acceleration” column of the Change-in-Control Compensation — Acceleration of Equity Awards table above. +25 +Payments Under Noncompetition Agreements +We have an agreement with each of Mr. Parker and Mr. Denson that contains a covenant not to compete that extends for two years +following the termination of the officer’s employment with us. Each agreement provides that if the officer’s employment is terminated by us, we will make monthly payments to him during the two-year noncompetition period in an amount equal +to one-twelfth of his then current annual salary and target Performance Sharing Plan bonus (“Annual Nike Income”). Each agreement provides further that if the officer voluntarily resigns, we will make monthly payments to him during the +two-year noncompetition period in an amount equal to one-twenty-fourth of his then current Annual Nike Income. However, commencement of the above-described monthly payments will be delayed until after the six-month period following the +officer’s separation from service, and all payments that the officer would otherwise have received during that period will be paid in a lump sum promptly following the end of the period, together with interest at the prime rate. If employment +is terminated without cause, the parties may mutually agree to waive the covenant not to compete, and if employment is terminated for cause, we may unilaterally waive the covenant. If the covenant is waived, we will not be required to make the +payments described above for the months as to which the waiver applies. If the employment of these officers had been terminated by us on May 31, 2011 and assuming the covenant is not waived, we would have been required to pay Mr. Parker +$303,542 per month and Mr. Denson $242,000 per month for the 24-month period ending May 31, 2013. If these officers had voluntarily resigned on May 31, 2011 and assuming the covenant is not waived, we would have been required to pay +Mr. Parker $151,771 per month and Mr. Denson $121,000 per month for the 24-month period ending May 31, 2013. +We have noncompetition agreements with Messrs. Blair, DeStefano and Edwards on the same terms, except that the noncompetition period +is one year instead of two years, the six month delay for commencement of payments does not apply and we may unilaterally waive the covenant in all cases including termination without cause. In addition, for Messrs. Blair and Edwards, the +monthly payments are one-twelfth or one-twenty-fourth of their current annual salaries, instead of their Annual Nike Income, and for Mr. DeStefano, the monthly payments on voluntary resignation are one-twenty-fourth of his current annual +salary. If the employment of these officers had been terminated by us on May 31, 2011 and assuming the covenant is not waived, we would have been required to pay each of Messrs. Blair and Edwards $70,834 per month and Mr. DeStefano +$154,500 per month for the 12-month period ending May 31, 2012. If these officers had voluntarily resigned on May 31, 2011 and assuming the covenant is not waived, we would have been required to pay each of Messrs. Blair and Edwards +$35,417 per month and Mr. DeStefano $42,917 per month for the 12-month period ending May 31, 2012. +26 +PROPOSAL 2 +SHAREHOLDER ADVISORY VOTE ON EXECUTIVE COMPENSATION +As required by +Section 14A of the Securities Exchange Act of 1934, we are submitting to shareholders an advisory vote to approve the compensation of our Named Executive Officers as disclosed pursuant to the compensation disclosure rules of the SEC in the +“Compensation Discussion and Analysis” section of this proxy statement beginning on page 12, and the related compensation tables and narratives. The Compensation Committee values the opinions of shareholders and will consider the outcome +of the vote when making future compensation decisions. +As discussed in the Compensation Discussion and Analysis, our +compensation philosophy is designed to attract and retain highly-talented individuals, provide rewards for strong business results and individual performance, and motivate executives to maximize long-term shareholder returns. The program is +competitive in the marketplace, highly incentive-based to align interests of executives with those of shareholders, and balanced across incentives to appropriately mitigate risk. +To achieve our philosophy, the Compensation Committee has continued to strengthen pay-for-performance principles by incorporating strong +governance practices over time, including: +• +Increasing the portion of total compensation that is “at risk” +• +Limiting vesting of equity awards upon a change-in-control to circumstances in which a “double trigger” has occurred +• +Restricting the availability of retirement vesting for stock options, prohibiting option re-pricing or discounting without shareholder approval, and +limiting the number of full value shares that can be issued +• +Adopting a “clawback” policy applicable to all executive officers to recoup incentive compensation for wrongful conduct that results in an +accounting restatement. +The Compensation Committee and the Board of Directors believe that the information +provided in this proxy statement demonstrates that our executive compensation program is designed appropriately and is working to ensure that management’s interests are aligned with our shareholders’ interests to maximize long-term +shareholder returns. +Because your vote is advisory, it will not be binding on the Board; however, the Board values +shareholder opinions, and the Compensation Committee will take into account the outcome of the vote when considering future executive compensation arrangements. +Board Recommendation +The Board of Directors recommends that +shareholders vote FOR approval of the compensation paid to the Named Executive Officers. Holders of Class A Stock and Class B Stock will vote together as a single class on Proposal 2. If a quorum is present at the Annual Meeting, Proposal 2 +will be approved if the number of shares voted in favor of the proposal exceeds the number of shares voting against the proposal. Abstentions and broker non-votes are counted for purposes of determining whether a quorum exists, but are not counted +as voting either for or against and therefore have no effect on the results of the vote. +27 +PROPOSAL 3 +FREQUENCY OF FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION +In addition +to providing our shareholders with the opportunity to cast an advisory vote on executive compensation, and also as required by Section 14A of the Securities Exchange Act of 1934, we are submitting to an advisory shareholder vote how frequently +future advisory votes on executive compensation should occur. Shareholders may vote for advisory votes to occur every year, every two years, or every three years. +After careful consideration, the Board of Directors recommends an annual vote. The Board believes in the value of the opportunity for shareholders to voice their opinion annually on the Company’s +executive compensation. +Because your vote is advisory, it will not be binding on the Board; however, the Board will give +significant weight to shareholder preferences on this matter. +Board Recommendation +The Board of Directors recommends that shareholders vote for future shareholder advisory votes on executive compensation to be held +EVERY YEAR. Holders of Class A Stock and Class B Stock will vote together as a single class on Proposal 3. The option of every year, every two years, or every three years that receives the highest number of votes cast by shareholders will be +the frequency approved by shareholders. Abstentions and broker non-votes are counted for purposes of determining whether a quorum exists, but have no effect on the results of the vote. +28 +PROPOSAL 4 +RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +The Audit +Committee of the Board of Directors has appointed PricewaterhouseCoopers LLP as independent registered public accounting firm to examine the Company’s consolidated financial statements for the fiscal year ending May 31, 2012 and to render +other professional services as required. +The Audit Committee is submitting the appointment of PricewaterhouseCoopers LLP to +shareholders for ratification. If the appointment is not ratified by our shareholders, the Audit Committee may reconsider whether it should appoint another independent registered public accounting firm. +Representatives of PricewaterhouseCoopers LLP will be present at the Annual Meeting, will have the opportunity to make a statement if +they desire to do so, and are expected to be available to respond to questions. +Aggregate fees billed by the Company’s +independent registered public accounting firm, PricewaterhouseCoopers LLP, for audit services related to the most recent two fiscal years, and for other professional services incurred in the most recent two fiscal years, were as follows: +Type of Service +2011 +2010 +Audit Fees (1) +$ +8.1 million +$ +7.0 million +Audit-Related Fees (2) +$ +0.2 million +$ +0.5 million +Tax Fees (3) +$ +2.4 million +$ +2.2 million +All Other Fees (4) +$ +0.8 million +$ +0.2 million +Total +$ +11.5 million +$ +9.9 million +(1) +Comprised of the audits of the Company’s annual financial statements and internal controls over financial reporting, and reviews of the Company’s quarterly +financial statements, as well as statutory audits of Company subsidiaries, attest services and consents to SEC filings. +(2) +Comprised of employee benefit plan audits and consultations regarding financial accounting and reporting. +(3) +Comprised of services for tax compliance, tax planning, and tax advice. Tax compliance includes services related to the preparation or review of original and amended +tax returns for the Company and its consolidated subsidiaries and represents $1.6 million of the tax fees for each of fiscal 2011 and 2010. The remaining tax fees primarily include tax advice. +(4) +Comprised of other miscellaneous services. +In accordance with the Sarbanes-Oxley Act of 2002, the Audit Committee established policies and procedures under which all audit and non-audit services performed by the Company’s independent +registered public accounting firm must be approved in advance by the Audit Committee. During fiscal 2011, all such services were approved in advance. During fiscal 2010, fees totaling $37,000, or 0.4% of total fees, were paid to +PricewaterhouseCoopers LLP for two engagements that were not pre-approved. All such services were approved by the Audit Committee promptly after their inadvertent omission from pre-approval was noticed. +Board Recommendation +The Board of Directors recommends that shareholders vote FOR ratification of PricewaterhouseCoopers LLP as the Company’s +independent registered public accounting firm for the fiscal year ending May 31, 2012. +Notwithstanding anything +to the contrary set forth in any of the Company’s filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, the following Report of the Audit Committee shall not be incorporated by reference into any such filings and +shall not otherwise be deemed filed under such acts. +29 +REPORT OF THE AUDIT COMMITTEE +The Audit Committee has: +• +Reviewed and discussed the audited financial statements with management. +• +Discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, as amended, and as adopted +by the Public Company Accounting Oversight Board (“PCAOB”) in Rule 3200T pursuant to Item 407(d)(3)(i)(B) of Regulation S-K of the Securities Exchange Act of 1934, as amended, regarding “ Communications with Audit +Committees ”. +• +Received the written disclosures and the letter from the independent accountants required by applicable requirements of the PCAOB regarding the +independent accountants’ communications concerning independence, and has discussed with the independent accountant the independent accountant’s independence. +• +Based on the review and discussions above, recommended to the Board of Directors that the audited financial statements be included in the +Company’s Annual Report on Form 10-K for the last fiscal year for filing with the Securities and Exchange Commission. +Members of the Audit Committee: +Alan B. Graf, Jr., Chairman +John G. Connors +Orin C. Smith +OTHER MATTERS +As of the time this proxy statement was printed, management was unaware of any proposals to be presented for consideration at the Annual Meeting other than those set forth herein, but if other matters do +properly come before the Annual Meeting, the persons named in the proxy will vote the shares represented by such proxy according to their best judgment. +30 +SHAREHOLDER PROPOSALS +A proposal by a shareholder for inclusion in the Company’s proxy statement and form of proxy for the 2011 annual meeting of +shareholders must be received by John F. Coburn III, Secretary of NIKE, at One Bowerman Drive, Beaverton, Oregon 97005-6453, on or before April 3, 2012 to be eligible for inclusion. Rules under the Securities Exchange Act of 1934 describe +standards as to the submission of shareholder proposals. In addition, the Company’s bylaws require that any shareholder wishing to make a nomination for Director, or wishing to introduce a proposal or other business at a shareholder meeting +must give the Company at least 60 days’ advance written notice, and that notice must meet certain requirements described in the bylaws. +For the Board of Directors +JOHN F. COBURN III +S ECRETARY +31 +ANNUAL +MEETING +AND +PROXY STATEMENT +September 19, 2011 +Beaverton, Oregon +Admission Ticket +Electronic Voting Instructions +You can vote by Internet or telephone +Available 24 hours a day, 7 days a week +Instead of mailing your proxy, you may choose one of the two voting methods outlined below to vote your proxy. +VALIDATION DETAILS ARE LOCATED BELOW IN +THE TITLE BAR. +Proxies submitted by the Internet or telephone must +be received by 1:00 a.m., Central Time, on September 19, 2011. +Vote by Internet +• Log on to the Internet and go to www.investorvote.com +• Follow the steps outlined on the secured website. +Vote by telephone +• Call toll free 1-800-652-VOTE (8683) within the USA, US territories & Canada +any time on a touch tone telephone. There is NO CHARGE to you for the call. +Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas. +x +• Follow the instructions provided by the recorded message. +q IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, +DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q +A +Proposals — The Board of Directors recommends a vote FOR all the nominees listed and FOR Proposals 2 and 4, and every one year +for +proposal 3. +1. +Class A director nominees: To elect a Board of Directors for the ensuing year. +For +Withhold +For +Withhold +For +Withhold ++ +01 - Elizabeth J. Comstock +¨ +¨ +02 - John G. Connors +¨ +¨ +03 - Timothy D. Cook +¨ +¨ +04 - Douglas G. Houser +¨ +¨ +05 - Philip H. Knight +¨ +¨ +06 - Mark G. Parker +¨ +¨ +07 - Johnathan A. Rodgers +¨ +¨ +08 - Orin C. Smith +¨ +¨ +09 - John R. Thompson, Jr. +¨ +¨ +For +Against +Abstain +1 Yr +2 Yrs +3 Yrs +Abstain +2. +To hold an advisory vote on executive compensation. +¨ +¨ +¨ +3. +To hold an advisory vote on the frequency of future advisory votes on executive compensation. +¨ +¨ +¨ +¨ +4. +To ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm. +¨ +¨ +¨ +5. +To transact such other business as may properly come before the meeting. +B +Non-Voting Items +Change of Address — Please print new address below. +C +Authorized Signatures — This section must be completed for your vote to be counted. — +Date and Sign Below +Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, +administrator, corporate officer, trustee, guardian, or custodian, please give full title. +Date (mm/dd/yyyy) — Please print date below. +Signature 1 — Please keep signature within the box. +Signature 2 — Please keep signature within the box. +/ / +Meeting Information +2011 Annual Meeting of Shareholders +for Shareholders as of July 25, 2011 +September 19, 2011 +10:00 A.M. PDT +Meeting Location: +Tiger Woods Conference Center +One Bowerman Drive +Beaverton, OR 97005 +Meeting Directions: +From I-5 South of Portland: I-5 North to 217 North. Follow to Hwy 26 West. +From I-5 North of Portland: I-5 South to I-405 South. Follow to Hwy 26 West. +From I-84 +East of Portland: I-84 West to I-5 South to I-405 North. Follow to Hwy 26 West. +Exit Hwy 26 at Murray Blvd, turn left and drive one mile. +Turn right on Walker Road, then left on Meadow Drive into the NIKE World Headquarters (WHQ). Check in at the Security bunker located at the top of the entry. The Tiger Woods Conference Center is located directly ahead of the Security bunker. For +patron drop off only, continue straight ahead to the main entry. To park, turn left from the Security bunker onto Del Hayes Way and enter parking lots on either side of Del Hayes Way. Follow the covered sidewalk to the main entry of the Tiger Woods +Conference Center. Please note that the NIKE Campus is a non-smoking location and smoking is not permitted on NIKE WHQ property. +q IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION +IN THE ENCLOSED ENVELOPE. q +NIKE, INC. +CLASS A COMMON STOCK PROXY +SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +FOR THE 2011 MEETING OF SHAREHOLDERS +SEPTEMBER 19, 2011 +The undersigned hereby appoints Philip H. Knight, Mark G. Parker and Douglas G. Houser, and each of them, proxies with full power of substitution, to +vote, as designated on the reverse side, on behalf of the undersigned, all shares of Class A Common Stock which the undersigned may be entitled to vote at the Annual Meeting of Shareholders of NIKE, Inc. on September 19, 2011, and any adjournments +thereof, with all powers that the undersigned would possess if personally present. A majority of the proxies or substitutes present at the meeting may exercise all powers granted hereby. +THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED, BUT IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR, AND FOR PROPOSALS +2 AND 4, AND EVERY ONE YEAR FOR PROPOSAL 3. THE PROXIES MAY VOTE IN THEIR DISCRETION AS TO OTHER MATTERS WHICH MAY COME BEFORE THE MEETING. +YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS’ RECOMMENDATIONS. THE +PROXIES CANNOT VOTE THESE SHARES UNLESS YOU SIGN AND RETURN THIS CARD OR PROPERLY VOTE BY PHONE OR INTERNET. +Admission Ticket +Electronic Voting Instructions +You can vote by Internet or telephone +Available 24 hours a day, 7 days a week +Instead of mailing your proxy, you may choose one of the two voting methods outlined below to vote your proxy. +VALIDATION DETAILS ARE LOCATED BELOW IN +THE TITLE BAR. +Proxies submitted by the Internet or telephone must +be received by 1:00 a.m., Central Time, on September 19, 2011. +Vote by Internet +• Log on to the Internet and go to www.investorvote.com +• Follow the steps outlined on the secured website. +Vote by telephone +• Call toll free 1-800-652-VOTE (8683) within the USA, US territories & Canada +any time on a touch tone telephone. There is NO CHARGE to you for the call. +Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas. +x +• Follow the instructions provided by the recorded message. +q IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, +DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q +A +Proposals — The Board of Directors recommends a vote FOR all the nominees listed and FOR Proposals 2 and 4, and every one year for +Proposal 3. +1. +Class B director nominees: To elect a Board of Directors for the ensuing year. +For +Withhold +For +Withhold +For +Withhold ++ +01 - Alan B. Graf, Jr. +¨ +¨ +02 - John C. Lechleiter +¨ +¨ +03 - Phyllis M. Wise +¨ +¨ +For +Against +Abstain +1 Yr +2 Yrs +3 Yrs +Abstain +2. +To hold an advisory vote on executive compensation. +¨ +¨ +¨ +3. +To hold an advisory vote on the frequency of future advisory votes on executive compensation. +¨ +¨ +¨ +¨ +4. +To ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm. +¨ +¨ +¨ +5. +To transact such other business as may properly come before the meeting. +B +Non-Voting Items +Change of Address — Please print new address below. +C +Authorized Signatures — This section must be completed for your vote to be counted. — +Date and Sign Below +Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, +administrator, corporate officer, trustee, guardian, or custodian, please give full title. +Date (mm/dd/yyyy) — Please print date below. +Signature 1 — Please keep signature within the box. +Signature 2 — Please keep signature within the box. +/ / +Meeting Information +2011 Annual Meeting of Shareholders +for Shareholders as of July 25, 2011 +September 19, 2011 +10:00 A.M. PDT +Meeting Location: +Tiger Woods Conference Center +One Bowerman Drive +Beaverton, OR 97005 +Meeting Directions: +From I-5 South of Portland: I-5 North to 217 North. Follow to Hwy 26 West. +From I-5 North of Portland: I-5 South to I-405 South. Follow to Hwy 26 West. +From I-84 +East of Portland: I-84 West to I-5 South to I-405 North. Follow to Hwy 26 West. +Exit Hwy 26 at Murray Blvd, turn left and drive one mile. +Turn right on Walker Road, then left on Meadow Drive into the NIKE World Headquarters (WHQ). Check in at the Security bunker located at the top of the entry. The Tiger Woods Conference Center is located directly ahead of the Security bunker. For +patron drop off only, continue straight ahead to the main entry. To park, turn left from the Security bunker onto Del Hayes Way and enter parking lots on either side of Del Hayes Way. Follow the covered sidewalk to the main entry of the Tiger Woods +Conference Center. Please note that the NIKE Campus is a non-smoking location and smoking is not permitted on NIKE WHQ property. +q IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION +IN THE ENCLOSED ENVELOPE. q +NIKE, INC. +CLASS B COMMON STOCK PROXY +SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +FOR THE 2011 MEETING OF SHAREHOLDERS +SEPTEMBER 19, 2011 +The undersigned hereby appoints Philip H. Knight, Mark G. Parker and Douglas G. Houser, and each of them, proxies with full power of substitution, to +vote, as designated on the reverse side, on behalf of the undersigned, all shares of Class B Common Stock which the undersigned may be entitled to vote at the Annual Meeting of Shareholders of NIKE, Inc. on September 19, 2011, and any +adjournments thereof, with all powers that the undersigned would possess if personally present. A majority of the proxies or substitutes present at the meeting may exercise all powers granted hereby. +THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED, BUT IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF +THE NOMINEES FOR DIRECTOR, AND FOR PROPOSALS 2 AND 4, AND EVERY ONE YEAR FOR PROPOSAL 3. THE PROXIES MAY VOTE IN THEIR DISCRETION AS TO OTHER MATTERS WHICH MAY COME BEFORE THE MEETING. +YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE +BOARD OF DIRECTORS’ RECOMMENDATIONS. THE PROXIES CANNOT VOTE THESE SHARES UNLESS YOU SIGN AND RETURN THIS CARD OR PROPERLY VOTE BY PHONE OR INTERNET. \ No newline at end of file diff --git a/raw/proxies/0000320187/0001193125-11-197477/proxy_rpt.txt b/raw/proxies/0000320187/0001193125-11-197477/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..2cfd315182c53e75e637372f0efb31a030264ed4 --- /dev/null +++ b/raw/proxies/0000320187/0001193125-11-197477/proxy_rpt.txt @@ -0,0 +1,21 @@ +Transactions with Related Persons +Mr. Knight makes his airplane available for business use by the Company for no charge. NIKE operates and maintains the aircraft. +Mr. Knight has reimbursed the Company $729,433 for NIKE’s operating costs related to his personal use of this aircraft during fiscal 2011, determined based on the cost of fuel and other variable costs associated with the flights under FAR +91-501(d). +Pursuant to the terms of a past consulting agreement with the Company, the Company agreed to pay for health +insurance and for life insurance policies for Howard Slusher, the father of John Slusher, Vice President of Sports Marketing, following expiration of the agreement. During fiscal 2011, the Company paid Howard Slusher $129,870 for health and life +insurance premiums. +Three of Mr. Parker’s siblings are employed by the Company in non-executive roles. Bob Parker +is a Strategic Sales Director, and has been employed by the Company for over 27 years; Stephen Parker is the General Manager, China-Converse, and has been employed by the Company for over 23 years; and Ann Parker is a Talent Development and +Community Relations Director at Hurley LLC, and has been employed by the Company for over 21 years. During fiscal year 2011, the Company paid aggregate compensation to Bob Parker, Stephen Parker and Ann Parker in the amounts of $409,833, $476,330, +$206,201, respectively. The compensation was consistent with compensation paid to other employees holding similar positions, and was composed of salary, performance bonus, the grant date fair value of stock options granted during the fiscal year +estimated using the Black-Scholes pricing model, and profit sharing and matching contributions to Company-sponsored retirement plans. +Mr. Thompson’s son, John Thompson III, is the head basketball coach at Georgetown University, and the Company has a contract with him to provide endorsement and consulting services to the +Company through August 2014, with base compensation over the 5-year term of the contract of $500,000, and up to $80,000 per year of product and other performance incentives. +Compensation Committee Interlocks and Insider Participation +The members +of the Compensation Committee of the Board of Directors during the fiscal year ended May 31, 2011 were Ralph D. DeNunzio, Timothy D. Cook, John C. Lechleiter, and Johnathan A. Rodgers. The Committee is composed solely of independent, +non-employee directors. No member of the Compensation Committee has been an executive officer of the Company, and no member of the Compensation Committee had any relationships requiring disclosure by the Company under the SEC’s rules requiring +disclosure of certain relationships and related-party transactions. None of the Company’s executive officers served as a director or member of a compensation committee (or other committee serving an equivalent function) of any other entity, the +executive officers of which served as a director or member of the Compensation Committee of the Company during the fiscal year ended May 31, 2011. +11 \ No newline at end of file diff --git a/raw/proxies/0000320187/0001193125-12-319499/proxy.txt b/raw/proxies/0000320187/0001193125-12-319499/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..997792f7002f47aceea4e16919bfad155cf64d04 --- /dev/null +++ b/raw/proxies/0000320187/0001193125-12-319499/proxy.txt @@ -0,0 +1,2708 @@ +DEF 14A +1 +d380607ddef14a.htm +DEFINITIVE PROXY STATEMENT +Definitive Proxy Statement +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of the +Securities Exchange Act of 1934 +(Amendment No. ) +Filed by the +Registrant x +Filed by a Party other than the +Registrant ¨ +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material under §240.14a-12 +NIKE, INC. +(Name of registrant as specified in its charter) +(Name of person(s) filing proxy statement, if other than the registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11 +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee +is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the +previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +To Our Shareholders: +You are cordially invited to attend the annual meeting of shareholders of NIKE, Inc. to be held at the Tiger Woods Conference Center, One Bowerman Drive, Beaverton, Oregon 97005-6453, on Thursday, +September 20, 2012, at 10:00 A.M. Pacific Time. Registration will begin at 9:00 A.M. +The meeting will consist of a brief presentation followed by +the business items listed on the attached notice. +Whether or not you plan to attend, the prompt execution and return of your proxy card will both +assure that your shares are represented at the meeting and minimize the cost of proxy solicitation. +Sincerely, +Philip H. Knight +Chairman of the Board +July 27, 2012 +Notice of Annual Meeting +of Shareholders +September 20, 2012 +To the Shareholders of NIKE, Inc. +The annual meeting of shareholders of NIKE, Inc., an Oregon corporation, will be held on +Thursday, September 20, 2012, at 10:00 A.M., at the Tiger Woods Conference Center, One Bowerman Drive, Beaverton, Oregon 97005-6453, for the following purposes: +1. To elect a Board of Directors for the ensuing year. +2. To hold an +advisory vote to approve executive compensation. +3. To amend the Articles of Incorporation to increase the number of authorized shares of common stock. +4. To re-approve +and amend the NIKE, Inc. Long-Term Incentive Plan. +5. To ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm. +6. To consider a +shareholder proposal regarding political contributions disclosure. +7. To transact such other business as may properly come before the meeting. +All shareholders are invited to attend the meeting. Shareholders of record at the close of business on July 23, 2012, the record date fixed by the Board of +Directors, are entitled to notice of and to vote at the meeting. You must present your proxy or voter instruction card or meeting notice for admission. +By Order of the Board of Directors +John F. Coburn III +Secretary +Beaverton, Oregon +July 27, 2012 +Whether or not you +intend to be present at the meeting, please sign and date the enclosed proxy and return it in the enclosed envelope, or vote by telephone or over the internet following the instructions on the proxy. +CORPORATE GOVERNANCE +Proxy Statement +Proxy Statement +The enclosed proxy is solicited by the Board of Directors of NIKE, Inc. (“NIKE” or the “Company”) for use at the annual meeting of shareholders +to be held on September 20, 2012, and at any adjournment thereof (the “Annual Meeting”). The Company expects to provide notice and electronic delivery of this proxy statement and the enclosed proxy to shareholders on or about +August 9, 2012. +The Company will bear the cost of soliciting proxies. In addition to soliciting proxies by mail, certain officers and +employees of the Company, without extra compensation, may also solicit proxies personally or by telephone. Copies of proxy solicitation materials will be furnished to fiduciaries, custodians and brokerage houses for forwarding to the beneficial +owners of shares held in their names. +All valid proxies properly executed and received by the Company prior to the Annual Meeting will be voted in +accordance with the instructions specified in the proxy. Where no instructions are given, shares will be voted “FOR” the election of each of the named nominees for director (Proposal No. 1), “FOR” the proposal regarding +an advisory vote to approve executive compensation (Proposal No. 2), “FOR” the amendment to the Articles of Incorporation to increase the authorized shares of Common Stock of the Company (Proposal No. 3), “FOR” the +re-approval and amendment of the NIKE, Inc. Long-Term Incentive Plan (Proposal No. 4), “FOR” the ratification of the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm (Proposal No. 5), and +“AGAINST” the shareholder proposal regarding political contributions disclosure (Proposal No. 6). +A shareholder giving the enclosed +proxy has the power to revoke it at any time before it is exercised by affirmatively electing to vote in person at the meeting or by delivering to John F. Coburn III, Secretary of NIKE, either an instrument of revocation or an executed proxy bearing +a later date. +Voting Securities +Holders of record of NIKE’s Class A Common Stock (“Class A Stock”) and +holders of record of NIKE’s Class B Common Stock (“Class B Stock”) at the close of business on July 23, 2012 will be entitled to vote at the Annual Meeting. On that date, 89,892,248 shares of Class A Stock and 363,982,514 +shares of Class B Stock were issued and outstanding. Neither class of Common Stock has cumulative voting rights. +Each share of Class A +Stock and each share of Class B Stock is entitled to one vote on every matter submitted to the shareholders at the Annual Meeting. With regard to Proposal No. 1, the election of directors, the holders of Class A Stock and the holders of +Class B Stock will vote separately. Holders of Class B Stock are currently entitled to elect 25 percent of the total Board, rounded up to the next whole number. Holders of Class A Stock are currently entitled to elect the remaining +directors. Under this formula, holders of Class B Stock, voting separately, will elect three directors, and holders of Class A Stock, voting separately, will elect nine directors. Holders of Class A Stock and holders of Class B Stock will +vote separately on Proposal 3. Holders of Class A Stock and holders of Class B Stock will vote together as one class on Proposal Nos. 2, 4, 5 and 6. +CORPORATE GOVERNANCE +Board of Directors +The Board of +Directors is currently composed of nine independent directors, one outside director who is not independent, Philip H. Knight, Chairman of the Board, and Mark G. Parker, President and Chief Executive Officer. There were five meetings of the Board of +Directors during the last fiscal year. During the fiscal year ended May 31, 2012, each director attended at least 75 percent of the total number of meetings of the Board of Directors and committees on which he or she served. The Company +encourages all directors to attend each annual meeting of shareholders, and all current directors attended the 2011 Annual Meeting. +Board Committees +The Board’s current standing committees are an Executive Committee, an Audit +Committee, a Nominating and Corporate Governance Committee, a Finance Committee, a Corporate Responsibility Committee, and a Compensation Committee, and the Board may also appoint other committees from time to time. Each standing committee has a +written charter; all such charters, as well as the Company’s corporate governance guidelines, are available at the Company’s website (http://investors.nikeinc.com ) and will be provided in print to any shareholder who submits a +request in writing to NIKE Investor Relations, One Bowerman Drive, Beaverton, Oregon 97005-6453. +The Executive Committee is authorized to act on +behalf of the Board on all corporate actions for which applicable law does not require participation by the full Board. In practice, the Executive Committee acts in place of the full Board only when emergency issues or scheduling conflicts make it +difficult or impracticable to assemble the full Board. All actions taken by the Executive Committee must be reported at the next Board meeting. The Executive Committee held no formal meetings during the fiscal year ended May 31, 2012, but took +actions from time to time pursuant to written consent resolutions. +The Audit Committee is responsible for the engagement or discharge of the independent +registered public accountants, reviews and approves services provided by the independent registered public accountants, and reviews with the independent registered public accountants the scope and results of their annual examination of the +Company’s consolidated financial statements and any recommendations they may have. The Audit Committee also reviews the Company’s procedures with respect to maintaining books and records, the adequacy and implementation of internal +auditing, accounting, disclosure, and financial controls, and the Company’s policies concerning financial +NIKE, INC. · 2012 Notice of Annual Meeting +1 +CORPORATE GOVERNANCE +Board of Directors +reporting and business practices. The Board has determined that each member of the Audit Committee meets all applicable independence and financial literacy requirements under the New York Stock +Exchange (the “NYSE”) listing standards and applicable regulations adopted by the Securities and Exchange Commission (the “SEC”). The Board has also determined that Mr. Graf is an “audit committee financial expert” +as defined in regulations adopted by the SEC. +The Nominating and Corporate Governance Committee identifies individuals qualified to become Board +members, recommends director nominees for election at each annual shareholder meeting, and develops and recommends corporate governance guidelines and standards for business conduct and ethics. The Committee also oversees the annual self-evaluations +of the Board and its committees and makes recommendations to the Board concerning the structure and membership of the other Board committees. The Company’s written policy requires the Nominating and Corporate Governance Committee to review any +transaction or proposed transaction with a related person that would be required to be reported under Item 404(a) of Regulation S-K, and to determine whether to ratify or approve the transaction, with ratification or approval to occur only if +the Committee determines that the transaction is fair to the Company or that approval or ratification of the transaction is in the interest of the Company. The Board has determined that each member of the Nominating and Corporate Governance +Committee meets all applicable independence requirements under the NYSE listing standards. +The Finance Committee considers long-term financing options +and needs of the Company, long-range tax and currency issues facing the Company, and management recommendations concerning major capital expenditures and material acquisitions or divestments. +The Corporate Responsibility Committee reviews significant activities and policies regarding labor and environmental practices, community affairs, charitable and foundation activities, diversity and equal +opportunity, and environmental and sustainability initiatives, and makes recommendations to the Board of Directors. +The Compensation Committee oversees +the performance evaluation of the Chief Executive Officer and our other Named Executive Officers, and recommends their compensation for approval by the independent members of the Board of Directors. The Compensation Committee also grants equity +incentive awards under the NIKE, Inc. 1990 Stock Incentive Plan, and determines targets and awards under the NIKE, Inc. Executive Performance Sharing Plan and the NIKE, Inc. Long-Term Incentive Plan. The Committee also makes recommendations to the +Board regarding other executive incentive compensation arrangements and profit sharing plan contributions. The Board has determined that each member of the Compensation Committee meets all applicable independence requirements under the NYSE listing +standards. +The table below provides information regarding membership of each Board +committee as of May 31, 2012 and meetings held during fiscal 2012: +Director Name +Audit +Compensation +Nominating and +Corporate Governance +Corporate +Responsibility +Finance +Executive +Elizabeth J. Comstock +ü +ü +John G. Connors +ü +ü +Timothy D. Cook +Chair +ü +Alan B. Graf, Jr. +Chair +Chair +Douglas G. Houser +ü +ü +ü +Philip H. Knight +Chair +John C. Lechleiter +ü +ü +Mark G. Parker +ü +Johnathan A. Rodgers +ü +ü +Orin C. Smith +ü +Chair +John R. Thompson, Jr. +ü +Phyllis M. Wise +ü +Chair +Meetings in Fiscal 2012 +13 +5 +4 +5 +5 +0 +Director Independence +Pursuant to NYSE rules, in order for a director to qualify as “independent,” the Board of Directors must affirmatively determine that the director has no material relationship with the Company that would +impair the director’s independence. The Board affirmatively determined that commercial or charitable relationships below the following thresholds will not be considered material relationships that impair a director’s independence: +(i) if a NIKE director or immediate family member is an executive officer of another company that does business with NIKE and the annual sales to, or purchases from, NIKE are less than one percent of the annual revenues of the other company; +and (ii) if a NIKE director or immediate family member serves as an officer, director or trustee of a charitable organization, and NIKE’s contributions to the organization are less than one percent of that organization’s total annual +charitable receipts. After applying this categorical standard, the Board of Directors has determined that all directors have no material relationship with the Company and, therefore, are independent, except for Messrs. Knight, Parker, and Thompson. +Mr. Knight and Mr. Parker are executive officers of the Company. Mr. Thompson is not independent pursuant to NYSE rules, because the Company has a contract with his son, who is the head basketball coach at Georgetown University, to +provide endorsement and consulting services to the Company, under which the Company paid to him $258,000 for services, product, and travel from May 2011 to April 2012. +Director Nominations +The Nominating and Corporate Governance Committee identifies potential director candidates +through a variety of means, including recommendations from members of the Committee or the Board, suggestions from Company management, and shareholder recommendations. The Committee also may, in its discretion, engage director search firms to +identify candidates. Shareholders may recommend director candidates for consideration by the Nominating and Corporate Governance Committee by submitting a written recommendation to the Committee, c/o John F. Coburn III, Secretary, NIKE, Inc., One +Bowerman Drive, Beaverton, Oregon 97005-6453. The recommendation should include the candidate’s name, age, qualifications +2 +CORPORATE GOVERNANCE +Board of Directors +(including principal occupation and employment history), and written consent to be named as a nominee in the Company’s proxy statement and to serve as a director, if elected. +The Board of Directors has adopted qualification standards for the selection of independent nominees for director which can be found at our website: +http://investors.nikeinc.com . As provided in these standards and the Company’s Corporate Governance Guidelines, nominees for director are selected on the basis of, among other things, distinguished business experience or other +non-business achievements; education; significant knowledge of international business, finance, marketing, technology, law, or other fields which are complementary to, and balance the knowledge of, other Board members; a desire to represent the +interests of all shareholders; independence; character; ethics; good judgment; diversity; and ability to devote substantial time to discharge Board responsibilities. +The Nominating and Corporate Governance Committee identifies qualified potential candidates without regard to their age, gender, race, national origin, sexual orientation, or religion. While the Board has no policy +regarding Board member diversity, the Nominating and Corporate Governance Committee considers and discusses diversity in selecting nominees for director and in the re-nomination of an incumbent director. The Committee views diversity broadly, +including gender, ethnicity, differences of viewpoint, geographic location, skills, education, and professional and industry experience, among others. The Board believes that a variety and balance of perspectives on the Board can result in more +thoughtful deliberations. +In considering the re-nomination of an incumbent director, the Nominating and Corporate Governance Committee reviews the +director’s overall service to the Company during his or her term, including the number of meetings attended, level of participation and quality of performance, as well as any special skills or diversity that such director brings to the Board. +All potential new director candidates, whether recommended by shareholders or identified by other means, are initially screened by the Chair of the Nominating and Corporate Governance Committee, who may seek additional information about the +background and qualifications of the candidate, and who may determine that a candidate does not have qualifications that merit further consideration by the full Committee. With respect to new director candidates who pass the initial screening, the +Nominating and Corporate Governance Committee meets to discuss and consider each candidate’s qualifications and potential contributions to the Board, and determines by majority vote whether to recommend such candidates to the Board of +Directors. The final decision to either appoint a candidate to fill a vacancy between Annual Meetings or include a candidate on the slate of nominees proposed at an Annual Meeting is made by the Board of Directors. +Directors first elected after the 1993 fiscal year must retire by the age of 72. +Shareholder Communications with Directors +Shareholders or interested parties desiring to communicate directly with the Board of +Directors, with the non-management directors or with any individual director may do so in writing addressed to the intended recipient or recipients, c/o John F. Coburn III, Secretary, NIKE, Inc., One Bowerman Drive, Beaverton, Oregon 97005-6453. All +such communications will be reviewed, compiled as necessary, and then forwarded to the designated recipient or recipients in a timely manner. +Board Leadership Structure +NIKE’s governance documents provide the Board with flexibility to select the appropriate +leadership structure of the Company. In determining the leadership structure, the Board considers many factors, including the specific needs of the business, fulfilling the duties of the Board, and the best interests of the Company’s +shareholders. In 2004, the Board of Directors chose to separate the position of Chairman of the Board from the position of President and Chief Executive Officer (“CEO”), although this is not a permanent policy of the Board. The Chairman, +Mr. Knight, presides over meetings of the Board of Directors and shareholders. The CEO, Mr. Parker, is in charge of the general supervision, direction, and control of the business and affairs of the Company, subject to the overall +direction and supervision of the Board of Directors and its committees. +The Board believes this leadership structure is appropriate for the Company +because it separates the leadership of the Board from the duties of day-to-day leadership of the Company. In particular, it permits Mr. Parker to focus his full time and attention to the business, the supervision of which has become +increasingly complex as the Company has grown. In addition, the structure permits Mr. Knight to direct his attention to the broad strategic issues considered by the Board of Directors. Further, with his significant Company experience and +ownership of Common Stock, Mr. Knight is particularly well-suited as Chairman, helping to align the Board with the interests of shareholders. +The +chairs of Board committees play an active role in the leadership structure of the Board. The Nominating and Corporate Governance Committee and the Board endeavor to select independent committee chairs who will provide strong leadership to guide the +important work of the Board committees. Committee chairs work with senior executives to ensure that committees are discussing the key strategic risks and opportunities for the Company. +The Nominating and Corporate Governance Committee has determined that given the separation of the positions of Chairman and CEO, and the strong leadership of experienced chairs of each of the Board committees, a +lead director would not improve the effectiveness of the Board at this time. A presiding director is appointed to chair executive sessions of non-management directors (consisting of all directors other than Mr. Knight and Mr. Parker). The +position of presiding director is rotated among the chairs of the various Board committees, other than the Executive Committee. The current presiding director at the executive sessions is Mr. Cook. Executive sessions are regularly scheduled and +held at least once each year. For all of these reasons, the Board believes this leadership structure is optimal and has worked well for many years. +The Board’s Role in Risk Oversight +While the Company’s management is responsible for day-to-day management of the various +risks facing the Company, the Board of Directors takes an active role in the oversight of the management of critical business risks. The Board does not view risk in isolation. Risks are considered in virtually every business decision and as part of +NIKE’s business strategy. The Board recognizes that it is neither possible nor prudent to eliminate all risk. Purposeful and appropriate risk-taking is essential for the Company to be competitive on a global basis and to achieve its strategic +objectives. +The Board implements its risk oversight function both as a whole and through committees, which play a significant role in carrying out risk +oversight. While the Audit Committee is responsible for oversight of management’s risk management policies, oversight responsibility for particular areas of risk is +NIKE, INC. · 2012 Notice of Annual Meeting +3 +CORPORATE GOVERNANCE +PROPOSAL 1 +allocated among the Board committees according to the committee’s area of responsibility as reflected in the committee charters. In particular: +• +The Audit Committee oversees risks related to the Company’s financial statements, the financial reporting process, accounting, and legal matters. The +Committee oversees the internal audit function, reviews a risk-based plan of internal audits, and reviews a risk-based integrated audit of internal controls over financial reporting. The Committee meets separately with the Vice President of +Corporate Audit, representatives of the independent external auditor, and senior management. +• +The Compensation Committee oversees risks and rewards associated with the Company’s compensation philosophy and programs, executive succession plans, and +executive development. +• +The Finance Committee oversees financial matters and risks relating to budgeting, investments, access to capital, capital deployment, acquisitions and +divestitures, currency risk and hedging programs, and significant capital projects. +• +The Corporate Responsibility Committee oversees issues that involve reputational risk to the Company, including community engagement, manufacturing health and +safety, environmental sustainability, and diversity. +• +The Nominating and Corporate Governance Committee oversees risks associated with company governance, including NIKE’s code of business conduct and ethics, +compliance programs, and the structure and performance of the Board and its committees. +Each committee chair works with the senior +executive assigned to assist the committee to develop agendas for the year and for each meeting, paying particular attention to areas of business risk identified by management, Board members, internal and external auditors, and in their committee +charter, and to schedule agenda topics, presentations, and discussions periodically regarding business risks within their area of responsibility. At meetings, the committees discuss areas of business risk, the potential related impacts, and +management’s initiatives to manage business risk, often within the context of important business decisions. Through this process key business risk areas are reviewed at appropriate times, with some topics reviewed on several occasions +throughout the year. At every Board meeting the chair of each committee reports to the full Board its discussions and actions, including those affecting the oversight of various risks. +The Company believes that its leadership structure, discussed in detail above, supports the risk oversight function of the Board. Strong directors chair the various committees involved in risk oversight, there is +open communication between management and directors, and all directors are involved in the risk oversight function. +Code of Business Conduct and Ethics +The NIKE Code of Ethics (“Code”) is available at the Company’s website +(http://investors.nikeinc.com ) and will be provided in print without charge to any shareholder who submits a request in writing to NIKE Investor Relations, One Bowerman Drive, Beaverton, Oregon 97005-6453. The Code applies to the +Company’s chief executive officer and senior financial officers, and to all other Company directors, officers and employees. The Code provides that any waiver of the Code may be made only by the Board. Any such waiver in favor of a director or +executive officer will be publicly disclosed. The Company plans to disclose amendments to, and waivers from, the Code on the Company’s website: http://investors.nikeinc.com . +Proposal 1 +Election of Directors +A Board of 12 directors will be elected at the Annual Meeting. All of the nominees were elected at the 2011 annual meeting of shareholders. Directors will hold office until the next annual meeting of shareholders +or until their successors are elected and qualified. +Alan B. Graf, Jr., John C. Lechleiter, and Phyllis M. Wise are nominated by the Board of Directors +for election by the holders of Class B Stock. The other nine nominees are nominated by the Board of Directors for election by the holders of Class A Stock. +Under Oregon law, if a quorum of each class of shareholders is present at the Annual Meeting, the nine director nominees who receive the greatest number of votes cast by holders of Class A Stock and the three +director nominees who receive the greatest number of votes cast by holders of Class B Stock will be elected directors. Abstentions and broker non-votes will have no effect on the results of the vote. Unless otherwise instructed, proxy holders will +vote the proxies they receive for the nominees listed below. If any nominee becomes unable to serve, the holders of the proxies may, in their discretion, vote the shares for a substitute nominee or nominees designated by the Board of Directors. +The Corporate Governance Guidelines adopted by the Board of Directors provide that any nominee for director in an uncontested election who receives a +greater number of votes “withheld” from his or her election than votes “for” such election shall tender his or her resignation for consideration by the Nominating and Corporate Governance Committee. The Committee shall recommend +to the Board the action to be taken with respect to the resignation. The Board will publicly disclose its decision within 90 days of the certification of the election results. +Background information on the nominees as of July 13, 2012, including some of the attributes that led to their selection, appears below. The Nominating and Corporate Governance Committee has determined that +each director meets the qualification standards described in the section entitled “Director Nominations” above. In addition, the Board firmly believes that the experience, attributes, and skills of any single director should not be viewed +in isolation, but rather in the context of the experience, attributes, and skills that all director nominees bring to the Board as a whole, each of which contributes to the function of an effective Board. +4 +CORPORATE GOVERNANCE +PROPOSAL 1 +Nominees for +Election by Class A Shareholders +Elizabeth J. Comstock +Ms. Comstock, 51, a director since 2011, is Senior Vice President and Chief Marketing Officer of General Electric Company (“GE”). At GE, she +was appointed Vice President, Communications, NBC News Communications in 1994, Senior Vice President, NBC Corporate Communications in 1996, Vice President of Corporate Communications in 1998, Corporate Vice President and Chief Marketing Officer in +2003, President, NBC Universal Integrated Media in 2006, and Senior Vice President and Chief Marketing Officer in 2008. Prior to joining GE in 1994, Ms. Comstock held a succession of positions at NBC, CBS, and Turner +Broadcasting. Ms. Comstock is a trustee of the Smithsonian’s Cooper-Hewitt National Design Museum. Ms. Comstock was selected to serve on the Board because her broad experience in, and understanding of, media, marketing and +innovation aligns well with the Company’s business model, which involves a great deal of each. +John G. Connors +Mr. Connors, 53, a director since +2005, is a partner in Ignition Partners LLC, a Seattle-area venture capital firm. Mr. Connors served as Senior Vice President and Chief Financial Officer of Microsoft Corporation from December 1999 to May 2005. He joined Microsoft in +1989 and held various management positions, including Corporate Controller from 1994 to 1996, Vice President, Worldwide Enterprise Group in 1999, and Chief Information Officer from 1996 to 1999. Mr. Connors is currently a member of the Board of +Directors of Scout Analytics Inc., Parse, Inc., OpsCode, Inc., Motif Investing, Inc., FiREapps, Inc., DataSphere Technologies, Inc., Splunk, Inc., Tier 3, Inc., Korrio, Inc., the Washington Policy Center, and the University of Washington Tyee Club. +Mr. Connors was selected to serve on the Board because his experience and skills in accounting, financial leadership, venture capital, technology, and international operations enable him to make valuable contributions to NIKE’s Audit +Committee and Finance Committee. +Timothy D. Cook +Mr. Cook, 51, a director since 2005, is the Chief +Executive Officer of Apple Inc. Mr. Cook joined Apple in March 1998 as Senior Vice President of Worldwide Operations and also served as Executive Vice President, Worldwide Sales and Operations and Chief Operating Officer. +Mr. Cook was Vice President, Corporate Materials for Compaq Computer Corporation from 1997 to 1998. Previous to his work at Compaq, Mr. Cook served in the positions of Senior Vice President Fulfillment and Chief Operating Officer of the +Reseller Division at Intelligent Electronics from 1994 to 1997. Mr. Cook also worked for International Business Machines Corporation from 1983 to 1994, most recently as Director of North American Fulfillment. Mr. Cook is currently a member +of the Board of Directors of the National Football Foundation and Apple Inc. Mr. Cook was selected to serve on the Board because his operational executive experience and his knowledge of technology, marketing, and international business allow +him to provide the Board with valuable perspectives and insights. +Douglas G. Houser +Mr. Houser, 77, a director since 1970, has been a +partner and Senior Counsel in the Portland, Oregon, law firm of Bullivant, Houser, Bailey since 1965. Mr. Houser is a Life Trustee of Willamette University and a Fellow in the American College of Trial Lawyers, and he has served as a member of +the Board of Governors and Treasurer of the Oregon State Bar Association and as a Director of the Rand Corporation, Institute for Civil Justice Board of Overseers, and the National Judicial College Foundation Board. Mr. Houser was selected to +serve on the Board because his knowledge of NIKE and its Board, together with his experience as a principal of a significant law firm, allow him to provide beneficial contributions regarding legal issues, corporate responsibility, and board +governance. +Philip H. Knight +Mr. Knight, 74, a director since 1968, is Chairman of +the Board of Directors of NIKE. Mr. Knight is a co-founder of the Company and, except for the period from June 1983 through September 1984, served as its President from 1968 to 1990, and from June 2000 to December 2004. Prior to +1968, Mr. Knight was a certified public accountant with Price Waterhouse and Coopers & Lybrand and was an Assistant Professor of Business Administration at Portland State University. Mr. Knight led NIKE from a small partnership +founded on a handshake to the world’s largest athletic footwear, apparel, and equipment company. He has extensive knowledge of and experience in Company operations, sports marketing, manufacturing, management, accounting, and financial matters, +which make him uniquely qualified to serve as Chairman of the Board. +Mark G. Parker +Mr. Parker, 56, has been President and Chief Executive +Officer and a director since 2006. He has been employed by NIKE since 1979 with primary responsibilities in product research, design and development, marketing, and brand management. Mr. Parker was appointed divisional Vice President in charge +of development in 1987, corporate Vice President in 1989, General Manager in 1993, Vice President of Global Footwear in 1998, and President of the NIKE Brand in 2001. He has extensive knowledge and experience regarding Company operations, sports +marketing, manufacturing, research, design, development, and management, and is an effective leader of NIKE. His position as CEO makes his participation on the Board critical. +Johnathan A. Rodgers +Mr. Rodgers, 66, a director since 2006, retired as the President and Chief Executive Officer of TV One, LLC in July 2011. Prior to joining TV One, LLC in March 2003, Mr. Rodgers was President, +Discovery Networks US for Discovery Communications, Inc. from 1996 to 2003. Prior to his work at Discovery Communications, Mr. Rodgers had a 20-year career at CBS, Inc. where he held a variety of executive positions, including President, CBS +Television Stations. Mr. Rodgers is also a director of Procter & Gamble Company and a Trustee of the University of California — Berkeley. Mr. Rodgers was selected to serve on the Board because his experience and +knowledge in media, broadcasting, and telecommunications, his skills in executive leadership, and knowledge of multicultural media allow him to provide valuable insights to the Board regarding corporate responsibility, diversity, compensation, and +marketing. +Orin C. Smith +Mr. Smith, 70, a director since 2004, was President +and Chief Executive Officer of Starbucks Corporation from 2000 to 2005. He joined Starbucks as Vice President and Chief Financial Officer in 1990, became President and Chief Operating Officer in 1994, and became a director of Starbucks in 1996. +Prior to joining Starbucks, Mr. Smith spent a total of 14 years with Deloitte & Touche. He was later the Executive Vice President and Chief Financial Officer of two transportation companies. Between these assignments, he was Chief +Policy and Finance Officer in the administrations of two Washington State Governors. Mr. Smith is currently the lead Director of the board of directors of The Walt Disney Company and serves on the Board of Regents of the University of +Washington. Mr. Smith was selected to serve on the Board because his experience and skills in accounting, financial leadership, marketing, international and retail operations enable him to make valuable contributions to NIKE’s Audit +Committee and Finance Committee. +NIKE, INC. · 2012 Notice of Annual Meeting +5 +CORPORATE GOVERNANCE +PROPOSAL 1 +John R. Thompson, Jr. +Mr. Thompson, 71, a director since 1991, was head coach of the Georgetown University men’s basketball team from 1972 until 1998. Mr. Thompson was +head coach of the 1988 United States Olympic basketball team. He hosted a sports radio talk show in Washington, D.C. for 13 years, and he is a nationally broadcast sports analyst for Turner Network Television (TNT) and the Westwood One, Inc. radio +network. He serves as Assistant to the President of Georgetown University for Urban Affairs, and he is a past President of the National Association of Basketball Coaches and presently serves on its Board of Governors. Mr. Thompson was selected +to serve on the Board because his extensive experience and knowledge of education, college and professional sports, media, broadcasting, and knowledge of urban issues allow him to provide valuable insights to the Board regarding sports marketing, +corporate responsibility, and diversity. +Nominees for Election by Class B +Shareholders +Alan B. Graf, Jr. +Mr. Graf, 58, a director since 2002, is the Executive Vice President and Chief Financial Officer of FedEx Corporation, a position he has held since 1998, and is a member of FedEx Corporation’s Executive +Committee. Mr. Graf joined FedEx Corporation in 1980 and was Senior Vice President and Chief Financial Officer for FedEx Express, FedEx’s predecessor, from 1991 to 1998. He previously served on the boards of directors of Kimball +International Inc., Storage USA, Inc. and Arkwright Mutual Insurance Co., and he is currently a director of Mid-America Apartment Communities, Inc. Mr. Graf was selected to serve on the Board because his experience and skills in auditing, +accounting, financial management, and international operations enable him to effectively lead NIKE’s Audit Committee, serving as its Chair and financial expert. +John C. Lechleiter +Dr. Lechleiter, 58, a director since 2009, is Chairman of the Board, President, and Chief Executive Officer of Eli Lilly and Company (“Lilly”). He has served as President and Chief Executive Officer +since April 1, 2008. He has been a member of Lilly’s board of directors since 2005 and was named Chairman on January 1, 2009. Dr. Lechleiter began work at Lilly as a senior organic chemist in Lilly’s process +research and development division in 1979. He is a member of the American Chemical Society and Business Roundtable. He serves on the boards of Pharmaceutical Research and Manufacturers of America (PhRMA), United Way Worldwide, Xavier +University, the Life Sciences Foundation, and the Central Indiana Corporate Partnership. Dr. Lechleiter was selected to serve on NIKE’s Board because his operational executive experience and his knowledge of science, marketing, +management, and international business allow him to provide the Board with significant contributions in those strategic areas. +Phyllis M. +Wise +Dr. Wise, 67, a director since +2009, is Vice President and Chancellor of the University of Illinois, at Urbana-Champaign. She joined the University of Maryland School of Medicine as an assistant professor in 1976, was appointed associate professor in 1982, and professor in +1987. Dr. Wise was appointed a professor and chair of the department of physiology at the University of Kentucky in 1993, and was appointed dean of the division of biological sciences and distinguished professor of neurobiology at the +University of California-Davis in 2002. In 2005, she was appointed Provost and Vice President for Academic Affairs at the University of Washington, and served as Provost and Executive Vice President from 2007 to 2010, and interim President +until July 2011, where she was also professor of physiology and biophysics, biology, and obstetrics and gynecology. During her tenure, she led the establishment of the College of the Environment, the mission of which is to provide solutions to +developing a sustainable healthy environment through research and teaching. Dr. Wise has a doctorate in zoology from the University of Michigan and an honorary doctorate from Swarthmore College, and she is an elected member of the Institute of +Medicine. Dr. Wise was selected to serve on the Board because her extensive experience in medical science, health, higher education, and societal issues allow her to provide valuable contributions to the Board’s deliberations of strategic +importance. +6 +CORPORATE GOVERNANCE +PROPOSAL 1 +Director +Compensation for Fiscal 2012 +Name +Fees Earned or +Paid in Cash +($) +Option Awards (1) +($) +Change in Pension Value +and Nonqualified Deferred +Compensation Earnings (2) +($) +All Other +Compensation (3) +($) +Total +($) +Elizabeth J. Comstock +76,500 +139,560 +— +468 +216,528 +John G. Connors +84,000 +139,560 +— +20,741 +244,301 +Jill K. Conway +23,714 +— +— +41,391 +65,105 +Timothy D. Cook +85,506 +139,560 +— +20,219 +245,285 +Ralph D. DeNunzio +33,676 +— +— +— +33,676 +Alan B. Graf, Jr. +103,505 +139,560 +— +219 +243,284 +Douglas G. Houser +79,000 +162,820 +27,283 +20,219 +289,322 +John C. Lechleiter +77,500 +139,560 +— +219 +217,279 +Johnathan A. Rodgers +79,500 +139,560 +— +219 +219,279 +Orin C. Smith +90,500 +139,560 +— +20,114 +250,174 +John R. Thompson, Jr. +54,000 +139,560 +— +22,340 +215,900 +Phyllis M. Wise +83,005 +139,560 +— +15,324 +237,889 +(1) +Represents the grant date fair value of annual director options granted in fiscal 2012 computed in accordance with accounting guidance applicable to stock-based compensation. +The grant date fair value of the options was estimated using the Black-Scholes option pricing model. On September 19, 2011, each director elected at the 2011 Annual Meeting other than Mr. Houser was granted an option for 6,000 shares +with an exercise price of $90.20 per share, which was the closing market price of our Class B Stock on the grant date. On September 19, 2011, Mr. Houser was granted an option for 7,000 shares with an exercise price of $90.20 per +share. The assumptions made in determining the grant date fair values of options under applicable accounting guidance are disclosed in Note 11 of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended +May 31, 2012. As of May 31, 2012, non-employee directors held outstanding options for the following numbers of shares of our Class B Stock: Ms. Comstock, 12,000; Mr. Connors, 50,000; Mr. Cook, 32,000; Mr. Graf, 56,000; +Mr. Houser, 39,000; Dr. Lechleiter, 21,000; Mr. Rodgers, 34,000; Mr. Smith, 58,000; Mr. Thompson, 24,000; and Dr. Wise, 17,000. +(2) +Represents above-market earnings credited during fiscal 2012 to the account of Mr. Houser under our prior Executive Deferred Compensation Plan adopted in 1983 (the +“1983 DCP”). While deferrals under the 1983 DCP were discontinued in 1990, earnings have continued to accrue on the 1983 DCP account balances. Under the terms of the 1983 DCP, Mr. Houser received a guaranteed return equal to the +current monthly rate of Moody’s seasoned corporate bonds index, plus 4%, which paid an average interest rate of 8.63% in fiscal 2012. +(3) +Includes medical and life insurance premiums paid by us of $22,121 for each of Dr. Conway and Mr. Thompson. Also includes matching charitable contributions by us +under the NIKE Matching Gift Program, under which directors are eligible to contribute to qualified charitable organizations and we provide a matching contribution to the charities in an equal amount, up to $20,000 in the aggregate for each director +annually. In fiscal 2012, we matched contributions to charities in the following amounts: Mr. Connors, $20,000, Dr. Conway, $19,270, Mr. Cook, $20,000, Mr. Houser, $20,000, Mr. Smith, $20,000, and Dr. Wise, $15,000. +Also includes sample and test products we provided to directors during the fiscal year, the value of which we estimate at $468 for Ms. Comstock, $741 for Mr. Connors, $219 for Messrs. Cook, Graf, Houser, Rodgers, Thompson and +Dr. Lechleiter, $114 for Mr. Smith, and $324 for Dr. Wise, based on our incremental cost. +Director Fees and +Arrangements +Under our standard director compensation program in effect in fiscal 2012, each non-employee director receives an annual retainer fee at the rate of $60,000 per year, a $2,000 meeting fee for each board meeting +attended ($1,000 for each telephonic meeting) and a $1,000 meeting fee for each committee meeting attended ($500 for each telephonic meeting). Additionally, on the date of each annual meeting of shareholders, each non-employee director receives an +option to purchase 6,000 shares of our Class B Stock. The option has a term of ten years and an exercise price equal to the closing market price of our Class B Stock on the grant date. The option becomes exercisable in full on the +date of the next annual meeting of shareholders. Ms. Comstock, Messrs. Connors, Cook, Graf, Rodgers and Smith, and Drs. Lechleiter and Wise participate in our standard director compensation program. Mr. Houser also participates +in our standard program, except that, in exchange for electing in fiscal 2000 to participate in the standard program when it was first instituted, he receives an annual option to purchase 7,000 shares of our Class B Stock, instead of +6,000 shares. +Neither Mr. Thompson nor Dr. Conway (before her retirement) has participated in our standard director compensation program. +Pursuant to elections made in fiscal 2000, Mr. Thompson and Dr. Conway received an annual retainer fee at the rate of $42,000 per year (instead of the $60,000 annual retainer fee paid under our standard program), a $2,000 meeting fee for +each board meeting attended ($1,000 for each telephonic meeting) and a $1,000 meeting fee for each committee meeting attended ($500 for each telephonic meeting). Pursuant to these elections, Mr. Thompson and Dr. Conway also have received +medical insurance and $500,000 of life insurance coverage paid for by us. Additionally, on the date of each annual meeting of shareholders, Mr. Thompson receives an annual option to purchase 6,000 shares of our Class B Stock on the +same terms as apply to the options granted pursuant to our standard program. +Non-employee directors serving as chair to a board committee, except the +Executive Committee, also receive an annual fee at the rate of $10,000 for each committee chaired, and the chair of the Audit Committee receives an annual fee at the rate of $15,000. We also pay for or reimburse our non-employee directors for travel +and other expenses incurred in attending board meetings. +All fees for Dr. Conway and Mr. DeNunzio for fiscal 2012 were pro-rated through +the date of their retirement from the Board at the 2011 Annual Meeting. +Philip H. Knight, as the Chairman of our Board of Directors, is one of our +executive officers, but is not a Named Executive Officer. Mr. Knight does not receive any additional compensation for services provided as a director. +Director Participation in Deferred Compensation Plan +Under our Deferred Compensation Plan, non-employee directors may elect in advance to defer up to 100 percent of the director fees paid by us, including retainer fees, committee fees and meeting fees. For a +description of the plan, see “Non-Qualified Deferred Compensation in Fiscal 2012” below. In addition, in fiscal 2000, Dr. Conway and Messrs. DeNunzio, Houser, and Thompson received credits to a fully vested NIKE stock account +under the Deferred Compensation Plan in exchange for their waiver of rights to future payments under a former non-employee director retirement program. The Class B Stock credited to these directors’ accounts is distributed to them upon their +retirement from the Board, and the accounts are credited with quarterly dividends until distributed. +NIKE, INC. · 2012 Notice of Annual Meeting +7 +CORPORATE GOVERNANCE +PROPOSAL 1 +Stock +Holdings of Certain Owners and Management +The following table sets forth the +number of shares of each class of NIKE securities beneficially owned, as of July 13, 2012, by (i) each person known to the Company to be the beneficial owner of more than 5 percent of any class of the Company’s securities, +(ii) each of the directors and nominees for director, (iii) each executive officer listed in the Summary Compensation Table (“Named Officers”), and (iv) all nominees, Named Officers, and other executive officers as a group. +Because Class A Stock is convertible into Class B Stock on a share-for-share basis, each beneficial owner of Class A Stock is deemed by the SEC to be a beneficial owner of the same number of shares of Class B Stock. Therefore, in +indicating a person’s beneficial ownership of shares of Class B Stock in the table, it has been assumed that such person has converted into Class B Stock all shares of Class A Stock of which such person is a beneficial owner. For these +reasons the table contains substantial duplications in the numbers of shares and percentages of Class A and Class B Stock shown for Mr. Knight and for all directors and officers as a group. In addition, unless otherwise indicated, all +persons named below can be reached at c/o John F. Coburn III, Secretary, NIKE, Inc., One Bowerman Drive, Beaverton, Oregon 97005. +Title of Class +Shares Beneficially +Owned +(1) +Percent of Class +(2) +Elizabeth J. Comstock +Class B +6,000 +(3) +— +John G. Connors +Class B +50,460 +(3) +— +Timothy D. Cook +Class B +26,000 +(3) +— +Alan B. Graf, Jr +Class B +68,000 +(3) +— +Douglas G. Houser +Class B +197,414 +(3)(4) +— +Philip H. Knight +Class A +67,257,195 +(5) +74.8 +% +One Bowerman Drive, Beaverton, Oregon 97005 +Class B +67,264,935 +(5) +15.5 +% +John C. Lechleiter +Class B +18,000 +(3) +— +Mark G. Parker (6) +Class B +1,410,143 +(3)(7) +0.4 +% +Johnathan A. Rodgers +Class B +28,000 +(3) +— +Orin C. Smith +Class B +54,700 +(3) +— +John R. Thompson, Jr +Class B +33,741 +(3)(4) +— +Phyllis M. Wise +Class B +11,000 +(3) +— +Donald W. Blair (6) +Class B +419,421 +(3)(7)(8) +0.1 +% +Charles D. Denson (6) +Class B +1,041,913 +(3)(7) +0.3 +% +Gary M. DeStefano (6) +Class B +140,754 +(3)(7) +— +Eric D. Sprunk (6) +290,642 +— +Sojitz Corporation of America +1211 S.W. 5 th Ave, Pacwest Center, Ste. 2220, Portland, OR 97204 +Preferred +(9) +300,000 +100 +% +FMR LLC +82 Devonshire Street, Boston, MA 02109 +Class B +19,205,883 +(10) +5.1 +% +BlackRock, Inc +40 East 57 th Street, New York, NY 10022 +Class B +18,932,752 +(11) +5.0 +% +All directors and executive officers as a group (24 persons) +Class A +67,257,195 +74.8 +% +Class B +72,107,309 +(3) +16.6 +% +(1) +A person is considered to beneficially own any shares: (a) over which the person exercises sole or shared voting or investment power, or (b) of which the person has +the right to acquire beneficial ownership at any time within 60 days (such as through conversion of securities or exercise of stock options). Unless otherwise indicated, voting and investment power relating to the above shares is exercised +solely by the beneficial owner or shared by the owner and the owner’s spouse or children. +(2) +Omitted if less than 0.1 percent. +(3) +These amounts include the right to acquire, pursuant to the exercise of stock options, within 60 days after July 13, 2012, the following numbers of shares: 6,000 shares +for Ms. Comstock, 44,000 shares for Mr. Connors, 26,000 shares for Mr. Cook, 50,000 shares for Mr. Graf, 32,000 shares for Mr. Houser, 15,000 shares for Dr. Lechleiter, 1,036,250 shares for Mr. Parker, 28,000 +shares for Mr. Rodgers, 52,000 shares for Mr. Smith, 18,000 shares for Mr. Thompson, 11,000 shares for Dr. Wise, 384,000 shares for Mr. Blair, 905,000 shares for Mr. Denson, 100,000 shares for Mr. DeStefano, +260,000 shares for Mr. Sprunk, and 4,005,300 shares for the executive officer and director group. +(4) +Includes shares credited to accounts under the NIKE, Inc. Deferred Compensation Plan in the following amounts: 10,040 for Mr. Houser, and 7,741 for Mr. Thompson. +(5) +Does not include: (a) 130,448 Class A Stock owned by a corporation which is owned by Mr. Knight’s spouse, (b) 19,443,829 Class A Stock held by +five grantor annuity trusts for the benefit of Mr. Knight’s children, (c) 841,145 Class B Stock held by the Knight Foundation, a charitable foundation in which Mr. Knight and his spouse are directors, (d) 1,294,403 Class B +Stock held by Oak Hill Strategic Partners, L.P., a limited partnership in which a company owned by Mr. Knight is a limited partner, and (e) 1,243,804 Class B Stock held by Cardinal Investment Sub I L.P., a limited partnership in which +Mr. Knight is a limited partner. Mr. Knight has disclaimed ownership of all such shares. +(6) +Executive officer listed in the Summary Compensation Table. +(7) +Includes shares held in accounts under the NIKE, Inc. 401(k) and Profit Sharing Plan for Messrs. Parker, Blair, Denson, DeStefano, and Sprunk in the amounts of 8,324, +2,812, 10,638, 8,394 and 285 shares, respectively. +(8) +Includes 29,779 shares pledged as security. +(9) +Preferred Stock does not have general voting rights except as provided by law, and under certain circumstances as provided in the Company’s Restated Articles of +Incorporation, as amended. +(10) +Information provided as of February 13, 2012 in Schedule 13G filed by the shareholder. +(11) +Information provided as of July 8, 2011 in Schedule 13G filed by the shareholder. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors +and executive officers, and persons who own more than 10 percent of a registered class of the Company’s equity securities, to file with the SEC and the NYSE initial reports of ownership and reports of changes in ownership of Common Stock +and other equity securities of the Company. Officers, directors and greater than 10 percent shareholders are required by the regulations of the SEC to furnish the Company with copies of all Section 16(a) forms they file. To the +Company’s knowledge, based solely on review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ended May 31, 2012 all Section 16(a) filing +requirements applicable to its officers, directors and greater than 10 percent beneficial owners were complied with, except that three transactions on July 15, 2011 by Hans van Alebeek were reported late due to an administrative error. +8 +CORPORATE GOVERNANCE +PROPOSAL 1 +Transactions +with Related Persons +Mr. Knight makes his airplane available for business use by the Company for no charge. NIKE operates and maintains the aircraft. Mr. Knight has reimbursed +the Company $932,895 for NIKE’s operating costs related to his personal use of this aircraft during fiscal 2012, determined based on the cost of fuel and other variable costs associated with the flights under FAR 91-501(d). +Pursuant to the terms of a past consulting agreement with the Company, the Company agreed to pay for health insurance and for life insurance policies for Howard +Slusher, the father of John Slusher, Vice President of Sports Marketing, following expiration of the agreement. During fiscal 2012, the Company paid Howard Slusher $129,976 for health and life insurance premiums. +Three of Mr. Parker’s siblings are employed by the Company in non-executive roles. Bob Parker is a Marketplace Manager, and has been employed by the +Company for over 28 years; Stephen Parker is the General Manager, Asia Pacific-Converse, and has been employed by the Company for over 24 years; and Ann Parker is an Executive Talent Scout, and has been employed by the Company for over 22 years. +During fiscal year 2012, the Company paid aggregate compensation to Bob Parker, Stephen Parker and Ann Parker in the amounts of $418,083, $526,131, $259,728, respectively. The compensation was consistent with compensation paid to other employees +holding similar positions, and was composed of salary, performance bonus, the grant date fair value of stock options granted during the fiscal year estimated using the Black-Scholes pricing model, profit sharing and matching contributions to +Company-sponsored retirement plans, and a relocation benefit payment to Ann Parker. +Mr. Thompson’s son, John Thompson III, is the head +basketball coach at Georgetown University, and the Company has a contract with him to provide endorsement and consulting services to the Company through August 2014, with base compensation over the five year term of the contract of $500,000, and up +to $80,000 per year of product and other performance incentives. +Compensation Committee Interlocks and Insider Participation +The members of the Compensation Committee of the Board of Directors during the fiscal year ended May 31, 2012 were Timothy D. Cook, Elizabeth J. Comstock, John C. Lechleiter, Johnathan A. Rodgers, and prior to +his retirement, Ralph D. DeNunzio. The Committee is composed solely of independent, non-employee directors. No member of the Compensation Committee has been an executive officer of the Company, and no member of the Compensation Committee had any +relationships requiring disclosure by the Company under the SEC’s rules requiring disclosure of certain relationships and related-party transactions. None of the Company’s executive officers served as a director or member of a compensation +committee (or other committee serving an equivalent function) of any other entity, the executive officers of which served as a director or member of the Compensation Committee of the Company during the fiscal year ended May 31, 2012. +NIKE, INC. · 2012 Notice of Annual Meeting +9 +COMPENSATION DISCUSSION AND ANALYSIS +COMPENSATION DISCUSSION AND ANALYSIS +Executive Summary +Our executive compensation program is aligned with our business strategy and culture to attract and retain top talent, reward business results and individual +performance, and most importantly, maximize shareholder returns. Our total compensation program for the Named Executive Officers is highly incentive-based and competitive in the marketplace, with Company performance determining a significant portion +of total compensation. +Our Named Executive Officers for fiscal 2012 were: Mark G. Parker (President and Chief Executive Officer), Donald W. Blair (Vice +President and Chief Financial Officer), Charles D. Denson (President of the NIKE Brand), Gary M. DeStefano (President, Global Operations), and Eric D. Sprunk (Vice President, Merchandising and Product Management). +The Compensation Committee of the Board of Directors (the “Committee”) is comprised of Timothy D. Cook (Chairman), Elizabeth J. Comstock, John C. +Lechleiter, and Jonathan A. Rodgers, each of whom is an independent director under applicable NYSE listing standards. Ralph DeNunzio, the Company’s former Compensation Committee Chairperson, retired on September 19, 2011. +The total compensation for each of the Named Executive Officers is shown in the Summary Compensation Table on page 17. While we describe executive compensation +in greater detail throughout this Compensation Discussion and Analysis, highlights of actions the Committee took in fiscal 2012 include: +• +For purposes of setting executive compensation for fiscal year 2012, the peer group did not change from the previous year. Based on our periodic review of our +peer group, for fiscal 2013, the Committee determined that J.C Penney Company Inc., Kimberly-Clark Corporation, and Time Warner should be added to the peer group and Apple Inc. should be removed. +• +Base salaries remained consistent with fiscal 2011 based on the Committee’s determination that they were appropriately aligned with the market, except in +the case of Mr. Sprunk who received a merit increase to reflect his performance results against his individual goals and align his salary with market. +• +Target annual bonuses under our Executive Performance Sharing Plan (“PSP”) were increased based on competitive market data and internal equity. +• +Based on financial performance goals set by the Committee in June 2011 under the PSP, and actual performance results, each executive officer’s bonus was +paid out at 95% of the target bonus. +• +Long-term target awards under our Long-Term Incentive Plan (“LTIP”) were increased for our CEO, Mr. Parker, based on the Committee’s desire +to have a higher portion of his compensation dependent on achievement of long-term growth measures, and remained at the same levels since 2008 for the other Named Executive Officers. +• +Based on long-term financial performance goals set by the Committee in August 2009 under the LTIP, and actual performance results, each executive officer +received the maximum payout of 200% of the target award. +• +Stock option awards remained consistent with fiscal 2011. The accounting fair value of stock options was $22.11 per share compared to $17.67 per share in fiscal +2011. +• +Restricted stock awards remained consistent for Mr. Parker and were increased by $50,000 for Messrs. Blair, Denson and DeStefano and $100,000 for +Mr. Sprunk. +• +In May 2012, Mr. Parker was granted a restricted stock unit (“RSU”) retention award, in recognition of his leadership and his critical role in +driving the company’s growth strategy in future years. The RSU award, in the amount of $20 million, is intended as a long-term retention incentive scheduled to vest in full on the fifth anniversary of the grant date. The award has no value to +Mr. Parker unless he remains employed with the company for the full vesting period. +Consideration of Say-on-Pay Vote Results +The non-binding advisory proposal regarding compensation of the Named Executive Officers +submitted to shareholders at our 2011 Annual Meeting was approved by over 98% of the votes cast. The Committee considered this favorable shareholder vote as a strong endorsement of our executive compensation program. The Committee will continue to +consider the outcome of the Company’s say-on-pay votes when conducting its regular practice of evaluating the program and making future compensation decisions for the Named Executive Officers. +Operation of the Compensation Committee +The Compensation Committee of the Board of Directors (the “Committee”) oversees the +performance evaluation of the CEO against goals and objectives set by the Committee, and based on the evaluation, recommends the CEO’s compensation to the independent members of the Board of Directors. Subject to the approval of the independent +members of the Board of Directors, the Committee also determines the compensation of our other Named Executive Officers. The Committee also oversees the performance evaluation of those officers and the administration of our executive compensation +programs. The Committee receives recommendations from the CEO as to compensation of other Named Executive Officers, and the CEO participates in Committee discussions regarding the compensation of those officers. The Committee meets in executive +session without the CEO to determine his compensation. The Committee is comprised of Timothy D. Cook (Chairman), Elizabeth J. Comstock, John C. Lechleiter, and Johnathan A. Rodgers, each of whom is an independent director under applicable NYSE +listing standards. The Committee operates pursuant to a written charter that is available on our website at: http://investors.nikeinc.com . +Each +year, the Committee reviews our executive total compensation programs to ensure they continue to reflect the Committee’s commitment to align the objectives and rewards of our executive officers with the creation of value for our shareholders. +The programs have been designed to reinforce our pay-for-performance philosophy by delivering total compensation that motivates and rewards short-and long-term financial performance to maximize shareholder value, and to be externally competitive to +attract and retain outstanding and diverse executive talent. In conducting their annual review, the Committee considers information provided by our human resources staff. Our human resources staff retains Aon Hewitt Associates and Towers Watson, +both independent compensation consulting firms, to provide surveys and reports containing competitive market data. These consultants do not formulate executive compensation strategies for NIKE or recommend individual executive compensation. The +human resources staff uses the surveys and reports to make recommendations to the Committee concerning executive compensation. The Committee has the sole authority under its charter to retain compensation consultants to assist the Committee in +10 +COMPENSATION DISCUSSION AND ANALYSIS +evaluating the compensation of executive officers, but chose to not retain any such consultants in fiscal 2012. The Committee relies on its collective experience and judgment along with the +recommendations prepared by our human resources staff to set executive compensation. +Use of Market Survey Data +To help establish competitive ranges of base salary, incentive compensation opportunities, and +target total compensation for the purpose of making recommendations to the Committee, our human resources staff uses competitive market data from surveys and reports prepared by Aon Hewitt Associates and Towers Watson. We consider market survey data +from a peer group of 14 companies which have similar revenue size, have similar products or markets, or reflect the companies with which we compete for executive talent. In addition, we consider market data across many industries focusing on +companies with revenues of $10 billion or more. +For purposes of setting executive +compensation for fiscal 2012, the companies in this peer group were unchanged from fiscal 2011 and consisted of the following: +Company +Reported +Fiscal Year +Revenue +(in millions) +Apple Inc. +09/11 +$ +108,249.0 +The Coca-Cola Company +12/11 +46,542.0 +Colgate-Palmolive Company +12/11 +16,734.0 +FedEx Corp. +05/11 +39,304.0 +Gap Inc. +01/12 +14,549.0 +General Mills Inc. +05/11 +14,880.2 +Google Inc. +12/11 +37,905.0 +Kellogg Co. +12/11 +13,198.0 +Limited Brands Inc. +01/12 +10,364.0 +Macy’s, Inc. +01/12 +26,405.0 +McDonald’s Corporation +12/11 +27,006.0 +PepsiCo, Inc. +12/11 +66,504.0 +Starbucks Corp. +10/11 +11,700.4 +The Walt Disney Company +09/11 +40,893.0 +In February 2012, we conducted our periodic review of our peer +group to determine whether any changes were appropriate. Based on that review, we determined that for purposes of setting executive compensation in fiscal 2013, the peer group should be refined to include J.C. Penney Company Inc., Kimberly-Clark +Corporation, and Time Warner Inc., and to remove Apple Inc. from the above peer group. +The surveys that our human resources staff reviews show +percentile compensation levels for various executive positions with comparable job responsibilities. The Committee does not endeavor to set executive compensation at or near any particular percentile, and it considers target total compensation to be +competitive if it is within the 50 th to 75 th percentiles. Market data is one of many factors that +the Committee considers in the determination of executive compensation levels. Other factors include internal pay equity, level of responsibility, the individual’s performance, expectations regarding the individual’s future potential +contributions, succession planning and retention strategies, budget considerations, and our performance. +Objectives and Elements of Our Compensation Program +As noted in the Executive Summary, our executive compensation program is aligned with our business strategy and culture to attract and retain top talent, reward business results and individual performance, and most +importantly, maximize shareholder returns. Our total compensation program for the Named Executive Officers is highly incentive-based and competitive in the marketplace, with Company performance determining a significant portion of total +compensation. Our program consists of the following elements: +• +Base salary that reflects the executive’s accountabilities, skills, experience, performance, and future potential +• +Annual performance-based incentive cash bonus based on Company financial results under our Executive Performance Sharing Plan +• +A portfolio approach to long-term incentive compensation to provide a balanced mix of equity and performance-based cash incentives, including: +– +Performance-based cash awards based on Company financial results under the Long-Term Incentive Plan to encourage attainment of long-term financial objectives +– +Stock options to align the interests of executives with those of shareholders +– +Restricted stock awards and restricted stock unit retention awards to provide incentives consistent with shareholder returns, and to provide strong retention +incentives +• +Benefits +– +Profit sharing contributions to defined contribution retirement plans +– +Post-termination payments under non-competition or employment agreements +In determining the award levels for each of the elements in our total compensation program, our philosophy is to “pay for performance.” As a result, we place relatively greater emphasis on the incentive +components of compensation (Executive Performance Sharing Plan, Long-Term Incentive Plan, and stock options) to align the interests of our executives with shareholders, and motivate them to maximize shareholder returns. This is balanced with +retention incentives provided by base salary, restricted stock awards, and restricted stock unit awards. +We look to the experience and judgment of the +Committee to determine what it believes to be the appropriate target compensation mix for each Named Executive Officer. We do not apply fixed ratios or formulae, or rely solely on +NIKE, INC. · 2012 Notice of Annual Meeting +11 +COMPENSATION DISCUSSION AND ANALYSIS +market data or quantitative measures. In allocating compensation among the various elements, the Committee considers market data, Company performance and budget, the impact of the +executive’s position in the Company, individual past performance, expectations for future performance, experience in the position, any anticipated increase in the individual’s responsibilities, internal pay equity for comparable positions, +and retention incentives for succession planning. +In fiscal 2012, incentive components (including restricted stock but excluding Mr. Parker’s +restricted stock unit award as shown in the below chart) accounted for 88% of the CEO’s target compensation, 85% of the NIKE Brand President’s target compensation, and approximately 76% of the other Named Executive Officers’ target +compensation. For purposes of this analysis, Mr. Parker’s restricted stock unit retention award is excluded to appropriately represent his target compensation mix as approved by the Committee in June 2011. +NIKE Target Compensation Mix +* +Includes Executive Performance Sharing Plan, Long-Term Incentive Plan, stock options, and restricted stock, excluding Mr. Parker’s +restricted stock unit retention award +Elements of Our +Compensation Program +Base Salary +When making recommendations to the Committee concerning base salary levels for our Named Executive Officers, our human resources staff considers the market data described above to recommend base salaries generally +between the 50 th and 75 th percentiles of the salaries for comparable positions reflected in the +surveys and reports. Other factors considered in setting annual salary levels include the individual’s performance in the prior year, expectations regarding the individual’s future performance, experience in the position, any anticipated +increase in the individual’s responsibilities, internal pay equity for comparable positions, succession planning strategies, and our annual salary budget. The Committee reviews these factors each year and adjusts base salary levels to ensure +that we are appropriately rewarding performance. +The Committee generally reviews base salaries of the Named Executive Officers annually based on a +review of individual performance at a meeting in June, with salary adjustments becoming effective for the first pay period ending in August. During the salary review in June 2011, the Committee decided to maintain the base salaries for +Messrs. Parker, Blair, Denson, and DeStefano at $1,550,000, $850,000, $1,320,000, and $1,030,000, respectively, based on its determination that the base salaries were appropriately aligned with comparable positions in the market. The Committee +decided to increase Mr. Sprunk’s annual salary 4.1% from $850,000 to $885,000 to align his salary with market and reflect his performance against his individual goals, which was generally in line with average Company-wide merit increases +for fiscal 2011. +In setting a Named Executive Officer’s overall compensation package, the Committee attempts to place a relatively greater emphasis +on the incentive components of compensation described below. +Performance-Based +Annual Incentive Bonus +Annual bonuses are paid to the Named Executive Officers under our Executive Performance Sharing Plan (“PSP”). Our “pay for performance” +philosophy for bonuses is simple: if we exceed our financial objectives, we will pay more; if we fail to reach them, we will pay less or nothing at all. The PSP for all executives is based 100% on overall corporate performance each year as measured +by income before income taxes excluding the effect of any acquisitions, divestitures or accounting changes (“PTI”). Basing our bonus program for all executives on overall corporate performance is intended to foster teamwork and send the +message to each executive that his or her role is to help ensure overall organizational success and maximize shareholder returns. +Each year the +Committee establishes a target bonus for each Named Executive Officer under the PSP expressed as a percentage of base salary paid during the year. For fiscal 2012, the Committee increased Mr. Parker’s target bonus from 135% to 150%, +Mr. Denson’s target bonus from 120% to 130%, and the target bonus for Messrs. Blair, DeStefano, and Sprunk from 80% to 90%. The Committee sets these target bonus levels each year based on its judgment of the impact of the position in the +Company and what it believes to be competitive against market data as described above under Use of Market Survey Data, while maintaining internal pay equity for comparable positions. +The maximum bonus possible under the PSP is 150% of the target bonus, and the threshold bonus is 50% of the target bonus. If we do not achieve the threshold performance goal, the bonus payout would be zero, and if +we exceed the maximum performance goal, the bonus payout would be capped at 150% of the target bonus. In June 2011, the Committee approved PSP performance goals for fiscal 2012 of $3,000 million of PTI for the target bonus payout, $3,240 +million of PTI for the 150% maximum bonus payout, and $2,844 million of PTI for the 50% threshold bonus payout. The performance goal for the target payout represented a 5.5% increase over fiscal 2011 PTI of $2,844 million. The performance goal +for the maximum payout represented a 13.9% increase above the prior year PTI, and the performance goal for the threshold payout equaled the prior year’s PTI results. The percentage changes in PTI over prior year results required to achieve the +target, maximum, and threshold bonus payouts each year are not uniform percentages, but are established by the Committee based on its evaluation of our business plan and prospects for the year. +In fiscal 2012, NIKE achieved PTI of $2,983 million, a 4.9% increase over fiscal 2011 PTI. This achievement was below the target performance goal established by the Committee in June 2011. As a result, each +executive officer’s bonus was paid out at 95% of the target bonus. +12 +COMPENSATION DISCUSSION AND ANALYSIS +Performance-Based Long-Term Incentive Plan +The first component in our long-term portfolio mix is performance-based awards payable in cash under our Long-Term Incentive Plan (“LTIP”). As with the annual bonus, the LTIP follows our “pay for +performance” philosophy. If we exceed our targets, we will pay more; if we fall short, we will pay less or nothing at all. This program focuses executives on overall, long-term financial performance, and is intended to reward them for improving +shareholder returns. At the beginning of each fiscal year, the Committee establishes performance goals and potential cash payouts for the next three fiscal years for all executives under the LTIP. LTIP measures for all executives are based 50% on +cumulative revenues for the three-year performance period and 50% on cumulative diluted earnings per share (“EPS”) for the period, in each case excluding the effect of acquisitions, divestitures and accounting changes. +During the compensation review in June 2011, the Committee approved LTIP target award levels for all Named Executive Officers for the fiscal 2012-2014 performance +period. The target awards were set at $3,000,000 for Mr. Parker, $1,500,000 for Mr. Denson and $500,000 for Messrs. Blair, DeStefano and Sprunk. The target award for Mr. Parker was increased from $2,000,000 in the prior year, +reflecting the Committee’s desire to have a higher portion of his compensation dependent on achievement of long-term growth measures. The current maximum payout for any performance period under the LTIP is $4,000,000. Any payment to +Mr. Parker under his fiscal 2012-2014 LTIP award in excess of that amount is subject to shareholder approval of the proposed increase in the maximum payout included in Proposal No. 4 in this proxy statement. Target award levels for the +other Named Executive Officers remained at the same levels approved each year since 2008. The Committee sets individual Named Executive Officer target LTIP levels each year based on its judgment of what it believes to be a desirable mix of long-term +compensation, the impact of the position in the Company, and what it finds to be competitive against market data as described above under “Use of Market Survey Data,” while maintaining internal pay equity for comparable positions. +The Committee set the maximum possible payout under the LTIP equal to 200% of the target award and the threshold payout equal to 50% of the target +award. For the fiscal 2012-14 performance period, the cumulative EPS necessary to achieve the target award payout requires a compounded annual growth rate (“CAGR”) in EPS of 13% from fiscal 2011 results of $4.39. The 200% maximum payout +requires cumulative EPS corresponding to an 18.5% CAGR and the 50% threshold payout requires cumulative EPS corresponding to a 7.8% CAGR. The Committee considered our long-term financial goal of mid-teens EPS growth in setting the CAGR for the +target award payout level. For revenue over the fiscal 2012-14 performance period, the cumulative revenue necessary to achieve the target award payout requires a CAGR in revenues of 8.0% from fiscal 2011 results of $20,862 million. The 200% maximum +payout requires cumulative revenues corresponding to an 11.5% CAGR. The 50% threshold payout requires cumulative revenues corresponding to a 5.3% CAGR. The Committee considered our long-term financial goal of high single digit revenue growth in +setting the CAGR for the target award payout level. The total payout percentage will be the average of the payout percentages determined for cumulative revenues and cumulative EPS, respectively. Payout below the threshold payout level may occur if +either the revenue or EPS related percentage achievement is less than 50%. If both revenue and EPS fall below the threshold level, there is no payment. +Our executive officers were eligible to receive LTIP award payouts based on performance targets set in August 2009 covering the fiscal 2010-12 performance +period. Based on our performance over the last three fiscal years, the maximum 200% payout percentage under these awards was earned. Cumulative revenues for the period were $64,004 million and cumulative EPS for the period was $12.98, which for both +measures was above the 200% maximum payout level set by the Committee. +Performance-Based Stock Options +The second component in our long-term portfolio mix is stock options. Stock options are +designed to align the interests of the Company’s executives with those of shareholders by encouraging executives to enhance the value of the Company and, hence, the price of the Class B Stock. This is true “pay for performance”: +executives are rewarded only if the market price of our stock rises, and they get nothing if the price does not rise. Our stock option program is generally based on granting options for a consistent number of shares each year for each position. When +determining the grants, the Committee focuses on the number of shares, not the value for accounting purposes. Our approach is based on our desire to carefully control annual share usage and avoid fluctuations in grant levels due to share price +changes. The Committee awards stock options to each executive based on its judgment. The Committee considers a number of factors including the individual’s performance, management succession, competitive market data as described above under +“Use of Market Survey Data,” internal pay equity for comparable positions, and a desirable mix of long-term incentives. Our human resources staff periodically tests the reasonableness of our stock option grants against competitive market +data and may make recommendations to the Committee. Options are generally granted annually to selected employees, including the Named Executive Officers, in July of each year under our shareholder-approved Stock Incentive Plan. Stock options for +fiscal 2012 were granted by the Committee on July 15, 2011 with an exercise price equal to the closing market price of our stock on that date. +In July 2011, the Committee granted options to Mr. Parker for 165,000 shares, Mr. Denson for 120,000 shares and to Messrs. Blair, DeStefano, and Sprunk +for 50,000 shares which were the same number of stock options granted to each of them in July 2010. The Committee, in its judgment, decided not to change from the prior year the number of shares granted to Messrs. Parker, Blair, Denson, DeStefano, +and Sprunk based on a review of each of the factors described above, and the Committee’s determination that the relative weighting of equity incentive compensation to target total compensation remained appropriate. +Options we grant generally vest over a four year period, and are forfeited if the employee leaves before vesting occurs, to promote executive retention. A standard +retirement feature of stock options granted to all employees from 2002 through 2009 was to accelerate vesting of some or all options for any employee with at least five years of service where the sum of the employee’s age plus years of service +totaled a minimum of 55, as described below under “Potential Payments Upon Termination or Change-in-Control.” Based on their ages and years of service, Messrs. Parker, Blair, Denson, DeStefano, and Sprunk could terminate employment at +any time and receive full vesting of their options granted prior to July 2010. +In June 2010, after a review of the Company’s succession plans, +the Committee and the Board of Directors amended the Stock Incentive Plan for future option grants to remove this accelerated vesting feature and replaced it with a strengthened provision to encourage employees to delay retirement, thus enhancing +retention. Beginning with the July 2010 grants, only those employees with a minimum of five years of service who are age 55 and above at the time of termination of employment will be eligible for the provision. Under the provision, only unvested +stock options that have been granted for at least one full year to employees between the ages of 55 to 59 at the time of termination of employment will continue to vest, and may be exercised for up to four years after termination. If an employee is +age 60 or older and has at least five years of service at termination, unvested stock options that have been granted for at least one full year will receive accelerated vesting and may be exercised for up to four years after termination. The +features related to accelerated vesting are described below on page 21 under “Potential Payments upon Termination or Change-in-Control.” Based on their ages and years of service, as of May 31, 2012, Messrs. Parker, Denson and +DeStefano could terminate employment at any time and receive continued vesting of their options granted in July 2010. +NIKE, INC. · 2012 Notice of Annual Meeting +13 +COMPENSATION DISCUSSION AND ANALYSIS +Restricted Stock Awards +The third component in our long-term portfolio mix is restricted stock awards. Stock ownership and stock-based incentive awards align the interests of our Named Executive Officers with the interests of our +shareholders, as the value of this incentive rises and falls with the stock price, consistent with shareholder returns. Restricted stock awards are generally granted in July at the same meeting at which stock options are granted under our +shareholder-approved Stock Incentive Plan. Awards generally vest in three equal installments on each of the first three anniversaries of the grant date. The awards promote executive retention, as unvested shares held at the time the executive’s +employment is terminated are forfeited. Award recipients receive dividends on the full number of restricted shares awarded, both vested and unvested. +Historically, the Committee has generally awarded restricted stock to Named Executive Officers once every three years. Our human resources staff periodically +reviews the value and frequency of grants against competitive market data as described above under “Use of Market Survey Data,” and may recommend changes to the Committee. In June 2010, after a review of long-term incentive compensation, +the Committee determined that beginning with July 2010 grants, restricted stock awards to Named Executive Officers will be awarded annually. This supports our succession plans by helping ensure retention of key leaders critical to growing the +business. This practice aligns with our practice prior to fiscal 2011 of granting restricted stock annually to Mr. Parker and Mr. Denson to provide a greater alignment between their compensation and shareholder returns. The Committee also +believes that this change will provide greater consistency and comparability of executive compensation disclosure from year-to-year. The Committee may also award restricted stock in connection with promotions or other special circumstances. +In July 2011, the Committee granted a restricted stock award to Mr. Parker valued at $3,500,000, representing 38,168 shares of our Class B Stock, +based on the closing price of our Class B Stock on the grant date. This was the same value of restricted stock granted to Mr. Parker in 2010. Mr. Denson received an award valued at $2,050,000, Mr. Sprunk received an award valued at +$600,000 and Messrs. Blair and DeStefano each received an award valued at $550,000. This represented 22,356 shares of our Class B Stock for Mr. Denson, 6,544 shares of our Class B Stock for Mr. Sprunk, and 5,998 shares of our Class B Stock +for Messrs. Blair and DeStefano, based on the closing price of our Class B Stock on the grant date. This was an increase of $50,000 for Messrs. Denson, Blair, and DeStefano and an increase of $100,000 for Mr. Sprunk. The Committee, in its +judgment, set these award levels based on several factors, including what the Committee believed to be a desirable mix of long-term compensation, their determination of an appropriate weighting of potential future contribution to the Company, +retention incentives, and competitive grants based on competitive market data. +Restricted Stock Unit (RSU) Retention Awards +From time to time, the Committee also grants restricted stock units (“RSUs”) that vest based on continued service through a future service date with the Company specifically to further promote retention. +These RSU awards accumulate dividend equivalents that are only paid upon full vesting. The awards have no value to the executive unless he/she remains employed with the Company for the full vesting period, and will be canceled if the executive +terminates or retires within the vesting period. RSU retention awards are subject to our change-in-control vesting and clawback policy described below. +On May 18, 2012, the Committee approved a grant to Mr. Parker of RSUs valued at $20,000,000, representing 189,682 RSUs based on the closing price of our Class B Stock on the grant date. +Mr. Parker’s RSUs are scheduled to vest in full on the fifth anniversary of the grant date. In determining the award amount, the Committee considered several factors including the Company’s succession and retention strategy, a review +of Mr. Parker’s accumulated vested and unvested awards, individual performance, and the Committee’s business judgment and experience. In accordance with applicable SEC rules the full award value is included in the Summary Compensation +Table on page 17, the Grants of Plan-Based Awards in Fiscal 2012 table on page 18 and the Outstanding Equity Awards at May 31, 2012 table on page 19. As this award was intended as a retention incentive it was viewed by the Committee as +compensation over the five-year vesting period and not solely as compensation for fiscal 2012. +Profit Sharing and Retirement Plans +The +NIKE 401(k) Savings and Profit Sharing Plan is our tax qualified retirement savings plan pursuant to which our employees, including the Named Executive Officers, are able to make pre-tax contributions from their cash compensation. We make matching +contributions for all participants each year equal to 100% of their elective deferrals up to 5% of their total eligible compensation. We also make annual profit sharing contributions to the accounts of our employees under the 401(k) Savings and +Profit Sharing Plan. The contributions are allocated among eligible employees based on a percentage of their total salary and bonus for the year. The total profit sharing contribution and the percentage of salary and bonus contributed for each +employee is determined each year by the Board of Directors. For fiscal 2012, the Board of Directors approved a profit sharing contribution for each employee equal to 3.81% of the employee’s total eligible salary and bonus. +The Internal Revenue Code limits the amount of compensation that can be deferred under the 401(k) Savings and Profit Sharing Plan, and also limits the amount of +salary and bonus ($245,000 for fiscal 2012) with respect to which matching contributions and profit sharing contributions can be made under that plan. Accordingly, we provide our executive officers and other highly compensated employees with the +opportunity to defer their compensation, including amounts in excess of the tax law limit, under our nonqualified Deferred Compensation Plan. We also make profit sharing contributions under the Deferred Compensation Plan with respect to salary and +bonus of any employee that exceeds the tax law limit, and for fiscal 2012 these contributions were equal to 3.81% of the total salary and bonus of each Named Executive Officer in excess of $245,000. These contributions under the Deferred +Compensation Plan allow our Named Executive Officers and other highly compensated employees to receive profit sharing retirement contributions in the same percentage as our other employees. We do not match executive deferrals to the Deferred +Compensation Plan. Executive officer balances in the Deferred Compensation Plan are unsecured and at-risk, meaning the balances may be forfeited in the event of the Company’s financial distress such as bankruptcy. Our matching and profit +sharing contributions for fiscal 2012 to the accounts of the Named Executive Officers under the qualified and nonqualified plans are included in the All Other Compensation column in the Summary Compensation Table below. +14 +COMPENSATION DISCUSSION AND ANALYSIS +Post-termination Payments under Non-competition and/or Employment Agreements +In exchange for non-competition agreements from all of our Named Executive Officers, we +have agreed to provide during the non-competition period the monthly payments described in “Potential Payments upon Termination or Change-in-Control” below on page 21, some of which are at the election of the Company. We believe that +it is appropriate to compensate individuals to refrain from working with competitors following termination, and that compensation enhances the enforceability of such agreements. +Change-in-Control Provisions +Under the terms of stock option and restricted stock awards granted before fiscal 2011, any +unvested awards would vest upon certain transactions that would result in a change in control, such as shareholder approval of a liquidation, a sale, lease, exchange or transfer of substantially all of the assets of the Company, or a consolidation, +merger, plan of exchange, or transaction in which the Company is not the surviving corporation. These transactions are described below under “Potential Payments Upon Termination or Change-in-Control.” This vesting feature, +re-approved by shareholders in 2005, was in place because we believed that utilizing a single event to vest awards provided a simple and certain approach for treatment of equity awards in a transaction that would likely result in the +elimination or de-listing of our stock. This provision recognized that such transactions have the potential to cause a significant disruption or change in employment relationships and thus treated all employees the same regardless of their +employment status after the transaction. In addition, it provided our employee option holders with the same opportunities as our other shareholders, who are free to realize the value created at the time of the transaction by selling their +equity. +In June 2010, the Committee approved a revision to our change-in-control vesting provision under which future stock option, restricted stock, +and restricted stock unit awards are subject to accelerated vesting only when two events (a “double trigger”) occur. Beginning with grants made in July 2010, vesting of grants is generally accelerated only if there is a change in control +of the Company and either the acquiring entity fails to assume the awards or the employee’s employment is terminated by the acquirer without cause or by the employee for good reason within two years following a change in control. This double +trigger was adopted to encourage executive retention through a period of uncertainty and a subsequent integration with an acquirer. The Committee believes that this approach will enhance shareholder value in the context of an acquisition, and align +executives with the interests of investors. +Risk Assessment +At the Committee’s request, in fiscal 2012 management prepared and discussed with the +Committee an assessment of potential risk associated with the Company’s compensation programs, including any risk that would be reasonably likely to have a material adverse effect on the Company. This included an assessment of risks associated +with each element of employee compensation. The assessment considered certain design features of the compensation programs that reduce the likelihood of excessive risk taking, such as reasonable performance targets, capped payouts of incentive +compensation, a balance of short- and long-term incentives, a balance of cash and equity incentives, vesting of awards over time, and the potential for clawback of incentive compensation. In addition, for equity compensation the Committee and the +Board restricted both the future eligibility for accelerated vesting of stock options upon termination of employment and the accelerated vesting of all equity awards upon change in control (as described above). +Clawback Policy +In June 2010, the Committee and Board of Directors approved a policy for recoupment of +incentive compensation (the “clawback policy”). The Board of Directors adopted the clawback policy to prevent executives involved in certain wrongful conduct from unjustly benefiting from that conduct, and to remove the financial +incentives to engage in that conduct. The clawback policy generally requires an executive officer who is involved in wrongful conduct that results in a restatement of the Company’s financial statements to repay to the Company up to the full +amount of any incentive compensation based on the financial statements that were subsequently restated. Incentive compensation includes the annual PSP bonus, LTIP payout, profit sharing contributions to the Deferred Compensation Plan, and excess +proceeds from sales of stock acquired under stock option, restricted stock and restricted stock unit awards that occurred prior to the restatement. +Tax Deductibility of Executive Compensation +Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public companies for annual compensation over $1 million paid to their chief +executive officer and the next three most highly compensated executive officers. The Internal Revenue Code generally excludes from the calculation of the $1 million cap compensation that is based on the attainment of pre-established, objective +performance goals established under a shareholder-approved plan. Annual bonuses under our Executive Performance Sharing Plan, long-term incentive awards under our Long-Term Incentive Plan and stock options under our 1990 Stock Incentive Plan are all +structured in a manner intended to qualify any compensation paid thereunder as “performance-based compensation” excluded from the calculation of the $1 million annual cap. However, base salary and compensation on vesting of restricted +stock and restricted stock unit awards are subject to the $1 million deductibility cap. Accordingly, in fiscal 2012 a portion of the compensation paid to Messrs. Parker, Denson, DeStefano, and Sprunk was not deductible. +NIKE, INC. · 2012 Notice of Annual Meeting +15 +COMPENSATION COMMITTEE REPORT +COMPENSATION COMMITTEE REPORT +The Compensation Committee of the Board of Directors (the +“Committee”) has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K. Based on the review and discussions, the Committee recommended to the Board of Directors that +the Compensation Discussion and Analysis be included in this proxy statement. +Members of the Compensation Committee: +• +Timothy D. Cook, Chairman +• +Elizabeth J. Comstock +• +John C. Lechleiter +• +Johnathan A. Rodgers +16 +EXECUTIVE COMPENSATION +EXECUTIVE COMPENSATION +Summary Compensation Table +The following table sets forth compensation for fiscal 2010-2012 paid to or earned by our Chief Executive Officer, our Chief Financial Officer and our next three +most highly compensated executive officers who were serving as executive officers on May 31, 2012. These individuals are referred to throughout this proxy statement as the “Named Executive Officers.” +Name and Principal Position +Year +Salary +($) +Stock +Awards (1) +($) +Option +Awards (2) +($) +Non-Equity +Incentive Plan +Compensation (3) +($) +All Other +Compensation (4) +($) +Total +($) +Mark G. Parker +2012 +1,550,000 +23,500,076 +3,648,150 +6,205,960 +308,492 +35,212,678 +President and Chief Executive Officer +2011 +1,535,557 +3,500,065 +2,916,095 +2,735,569 +343,395 +11,030,681 +2010 +1,475,000 +3,500,003 +3,510,270 +4,441,875 +191,686 +13,118,834 +Donald W. Blair +2012 +850,000 +550,017 +1,105,500 +1,725,832 +117,676 +4,349,025 +Vice President and Chief Financial Officer +2011 +842,308 +500,029 +883,665 +889,207 +140,669 +3,255,878 +2010 +810,000 +1,500,046 +1,170,090 +1,263,000 +93,939 +4,837,075 +Charles D. Denson +2012 +1,320,000 +2,050,045 +2,653,200 +4,628,141 +219,905 +10,871,291 +President of the NIKE Brand +2011 +1,308,462 +2,000,047 +2,120,796 +2,071,975 +248,764 +7,750,044 +2010 +1,260,000 +2,000,009 +2,808,216 +3,238,000 +127,261 +9,433,486 +Gary M. DeStefano +2012 +1,030,000 +550,017 +1,105,500 +1,879,538 +140,927 +4,705,982 +President, Global Operations +2011 +1,024,231 +500,029 +883,665 +1,081,260 +150,362 +3,639,547 +2010 +1,000,000 +1,500,046 +1,170,090 +1,491,000 +87,612 +5,248,748 +Eric D. Sprunk +2012 +878,269 +600,085 +1,105,500 +1,749,972 +114,438 +4,448,264 +Vice President, Merchandising & Product +2011 +842,308 +500,029 +883,665 +889,207 +133,186 +3,248,395 +2010 +810,000 +1,750,028 +1,170,090 +1,263,000 +77,176 +5,070,294 +(1) +Represents the grant date fair value of restricted stock and restricted stock unit awards granted in the applicable year computed in accordance with accounting guidance +applicable to stock-based compensation. The grant date fair value is based on the closing market price of our Class B Stock on the grant date. +(2) +Represents the grant date fair value of options granted in the applicable year computed in accordance with accounting guidance applicable to stock-based compensation. The +grant date fair value of the options was estimated using the Black-Scholes option pricing model. The assumptions made in determining the grant date fair values of options under applicable accounting guidance are disclosed in Note 11 of Notes to +Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended May 31, 2012. +(3) +Non-Equity Incentive Plan Compensation consists of the following: +Name +Fiscal Year +Annual Incentive +Compensation +($) +Long-Term Incentive +Compensation +($) +Total +($) +Mark G. Parker +2012 +2,205,960 +4,000,000 +6,205,960 +2011 +2,735,569 +— +2,735,569 +2010 +2,986,875 +1,455,000 +4,441,875 +Donald W. Blair +2012 +725,832 +1,000,000 +1,725,832 +2011 +889,207 +— +889,207 +2010 +972,000 +291,000 +1,263,000 +Charles D. Denson +2012 +1,628,141 +3,000,000 +4,628,141 +2011 +2,071,975 +— +2,071,975 +2010 +2,268,000 +970,000 +3,238,000 +Gary M. DeStefano +2012 +879,538 +1,000,000 +1,879,538 +2011 +1,081,260 +— +1,081,260 +2010 +1,200,000 +291,000 +1,491,000 +Eric D.Sprunk +2012 +749,972 +1,000,000 +1,749,972 +2011 +889,207 +— +889,207 +2010 +972,000 +291,000 +1,263,000 +Amounts shown in the Annual Incentive Compensation column were earned for performance in the applicable fiscal year under our Executive Performance Sharing Plan. Amounts shown +in the Long-Term Incentive Compensation column were earned for performance during the three -year period ending with the applicable fiscal year under our Long-Term Incentive Plan. +(4) +For each of the Named Executive Officers, this includes profit-sharing contributions by us to the 401(k) Savings and Profit Sharing Plan for fiscal 2012 in the amount of +$9,338 and matching contributions by us to the 401(k) Savings and Profit Sharing Plan for fiscal 2012 in the amount of $12,250. Also includes profit-sharing contributions by us to the Deferred Compensation Plan for fiscal 2012 in the following +amounts: $154,004 for Mr. Parker; $56,951 for Mr. Blair; $119,945 for Mr. Denson; $71,131 for Mr. DeStefano; and $58,028 for Mr. Sprunk. Includes dividends on restricted stock in the following amounts: $130,601 for +Mr. Parker, $29,138 for Mr. Blair, $75,572 for Mr. Denson, $29,138 for Mr. DeStefano, and $32,322 for Mr. Sprunk. The amount for Mr. DeStefano includes $16,570 for an anniversary service award. The amount for +Mr. Blair includes $10,000 in matching contributions by us to charities under the NIKE Matching Gift Program, under which employees are eligible to contribute to qualified charitable organization and we provide a matching contribution in an +equal amount. +NIKE, INC. · 2012 Notice of Annual Meeting +17 +EXECUTIVE COMPENSATION +Grants of Plan-Based Awards in Fiscal 2012 +The following table contains information concerning the +long-term incentive bonus opportunities, annual incentive bonus opportunities, restricted stock and restricted stock unit awards and stock options granted to the Named Executive Officers in fiscal 2012. +Estimated Possible Payouts Under Non-Equity +Incentive Plan Awards +Threshold +Target +Maximum +All Other +Stock Awards: +Number of +Shares of +Stock (3) +All Other +Option Awards: +Number of +Shares +Underlying +Options (5) +Exercise +or Base Price +of Option +Awards +Grant Date +Fair Value +of Stock +and Option +Awards (6) +Name +Grant Date +($) +($) +($) +(#) +(#) +($/Sh) +($) +Mark G. Parker +6/15/11 +1,162,500 (1) +2,325,000 (1) +3,487,500 (1) +6/15/11 +1,500,000 (2) +3,000,000 (2) +6,000,000 (2) +7/15/11 +38,168 +3,500,006 +7/15/11 +165,000 +91.70 +3,648,150 +5/18/12 +189,682 (4) +20,000,070 +Donald W. Blair +6/15/11 +382,500 (1) +765,000 (1) +1,147,500 (1) +6/15/11 +250,000 (2) +500,000 (2) +1,000,000 (2) +7/15/11 +5,998 +550,017 +7/15/11 +50,000 +91.70 +1,105,500 +Charles +6/15/11 +858,000 (1) +1,716,000 (1) +2,574,000 (1) +D. Denson +6/15/11 +750,000 (2) +1,500,000 (2) +3,000,000 (2) +7/15/11 +22,356 +2,050,045 +7/15/11 +120,000 +91.70 +2,653,200 +Gary +6/15/11 +463,500 (1) +927,000 (1) +1,390,500 (1) +M. DeStefano +6/15/11 +250,000 (2) +500,000 (2) +1,000,000 (2) +7/15/11 +5,998 +550,017 +7/15/11 +50,000 +91.70 +1,105,500 +Eric D. Sprunk +6/15/11 +395,221 (1) +790,442 (1) +1,185,663 (1) +6/15/11 +250,000 (2) +500,000 (2) +1,000,000 (2) +7/15/11 +6,544 +600,085 +7/15/11 +50,000 +91.70 +1,105,500 +(1) +These amounts represent the potential bonuses payable for performance during fiscal 2012 under our Executive Performance Sharing Plan. Under this plan, the Compensation +Committee approved target awards for fiscal 2012 based on a percentage of the executive’s base salary paid during fiscal 2012 as follows: Mr. Parker, 150%; Mr. Blair, 90%; Mr. Denson, 130%; Mr. DeStefano, 90%; and +Mr. Sprunk, 90%. The Committee also established a series of performance targets based on our income before income taxes (“PTI”) for fiscal 2012 (excluding the effect of acquisitions, divestitures and accounting changes) corresponding +to award payouts ranging from 50% to 150% of the target awards. The PTI for fiscal 2012 required to earn the target award payout was $3,000 million. The PTI for fiscal 2012 required to earn the 150% maximum payout was $3,240 million. The +PTI for fiscal 2012 required to earn the 50% threshold payout was $2,844 million. Participants receive a payout at the percentage level at which the performance target is met, subject to the Committee’s discretion to reduce or eliminate +any award based on Company or individual performance. Actual award payouts earned in fiscal 2012 and paid in fiscal 2013 are shown in footnote 3 to the Non-Equity Incentive Plan Compensation column in the Summary Compensation Table. +(2) +These amounts represent the potential long-term incentive awards payable for performance during the three-year period consisting of fiscal 2012-2014 under our Long-Term +Incentive Plan. Under this plan, the Compensation Committee approved target awards for the performance period and also established a series of performance targets based on our cumulative revenues and cumulative diluted earnings per common share +(“EPS”) for the performance period (excluding the effect of acquisitions, divestitures and accounting changes not reflected in our business plan at the time of approval of the target awards) corresponding to award payouts ranging from 50% +to 200% of the target awards. Participants will receive a payout at the average of the percentage levels at which the two performance targets are met, subject to the Committee’s discretion to reduce or eliminate any award based on Company or +individual performance. For cumulative revenues over the performance period, the target payout requires revenues of $73,145 million, the 50% threshold payout requires revenues of $69,458 million, and the 200% maximum payout requires +revenues of $78,116 million. For cumulative EPS over the performance period, the target payout requires EPS of $16.90, the 50% threshold payout requires EPS of $15.33, and the 200% maximum payout requires EPS of $18.67. Under the terms of the +awards, on the first payroll period ending in August 2014 we will issue the award payout to each participant, provided that the participant is employed by us on the last day of the performance period. +(3) +All amounts reported in this column represent grants of restricted stock or restricted stock units under our 1990 Stock Incentive Plan. Restricted stock generally vests in +three equal installments on the first three anniversaries of the grant date. Vesting will be accelerated in certain circumstances as described below under “Potential Payments Upon Termination or Change-in-Control.” Dividends are payable on +restricted stock at the same rate paid on all other outstanding shares of our Class B Stock. +(4) +This restricted stock unit award is scheduled to vest in full on the fifth anniversary of the grant date. Vesting will be accelerated in certain circumstances as described +below under “Potential Payments Upon Termination or Change-in-Control.” Dividend equivalents accumulate and are only paid upon full vesting. +(5) +All amounts reported in this column represent options granted under our 1990 Stock Incentive Plan. Options generally become exercisable for option shares in four equal +installments on the first four anniversaries of the grant date. Options will become fully exercisable in certain circumstances as described below under “Potential Payments Upon Termination or Change-in-Control.” Each option has a maximum +term of 10 years, subject to earlier termination in the event of the optionee’s termination of employment. +(6) +For stock awards, represents the value of restricted shares or restricted stock units granted based on the closing market price of our Class B Stock on the grant date. For +option awards, represents the grant date fair value of options granted based on a value of $22.11 per share calculated using the Black-Scholes option pricing model. These are the same values for these equity awards used under accounting guidance +applicable to stock-based compensation. The assumptions made in determining option values are disclosed in Note 11 of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended May 31, 2012. +18 +EXECUTIVE COMPENSATION +Outstanding Equity Awards at May 31, 2012 +The following table sets forth information concerning +outstanding stock options and unvested restricted stock held by the Named Executive Officers at May 31, 2012. +Option Awards +Stock Awards +Name +Number of +Securities Underlying +Unexercised +Options +(#) +Exercisable +Number of Securities +Underlying +Unexercised +Options +(#) +Unexercisable (1) +Option +Exercise Price +($) +Option +Expiration Date +Number of +Shares or +Units That +Have Not Vested +(#) +Market Value of +Shares or Units That +Have Not Vested +($) +Mark G. Parker +140,000 +— +36.6050 +07/16/14 +140,000 +— +43.7950 +07/15/15 +250,000 +— +42.1350 +02/16/16 +135,000 +— +58.5200 +07/20/17 +101,250 +33,750 +(2) +58.2000 +07/18/18 +75,000 +75,000 +(3) +52.4400 +07/17/19 +41,250 +123,750 +(4) +68.9600 +07/16/20 +— +165,000 +(5) +91.7000 +07/15/21 +283,933 (6) +30,715,871 +Donald W. Blair +11,000 +— +26.1200 +07/18/13 +66,000 +— +36.6050 +07/16/14 +66,000 +— +43.7950 +07/15/15 +66,000 +— +39.3800 +07/14/16 +50,000 +— +58.5200 +07/20/17 +37,500 +12,500 +(2) +58.2000 +07/18/18 +25,000 +25,000 +(3) +52.4400 +07/17/19 +12,500 +37,500 +(4) +68.9600 +07/16/20 +— +50,000 +(5) +91.7000 +07/15/21 +20,367 (7) +2,203,302 +Charles D. Denson +25,000 +— +26.1200 +07/18/13 +140,000 +— +36.6050 +07/16/14 +140,000 +— +43.7950 +07/15/15 +200,000 +— +42.1350 +02/16/16 +110,000 +— +58.5200 +07/20/17 +82,500 +27,500 +(2) +58.2000 +07/18/18 +60,000 +60,000 +(3) +52.4400 +07/17/19 +30,000 +90,000 +(4) +68.9600 +07/16/20 +— +120,000 +(5) +91.7000 +07/15/21 +54,404 (8) +5,885,424 +Gary M. DeStefano +12,500 +— +58.5200 +07/20/17 +12,500 +12,500 +(2) +58.2000 +07/18/18 +12,500 +25,000 +(3) +52.4400 +07/17/19 +12,500 +37,500 +(4) +68.9600 +07/16/20 +— +50,000 +(5) +91.7000 +07/15/21 +20,367 (7) +2,203,302 +Eric D. Sprunk +66,000 +— +43.7950 +07/15/15 +36,000 +— +39.3800 +07/14/16 +33,000 +— +58.5200 +07/20/17 +37,500 +12,500 +(2) +58.2000 +07/18/18 +25,000 +25,000 +(3) +52.4400 +07/17/19 +12,500 +37,500 +(4) +68.9600 +07/16/20 +— +50,000 +(5) +91.7000 +07/15/21 +22,502 (9) +2,434,266 +(1) +Stock options generally become exercisable for option shares in four equal installments on each of the first four anniversaries of the grant date. +(2) +100% of these shares vested on July 18, 2012. +(3) +50% of these shares vested on July 17, 2012 and 50% will vest on July 17, 2013. +(4) +33.3% of these shares vested on July 16, 2012, 33.3% will vest on July 16, 2013 and 33.3% will vest on July 16, 2014. +(5) +25% of these shares vested on July 15, 2012, 25% will vest on July 15, 2013 25% will vest on July 15, 2014, and 25% will vest on July 15, 2015. +(6) +12,723 of these shares vested on July 15, 2012, 12,723 of these shares will vest on July 15, 2013 and 12,722 of these shares will vest on July 15, 2014. 16,918 +of these shares vested on July 16, 2012 and 16,918 of these shares will vest on July 16, 2013. 22,247 of these shares vested on July 12, 2012. 189,682 of these shares will vest on May 18, 2017. +(7) +2,000 of these shares vested on July 15, 2012, 1,999 of these shares will vest on July 15, 2013 and 1,999 of these shares will vest on July 15, 2014. 2,417 of +these shares vested on July 16, 2012 and 2,417 of these shares will vest on July 16, 2013. 9,535 of these shares vested on July 17, 2012. +(8) +7,452 of these shares vested on July 15, 2012, 7,452 of these shares will vest on July 15, 2013 and 7,452 of these shares will vest on July 15, 2014. 9,668 of +these shares vested on July 16, 2012 and 9,667 of these shares will vest on July 16, 2013. 12,713 of these shares vested on July 17, 2012. +(9) +2,182 of these shares vested on July 15, 2012, 2,181 of these shares will vest on July 15, 2013 and 2,181 of these shares will vest on July 15, 2014. 2,417 of +these shares vested on July 16, 2012 and 2,417 of these shares will vest on July 16, 2013. 11,124 of these shares vested on July 17, 2012. +NIKE, INC. · 2012 Notice of Annual Meeting +19 +EXECUTIVE COMPENSATION +Option Exercises and Stock Vested During Fiscal 2012 +The following table provides information concerning stock +option exercises and vesting of restricted stock during fiscal 2012 for each of the Named Executive Officers on an aggregated basis. +Option Awards +Stock Awards +Name +Number of Shares +Acquired on Exercise +(#) +Value Realized +on Exercise +($) +Number of Shares +Acquired on Vesting +(#) +Value Realized +on Vesting +($) +Mark G. Parker +90,000 +6,467,525 +52,053 +4,773,260 +Donald W. Blair +121,000 +8,862,620 +11,952 +1,095,998 +Charles D. Denson +115,000 +9,738,886 +30,972 +2,840,132 +Gary M. DeStefano +— +— +11,952 +1,095,998 +Eric D. Sprunk +96,000 +5,399,915 +13,541 +1,241,709 +Equity Compensation Plans +The following table summarizes equity compensation plans +approved by shareholders and equity compensation plans that were not approved by the shareholders as of May 31, 2011: +Plan Category +(a) +Number of Securities to be Issued +Upon Exercise of Outstanding +Options, +Warrants and Rights +(b) +Weighted-Average Exercise +Price of Outstanding Options, +Warrants and Rights (3) +(c) +Number of Securities Remaining +Available for Future Issuance +Under Equity Compensation +Plans (Excluding Securities +Reflected in Column(a)) +Equity compensation plans approved by shareholders (1) +32,449,882 +$ +61.23 +33,374,647 +Equity compensation plans not approved by shareholders (2) +— +— +884,215 +Total +32,449,882 +$ +61.23 +34,258,862 +(1) +Includes 32,449,882 shares subject to awards of options, restricted stock units and stock appreciation rights outstanding under the 1990 Stock Incentive Plan. Includes +29,912,721 shares available for future issuance under the 1990 Stock Incentive Plan, and 3,461,926 shares available for future issuance under the Employee Stock Purchase Plan. +(2) +Includes 884,215 shares available for future issuance under the Foreign Subsidiary Employee Stock Purchase Plan, pursuant to which shares are offered and sold to employees of +selected non-U.S. subsidiaries of the Company on substantially the same terms as those offered to U.S. employees under the shareholder-approved Employee Stock Purchase Plan. +(3) +These weighted-average exercise prices do not reflect the shares that will be issued upon the payment of outstanding awards of restricted stock units. +Non-Qualified Deferred Compensation in Fiscal 2012 +Name +Plan +Name +Executive +Contributions +in Fiscal 2012 (1) +NIKE Contributions +in Fiscal 2012 (1) +Aggregate Earnings +in Fiscal 2012 +Aggregate Withdrawals/ +Distributions in Fiscal 2012 +Aggregate Balance +at +5/31/2012 (1) +Mark G. Parker +DCP +$ +934,614 +$ +196,087 +$ +31,343 +— +$ +6,272,228 +Donald W. Blair +DCP +1,418,683 +71,940 +(846,093 +) +— +5,275,120 +Charles D. Denson +DCP +2,668,172 +152,721 +(980,416 +) +— +21,119,722 +Gary M. DeStefano +DCP +— +90,732 +(68,987 +) +— +1,485,580 +Eric D. Sprunk +DCP +— +71,940 +(118,363 +) +— +3,043,236 +(1) +All amounts reported in the Executive Contributions column are also included in amounts reported in the Summary Compensation Table. The amounts reported in the NIKE +Contributions column represent profit sharing contributions made by us in early fiscal 2012 based on fiscal 2011 results; these amounts are also included in amounts reported for fiscal 2011 in the All Other Compensation column of the Summary +Compensation Table. Of the amounts reported in the Aggregate Balance column, the following amounts have been reported in the Summary Compensation Tables in this proxy statement or in prior year proxy statements: Mr. Parker, $5,718,615; +Mr. Blair, $4,592,978; Mr. Denson, $18,956,741; Mr. DeStefano, $848,866; and Mr. Sprunk, $338,529. +Non-Qualified Deferred Compensation Plans +The Named Executive Officers are eligible to participate in our Deferred Compensation Plan (the “DCP”). Participants in the DCP may elect in advance to +defer up to 100 percent of their annual base salary, bonus and long-term incentive payments. +Each year, we share profits with our employees in the +form of profit sharing contributions to defined contribution retirement plans. The contributions are allocated among eligible employees based on a percentage of their total salary and bonus for the year. To the fullest extent permitted under +Internal Revenue Code limitations, these contributions are made to employees’ accounts under our qualified 401(k) Savings and Profit Sharing Plan. Contributions based on salary and bonus in excess of the tax law limit ($245,000 for fiscal 2012) +are made as NIKE contributions under the DCP. +Amounts deferred under the DCP are credited to a participant’s account under the DCP. Each +participant may allocate his or her account among any combination of the investment funds available under the DCP. Participants’ accounts are adjusted to reflect the investment performance of the funds selected by the participants. Participants +can change the allocation of their account balances daily. The funds available under the DCP consist of 11 mutual funds with a variety of investment objectives. The investment funds had annual returns in fiscal 2012 ranging from -18.76% to 7.09%. +Amounts credited to participants’ accounts are invested by us in actual investments matching the investment options selected by the participants to ensure that we do not bear any investment risk related to participants’ investment choices. +20 +EXECUTIVE COMPENSATION +The portion of a +participant’s account attributable to elective deferrals, including investment returns, is fully vested at all times. The portion of a participant’s account attributable to NIKE contributions, including investment returns, is fully vested +after the participant has been employed by us for five years. All of the Named Executive Officers are fully vested in their NIKE contributions. +Each +time they elect to defer compensation, participants make an election regarding distribution of the compensation deferred under the election (as adjusted to reflect investment performance). A participant may elect for distribution to be made in a +lump sum at the beginning of a predetermined year while the participant is still employed or in service (but no sooner than the fourth year after the year in which the distribution election is submitted). Alternatively, a participant may elect for +distribution to be made in a lump sum or in annual installments over five, ten or fifteen years after termination of employment or service. Participants have limited rights to change their distribution elections. Participants may make a hardship +withdrawal under certain circumstances. Subject to certain limitations, a participant may also at any time request to withdraw amounts from his or her account balance that were vested as of December 31, 2004 (and any subsequent investment +returns on such amount). If such request is approved, the participant may withdraw 90% of the amount requested, and the remaining 10% will be permanently forfeited. +Potential Payments Upon Termination or Change-in-Control +Change-in-Control Compensation — Acceleration of Equity Awards +Under the terms of stock option +and restricted stock awards granted before fiscal 2011, we have agreed to accelerate the vesting of unvested awards held by the Named Executive Officers upon the approval by our shareholders of an “approved transaction.” This acceleration +of vesting will occur whether or not their employment is terminated. In our agreements, “approved transaction” is generally defined to include an acquisition of NIKE through a merger, consolidation or plan of exchange, a sale of all or +substantially all of our assets, or the adoption of a plan for our liquidation or dissolution. +Beginning with grants in fiscal 2011, we have agreed to +accelerate the vesting of restricted stock, restricted stock units (RSUs) and stock options and to extend the standard period for exercising options following termination of employment from three months to four years, but not beyond each +option’s original 10-year term, when two events (a “double trigger”) occur: there is a “change in control” and the Named Executive Officer’s employment is terminated by us without “cause” or by the Named +Executive Officer for “good reason,” in each case on or before the second anniversary of the change in control. A double trigger with respect to vesting of stock options and RSUs will also occur if we are acquired and the acquiring company +does not assume the outstanding options or RSUs. In our agreements, “change in control” is generally defined to include: +• +the acquisition by any person of 50% or more of our outstanding Class A Stock or, if the Class A Stock no longer elects a majority of directors, the +acquisition by any person of 30% or more of our total outstanding Common Stock, +• +the nomination (and subsequent election) in a two-year period of a majority of our directors by persons other than the incumbent directors, and +• +a sale of all or substantially all of our assets, or an acquisition of NIKE through a merger, consolidation or share exchange. +In our agreements, “cause” generally includes willful and continued failure to substantially perform assigned duties and willful engagement in illegal +conduct materially injurious to us. In our agreements, “good reason” generally includes a material diminution in position or duties, a salary reduction or material reduction in other benefits, and a home office relocation of over 50 miles. +The following table shows the estimated benefits that would have been received by +the Named Executive Officers if a double trigger including an approved transaction had occurred on May 31, 2012. +Name +Stock +Award +Acceleration (1) +Stock +Option +Acceleration (2) +Total +Mark G. Parker +$ +30,715,872 +$ +16,638,157 +$ +47,354,029 +Donald W. Blair +2,203,302 +5,282,139 +7,485,441 +Charles D. Denson +5,885,425 +12,552,183 +18,437,608 +Gary M. DeStefano +2,203,302 +5,282,139 +7,485,441 +Eric D. Sprunk +2,434,266 +5,282,139 +7,716,405 +(1) +Information regarding unvested restricted stock and restricted stock units held by each Named Executive Officer is set forth in the Outstanding Equity Awards table above. The +award agreements granted before fiscal 2011 provide that all shares will immediately vest upon the approval by our shareholders of an approved transaction. The award agreements granted in and after fiscal 2011 provide that all shares will +immediately vest upon the occurrence of a double trigger. If an approved transaction but not a double trigger had occurred on May 31, 2012, then shares representing only $2,406,680 of the total $30,715,872 would have immediately vested with +respect to Mr. Parker; shares representing only $1,375,292 of the total $5,885,425 would have immediately vested with respect to Mr. Denson; and shares representing only $1,031,496 of the total $2,203,302 would have immediately vested with +respect to each of Messrs. Blair and DeStefano, and shares representing only $1,203,394 of the total $2,434,266 would have immediately vested with respect to Mr. Sprunk. The amounts in the table and discussion above represent the number of +unvested restricted shares multiplied by a stock price of $108.18 per share, which was the closing price of our Class B Stock on May 31, 2012. +(2) +Information regarding outstanding unexercisable options held by each Named Executive Officer is set forth in the Outstanding Equity Awards table above. The stock option +agreements granted before fiscal 2011 provide that upon the approval by our shareholders of an approved transaction all outstanding unexercisable options will immediately become exercisable and all unexercised options will remain exercisable during +the remainder of the term of the options, except that the Compensation Committee may provide a 30-day period prior to the change of control during which the optionees may exercise the options without any limitation on exercisability. At the end of +the 30-day period, the options would terminate. Amounts in the table above with respect to options granted before fiscal 2011 represent the aggregate value as of May 31, 2012 of each Named Executive Officer’s outstanding unexercisable +pre-2011 options based on the positive spread between the exercise price of each such option and a stock price of $108.18 per share, which was the closing price of our Class B Stock on May 31, 2012. The stock option agreements granted in and +after fiscal 2011 provide that upon the occurrence of a double trigger all unexercisable options will immediately become fully exercisable and the standard three-month period for exercising options following termination of employment will be +extended to four years, but not beyond each option’s original 10-year term. Amounts in the table above with respect to options granted in or after fiscal 2011 represent the sum of (i) for each Named Executive Officer’s outstanding +unexercisable post-2010 options, the aggregate value as of May 31, 2012 of those options assuming a four-year remaining term and otherwise calculated using the Black-Scholes option pricing model with assumptions consistent with those used by us +for valuing our options under accounting guidance applicable to stock-based compensation, plus (ii) for each Named Executive Officer’s outstanding exercisable post-2010 options, the increase in value of those options resulting from the +extension of the post-termination exercise period from three months to four years, if applicable, with the option values for three-month and four-year remaining terms calculated using the Black-Scholes option pricing model with assumptions +consistent with those used for valuing our options under accounting guidance applicable to stock-based compensation. If an approved transaction but not a double trigger had occurred on May 31, 2012, then the amounts in the table above would be +only $5,867,325 for Mr. Parker; $4,718,850 for Mr. Denson; and $2,018,250 for each of Messrs. Blair, DeStefano and Sprunk. +NIKE, INC. · 2012 Notice of Annual Meeting +21 +EXECUTIVE COMPENSATION +Benefits Triggered on Certain Employment Terminations +Stock Option Acceleration and Extension +As of May 31, +2012, each Named Executive Officer held options to purchase Class B Stock as listed in the Outstanding Equity Awards table above. Under the terms of the stock options granted to each Named Executive Officer before fiscal 2011, upon the death or +disability of the officer, all unexercisable options become fully exercisable and the standard three-month period for exercising options following termination of employment is extended to 12 months, but not beyond each option’s original 10-year +term. Under the terms of the stock options granted to each Named Executive Officer in and after fiscal 2011, upon the death or disability of the officer, all unexercisable options become fully exercisable and the standard three-month period for +exercising options following termination of employment is extended to four years, but not beyond each option’s original 10-year term. If death or disability of a Named Executive Officer had occurred on May 31, 2012, the sum of (i) for +outstanding unexercisable options that would have become exercisable, the aggregate value as of May 31, 2012 of those options assuming a 12-month term, in the case of options granted before fiscal 2011, and a four-year remaining term, in the +case of options granted in or after fiscal 2011, and otherwise calculated using the Black-Scholes option pricing model with assumptions consistent with those used by us for valuing our options under accounting guidance applicable to stock-based +compensation, plus (ii) for outstanding exercisable options, the increase in value, if any, of those options resulting from the extension of the post-termination exercise period from three months to 12 months, in the case of options granted +before fiscal 2011, and from three months to four years, in the case of options granted in or after fiscal 2011, with the option values as of May 31, 2012 for three-month, 12-month and four-year remaining terms calculated using the +Black-Scholes option pricing model with assumptions consistent with those used by us for valuing our options under accounting guidance applicable to stock-based compensation, is $16,638,157 for Mr. Parker, $12,552,183 for Mr. Denson, and +$5,282,139 for Messrs. Blair, DeStefano and Sprunk. +Under the terms of the stock options granted to Named Executive Officers before fiscal 2011, if +termination of the officer’s employment occurs when the officer’s retirement point total is at least 55 and the officer has been employed by us for at least five years, then a portion of the unexercisable options will become exercisable +for a maximum remaining term of three months as follows: +Retirement Point Total +Percent of Unexercisable Option That Becomes Exercisable +55 or 56 +20% +57 +40% +58 +60% +59 +80% +60 +100% +An officer’s “retirement point total” means the +sum of the officer’s age plus the number of years that the officer has been employed by us. As of May 31, 2011, the retirement point total for each of the Named Executive Officers was over 60, and these officers are therefore eligible to +have all unexercisable pre-2011 options become fully exercisable on any termination of employment. The aggregate value as of May 31, 2012 of pre-2011 options held by each of the Named Executive Officers that would have become exercisable if +termination of employment (other than due to death or disability) had occurred on that date based on the positive spread between the exercise price of each option and a stock price of $108.18 per share, which was the closing price of our Class B +Stock on May 31, 2012, is $5,867,325 for Mr. Parker; $4,718,850 for Mr. Denson; and $2,018,250 for Messrs. Blair, DeStefano and Sprunk. +Under the terms of the stock options granted to Named Executive Officers in or after fiscal 2011, the treatment of stock options on retirement is modified. Under +these agreements, vesting of options that have been outstanding for at least one year will be accelerated if the holder retires after reaching age 60 with at least 5 years of service, and vesting of options that have been outstanding for at least +one year will continue notwithstanding termination of employment if the holder retires after reaching age 55 with at least 5 years of service. In addition, for any holder who retires after reaching age 55 with at least 5 years of service, the +standard three-month period for exercising these options following termination of employment will be extended to four years, but not beyond the option’s original 10-year term. If termination of employment of a Named Executive Officer (other +than due to death or disability) had occurred on May 31, 2012, the sum of (i) for outstanding unexercisable post-2010 options that would have become exercisable, the aggregate value as of May 31, 2012 of those options assuming a +four-year remaining term and otherwise calculated using the Black-Scholes option pricing model with assumptions consistent with those used by us for valuing our options under accounting guidance applicable to stock-based compensation, plus +(ii) for outstanding exercisable post-2010 options, the increase in value, if any, of those options resulting from the extension of the post-termination exercise period from three months to four years, with the option values as of May 31, +2012 for three-month and four-year remaining terms calculated using the Black-Scholes option pricing model with assumptions consistent with those used by us for valuing our options under accounting guidance applicable to stock-based compensation, is +$5,557,549 for Mr. Parker, $4,041,854 for Mr. Denson, and $1,684,106 for Mr. DeStefano. The value for Messrs. Blair and Sprunk is zero because neither has reached age 55. +Stock Award Acceleration +As of May 31, 2012, each Named Executive Officer held unvested restricted stock +and restricted stock units as set forth in the Outstanding Equity Awards table above. Under the terms of their award agreements, all unvested restricted shares and restricted stock units will immediately vest upon the death or disability of the +officer. The value of the unvested restricted shares and restricted stock units held by each Named Executive Officer as of May 31, 2012 that would have become vested if death or disability had occurred on that date is as set forth in the “ +Stock Award Acceleration” column of the Change-in-Control Compensation — Acceleration of Equity Awards table above. +Payments Under +Noncompetition Agreements +We have an agreement with each of Mr. Parker and Mr. Denson that contains a covenant not to compete that extends +for two years following the termination of the officer’s employment with us. Each agreement provides that if the officer’s employment is terminated by us, we will make monthly payments to him during the two-year noncompetition period in an +amount equal to one-twelfth of his then current annual salary and target Performance Sharing Plan bonus (“Annual Nike Income”). Each agreement provides further that if the officer voluntarily resigns, we will make monthly payments to him +during the two-year noncompetition period in an amount equal to one-twenty-fourth of his then current Annual Nike Income. However, commencement of the above-described monthly payments will be delayed until after the six-month period following the +officer’s separation from service, and all payments that the officer would otherwise have received during that period will be paid in a lump sum promptly following the end of the period, together with interest at the prime rate. If employment +is terminated without cause, the parties may mutually agree to waive the covenant not to compete, and if employment is terminated for cause, we may unilaterally waive the covenant. If the covenant is waived, we will not be required to make the +payments described above for the months as to which the waiver applies. If +22 +PROPOSAL 2 AND PROPOSAL 3 +the employment of these officers had been terminated by us on May 31, 2012 and assuming the covenant is not waived, we would have been required to pay Mr. Parker $322,917 per month and +Mr. Denson $253,000 per month for the 24-month period ending May 31, 2014. If these officers had voluntarily resigned on May 31, 2012 and assuming the covenant is not waived, we would have been required to pay Mr. Parker $161,458 +per month and Mr. Denson $126,500 per month for the 24-month period ending May 31, 2014. +We have noncompetition agreements with +Messrs. Blair, DeStefano and Sprunk on the same terms, except that the noncompetition period is one year instead of two years, the six-month delay for commencement of payments does not apply and we may unilaterally waive the covenant in all +cases including termination without cause. In addition, for Messrs. Blair and Sprunk, the monthly payments are one-twelfth or one-twenty-fourth of their current annual salaries, instead of their Annual Nike Income, and for Mr. DeStefano, +the monthly payments on voluntary resignation are one-twenty-fourth of his current annual salary. If the employment of these officers had been terminated by us on May 31, 2012 and assuming the covenant is not waived, we would have been required +to pay Mr. Blair $70,833 per month, Mr. DeStefano $163,083 per month and Mr. Sprunk $73,750 per month for the 12-month period ending May 31, 2013. If these officers had voluntarily resigned on May 31, 2012 and assuming the +covenant is not waived, we would have been required to pay Mr. Blair $35,417 per month, Mr. DeStefano $42,917 per month and Mr. Sprunk $36,875 per month for the 12-month period ending May 31, 2013. +Proposal 2 +Shareholder Advisory Vote on Executive Compensation +We are submitting to shareholders an advisory vote to approve the compensation of our Named Executive Officers (a “say-on-pay proposal”) as we did in +fiscal 2011. The Compensation Committee values the opinions of shareholders and will consider the outcome of the vote when making future compensation decisions. +At the Company’s 2011 annual meeting of shareholders, 98% of the votes cast on the say-on-pay proposal were voted in favor of the proposal. The Compensation Committee believes this affirms shareholders’ +support of the Company’s approach to executive compensation. +As discussed in the Compensation Discussion and Analysis, our compensation philosophy +is designed to attract and retain highly-talented individuals, provide rewards for strong business results and individual performance, and motivate executives to maximize long-term shareholder returns. The program is competitive in the marketplace, +highly incentive-based to align interests of executives with those of shareholders, and balanced across incentives to appropriately mitigate risk. +To +achieve our philosophy, the Compensation Committee has continued to strengthen pay-for-performance principles by incorporating strong governance practices over time, including: +• +Increasing the portion of total compensation that is “at risk” +• +Limiting vesting of equity awards upon a change-in-control to circumstances in which a “double trigger” has occurred +• +Restricting the availability of retirement vesting for stock options, prohibiting option re-pricing or discounting without shareholder approval, and limiting the +number of full value shares that can be issued +• +Adopting a “clawback” policy applicable to all executive officers to recoup incentive compensation for wrongful conduct that results in an accounting +restatement. +The Compensation Committee and the Board of Directors believe that the information provided in this proxy statement +demonstrates that our executive compensation program is designed appropriately and is working to ensure that management’s interests are aligned with our shareholders’ interests to maximize long-term shareholder returns. +We submit say-on-pay proposals annually to approve the compensation of our Named Executive Officers as disclosed pursuant to the SEC’s compensation disclosure +rules (which disclosure includes the Compensation Discussion and Analysis, the compensation tables, and the narrative disclosures that accompany the compensation tables). +Because your vote is advisory, it will not be binding on the Board; however, the Board values shareholder opinions, and the Compensation Committee will take into account the outcome of the vote when considering +future executive compensation arrangements. +Board Recommendation +The Board of Directors recommends that shareholders vote FOR approval of the compensation paid to the Named Executive Officers. Holders of Class A Stock and Class B Stock will vote together as a single +class on Proposal 2. If a quorum is present at the Annual Meeting, Proposal 2 will be approved if the number of shares voted in favor of the proposal exceeds the number of shares voting against the proposal. Abstentions and broker non-votes are +counted for purposes of determining whether a quorum exists, but are not counted as voting either for or against and therefore have no effect on the results of the vote. +Proposal 3 +Approval of Increase in Authorized Common Stock +The Board of Directors recommends that shareholders of the Company approve an amendment to Article IV of the Company’s Restated Articles of Incorporation, +as amended, to increase the Company’s authorized Class A Stock from 175,000,000 to 200,000,000 shares and the authorized Class B Stock from 750,000,000 shares to 1,200,000,000 shares. As of May 31, 2012, (a) a +total of 89,892,248 shares of Class A Stock and 370,512,593 shares of Class B Stock were outstanding, (b) 89,892,248 shares of Class B Stock were reserved for issuance upon conversion of outstanding shares of +Class A Stock, (c) 32,449,882 shares of Class B Stock were reserved for issuance upon exercise of outstanding stock options and stock appreciation rights and upon vesting of outstanding restricted stock unit awards, and (d) a +total of 34,258,862 shares of Class B Stock were reserved for future option grants and other issuances under the Company’s 1990 Stock Incentive Plan and Employee Stock Purchase Plans. Accordingly, as of May 31, 2012, the Company had +85,107,752 unreserved Class A shares and 222,886,418 unreserved Class B shares available for issuance for other purposes. +NIKE, INC. · 2012 Notice of Annual Meeting +23 +PROPOSAL 3 AND PROPOSAL 4 +The reason for +this amendment is to permit the Company to effect one or more stock splits by means of stock dividends. The Board of Directors has not approved such a split, but believes it to be desirable to have that flexibility in the future if the Board +determines at such time that such action would be in the best interests of the Company. +While the proposed amendment is intended to facilitate +future stock splits or stock dividends, the shares could also be used for other purposes such as financings, compensation plans, business acquisitions and other general corporate purposes. The shares could be issued from time to time for such +purposes as the Board may approve and, unless required by applicable law or stock exchange rules, no further vote of the shareholders will be required. The Board has no present plans, proposals or arrangements to issue any of the additional shares +to be authorized under this Proposal 3 for any of those purposes. +The authorization of additional shares of Common Stock could have an +anti-takeover effect, although that is not the intention of this proposal. For example, without further shareholder approval, the Board of Directors could sell Common Stock in a private transaction to purchasers who would oppose a takeover, thereby +potentially preventing a transaction favored by a majority of independent shareholders under which shareholders would have received a premium for their shares over then current market prices. Other existing provisions applicable to the Company that +might have a material anti-takeover effect include (a) the right of holders of the Class A Stock (over 90% of which is held by Philip H. Knight) to elect a majority of the Company’s directors, which right continues to apply as long as +the Class A Stock represents at least 12.5% of the total outstanding Common Stock; (b) the Oregon Control Share Act, which under certain circumstances would operate to deprive a person or group that acquires more than 20% of the +outstanding Common Stock of voting rights with respect to those shares; (c) the Oregon Business Combination statute, which places restrictions on business combination transactions with persons or groups that own 15% or more of the outstanding +Common Stock, unless the transaction is approved by the Board of Directors; and (d) provisions of outstanding employee and director options and stock awards that accelerate vesting of options upon the occurrence of a change of control of the +Company. The Board has no knowledge of any present efforts to accumulate shares of the Company’s Common Stock in the market or to gain control of the Company, and has no present intention to adopt any other provisions or enter into any other +arrangements that would have a material anti-takeover effect. +The additional shares of Common Stock for which authorization is sought would be identical +to the shares of Common Stock the Company now has authorized. Holders of Common Stock do not have preemptive rights to subscribe to additional securities which may be issued by the Company. +The Board of Directors considers this amendment advisable to provide flexibility for future stock splits, stock dividends and capital requirements. Approval of this amendment by the shareholders at the Annual +Meeting may avoid the expensive procedure of calling and holding a special meeting of shareholders for such a purpose at a later date. +Board Recommendation +The Board of Directors recommends voting FOR the amendment to the Articles of +Incorporation to increase the authorized Common Stock of the Company. Approval of Proposal 3 would require (i) the presence at the Annual Meeting of a majority of the outstanding shares of Class A Stock and a majority of the outstanding +shares of Class B Stock, and (ii) that in each such class the number of shares voting in favor of this Proposal exceeds the number of shares voting against this Proposal. Abstentions and broker non-votes are counted for purposes of determining +whether a quorum exists but are not counted as voting either for or against and therefore have no effect on the results of the vote. +Proposal 4 +Re-Approval and Amendment of the NIKE, Inc. Long-Term Incentive Plan +In 1997, the Board of Directors adopted, and the shareholders approved, our Long-Term Incentive Plan (the “Plan”). The Plan gives us broad authority to +make long-term incentive awards payable in cash and to qualify such awards as “performance-based compensation” as defined under Section 162(m) of the Internal Revenue Code of 1986 (the “Code”), thereby permitting full +deductibility of any amounts paid under the Plan to the Named Executive Officers. +The Code requires that the Plan be re-approved by shareholders every +five years in order for awards under the Plan to continue to qualify as performance-based compensation. See “Certain Tax Consequences.” The shareholders re-approved the Plan in 2007. Unless the shareholders again re-approve the Plan as +requested in this proposal, the Plan will terminate at the Annual Meeting. If the shareholders re-approve the Plan, the Plan will be extended for an additional five years until the first shareholder meeting in 2017. +The Board of Directors has adopted an amendment to the Plan, subject to shareholder approval, to increase the maximum amount payable to any participant under the +Plan for performance periods ending in any year from $4,000,000 to $12,000,000. The Board of Directors believes that the increased limit recognizes changes in executive compensation practices and provides flexibility to offer higher rewards for +higher levels of performance. In June 2011 and June 2012, awards were approved for Mr. Parker for the 2012-2014 performance period and the 2013-2015 performance period, respectively, under which the maximum payable is $6,000,000 and $7,000,000, +respectively, and all amounts payable under these awards over the current $4,000,000 maximum are subject to shareholder approval of Proposal 4. +The +complete text of the Plan, marked to show the proposed amendment, is attached to this proxy statement as Exhibit A. The following description of the proposed amended Plan is a summary of certain provisions and is qualified in its entirety by +reference to Exhibit A. +Description of the Plan +Eligibility. The Plan provides that all of our employees and the employees of our subsidiaries are eligible to receive awards under the Plan. Although this group currently consists of +approximately 42,000 persons, our current intent is to grant awards under the Plan to approximately 300 officers and senior managers. +Administration. Grants of target awards under the Plan and all other decisions regarding the administration of the Plan are made by a committee +of the Board of Directors comprised solely of “outside directors” as that term is defined in regulations under Section 162(m). Currently, the Plan is administered by the Compensation Committee (the “Committee”). +24 +PROPOSAL 4 +Target +Awards. The Committee may grant target awards payable in cash and shall make such awards within 90 days after the commencement of the period covered by the award (the “Performance Period”). All or part of the +awards will be earned if performance targets established by the Committee for the Performance Period are met and the participant satisfies any other restrictions established by the Committee. Performance targets must be expressed as an objectively +determinable level of our performance or the performance of any of our subsidiaries, divisions or other units, based on one or more of the following: net income, net income before taxes, operating income, revenues, return on sales, return on equity, +earnings per share, total shareholder return, or any of the foregoing before the effect of acquisitions, divestitures, accounting changes, restructuring, or other special charges, as determined by the Committee at the time of establishing the +performance target. The Committee shall not establish target award opportunities for any participant such that the maximum amount payable under target awards which have Performance Periods ending in any single fiscal year exceeds $12,000,000. +Determination of Award Payouts. At the end of each Performance Period, the Committee will certify the attainment of the +performance targets and the calculation of the payouts of the related target awards. No award shall be paid if the related performance targets are not met. The Committee may also, in its discretion, reduce or eliminate a participant’s +calculated award based on circumstances relating to our performance or the performance of the participant. +Clawback Policy. Awards under +the Plan granted after May 31, 2010 are subject to the Company’s Policy for Recoupment of Incentive Compensation. This clawback policy generally requires executive officers who are involved in wrongful conduct that results in a restatement +of the Company’s financial statements to repay to the Company up to the full amount of any payout received based in part on results for any year that was restated, as determined by the Board of Directors. +Amendment and Termination. The Plan may be amended by the Committee, with the approval of the Board of Directors, at any time except to +the extent that shareholder approval would be required to maintain the qualification of Plan awards as performance-based compensation. Unless again re-approved by the shareholders, the Plan will terminate at the first meeting of our shareholders in +the year 2017. +Certain Tax Consequences +Section 162(m) of the Code limits to $1,000,000 per person the amount that we may deduct for compensation paid to any of our most highly compensated officers in any year. Under IRS regulations, compensation +received through a performance-based award will not be subject to the $1,000,000 limit if the performance-based award and the plan meet certain requirements. One such requirement is shareholder approval at least once every five years of the +performance criteria upon which award payouts will be based and the maximum amount payable under awards, both of which are set forth in the Plan. Approval of this Proposal 4 will constitute re-approval of the performance criteria previously approved +by shareholders and approval of the increased maximum amount payable under the Plan. Other requirements are that objective performance goals and the amounts payable upon achievement of the goals be established by a committee of at least two outside +directors and that no discretion be retained to increase the amount payable under the awards. We believe that, if this proposal is approved by the shareholders, compensation received on payouts of awards granted under the Plan in compliance with all +of the above requirements will continue to be exempt from the $1,000,000 deduction limit. +Plan Benefits +In June 2011, the Committee approved target awards under the Plan for the fiscal 2012-2014 Performance Period which are summarized in the Grants of Plan-Based +Awards in Fiscal 2012 table above. In June 2012, the Committee approved target awards under the Plan which are summarized in the following table. The Performance Period for these target awards is the three-year period consisting of our +2013-2015 fiscal years. Since the Plan was adopted in 1997, similar target awards have been made for the three-year Performance Periods commencing each year. The payout for the fiscal 2010-2012 Performance Period was 200% of target. The actual +compensation received by the Named Executive Officers under the Plan for fiscal 2010-2012 is shown in footnote 3 to the Non-Equity Incentive Plan Compensation column in the Summary Compensation Table. The actual compensation received by all current +executive officers (including the Named Executive Officers) as a group under the Plan for fiscal 2010-2012 was $14.9 million. The actual compensation received by all other employees as a group under the Plan for fiscal 2010-2012 was $47.8 million. +Long-Term Incentive Plan (1) +Dollar Value +($) +Name and Position +Threshold +Target +Maximum +Mark G. Parker +President and +Chief Executive Officer +1,750,000 +3,500,000 +7,000,000 +Donald W. Blair +Vice President +and Chief Financial Officer +250,000 +500,000 +1,000,000 +Charles D. Denson +President of +the NIKE Brand +750,000 +1,500,000 +3,000,000 +Gary M. DeStefano +President, +Global Operations +250,000 +500,000 +1,000,000 +Eric D. Sprunk +Vice President, +Merchandising & Product +250,000 +500,000 +1,000,000 +Executive Officer Group (includes above 5 officers) +4,475,000 +8,950,000 +17,900,000 +All Other Employee Group +13,537,500 +27,075,000 +54,150,000 +(1) +The Committee established a series of performance targets based on revenues and earnings per share for the three-year period consisting of fiscal 2013-2015 corresponding to +award payouts ranging from 50% to 200% of the target awards. For revenues over the performance period, the target payout requires cumulative revenues corresponding to a compounded annual growth rate (“CAGR”) in revenues from fiscal 2012 +results of 8%, the 50% threshold payout requires cumulative revenues corresponding to a 6% CAGR, and the 200% maximum payout requires cumulative revenues corresponding to a 12% CAGR. For purposes of the 2013-2015 performance period, all revenue +calculations, including the fiscal 2012 results, will be adjusted to eliminate any consolidated revenues of the Cole Haan and Umbro businesses. For EPS over the performance period, the target payout requires cumulative EPS corresponding to a 13% +CAGR, the 50% threshold payout requires cumulative EPS corresponding to a 9% CAGR, and the 200% maximum payout requires cumulative EPS corresponding to a 21% CAGR. For purposes of the 2013-2015 performance period, all EPS calculations, including the +fiscal 2012 results, will be recalculated to eliminate all consolidated revenues and expenses of or relating to the Cole Haan and Umbro businesses. Participants will receive a payout at the average of the percentage levels at which the two +performance targets are met, subject to the Committee’s discretion to reduce or eliminate any award based on our performance or individual performance. Under the terms of the awards, in August 2015 we would issue the award payout to each +participant in cash. +NIKE, INC. · 2012 Notice of Annual Meeting +25 +PROPOSAL 5 AND PROPOSAL 6 +Board Recommendation +The Board of Directors recommends that shareholders vote FOR approval of the extension of and amendments to the Plan. Holders of Class A Stock and Class B Stock will vote together as a single class on +Proposal 4. If a quorum is present at the Annual Meeting, Proposal 4 will be approved if the number of shares voted in favor of the proposal exceeds the number of shares voting against the proposal. Abstentions and broker non-votes are counted for +purposes of determining whether a quorum exists, but are not counted as voting either for or against and therefore have no effect on the results of the vote. +Proposal 5 +Ratification of Independent Registered Public Accounting Firm +The Audit Committee of the Board of Directors has appointed PricewaterhouseCoopers LLP as independent registered public accounting firm to examine the +Company’s consolidated financial statements for the fiscal year ending May 31, 2013 and to render other professional services as required. +The +Audit Committee is submitting the appointment of PricewaterhouseCoopers LLP to shareholders for ratification. If the appointment is not ratified by our shareholders, the Audit Committee may reconsider whether it should appoint another independent +registered public accounting firm. +Representatives of PricewaterhouseCoopers LLP will be present at the Annual Meeting, will have the opportunity to +make a statement if they desire to do so, and are expected to be available to respond to questions. +Aggregate fees billed by the Company’s independent registered public accounting firm, PricewaterhouseCoopers LLP, for audit services related to the most recent two fiscal years, and for other professional +services incurred in the most recent two fiscal years, were as follows: +Type of Service +2012 +2011 +Audit Fees (1) +$ +9.1 million +$ +8.1 million +Audit-Related Fees (2) +$ +0.1 million +$ +0.2 million +Tax Fees (3) +$ +2.3 million +$ +2.4 million +All Other Fees (4) +$ +— +$ +0.8 million +Total +$ +11.5 million +$ +11.5 million +(1) +Comprised of the audits of the Company’s annual financial statements and internal controls over financial reporting, and reviews of the Company’s quarterly financial +statements, as well as statutory audits of Company subsidiaries, attest services and consents to SEC filings. +(2) +Comprised of employee benefit plan audits and consultations regarding financial accounting and reporting. +(3) +Comprised of services for tax compliance, tax planning, and tax advice. Tax compliance includes services for compliance related tax advice, as well as the preparation and +review of both original and amended tax returns for the Company and its consolidated subsidiaries. Tax compliance related fees represented $1.7 million and $1.6 million of the tax fees for fiscal 2012 and 2011, respectively. The remaining tax +fees primarily include tax advice. +(4) +Comprised of other miscellaneous services. +In accordance with the Sarbanes-Oxley Act of 2002, the Audit Committee established policies and procedures under which all audit and non-audit services performed by +the Company’s independent registered public accounting firm must be approved in advance by the Audit Committee. During fiscal 2012 and fiscal 2011, all such services were approved in advance. +Board Recommendation +The Board of Directors recommends that shareholders vote FOR ratification of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending May 31, +2013. +Notwithstanding anything to the contrary set forth in any of the Company’s filings under the Securities Act of 1933 or the Securities +Exchange Act of 1934, the following Report of the Audit Committee shall not be incorporated by reference into any such filings and shall not otherwise be deemed filed under such acts. +Report of the Audit Committee +The Audit Committee has: +• +Reviewed and discussed the audited financial statements with management. +• +Discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, as amended, and as adopted by the +Public Company Accounting Oversight Board (“PCAOB”) in Rule 3200T pursuant to Item 407(d)(3)(i)(B) of Regulation S-K of the Securities Exchange Act of 1934, as amended, regarding “ Communications with Audit +Committees. ” +• +Received the written disclosures and the letter from the independent accountants required by applicable requirements of the PCAOB regarding the independent +accountants’ communications concerning independence, and has discussed with the independent accountant the independent accountant’s independence. +• +Based on the review and discussions above, recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual +Report on Form 10-K for the last fiscal year for filing with the Securities and Exchange Commission. +Members of the Audit Committee: +• +Alan B. Graf, Jr., Chairman +• +John G. Connors +• +Orin C. Smith +26 +PROPOSAL 6 +Proposal 6 +Shareholder Proposal Regarding Political Contributions Disclosure +The North Carolina Department of State Treasurer, on behalf of the North Carolina Retirement Systems, 2325 North Salisbury Street, Raleigh, North Carolina 27603, a +holder of 587,813 shares of Class B Stock, submitted the following resolution (the “Proposal”), for the reasons stated. The Board of Directors recommends a vote AGAINST the Proposal and asks shareholders to read through NIKE’s +response which follows the shareholder proposal. +RESOLVED : NIKE shareholders request that NIKE (“Company”) provide a report, updated +semiannually, that discloses the Company’s: +1. +Policies and procedures for political contributions and expenditures (both direct and indirect) made with corporate funds. +2. +Monetary and non-monetary contributions and expenditures (direct and indirect) used to participate or intervene in any political campaign on behalf of (or in opposition to) any +candidate for public office, and used in any attempt to influence the general public, or segments thereof, with respect to elections or referenda. +The report shall include: +a. +An itemized accounting that includes the identity of the recipient as well as the amount of Company funds paid to each recipient that are used for political contributions or +expenditures as described above; and +b. +The title(s) of the person(s) in the Company responsible for the decision(s) to make the political contributions or expenditures. +The report shall be presented to the Board of Directors (or relevant Board oversight committee) and posted on NIKE’s website. +Supporting Statement +As long-term shareholders of NIKE, we support transparency and accountability in corporate spending on political activities. These include any activities considered intervention in any political campaign under the +Internal Revenue Code, such as direct and indirect political contributions to candidates, political parties, or political organizations; independent expenditures; or electioneering communications on behalf of federal, state or local candidates. +Disclosure is: consistent with public policy, in the best interest of the company and its shareholders, and critical for compliance with federal ethics +laws. Moreover, the Supreme Court’s “Citizens United” decision recognized the importance of political spending disclosure for shareholders when it said “[D]isclosure permits citizens and shareholders to react to the speech of +corporate entities in a proper way. This transparency enables the electorate to make informed decisions and give proper weight to different speakers and messages.” Gaps in transparency and accountability expose the company to reputational and +business risks that could threaten long-term shareholder value. +NIKE contributed nearly $1,000,000 (perhaps more) in corporate funds since the 2002 +election cycle (National Institute on Money in State Politics: http://www.followthemoney.org/index.phtml). +However, public databases provide an +incomplete picture of Company political spending. For example, NIKE’s payments to trade associations that then are directed to political activities are undisclosed and unknown. In some cases, even management does not know how trade associations +use Company money politically. This common-sense proposal asks our Company to disclose all of its political spending — including payments to trade associations and other tax-exempt organizations that are then used for political purposes. +Adoption would bring NIKE in line with a growing number of corporate leaders — including Exelon, Merck, and Microsoft — that support political disclosure and accountability and present this information on their websites. +The Company’s Board and its shareholders need comprehensive disclosure in order to fully evaluate the political use of corporate assets. +Therefore, we urge shareholders to vote FOR this proposal. +The Company’s Statement in Opposition to Proposal 6 +The Company agrees with the proponent that transparency and accountability in corporate spending on political activities are healthy and important corporate governance objectives, so shareholders can have the +information they need to make informed decisions. The Company disagrees, however, that the Proposal is necessary to achieve those objectives. We have substantially implemented what we believe are the essential purposes of the Proposal, namely to +give shareholders confidence there is proper oversight of political activity, and to allow them to assess any risks associated with significant contributions. +The Company already has a Political Contributions Policy (the “Policy”), which is designed to ensure that political contributions, trade group memberships, and policy statements are made in a manner +consistent with the Company’s core values to protect or enhance shareholder value, without regard to the private political preferences of the Company’s corporate officers. Our Policy describes the policies and procedures for making +corporate political contributions, how they are approved, who must approve them, and how they are reported to the Board’s Nominating and Corporate Governance Committee. We disclose our Policy on our website at +http://investors.nikeinc.com/Investors/Corporate-Governance/Political-Contributions/default.aspx . All of the Company’s political contributions and expenditures are made in accordance with the Policy, and we comply with all applicable +laws and regulations relating to reporting political contributions. +In addition, our Policy calls for annual disclosure on our website of all direct +political contributions to any candidate, political party, or ballot initiative in any year that exceeds $100,000. Our Policy also requires disclosure of all political contributions in any U.S. state where we make more than 50% of our political +contributions in any year. We believe these disclosures provide shareholders meaningful information to assess any risks posed by significant political contributions. +Our Policy also requires that management annually report to the Board’s independent Nominating and Corporate Governance Committee on compliance with our Policy, and to review the strategic priorities for +political contributions and trade association affiliations, to make sure they align with the long-term business objectives of the Company. +The expanded +disclosure requested in the Proposal could place the Company at a competitive disadvantage by revealing political strategies and priorities designed to protect the economic future of the Company, its shareholders, and employees. Because parties with +interests adverse to the Company also participate in the political process to their business advantage, any unilateral expanded disclosure could benefit them, while harming the interests of the Company and its shareholders. Any reporting +requirements that go beyond those required under existing law should be applicable to all participants in the political process, rather than the Company alone (as the proponent requests). +NIKE, INC. · 2012 Notice of Annual Meeting +27 +OTHER INFORMATION +In summary, the Board of Directors believes the proposal is duplicative and unnecessary, because the Company already has a comprehensive policy for oversight and +disclosure of political contributions. If adopted, the proposal would apply only to the Company and to no other company, and would cause the Company to incur undue cost and administrative burden, as well as competitive harm, without commensurate +benefit to our shareholders. +Board Recommendation +The Board of Directors recommends a vote AGAINST the shareholder proposal. Holders of Class A Stock and Class B Stock will vote together as a single class on Proposal 6. If holders of a majority of the +shares of Common Stock vote on the proposal, Proposal 6 will be adopted if the votes cast in favor of the Proposal exceed the votes cast against the proposal. Accordingly, abstentions and broker non-votes will have no effect on the results of the +vote. +Notwithstanding anything to the contrary set forth in any of the Company’s filings under the Securities Act of 1933 or the Securities +Exchange Act of 1934, the following Report of the Audit Committee shall not be incorporated by reference into any such filings and shall not otherwise be deemed filed under such acts. +Other Matters +As of the time this proxy statement was printed, management was unaware of any proposals to be presented for consideration at the Annual Meeting other than those +set forth herein, but if other matters do properly come before the Annual Meeting, the persons named in the proxy will vote the shares represented by such proxy according to their best judgment. +Shareholder Proposals +A proposal by a shareholder for inclusion in the Company’s proxy statement and form of proxy for the 2013 annual meeting of shareholders must be received by John F. Coburn III, Secretary of NIKE, at One +Bowerman Drive, Beaverton, Oregon 97005-6453, on or before March 28, 2013 to be eligible for inclusion. Rules under the Securities Exchange Act of 1934 describe standards as to the submission of shareholder proposals. In addition, the +Company’s bylaws require that any shareholder wishing to make a nomination for Director, or wishing to introduce a proposal or other business at a shareholder meeting must give the Company at least 60 days’ advance written notice, and +that notice must meet certain requirements described in the bylaws. +For the Board of Directors +John F. Coburn III +Secretary +28 +EXHIBIT A +Exhibit A +NIKE, Inc. Long-Term Incentive Plan * +This is the Long-Term Incentive Plan of NIKE, Inc. for the payment of +incentive compensation to designated employees. +Section 1. Definitions. +The following terms have the following meanings: +Board: The Board of Directors of the Company. +Code: The Internal Revenue Code of 1986, as amended. +Committee: The Compensation Committee of the Board, provided however, if the Compensation Committee of the Board is not composed entirely of Outside +Directors, the “Committee” shall mean a committee composed entirely of at least two Outside Directors appointed by the Board from time to time. +Company: NIKE, Inc. +Outside Directors: The meaning +ascribed to this term in Section 162(m) of the Code and the regulations proposed or adopted thereunder. +Performance Period: The period of +time for which Company performance is measured for purposes of a Target Award. +Performance Target: An objectively determinable level of +performance as selected by the Committee to measure performance of the Company or any subsidiary, division, or other unit of the Company for the Performance Period based on one or more of the following: net income, net income before taxes, operating +income, revenues, return on sales, return on equity, earnings per share, total shareholder return, or any of the foregoing before the effect of acquisitions, divestitures, accounting changes, restructuring, or other special charges, as determined by +the Committee at the time of establishing a Performance Target. +Plan: The Long-Term Incentive Plan of the Company. +Target Award: An amount of compensation to be paid in cash to a Plan participant based on achievement of a particular Performance Target level, as +established by the Committee. +Year: The fiscal year of the Company. +Section 2. Objectives. +The objectives of the Plan are to: +(a) recognize and reward on a long-term basis selected employees of the Company and its subsidiaries for their contributions to the overall profitability and +performance of the Company; and +(b) qualify compensation under the Plan as “performance-based compensation” within the meaning of +Section 162(m) of the Code and the regulations promulgated thereunder. +Section 3. Administration. +The Plan will be administered by the Committee. Subject to the provisions of the Plan, the Committee will have full authority to interpret the Plan, to establish +and amend rules and regulations relating to it, to determine the terms and provisions for making awards and to make all other determinations necessary or advisable for the administration of the Plan. +Section 4. Participation. +Target Awards may be granted +under the Plan only to individuals selected by the Committee who are employees of the Company or a subsidiary of the Company. +Section 5. +Determination of the Performance Targets and Awards. +(a) Performance Targets and Awards . The Committee shall establish in writing, in its +sole discretion, the Performance Targets and Target Award opportunities for each participant, within 90 days of the beginning of the applicable Performance Period. The Committee may establish (i) several Performance Target levels for each +participant, each corresponding to a different Target Award opportunity, and (ii) different Performance Targets and Target Award opportunities for each participant in the Plan. +(b) Other Terms and Restrictions . The Committee may establish other restrictions to payment under a Target Award, such as a continued employment requirement, in addition to satisfaction of the Performance +Targets. +(c) Maximum Awards . The Committee shall not establish Target Award opportunities for any participant such that the maximum amount +payable under Target Awards which have Performance Periods ending in any single Year exceeds $ 4 12 ,000,000. +Section 6. Determination of Plan Awards. +At the +conclusion of the Performance Period, in accordance with Section 162(m)(4)(C)(iii) of the Code, prior to the payment of any award under the Plan, the Committee shall certify in the Committee’s internal meeting minutes the attainment of the +Performance Targets for the Performance Period and the calculation of the awards. No award shall be paid if the related Performance Target is not met. The Committee may, in its sole discretion, reduce or eliminate any participant’s calculated +award based on circumstances relating to the performance of the Company or the participant. Awards will be paid in accordance with the terms of the awards as soon as practicable following the Committee’s certification of the awards. +Section 7. Termination of Employment. +The terms of a +Target Award may provide that in the event of a participant’s termination of employment for any reason during a Performance Period, the participant (or his or her beneficiary) will receive, at the time provided in Section 6, all or any +portion of the award to which the participant would otherwise have been entitled. +Section 8. Clawback +Policy . +Unless otherwise provided at the time of establishing a Target Award, all awards under the Plan shall be subject +to the NIKE, Inc. Policy for Recoupment of Incentive Compensation as approved by the Committee and in effect at the time the Target Award is established, or such other policy for “clawback” of incentive compensation as may be approved from +time to time by the Committee. +Section 9. Miscellaneous. +(a) Amendment and Termination of the Plan. The Committee with the approval of the Board may amend, modify or terminate the Plan at any time and from time to time except insofar as approval by the +Company’s shareholders is required pursuant to Section 162(m)(4)(C)(ii) of the Code. The Plan shall terminate at the first shareholder meeting that occurs in the fifth year after the Company’s shareholders approve the Plan. +Notwithstanding the foregoing, no such amendment, modification or termination shall affect the payment of Target Awards previously established. +(b) +No Assignment. Except as otherwise required by applicable law, no interest, benefit, payment, claim or right of any participant under the plan shall be subject in any manner to any claims of any creditor of any participant or beneficiary, nor +to alienation by anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment, charge or encumbrance of any kind, and any attempt to take any such action shall be null and void. +* +Matters in bold and underline are new; matters in italics and strikeout are to be deleted. +NIKE, INC. · 2012 Notice of Annual Meeting +29 +EXHIBIT A +(c) No Rights to Employment. Nothing contained in the Plan shall give any person the +right to be retained in the employment of the Company or any of its subsidiaries. The Company reserves the right to terminate a participant at any time for any reason notwithstanding the existence of the Plan. +(d) Beneficiary Designation. The Committee shall establish such procedures as it deems necessary for a participant to designate a beneficiary to whom any +amounts would be payable in the event of a participant’s death. +(e) Plan Unfunded. The entire cost of the Plan shall be paid from the +general assets of the Company. The rights of any person to receive benefits under the Plan shall be only those of a general unsecured creditor, and neither the Company nor the Board nor the Committee shall be responsible for the adequacy of the +general assets of the Company to meet and discharge Plan liabilities, nor shall the Company be required to reserve or otherwise set aside funds for the payment of its obligations hereunder. +(f) Applicable Law. The Plan and all rights thereunder shall be governed by and construed in accordance with the laws of the State of Oregon. +30 +ANNUAL +MEETING +AND +PROXY STATEMENT +September 20, 2012 +Beaverton, Oregon +Electronic Voting Instructions +Available 24 hours a day, 7 days a week! +Instead of mailing your proxy, you may choose one of the voting methods outlined below to vote +your proxy. +VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE +BAR. +Proxies submitted by the Internet or telephone must be +received by 1:00 a.m., Central Time, on September 20, 2012. +Vote by Internet +• Go to +www.investorvote.com +• Or scan the QR code with +your smartphone +• Follow the steps +outlined on the secure website +Vote by telephone +• Call toll free 1-800-652-VOTE (8683) within the USA, US territories & Canada on a touch tone telephone +• Follow the +instructions provided by the recorded message +Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas. +q IF +YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED +ENVELOPE. q +A +Proposals — The Board of Directors recommends a vote FOR all the nominees listed, a vote for FOR Proposals 2 - 5 and a vote AGAINST +Proposal 6. +1. +Class A director nominees: To elect a Board of Directors for the ensuing year. +For +Withhold +For +Withhold +For +Withhold +01 - Elizabeth J. Comstock +¨ +¨ +02 - John G. Connors +¨ +¨ +03 - Timothy D. Cook +¨ +¨ +04 - Douglas G. Houser +¨ +¨ +05 - Philip H. Knight +¨ +¨ +06 - Mark G. Parker +¨ +¨ +07 - Johnathan A. Rodgers +¨ +¨ +08 - Orin C. Smith +¨ +¨ +09 - John R. Thompson, Jr. +¨ +¨ +For +Against +Abstain +For +Against +Abstain +2. +To hold an advisory vote to approve executive compensation. +¨ +¨ +¨ +3. +To amend the Articles of Incorporation to increase the number of authorized shares of common stock. +¨ +¨ +¨ +4. +To re-approve and amend the NIKE, Inc. Long-Term Incentive Plan. +¨ +¨ +¨ +5. +To ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm. +¨ +¨ +¨ +6. +To consider a shareholder proposal regarding political contributions disclosure. +¨ +¨ +¨ +7. +To transact such other business as may properly come before the meeting. +B +Non-Voting Items +Change of Address — Please print new address below. +C +Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below +Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, +corporate officer, trustee, guardian, or custodian, please give full title. +Date (mm/dd/yyyy) — Please print date below. +Signature 1 — Please keep signature within the box. +Signature 2 — Please keep signature within the box. +/ / +Meeting Information +2012 Annual Meeting of Shareholders +for Shareholders as of July 23, 2012 +September 20, 2012 +10:00 A.M. PDT +Meeting +Location: +Tiger Woods Conference Center +One Bowerman Drive +Beaverton, OR 97005 +Meeting Directions: +From I-5 South of Portland: +I-5 North to 217 North. Follow to Hwy 26 West. +From I-5 North of Portland: +I-5 South to I-405 South. Follow to Hwy 26 West. +From I-84 East of Portland: +I-84 West to I-5 South to I-405 North. Follow to Hwy 26 West. +Exit Hwy 26 at Murray Blvd, turn left and drive one mile. Turn right on Walker Road, then left on Meadow Drive into the NIKE World +Headquarters (WHQ). Check in at the Security bunker located at the top of the entry. The Tiger Woods Conference Center is located directly ahead of the Security bunker. For patron drop off only, continue straight ahead to the main entry. To park, +turn left from the Security bunker onto Del Hayes Way and enter parking lots on either side of Del Hayes Way. Follow the covered sidewalk to the main entry of the Tiger Woods Conference Center. Please note that the NIKE Campus is a non-smoking +location and smoking is not permitted on NIKE WHQ property. +q IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q +NIKE, INC. +CLASS A COMMON STOCK PROXY +SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +FOR THE 2012 MEETING OF SHAREHOLDERS +SEPTEMBER 20, 2012 +The undersigned hereby appoints Philip H. Knight, Mark G. Parker and Douglas G. Houser, and each of them, proxies with full power of substitution, +to vote, as designated on the reverse side, on behalf of the undersigned, all shares of Class A Common Stock which the undersigned may be entitled to vote at the Annual Meeting of Shareholders of NIKE, Inc. on September 20, 2012, and any +adjournments thereof, with all powers that the undersigned would possess if personally present. A majority of the proxies or substitutes present at the meeting may exercise all powers granted hereby. +THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED, BUT IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE +ELECTION OF THE NOMINEES FOR DIRECTOR, FOR PROPOSALS 2 - 5 AND A VOTE AGAINST PROPOSAL 6. THE PROXIES MAY VOTE IN THEIR DISCRETION AS TO OTHER MATTERS WHICH MAY COME BEFORE THE MEETING. +YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH +THE BOARD OF DIRECTORS’ RECOMMENDATIONS. THE PROXIES CANNOT VOTE THESE SHARES UNLESS YOU SIGN AND RETURN THIS CARD OR PROPERLY VOTE BY PHONE OR INTERNET. +Electronic Voting Instructions +Available 24 hours a day, 7 days a week! +Instead of mailing your proxy, you may choose one of the voting methods outlined below to vote +your proxy. +VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE +BAR. +Proxies submitted by the Internet or telephone must be +received by 1:00 a.m., Central Time, on September 20, 2012. +Vote by Internet +• Go to +www.investorvote.com +• Or scan the QR code with +your smartphone +• Follow the steps +outlined on the secure website +Vote by telephone +• Call toll free 1-800-652-VOTE (8683) within the USA, US territories & Canada on a touch tone telephone +• Follow the +instructions provided by the recorded message +Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas. +q IF +YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED +ENVELOPE. q +A +Proposals — The Board of Directors recommends a vote FOR all the nominees listed, a vote for FOR Proposals 2 - 5 and a vote AGAINST +Proposal 6. +1. +Class B director nominees: To elect a Board of Directors for the ensuing year. +For +Withhold +For +Withhold +For +Withhold +01 - Alan B. Graf, Jr. +¨ +¨ +02 - John C. Lechleiter +¨ +¨ +03 - Phyllis M. Wise +¨ +¨ +For +Against +Abstain +For +Against +Abstain +2. +To hold an advisory vote to approve executive compensation. +¨ +¨ +¨ +3. +To amend the Articles of Incorporation to increase the number of authorized shares of common stock. +¨ +¨ +¨ +4. +To re-approve and amend the NIKE, Inc. Long-Term Incentive Plan. +¨ +¨ +¨ +5. +To ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm. +¨ +¨ +¨ +6. +To consider a shareholder proposal regarding political contributions disclosure. +¨ +¨ +¨ +7. +To transact such other business as may properly come before the meeting. +B +Non-Voting Items +Change of Address — Please print new address below. +C +Authorized Signatures — This section must be completed for your vote to be counted. — Date +and Sign Below +Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, +corporate officer, trustee, guardian, or custodian, please give full title. +Date (mm/dd/yyyy) — Please print date below. +Signature 1 — Please keep signature within the box. +Signature 2 — Please keep signature within the box. +/ / +Meeting Information +2012 Annual Meeting of Shareholders +for Shareholders as of July 23, 2012 +September 20, 2012 +10:00 A.M. PDT +Meeting +Location: +Tiger Woods Conference Center +One Bowerman Drive +Beaverton, OR 97005 +Meeting Directions: +From I-5 South of Portland: +I-5 North to 217 North. Follow to Hwy 26 West. +From I-5 North of Portland: +I-5 South to I-405 South. Follow to Hwy 26 West. +From I-84 East of Portland: +I-84 West to I-5 South to I-405 North. Follow to Hwy 26 West. +Exit Hwy 26 at Murray Blvd, turn left and drive one mile. Turn right on Walker Road, then left on Meadow Drive into the NIKE World +Headquarters (WHQ). Check in at the Security bunker located at the top of the entry. The Tiger Woods Conference Center is located directly ahead of the Security bunker. For patron drop off only, continue straight ahead to the main entry. To park, +turn left from the Security bunker onto Del Hayes Way and enter parking lots on either side of Del Hayes Way. Follow the covered sidewalk to the main entry of the Tiger Woods Conference Center. Please note that the NIKE Campus is a non-smoking +location and smoking is not permitted on NIKE WHQ property. +q IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q +NIKE, INC. +CLASS B COMMON STOCK PROXY +SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +FOR THE 2012 MEETING OF SHAREHOLDERS +SEPTEMBER 20, 2012 +The undersigned hereby appoints Philip H. Knight, Mark G. Parker and Douglas G. Houser, and each of them, proxies with full power of substitution, +to vote, as designated on the reverse side, on behalf of the undersigned, all shares of Class B Common Stock which the undersigned may be entitled to vote at the Annual Meeting of Shareholders of NIKE, Inc. on September 20, 2012, and any +adjournments thereof, with all powers that the undersigned would possess if personally present. A majority of the proxies or substitutes present at the meeting may exercise all powers granted hereby. +THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED, BUT IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE +ELECTION OF THE NOMINEES FOR DIRECTOR, FOR PROPOSALS 2 - 5 AND A VOTE AGAINST PROPOSAL 6. THE PROXIES MAY VOTE IN THEIR DISCRETION AS TO OTHER MATTERS WHICH MAY COME BEFORE THE MEETING. +YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH +THE BOARD OF DIRECTORS’ RECOMMENDATIONS. THE PROXIES CANNOT VOTE THESE SHARES UNLESS YOU SIGN AND RETURN THIS CARD OR PROPERLY VOTE BY PHONE OR INTERNET. \ No newline at end of file diff --git a/raw/proxies/0000320187/0001193125-12-319499/proxy_rpt.txt b/raw/proxies/0000320187/0001193125-12-319499/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000350868/0001104659-09-045270/proxy.txt b/raw/proxies/0000350868/0001104659-09-045270/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..67c6d8ecd2a00c62176c120fa2a1ee39ece37030 --- /dev/null +++ b/raw/proxies/0000350868/0001104659-09-045270/proxy.txt @@ -0,0 +1,3825 @@ +DEF 14A +1 +a09-18983_1def14a.htm +DEF 14A +Table of Contents +UNITED +STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy +Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant x +Filed by a Party other than the +Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for +Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to +§240.14a-12 +ITERIS, +INC. +(Name +of Registrant as Specified In Its Charter) +(Name +of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the +appropriate box): +x +No fee required. +o +Fee computed on table below per +Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to +which transaction applies: +(2) +Aggregate number of securities to +which transaction applies: +(3) +Per unit price or other underlying +value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth +the amount on which the filing fee is calculated and state how it was +determined): +(4) +Proposed maximum aggregate value of +transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary +materials. +o +Check box if any part of the fee is +offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing +for which the offsetting fee was paid previously. Identify the previous +filing by registration statement number, or the Form or Schedule and the date +of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration +Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +ITERIS, INC. +NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD SEPTEMBER 18, 2009 +To the Stockholders of +Iteris, Inc.: +NOTICE IS HEREBY GIVEN that the 2009 Annual Meeting of +Stockholders (the “Annual Meeting”) of Iteris, Inc., a Delaware +corporation, will be held on September 18, 2009 at 10:00 a.m. Pacific +Time, at our principal executive offices located at 1700 Carnegie Avenue, Suite 100, +Santa Ana, CA 92705, for the following purposes, as more fully described in the +proxy statement accompanying this Notice: +1. To elect seven directors to serve on the Board of +Directors until the next annual meeting of stockholders. The nominees for election are Richard Char, +Kevin C. Daly, Ph.D., Gregory A. Miner, Abbas Mohaddes, John W. Seazholtz, +Joel Slutzky, and Thomas L. Thomas. +2. To approve the amendment of the Iteris, Inc. 2007 +Omnibus Incentive Plan to increase the number of shares of common stock +authorized for issuance under the plan by an additional 800,000 shares to +1,650,000 shares. +3. To ratify the appointment of McGladrey & +Pullen, LLP as our independent auditors for the fiscal year ending March 31, +2010. +4. To transact any other business which may properly come +before the Annual Meeting or any adjournment(s) or postponement(s) thereof. +All stockholders of record as of the close of business +on July 21, 2009 are entitled to notice of and to vote at the Annual +Meeting and at any postponement(s) or adjournment(s) thereof. You are cordially invited to be present and +to vote at this Annual Meeting. Whether +or not you plan to attend, it is important that your shares be represented and +voted at the Annual Meeting. You can +vote your shares by completing and returning the enclosed proxy card. If your shares are held in “street name,” +that is, your shares are held in the name of a brokerage firm, bank or other +nominee, in lieu of a proxy card you should receive from that institution an +instruction form for voting by mail and you may also be eligible to vote your +shares electronically over the Internet or by telephone. Should you receive more than one proxy card +or voting instruction form because your shares are held in multiple accounts or +registered in different names or addresses, please sign, date and return each +proxy card or voting instruction form to ensure that all of your shares are +voted. You may revoke your proxy at any +time prior to the Annual Meeting. If you +attend the Annual Meeting and vote by ballot, any proxy that you previously +submitted will be revoked automatically and only your vote at the Annual +Meeting will be counted. For further +information, please see the discussion of voting rights and proxies beginning +on page 1 of the enclosed proxy statement. +BY +ORDER OF THE BOARD OF DIRECTORS +Abbas +Mohaddes +Chief +Executive Officer and President +Santa Ana, +California +July 28, 2009 +YOUR VOTE IS VERY IMPORTANT +REGARDLESS OF THE NUMBER OF SHARES YOU OWN. +PLEASE READ THE ATTACHED PROXY STATEMENT CAREFULLY, COMPLETE, SIGN AND +DATE THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE +ENCLOSED ENVELOPE. +Table of Contents +ITERIS, INC. +1700 Carnegie Avenue, Suite 100 +Santa Ana, California 92705 +PROXY STATEMENT +FOR THE 2009 ANNUAL MEETING OF +STOCKHOLDERS +TO BE HELD SEPTEMBER 18, 2009 +General +These proxy materials and the enclosed proxy card are +being furnished in connection with the solicitation of proxies by the Board of +Directors of Iteris, Inc., a Delaware corporation (“Iteris” or the “Company”), +to be voted at the 2009 Annual Meeting of Stockholders (the “Annual Meeting”) +to be held on September 18, 2009 and at any adjournment(s) or +postponement(s) of the meeting. The +Annual Meeting will be held at 10:00 a.m. Pacific Time, at our principal +executive offices located at 1700 Carnegie Avenue, Suite 100, Santa Ana, +CA 92705. These proxy materials and the +form of proxy are expected to be mailed to our stockholders who are entitled to +vote at the Annual Meeting on or about August 5, 2009. +Purpose +of Meeting +The specific proposals to +be considered and acted upon at the Annual Meeting are summarized in the +accompanying Notice of the Annual Meeting of Stockholders and are described in +more detail in this proxy statement. +Internet Availability of +Materials +IMPORTANT NOTICE +REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE +HELD ON SEPTEMBER 18, 2009: The Proxy +Statement, proxy card, and Annual Report on Form 10-K for the fiscal year +ended March 31, 2009 are available at http://www.edocumentview.com/ITI. +Voting +Rights +The record date for determining those stockholders who +are entitled to notice of, and to vote at, the Annual Meeting has been fixed as +July 21, 2009. At the close of +business on the record date, 34,265,094 shares of our common stock, par value +$0.10 per share, were outstanding and no shares of our preferred stock were +outstanding. Each stockholder is entitled +to one vote for each share of common stock held by such stockholder as of the +record date. +The presence in person or by proxy of the holders of a +majority of the outstanding shares of the common stock entitled to vote will +constitute a quorum for the transaction of business at the Annual Meeting. If a quorum is not present, the Annual +Meeting will be adjourned until a quorum is obtained. +In the election of directors under Proposal One, +directors will be elected by a plurality of the common stock entitled to vote +and present in person or represented by proxy at the Annual Meeting, unless +cumulative voting is in effect. Pursuant +to our bylaws, no stockholder is entitled to cumulate his or her votes for +candidates other than those whose names have been placed in nomination prior to +the commencement of voting and unless at least one stockholder has given notice +prior to commencement of voting of his or her intention to cumulate votes. If any stockholder has given such notice, +then each stockholder may cumulate votes by multiplying the number of shares of +common stock the stockholder is entitled to vote by the number of directors to +be elected. The number of cumulative +votes thus determined may be voted all for one candidate or distributed among +several candidates, at the discretion of the stockholder. The candidates receiving the highest number +of votes, up to the number of directors to be elected, will be elected. If cumulative voting is in effect, the +persons named in the accompanying proxy will vote the shares of common stock +covered by proxies received by them (unless authority to vote for directors is +withheld) among the named candidates as they determine. +With regard to Proposals Two and Three, the +affirmative vote of the holders of a majority of our common stock present or +represented by proxy and entitled to vote at the Annual Meeting is being +sought. +1 +Table of Contents +All votes will be tabulated by the inspector of +election appointed for the Annual Meeting, who will separately tabulate +affirmative and negative votes, abstentions, and broker non-votes. Broker non-votes occur when brokers who hold +stock in “street name” return proxy cards stating that they do not have +authority to vote the stock which they hold on behalf of beneficial +owners. Abstentions and broker non-votes +are counted as present for purposes of determining the presence or absence of a +quorum for the transaction of business. +Abstentions will be counted towards the tabulations of votes cast on +proposals presented to the stockholders and will have the same effect as +negative votes. Broker non-votes will +not be counted for purposes of determining whether a proposal has been +approved. +Voting +You may vote by one of three ways: (i) by mail, (ii) electronically +over the Internet or by telephone, or (iii) by ballot in person at the +Annual Meeting. If you are a “registered +holder,” that is, your shares are registered in your own name through our +transfer agent, you may vote by returning a completed proxy card in the +enclosed postage-paid envelope. If your +shares are held in “street name,” that is, your shares are held in the name of +a brokerage firm, bank or other nominee, in lieu of a proxy card you should +receive a voting instruction form from that institution by mail. The voting instruction form should indicate +whether the institution has a process for beneficial holders to vote over the +Internet or by telephone. Stockholders +who vote over the Internet or by telephone need not return a proxy card or +voting instruction form by mail, but may incur costs, such as usage charges, +from telephone companies or Internet service providers. If your voting instruction form does not +reference Internet or telephone information, please complete and return the +paper voting instruction form in the self-addressed, postage-paid envelope +provided. +If you are a registered holder, you may also vote your +shares in person at the Annual Meeting. +If your shares are held in street name and you wish to vote in person at +the meeting, you must obtain a proxy issued in your name from the record holder +and bring it with you to the Annual Meeting. +We recommend that you vote your shares in advance as described above so +that your vote will be counted if you later decide not to attend the Annual +Meeting. +Proxies +Please use the enclosed proxy card to vote by +mail. If your shares are held in street +name, then in lieu of a proxy card you should receive from that institution an +instruction form for voting by mail, the Internet or by telephone. Should you receive more than one proxy card +or voting instruction form because your shares are held in multiple accounts or +registered in different names or addresses, please be sure to complete, sign, +date, and return each proxy card or voting instruction form to ensure that all +of your shares will be voted. Only proxy +cards and voting instruction forms that have been signed, dated, and timely +returned (or otherwise properly voted by Internet or telephone) will be counted +in the quorum and voted. Properly +executed proxies will be voted in the manner directed by the stockholders. If the proxy does not specify how the shares +represented thereby are to be voted, the proxy will be voted FOR the election +of the directors proposed by the Board under Proposal One unless the authority +to vote for the election of any director is withheld and, if no contrary +instructions are given, the proxy will be voted FOR the approval of each of the +other proposals as described in this proxy statement and the accompanying +notice. +The enclosed proxy also grants the proxy holders +discretionary authority to vote on any other business that may properly come +before the Annual Meeting as well as any procedural matters. We have not been notified by any stockholder +of his or her intent to present a stockholder proposal at the Annual Meeting. +If your shares are held in your name, you may revoke +or change your vote at any time before the Annual Meeting by filing a notice of +revocation or another signed proxy card with a later date with our Secretary at +our principal executive offices. If your +shares are held in street name, you should contact the record holder to obtain +instructions if you wish to revoke or change your vote before the Annual +Meeting. If you attend the Annual +Meeting and vote by ballot, any proxy that you submitted previously to vote the +same shares will be revoked automatically and only your vote at the Annual +Meeting will be counted. Please note, however, that if your shares are held in street name, your +vote in person at the Annual Meeting will not be effective unless you have +obtained and present a proxy issued in your name from the record holder. Attendance at the Annual Meeting +will not, by itself, revoke a proxy. +2 +Table of Contents +Solicitation +The enclosed proxy is being solicited by our Board of +Directors. We will bear the entire cost +of proxy solicitation, including the costs of preparing, assembling, printing, +and mailing this proxy statement, the proxy card, and any additional material +furnished to the stockholders. Copies of +the solicitation materials will be furnished to brokerage houses, fiduciaries, +and custodians holding shares in their names that are beneficially owned by +others so that they may forward this solicitation material to such beneficial +owners. In addition, we may reimburse +such persons for their reasonable expenses in forwarding the solicitation +materials to the beneficial owners. The +original solicitation of proxies by mail may be supplemented by a solicitation +by personal contact, telephone, facsimile, email or any other means by our +directors, officers, or employees. No +additional compensation will be paid to these individuals for any such +services. +In the discretion of management, we reserve the right +to retain a professional firm of proxy solicitors to assist in solicitation of +proxies. Although we do not currently +expect to retain such a firm, it estimates that the fees of such firm would +range from $5,000 to $20,000 plus out-of-pocket expenses, all of which would be +paid by us. +3 +Table of Contents +PROPOSAL ONE: +ELECTION +OF DIRECTORS +Our bylaws provide for a Board of Directors consisting +of not less than seven nor more than eleven members. The exact number may be changed, within such +limits, by a resolution duly adopted by the Board or by the stockholders. The number of directors constituting the full +Board is currently set at seven. All +directors are elected annually and hold office until the next annual meeting of +stockholders and until their successors are duly elected and qualified. +On the recommendation of the Nominating and Corporate +Governance Committee, our Board of Directors selected and approved the +following persons as nominees for election at the Annual Meeting to serve until +the next annual meeting of stockholders, or until their successors are duly +elected and qualified or until their earlier resignation or removal: Richard Char, Kevin C. Daly, Ph.D., Gregory +A. Miner, Abbas Mohaddes, John W. Seazholtz, Joel Slutzky, and Thomas L. +Thomas. Each nominee for election is +currently a member of our Board of Directors and has agreed to serve if +elected. We have no reason to believe +that any of the nominees will be unavailable to serve. In the event any of the nominees named herein +is unable to serve or declines to serve at the time of the Annual Meeting, the +persons named in the enclosed proxy will exercise discretionary authority to +vote for substitutes. Unless otherwise +instructed, the proxy holders will vote the proxies received by them FOR the +nominees named above. +Stockholder +Approval +The seven candidates receiving the highest number of +affirmative votes, present in person or represented by proxies and entitled to +vote at the Annual Meeting, will be elected as our directors. However, if cumulative voting is in effect, +the proxy holders will have the right to cumulate and allocate votes among +those nominees standing for election as such proxy holders in their discretion +elect. +Recommendation +of the Board of Directors +Our Board of Directors recommends a +vote “FOR” the seven director nominees listed above. +Directors +and Nominees +The following table sets +forth certain information, as of June 30, 2009, concerning our directors +and director nominees. +Name +Age +Current Position(s) with Iteris +Director +Since +Richard Char(1) +50 +Director +2005 +Kevin C. Daly, +Ph.D.(2)(3) +64 +Director and Assistant +Secretary +1993 +Gregory A. Miner +54 +Chairman of the Board +1998 +Abbas Mohaddes +52 +Chief Executive +Officer, President, Assistant Secretary and Director +2005 +John W. +Seazholtz(1)(2)(3) +72 +Director +1998 +Joel Slutzky (3) +70 +Director and Assistant +Secretary +1969 +Thomas L. +Thomas(1)(2)(3) +60 +Director +1999 +(1) Member of the Audit Committee. +(2) Member of the Compensation Committee. +(3) Member of the Nominating and Corporate Governance +Committee. +Abbas Mohaddes has served as our Chief Executive Officer and President since March 2007, +as an Assistant Secretary since May 2004 and as a director since September 2005. Prior to his promotion in March 2007, Mr. Mohaddes +served as our Executive Vice President and a General Manager from October 2004. He was the Executive Vice President of our +former Iteris, Inc. subsidiary (the “Iteris Subsidiary”) from March 2004 +to October 2004 and its Secretary from September 2001 to October 2004. Prior to that, he served as the Senior Vice +President and Director of Transportation Systems of the Iteris Subsidiary from May 2000 +to March 2004 and as its Vice President and Deputy Director of +Transportation from October 1998 to May 2000. Mr. Mohaddes also served as President +and Chief Executive Officer of Meyer, Mohaddes Associates, Inc. (“MMA”), +an ITS and transportation firm that he co-founded in 1991, which was acquired +by the Iteris Subsidiary in October 1998 and dissolved in April 2006. Mr. Mohaddes is a founding and a current +board member of ITS America and a member of several trade organizations +including Transportation Research Board, Institute of Transportation Engineers, +and the Design/Build Institute of America. +4 +Table of Contents +Richard Char has served as a director since September 2005. Since October 2008, Mr. Char has +served as CEO of VIPGift LLC, a provider of corporate and consumer loyalty and +incentive programs. From June 2006 to July 2008, Mr. Char was +the Senior Vice President of Corporate Development and General Counsel at +Blackhawk Network, Inc., a provider of prepaid merchant gift cards and +network branded cards. From March 2003 +to April 2005, Mr. Char served as the President and Chief Executive +Officer of IC Media, a developer of CMOS image sensors that was acquired in April 2005 +by MagnaChip Semiconductors, a developer and manufacturer of mixed-signal and +digital multimedia semiconductors. Prior +to joining IC Media, from March 1999 to January 2002, Mr. Char +was Managing Director with the Technology Group of Credit Suisse First +Boston. From 1997 to 1999, Mr. Char +was Co-Head of Technology Investment Banking at Cowen & Company, and +from 1984 to 1997, he was a partner in the law firm of Wilson Sonsini Goodrich & +Rosati. Mr. Char received his A.B. +degree from Harvard College and his J.D. degree from Stanford Law School. +Kevin C. Daly, Ph.D. has served as a director since 1993. +Dr. Daly assumed the responsibility of Chief Executive Officer of +iStor Networks, Inc., a leading supplier of network storage solutions, in August 2007. He has also served as the Chief Executive +Officer of MAXxess Systems, Inc., a provider of electronic security +solutions, since November 2005. +From June 2002 to June 2005, Dr. Daly was the Chief +Executive Officer of Avamar Technologies, Inc., a provider of high +availability storage software solutions. +Dr. Daly was Chief Technical Officer of Quantum Corporation’s +Storage Solutions Group from October 2001 to July 2002. Dr. Daly is also a member of the Board +of Directors of iStor Networks Inc. +Gregory A. Miner has served as a director since 1998 and as our Chairman of the Board +of Directors since October 2004. Mr. Miner +is also the Managing Partner of Merchant Capital Source, LLC, a company that +provides working capital financing solutions to merchants. Prior to that, Mr. Miner served as our +Chief Executive Officer from February 2002 to October 2004 and as our +Chief Financial Officer from January 1994 to October 2004. He also served as our Chief Operating Officer +from 1998 to 2002 and as the Chairman of the Board of the Iteris Subsidiary +from December 2003 to October 2004. +Mr. Miner has served in various capacities for our other +subsidiaries from time to time. From December 1984 +until joining us, Mr. Miner served as the Vice President, Chief Financial +Officer and a director of Laser Precision Corporation, a manufacturer of +telecommunications test equipment. Mr. Miner +is a Certified Public Accountant and, from 1979 to 1984, was employed by +Deloitte Haskins and Sells (now known as Deloitte & Touche LLP) in +various capacities, the most recent of which was Audit Manager. +John W. Seazholtz has served as a director since May 1998. From May 1998 to April 2000, Mr. Seazholtz +served as the President and Chief Executive Officer of Telesoft America, Inc. He retired in April 1998 as the Chief +Technology Officer of Bell Atlantic after 36 years of service with that company +and its predecessor. Mr. Seazholtz +was a senior officer of Bell Atlantic from 1986, serving in various positions, +including the positions of Vice President, Operations and Engineering, Vice +President, Marketing, Vice President of New Services, and Vice President, +Technology and Information Systems. Mr. Seazholtz +currently serves as the Chairman of the Board of Westell Technologies, Inc. +Joel Slutzky has served as a director since he co-founded our company in 1969. Mr. Slutzky was the Chairman of the +Board of Directors from 1969 to October 2004 and our Chief Executive +Officer from 1975 to February 2002. +Mr. Slutzky also served as the Chairman of the Board of the Iteris +Subsidiary until December 2003 and served in various capacities for our +other subsidiaries from time to time. Mr. Slutzky +currently serves on the Board of Directors of Project Tomorrow, an organization +focused on improving Kindergarten through 12th grade science education in +Orange County, California and the Butterfly Connection, an organization that +promotes creativity and critical thinking skills in K-12 education. +Thomas +L. Thomas has +served as a director since May 1999. +From February 2004 to July 2008, Mr. Thomas served as the +President and Chief Operating Officer of Global Exchange Services (“GXS”), a +provider of business-to-business EDI and supply chain management +solutions. Mr. Thomas retired from +GXS in July 2008, and currently has his own management consulting +business, T2 Partners. Prior to his +service with GXS, Mr. Thomas was the Chairman of the Board, President and +Chief Executive Officer of HAHT Commerce, a provider of software applications +that enable companies to use the Internet to conduct business, from February 2000 +until February 2004 when HAHT Commerce was sold to GXS. Mr. Thomas also served as the President +and Chief Executive Officer of Ajuba Solutions, a provider of B2B integration +solution software, from February 2000 until its sale to Interwoven in October 2000, +and as the President, Chief Executive Officer and Chairman of the Board of +Vantive Corporation, a customer relationship management software vendor, from April 1999 +until its acquisition by Peoplesoft in January 2000. From 1981 to 1999, Mr. Thomas served in +various senior and executive positions at 3Com Corporation, Dell Computer +Corporation, Kraft General Foods and Sara Lee Corporation. Mr. Thomas also serves on the Board of +Directors of InfoGroup, Inc. +Family +Relationships +There are no family relationships among any of our +directors, director nominees, or executive officers. +5 +Table of Contents +CORPORATE +GOVERNANCE +Code of +Ethics and Business Conduct +Our Board of Directors has adopted a Code of Ethics +and Business Conduct which applies to all directors, officers (including our +principal executive officer, principal financial officer, principal accounting +officer or controller, or persons performing similar functions) and +employees. The full text of our Code of +Ethics and Business Conduct is available on the Investor Relations section of +our website at www.iteris.com . We intend to disclose future amendments to +certain provisions of the Code of Ethics and Business Conduct, and any waivers +of provisions of the Code of Ethics required to be disclosed under the rules of +the Securities and Exchange Commission (“SEC”), at the same location on our +website. +Director +Independence +The Board of Directors has determined that Messrs. Char, +Daly, Seazholtz, Slutzky, and Thomas each satisfy the requirements for “independence” +under the listing standards of NYSE Amex. +Board +Meetings and Committees +We currently have several standing committees of the +Board of Directors, including the Audit Committee, the Compensation Committee, +and the Nominating and Corporate Governance Committee. The Audit Committee, the Compensation +Committee, and the Nominating and Corporate Governance Committee each has a +written charter that is reviewed annually and revised as appropriate. A copy of each committee’s charter is +available on the Investor Relations section of our website at www.iteris.com . +During the fiscal year ended March 31, 2009 (“Fiscal +2009”), the Board of Directors and the various committees of the Board held the +following number of meetings: Board of +Directors—seven; Audit Committee—eight; Compensation Committee—one; and +Nominating and Corporate Governance Committee—one. During Fiscal 2009, no director attended +fewer than 75% of the aggregate of the total number of meetings of the Board of +Directors and the total number of meetings of any committees of the Board held +while he was serving on the Board or such committee. +Audit Committee. +The current members of our Audit Committee are Messrs. Char, +Seazholtz, and Thomas. Each member of +the Audit Committee is “independent” under the current listing standards of +NYSE Amex and the SEC rules regarding audit committee memberships. The Board has identified Mr. Char as the +member of the Audit Committee who qualifies as an “audit committee financial +expert” under applicable SEC rules and regulations governing the +composition of the Audit Committee. +The Audit Committee oversees on behalf of the Board (a) the +conduct of the accounting and financial reporting processes, the audits of our +financial statements and the integrity of our audited financial statements and +other financial reports; (b) the performance of our internal accounting +and financial controls function; (c) the engagement, replacement, +compensation, qualifications, independence and performance of our independent +auditors; and (d) the portions of the Code of Ethics and Business Conduct +and related policies regarding our accounting, internal accounting controls or +auditing matters. +The Audit Committee meets privately with our +independent auditors, and the independent auditors have unrestricted access to +and report directly to the Audit Committee. +The Audit Committee has selected McGladrey & Pullen, LLP as our +independent auditors for the fiscal year ending March 31, 2010 and is +recommending that our stockholders ratify this appointment at the Annual Meeting. +Compensation Committee. +The current members of our Compensation Committee are Messrs. Daly, +Seazholtz, and Thomas. The Board has +concluded that each member of the Compensation Committee is “independent” under +the listing standards of NYSE Amex. +The Compensation Committee (a) evaluates officer +and director compensation policies, goals, plans and programs; (b) determines +the cash and non-cash compensation of our “executive officers” as defined in +the rules promulgated under Section 16 of the Securities Exchange Act +of 1934, as amended (the “Exchange Act”); (c) reviews and makes +recommendations to the Board with respect to our equity-based and other +incentive compensation plans for employees; (d) evaluates the performance +of our executive officers; (e) assists the Board in evaluating potential +candidates for executive officer positions and oversee management succession +planning; and (f) produces the Committee report required by the applicable +rules and regulations of the SEC and other regulatory bodies for inclusion +in our annual proxy statement. +6 +Table of Contents +Nominating and Corporate +Governance Committee. The current members of the +Nominating and Corporate Governance Committee are Messrs. Daly, Seazholtz, +Slutzky, and Thomas. The Board has +determined that each of the members of this committee are “independent” under +the listing standards of NYSE Amex. +The primary purposes of the Nominating and Corporate +Governance Committee are to (a) identify, screen and review individuals +qualified to serve as directors; (b) select or recommend to the Board of +Directors the selection of nominees for election at the next annual meeting of +stockholders; (c) recommend to the Board of Directors candidates to fill +any vacancies on the Board; (d) oversee the implementation and monitoring +the effectiveness of our corporate governance policies and developing and +recommending to the Board modifications and or additions to such policies; and (e) review +on a regular basis our overall corporate governance and recommend improvements +when necessary. +In connection with their recommendations regarding the +size and composition of the Board, the Nominating and Corporate Governance +Committee reviews the appropriate qualities and skills required of directors in +the context of the then current make-up of the Board. This includes an assessment of each candidate’s +independence, personal and professional integrity, financial literacy or other +professional or business experience relevant to an understanding of our +business, ability to think and act independently and with sound judgment, and +ability to serve our company’s and our stockholders’ long-term interests. These factors, and others as considered useful +by the Nominating and Corporate Governance Committee, are reviewed in the +context of an assessment of the perceived needs of the Board at a particular +point in time. As a result, the +priorities and emphasis of the Nominating and Corporate Governance Committee +and of the Board may change from time to time to take into account changes in +business and other trends, and the portfolio of skills and experience of +current and prospective directors. The +Nominating and Corporate Governance Committee leads the search for and selects, +or recommends that the Board select, candidates for election to the Board. Consideration of new director candidates +typically involves a series of committee discussions, review of information +concerning candidates and interviews with selected candidates. Candidates for nomination to our Board +typically have been suggested by other members of the Board or by our executive +officers. From time to time, the +Nominating and Corporate Governance Committee may engage the services of a +third-party search firm to identify director candidates. +The Nominating and Corporate Governance Committee will +consider candidates for directors recommended by our stockholders who meet the +eligibility requirements for submitting stockholder proposals for inclusion in +our next proxy statement. This committee +will evaluate such recommendations applying its regular nominee criteria. Eligible stockholders wishing to recommend a +nominee must submit such recommendation in writing to the Chair, Nominating and +Corporate Governance Committee, care of our corporate Secretary, by the +deadline for stockholder proposals set forth in our last proxy statement, +specifying the following information: (a) the name and address of the +nominee, (b) the name and address of the stockholder making the +nomination, (c) a representation that the nominating stockholder is a +stockholder of record of our stock entitled to vote at the next annual meeting +and intends to appear in person or by proxy at such meeting to nominate the +person specified in the notice, (d) the nominee’s qualifications for +membership on the Board, (e) a resume of the candidate’s business +experience and educational background as well as all of the information that +would be required in a proxy statement soliciting proxies for the election of +the nominee as a director, (f) a description of all direct or indirect +arrangements or understandings between the nominating stockholder and the +nominee and any other person or persons (naming such person or persons) +pursuant to whose request the nomination is being made by the stockholder, (g) all +other companies to which the nominee is being recommended as a nominee for +director, and (h) a signed consent of the nominee to cooperate with reasonable +background checks and personal interviews, and to serve as a director, if +elected. In connection with its +evaluation, the Nominating and Corporate Governance Committee may request +additional information from the candidate or the recommending stockholder, and +may request an interview with the candidate. +The Nominating and Corporate Governance Committee has the discretion to +decide which individuals to recommend for nomination as directors. +No candidates for director nominations were submitted +to the Nominating and Corporate Governance Committee by any stockholder in +connection with the election of directors at the Annual Meeting. Each of the director nominees standing for +election at this Annual Meeting is a current director. +Compensation +of Directors +Non-employee directors receive an annual fee of +$12,000 per year, paid quarterly, in addition to $1,500 for each Board meeting +attended in person, and $250 for each telephone conference Board meeting. All directors are reimbursed for their out-of-pocket +expenses incurred in attending meetings of our Board of Directors and its +committees. +7 +Table of Contents +Non-employee directors were also eligible to receive +periodic option grants pursuant to the Directors’ Automatic Option Grant +Program under our 2007 Omnibus Incentive Plan. +Under that plan, each non-employee director receives an option to +purchase 20,000 shares of common stock upon his initial appointment to the +Board of Directors and an additional option to purchase 5,000 shares of common +stock on the date of each annual meeting after his appointment, provided he has +served on the Board for at least six months. +Each option granted to non-employee directors under the Directors’ +Automatic Option Grant Program will have an exercise price equal to the fair +market value of the common stock on the grant date and a maximum term of ten +years, subject to earlier termination following the optionee’s cessation of +service as a Board member. Prior to the +adoption of the 2007 Omnibus Incentive Plan, non-employee directors received +option grants pursuant to the Automatic Option Grant Program of our 1997 Stock +Incentive Plan (the “1997 Plan”), having substantially the same terms as the +grants provided under the 2007 Omnibus Incentive Plan. +Stockholder +Communications +The Board has implemented a process by which +stockholders may send written communications directly to the attention of the +Board, any committee of the Board or any individual Board member, care of our +corporate Secretary. The name of any +specific intended Board recipient should be noted in the communication. Our corporate Secretary will be primarily +responsible for collecting, organizing and monitoring communications from +stockholders and, where appropriate depending on the facts and circumstances +outlined in the communication, providing copies of such communications to the +intended recipients. Communications will +be forwarded to directors if they relate to appropriate and important +substantive corporate or Board matters. +Communications that are of a commercial or frivolous nature or otherwise +inappropriate for the Board’s consideration will not be forwarded to the Board. +Stockholders who wish to communicate +with the Board can write to the corporate Secretary at Iteris, Inc., 1700 +Carnegie Avenue, Suite 100, Santa Ana, California 92705. +Annual +Meeting Attendance +We do not have a formal policy regarding attendance by +members of our Board of Directors at annual meetings of our stockholders; +however, directors are encouraged to attend all such meetings. Three of our current directors attended our +2008 annual meeting of stockholders. +8 +Table of Contents +PROPOSAL NO. 2 +APPROVAL +OF AN AMENDMENT TO THE 2007 OMNIBUS INCENTIVE PLAN +The Iteris, Inc. +2007 Omnibus Incentive Plan was adopted by our Board of Directors on July 19, +2007 and approved by our stockholders on September 21, 2007. As of June 30, 2009, there were options +outstanding under the plan to purchase 767,000 shares of common stock and an +aggregate remaining authority to grant awards for the issuance of 83,000 shares +of common stock. On July 15, 2009, +our Board of Directors adopted an amendment of the plan, subject to stockholder +approval, to increase the number of shares of common stock reserved for +issuance thereunder by 800,000 shares to 1,650,000 shares. +Under applicable NYSE +Amex rules, we are required to obtain stockholder approval of the amendment to +the plan. Such approval is also +necessary to permit us to grant incentive stock options to employees under Section 422 +of the Internal Revenue Code, as amended (the “Code”), and to ensure that +compensation paid under the plan is eligible for an exemption from the limits +on tax deductibility imposed by Section 162(m) of the Code, which +limits the deductibility of certain compensation paid to individuals who are, +at the end of the tax year for which we would otherwise claim our tax +deduction, our chief executive officer, our chief financial officer and certain +other highly paid executive officers. +We are asking our +stockholders to approve the amendment to the plan to authorize the issuance of +an additional 800,000 shares of common stock thereunder. Our Board of Directors believes the amendment +is necessary to assure that a sufficient reserve of the common stock remains +available for issuance under the plan to allow us to continue to utilize equity +incentives to attract and retain the services of individuals essential to our +long-term growth and success. +Amended Plan Description +The following is a +summary of the principal features of the 2007 Omnibus Incentive Plan, as +amended (the “2007 Plan”), and is qualified in its entirety by reference to the +full text of the plan. A copy of the +plan, as amended, may be found at Appendix A at the end of this proxy +statement. Any stockholder who wishes to +obtain an additional copy of the actual plan document may do so upon written +request to us at our principal executive offices. +Administration. Both the Board and the Compensation +Committee have the authority to administer the 2007 Plan. The Board may at any time appoint a secondary +committee comprised of two or more directors to have concurrent authority to +make grants and issuances of any equity-based instruments permissible under the +2007 Plan to individuals other than executive officers and non-employee directors. +The committee administering the 2007 Plan will have full power and authority to +determine when and to whom awards will be granted, and the type, amount, form +of payment, and other terms and conditions of each award, consistent with the +provisions of the 2007 Plan. Subject to the provisions of the 2007 Plan, the +committee may amend or waive the terms and conditions, or accelerate the +exercisability, of an outstanding award. The committee has authority to +interpret the 2007 Plan, and establish rules and regulations for the +administration of the 2007 Plan. In addition, the Board may exercise the powers +of the committee at any time, except with respect to the grant of awards to our +executive officers and non-employee directors. +Eligible +Participants . Any +employee, officer, consultant, advisor or director providing services to us or +any of our affiliates (including our current and future subsidiaries), who is +selected by the committee, is eligible to receive an award under the 2007 Plan. +As of June 30, 2009, 235 employees (including officers) and six +non-employee directors were eligible to be selected by the committee to receive +awards under the 2007 Plan. +Shares +Available For Awards . +The aggregate number of shares of common stock that may be issued under all stock-based +awards made under the 2007 Plan will be 1,650,000. The shares of common stock +issuable under the 2007 Plan may be drawn from shares of authorized but +unissued common stock or from shares of common stock that the Company acquires. Subject to the provisions of Section 422 +or 424 of the Code or any successor provision, all of the shares reserved for +issuance under the 2007 Plan may be used for grants of incentive stock options +under the plan. No person may be granted +stock options or SARs (defined below) under the 2007 Plan with respect to more +than 500,000 shares of common stock in the aggregate within any fiscal year. +The committee may adjust +the number of shares and share limits described above in the case of a stock +dividend or other distribution, including a stock split, merger or other +similar corporate transaction or event, in order to prevent dilution or +enlargement of the benefits or potential benefits intended to be provided under +the 2007 Plan. If any shares of our +common stock subject to any award or to which an award relates are forfeited or +are reacquired by the Company, or if any award terminates without the delivery +of any shares, the shares previously set aside for such awards will be +available for future awards under the 2007 Plan. +9 +Table of Contents +Types +of Awards and Terms and Conditions . The 2007 Plan permits the granting of: +· stock options (including both incentive +and non-qualified stock options); +· stock appreciation rights (“SARs”); +· restricted stock and restricted stock +units; +· performance awards of cash, stock or +property; +· dividend equivalents; +· other stock grants; and +· other stock-based awards. +Awards may be granted +alone, in addition to, in combination with or in substitution for, any other +award granted under the 2007 Plan or any other compensation plan. Awards can be +granted for no cash consideration or for cash or other consideration as +determined by the committee or as required by applicable law. Awards may +provide that upon the grant or exercise thereof, the holder will receive shares +of our common stock or other securities or property, or any combination of +these, in a single payment or installments. The exercise price per share under +any stock option and the grant price of any SAR will be determined by the +committee and may not be less than the fair market value on the date of grant +of such option or SAR, or less than 110% of fair market value for incentive +stock options granted to holders of more than 10% of our common stock. When our common stock is listed on a stock +exchange in the U.S., the fair market value is the closing sale price of one +share of our common stock on the date of determination (or the last preceding +date for which such price exists), as reported on the principal U.S. exchange +on which our common stock is listed. If +our common stock is not listed on a stock exchange in the U.S., the fair market +value will be determined in accordance with methods and procedures established +by the committee. The term of awards +will not be longer than 10 years, or in the case of incentive stock options, +longer than 5 years with respect to holders of more than 10% of our common +stock. +Stock +Options . The +holder of an option will be entitled to purchase a number of shares of our +common stock at a specified exercise price during a specified time period, all +as determined by the committee. The option exercise price may be payable either +in cash or, at the discretion of the committee, in other securities or other +property having a fair market value on the exercise date equal to the exercise +price. The shares subject to each option will generally vest in one or more +installments over a specified period of service measured from the grant date. +We receive no payment for the grant of an option. Upon cessation of service, +the optionee will have a limited period of time in which to exercise his or her +outstanding options to the extent exercisable for vested shares. +Stock +Appreciation Rights . +The holder of a SAR is entitled to receive the excess of the fair market value +(calculated as of the exercise date or, at the committee’s discretion, as of +any time during a specified period before or after the exercise date) of a +specified number of shares of our common stock over the grant price of the SAR, +as determined by the committee, paid solely in shares of common stock. SARs +vest and become exercisable in accordance with a vesting schedule established +by the committee. This type of SAR is sometimes described as a “stock only +settled stock appreciation right.” +Restricted +Stock and Restricted Stock Units . The holder of restricted stock will own shares of +our common stock subject to restrictions imposed by the committee (including, +for example, restrictions on transferability or on the right to vote the +restricted shares or to receive any dividends with respect to the shares) for a +specified time period determined by the committee. The restrictions may lapse +or be waived separately or collectively, in installments or otherwise, as the +committee may determine. The holder of restricted stock units will have the +right, subject to any restrictions imposed by the committee, to receive shares +of our common stock at some future date determined by the committee. The +committee also may permit accelerated vesting in the case of a participant’s +death, disability or retirement, or a change in control. If the participant’s +employment or service as a director terminates during the vesting period for +any other reason, the restricted stock and restricted stock units will be +forfeited, unless the committee determines that it would be in our best +interest to waive the remaining restrictions. +10 +Table of Contents +Performance +Awards . +Performance awards granted under the 2007 Plan are intended to qualify as “performance-based +compensation” within the meaning of Section 162(m) of the Code. +Performance awards give participants the right to receive payments in stock or +property based solely upon the achievement of certain performance goals during +a specified performance period. The committee must designate all participants +for each performance period, and establish performance goals and target awards +for each participant no later than 90 days after the beginning of each +performance period within the parameters of Section 162(m) of the +Code. Performance goals must be based solely on one or more of the following +business criteria: (i) revenue; (ii) cash flow; (iii) gross +profit; (iv) earnings before interest and taxes; (v) earnings before +interest, taxes, depreciation and amortization; (vi) net earnings; (vii) diluted +earnings per share; (viii) margins, including gross profit, operating and +net income margins; (ix) returns, including return on assets, equity, +investment, capital and revenue and total stockholder return; (x) stock +price; (xi) economic value added; (xii) working capital; (xiii) market share; +(xiv) cost reductions; (xv) workforce satisfaction and diversity goals; (xvi) +employee retention; (xvii) customer satisfaction; (xviii) completion of key +projects; and (ixx) strategic plan development and implementation. +The measure of +performance may be set by reference to an absolute standard or a comparison to +specified companies or groups of companies, or other external measures, and may +be applied at individual or organizational levels. No person may be granted +under the 2007 Plan qualified performance based awards which could result in +such person receiving more than $1,500,000 in cash or the equivalent fair +market value of shares of common stock determined at the date of grant for each +full or partial fiscal year contained in the performance period of a particular +qualified performance based award, except that if any other qualified +performance based awards are outstanding for such person for a given fiscal +year, such dollar limitation shall be reduced for each such fiscal year by the +amount that could be received by the person under all such qualified +performance based awards, divided, for each such qualified performance based +award, by the number of full or partial fiscal years contained in the +performance period of each such outstanding qualified performance based award +(subject to adjustment in the case of a stock dividend or other distribution, +including a stock split, merger or other similar corporate transaction or +event, but only to the extent that such adjustment does not affect the status +of any award intended to qualify as “performance based compensation” under Section 162(m) of +the Code. +Dividend +Equivalents . The +holder of a dividend equivalent will be entitled to receive payments in shares +of our common stock, other securities or other property equivalent to the +amount of cash dividends paid by us or our stockholders, with respect to the +number of shares determined by the committee. Dividend equivalents will be +subject to other terms and conditions determined by the committee. +Stock +Awards . The +committee may grant unrestricted shares of our common stock, subject to terms +and conditions determined by the committee and the 2007 Plan limitations. +Automatic +Option Grant Program . +Under the automatic option grant program, eligible non-employee Board members +receive a series of option grants over their period of Board service. Each +non-employee Board member will, at the time of his or her initial election or +appointment to the Board, receive an option grant for 20,000 shares of common +stock provided such individual has not been in the previous employ of the +Company. In addition, on the date of each annual stockholders meeting, each +individual who is to continue to serve as a non-employee Board member will +automatically be granted an option to purchase 5,000 shares of common stock, +provided he or she has served as a non-employee Board member for at least six (6) months. +There will be no limit on the number of such 5,000-share option grants any one +eligible non-employee Board member may receive over his or her period of +continued Board service. +Each automatic grant will +have an exercise price per share equal to the fair market value per share of +common stock on the grant date and will have a maximum term of 10 years, +subject to earlier termination following the optionee’s cessation of Board +service. Each automatic option will be immediately exercisable for any or all +of the option shares; the shares acquired under those options will be subject +to repurchase by the Company, at the exercise price paid per share, if the +optionee ceases service with the Company prior to vesting in those shares. Each +initial 20,000-share automatic option will be fully vested on the grant date. +Each annual 5,000-share automatic option will vest in four (4) successive +equal annual installments upon the optionee’s completion of each year of +service as a director, measured from the grant date. However, each outstanding +automatic option grant will automatically accelerate and become immediately +exercisable for any or all of the option shares as fully-vested shares upon +certain changes in control or ownership of the Company or upon the optionee’s +death or disability while a Board member. Following the optionee’s cessation of +Board service for any reason, each option will remain exercisable for a +12-month period and may be exercised during that time for any or all shares in +which the optionee is vested at the time of such cessation of service as a +director. +Duration, +Termination and Amendment . Unless earlier discontinued or terminated by the Board, the 2007 Plan +will expire on July 19, 2017. No awards may be made after that date. +However, unless otherwise expressly provided in an applicable award agreement, +any award granted under the 2007 Plan prior to expiration of the 2007 Plan may +extend beyond the end of the expiration of the plan through the award’s normal +expiration date. +11 +Table of Contents +The Board and, pursuant +to the delegation of its authority, the committee may amend, alter or +discontinue the 2007 Plan at any time, although stockholder approval must be +obtained for any action that would, absent such approval, (i) violate the rules and +regulations of any securities exchange applicable to the Company, (ii) cause +Rule 16b-3 of the Securities Exchange Act of 1934 or Section 162(m) of +the Code to become unavailable with respect to the 2007 Plan or (iii) cause +the Company to be unable under the Code to grant incentive stock options under +the 2007 Plan. +Acceleration . In the event that we are acquired by +merger, asset sale or sale by the stockholders of more than 50% of our +outstanding voting stock recommended by the Board, each outstanding option +under the 2007 Plan that is not to be assumed or replaced by the successor +corporation or otherwise continued in effect will automatically accelerate in +full, and all unvested shares outstanding under the 2007 Plan will immediately +vest, except to the extent our repurchase rights with respect to those shares +are to be assigned to the successor corporation or otherwise continued in +effect. +The plan administrator +will have the authority under the 2007 Plan to provide that options and other +awards granted under the 2007 Plan will automatically vest in full (i) upon +an acquisition of the Company, whether or not those awards are assumed or +replaced, (ii) upon a hostile change in control of the Company effected +through a tender offer for more than 50% of our outstanding voting stock or by +proxy contest for the election of Board members, or (iii) in the event the +individual’s service is terminated, whether involuntarily or through a +resignation for good reason, within a designated period (not to exceed 18 +months) following an acquisition in which the options are assumed or replaced +or otherwise continued in effect upon a hostile change in control. The options +granted under the director automatic option grant program will automatically +accelerate and become exercisable in full upon any acquisition or change in +control transaction. +The acceleration of +vesting in the event of a change in the ownership or control of the Company may +be seen as an anti-takeover provision and may have the effect of discouraging a +merger proposal, a takeover attempt or other efforts to gain control of the +Company. +Transferability +of Awards . Unless +otherwise provided by the committee, awards under the 2007 Plan may only be +transferred by will or by the laws of descent and distribution. +Delivery +of Shares for Tax Obligation . Under the 2007 Plan, the committee may permit +participants receiving or exercising awards, subject to the discretion of the +committee and upon such terms and conditions as it may impose, to deliver +shares of our common stock (either shares received upon the receipt or exercise +of the award or shares previously owned by the holder of the option) to the +Company to satisfy federal and state income tax obligations. +Certain +Federal Income Tax Consequences +The following is a +summary of the principal U.S. federal income tax consequences generally +applicable to awards under the 2007 Plan. +Grant +of Options and SARs . +The grant of a stock option or SAR is not expected to result in any taxable +income for the recipient. +Exercise +of Options and SARs . +Upon exercising a non-qualified stock option, the optionee will recognize +ordinary income equal to the excess of the fair market value of the shares of +our common stock acquired on the date of exercise over the exercise price, and +we will generally be entitled at that time to an income tax deduction for the +same amount. Upon exercising an incentive stock option, the optionee generally +will not recognize taxable income (except that an alternative minimum tax +liability may arise), and we will not be entitled to an income tax deduction. +Upon exercising a SAR, the recipient of the SAR will recognize ordinary income +in an amount equal to the fair market value on the exercise date of any shares +of our common stock received, and we will receive an income tax deduction in +the same amount. +Disposition +of Shares Acquired Upon Exercise of Options and SARs . The tax consequence upon a disposition +of shares acquired through the exercise of an option or SAR will depend on how +long the shares have been held and whether the shares were acquired by +exercising an incentive stock option or by exercising a non-qualified stock +option or SAR. Generally, there will be no tax consequence to us in connection +with the disposition of shares acquired under an option or SAR, except that we +may be entitled to an income tax deduction in the case of the disposition of +shares acquired under an incentive stock option before the applicable incentive +stock option holding periods set forth in the Code have been satisfied. +12 +Table of Contents +Awards +Other than Options and SARs . As to other awards granted under the 2007 Plan that +are payable in either cash or shares of our common stock that are either +transferable or not subject to substantial risk of forfeiture, the holder of +the award must recognize ordinary income equal to (a) the amount of cash +received or, as applicable, (b) the excess of (i) the fair market +value of the shares received (determined as of the date of receipt) over (ii) the +amount (if any) paid for the shares by the holder of the award. We will +generally be entitled at that time to an income tax deduction for the same +amount. +As to an award that is +payable in shares of our common stock that are restricted from transfer and +subject to substantial risk of forfeiture, unless a special election is made by +the holder of the award under the Code, the holder must recognize ordinary +income equal to the excess of (i) the fair market value of the shares +received (determined as of the first time the shares become transferable or not +subject to substantial risk of forfeiture, whichever occurs earlier) over (ii) the +amount (if any) paid for the shares by the holder of the award. We will +generally be entitled at that time to an income tax deduction for the same +amount. +Income +Tax Deduction . +Subject to the usual rules concerning reasonable compensation, and +assuming that, as expected, performance awards paid under the 2007 Plan are “qualified +performance-based compensation” within the meaning of Section 162(m) of +the Code, we will generally be entitled to a corresponding income tax deduction +at the time a participant recognizes ordinary income from awards made under the +2007 Plan. +Application +of Section 16 . +Special rules may apply to individuals subject to Section 16 of the +Exchange Act. In particular, unless a special election is made pursuant to the +Code, shares received through the exercise of a stock option or SAR may be +treated as restricted as to transferability and subject to a substantial risk +of forfeiture for a period of up to six months after the date of exercise. +Accordingly, the amount of any ordinary income recognized and the amount of our +income tax deduction will be determined as of the end of that period. +Deductibility +of Executive Compensation Under Code Section 162(m) . Section 162(m) of the Code +generally limits to $1,000,000 the amount that a publicly-held corporation is +allowed each year to deduct for the compensation paid to each of the +corporation’s chief executive officer and the corporation’s other four most +highly compensated executive officers. However, “qualified performance-based +qualified compensation” is not subject to the $1,000,000 deduction limit. In +general, to qualify as performance-based compensation, the following +requirements need to be satisfied: (1) payments must be computed on the +basis of an objective, performance-based compensation standard determined by a +committee consisting solely of two or more “outside directors,” (2) the +material terms under which the compensation is to be paid, including the +business criteria upon which the performance goals are based, and a limit on +the maximum bonus amount which may be paid to any participant pursuant with +respect to any performance period, must be approved by a majority of our +stockholders and (3) the committee must certify that the applicable +performance goals were satisfied before payment of any performance-based +compensation. +The 2007 Plan has been +designed to permit grants of stock options and SARs issued under the 2007 Plan +to qualify under the performance-based compensation rules so that income +attributable to the exercise of a non-qualified stock option or a SAR may be +exempt from the $1,000,000 deduction limit. Grants of other awards under the +2007 Plan may not so qualify for this exemption. The 2007 Plan’s provisions are +consistent in form with the performance-based compensation rules, so that if +the committee that grants options or SARs consists exclusively of members of +the board of directors of the Company who qualify as “outside directors,” and +the exercise price (or deemed exercise price, with respect to SARs) is not less +than the fair market value of the shares of common stock to which such grants +relate, the compensation income arising on exercise of those options or SARs +should qualify as performance-based compensation which is deductible even if that +income would be in excess of the otherwise applicable limits on deductible +compensation income under Code Section 162(m). +Amended +Plan Benefits +As of June 30, 2009, +options for 767,000 shares of common stock have been granted or awarded and are +outstanding under the 2007 Plan. The +committee in its sole discretion determines the number and types of awards that +will be granted in the future. Thus, other than with respect to the Automatic +Grant Program described above, it is not possible to determine the benefits or +amounts that will be received by eligible participants under the 2007 Plan +after the date of this proxy statement because no decisions have been made on +the amount and type of awards to be granted under the 2007 Plan to eligible +participants in the future, nor do we have any specific current plans or +commitments for any future awards. +Currently, the fair market value per share of common stock on any +relevant date under the 2007 Plan is the closing sale price per share of the +common stock on NYSE Amex. The closing +sale price of a share of our common stock as reported by NYSE Amex on the +record date was $1.28. +13 +Table of Contents +The following table sets +forth, with respect to our named executive officers (as defined in “Summary +Compensation Table” below) and the other indicated individuals and groups, +information regarding the stock options and awards that have been granted under +our 2007 Plan from the effective date of the plan through June 30, 2009: +Name and Position +Aggregate +Number of +Shares Underlying +Stock Options Granted +Weighted +Average +Exercise Price Per +Share +Abbas +Mohaddes +Chief Executive Officer, President, Assistant Secretary and Director +300,000 +$ +2.03 +James +S. Miele +Vice President, Chief Financial Officer and Secretary +25,000 +1.41 +Alan +Clelland +Senior Vice President +50,000 +1.94 +Gregory +McKhann +Senior Vice President +25,000 +1.41 +Francis +Memole(1) +Former Senior Vice President and General Manager +— +— +All +current executive officers as a group (5 persons) +450,000 +(2) +1.94 +All +current directors who are not executive officers as a group (6 persons) +60,000 +2.16 +Each +nominee for election as a director (7 persons) +360,000 +2.05 +Each +associate of any of such directors, executive officers or nominees +— +— +Each +other person who received or is to receive 5% of such options, warrants or +rights +— +— +All +employees, including all current officers who are not executive officers, as +a group (21 persons) +257,000 +1.79 +(1) Mr. Memole served as our Senior Vice President +and General Manager of our Vehicle Sensors segment until May 2009. +(2) Includes shares underlying options granted to Todd +Kreter, our Senior Vice President, Sensors Development and Operations, and does +not include shares held by Francis Memole, who served as a Senior Vice +President and our General Manager of the Vehicle Sensors segment until May 2009. +Stockholder +Approval +The affirmative vote of a +majority of the shares of common stock present in person or by proxy at the +Annual Meeting and entitled to vote on this matter is required for approval of +the proposed amendment to the 2007 Omnibus Incentive Plan. Should such +stockholder approval not be obtained, then the share reserve will not be +increased. The plan will, however, +continue to remain in effect, and option grants and stock issuances may +continue to be made pursuant to the provisions of the plan prior to its +amendment until the available reserve common stock under the plan is issued. +Recommendation of the Board of +Directors +The Board +of Directors recommends a vote “FOR” approval of the amendment to the 2007 +Omnibus Incentive Plan to increase the number of shares reserved for issuance +thereunder by 800,000 shares. +14 +Table of Contents +PROPOSAL THREE: +RATIFICATION +OF SELECTION OF INDEPENDENT AUDITORS +The accounting firm of McGladrey & Pullen, +LLP was engaged to serve as our independent auditors for the fiscal year ended March 31, +2009. The Audit Committee of the Board +of Directors has selected that firm to continue in this capacity for the fiscal +year ending March 31, 2010. We are +asking our stockholders to ratify the selection by the Audit Committee of +McGladrey & Pullen, LLP as our independent auditors to audit our +consolidated financial statements for the fiscal year ending March 31, +2010 and to perform other appropriate services. +Stockholder ratification of the selection of McGladrey & +Pullen, LLP as our independent auditors is not required by our bylaws or +otherwise. In the event that the +stockholders fail to ratify the appointment, the Audit Committee will +reconsider its selection. Even if the +selection is ratified, the Audit Committee, in its sole discretion, may direct +the appointment of a different independent accounting firm at any time during +the year if the committee feels that such a change would be in the best +interests of us and our stockholders. +A representative of McGladrey & Pullen, LLP +is expected to be present at the Annual Meeting to respond to stockholders’ +questions, and that representative will have the opportunity to make a brief +presentation to the stockholders if he or she so desires and will be available +to respond to appropriate questions from stockholders. +Stockholder +Approval +The affirmative vote of a majority of the common +stock, present or represented by proxy and entitled to vote at the Annual +Meeting will be required for ratification of the selection of McGladrey & +Pullen, LLP as our independent auditors for the fiscal year ending March 31, +2010. +Recommendation +of the Board of Directors +The Board of Directors recommends that the +stockholders vote “FOR” the ratification and approval of the selection of +McGladrey & Pullen, LLP as our independent auditors for the fiscal +year ending March 31, 2010. +15 +Table of Contents +FEES PAID +TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +Principal Accountant Fees +The following table presents the aggregate fees billed +for the indicated services performed by McGladrey & Pullen, LLP for +the fiscal years ended March 31, 2008 and 2009: +Fiscal Year Ended March 31, +2008 +2009 +Audit +Fees +$ +412,000 +$ +314,000 +Audit-Related +Fees +77,000 +40,000 +Tax +Fees +— +— +All +Other Fees +— +— +Total +Fees +$ +489,000 +$ +392,000 +Audit Fees. +Audit fees consist of fees billed by McGladrey & Pullen, LLP +for professional services rendered in connection with the audit of our annual +consolidated financial statements and review of those consolidated financial +statements included in our quarterly reports on Forms 10-Q and other regulatory +filings. +Audit-Related Fees. +Audit-related fees consist of fees billed for professional services that +are reasonably related to the performance of the audit or review of our +consolidated financial statements but are not reported under “Audit Fees.” Such fees include, among other things, fees +for registration statements, fees for internal control reviews and assistance +with meeting the requirements of Section 404 of the Sarbanes-Oxley Act and +certain consultations concerning financial accounting and reporting standards. +Tax Fees. +There were no tax fees billed to us by McGladrey & Pullen, LLP +during the fiscal years ended March 31, 2008 and 2009. +All Other Fees. +There were no other fees billed to us by McGladrey & Pullen, +LLP during the fiscal years ended March 31, 2008 and 2009. +Determination of Independence +McGladrey & Pullen, LLP did not provide any +non-audit related services during the fiscal years ended March 31, 2008 +and 2009. +Audit Committee Pre-Approval +Policies and Procedures +All engagements for services by McGladrey & +Pullen, LLP or other independent registered public accountants are subject to +prior approval by the Audit Committee; however, de minimis non-audit services +may instead be approved in accordance with applicable SEC rules. The prior approval of the Audit Committee was +obtained for all services provided by McGladrey & Pullen, LLP in the +fiscal year ended March 31, 2009. +16 +Table of Contents +AUDIT COMMITTEE REPORT +The following is the report of the Audit Committee with +respect to Iteris’ audited consolidated financial statements for the fiscal +year ended March 31, 2009 included in its Annual Report on Form 10-K +for that year. +Review with Management +The Audit Committee has reviewed and discussed the +audited consolidated financial statements with the Company’s management. +Review and Discussions with +Independent Registered Public Accounting Firm +The Audit Committee has discussed with the Company’s +independent registered public accounting firm, McGladrey & Pullen, LLP, +the matters required to be discussed by Statement on Auditing Standards No. 61, +as amended (AICPA, Professional Standards , +Vol. 1. AU Section 380), which +includes, among other items, matters related to the conduct of the audit of the +Company’s consolidated financial statements. +The Audit Committee has received the written +disclosures and the letter from McGladrey & Pullen, LLP required by +applicable requirements of the Public Company Accounting Oversight Board +regarding the independent accountant’s communications with the Audit Committee +concerning independence, and has discussed with McGladrey & Pullen, +LLP its independence from the Company. +Conclusion +Based on the review and discussions referred to above +in this report, the Audit Committee recommended to the Company’s Board of +Directors that the audited financial statements be included in the Company’s +Annual Report on Form 10-K for the year ended March 31, 2009 for +filing with the SEC. +Submitted +by the Audit Committee of the Board of Directors: +Richard +Char +John +W. Seazholtz +Thomas +L. Thomas +17 +Table of Contents +EXECUTIVE COMPENSATION AND OTHER +INFORMATION +Executive Officers +The table below sets forth certain information, as of June 30, +2009, regarding our executive officers. +Name +Age +Capacities in Which Served +Abbas Mohaddes +52 +Chief Executive +Officer, President, Assistant Secretary and Director +Alan Clelland +56 +Senior Vice President, +Transportation Systems +Todd Kreter +49 +Senior Vice President, Sensors +Development and Operations +Gregory McKhann +46 +Senior Vice President, Sensors Sales +and Marketing +James S. Miele +41 +Vice President, Chief +Financial Officer and Secretary +The following is a brief description of the capacities +in which each of the above persons has served during the past five years. The biography of Mr. Mohaddes appears +earlier in this proxy statement. See +Proposal One: “Election of Directors.” +Alan Clelland has served as a Senior Vice President of +the Company since October 2007; he also held the title of General Manager +from October 2007 to May 2009. +Prior to joining us, from May 2000 to September 2007, Mr. Clelland +worked at the Siemens ITS business unit of Siemens Energy & Automation, Inc., +serving in the role of Marketing Director then as Director of Consulting. From August 1998 to April 2000, Mr. Clelland +was Senior Vice President, Operations for Gardner Systems, an ITS consulting +company. Prior to that, from May 1996 +to July 1998, Mr. Clelland was Marketing Director of TransCore, a +company of Science Applications International Corporation (SAIC). From May 1987 to April 1996, he was +a Senior Associate, then Associate Vice President at JHK & Associates, Inc., +a transportation engineering company, which was acquired by SAIC. Mr. Clelland’s prior experience also +includes working as the International Product Marketing Manager for Power +Semiconductors in the Elcoma Division of Philips BV, The Netherlands and in +local government traffic engineering, university research, manufacturing and +consulting. Mr. Clelland holds a +B.Sc. degree in Physics and Electronic Engineering from the University of Leeds +in the United Kingdom. +Todd Kreter has served as a Senior Vice President of the Company since May 2009. +Mr. Kreter served as our Vice President of Engineering from November 2007 +to May 2009. Prior to joining us, +from June 2004 to January 2007, Mr. Kreter was the VP Global +Services at Quantum Corporation where he managed the company’s worldwide +customer service organization. From May 1998 +to June 2004, Mr. Kreter held several positions, including VP +Operations, VP Engineering and VP Quality, at Quantum Corporation. From 1994 to 1998, Mr. Kreter held +management positions in engineering and operations with ATL Products, Inc. +where he was responsible for the design, development and production of various +products. Mr. Kreter holds an +executive M.B.A. from Stanford/AEA and a B.S. degree in mechanical engineering +from California State University, Fullerton. +Gregory McKhann has served as a Senior Vice President of the Company since October 2004; he also held the +title of General Manager from October 2007 to May 2009. Mr. McKhann was Senior Vice President of +the Iteris Subsidiary from March 2004 to October 2004, its Vice +President and General Manager of Roadway Sensors from December 1998 to March 2004, +its Vice President, Strategic Business Development from October 1999 to May 2000 +and the Marketing Director of our ITS division (which became the Iteris +Subsidiary) from July 1997 to October 1999. Prior to joining us, Mr. McKhann served +as a Business Development Manager at Rockwell International from 1990 to +1997. While at Rockwell, Mr. McKhann +was one of the founding members of the Rockwell Transportation Systems business +unit. Prior to 1990, Mr. McKhann +held a variety of Engineering and Project Management positions at Rockwell +International. +James S. Miele has served as our Vice President of Finance and Chief Financial +Officer since October 2004 and as the Secretary since March 2004. Mr. Miele was our Controller from October 2003 +to October 2004 and the Controller of the Iteris Subsidiary from April 2001 +to October 2004. Prior to that, +from October 1998 to June 2000, Mr. Miele served as an audit +manager at Ernst & Young LLP, supervising financial statement audits +for a variety of public and privately held companies. Mr. Miele also served in Ernst & +Young’s Assurance and Advisory Business Services group from 1994 to 1998. Mr. Miele is a Certified Public +Accountant and holds a B.S. degree in Accounting from San Diego State +University. +18 +Table of Contents +Compensation Discussion and Analysis +General Compensation Policy +The guiding principle of our compensation policies is +to align executive compensation with Company objectives and business strategies +as well as with financial and operational performance. In keeping with this principle, the +Compensation Committee seeks to: +(1) Attract and retain qualified senior +executives who can play a significant role in the achievement of Company goals; +(2) Reward executives for strategic +management and the long-term enhancement of stockholder value; and +(3) Create a performance-oriented environment +that rewards performance with respect to our financial and operational goals. +The Compensation Committee meets periodically to review and recommend +for approval by the Board of Directors, the salaries, bonuses and benefit plans +for our executive officers and key associates. +Our Chief Executive Officer provides recommendations to the Compensation +Committee with respect to compensation matters, including executive +compensation, and, where appropriate, we utilize independent third party salary +survey data as reference points. +However, the final decisions regarding the compensation of our executive +officers are made by the Compensation Committee. In measuring the executive officers’ +contributions to the Company, the Compensation Committee considers a number of +factors, including our revenue growth, net income and other financial performance +measurements, as well as qualitative and non-financial measures such as key +milestone achievements. +In Fiscal 2009, the annual compensation for the named executive +officers included base salaries, cash bonuses and stock option grants. In setting the total compensation payable to +our named executive officers for Fiscal 2009, the Compensation Committee sought +to make such compensation competitive with that provided by other companies +with which we compete for executive talent while providing short and long-term +incentives for the achievement of measurable corporate and individual +performance objectives in keeping with the compensation principles described +above. The primary components of our +executive compensation program for the fiscal year ending March 31, 2010 (“Fiscal +2010”) are expected to continue to consist of base salaries, cash incentive +opportunities and long-term equity incentive opportunities in the form of stock +options. In the future, such long-term +equity opportunities may also include other types of equity instruments +including, but not limited to, restricted stock or restricted stock units. Executives also participate in employee +benefit programs available to the broader employee population. +Our compensation plans and the amount of each compensation element to +pay our named executive officers are generally developed and determined on an +individual, case-by-case basis utilizing a number of factors, including +publicly available data from independent outside sources, including the American +Electronics Association annual survey of executive compensation, our general +business conditions and objectives, as well as our subjective determination +with respect to the executive’s individual contributions to such +objectives. For our executive officers, +the Compensation Committee has adopted a policy of setting total compensation +at approximately the 75th to 100th percentile level of comparable companies in +order to effectively recruit and retain key executives. The cash compensation, including the base +salaries and bonuses, for Fiscal 2009 for our executive officers was +established generally at the higher end of such percentile range, while the +equity compensation generally was at the lower end of such range. +Elements +of Compensation +Base Salary +We seek to provide our senior management with a base +salary appropriate to their roles and responsibilities, and to provide them +with a level of stability and certainty each year. We establish salaries for the named executive +officers by considering the salaries of officers at comparably sized companies +according to data obtained by the Compensation Committee from independent +outside sources, including the American Electronics Association annual survey +of executive compensation. Our Chief +Executive Officer does not participate in the discussions regarding his own +compensation but does provide input to the Compensation Committee regarding the +compensation of other executive officers. +We have generally established base salaries for our executive officers +at the higher end of our target percentile range, with the exact base salaries +for our executives based on the executive’s qualifications and experience, +scope of responsibilities, and the executive’s past performance and future +potential. Base salaries are reviewed +annually, and adjusted from time to time to realign salaries with market levels +after taking into account such individual factors, including responsibilities, +performance and experience. The +Compensation Committee has reviewed the current base salaries of each of the +named executive officers and is of the opinion that such salaries are at a +competitive level with the base salaries in effect for similarly situated +officers and are not unreasonable in view of those paid by our competitors and +by other companies of similar size. +19 +Table of Contents +In addition, as described below under the caption “Non-qualified +Deferred Compensation Savings Plan,” we had a Deferred Compensation Savings +Plan pursuant to which our executive officers were permitted to defer some or +all of their salaries. The plan was +terminated by the Company’s Board of Directors in December 2008 and no additional +deferrals of compensation may be made under the plan. No compensation was deferred by any named +executive officer in Fiscal 2009. +Incentive Cash Bonuses +The remaining cash component of the named executive officers’ +compensation for Fiscal 2009 was an annual cash bonus determined by the +Compensation Committee based upon criteria established by the committee at the +beginning of the fiscal year. For Fiscal +2009, the bonuses were primarily dependent upon corporate and business unit +performance. 80% of the potential bonus +for the Chief Executive Officer and the Chief Financial Officer was based on +total revenue and operating income achieved for the year, and the remaining 20% +of the potential bonus was based on the applicable officer’s achievement of +individual objectives that were qualitative in nature and were established by +the Compensation Committee for our CEO and established by the CEO for our +CFO. 80% of the potential bonus for each +of the other named executive officers were based on revenue and operating +income achieved by the business unit for which such officer had primary +responsibility, as well as the operating income achieved by the Company, and +the remaining 20% of the potential bonus was based on the applicable officer’s +achievement of individual objectives that were qualitative in nature and were +established by the CEO. +For Fiscal 2010, the potential bonuses for our executive officers have +similarly been set based primarily on our overall corporate and business unit +performance, with 80% of the potential bonus for Mr. Mohaddes and 60% of +the potential bonus for Mr. Miele to be based on the total revenue and +operating income achieved by the Company for the year, and 70% to 80% of the +potential bonus for each of Messrs. Clelland, McKhann and Kreter to be +based on revenue and operating income achieved by the business unit for which +such officer has primary responsibility, as well as the operating income +achieved by the Company. The remaining +20% to 40% of the potential bonus for each executive officer will be based on +the officer’s achievement of individual objectives. +The individual objectives in Fiscal 2009 for the Chief Executive +Officer and the Chief Financial Officer were primarily focused on such officer’s +management of his area of responsibility. +The objectives for Mr. Mohaddes generally included increasing +Company market value and implementation of the Company’s strategic plan as well +as enhancing the relationship of the Company with the financial community. The objectives for Mr. Miele principally +included enhancement of our financial position and increasing Company market +value. For Fiscal 2010, the objectives +for Mr. Mohaddes have been established by the Compensation Committee and +include strategic development of the Company, financial achievement of the +revenue and operating income plan as well as Company market value +enhancement. The Fiscal 2010 objectives +for the other named executive officers have been established by our Chief Executive +Officer and primarily consist of financial and management objectives for Mr. Miele, +and operational objectives within their business area of responsibility for +each of Messrs. Clelland, McKhann and Kreter. +In Fiscal 2009, the target bonuses under the plan as a percent of the +officer’s base salary ranged from 41% to 58%, with the Chief Executive Officer’s +target bonus set at 49% of his base salary. +The target bonuses for the other named executive officers were 41% to +58% of the applicable officer’s base salary. +For Fiscal 2010, the target bonuses remain at 41% to 58% of base +salaries, with the Chief Executive Officer’s target bonus set at 50% of his +base salary and the target bonus for all other named executive officers set at +41% to 58% of the applicable officer’s base salary. Revenue and operating income goals +established for bonus purposes are generally higher than the goals established +by us for the operation of the business in general, and may thus be difficult +to attain without a high degree of effort. +In addition, if our performance exceeds the revenue and operating income +targets set for bonus purposes, the executives can earn an additional bonus of +up to 50% of the portion of the target bonus award relating to our operational +performance. Bonus achievement or +overachievement is determined on a factor-by-factor basis. +Based upon the above described criteria, cash bonuses for the named +executive officers in the following amounts were approved for Fiscal 2009: Mr. Mohaddes — $29,008; Mr. Clelland +— $71,083; Mr. McKhann — $18,320; Mr. Memole — $0; and Mr. Miele +— $14,451. +Long-Term Equity +Compensation +A portion of the compensation of executive officers has historically +been based upon the award of stock options which rely on increases in the value +of our securities. The options granted +to our named executive officers generally have an exercise price equal to the +fair market value on the date of grant, vest in equal annual installments over +four years, and are not exercisable until vested. +20 +Table of Contents +The award of options is intended to encourage +executives to establish a meaningful, long-term ownership interest in the +Company consistent with the interests of our stockholders. Under our equity incentive plans, options are +granted from time to time to certain officers and key associates of us and our +subsidiaries at the fair market value of the shares of common stock at the time +of grant. We do not have a formal policy +as to the amount or timing of grants to executive officers. Because the compensation element of options +is dependent on increases over time in the market value of such shares, stock +options represent compensation that is tied to our long-term performance. The award of stock options to our executive +officers is determined based upon individual performance, level of base salary +and position with us. No options were +granted to any of our named executive officers in Fiscal 2009. +Other Compensation +Our executive officers are eligible to receive the same benefits, +including non-cash group life and health benefits, that are available to all +employees. Certain additional benefits +may be provided to our executives such as a car allowance, but each on a +case-by-case basis. +Summary +Compensation Table +The following table shows information regarding the compensation earned +during Fiscal 2008 and Fiscal 2009 by our Chief Executive Officer, Chief +Financial Officer and our three other executive officers who were employed by +us as of March 31, 2009 and whose total compensation exceeded $100,000 +during that fiscal year. The officers +listed below are collectively referred to as the “named executive officers” in +this proxy statement. +Name +Fiscal +Year +Salary +Option +Awards(1) +Non-Equity +Incentive Plan +Compensation +(2) +All Other +Compensation (3) +Total +Abbas Mohaddes +2009 +$ +350,022 +$ +153,972 +$ +29,008 +$ +20,210 +$ +553,212 +Chief Executive Officer, President, Assistant Secretary and Director +2008 +350,022 +108,422 +100,079 +15,064 +573,587 +James S. Miele +2009 +193,105 +15,224 +14,451 +9,775 +232,555 +Vice President, Chief Financial Officer and Secretary +2008 +175,480 +15,224 +39,801 +5,795 +236,300 +Alan Clelland +2009 +180,003 +11,624 +71,083 +6,847 +269,557 +Senior Vice President +2008 +86,540 +1,259 +48,232 +2,596 +138,627 +Gregory McKhann +2009 +213,825 +12,492 +18,320 +12,015 +256,652 +Senior Vice President +2008 +199,533 +12,492 +69,065 +5,630 +286,720 +Francis Memole (4) +2009 +191,594 +23,092 +— +10,478 +225,164 +Former Senior Vice President and General Manager +2008 +186,057 +23,092 +38,221 +4,366 +251,736 +(1) Represents the expense recognized by us +for financial reporting purposes in the applicable fiscal year with respect to +stock options granted to each named executive officer, whether in that year or +prior years, determined pursuant to SFAS 123(R) utilizing assumptions discussed +in Note 1 to our consolidated financial statements in our annual report for +Fiscal 2009 (the “Annual Report”) regarding assumptions underlying valuation of +equity awards. See also our discussion of share-based compensation under +“Management’s Discussion and Analysis of Financial Condition and Results of +Operations—Critical Accounting Policies and Estimates” in the Annual Report. +(2) The amounts shown in this column +constitute the cash bonuses made to each named executive officer based on the +attainment of certain criteria pre-established by the Compensation Committee. +These awards are discussed in further detail under “Compensation Discussion and +Analysis” above. +(3) Represents 401(k) plan employer +contributions and automobile allowances paid by us. +(4) Mr. Memole served as our Senior Vice +President and General Manager of our Vehicle Sensors segment until May 2009. +21 +Table of Contents +Employment +Contracts; Termination of Employment and Change of Control Arrangements +On February 28, 2007, we entered into an offer +letter agreement with Abbas Mohaddes in connection with his promotion as our +Chief Executive Officer effective as of March 2007. The offer letter agreement provides for a +base salary of $350,000 per year, a bonus of up to $150,000 for the fiscal year +ended March 31, 2008 and the grant of an option to purchase 100,000 shares +of our common stock (“Option One”) and a second option to purchase an +additional 200,000 shares of our common stock. +Under the terms of the offer letter, in the event that his employment +with us is terminated for any reason other than cause within three years of his +promotion to Chief Executive Officer, Mr. Mohaddes will also be entitled +to receive one year’s severance, based on his then current base salary, as well +as 50% of his then current on-target bonus amount. In the event of his death or disability, Mr. Mohaddes +or his estate will be entitled to one year’s acceleration on the vesting of +Option One. If a triggering event under +the severance provisions of his agreement had occurred on the last business day +of Fiscal 2009, then Mr. Mohaddes would have been entitled to a payment of +approximately $435,000, based on his then current base salary and on-target +bonus. +On June 11, 2008, we entered into a change in +control agreement with James Miele, our Chief Financial Officer. Pursuant to the terms of the agreement, in +the event of an involuntary termination of Mr. Miele’s employment in +connection with or within twelve months after a change in control, Mr. Miele +will be entitled to receive a lump sum severance payment of up to one year’s +base pay and 50% of his target bonus for the year. In addition, Mr. Miele will be entitled +to receive reimbursement for the cost of COBRA coverage for a period of up to +one year following the termination of his employment. The agreement terminates on the fifth +anniversary of the date of the agreement, unless earlier terminated in +accordance with the agreement. If a +triggering event under the severance provisions of his agreement had occurred +on the last business day of Fiscal 2009, then Mr. Miele would have been +entitled to a payment of approximately $235,000, based on his then current base +salary and on-target bonus, plus COBRA premium reimbursements. +In May 2009, we +entered into a separation agreement with Francis Memole, the former Senior Vice +President and General Manager of our Vehicle Sensors segment, related to his +termination of employment with us. Under this agreement, we agreed to +pay four and one half months of severance to Mr. Memole for an aggregate +severance amount of approximately $72,000, in exchange for a broad release of +claims against us and our affiliates. In addition, we agreed to pay 65% +of Mr. Memole’s COBRA premiums until December 31, 2009 pursuant +to the American Recovery and Reinvestment Act, as well as the balance +of his first month’s COBRA premium. +We do not currently have any employment contracts in effect with any of +our named executive officers other than the agreements described above. We provide incentives such as salary, +benefits and option grants to attract and retain executive officers and other +key associates. The plan administrators +of the 1997 Plan and the 2007 Plan have the authority to provide for the +accelerated vesting of outstanding options held by an individual, in connection +with the termination of such individual’s employment following an acquisition +in which these options are assumed or the repurchase rights with respect to the +unvested shares are assigned or upon certain hostile changes in control of the +Company. Other than such accelerated +vesting and the agreements described above, there is no agreement or policy +which would entitle any executive officer to severance payments or any other +compensation as a result of such officer’s termination. +Grants of Plan-Based Awards +The following table sets forth certain information +with respect to bonuses that were potentially payable to our named executive +officers under our bonus plan for Fiscal 2009. +No stock options were granted to any of the named executive officers +during Fiscal 2009. +Estimated Future Payouts +Under Non-Equity Incentive +Plan Awards (1) +Name +Threshold +Target +Maximum +Abbas +Mohaddes +Chief Executive Officer, President, Assistant Secretary and Director +— +$ +170,000 +$ +238,000 +James +S. Miele +Vice President, Chief Financial Officer and Secretary +— +80,000 +112,000 +22 +Table of Contents +Estimated Future Payouts +Under Non-Equity Incentive +Plan Awards (1) +Name +Threshold +Target +Maximum +Alan +Clelland +Senior Vice President +— +100,000 +140,000 +Gregory +McKhann +Senior Vice President +— +115,000 +161,000 +Francis +Memole (2) +Former Senior Vice President and General Manager +— +80,000 +112,000 +(1) Consists of amounts that were potentially +payable as cash bonuses based on the attainment of certain criteria +pre-established by the Compensation Committee. These awards are discussed in +further detail under “Compensation Discussion and Analysis” above. The “Target” +amounts represent the maximum amounts that could have been awarded to the +executives if the pre-established criteria had been attained. The “Maximum” +amounts consist of the “Target” amounts plus the maximum overachievement +bonuses that could have been awarded to the executives. +(2) Mr. Memole served as our Senior Vice +President and General Manager of our Vehicle Sensors segment until May 2009. +Outstanding Equity Awards at Fiscal Year-End +The following table presents the outstanding equity +awards held by each of the named executive officers as of March 31, +2009. Each option vests at the rate of +25% on each of the first four anniversaries of the grant date. +Option Awards +Name +Number of +Securities +Underlying +Unexercised +Options (#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options (#) +Unexercisable +Equity Incentive Plan +Awards: Number of +Securities Underlying +Unexercised +Unearned Options +(#) +Option +Exercise +Price +($) +Option +Expiration +Date +Abbas Mohaddes +210,000 +— +— +$ +1.19 +09/26/11 +Chief Executive +Officer, President, Assistant Secretary and Director +44,000 +— +— +1.40 +04/30/12 +15,000 +15,000 +— +2.21 +06/14/16 +50,000 +50,000 +— +2.55 +03/13/17 +50,000 +150,000 +— +2.34 +10/01/17 +James S. Miele +40,000 +— +— +1.19 +09/26/11 +Vice President, Chief +Financial Officer and Secretary +12,000 +— +— +1.40 +04/30/12 +15,000 +5,000 +— +3.26 +09/01/15 +7,500 +7,500 +— +2.21 +06/14/16 +Alan Clelland +Senior Vice +President +6,250 +18,750 +— +2.46 +02/20/18 +Gregory McKhann +96,000 +— +— +1.19 +09/26/11 +Senior Vice +President +34,000 +— +— +1.40 +04/30/12 +15,000 +15,000 +— +2.21 +06/14/16 +Francis Memole +(1) +68,000 +— +— +1.19 +09/26/11 +Former Senior Vice +President and General Manager +20,000 +— +— +1.40 +04/30/12 +18,000 +6,000 +— +3.21 +08/28/15 +15,000 +15,000 +— +2.21 +06/14/16 +(1) Mr. Memole served as our Senior Vice +President and General Manager of our Vehicle Sensors segment until May 2009. +23 +Table of Contents +Option Exercises +and Stock Vested +The following table includes certain information with respect to the +options exercised by the named executive officers during Fiscal 2009. +Option Awards +Name and Principal Position +Number of Shares +Acquired on +Exercise (#) +Value Realized on +Exercise ($) +Abbas +Mohaddes +Chief Executive Officer, President, Assistant Secretary and Director +10,000 +$ +11,900 +James +S. Miele +Vice President, Chief Financial Officer and Secretary +— +— +Alan +Clelland +Senior Vice President +— +— +Gregory +McKhann +Senior Vice President +— +— +Francis +Memole (1) +Former Senior Vice President and General Manager +— +— +(1) Mr. Memole served as our Senior Vice President and +General Manager of our Vehicle Sensors segment until May 2009. +Pension Benefits +We do not have any qualified or non-qualified defined benefit plans. +Non-Qualified Deferred +Compensation +The Iteris, Inc. Deferred Compensation Savings +Plan (the “Deferred Compensation Plan”) is a non-qualified voluntary deferral +plan that permitted eligible executives to defer a portion of their +compensation in exchange for phantom stock units representing the value of our +common stock. The plan was terminated by +our Board of Directors in December 2008 and no additional deferrals of +compensation may be made under the plan. +No compensation was deferred by any named executive officer in Fiscal +2009, and no employer contributions have been permitted since the plan’s +inception. Any distribution of a +participant’s account balance will be made in the form of our common stock. +All deferrals to the Deferred Compensation Plan are considered part of +our general assets. As general assets, +they are subject to the claims of our creditors, and the participants are +considered an unsecured creditor with respect to them. We have established a “rabbi trust” which +holds our common stock that is used to make payments to participants. The purpose of the trust is to protect +participants against a refusal to pay payments (for example, in the event of a +change in control). The trust does not, +however, protect the account balance in the event that we become insolvent or +bankrupt. +At March 31, 2009, the Deferred Compensation Plan held 23,844 +shares of our common stock held by current executives. Changes in the value of our common stock held +by the Deferred Compensation Plan are determined based on changes in the quoted +market price of our common stock at the close of each reporting period and +presented within operating expenses in the accompanying consolidated statements +of operations. +24 +Table of Contents +The following table sets forth information with +respect to the accounts of the named executive officers under the Deferred +Compensation Plan. +Name +Executive +Contributions +in Last Fiscal +Year($) +Registrant +Contributions +in Last Fiscal +Year ($) +Aggregate +Earnings +(Loss) in +Last Fiscal +Year ($)(1) +Aggregate +Withdrawals/ +Distributions($) +Aggregate +Balance at +Last Fiscal +Year End ($) +Abbas +Mohaddes +Chief Executive Officer, President, Assistant Secretary and Director +$ +— +$ +— +$ +(8,460 +) +— +$ +11,083 +James +S. Miele +Vice President, Chief Financial Officer and Secretary +— +— +— +— +— +Alan +Clelland +Senior Vice President +— +— +— +— +— +Gregory +McKhann +Senior Vice President +— +— +(15,384 +) +— +20,153 +Francis +Memole (2) +Former Senior Vice President and General Manager +— +— +— +— +— +(1) Reflects the difference between the value of shares of our common stock +held in such officer’s Deferred Compensation Plan account as of March 31, +2009 compared to the value of such shares as of March 31, 2008. +(2) Mr. Memole served as a Senior +Vice President and General Manager of our Vehicle Sensors segment until May 2009. +Director Compensation +Directors who are not employees of Iteris or any of its subsidiaries +receive an annual fee of $12,000 per year, paid quarterly, in addition to +$1,500 for each Board meeting attended in person and $250 for each telephone +conference Board meeting. All directors +are reimbursed for their out-of-pocket expenses incurred in attending meetings +of our Board of Directors and its committees. +Non-employee directors are also eligible to receive periodic option +grants pursuant to the Directors’ Automatic Option Grant Program under our 2007 +Plan. Under the 2007 Plan, each +non-employee director receives an option to purchase 20,000 shares of common +stock upon his initial appointment to the Board of Directors and an additional +option to purchase 5,000 shares of common stock on the date of each annual +meeting after his appointment, provided he has served on the Board for at least +six months. Each option granted to +non-employee directors under the Directors’ Automatic Option Grant Program will +have an exercise price equal to the fair market value of the common stock on +the grant date and a maximum term of ten years, subject to earlier termination +following the optionee’s cessation of service as a Board member. +The following table sets forth a summary of the +compensation earned in Fiscal 2009 by each person who served as a director +during such year, who is not a named executive officer. +Name +Fees Earned or +Paid in Cash ($)(1) +Option +Awards ($)(2) +All Other +Compensation ($) +Total ($) +Richard +Char +$ +19,500 +$ +5,530 +$ +— +$ +25,030 +Kevin +C. Daly, Ph.D. +18,500 +8,483 +— +26,983 +Gregory +A. Miner +19,250 +7,527 +— +26,777 +John +W. Seazholtz +21,250 +8,483 +— +29,733 +Joel +Slutzky +19,500 +8,483 +— +27,983 +Thomas +L. Thomas +20,250 +8,483 +— +28,733 +(1) Represents amounts earned by +the directors based on the compensation arrangement described above. +25 +Table of Contents +(2) Stock options were granted +pursuant to our 2007 Plan. The amounts listed represent the expense recognized +by us for financial reporting purposes for the fiscal year ended March 31, +2009 with respect to stock options granted to each director, whether in the +current year or prior years, determined pursuant to SFAS 123(R) utilizing +assumptions discussed in Note 1 to our consolidated financial statements in our +Annual Report. See also our discussion of share-based compensation under +“Management’s Discussion and Analysis of Financial Condition and Results of +Operations—Critical Accounting Policies and Estimates” in the Annual Report. +For the options granted in Fiscal 2009, the total share-based compensation to +be recognized over the vesting period are as follows: Richard Char — $7,512; +Kevin C. Daly, Ph.D. — $7,512; Gregory A. Miner — $7,512; John W. Seazholtz — +$7,512; Joel Slutzky — $7,512; and Thomas L. Thomas — $7,512. As of +March 31, 2009, the non-employee directors held options for the following +number of shares of common stock: Richard Char — 35,000 shares; Kevin C. Daly, +Ph.D. — 49,000 shares; Gregory A. Miner — 530,000 shares; John W. Seazholtz — +64,000 shares; Joel Slutzky — 210,000 shares; and Thomas L. Thomas — 65,000 +shares. +Indemnification of Directors and +Officers +Under Section 145 of the Delaware General +Corporation Law, we can indemnify our directors and officers against +liabilities they may incur in such capacities, including liabilities under the +Securities Act of 1933, as amended (the “Securities Act”). Our certificate of incorporation and bylaws +provide that we will indemnify our directors and officers to the fullest extent +permitted by law, and our bylaws require us to advance litigation expenses upon +receipt of an undertaking by the director or officer to repay such advances if +it is ultimately determined that the director or officer is not entitled to +indemnification. The bylaws further +provide that rights conferred under such bylaws do not exclude any other right +such persons may have or acquire under any bylaw, agreement, vote of +stockholders or disinterested directors or otherwise. +Our certificate of incorporation provides that, +pursuant to Delaware law, our directors shall not be liable for monetary +damages for breach of the directors’ fiduciary duty of care to us and our stockholders. This provision in the certificate of +incorporation does not eliminate the duty of care, and in appropriate +circumstances equitable remedies such as injunctive or other forms of +non-monetary relief will remain available under Delaware law. In addition, each director will continue to +be subject to liability for breach of the director’s duty of loyalty to us or +our stockholders, for acts or omissions not in good faith or involving +intentional misconduct or knowing violations of law, for actions leading to +improper personal benefit to the director, and for payment of dividends or +approval of stock repurchases or redemptions that are unlawful under Delaware +law. The provision also does not affect +a director’s responsibilities under any other law, such as the federal +securities laws or state or federal environmental laws. +We have entered into agreements to indemnify our +directors and certain of our officers in addition to the indemnification +provided for in the certificate of incorporation and bylaws. These agreements, among other things, +indemnify our directors and certain of our officers for certain expenses +(including attorneys’ fees), judgments, fines and settlement amounts incurred +by such person in any action or proceeding, including any action by or in the +right of our company, on account of services as a director or officer of +Iteris, or as a director or officer of any other company or enterprise to which +the person provides services at our request. +Compensation Committee +Interlocks and Insider Participation +The members of the Compensation Committee of our Board of Directors +during the fiscal year ended March 31, 2009 were Messrs. Daly, +Seazholtz and Thomas. None of the +members of our Compensation Committee at any time has been one of our officers +or employees or an officer or employee of one of our subsidiaries at any time +during the fiscal year ended March 31, 2009. None of our executive officers currently +serves, or in the year ended March 31, 2009 has served, as a member of the +board of directors or compensation committee of any entity that has one or more +executive officers on our Board of Directors or Compensation Committee. +26 +Table of Contents +COMPENSATION COMMITTEE +REPORT +We have reviewed and discussed with the management of +Iteris the Compensation Discussion and Analysis to be included in the proxy +statement on Schedule 14A for the 2009 Annual Meeting of Stockholders. Based on the reviews and discussions referred +to above, we recommended to the Board of Directors that the Compensation +Discussion and Analysis referred to above be included in such proxy statement +and incorporated by reference into the Company’s Annual Report on Form 10-K +for the year ended March 31, 2009. +Submitted +by the Compensation Committee +of +the Board of Directors: +Kevin +C. Daly, Ph.D. +John +W. Seazholtz +Thomas L. Thomas +EQUITY +COMPENSATION PLANS +The following table provides information as of March 31, +2009 with respect to shares of our common stock that may be issued under +existing equity compensation plans. The +table does not include information with respect to shares of our common stock +subject to outstanding options granted under equity compensation plans or +option agreements that were assumed in connection with the merger of the Iteris +Subsidiary into us in October 2004. +However, Note 1 to the table sets forth the total number of shares of +common stock issuable upon the exercise of those assumed options as of March 31, +2009 and the weighted average exercise price of those options. Except for the adjustments described in Note +1 with respect to the outstanding assumed options, no additional options may be +granted under those assumed plans. +Plan Category +Number of Securities +to be Issued Upon +Exercise of +Outstanding Options, +Warrants and Rights +Weighted Average +Exercise Price of +Outstanding +Options, Warrants +and Rights +Number of Securities +Remaining Available For +Future Issuance under +Equity Compensation +Plans (excluding some +securities reflected in first +column) +Equity Compensation Plans Approved by Security +Holders +1997 Stock Incentive Plan +1,296,123 +$ +2.54 +— +2007 Omnibus Incentive Plan +404,000 +2.36 +446,000 +Equity Compensation Plans Not Approved by +Security Holders +None +Total(1) +1,700,123 +$ +2.49 +446,000 +(1) The table does not include information +with respect to the equity compensation plan or option agreements that were +assumed by us in connection with the merger of the Iteris Subsidiary into us in +October 2004. As of March 31, +2009, a total of 1,614,252 shares of common stock were issuable upon exercise +of outstanding options under the assumed plan and agreements. No additional options may be granted under +the assumed plan. The weighted average +exercise price of all such assumed options to acquire shares of our common +stock was $1.32 per share. +27 +Table of Contents +PRINCIPAL STOCKHOLDERS AND COMMON +STOCK OWNERSHIP +OF CERTAIN BENEFICIAL OWNERS AND +MANAGEMENT +The following table sets forth, as of June 15, +2009, the number and percentage ownership of our common stock by (i) all +persons known to us to beneficially own more than 5% of the outstanding common +stock, (ii) each of the named executive officers in the Summary +Compensation Table which appears elsewhere herein, (iii) each of our +directors, and (iv) all of our executive officers and directors as a +group. To our knowledge, except as +otherwise indicated, each of the persons named in this table has sole voting +and investment power with respect to the common stock shown as beneficially +owned, subject to community property and similar laws, where applicable. +Common Stock +Name and Address of Beneficial Owner(1) +Amount and Nature of +Beneficial +Ownership(2)(3) +Percent of Class(2) +Austin +W. Marxe and David M. Greenhouse(4) +4,350,953 +12.6 +% +Bryant +R. Riley(5) +4,153,987 +12.1 +John +D. Gruber, J. Patterson McBaine and Eric Swergold(6) +2,116,181 +6.2 +Lloyd +I. Miller, III(7) +1,764,116 +5.2 +Abbas +Mohaddes(8) +1,170,858 +3.4 +Alan +Clelland(9) +9,390 +* +Greg +McKhann(10) +260,582 +* +Francis +Memole(11) +178,065 +* +James +S. Miele(12) +88,686 +* +Richard +Char(13) +35,000 +* +Kevin +C. Daly, Ph.D(14) +394,132 +1.1 +Gregory +A. Miner(15) +932,085 +2.7 +John +W. Seazholtz(16) +124,547 +* +Joel +Slutzky(17) +2,056,040 +6.0 +Thomas +L. Thomas(18) +94,000 +* +All +executive officers and directors as a group (11 persons)(19) +5,343,385 +14.9 +% +* Less than 1%. +(1) The address for Messrs. Marxe and Greenhouse is +527 Madison Avenue, Suite 2600, New York, NY 10022. The address for Mr. Riley is 11100 Santa +Monica Blvd., Suite 810, Los Angeles, CA 90025. The address for Messrs. Gruber, McBaine +and Swergold is 50 Osgood Place, San Francisco, CA 94133. The address for Mr. Miller is 4550 +Gordon Drive, Naples, FL 34102. The +address of all other persons named in the table is 1700 Carnegie Avenue, Suite 100, +Santa Ana, CA 92705. +(2) Based on 34,235,656 shares of common stock outstanding +as of June 15, 2009. Shares of +common stock subject to options or warrants which are exercisable within 60 +days of June 15, 2009 are deemed to be beneficially owned by the person +holding such options or warrants for the purpose of computing the percentage of +ownership of such person but are not treated as outstanding for the purpose of +computing the percentage of any other person. +Other than as described in the preceding sentence, shares issuable upon +exercise of outstanding options and warrants are not deemed to be outstanding +for purposes of this calculation. +(3) In addition to the shares held in the individual’s +name, this column also includes shares held for the benefit of the named person +under our 401(k) and Stock Ownership Plan and the Deferred Compensation +Savings Plan. +(4) Includes 246,250 shares issuable upon exercise of +warrants that were issued to Special Situations Cayman Fund, L.P., Special +Situations Fund III, L.P., Special Situations Fund III QP, L.P. and Special +Situations Private Equity Fund, L.P. (collectively, the “Special Situations +Funds”). Pursuant to a Schedule 13G +filed on February 13, 2009 with the SEC, Messrs. Marxe and Greenhouse +reported that they have shared voting power and shared dispositive power over +the shares of common stock (including the 246,250 shares issuable upon exercise +of warrants) held by the Special Situations Funds. Messrs. Marxe and Greenhouse are the +controlling principals of AWM Investment Company, Inc. (“AWM”), the +general partner of and investment adviser to Special Situations Cayman Fund, +L.P. AWM is the general partner of MGP Advisers +Limited +28 +Table of Contents +Partnership, the general +partner of and investment adviser to Special Situations Fund III, L.P. and the +general partner of Special Situations Fund III QP, L.P. In addition, Messrs. Marxe and +Greenhouse are members of MG Advisers L.L.C., the general partner of Special +Situations Private Equity Fund, L.P. AWM +serves as the investment adviser to Special Situations Fund III QP, L.P. and +Special Situations Private Equity Fund, L.P. +(5) Includes (i) 184,333 shares held by Riley +Investment Partners Master Fund, L.P. (“RIPMF”) and 1,119,588 shares held in +managed accounts by its investment advisory clients, (ii) 33,333 shares +held in a joint account with Mr. Riley’s spouse, (iii) 61,000 shares +owned by B. Riley & Co. Retirement Trust, of which Mr. Riley +serves as trustee, (iv) 93,900 shares owned by custodial accounts of Mr. Riley’s +children, over which he controls the voting and investment decisions in his +role as custodian for the children’s accounts, (v) 2,263,411 shares held by +investment advisory clients of Riley Investment Management LLC (“RIM”) +(including non-affiliated managed accounts), over which RIM has shared voting +and dispositive power, and (vi) 398,422 shares owned by B. Riley & +Co., LLC., of which Mr. Riley is the Chairman and sole indirect equity +owner. Pursuant to a Schedule 13G filed +on February 17, 2009 with the SEC, Mr. Riley reported that because +RIM has sole voting and investment power over RIPMF’s security holdings and Mr. Riley, +in his role as the sole manager of RIM, controls its voting and investment +decisions, each of RIM, RIPMF, and Mr. Riley may be deemed to have +beneficial ownership of the shares held by RIPMF. Mr. Riley controls RIM’s voting and +investment decisions for its investment advisory clients, but disclaims +beneficial ownership of the 1,504,569 shares owned by the non-affiliated +managed accounts of RIM. Mr. Riley also +disclaims beneficial ownership of the 93,900 shares held in his children’s +accounts. The number of shares indicated +does not include warrants to purchase common stock included in the Schedule 13G +filing, which warrants expired in May 2009. +(6) Pursuant to a Schedule 13G filed on February 3, +2009 with the SEC, Gruber & McBaine Capital Management, LLC (“GMCM”), +Jon D. Gruber, J. Patterson McBaine and Eric Swergold reported that they had +shared voting power and shared dispositive power over 1,642,685 shares of +common stock. The table also includes +410,121 shares, 26,600 shares and 36,775 shares over which Messrs. Gruber, +McBaine and Swergold, respectively, have sole voting and dispositive +power. GMCM is a registered investment +advisor whose clients have the right to receive or the power to direct the +receipt of dividends from, or the proceeds from the sale of the shares. Messrs. Gruber and McBaine are the +Managers, controlling persons and portfolio managers of GMCM. Lagunitas and Firefly are investment limited +partnerships of which GMCM is the general partner. GMCM, Gruber, McBaine and Swergold constitute +a group within the meaning of Rule 13d-5(b). Lagunitas and Firefly is not a member of any +group and each disclaims beneficial ownership of the securities with respect to +its ownership is reposited. +(7) Pursuant to a Schedule 13G filed on April 28, +2009 with the SEC, Mr. Miller reported that he has shared dispositive and +voting power with respect to 928,242 shares of common stock as (i) an +investment advisor to the trustee of certain family trusts, and (ii) an +authorized person with respect to a custody account. Mr. Miller also has sole dispositive and +voting power with respect to 835,874 of the reported securities as (i) a +manager of a limited liability company that is the general partner of certain +limited partnerships, (ii) the trustee to a certain grantor retained +annuity trust, and (iii) an individual. +The number of shares indicated does not include warrants to purchase +95,028 shares of common stock included in the Schedule 13G filing, which +warrants expired in May 2009. +(8) Includes (i) 376,500 shares issuable upon +exercise of options that are currently exercisable or will become exercisable +within 60 days after June 15, 2009 and (iv) 11,540 shares held by Mr. Mohaddes’ +IRA. +(9) Includes 6,250 shares issuable upon exercise of +options that are currently exercisable or will become exercisable within 60 +days after June 15, 2009. +(10) Includes 152,500 shares issuable upon exercise of +options that are currently exercisable or will become exercisable within 60 +days after June 15, 2009. +(11) Includes 128,500 shares issuable upon exercise of +options that are currently exercisable or will become exercisable within 60 +days after June 15, 2009. Mr. Memole +served as a Senior Vice President and General Manager of our Vehicle Sensors +segment until May 2009. +(12) Includes 78,250 shares issuable upon exercise of +options that are currently exercisable or will become exercisable within 60 +days after June 15, 2009. +29 +Table of Contents +(13) Consists of shares issuable upon exercise of options +that are currently exercisable or will become exercisable within 60 days after June 15, +2009. +(14) Includes (i) 100 shares held by Dr. Daly’s +spouse, (ii) 329,032 shares held by a trust to which Dr. Daly serves +as a trustee, and (iii) 49,000 shares issuable upon exercise of options +that are currently exercisable or will become exercisable within 60 days after June 15, +2009. +(15) Includes (i) 183,334 shares held by Mr. Miner’s +IRA, (ii) 19,230 shares held by Mr. Miner’s wife’s IRA and (iii) 530,000 +shares issuable upon exercise of options that are currently exercisable or will +become exercisable within 60 days after June 15, 2009. +(16) Includes 64,000 shares issuable upon exercise of +options that are currently exercisable or will become exercisable within 60 +days after June 15, 2009. +(17) Includes (i) 144,616 shares held by Mr. Slutzsky’s +IRA and (ii) 210,000 shares issuable upon exercise of options that are +currently exercisable or will become exercisable within 60 days after June 15, +2009. Excludes shares of common stock +held in trust for the benefit of the children and relatives of Mr. Slutzky +as well as shares in the Joel Slutzky Family Trust; Mr. Slutzky has no +investment or voting power with respect to the shares in such trusts and +disclaims any beneficial ownership. +(18) Includes 65,000 shares issuable upon exercise of +options that are currently exercisable or will become exercisable within 60 +days after June 15, 2009. +(19) Includes 1,572,750 shares issuable upon exercise of +options that are currently exercisable or will become exercisable within 60 +days after June 15, 2009. Includes +shares held by Todd Kreter, our Senior Vice President, Sensors Development and Operations, and does +not include shares held by Francis Memole, who served as a Senior Vice +President and our General Manager of the Vehicle Sensors segment until May 2009. +30 +Table of Contents +CERTAIN TRANSACTIONS +Since April 1, 2008, other than the agreements +and transactions described in “Executive Compensation and Other Information” +and the transactions described below, there has not been, nor is there any +proposed transaction, where we (or any of our subsidiaries) were or will be a +party in which the amount involved exceeded or will exceed the lesser of +$120,000 or the average of the Company’s total assets at year end for the last +two fiscal years and in which any director, +director nominee, executive officer, holder of more than 5% of any class of our +voting securities, or any member of the immediate family of any of the +foregoing persons had or will have a direct or indirect material interest. +We previously subleased office space to MAXxess +Systems, Inc. (“MAXxess”), a former subsidiary of the Company that was +sold by the Company in September 2003 and is currently owned by an +investor group that includes two of our directors, one of which is the Chief +Executive Officer of MAXxess. At March 31, +2009, MAXxess owed the Company an aggregate of $274,000 related to this +sublease, which terminated in September 2007, and certain related +ancillary services that were provided by the Company to MAXxess. +Pursuant to its written charter, the Audit Committee +of the Board of Directors is responsible for reviewing and approving all +related party transactions. The Audit +Committee monitors and reviews potential conflict of interest situations +involving a principal stockholder, a member of the Board of Directors or senior +management. +SECTION 16(A) BENEFICIAL +OWNERSHIP REPORTING COMPLIANCE +Under the federal securities laws, our directors and +officers and any persons holding more than 10% of our common stock are required +to report their ownership of our common stock and any changes in that ownership +to the SEC. Specific due dates for these +reports have been established, and we are required to report any failure to +file by such dates. Based solely on our +review of copies of the reports on Forms 3, 4 and 5 received by us with respect +to the fiscal year ended March 31, 2009 and the written representations +received from the reporting persons that no other reports were required, except +as indicated in the foregoing sentence or as indicated in our prior proxy +statements, we believe that all directors, executive officers and persons who +own more than 10% of our common stock have complied with the reporting +requirements of Section 16(a) and have filed all reports required by +such section. +ANNUAL REPORT +A copy of our annual report on Form 10-K for the +fiscal year ended March 31, 2009 (excluding the exhibits thereto) +accompanies the proxy materials being mailed to all stockholders. The annual report is not incorporated into +this proxy statement and is not considered proxy solicitation material. Stockholders may obtain a copy of the annual +report and any of our other filings with the SEC, without charge, by writing to +Investor Relations, Iteris, Inc., 1700 Carnegie Avenue, Suite 100, +Santa Ana, California 92705. The annual +report on Form 10-K (including the exhibits thereto) is also available on +the SEC’s website at www.sec.gov . +DEADLINE FOR RECEIPT OF +STOCKHOLDER PROPOSALS +In the event that a stockholder desires to have a +proposal considered for presentation at the annual meeting of stockholders to +be held in 2010, and included in our proxy statement and form of proxy card +used in connection with such meeting, the proposal must be forwarded in writing +to our Secretary so that it is received no later than April 7, 2010. Any such proposal must comply with the +requirements of Rule 14a-8 promulgated under the Exchange Act. +If a stockholder, rather than including a proposal in +the proxy statement as discussed above, commences his or her own proxy +solicitation for the 2010 Annual Meeting of Stockholders or seeks to nominate a +candidate for election as a director or to propose business for consideration +at such meeting, we must receive notice of such proposal on or before June 21, +2010. If the notice is not received on +or before June 21, 2010, it will be considered untimely under Rule 14a-4(c)(1) promulgated +under the Exchange Act, and we will have discretionary voting authority under +proxies solicited for the 2010 Annual Meeting of Stockholders with respect to +such proposal, if presented at the meeting. +Please address any stockholder proposals or notices of +proposals to our corporate Secretary at our principal executive offices located +at 1700 Carnegie Avenue, Suite 100, Santa Ana, California 92705. +31 +Table of Contents +OTHER +BUSINESS +The Board of Directors is not aware of any other +matter which will be presented for action at the Annual Meeting other than the +matters set forth in this proxy statement. +If any other matter requiring a vote of the stockholders arise, it is +intended that the proxy holders will vote the shares they represent as the +Board of Directors may recommend. +Discretionary authority with respect to such other matters is granted by +the execution of the enclosed proxy card. +THE +BOARD OF DIRECTORS OF +ITERIS, +INC. +Anaheim, +California +July 28, 2009 +32 +Table of Contents +APPENDIX A +ITERIS, INC. +2007 OMNIBUS INCENTIVE PLAN +(as amended and restated on July 15, 2009) +Table of Contents +Table of Contents +Section 1. +Purpose +A-1 +Section 2. +Definitions +A-1 +Section 3. +Administration +A-4 +(a) +Power +and Authority of the Committee +A-4 +(b) +Power and +Authority of the Board +A-5 +Section 4. +Shares Available for Awards +A-5 +(a) +Shares Available +A-5 +(b) +Accounting for +Awards +A-5 +(c) +Adjustments +A-5 +(d) +Section +162(m) Award Limitations Under the Plan +A-6 +Section 5. +Eligibility +A-6 +Section 6. +Awards +A-6 +(a) +Options +A-6 +(b) +Stock +Appreciation Rights +A-8 +(c) +Restricted +Stock and Restricted Stock Units +A-8 +(d) +Performance +Awards +A-9 +(e) +Dividend +Equivalents +A-9 +(f) +Other +Stock Grants +A-9 +(g) +Other +Stock-Based Awards +A-9 +(h) +General +A-10 +(i) +Directors’ +Automatic Option Grant Program +A-11 +Section 7. +Amendment +and Termination; Adjustments +A-13 +(a) +Amendments +to the Plan +A-13 +(b) +Amendments +to Awards +A-13 +(c) +Correction +of Defects, Omissions and Inconsistencies +A-14 +Section 8. +Income Tax +Withholding +A-14 +Section 9. +General Provisions +A-14 +(a) +No +Rights to Awards +A-14 +(b) +Award +Agreements +A-14 +(c) +Plan +Provisions Control +A-14 +(d) +No +Rights of Stockholders +A-14 +(e) +No Limit on +Other Compensation Arrangements +A-15 +(f) +No +Right to Employment +A-15 +(g) +Governing +Law +A-15 +(h) +Severability +A-15 +(i) +No +Trust or Fund Created +A-15 +A-ii +Table of Contents +(j) +Other +Benefits +A-16 +(k) +No +Fractional Shares +A-16 +(l) +Headings +A-16 +(m) +Section 16 +Compliance; Section 162(m) Administration +A-16 +(n) +Conditions +Precedent to Issuance of Shares +A-16 +Section 10. +Effective +Date of the Plan +A-16 +Section +11. +Term +of the Plan +A-17 +A-iii +Table of Contents +ITERIS, INC. +2007 OMNIBUS INCENTIVE PLAN +(as amended and restated on July 15, 2009) +Section 1. Purpose +The purpose of the Plan is to promote the interests of +the Company and its stockholders by aiding the Company in attracting and +retaining employees, officers, consultants, independent contractors, advisors +and directors capable of assuring the future success of the Company, to offer +such persons incentives to continue in the Company’s employ or service and to +afford such persons an opportunity to acquire a proprietary interest, or +otherwise increase their proprietary interest, in the Company. +Section 2. Definitions +As used in the Plan, the following terms shall have +the meanings set forth below: +(a) “ Affiliate ” +shall mean (i) any entity that, directly or indirectly through one or more +intermediaries, is controlled by the Company and (ii) any entity in which the +Company has a significant equity interest, in each case as determined by the +Committee. +(b) “ Award ” +shall mean any Option, Stock Appreciation Right, Restricted Stock, Restricted +Stock Unit, Performance Award, Dividend Equivalent, Other Stock Grant or Other +Stock-Based Award granted under the Plan. +(c) “ Award +Agreement ” shall mean any written agreement, contract or other +instrument or document evidencing an Award granted under the Plan. Each Award Agreement shall be subject to the +applicable terms and conditions of the Plan and any other terms and conditions +(not inconsistent with the Plan) determined by the Committee. +(d) “ Board ” +shall mean the Board of Directors of the Company. +(e) “ Change +in Control ” shall mean a change in ownership or control of the +Company effected through any of the following transactions: (i) a merger, +consolidation or other reorganization unless securities representing more than +50% of the total combined voting power of the voting securities of the +successor corporation are immediately thereafter beneficially owned, directly +or indirectly and in substantially the same proportion, by the persons who +beneficially owned the Company’s outstanding voting securities immediately +prior to such transaction; (ii) a sale, transfer or other disposition of all or +substantially all of the Company’s assets; or (iii) the acquisition, directly +or indirectly, by any person or related group of persons (other than the +Company or a person that directly or indirectly controls, is controlled by, or +is under common control with, the Company), of beneficial ownership (within the +meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than +50% of the total combined voting power of the Company’s outstanding securities +pursuant to a tender or exchange offer made directly to the Company’s +stockholders. +A-1 +Table of Contents +(f) “ Code ” +shall mean the Internal Revenue Code of 1986, as amended from time to time, and +any regulations promulgated thereunder. +(g) “ Committee ” +shall mean one or more committees of Directors designated by the Board to +administer the Plan, of which the Company’s compensation committee shall +initially be the primary committee. The +primary Committee shall be comprised of at least two Directors but not less +than such number of Directors as shall be required to permit Awards granted +under the Plan to qualify under Rule 16b-3 and Section 162(m) of the Code, and +each member of the primary Committee shall be a “ Non-Employee Director ” and an “ Outside Director .” +Any secondary Committee shall be comprised of at least two Directors. +(h) “ Company ” +shall mean Iteris, Inc., a Delaware corporation, and any successor corporation. +(i) “ Director ” +shall mean a member of the Board, including any Non-Employee Director. +(j) “ Dividend +Equivalent ” shall mean any right granted under Section 6(e) of the +Plan. +(k) “ Eligible +Person ” shall mean any employee, officer, consultant, independent +contractor, advisor or director providing services to the Company or any +Affiliate who the Committee determines to be an Eligible Person. +(l) “ Exchange +Act ” shall mean the Securities Exchange Act of 1934, as amended. +(m) “ Fair +Market Value ” shall mean, with respect to any property (including, +without limitation, any Shares or other securities), the fair market value of +such property determined by such methods or procedures as shall be established +from time to time by the Committee. +Notwithstanding the foregoing and unless otherwise determined by the +Committee, if the Shares are at the time listed on any stock exchange in the +United States, the Fair Market Value of a Share as of a given date shall be the +closing sale price of one Share as reported on the principal United States +exchange on which the Shares are listed on the date as of which Fair Market +Value is being determined, or, if there is no closing sales price for the +Shares on the date in question, then the Fair Market Value shall be the closing +sales price on the last preceding date for which such price exists. +(n) “ Incentive +Stock Option ” shall mean an option granted under Section 6(a) of the +Plan that is intended to qualify as an “incentive stock option” in accordance +with the terms of Section 422 of the Code or any successor provision. +(o) “ Non-Employee +Director ” shall mean any Director who is not also an employee of the +Company or an Affiliate within the meaning of Rule 16b-3. +(p) “ Non-Qualified +Stock Option ” shall mean an option granted under Section 6(a) of the +Plan that is not an Incentive Stock Option. +(q) “ Option ” +shall mean an Incentive Stock Option or a Non-Qualified Stock Option. +A-2 +Table of Contents +(r) “ Other +Stock Grant ” shall mean any right granted under Section 6(f) of the +Plan. +(s) “ Other +Stock-Based Award ” shall mean any right granted under Section 6(g) of +the Plan. +(t) “ Outside +Director ” shall mean any Director who is an “outside director” +within the meaning of Section 162(m) of the Code. +(u) “ Participant ” +shall mean an Eligible Person designated to be granted an Award under the Plan. +(v) “ Performance +Award ” shall mean any right granted under Section 6(d) of the Plan. +(w) “ Performance +Goal ” shall mean one or more of the following performance goals, +either individually, alternatively or in any combination, applied on a +corporate, subsidiary or business unit basis: +revenue, cash flow, gross profit, earnings before interest and taxes, +earnings before interest, taxes, depreciation and amortization and net +earnings, earnings per share, margins (including one or more of gross, +operating and net income margins), returns (including one or more of return on assets, +equity, investment, capital and revenue and total stockholder return), stock +price, economic value added, working capital, market share, cost reductions, +workforce satisfaction and diversity goals, employee retention, customer +satisfaction, completion of key projects and strategic plan development and +implementation. Such goals may reflect +absolute entity or business unit performance or a relative comparison to the +performance of a peer group of entities or other external measure of the +selected performance criteria. Pursuant +to rules and conditions adopted by the Committee on or before the 90th day of +the applicable performance period for which Performance Goals are established, +the Committee may appropriately adjust any evaluation of performance under such +goals to exclude the effect of certain events, including any of the following +events: asset write-downs; litigation or +claim judgments or settlements; changes in tax law, accounting principles or +other such laws or provisions affecting reported results; severance, contract +termination and other costs related to exiting certain business activities; and +gains or losses from the disposition of businesses or assets or from the early +extinguishment of debt. +(x) “ Person ” +shall mean any individual or entity, including a corporation, partnership, +limited liability company, association, joint venture or trust. +(y) “ Plan ” +shall mean the Iteris, Inc. 2007 Omnibus Incentive Plan, as amended from time +to time, the provisions of which are set forth herein. +(z) “ Qualified +Performance Based Award ” shall have the meaning set forth in Section +6(d) of the Plan. +(aa) “ Restricted +Stock ” shall mean any Share granted under Section 6(c) of the Plan. +(bb) “ Restricted +Stock Unit ” shall mean any unit granted under Section 6(c) of the +Plan evidencing the right to receive a Share (or evidencing the right to +receive a cash payment equal to the Fair Market Value of a Share if explicitly +so provided in the Award Agreement) at some future date. +A-3 +Table of Contents +(cc) “ Rule 16b-3 ” +shall mean Rule 16b-3 promulgated by the Securities and Exchange Commission +under the Exchange Act, or any successor rule or regulation. +(dd) “ Section +162(m) ” shall mean Section 162(m) of the Code and the applicable +Treasury Regulations promulgated thereunder. +(ee) “ Securities +Act ” shall mean the Securities Act of 1933, as amended. +(ff) “ Service ” +shall mean the performance of services for the Company (or any Affiliate) by a +person in the capacity of an employee, a member of the board of directors or a +consultant, except to the extent otherwise specifically provided in the Award +Agreement. +(gg) “ Share ” +or “ Shares ” shall mean a share or +shares of common stock, $0.10 par value per share, of the Company or such other +securities or property as may become subject to Awards pursuant to an +adjustment made under Section 4(c) of the Plan. +(hh) “ Stock +Appreciation Right ” shall mean any right granted under Section 6(b) of +the Plan. +Section 3. Administration +(a) Power and +Authority of the Committee . The Plan shall be administered by the Board +and the primary Committee. The Board may +designate a secondary Committee to have concurrent authority to administer the +Plan, provided that the secondary Committee shall not have any authority (i) with +regard to grants of Options to be made to officers or directors of the Company +or any Affiliate who are subject to Section 16 of the Exchange Act, (ii) in +such a manner as would cause the Plan not to comply with the requirements of Section +162(m) of the Code or (iii) in such a manner as would contravene Section 157 of +the Delaware General Corporation Law. +Any Awards made to members of the Committee, however, should be +authorized by a disinterested majority of the Board. Subject to the express provisions of the Plan +and to applicable law, the Committee (or the Board, as applicable) shall have +full power and authority to: (i) designate +Participants; (ii) determine the type or types of Awards to be granted to each +Participant under the Plan; (iii) determine the number of Shares to be covered +by (or the method by which payments or other rights are to be determined in +connection with) each Award; (iv) determine the terms and conditions of any +Award or Award Agreement; (v) amend the terms and conditions of any Award or +Award Agreement and accelerate the exercisability of any Option or waive any +restrictions relating to any Award; (vi) determine whether, to what extent and +under what circumstances Awards may be exercised in cash, Shares, other +securities, other Awards or other property, or canceled, forfeited or +suspended; (vii) interpret and administer the Plan and any instrument or +agreement, including an Award Agreement, relating to the Plan; (viii) establish, +amend, suspend or waive such rules and regulations and appoint such agents as +it shall deem appropriate for the proper administration of the Plan; and (ix) make +any other determination and take any other action that the Committee deems +necessary or desirable for the administration of the Plan. Unless otherwise expressly provided in the +Plan, all designations, determinations, interpretations and other decisions +under or with respect to the Plan or any +A-4 +Table of Contents +Award or Award Agreement +shall be within the sole discretion of the Committee, may be made at any time +and shall be final, conclusive and binding upon any Eligible Person and any +holder or beneficiary of any Award. +(b) Power and +Authority of the Board . Notwithstanding anything to the contrary +contained herein, the Board may, at any time and from time to time, without any +further action of the Committee, exercise the powers and duties of the +Committee under the Plan. +Section 4. Shares Available for Awards +(a) Shares +Available . Subject to adjustment as provided in Section 4(c) +of the Plan, the aggregate number of Shares that may be issued under the Plan +shall be One Million Six Hundred Fifty Thousand (1,650,000). +Shares to be issued under the Plan may be either authorized but unissued +Shares or Shares re-acquired and held in treasury. Notwithstanding the foregoing, (x) the number +of Shares available for granting Incentive Stock Options under the Plan shall +not exceed One Million Six Hundred Fifty Thousand (1,650,000), subject to +adjustment as provided in Section 4(c) of the Plan and subject to the provisions +of Section 422 or 424 of the Code or any successor provision and (y) the number +of Shares available for granting Restricted Stock and Restricted Stock Units +shall not exceed One Million Six Hundred Fifty Thousand (1,650,000), subject to +adjustment as provided in Section 4(c) of the Plan. +(b) Accounting for +Awards . For purposes of this Section 4, if an Award +entitles the holder thereof to receive or purchase Shares, the number of Shares +covered by such Award or to which such Award relates shall be counted on the +date of grant of such Award against the aggregate number of Shares available +for granting Awards under the Plan. In +addition, if any Shares covered by an Award or to which an Award relates are +not purchased or are forfeited, or if an Award otherwise terminates without +delivery of any Shares, then the number of Shares counted against the aggregate +number of Shares available under the Plan with respect to such Award, to the +extent of any such forfeiture or termination, shall again be available for granting +Awards under the Plan. +(c) Adjustments . In the +event any dividend or other distribution (whether in the form of cash, Shares, +other securities or other property), recapitalization, stock split, reverse +stock split, reorganization, merger, consolidation, split-up, spin-off, +combination, repurchase or exchange of Shares or other securities of the +Company, issuance of warrants or other rights to purchase Shares or other +securities of the Company or other similar corporate transaction or event affects +the Shares such that an adjustment is necessary in order to prevent dilution or +enlargement of the benefits or potential benefits intended to be made available +under the Plan, then the Committee shall, in such manner as it may deem +equitable, adjust any or all of (i) the number and type of Shares (or other +securities or other property) that thereafter may be made the subject of +Awards, (ii) the number and type of Shares (or other securities or other +property) subject to outstanding Awards, (iii) the purchase price or exercise +price with respect to any Award and (iv) the limitations contained in Section 4(d) +of the Plan; provided , however , +that the number of Shares covered by any Award or to which such Award relates +shall always be a whole number. +A-5 +Table of Contents +(d) Section 162(m) Award +Limitations Under the Plan . Notwithstanding any other provision of the +Plan other than Section 4(c), if the Committee provides that this Section 4(d) is +applicable to a particular Award, no Participant receiving such an Award shall +be granted: (i) Options or SARs with respect to more than 500,000 Shares in the +aggregate within any fiscal year of the Company; or (ii) Qualified Performance +Based Awards which could result in such Participant receiving more than +$1,500,000 in cash or the equivalent Fair Market Value of Shares determined at +the date of grant for each full or partial fiscal year of the Company contained +in the performance period of a particular Qualified Performance Based Award; provided , however , +that, if any other Qualified Performance Based Awards are outstanding for such +Participant for a given fiscal year, such dollar limitation shall be reduced +for each such given fiscal year by the amount that could be received by the +Participant under all such Qualified Performance Based Awards, divided, for +each such Qualified Performance Based Award, by the number of full or partial +fiscal years of the Company contained in the performance period of each such +outstanding Qualified Performance Based Award; provided , +however , that the limitations set +forth in this Section 4(d) shall be subject to adjustment under Section 4(c) of +the Plan only to the extent that such adjustment does not affect the status of +any Award intended under Section 6(d) to qualify as “performance based +compensation” under Section 162(m) of the Code. +Section 5. Eligibility +Any Eligible Person shall be eligible to be designated +a Participant. In determining which +Eligible Persons shall receive an Award and the terms of any Award, the +Committee may take into account the nature of the services rendered by the +respective Eligible Persons, their present and potential contributions to the +success of the Company or such other factors as the Committee, in its +discretion, shall deem relevant. +Notwithstanding the foregoing, an Incentive Stock Option may only be +granted to full-time or part-time employees (which term as used herein includes, +without limitation, officers and directors who are also employees), and an +Incentive Stock Option shall not be granted to an employee of an Affiliate +unless such Affiliate is also a “subsidiary corporation” of the Company within +the meaning of Section 424(f) of the Code or any successor provision. +Section 6. Awards +(a) Options . The +Committee is hereby authorized to grant Options to Eligible Persons with the +following terms and conditions and with such additional terms and conditions +not inconsistent with the provisions of the Plan as the Committee shall +determine: +(i) Exercise Price . +The purchase price per Share purchasable under an Option shall be +determined by the Committee; provided , however , that such purchase price shall not be less than +100% of the Fair Market Value of a Share on the date of grant of such Option. +(ii) Option Term . +The term of each Option shall be fixed by the Committee at the time of +grant, but shall not be longer than 10 years from the date of grant. +A-6 +Table of Contents +(iii) Time and Method of Exercise . +The Committee shall determine the time or times at which an Option may +be exercised in whole or in part and the method or methods by which, and the +form or forms (including, without limitation, cash, Shares, other securities, +other Awards or other property, or any combination thereof, having a Fair +Market Value on the exercise date equal to the applicable exercise price) in +which, payment of the exercise price with respect thereto may be made or deemed +to have been made. The Committee shall +have the discretion to grant Options that are exercisable for unvested Shares. Should the Participant’s Service cease while +the Shares issued upon the early exercise of the Participant’s Options are +still unvested, the Company shall have the right to repurchase any or all of +those unvested Shares at a price per share determined by the Committee. The terms upon which such repurchase right +shall be exercisable (including the period and procedure for exercise and the +appropriate vesting schedule for the purchased shares) shall be established by +the Committee and set forth in the Award Agreement. Any repurchases must be made in compliance +with the relevant provisions of Delaware law. +(iv) Incentive Stock Options . +Notwithstanding anything in the Plan to the contrary, the following +additional provisions shall apply to the grant of stock options which are +intended to qualify as Incentive Stock Options: +(A) The Committee will not grant Incentive +Stock Options in which the aggregate Fair Market Value (determined as of the +time the option is granted) of the Shares with respect to which Incentive Stock +Options are exercisable for the first time by any Participant during any +calendar year (under this Plan and all other plans of the Company and its +Affiliates) shall exceed $100,000. +(B) All Incentive Stock Options must be +granted within ten years from the earlier of the date on which this Plan was +adopted by the Board or the date this Plan was approved by the stockholders of +the Company. +(C) Unless sooner exercised, all Incentive +Stock Options shall expire and no longer be exercisable no later than 10 years +after the date of grant; provided , however , that in the case of a grant of an Incentive Stock +Option to a Participant who, at the time such Option is granted, owns (within +the meaning of Section 422 of the Code) stock possessing more than 10% of the +total combined voting power of all classes of stock of the Company or of its +Affiliate, such Incentive Stock Option shall expire and no longer be +exercisable no later than 5 years from the date of grant. +(D) The purchase price per Share for an +Incentive Stock Option shall be not less than 100% of the Fair Market Value of +a Share on the date of grant of the Incentive Stock Option; provided , however , that, +in the case of the grant of an Incentive Stock Option to a Participant who, at +the time such Option is granted, owns (within the meaning of Section 422 of the +Code) stock possessing more than 10% of the total combined voting power of all +classes of stock of the Company or of its Affiliate, the purchase price per +Share purchasable under an Incentive Stock Option shall be not less than 110% +of the Fair Market Value of a Share on the date of grant of the Inventive Stock +Option. +A-7 +Table of Contents +(E) Any Incentive Stock Option authorized +under the Plan shall contain such other provisions as the Committee shall deem +advisable, but shall in all events be consistent with and contain all +provisions required in order to qualify the Option as an Incentive Stock +Option. +(b) Stock +Appreciation Rights . The Committee is hereby authorized to grant +Stock Appreciation Rights to Eligible Persons subject to the terms of the Plan +and any applicable Award Agreement. Each +Stock Appreciation Right granted under the Plan shall confer on the holder upon +exercise the right to receive a number of Shares equal to the excess of (a) the +Fair Market Value of one Share on the date of exercise (or, if the Committee +shall so determine, at any time during a specified period before or after the +date of exercise) over (b) the grant price of the Stock Appreciation Right as +determined by the Committee, which grant price shall not be less than 100% of +the Fair Market Value of one Share on the date of grant of the Stock +Appreciation Right. Subject to the terms +of the Plan, the grant price, term, methods of exercise, dates of exercise and +any other terms and conditions (including conditions or restrictions on the +exercise thereof) of any Stock Appreciation Right shall be as determined by the +Committee. +(c) Restricted +Stock and Restricted Stock Units . The Committee is hereby authorized to grant +Restricted Stock and Restricted Stock Units to Eligible Persons with the +following terms and conditions and with such additional terms and conditions +not inconsistent with the provisions of the Plan as the Committee shall +determine: +(i) Restrictions . +Shares of Restricted Stock and Restricted Stock Units shall be subject +to such restrictions as the Committee may impose (including, without +limitation, a restriction on or prohibition against the right to receive any +dividend or other right or property with respect thereto), which restrictions +may lapse separately or in combination at such time or times, in such +installments or otherwise as the Committee may deem appropriate. +(ii) Issuance of Shares . +Any Restricted Stock granted under the Plan may be evidenced in such +manner as the Board may deem appropriate, including book-entry registration or +issuance of a stock certificate or certificates which certificate or +certificates shall be held by the Company. +Such certificate or certificates shall be registered in the name of the +Participant and shall bear an appropriate legend referring to the restrictions +applicable to such Restricted Stock. +(iii) Forfeiture . Except as +otherwise determined by the Committee, upon a Participant’s termination of +Service (as determined under criteria established by the Committee) during the +applicable restriction period, all Shares of Restricted Stock and Restricted +Stock Units at such time subject to restriction shall be forfeited and +reacquired by the Company; provided , however , that the Committee may, when it finds that a waiver +would be in the best interest of the Company, waive in whole or in part any or +all remaining restrictions with respect to Shares of Restricted Stock or +Restricted Stock Units. +A-8 +Table of Contents +(d) Performance +Awards . The Committee is hereby authorized to grant +Performance Awards to Eligible Persons subject to the terms of the Plan. A Performance Award granted under the Plan (i) +may be denominated or payable in cash, Shares (including, without limitation, +Restricted Stock and Restricted Stock Units), other securities, other Awards or +other property and (ii) shall confer on the holder thereof the right to receive +payments, in whole or in part, upon the achievement of such performance goals +during such performance periods as the Committee shall establish. Subject to the terms of the Plan, the +performance goals to be achieved during any performance period, the length of +any performance period, the amount of any Performance Award granted, the amount +of any payment or transfer to be made pursuant to any Performance Award and any +other terms and conditions of any Performance Award shall be determined by the +Committee. From time to time, the +Committee may designate an Award granted pursuant to the Plan as an award of “qualified +performance-based compensation” within the meaning of Section 162(m) of the +Code (a “ Qualified Performance Based Award ”). Qualified Performance Based Awards shall, to +the extent required by Section 162(m), be conditioned solely on the achievement +of one or more objective Performance Goals, and such Performance Goals shall be +established by the Committee within the time period prescribed by, and shall +otherwise comply with the requirements of, Section 162(m). The Committee shall also certify in writing +that such Performance Goals have been met prior to payment of the Qualified +Performance Based Awards to the extent required by Section 162(m). +(e) Dividend Equivalents . +The Committee is hereby authorized to grant Dividend Equivalents to +Eligible Persons under which the Participant shall be entitled to receive +payments (in cash, Shares, other securities, other Awards or other property as +determined in the discretion of the Committee) equivalent to the amount of cash +dividends paid by the Company to holders of Shares with respect to a number of +Shares determined by the Committee. +Subject to the terms of the Plan, such Dividend Equivalents may have +such terms and conditions as the Committee shall determine. +(f) Other Stock +Grants . The Committee is hereby authorized, subject +to the terms of the Plan, to grant to Eligible Persons Shares without +restrictions thereon (“ Other Stock Grants ”) +as are deemed by the Committee to be consistent with the purpose of the +Plan. Subject to the terms of the Plan +and any applicable Award Agreement, such Other Stock Grant may have such terms +and conditions as the Committee shall determine. +(g) Other +Stock-Based Awards . The Committee is hereby authorized to grant +to Eligible Persons, subject to the terms of the Plan, such other Awards that +are denominated or payable in, valued in whole or in part by reference to, or +otherwise based on or related to, Shares (including, without limitation, +securities convertible into Shares), as are deemed by the Committee to be +consistent with the purpose of the Plan. +Shares or other securities delivered pursuant to a purchase right +granted under this Section 6(g) shall be purchased for such consideration, +which may be paid by such method or methods and in such form or forms +(including, without limitation, cash, Shares, other securities, other Awards or +other property or any combination thereof), as the Committee shall determine, +the value of which consideration, as established by the Committee, shall not be +less than 100% of the Fair Market Value of such Shares or other securities as +of the date such purchase right is granted. +A-9 +Table of Contents +(h) General . +(i) Consideration for Awards . +Awards may be granted for no cash consideration or for any cash or other +consideration as determined by the Committee and required by applicable law. +(ii) Awards May Be Granted Separately or +Together . Awards may, in the discretion of the +Committee, be granted either alone or in addition to, in tandem with or in +substitution for any other Award or any award granted under any plan of the Company +or any Affiliate. Awards granted in +addition to or in tandem with other Awards or in addition to or in tandem with +awards granted under any such other plan of the Company or any Affiliate may be +granted either at the same time as or at a different time from the grant of +such other Awards or awards. +(iii) Forms of Payment under Awards . +Subject to the terms of the Plan and of any applicable Award Agreement, +payments or transfers to be made by the Company or an Affiliate upon the grant, +exercise or payment of an Award may be made in such form or forms as the +Committee shall determine (including, without limitation, cash, Shares, other +securities, other Awards or other property or any combination thereof), and may +be made in a single payment or transfer, in installments or on a deferred +basis, in each case in accordance with rules and procedures established by the +Committee. Such rules and procedures may +include, without limitation, provisions for the payment or crediting of +reasonable interest on installment or deferred payments or the grant or +crediting of Dividend Equivalents with respect to installment or deferred +payments. +(iv) Limits on Transfer of Awards . +No Award (other than Other Stock Grants) and no right under any such +Award shall be transferable by a Participant other than by will or by the laws +of descent and distribution and the Company shall not be required to recognize +any attempted assignment of such rights by any Participant; provided , however , that, +if so determined by the Committee, a Participant may, in the manner established +by the Committee, designate a beneficiary or beneficiaries to exercise the +rights of the Participant and receive any property distributable with respect +to any Award upon the death of the Participant; provided , +further , that, if so determined by the +Committee, a Participant may, at any time that such Participant holds such +Option, transfer a Non-Qualified Stock Option to any “Family Member” (as such +term is defined in the General Instructions to Form S-8, or any successor to +such Instructions or such Form), or to an inter +vivos or testamentary trust in which Family Members have a +beneficial interest of more than 50% and which provides that such Option is to +be transferred to the beneficiaries upon the Participant’s death, provided that the Participant may not +receive any consideration for such transfer, the Family Member may not make any +subsequent transfers other than by will or by the laws of descent and +distribution and the Company receives written notice of such transfer, provided , further , that, +if so determined by the Committee and except in the case of an Incentive Stock +Option, Awards may be transferable as determined by the Committee. Except as otherwise determined by the +Committee, each Award (other than an Incentive Stock Option) or right under any +such Award shall be exercisable during the Participant’s lifetime only by the +Participant or, if permissible under applicable law, by the Participant’s +guardian or legal representative. +A-10 +Table of Contents +Except as otherwise +determined by the Committee, no Award (other than an Incentive Stock Option) or +right under any such Award may be pledged, alienated, attached or otherwise +encumbered, and any purported pledge, alienation, attachment or other +encumbrance thereof shall be void and unenforceable against the Company or any +Affiliate. +(v) Term of Awards . +The term of each Award shall be fixed by the Committee at the time of +grant, but shall not be longer than 10 years from the date of grant. +(vi) Restrictions; Securities Exchange Listing . +All Shares or other securities delivered under the Plan pursuant to any +Award or the exercise thereof shall be subject to such stop transfer orders and +other restrictions as the Committee may deem advisable under the Plan, +applicable federal or state securities laws and regulatory requirements, and +the Committee may direct appropriate stop transfer orders and cause other +legends to be placed on the certificates for such Shares or other securities to +reflect such restrictions. If the Shares +or other securities are traded on a securities exchange, the Company shall not +be required to deliver any Shares or other securities covered by an Award +unless and until such Shares or other securities have been and continue to be +admitted for trading on such securities exchange. No Shares or other assets shall be issued or delivered +pursuant to the Plan unless and until there shall have been compliance with all +applicable requirements of applicable securities laws, including the filing and +effectiveness of the Form S-8 registration statement for the Shares issuable +pursuant to the Plan, and all applicable listing requirements of any stock +exchange or trading system on which Common Stock is then traded. No Shares shall be issued or delivered +pursuant to the Plan if doing so would violate any internal policies of the +Company. +(vii) Prohibition on Repricing . +Except as provided in Section 4(c) of the Plan, no Option or Stock +Appreciation Right may be amended to reduce its initial exercise or grant price +and no Option or Stock Appreciation Right shall be canceled and replaced with +Options or Stock Appreciation Rights having a lower exercise or grant price, +without the approval of the stockholders of the Company or unless there would +be no material adverse effect on the Company’s financial statements as prepared +in accordance with generally accepted accounting principles in the United +States. +(i) Directors’ +Automatic Option Grant Program . +(i) Annual Grant . +Subject to approval of the Plan by the Company’s stockholders, beginning +with the 2007 Annual Stockholders Meeting, each Non-Employee Director shall +receive annually on the date of each annual stockholders’ meeting a +Non-Qualified Stock Option to purchase Five Thousand (5,000) Shares, provided +that such Non-Employee Director has served as a Non-Employee Director for at +least six (6) months and is to continue to serve as a Non-Employee Director, +whether or not he or she is standing for reelection at that particular Annual +Meeting. The exercise price for the +Shares shall be 100% of the Fair Market Value of the Shares on the date of +grant. Each Option shall be exercisable +immediately upon grant, shall be exercisable for ten (10) years following the +date of grant and shall be generally subject to the terms and +A-11 +Table of Contents +conditions set forth in +the Plan. Each such Option shall vest in +four (4) equal annual installments upon the Non-Employee Director’s completion +of each year of Board service measured from the grant date. There shall be no limit on the number of such +automatic Option grants any one Non-Employee Director may receive over his or +her period of Board service, and Non-Employee Directors who have previously +been employees of the Company (or any Affiliate) or who have received one or +more Option grants from the Company prior to becoming a Non-Employee Director +shall be eligible to receive one or more such automatic Option grants over +their period of continued Board service. +(ii) Initial Grant . +Upon appointment or initial election to the Board, each Non-Employee +Director shall receive a Non-Qualified Stock Option to purchase Twenty Thousand +(20,000) Shares, provided such individual was not previously in the Company’s +employ. The exercise price for such +Shares shall be 100% of the Fair Market Value of the Shares on the date of +grant. Each Option shall be exercisable +immediately upon grant, shall be exercisable for 10 years following the date of +grant and shall be generally subject to the terms and conditions set forth in +the Plan. +(iii) Termination of Board Service . +The following provisions shall govern the exercise of any options +granted to Non-Employee Directors pursuant to the Automatic Option Grant +Program that are outstanding at the time the Non-Employee Director ceases to +serve as a Board member: +(A) Should the Non-Employee Director’s +service as a Board member cease for any reason while one or more Options +granted pursuant to this Automatic Option Grant Program are outstanding, then +each such Option shall remain exercisable, for any or all of the vested Shares +for which the Option is exercisable at the time of such cessation of Board +service, until the earlier of (i) the termination date of the Option or (ii) the +expiration of the one-year period measured from the date the Non-Employee +Director’s Board service ceases. Upon +the expiration of the one-year post-termination exercise period, or (if +earlier) upon the termination date of the Option, the Option shall terminate +with respect to any vested Shares for which the Option has not been exercised. +(B) Should the Non-Employee Director cease to +serve as a Board member by reason of death or Permanent Disability, then all +shares at the time subject to the Option granted pursuant to this Automatic +Option Grant Program shall immediately vest so that such Option may, during the +twelve (12) month exercise period following such cessation of Board service, be +exercised for all or any portion of those shares as fully vested shares of +Common Stock. “ Permanent Disability ” for purposes of this +section shall mean the inability of the Non-Employee Director to perform his or +her usual duties as a Board member by reason of any medically determinable +physical or mental impairment expected to result in death or to be of +continuous duration of twelve (12) months or more. +(C) Each Option granted pursuant to this +Automatic Option Grant Program that is outstanding at the time of the +Non-Employee Director’s cessation of Board service shall immediately terminate +and cease to remain outstanding with respect to any and all unvested Shares for +which the Option is not otherwise at that time exercisable. +A-12 +Table of Contents +(iv) Change in Control . +In the event of a Change in Control effected during the Non-Employee +Director’s period of Board service, the vesting, if any, of each Option granted +pursuant to this Automatic Option Grant Program at the time held by such +Non-Employee Director shall automatically accelerate so that each such Option +shall, immediately prior to the specified effective date for the Change in +Control, become exercisable for all of the Shares at the time subject to such +Option and may be exercised for all or any portion of such Shares. Upon t he consummation of the Change in +Control, all Options granted pursuant to this Automatic Option Grant Program +shall terminate and cease to be outstanding. +(v) Remaining Terms . +The remaining terms and conditions of each Option granted pursuant to +this Automatic Option Grant Program shall be substantially the same as the +terms in effect for Options made under the Planand shall be set forth in an +Option Agreement. +Section 7. Amendment and Termination; Adjustments +(a) Amendments to +the Plan . The Board may amend, alter, suspend, +discontinue or terminate the Plan at any time; provided , +however , that, notwithstanding any other +provision of the Plan or any Award Agreement, without the approval of the +stockholders of the Company, no such amendment, alteration, suspension, +discontinuation or termination shall be made that, absent such approval: +(i) violates the rules or regulations of the +National Association of Securities Dealers, Inc. or any other securities +exchange that are applicable to the Company; +(ii) causes the Company to be unable, under +the Code, to grant Incentive Stock Options under the Plan; +(iii) increases the number of shares authorized +under the Plan as specified in Section 4(a); +(iv) permits the award of Options or Stock +Appreciation Rights at a price less than 100% of the Fair Market Value of a +Share on the date of grant of such Option or Stock Appreciation Right, as +prohibited by Sections 6(a)(i) and 6(b) of the Plan or the repricing of Options +or Stock Appreciation Rights, as prohibited by Section 6(h)(vii) of the Plan; +or +(v) would prevent the grant of Options or +Stock Appreciation Rights that would qualify under Section 162(m) of the Code. +(b) Amendments to +Awards . The Committee may waive any conditions of or +rights of the Company under any outstanding Award, prospectively or +retroactively. Except as otherwise +provided herein or in an Award Agreement, the Committee may not amend, alter, +suspend, discontinue or terminate any outstanding Award, prospectively or +retroactively, if such +A-13 +Table of Contents +action would adversely +affect the rights of the holder of such Award, without the consent of the +Participant or holder or beneficiary thereof. +Notwithstanding the foregoing, the Committee shall not waive any +conditions or rights of the Company, or otherwise amend or alter any +outstanding Qualified Performance Based Awards in such a manner as to cause +such Award not to qualify as performance based compensation within the meaning +of Section 162(m) of the Code. +(c) Correction of +Defects, Omissions and Inconsistencies . The Committee may correct any defect, supply +any omission or reconcile any inconsistency in the Plan or in any Award or +Award Agreement in the manner and to the extent it shall deem desirable to +implement or maintain the effectiveness of the Plan. +Section 8. Income Tax Withholding +In order to comply with all applicable federal, state +or local income tax laws or regulations, the Company may take such action as it +deems appropriate to ensure that all applicable federal, state or local +payroll, withholding, income or other taxes, which are the sole and absolute +responsibility of a Participant, are withheld or collected from such +Participant. In order to assist a +Participant in paying all or a portion of the federal, state and local taxes to +be withheld or collected upon exercise or receipt of (or the lapse of +restrictions relating to) an Award, the Committee, in its discretion and +subject to such additional terms and conditions as it may adopt, may permit the +Participant to satisfy such tax obligation by (i) electing to have the Company +withhold a portion of the Shares otherwise to be delivered upon exercise or +receipt of (or the lapse of restrictions relating to) such Award with a Fair +Market Value equal to the amount of such taxes or (ii) delivering to the +Company Shares other than Shares issuable upon exercise or receipt of (or the +lapse of restrictions relating to) such Award with a Fair Market Value equal to +the amount of such taxes. The election, +if any, must be made on or before the date that the amount of tax to be +withheld is determined. +Section 9. General Provisions +(a) No Rights to +Awards . No Eligible Person or other Person shall have +any claim to be granted any Award under the Plan, and there is no obligation +for uniformity of treatment of Eligible Persons or holders or beneficiaries of +Awards under the Plan. The terms and +conditions of Awards need not be the same with respect to any Participant or +with respect to different Participants. +(b) Award +Agreements . No Participant will have rights under an +Award granted to such Participant unless and until an Award Agreement shall +have been duly executed on behalf of the Company and, if requested by the +Company, signed by the Participant. +(c) Plan Provisions +Control . In the event that any provision of an Award +Agreement conflicts with or is inconsistent in any respect with the terms of +the Plan as set forth herein or subsequently amended, the terms of the Plan +shall control. +(d) No Rights of +Stockholders . Except with respect to Shares of Restricted +Stock as to which the Participant has been granted the right to vote, neither a +Participant nor the Participant’s legal representative shall be, or have any of +the rights and privileges of, a stockholder of the Company with respect to any +Shares issuable to such Participant upon the +A-14 +Table of Contents +exercise or payment of any +Award, in whole or in part, unless and until such Shares have been issued in +the name of such Participant or such Participant’s legal representative without +restrictions thereto. +(e) No Limit on +Other Compensation Arrangements . Nothing contained in the Plan shall prevent +the Company or any Affiliate from adopting or continuing in effect other or +additional compensation arrangements, and such arrangements may be either +generally applicable or applicable only in specific cases. +(f) No Right to +Employment . The grant of an Award shall not be construed +as giving a Participant the right to be retained in the employ, or as giving a +director of the Company or an Affiliate the right to continue as a director or +an Affiliate of the Company or any Affiliate, nor will it affect in any way the +right of the Company or an Affiliate to terminate a Participant’s employment or +Service at any time, with or without cause. +In addition, the Company or an Affiliate may at any time dismiss a +Participant from employment, or terminate the term of a director of the Company +or an Affiliate, free from any liability or any claim under the Plan or any +Award, unless otherwise expressly provided in the Plan or in any Award +Agreement. Nothing in this Plan shall +confer on any person any legal or equitable right against the Company or any +Affiliate, directly or indirectly, or give rise to any cause of action at law +or in equity against the Company or an Affiliate. The Awards granted hereunder shall not form +any part of the wages or salary of any Eligible Person for purposes of +severance pay or termination indemnities, irrespective of the reason for termination +of employment. Under no circumstances +shall any person ceasing to be an employee of the Company or any Affiliate be +entitled to any compensation for any loss of any right or benefit under the +Plan which such employee might otherwise have enjoyed but for termination of +employment, whether such compensation is claimed by way of damages for wrongful +or unfair dismissal, breach of contract or otherwise. By participating in the Plan, each +Participant shall be deemed to have accepted all the conditions of the Plan and +the terms and conditions of any rules and regulations adopted by the Committee +and shall be fully bound thereby. +(g) Governing Law . The +validity, construction and effect of the Plan or any Award, and any rules and +regulations relating to the Plan or any Award, shall be determined in +accordance with the internal laws, and not the law of conflicts, of the State +of Delaware. +(h) Severability . If any +provision of the Plan or any Award is or becomes or is deemed to be invalid, +illegal or unenforceable in any jurisdiction or would disqualify the Plan or +any Award under any law deemed applicable by the Committee, such provision +shall be construed or deemed amended to conform to applicable laws, or if it +cannot be so construed or deemed amended without, in the determination of the +Committee, materially altering the purpose or intent of the Plan or the Award, +such provision shall be stricken as to such jurisdiction or Award, and the +remainder of the Plan or any such Award shall remain in full force and effect. +(i) No Trust or +Fund Created . Neither the Plan nor any Award shall create +or be construed to create a trust or separate fund of any kind or a fiduciary +relationship between the Company or any Affiliate and an Eligible Person or any +other Person. To the extent that any +Person acquires a right to receive payments from the Company or any Affiliate +pursuant to an +A-15 +Table of Contents +Award, such right shall be +no greater than the right of any unsecured general creditor of the Company or +any Affiliate. +(j) Other Benefits . No +compensation or benefit awarded to or realized by any Participant under the +Plan shall be included for the purpose of computing such Participant’s +compensation under any compensation-based retirement, disability, or similar +plan of the Company unless required by law or otherwise provided by such other +plan. +(k) No Fractional +Shares . No fractional Shares shall be issued or +delivered pursuant to the Plan or any Award, and the Committee shall determine +whether cash shall be paid in lieu of any fractional Shares or whether such +fractional Shares or any rights thereto shall be canceled, terminated or otherwise +eliminated. +(l) Headings . Headings +are given to the Sections and subsections of the Plan solely as a convenience +to facilitate reference. Such headings +shall not be deemed in any way material or relevant to the construction or +interpretation of the Plan or any provision thereof. +(m) Section 16 +Compliance; Section 162(m) Administration . The Plan is intended to comply in all +respects with Rule 16b-3 or any successor provision, as in effect from time to +time, and in all events the Plan shall be construed in accordance with the +requirements of Rule 16b-3. If any Plan +provision does not comply with Rule 16b-3 as hereafter amended or interpreted, +the provision shall be deemed inoperative. +The Board of Directors, in its absolute discretion, may bifurcate the +Plan so as to restrict, limit or condition the use of any provision of the Plan +with respect to persons who are officers or directors subject to Section 16 of +the Exchange Act without so restricting, limiting or conditioning the Plan with +respect to other Eligible Persons. With +respect to Options and Stock Appreciation Rights, the Company intends to have +the Plan administered in accordance with the requirements for the award of “qualified +performance-based compensation” within the meaning of Section 162(m) of the +Code. +(n) Conditions +Precedent to Issuance of Shares . Shares shall not be issued pursuant to the +exercise or payment of the purchase price relating to an Award unless such +exercise or payment and the issuance and delivery of such Shares pursuant +thereto shall comply with all relevant provisions of law, including, without +limitation, the Securities Act, the Exchange Act, the rules and regulations +promulgated thereunder, the requirements of any applicable Stock Exchange and +the Delaware General Corporation Law. As +a condition to the exercise or payment of the purchase price relating to such +Award, the Company may require that the person exercising or paying the +purchase price represent and warrant that the Shares are being purchased only +for investment and without any present intention to sell or distribute such +Shares if, in the opinion of counsel for the Company, such a representation and +warranty is required by law. +Section 10. Effective Date of the Plan +The Plan was adopted by the Board on July 19, 2007 and +became effective on September 21, 2007, the date of approval of the Plan by the +Company’s stockholders. +A-16 +Table of Contents +Section 11. Term of the Plan +No Award shall be granted under the Plan after (i) July +19, 2017 or (ii) any earlier date of discontinuation or termination established +pursuant to Section 7(a) of the Plan. +However, unless otherwise expressly provided in the Plan or in an +applicable Award Agreement, any Award theretofore granted may extend beyond +such date, and the authority of the Committee provided for hereunder with +respect to the Plan and any Awards, and the authority of the Board to amend the +Plan, shall extend beyond the termination of the Plan. +A-17 +Table +of Contents +PROXY +ITERIS, INC. +THIS PROXY IS SOLICITED ON BEHALF +OF THE BOARD OF DIRECTORS +The undersigned stockholder of ITERIS, INC. hereby +appoints ABBAS MOHADDES and JAMES S. MIELE, and each of them, proxies of the +undersigned, each with full power to act without the other and with power of +substitution, to represent the undersigned at the Annual Meeting of +Stockholders of Iteris to be held at the Company’s principal executive offices +located at 1700 Carnegie Avenue, Suite 100, Santa Ana, CA 92705, on September 18, +2009 at 10:00 a.m. Pacific Time, and at any adjournments or postponements +thereof, and to vote all shares of common stock of Iteris held of record by the +undersigned on July 21, 2009, with all the powers the undersigned would +possess if personally present, in accordance with the instructions on this +proxy. +The undersigned hereby revokes any other proxy to vote +at such Annual Meeting of Stockholders and hereby ratifies and confirms all +that said proxies, and each of them, may lawfully do by virtue hereof. +Table of Contents +THIS PROXY, WHEN PROPERLY +EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS BELOW, OR IF NO +INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED FOR ALL PROPOSALS +DESCRIBED BELOW, AND IN ACCORDANCE WITH THE DISCRETION OF THE PROXY HOLDERS +WITH REGARD TO ANY OTHER MATTERS PROPERLY BROUGHT TO A VOTE AT THE ANNUAL +MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF. +x Please mark +votes as in this example. +1. +Election +of Directors +Nominees +standing for election by holders of common stock: Richard Char, Kevin C. +Daly, Ph.D., Gregory A. Miner, Abbas Mohaddes, John W. Seazholtz, Joel +Slutzky, and Thomas L. Thomas. +o +FOR o WITHHOLD +AUTHORITY to vote for all nominees listed below +(Instruction: +To withhold authority to vote for any individual nominee, write that +nominee’s name in the space provided above.) +2. +To +approve the amendment of the Iteris, Inc. 2007 Omnibus Incentive Plan to +increase the number of shares of common stock authorized for issuance under +the plan by an additional 800,000 shares to 1,650,000 shares. +o +FOR o +AGAINST o ABSTAIN +3. +Ratification +of McGladrey & Pullen, LLP as the independent auditors of Iteris for +the fiscal year ending March 31, 2010. +o +FOR o +AGAINST o ABSTAIN +MARK HERE FOR ADDRESS +CHANGE AND INDICATE NEW ADDRESS o +MARK HERE IF YOU PLAN TO +ATTEND THE +MEETING +o +Signature: +Date: +Signature: +Date: +(This Proxy must be +signed exactly as your name appears hereon. +Executors, administrators, trustees, etc., should give full title as +such. If the stockholder is a +corporation, a duly authorized officer should sign on behalf of the corporation +and should indicate his or her title.) +PLEASE MARK, SIGN, DATE, +AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. \ No newline at end of file diff --git a/raw/proxies/0000794172/0000950123-09-069728/proxy.txt b/raw/proxies/0000794172/0000950123-09-069728/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..a0deea4fa1713809779f9f393f2c598d4b0a49ea --- /dev/null +++ b/raw/proxies/0000794172/0000950123-09-069728/proxy.txt @@ -0,0 +1,2254 @@ +DEF 14A +1 +l38165def14a.htm +FORM DEF 14A +def14a +Table of Contents +UNITED STATES SECURITIES AND EXCHANGE COMMISSION +WASHINGTON, D.C. 20549 +SCHEDULE 14A +(Rule 14a-101) +INFORMATION REQUIRED IN PROXY STATEMENT +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) +of the Securities Exchange Act of 1934 +(Amendment No. ) +Filed by the Registrant þ +Filed by a Party other than the Registrant o +Check the appropriate box: +o Preliminary Proxy Statement +o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +þ Definitive Proxy Statement +o Definitive Additional Materials +o Soliciting Material Pursuant to Section 14a-12 +Meridian Bioscience, Inc. +(Name of Registrant as Specified in Its Charter) +(Name of Person(s) Filing Proxy Statement if Other Than the Registrant) +Payment of Filing Fee (Check the appropriate box): +þ +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to +Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and +state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total Fee Paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange +Act Rule 0-11(a)(2) and identify the filing for which the offsetting +fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +MERIDIAN BIOSCIENCE, INC. +3471 River Hills Drive +Cincinnati, Ohio 45244 +www.meridianbioscience.com +Notice of Annual Meeting +and Proxy Statement +Dear Shareholder: +Our Annual Meeting of Shareholders will be held at 2:00 p.m. on January 21, 2010 at the Holiday +Inn, 4501 Eastgate Boulevard, Cincinnati, OH 45245. We hope you will attend. +At the meeting, you will hear a report on our operations and have a chance to meet your directors +and executive officers. +This booklet includes the formal notice of the meeting and the proxy statement. The proxy +statement tells you more about the agenda and procedures for the meeting. It also describes how +the Board operates and gives personal information about our director candidates. +We are pleased to take advantage of new U.S. Securities and Exchange Commission rules that allow +companies to furnish their proxy materials over the Internet. As a result, we are mailing to most +of our shareholders a Notice of Internet Availability of Proxy Materials (the “Notice”) instead of +a paper copy of this proxy statement and our Annual Report. The Notice contains instructions on +how to access and review those documents over the Internet. We believe that this new process will +allow us to provide our shareholders with the information they need in a more timely manner, while +reducing the environmental impact and lowering the costs of printing and distributing our proxy +materials. If you received a Notice by mail and would like to receive a printed copy of our proxy +materials, you should follow the instructions for requesting such materials included in the Notice. +Whether or not you plan to attend the meeting, please complete, sign, date, and return your proxy +card promptly in the enclosed envelope. +Sincerely yours, +/s/ William J. Motto +William J. Motto +Executive Chairman of the Board +December 10, 2009 +Table of Contents +NOTICE OF ANNUAL MEETING +OF +SHAREHOLDERS OF MERIDIAN BIOSCIENCE, INC. +Time: +2:00 p.m., Eastern Standard Time +Date: +January 21, 2010 +Place: +Holiday Inn +4501 Eastgate Blvd. +Cincinnati, Ohio 45245 +Purpose: +• +Elect as directors the seven nominees named in the attached proxy materials +• +Ratify appointment of Grant Thornton LLP as Meridian’s independent +registered public accountants for fiscal year 2010 +• +Conduct other business if properly raised +Only shareholders of record on November 23, 2009 may vote at the meeting. The approximate +mailing date of this proxy statement and accompanying Proxy Card is December 10, 2009. +Your vote is important. Please complete, sign, date, and return your Proxy Card promptly +in the enclosed envelope. +/s/ Melissa Lueke +Melissa Lueke +Secretary +December 10, 2009 +TABLE OF CONTENTS +Page +GENERAL INFORMATION +1 +ELECTION OF DIRECTORS +2 +RATIFICATION OF APPOINTMENT OF ACCOUNTANTS +4 +CORPORATE GOVERNANCE +5 +DIRECTORS AND EXECUTIVE OFFICERS +10 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS +12 +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +12 +TRANSACTIONS WITH RELATED PERSONS +12 +COMPENSATION DISCUSSION AND ANALYSIS +13 +SUMMARY COMPENSATION TABLE +22 +DIRECTOR COMPENSATION +26 +SHAREHOLDER PROPOSALS FOR NEXT YEAR +27 +QUESTIONS? +28 +Meridian makes available, free of charge on its website, all of its filings that are made +electronically with the Securities and Exchange Commission (“SEC”), including Forms 10-K, 10-Q and +8-K. These filings are also available on the SEC’s website (www.sec.gov). To access these filings, +go to our website (www.meridianbioscience.com). Copies of Meridian’s Annual Report on Form 10-K +for the fiscal year ended September 30, 2009, including financial statements and schedules thereto, +filed with the SEC, are also available without charge to shareholders upon written request +addressed to: +Melissa Lueke, Executive Vice President, Chief Financial Officer and Secretary +Meridian Bioscience, Inc. +3471 River Hills Drive +Cincinnati, Ohio 45244 +Table of Contents +GENERAL INFORMATION +Who may vote +Shareholders of Meridian, as recorded in our stock register on November 23, 2009, may vote at the +meeting. As of that date, Meridian had 40,496,745 shares of Common Stock outstanding. +How to vote +You may vote in person at the meeting or by proxy. We recommend you vote by proxy even if you plan +to attend the meeting. You can always change your vote at the meeting. +How proxies work +Meridian’s Board of Directors is asking for your proxy. Giving us your proxy means you authorize +us to vote your shares at the meeting in the manner you direct. You may vote for all, some or none +of our director candidates. You may also vote for or against the other proposals or abstain from +voting. +If you sign and return the enclosed proxy card but do not specify how to vote, we will vote your +shares in favor of our director candidates and the ratification of appointment of Grant Thornton +LLP as Meridian’s independent registered public accountants for fiscal year 2010. If any other +matters come before the meeting or any postponement or adjournment thereof, each proxy will be +voted in the discretion of the individuals named as proxies on the card. +You may receive more than one proxy or voting card depending on how you hold your shares. Shares +registered in your name are covered by one card. If you hold shares through someone else, such as +a stockbroker, bank, or nominee, you may get material from them asking how you want to vote. +Stockbrokers, banks and nominees holding shares for beneficial owners must vote those shares as +instructed. If the stockbroker, bank, or nominee has not received instructions from you, the +beneficial owner, the stockbroker, bank, or nominee generally has discretionary voting power only +with respect to the ratification of appointment of the independent registered public accountants. +However, unlike in years past, a stockbroker, bank, or nominee no longer has discretion to vote for +or against the election of directors. In order to avoid a broker non-vote of your shares on the +election of directors, you must send voting instructions to your stockbroker, bank or nominee. +Revoking a proxy +You may revoke your proxy before it is voted by submitting a new proxy with a later date, by voting +in person at the meeting, or by notifying Meridian’s Secretary in writing at the address under +“Questions?” on page 28. +1 +Table of Contents +Quorum +In order to carry on the business of the meeting, we must have a quorum. This means at least a +majority of the outstanding shares eligible to vote must be represented at the meeting, either by +proxy or in person. +Votes needed +The seven director candidates receiving the most votes will be elected to fill the seats on the +Board. The ratification of appointment of accountants requires the favorable vote of a majority of +the votes cast. Only votes for or against these proposals count. Abstentions and broker non-votes +count for quorum purposes but not for voting purposes. Broker non-votes occur when a broker +returns a proxy card but does not have authority to vote on a particular proposal. +Other Matters +Any other matters considered at the meeting, including postponement or adjournment, will require +the affirmative vote of a majority of the votes cast. +ELECTION OF DIRECTORS +(Item 1 on the Proxy Card) +The Nominating Committee of the Board of Directors has nominated for re-election all of the +following current directors: James M. Anderson, James A. Buzard, John A. Kraeutler, Gary P. +Kreider, William J. Motto, David C. Phillips and Robert J. Ready. +Proxies solicited by the Board will be voted for the election of these nominees. All directors +elected at the Annual Shareholders’ Meeting will be elected to hold office until the next annual +meeting. In voting to elect directors, shareholders are entitled to cumulate their votes and to +give one candidate a number of votes equal to the number of directors to be elected multiplied by +the number of shares held by the shareholder, or to distribute their votes on the same principle +among as many candidates as the shareholder sees fit. In order to invoke cumulative voting, notice +of cumulative voting must be given in writing by a shareholder to the Chief Executive Officer, a +Vice President or the Secretary of Meridian not less than 48 hours prior to the Annual +Shareholders’ Meeting. The proxies solicited include discretionary authority to cumulate votes. +All Meridian directors are elected for one-year terms. Personal information on each of our +nominees is given below. +If a director nominee becomes unavailable before the election, your proxy card authorizes us to +vote for a replacement nominee if the Board names one. +2 +Table of Contents +The Board recommends that you vote FOR each of the following candidates: +James M. Anderson +Director since 2009 +Age: 67 +James M. Anderson is currently the +President and Chief Executive +Officer of Cincinnati Children’s +Hospital Medical Center, although +he has announced he will step down +as of the end of calendar 2009. He +was recently appointed chairman of +the Board of the Cincinnati Branch +of the Federal Reserve Bank of +Cleveland. Prior to joining the +staff of Cincinnati Children’s, Mr. +Anderson was a partner in the +general corporate department at +Taft, Stettinius & Hollister for 24 +years (1968-1977; 1982-96) and +president of US operations at Xomox +Corporation (1977-82), a +publicly-traded manufacturer of +specialty process controls. +James A. Buzard, +Ph.D. +Director since 1990 +Age: 82 +James A. Buzard, Ph.D. serves as +Chairman of the Nominating and +Corporate Governance Committee. +Mr. Buzard was Executive Vice +President of Merrell Dow +Pharmaceuticals Inc. from March +1981 until December 1989. From +December 1989 until his retirement +in February 1990, he was Vice +President of Marion Merrell Dow, +Inc. He has been a business +consultant since February 1990. +John A. Kraeutler +Director since 1997 +Age: 61 +John A. Kraeutler has more than 30 +years of experience in the medical +diagnostics industry and joined +Meridian as Executive Vice +President and Chief Operating +Officer in January 1992. In July +1992, Mr. Kraeutler was named +President of Meridian, and in +January 2008, Mr. Kraeutler was +named Chief Executive Officer of +Meridian. Before joining Meridian, +Mr. Kraeutler served as Vice +President, General Manager for a +division of Carter-Wallace, Inc. +Prior to that, he held key +marketing and technical positions +with Becton, Dickinson and Company +and Organon, Inc. +Gary P. Kreider, Esq. +Director since 1991 +Age: 71 +Gary P. Kreider serves as Board +Secretary. Mr. Kreider is a senior +partner in the Cincinnati law firm +of Keating Muething & Klekamp PLL, +the Company’s outside counsel. His +primary practice areas are +securities law, mergers and +acquisitions, and general corporate +law, and he has been with Keating +Muething & Klekamp since 1963. +Effective October 1, 2005, Mr. +Kreider no longer has a vote or +partnership interest in the firm’s +earnings or revenues, although his +affiliation with the firm +continues. Mr. Kreider has been an +Adjunct Professor of Law in +securities regulation at the +University of Cincinnati College of +Law since 1977 and is a past +Chairman of the Ohio State Bar +Association Corporation Law +Committee. Mr. Kreider is also a +director of LSI Industries Inc. +3 +Table of Contents +William J. Motto +Director since 1977 +Age: 68 +William J. Motto has more than 35 +years of experience in the +pharmaceutical and diagnostics +products industries, is a founder +of Meridian and has been Chairman +of the Board since 1977. Mr. Motto +became Executive Chairman of the +Board in January 2008. Before +forming Meridian, Mr. Motto served +in various capacities for Wampole +Laboratories, Inc., Marion +Laboratories, Inc. and Analytab +Products, Inc., a division of +American Home Products Corp. +David C. Phillips +Director since 2000 +Age: 71 +David C. Phillips serves as +Chairman of the Audit Committee. +Mr. Phillips spent 32 years with +Arthur Andersen LLP. His service +with this firm included several +managing partner leadership +positions. After retiring from +Arthur Andersen in 1994, Mr. +Phillips became Chief Executive +Officer of Downtown Cincinnati, +Inc., which is responsible for +economic revitalization of Downtown +Cincinnati. Mr. Phillips retired +from DCI in 1999 to devote full +time to Cincinnati Works, Inc., an +organization dedicated to reducing +the number of people living below +the poverty level by assisting them +to strive towards self-sufficiency +through work, and his financial +consulting services. Mr. Phillips +serves as a director of Cintas +Corporation. +Robert J. Ready +Director since 1986 +Age: 69 +Robert J. Ready serves as Chairman +of the Compensation Committee. Mr. +Ready founded LSI Industries Inc., +Cincinnati, Ohio in 1976, which +engineers, manufactures and markets +commercial/industrial lighting and +graphics products, and has served +as its President and Chairman of +its Board of Directors since that +time. +RATIFICATION OF APPOINTMENT OF ACCOUNTANTS +(Item 2 on the Proxy Card) +Although not required, we are seeking shareholder ratification of the Audit Committee’s selection +of Grant Thornton LLP as Meridian’s independent registered public accounting firm for the 2010 +fiscal year. The affirmative vote of a majority of shares voting at the meeting is required for +ratification. If ratification is not obtained, the Audit Committee intends to continue the +employment of Grant Thornton at least through fiscal 2010. Representatives of Grant Thornton are +expected to be present at the Annual Shareholders’ Meeting and will be given an opportunity to make +a statement, if they so desire, and to respond to appropriate questions that may be asked by +shareholders. +4 +Table of Contents +Principal Accounting Firm Fees : +Aggregate fees billed to Meridian by Grant Thornton LLP for fiscal years 2009 and 2008 are listed +below: +2009 +2008 +Audit Fees +$ +271,500 +$ +283,000 +Audit-Related Fees +17,078 +38,229 +$ +288,578 +$ +321,229 +Audit Fees. Audit fees are the fees billed for professional services rendered by Meridian’s +independent registered public accounting firm for their audit of Meridian’s consolidated annual +financial statements for the fiscal years ended September 30, 2009 and 2008, respectively, and +reviews of the unaudited quarterly consolidated financial statements contained in the reports on +Form 10-Q filed by Meridian during those years and on reporting on Meridian’s internal control +during those years. +Audit-Related Fees . Audit-related fees are the fees billed for assurance and related services that +are reasonably related to the performance of the audit or review of Meridian’s financial +statements. +The Board recommends that you vote FOR the ratification of appointment of Grant Thornton LLP as +Meridian’s independent registered public accounting firm for the 2010 fiscal year. +CORPORATE GOVERNANCE +As an Ohio corporation, Meridian is governed by the corporate laws of Ohio. Since its common +shares are publicly traded on the Nasdaq Global Select Market and it files reports with the +Securities and Exchange Commission, it is also subject to Nasdaq rules and federal securities laws. +Governance of the corporation is placed in the hands of the directors who, in turn, elect officers +to manage the business operations. The Board oversees the management of Meridian on your behalf. +The Board reviews Meridian’s long-term strategic plans and exercises direct decision making +authority in all major decisions, such as acquisitions, the declaration of dividends, major capital +expenditures and the establishment of company policies. +In accordance with Nasdaq rules, our Board of Directors affirmatively determines the independence +of each director and nominee for election as a director in accordance with the elements of +independence set forth in the Nasdaq listing standards and Exchange Act rules. Meridian’s Director +Independence Standards are available at our website www.meridianbioscience.com . Based on +these standards, the Board determined that each of the following members of the Board is +independent: James M. Anderson, James A. +5 +Table of Contents +Buzard, Gary P. Kreider, David C. Phillips, and Robert J. Ready. In 2009, the Board of Directors revised +its Committee membership structure. Mr. Kreider, an independent outside Director since 1991, no +longer chairs or serves on any of the Board Committees. He remains a Director and serves as +recording secretary. Only independent directors serve on Committees of the Board. +During fiscal 2009, the Board of Directors met on four occasions. The independent directors plan +to meet at least two times during fiscal 2010 without the presence of management directors. The +independent members of the Board had one such meeting in fiscal 2009. The independent directors +select one of such directors to preside over each session. +Meridian expects all directors to attend shareholders’ meetings. With the exception of James M. +Anderson, who had not yet been appointed as a director at that time, each director attended the +2009 Annual Shareholders’ Meeting, all meetings of the Board and all meetings of Committees of +which he was a member. Mr. Anderson attended all meetings of the Board subsequent to his +appointment to the Board in July 2009. +Shareholders may communicate with the full Board or individual directors on matters concerning +Meridian by mail or through our website, in each case to the attention of the Secretary, the +address for whom is set forth on the last page of this proxy statement. +The Board has adopted a Code of Ethics applicable to Meridian’s officers, directors and employees. +This Code of Ethics is posted on www.meridianbioscience.com . To the extent permitted by Nasdaq +Marketplace Rule 5610, any amendments to or waivers from the Code of Ethics will be posted on our +website within four business days after the date of an amendment. +The directors have organized themselves into the committees described below. Each of these +Committees has a charter posted on www.meridianbioscience.com . Meridian does not have an Executive +Committee of its Board of Directors. +The Audit Committee is composed of David C. Phillips (Chairman), James A. Buzard and Robert J. +Ready. It met nine times during fiscal 2009 and took no actions in writing. Each member is able +to read and understand fundamental financial statements. David C. Phillips has been designated as +an Audit Committee financial expert as that term is defined by the Securities and Exchange +Commission. +The Committee oversees the accounting and financial reporting processes of Meridian and the audits +of its financial statements by its independent registered public accounting firm. The Committee is +solely responsible for the appointment, compensation, retention and oversight of Meridian’s +independent registered public accounting firm. The Audit Committee also evaluates information +received from Meridian’s independent registered public accounting firm and management to determine +whether the independent registered public accounting firm is independent of management. The +independent registered public accounting firm reports directly to the Audit Committee. +6 +Table of Contents +In addition, the Audit Committee has established procedures for the receipt, retention and +treatment of complaints received by Meridian concerning accounting, internal accounting controls or +auditing matters and has established procedures for the confidential and anonymous submission by +employees of any concerns they may have regarding questionable accounting or auditing matters. +The Audit Committee, or its Chairman, approves all audit and non-audit services performed for +Meridian by its independent registered public accounting firm before those services are commenced. +The Chairman reports to the full Committee at each of its meetings regarding pre-approvals he made +since the prior meeting and the Committee approves what he has done between meetings. For these +purposes, the Committee or its Chairman is provided with information as to the nature, extent and +purpose of each proposed service, as well as the approximate timeframe and proposed cost +arrangements for that service. +The Committee has submitted the following report for inclusion in this proxy statement. +REPORT OF THE AUDIT COMMITTEE +On April 15, 2009, the Audit Committee met with representatives of Grant Thornton and Meridian’s +internal accountants and reviewed with them the proposed 2009 Audit Plan, areas warranting +particular concentration on the audit and the effects of new accounting pronouncements. The Grant +Thornton representatives reviewed with the Committee written disclosures required by applicable +requirements of the Public Company Accounting Oversight Board regarding the independent +accountants’ communications with the Audit Committee concerning independence, discussed with the +Committee the independent accountants’ independence, and has presented a letter regarding that +matter to the Committee. The Committee discussed with Grant Thornton its independence. In +concluding that the auditors are independent, we determined, among other things, that the nonaudit +services provided by the auditors were compatible with their independence. +At its meeting on November 11, 2009, the Committee reviewed and discussed with management, Grant +Thornton and Meridian’s accounting officers the results of the audit for fiscal 2009, including the +audited financial statements. The Committee reviewed the requirements of its Charter previously +adopted and the reports that were required to be disclosed to the Committee. The committee +discussed with Grant Thornton the matters required to be discussed by Public Company Accounting +Oversight Board (PCAOB) Interim Auditing Standard AU Section 380, Communication with Audit +Committees . +Based on the above mentioned review, the Committee recommended to the Board of Directors that the +audited financial statements of Meridian be included in its Annual Report on Form 10-K for the year +ended September 30, 2009 for filing with the Securities and Exchange Commission. +During its meetings throughout the year, the Committee reviewed procedures related to the receipt, +retention and treatment of any complaints concerning accounting, internal accounting controls or +auditing matters. Also during its meetings throughout the year, the Chairman of the Audit +Committee reported to the full Committee the independent accountants’ fees that +7 +Table of Contents +had been pre-approved and the Committee approved such fees. Certain fees were pre-approved by the +full Committee. The Committee also reviewed the requirements of and Meridian’s ongoing compliance +with Section 404 of the Sarbanes-Oxley Act. +Respectfully submitted, +Audit Committee +David C. Phillips (Chairman) +Robert J. Ready +James A. Buzard +The Compensation Committee is composed of Robert J. Ready (Chairman), James A. Buzard, and David C. +Phillips and is responsible for establishing compensation for executive officers and administering +the Company’s compensation plans. This includes establishing salary levels and bonus plans, making +bonus and stock-based awards, and otherwise dealing in all matters concerning compensation of the +executive officers. The Compensation Committee met two times and took no actions in writing during +fiscal 2009. +In general, the Compensation Committee annually reviews the Company’s compensation programs and its +philosophy in setting performance targets in November of each year. At that time, the Company +provides the Compensation Committee with information on total compensation received for all +executive officers, including the sources of such compensation, for the immediately preceding +fiscal year and recommendations for the current fiscal year. In discharging the responsibilities +of the Board of Directors relating to compensation of the Company’s Chief Executive Officer and +other executive officers, the purposes of the Compensation Committee are, among others, (i) to +review and approve the compensation of the Company’s Chief Executive Officer and other executive +officers and (ii) to oversee the compensation policies and programs of the Company, including stock +and benefit plans. The Compensation Committee’s specific functions include adopting, administering +and approving the Company’s incentive compensation and stock plans and awards, including amendments +to the plans or awards and performing such duties and responsibilities under the terms of any +executive compensation plan, incentive-compensation plan or equity-based plan. The Compensation +Committee has the authority to delegate any of its responsibilities to subcommittees as the +Compensation Committee may deem appropriate in its sole discretion. The Compensation Committee has +the authority to engage consultants and advisors. The Compensation Committee did not engage a +consultant this year. The Compensation Committee has an appropriate level of contact among its +members and the Company’s executive officers in connection with the analysis of this data. +The Executive Chairman, Mr. Motto, provides input and recommendations to the Compensation Committee +with respect to the compensation to be paid to the non-employee members of the Board, as well as +Mr. Kraeutler. As Meridian’s Chief Executive Officer, Mr. +8 +Table of Contents +Kraeutler provides recommendations to the Compensation Committee with respect to compensation to be +paid to the other corporate officers. +To achieve compensation objectives, the Committee believes it is important to provide competitive +levels of compensation to retain the most qualified employees, to recognize individuals who exceed +expectations and to closely link executive compensation with corporate performance. The Committee +believes Meridian’s long-term objectives can be achieved through cash incentive compensation plans +and equity incentive compensation plans. +The Compensation Committee’s processes and procedures for the consideration and determination of +executive and director compensation are discussed in the section entitled “Compensation Discussion +and Analysis” in this proxy statement. +Compensation Committee Interlocks and Insider Participation +None of the members of the Compensation Committee has ever been an officer or employee of the +Company. None of the members of the Compensation Committee is or was a participant in any related +person transaction in fiscal 2009 (see the section entitled “Transactions With Related Persons” in +this proxy statement for a description of our policy on related person transactions). Lastly, none +of the members of the Compensation Committee is an executive officer of another entity at which one +of our executive officers serves on the Board of Directors. No named executive officer of Meridian +serves as a director or as a member of a committee of any company of which any of the Company’s +non-employee directors are executive officers. +The Nominating Committee consists of James A. Buzard (Chairman), Robert J. Ready, and David C. +Phillips. It met one time last year and took no actions in writing. On November 12, 2009, the +Nominating Committee considered and nominated the current directors for re-election. The +Nominating Committee identifies qualified nominees for the Board, determines who will be nominated +by the Company for election to the Board and recommends to the full Board any changes in the size +of the Board. +In nominating directors, the Nominating Committee takes into account, among other factors which it +may deem appropriate, the judgments, skill, diversity, business experience, and the needs of the +Board as its function relates to the business of the Company. The Committee considers candidates +for nomination from a variety of sources including recommendations of shareholders. Shareholders +desiring to submit recommendations for nominations by the Committee should direct them to the +Executive Chairman in care of the Company at its address shown on the cover page of this proxy +statement. +The Nominating Committee will assess the qualifications of all candidates for the Board on an equal +basis. In identifying and considering candidates for nomination to the Board, the Nominating +Committee considers, among other factors, quality of experience, the needs of the Company and the +range of talent and experience currently represented on the Board. +9 +Table of Contents +During several Board meetings in fiscal 2009, the Board discussed the benefits of adding new +members to the Board. Pursuant to this, the Nominating Committee considered potential candidates +and chose to meet with James M. Anderson. Based upon the review of his qualifications and the +favorable results of their meeting, the Board proceeded to nominate him as a candidate to the +Board. Mr. Anderson was appointed to the Board in July 2009. +DIRECTORS AND EXECUTIVE OFFICERS +This table lists the executive officers and directors of Meridian and shows the number of shares +beneficially owned, as determined under SEC rules, on November 23, 2009. Beneficial ownership +includes any shares as to which the individual has sole or shared voting or investment power and +also any shares that the individual has the right to acquire as of January 22, 2010 (60 days after +November 23, 2009). +Common Stock +Beneficially Owned +Name +Position +Amount 1 +Percentage +William J. Motto +Executive Chairman of the +164,196 +* +Board of Directors +John A. Kraeutler +Chief Executive Officer and +317,260 +* +Director +Antonio A. Interno 2 +Senior Vice President, +87,955 +* +President and Managing +Director, Meridian +Bioscience Europe +Richard L. Eberly 3 +Executive Vice President, +33,750 +* +President Meridian Life +Science +Lawrence J. Baldini 4 +Executive Vice President, +53,750 +* +Operations and Information +Systems +Melissa A. Lueke 5 +Executive Vice President, +126,015 +* +Chief Financial Officer and +Secretary +Susan A. Rolih 6 +Senior Vice President, +107,750 +* +Regulatory Affairs & Quality +Assurance +Todd W. Motto 7, 8 +Vice President, Sales and +515,328 +1.3 +% +Marketing +James M. Anderson 9 +Director +4,750 +* +James A. Buzard, Ph.D 10, 11, 12 +Director +37,500 +* +Gary P. Kreider 13 +Director +30,188 +* +Robert J. Ready 10, 11, 12 +Director +74,347 +* +David C. Phillips 10, 11, 12 +Director +43,350 +* +All Executive Officers and Directors as a Group +1,596,139 +3.9 +% +10 +Table of Contents +1 +Includes options exercisable within 60 days for Mr. William Motto of 65,738 shares, +Mr. Kraeutler of 42,000 shares, Mr. Interno of 21,000 shares, Mr. Eberly of 26,250 shares, Ms. +Lueke of 42,000 shares, Ms. Rolih of 85,875 shares, Mr. Baldini of 26,250 shares, Mr. Todd Motto +of 61,125 shares, Mr. Anderson of 3,750 shares, Mr. Buzard of 22,500 shares, Mr. Kreider of 27,714 +shares, Mr. Ready of 58,998 shares and Mr. Phillips of 27,714 shares. +2 +Antonio A. Interno was appointed Vice President in August 1991, Senior Vice President +in September 1997, and President, Managing Director, Meridian Bioscience Europe in October 2003. +He has been Managing Director of Meridian’s European subsidiaries, Meridian Bioscience Europe, +since February 1990. Age: 59 +3 +Richard L. Eberly was appointed Vice President of Sales and Marketing in January 1997, +Executive Vice President in May 2000, Executive Vice President, General Manager of Meridian Life +Science in February 2003 and Executive Vice President and President Meridian Life Science in +October 2005. He has over 18 years of experience in the medical diagnostics industry and joined +Meridian in March 1995. Prior to his appointment to Vice President of Sales and Marketing, Mr. +Eberly served as the Director of Sales for Meridian. Before joining Meridian, he held key sales +and marketing positions at Abbott Diagnostics, Division of Abbott Laboratories. Age: 48 +4 +Lawrence J. Baldini was appointed Vice President of Operations in April 2001 and +Executive Vice President, Operations and Information Systems in October 2005. Before joining +Meridian, Mr. Baldini held various operations management positions with Instrumentation +Laboratories and Fisher Scientific. Age: 50 +5 +Melissa A. Lueke was appointed Vice President, Chief Financial Officer and Secretary +in January 2001 and Executive Vice President, Chief Financial Officer and Secretary in November +2009. Prior to her appointment, Ms. Lueke served as Meridian’s Controller since March 2000 and +Acting Secretary from July 20, 2000 to January 23, 2001. Before joining Meridian, Ms. Lueke was +employed by Arthur Andersen LLP from June 1985 to January 1999, most recently as a Senior Audit +Manager. Age: 46 +6 +Susan A. Rolih was appointed Vice President of Regulatory Affairs and Quality +Assurance in May 2001 and Senior Vice President of Regulatory Affairs and Quality Assurance in +April 2008. Before joining Meridian, Ms. Rolih held various regulatory and quality positions with +Immucor, Inc. Age: 60 +7 +Todd W. Motto was appointed Vice President Sales and Marketing in October 2005. Prior +to this, Mr. Motto served in a number of different sales and marketing positions for Meridian, +beginning in 1993. Most recently, he served as Meridian’s Director of Sales and Marketing, +Meridian Bioscience Europe for the last five years. Age: 43 +8 +Includes 188,846 shares held as custodian for his children and his nieces and nephews. +9 +James M. Anderson was appointed as a Director in July 2009. +10 +Audit Committee Member. +11 +Compensation Committee Member. +12 +Nominating Committee Member. +13 +Includes 325 shares held by his wife and 758 shares held as custodian for his +grandchildren. +* +Less than one percent. +11 +Table of Contents +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS +The following table lists the persons known by the Company to be the beneficial owners of more than +five percent of the Company’s Common Stock as of November 23, 2009, unless otherwise noted. +Beneficial ownership includes any shares as to which the individual has sole or shared voting or +investment power. +Amount and nature of +Name and address of beneficial owner +beneficial ownership +Percent of class 1 +Barclays Global Investors, NA +2,540,548 +6.30 +400 Howard Street +San Francisco, CA 94105 +Brown Capital Management, Inc. +2,218,961 +5.48 +1201 N. Calvert Street +Baltimore, MD 21202 +1 +For the beneficial owners listed in the table, the percentages listed reflect +disclosures in the Schedule 13Gs filed by each beneficial owner with the Securities and Exchange +Commission. +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Section 16 of the Securities Exchange Act of 1934 requires Meridian’s executive officers, directors +and persons who own more than ten percent of a registered class of Meridian’s equity securities to +file reports of ownership and changes in ownership with the Securities and Exchange Commission. +Based on a review of the copies of such forms received by it, Meridian believes that during the +last fiscal year, all of its executive officers, directors and ten percent stockholders complied +with the Section 16 reporting requirements, with the exceptions that Mr. Todd Motto filed one late +ownership report with respect to the exercise of stock options and Mr. William J. Motto filed one +late ownership report with respect to an estate planning transaction. This transaction involved +the transfer of William J. Motto’s shares into a trust over which he claims no beneficial +ownership. The shares were incorrectly reported as being beneficially owned by Mr. Motto. In +making these statements, Meridian has relied upon examination of the copies of Forms 3, 4, and 5, +and amendments thereto, and the written representation of its directors and executive officers. +TRANSACTIONS WITH RELATED PERSONS +Todd Motto, the adult son of William J. Motto, is Vice President, Sales and Marketing. Todd Motto +received $264,679 in compensation for fiscal 2009. This compensation consisted of base salary of +$200,700, $8,850 of auto and professional allowances, $13,082 of retirement plan contributions, +$38,634 related to stock option awards expense related to awards earned in previous years, and +$3,413 for dividends on restricted stock granted under the 2004 Equity Compensation Plan. +Nasdaq rules require the Company to conduct an appropriate review of related party transactions +required to be disclosed by the Company pursuant to SEC Regulation S-K Item +12 +Table of Contents +404 for potential conflict of interest situations on an ongoing basis and that all such +transactions must be approved by the Audit Committee or another committee comprised of independent +directors. As a result, the Audit Committee annually reviews all such related party transactions +and approves each related party transaction if it determines that it is in the best interests of +the Company. Additionally, the Audit Committee’s Charter provides it the authority to review, +approve and monitor transactions involving the Company and “related persons” (directors and +executive officers or their immediate family members, or shareholders owning five percent or +greater of the Company’s outstanding stock). This also covers any related person transaction that +meets the minimum threshold for disclosure in the proxy statement under the relevant SEC rules +(generally, transactions involving amounts exceeding $120,000 in which a related person has a +direct or indirect material interest). In considering the transaction, the Audit Committee may +consider all relevant factors, including, as applicable, (i) the Company’s business rationale for +entering into the transaction; (ii) the alternatives to entering into a related person transaction; +(iii) whether the transaction is on terms comparable to those available to third parties, or in the +case of employment relationships, to employees generally; (iv) the potential for the transaction to +lead to an actual or apparent conflict of interest and any safeguards imposed to prevent such +actual or apparent conflicts; and (v) the overall fairness of the transaction to the Company. This +policy is included in the Company’s Employee Handbook. The approval of such related person +transactions are evidenced by internal Company resolutions or memoranda. +COMPENSATION DISCUSSION AND ANALYSIS +Throughout this proxy statement, the individuals who served as the Company’s Chief Executive +Officer and Chief Financial Officer during fiscal 2009, as well as the other individuals listed in +the Summary Compensation Table below, are referred to as the “named executive officers” or “NEOs.” +Compensation Philosophy and Objectives +Our policies regarding executive compensation programs are intended to balance motivating, +rewarding, and retaining executives with a competitive compensation package, and maximizing +long-term shareholder value by linking compensation earned to both individual and Company +performance. Compensation typically includes base salary, eligibility for annual cash bonuses and +stock-based awards contingent on Company performance and/or future service, retirement plan +contributions, and other Company-sponsored benefits. A significant portion of each executive +officer’s cash bonus and stock-based awards are dependent upon achieving business and financial +goals and realizing other performance objectives. Examples of Company performance metrics for +which we measure achievement are sales growth, net earnings growth and profit margins (gross +profit, operating income and net earnings). Annual performance targets for these metrics are set +at or above industry averages and historical results. Our compensation programs are intended to +reward individual contributions (for example, bringing a new product to market) and Company-wide +achievement of performance metric targets (for example, overall sales and net earnings growth). +The Compensation Committee of the Board of Directors is responsible for the development +13 +Table of Contents +and ongoing oversight of compliance with this compensation philosophy. The Compensation Committee +ensures that the total compensation paid to the NEOs is fair, reasonable, and competitive. +Establishing Compensation Levels +Compensation levels for the NEOs are driven by market pay levels, the executive officer’s +leadership performance and overall Company performance. The Compensation Committee relies upon a +combination of judgment (which is necessarily subjective) and guidelines (discussed herein), as +well as market data, in determining the amount and mix of compensation components for the Executive +Chairman. The compensation levels for the Chief Executive Officer are recommended to the +Compensation Committee by the Executive Chairman; the compensation levels for the other NEOs are +recommended by the Chief Executive Officer. The Compensation Committee has discretion to follow or +modify such recommended levels of compensation. The Compensation Committee considers as crucial +the input of our Executive Chairman and Chief Executive Officer in connection with its compensation +processes and decisions relating to NEO compensation. The Compensation Committee is not obligated +to follow their recommendations. The Company does not engage in strict numerical benchmarking in +determining the percentage increases for the NEOs. +Market Pay Levels +Market pay levels for the NEOs are determined annually in November for the upcoming calendar year. +From time to time, at the request of the Compensation Committee, an outside financial advisor is +used to gather and summarize for the Company disclosures of executive compensation paid by other +publicly traded companies in the diagnostic and life science industries, as well as those outside +such industries in the Greater Cincinnati area. This information concerns base salary, bonus +awards and long-term incentive awards such as stock options and/or restricted stock for these peer +companies, as well as their revenue, net earnings and market capitalization levels in order to take +company size into consideration. The Compensation Committee considers this competitive market +compensation paid by such companies, but does not attempt to maintain a certain target percentile +within a peer group or otherwise rely on that data to determine executive compensation. This means +that the Compensation Committee considers this information generally and as a reference point in +determining the amounts and elements of our compensation program. For example, the Compensation +Committee periodically reviews proxy statements of our industry peers to review their long-term +incentive components in order to understand compensation trends in stock options, restricted stock +and similar equity instruments. In other words, although it does not utilize such information for +benchmarking purposes, the Compensation Committee considers such information as part of its +decision-making process with respect to the Company’s executive compensation programs. +Company Performance +We believe that certain Company performance metrics drive shareholder value through stock price +appreciation and dividends. We take this belief into account in setting performance metric targets +that are considered in establishing the performance-based component of our +14 +Table of Contents +compensation programs. Performance metric targets that are taken into consideration in our +compensation programs include sales growth, earnings growth and profit margins. These targets are +set at or above industry averages and historical results. +Our cash bonus and a portion of our stock-based award programs operate under the fundamental +principle that minimum levels of net earnings be achieved prior to any compensation being earned +under these programs. Net earnings targets are determined based on what the Company believes to be +meaningful growth rates relative to its industry peers and the Company’s performance objectives. +Stock-based awards granted under performance programs are forfeited if the Company does not meet +its minimum earnings targets as specified in each grant. +Recovery of Prior Awards +Except as provided by applicable laws and regulations, we do not have a policy with respect to +adjustment or recovery of awards or payments if relevant Company performance measures upon which +previous awards were based are restated or otherwise adjusted in a manner that would reduce the +size of such award or payment. Under those circumstances, we expect that the Compensation +Committee and the Board would evaluate whether compensation adjustments were appropriate based upon +the facts and circumstances surrounding the applicable restatement or adjustment. +Tally Sheets +In setting the NEOs’ compensation, the Compensation Committee reviews all components of such +compensation through the use of tally sheets. These tally sheets provide the amount of total +compensation paid or earned by each NEO based on his or her base salary, cash bonus, stock-based +awards, retirement contributions, and perquisites. The tally sheets reviewed provide all of the +information that is reflected in the Summary Compensation Table. The review by the Compensation +Committee analyzes how changes in any element of compensation would impact other elements, +particularly severance or change in control benefits, if applicable to the executive. Although +this year such analysis did not result in the issuance of additional awards, such analysis has +become an important component in the Compensation Committee’s review of executive compensation as +the tally sheet allows the Compensation Committee to consider an executive’s overall compensation +rather than only one or two specific components of an executive’s compensation. This allows the +Compensation Committee to make compensation decisions and evaluate management recommendations based +on a complete analysis of an executive’s total compensation. +Components of Executive Compensation +Meridian’s executive compensation and benefits packages consist of: base salary, cash bonuses, +long-term equity incentive awards, and Company-sponsored benefit and retirement plans. Each of +these components has a certain risk profile. +15 +Table of Contents +Element +Form of Compensation +Purpose +Risk Profile +Base Salaries +Cash +Provides +competitive, fixed +compensation to +attract and retain +exceptional +executive talent +Low to moderate +Annual Cash +Incentives +Cash +Provides a direct +financial incentive +to achieve +corporate and +individual +operating goals +Moderate to high +Long-Term Equity +Incentives +Incentive stock +options, +non-qualified stock +options, restricted +stock and stock +appreciation rights +Encourages +executive officers +to build and +maintain a +long-term equity +ownership position +in Meridian so that +their interests are +aligned with our +shareholders +High +Health, Retirement +and Other Benefits +Eligibility to +participate in +benefit plans +generally available +to our employees, +including +Retirement Plan +contributions, +premiums paid on +long-term +disability and life +insurance policies, +and certain +perquisites +Benefit plans are +part of a +broad-based +employee benefits +program; the +perquisites provide +competitive +benefits to our +executive officers +Low +The Compensation Committee has reviewed the risk profile of the components of the Company’s +executive compensation program, including the performance objectives and target levels used in +connection with incentive awards, and has considered the risks an NEO might be incentivized to take +with respect to such components. When establishing the mix among these components, the Compensation +Committee is careful not to encourage excessive risk taking. Specifically, the performance +objectives contained in the Company’s executive compensation programs have been balanced between +annual and long-term incentive compensation to ensure that both components are aligned and +consistent with our long-term business plan and that our overall mix of equity-based awards has +been allocated to promote an appropriate combination of incentive and retention objectives. +The Compensation Committee believes that the Company’s executive compensation program does not +incentivize the NEOs to engage in business activities or other behavior that would threaten the +value of the Company or the investments of its shareholders. +The Compensation Committee continues to monitor and evaluate on an on-going basis the +16 +Table of Contents +mix of compensation, especially equity compensation, awarded to the named executive officers, and +the extent to which such compensation aligns the interests of the NEOs with those of the Company’s +shareholders. In connection with this practice, the Compensation Committee has, from time to time, +reconsidered the structure of the Company’s executive compensation program and the relative +weighting of various compensation elements. As an example, since 2008 the Committee has granted a +mix of restricted stock awards and options to key executives in place of solely options. As +discussed below, some of the restricted stock awards are time-based, while others are +performance-based. +Interplay of Compensation Elements +We believe that each element of our compensation program plays a substantial role in maximizing +long-term value for our shareholders and employees because of the significant emphasis on +pay-for-performance principles. Despite the Company attaining record sales and earnings levels in +fiscal 2009, we did not reach our minimum net earnings targets, and therefore, our NEOs did not +earn any cash bonuses or the performance-based restricted shares of Common Stock for fiscal 2009. +We held to our pay-for-performance principles, which had a significant effect on the amount of +compensation realized by our executive officers. +We strive to achieve an appropriate mix between equity incentive awards and cash payments in order +to meet our objectives. We use the Officers’ Performance Compensation Plan as another tool to +assess an executive’s total pay opportunities and whether we have provided the appropriate +incentives to accomplish our compensation objectives. Our mix of compensation elements is designed +to reward recent results and motivate long-term performance through a combination of cash and +stock-based awards. We also seek to balance compensation elements that are based on financial, +operational and strategic metrics with others that are based on the performance of Meridian shares +via application of the personal multiplier component of cash bonuses for the Executive Chairman and +the Chief Executive Officer. We believe the most important indicator of whether our compensation +objectives are being met is our ability to motivate our NEOs to deliver superior performance and +retain them to continue their careers with Meridian on a cost-effective basis. +Base Salary +The Company pays salaries that are designed to attract, motivate and retain experienced executives +who will drive superior Company performance and maintain long-term shareholder value. The +Compensation Committee considers recommendations from the Executive Chairman and Chief Executive +Officer and approves annual base salaries that are commensurate with each NEO’s responsibilities +and performance, as well as Company performance in the prior fiscal year, which are competitive +with similar positions locally and in the industry. Salaries are set on a calendar year basis and +therefore salaries paid in the first three months of each fiscal year beginning on the first day of +October are set in the prior fiscal year. +For 2010, the Chief Executive Officer, Mr. Kraeutler, provided recommendations to the Compensation +Committee for salary increases for the NEOs, other than himself and the +17 +Table of Contents +Executive Chairman, which were 4%, except for the Chief Financial Officer. The recommendation for +the Chief Financial Officer was an increase of 12% as a result of her promotion to Executive Vice +President and the additional responsibilities associated with this promotion. The Compensation +Committee followed these recommendations. The Compensation Committee set the salary increase for +the Executive Chairman and the Chief Executive Officer at 4% for each, based on its satisfaction +with their leadership during a challenging economic environment around the world. Salary increase +percentages for the NEOs were considered by the Compensation Committee to be consistent with the +percentage increases provided in general to other Meridian employees. +Cash Bonuses +The Compensation Committee believes that employees should be rewarded based on Company results and +individual performance. The Compensation Committee awards cash bonuses pursuant to the Officers’ +Performance Compensation Plan, contingent upon Company performance. Cash bonuses, if earned, are +paid in the first quarter of each fiscal year, for the prior year’s performance. Cash bonuses are +subject to the Company’s attainment of a specific net income target. Should the Company fail to +reach such net income target, no cash bonuses are paid. +Cash bonuses are also subject to the application of a personal achievement multiplier as +recommended by management, except that no such recommendation is made by management for the +Executive Chairman, Mr. Motto, or the Chief Executive Officer, Mr. Kraeutler. In evaluating the +personal achievement multipliers, the Compensation Committee takes into consideration the sales and +net earnings levels, sales and net earnings growth rates and achievement against plan, profit +margins and improvements therein, and individual achievements and leadership of the NEOs. Instead +of establishing specific quantifiable targets for each of these factors, the Compensation Committee +exercises its discretion in using the factors to determine each NEO’s personal achievement +multiplier. Specifically, the Compensation Committee does not establish measurable objective +targets in connection with its deliberation of such factors. The adoption and application of such +factors are intended to be discretionary and subjective so that the Compensation Committee can use +its business judgment to provide an appropriate incentive and award for performance that sustains +and enhances long-term shareholder value. The Compensation Committee believes that such +discretionary and subjective components allow it to respond appropriately as business and strategic +environments change and are appropriate for the size of the Company. The personal achievement +multiplier choices are 0.5, 1.0, 1.25, 1.5 or 2.0. For example, a personal achievement multiplier +of 1.25 would result in a bonus payout percentage of 37.5% when applied to a 30% base salary +component. +Company Performance Component and 2009 Results +The 2009 Plan, which was similar in form to the plans utilized over the last several fiscal years, +provided for the granting of cash bonuses as a percent of base salary if 2009 net earnings reached +at least $36,050,000. Depending on the level of net earnings achieved and the application of the +personal multiplier, cash bonuses could range from 5% to 120% of base salary. The 2009 Plan +included six net earnings thresholds ranging from a low of +18 +Table of Contents +$36,050,000 to a high of $37,875,000. These six net earnings thresholds represented growth over +2008 net earnings ranging from a low of 19% to a high of 25%. The corresponding potential bonus +payouts as a percent of base salary, before application of the personal multiplier, for the six net +earnings thresholds ranged from a low of 10% to a high of 60%. Actual net earnings for 2009 were +$32,759,000, a record for the Company and 8% growth over 2008. However, actual net earnings were +below the minimum threshold, and therefore, there were no cash bonuses awarded to the NEOs for +fiscal 2009 performance. +2010 +At its November 12, 2009 meeting, the Compensation Committee approved the Officers’ Performance +Compensation Plan for fiscal 2010. The 2010 Plan will award cash bonuses if 2010 net earnings +reach at least $37,650,000, which the Compensation Committee believes is a meaningful increase from +2009 net earnings of $32,759,000. The 2010 Plan also provides for increasing bonus awards tied to +increasing net earnings beyond the initial minimum level. Depending on the level of net earnings +achieved and the application of the personal multiplier, cash bonuses could range from 5% to 120% +of base salary, similar to the 2009 Plan discussed above. +Management and the Compensation Committee have intended that the earnings thresholds should be set +at meaningful rates so that management must be diligent, focused and effective in order to achieve +these goals. In other words, the Company and management believed at the time of the establishment +of these thresholds that they would be challenging to achieve and would require substantial efforts +from management. To this end, the Compensation Committee tends to set the thresholds consistent +with the earnings guidance range requiring that the low end of guidance is achieved before bonuses +are paid. +Long-term incentive awards +The Compensation Committee believes that equity-based compensation encourages employees to commit +to the long-term goals of the Company. This ensures that the Company’s NEOs have a stake in the +long-term creation of shareholder value. Historically, long-term incentive awards have been in the +form of stock options. Beginning in fiscal 2008, the Compensation Committee moved towards a mix of +stock options and restricted stock in order to provide NEOs with a mixed equity portfolio. +Historically, in either case, the awards were performance-based, meaning the NEOs’ ability to vest +in the awards was contingent upon the Company achieving a minimum level of net earnings. +For fiscal 2010, at its meeting on November 12, 2009, the Compensation Committee approved two types +of restricted stock awards (or in the case of an NEO outside the US, restricted share units). The +first type of restricted stock award is performance based, where the NEOs’ ability to vest in such +awards is contingent upon the Company reaching a minimum level of net earnings of $39,000,000. +This award would vest 25% per year over four years, if earned. The second type of restricted stock +award is not performance based, but rather vests 100% after four years. The Compensation Committee +believes that this latter award is appropriate to encourage retention of top management talent +during what has been, in their belief, one of the most challenging economic environments over the +last 20+ years. +19 +Table of Contents +The following table summarizes the restricted stock awards for the NEOs. +No. of Shares of +Performance-Based +No. of Shares of Time- +NEO +Restricted Stock +Vested Restricted Stock +Chief Executive Officer +5,000 +5,000 +Executive Vice President, Chief Financial Officer, and Secretary +3,750 +3,750 +Executive Chairman of the Board of Directors +5,000 +5,000 +Senior Vice President, President and Managing Director, MBE +3,750 +3,750 +Executive Vice President, President Meridian Life Science +3,750 +3,750 +Relative to fiscal 2009, on November 12, 2008, the Compensation Committee awarded each NEO 5,250 +restricted shares of Common Stock (or in the case of an NEO outside the US, restricted share +units). These restricted shares were forfeited because the minimum level of net earnings for +fiscal 2009 was not achieved. These restricted shares are not reflected in the tables presented in +this proxy statement. +Although Meridian does not have a written policy regarding the timing or practices related to +granting equity awards, neither Meridian nor the Compensation Committee engages in spring-loading, +back-dating or bullet-dodging practices. Stock options and restricted stock awards are generally +granted at a regularly scheduled meeting of the Compensation Committee in the first quarter of the +fiscal year, after Meridian issues a press release announcing the results of the prior fiscal year. +Stock options are granted at the closing market price on the date of grant, pursuant to the 2004 +Equity Compensation Plan. Prior to the exercise of an option, the holder has no rights as a +stockholder with respect to the shares subject to such option, including no rights to vote or to +receive dividends. Prior to vesting of restricted shares, the holder has voting rights and will +receive any dividends declared on Meridian’s Common Stock. +Company-Sponsored Benefit and Retirement Plans +Meridian provides Company-sponsored benefit and retirement plans to the NEOs. In general, +executives participate in the Company’s benefit and retirement plans on the same basis as other +Company employees. The core benefit package includes health, dental, short and long-term +disability, and group term life insurance. Meridian generally provides retirement benefits to +executives through qualified (under the Internal Revenue Code) defined contribution plans. +20 +Table of Contents +In 1995, the Company entered into a salary continuation agreement with John A. Kraeutler to +supplement Mr. Kraeutler’s retirement savings. This agreement was amended on December 29, 2008 to +comply with the requirements of Section 409A of the Internal Revenue Code. This agreement provides +additional compensation after retirement or separation from the Company under certain circumstances +and is funded by a life insurance policy with premiums paid by the Company. Meridian incurred +expense of $23,780 in premiums during fiscal 2009. +Other Personal Benefits +Allowances for automobiles and professional, financial, and tax planning are made available to +Meridian’s NEOs and other corporate officers. The costs to the Company are included in the All +Other Compensation Tables on page 23. The Company believes these perquisites to be reasonable, +comparable to peer companies, and consistent with the Company’s overall executive compensation +philosophy. +Internal Pay Equity +The Compensation Committee believes that the relative difference between the Chief Executive +Officer’s compensation and the compensation of the Company’s other executives has not increased +significantly over the years. Further, the Compensation Committee believes that the Company’s +internal pay equity structure is consistent with our peer group and is appropriate based upon the +contributions to the success of the Company and as a means of motivation to other executives and +employees. +Tax Deductibility of Pay +Section 162(m) of the Internal Revenue Code contains compensation deduction limitations for certain +highly compensated employees. One exception to this limitation is for performance-based +compensation that is approved by, among other things, a committee of “outside directors” (as +defined under IRS treasury regulations). The Committee believes that all compensation paid to the +NEOs for fiscal year 2009 is properly deductible under Section 162(m), but no assurance can be made +in this regard. +Actions of the Committee +In several meetings during the year, the Executive Chairman, Mr. Motto, the Chief Executive +Officer, Mr. Kraeutler, and the Compensation Committee Chairman discussed, among other things, +Meridian’s compensation system and its effectiveness in attracting and retaining top notch +employees. These individuals believe that the system, including the Officers’ Performance +Compensation Plan, is understood by employees and shareholders and has worked well in practice. +They noted that the underlying principles in this Plan have been followed for many years, even when +following such principles resulted in no bonuses being awarded (2001 and 2009) and +performance-based stock awards being forfeited (2001, 2008 and 2009). The Committee discussed on a +number of occasions the advisability of engaging a compensation consultant. The Compensation +Committee concluded that it did not want to engage a compensation consultant this year, in part +because of the relatively small number of +21 +Table of Contents +executive officers and their frequent interaction. +At its November 12, 2008 meeting, the Compensation Committee discussed these matters, both with and +without the presence of management. The Compensation Committee discussed the recommendations of +the Executive Chairman and the Chief Executive Officer for compensation levels for all officers and +answered questions about individual recommendations and the general pay increases to be paid +throughout the Company. The Committee then made the compensation decisions, which are reflected in +the figures presented in this proxy statement. +SUMMARY COMPENSATION TABLE +The following table summarizes the aggregate compensation paid, or earned, by each of the NEOs for +the fiscal years ended September 30, 2009, 2008, and 2007 respectively. +Change in +Pension Value +and +Nonqualified +Non-Equity +Deferred +Name and Principal +Option +Incentive Plan +Compensation +All Other +Position +Year +Salary +Bonus 1 +Stock Awards +Awards 2 +Compensation +Earnings +Compensation 3 +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +(i) +Total +John A. Kraeutler +2009 +$ +511,538 +$ +— +$ +— +$ +37,767 +$ +549,305 +Chief Executive Officer +2008 +$ +450,579 +$ +178,125 +$ +— +$ +145,096 +$ +— +$ +— +$ +41,821 +$ +815,621 +2007 +$ +391,928 +$ +300,005 +$ +133,239 +$ +42,925 +$ +868,097 +Melissa A. +Lueke +Executive Vice President, +2009 +$ +210,736 +$ +— +$ +39,511 +$ +25,588 +$ +275,835 +Chief Financial Officer, +2008 +$ +202,126 +$ +76,782 +$ +— +$ +68,835 +$ +— +$ +— +$ +21,401 +$ +369,144 +and Secretary +2007 +$ +192,283 +$ +146,251 +$ +87,761 +$ +20,878 +$ +447,173 +William J. Motto +2009 +$ +524,999 +$ +— +$ +— +$ +87,816 +$ +612,815 +Executive Chairman of the +2008 +$ +519,615 +$ +196,875 +$ +— +$ +14,109 +$ +— +$ +— +$ +87,189 +$ +817,788 +Board of Directors +2007 +$ +494,904 +$ +378,750 +$ +132,407 +$ +91,077 +$ +1,097,138 +Antonio A. +Interno 4 +Senior Vice President, +2009 +$ +382,370 +$ +— +$ +— +$ +47,854 +$ +430,224 +President and Managing +2008 +$ +414,605 +$ +124,607 +$ +— +$ +7,029 +$ +— +$ +— +$ +47,241 +$ +593,482 +Director, MBE +2007 +$ +353,575 +$ +220,983 +$ +125,345 +$ +42,476 +$ +742,379 +Richard L. +Eberly +Executive Vice President, +2009 +$ +270,032 +$ +— +$ +39,512 +$ +27,039 +$ +336,583 +President Meridian Life +2008 +$ +259,373 +$ +39,313 +$ +— +$ +68,835 +$ +— +$ +— +$ +25,226 +$ +392,747 +Science +2007 +$ +250,121 +$ +142,380 +$ +87,761 +$ +28,097 +$ +508,359 +1 +The amounts shown in this column reflect payments made pursuant to the 2008 +Officers’ Performance Compensation Plan for fiscal 2008 and the 2007 Officers’ Performance +Compensation Plan for fiscal 2007. No payments were made pursuant to the 2009 Officers’ +Performance Compensation Plan as the targets were not reached for fiscal 2009. +2 +The amounts shown reflect the dollar amounts recognized for financial statement +reporting purposes with respect to fiscal years 2009, 2008, and 2007 in accordance with SFAS +No. 123(R) for prior grants. No expense is included in this table related to restricted stock +issued November 12, 2008. Because the required earnings target for Meridian was not reached +for fiscal 2009, the restricted shares have been cancelled. No expense is included in this +table related to options issued November 12, 2007. Because the required earnings target was +not reached for fiscal 2008, the options were forfeited. A discussion of the assumptions used +in calculating these values may be found in Note 7(b) on page 66 to the Company’s Annual Report +on Form 10-K filed November 30, 2009. +22 +Table of Contents +3 +See All Other Compensation charts below for amounts, which include certain Company +contributions, perquisites and other personal benefits. +Fiscal 2009 +John A. +Melissa A. +William J. +Antonio A. +Richard L. +Kraeutler +Lueke +Motto +Interno +Eberly +Retirement Contributions +$ +13,082 +$ +13,082 +$ +13,082 +$ +17,412 +$ +13,082 +Auto Lease / Auto +Allowance +16,642 +7,500 +14,052 +27,029 +9,794 +Financial and Tax Planning +4,630 +1,593 +57,269 +— +750 +Restricted Stock Dividends +3,413 +3,413 +3,413 +3,413 +3,413 +Totals +$ +37,767 +$ +25,588 +$ +87,816 +$ +47,854 +$ +27,039 +4 +Mr. Interno’s salary and bonus were € 282,935 and € 0, respectively in 2009. Mr. +Interno’s salary and bonus were € 276,640 and € 82,992, respectively in 2008. Mr. Interno’s +salary and bonus were € 266,001 and € 166,250, respectively in 2007. All conversions were made +at the average exchange rates for fiscal 2009, 2008, and 2007, respectively. +GRANTS OF PLAN-BASED AWARDS 3 +There were no grants of plan-based awards earned during fiscal 2009. No expense is shown related +to restricted shares issued November 12, 2008. Because the required earnings target for Meridian +was not reached for fiscal 2009, the restricted shares were cancelled. +Outstanding Equity Awards at Fiscal Year-End +The following table provides information on the current holdings of stock option awards by the NEOs +under Meridian’s 2004 Equity Compensation Plan and the 1996 Stock Option Plan. The columns related +to stock awards have been deleted because there are no outstanding stock awards held by any of the +NEOs. There were no grants of plan-based award earned during fiscal 2009. No expense is shown +related to restricted shares issued November 12, 2008. Because the required earnings target for +Meridian was not reached for fiscal 2009, the restricted shares were cancelled. +Under the Company’s stock option plans, general stock option awards have a ten-year term and vest +in four equal annual installments from the date of grant. The Company’s performance-based options +that have been earned to date, vest in three equal annual installments, beginning on the date of +the earnings release indicating that performance targets were met for the period. +23 +Table of Contents +Equity +Incentive +Plan +Awards: +Number of +Number of +Number of +Securities +Securities +Securities +Underlying +Underlying +Underlying +Unexercised +Unexercised +Unexercised +Option +Option +Option(#) +Option(#) +Unearned +Exercise Price +Option Grant +Expiration +Name +Exercisable +Unexercisable +Options (#) +($) +Date +Date +John A. Kraeutler +— +123,751 +3 +— +$ +2.090 +10/01/2001 +09/30/2011 +5,250 +2 +— +— +$ +4.525 +12/02/2003 +12/02/2013 +10,500 +2 +— +— +$ +7.280 +12/07/2004 +12/07/2014 +15,750 +2 +— +— +$ +14.007 +11/10/2005 +11/10/2015 +10,500 +2 +5,250 +2 +— +$ +16.554 +11/15/2006 +11/15/2016 +— +25,000 +4 +— +$ +33.090 +01/28/2008 +01/28/2018 +— +25,000 +5 +— +$ +33.090 +01/28/2008 +01/28/2018 +Melissa A. Lueke +— +22,500 +3 +— +$ +2.090 +10/01/2001 +09/30/2011 +5,250 +2 +— +— +$ +4.525 +12/02/2003 +12/02/2013 +10,500 +2 +— +— +$ +7.280 +12/07/2004 +12/07/2014 +15,750 +2 +— +— +$ +14.007 +11/10/2005 +11/10/2015 +10,500 +2 +5,250 +2 +— +$ +16.554 +11/15/2006 +11/15/2016 +William J. Motto +— +113,063 +3 +— +$ +2.090 +10/01/2001 +09/30/2011 +7,988 +1 +— +— +$ +2.800 +11/19/2002 +11/19/2012 +15,750 +2 +— +— +$ +4.525 +12/02/2003 +12/02/2013 +15,750 +2 +— +— +$ +7.280 +12/07/2004 +12/07/2014 +15,750 +2 +— +— +$ +14.007 +11/10/2005 +11/10/2015 +10,500 +2 +5,250 +2 +— +$ +16.554 +11/15/2006 +11/15/2016 +Antonio A. Interno +— +22,500 +3 +— +$ +2.090 +10/01/2001 +09/30/2011 +10,500 +2 +— +— +$ +14.007 +11/10/2005 +11/10/2015 +10,500 +2 +5,250 +2 +— +$ +16.554 +11/15/2006 +11/15/2016 +Richard L. Eberly +— +22,500 +3 +— +$ +2.090 +10/01/2001 +09/30/2011 +5,250 +2 +— +— +$ +7.280 +12/07/2004 +12/07/2014 +10,500 +2 +— +— +$ +14.007 +11/10/2005 +11/10/2015 +10,500 +2 +5,250 +2 +— +$ +16.554 +11/15/2006 +11/15/2016 +1 +Options vested on 12/31/2003. +2 +Options vest in three equal annual installments beginning one year from public +earnings release date for the fiscal year ending immediately following the grant date, indicating +that performance targets were met, occurring approximately one year from date of grant. +3 +Options vest on 10/01/2010. +4 +Options vest on 01/22/2011. +5 +Options vest on 01/22/2013. +24 +Table of Contents +OPTION EXERCISES AND STOCK VESTED +Option Awards +Stock Awards +Number of +Number of +Shares +Value Realized +Shares +Value +Acquired on +on Exercise ($) +Acquired on +Realized On +Name +Exercise (#) +(1) +Vesting (#) +Vesting ($) +(a) +(b) +(c) +(d) +(e) +John A. Kraeutler +63,675 +$ +1,149,686 +— +$ +— +Antonio A. Interno +5,250 +$ +91,350 +— +$ +— +1 Amounts reflect the difference between the exercise price of the option and the market +price at the time of exercise. +NONQUALIFIED DEFERRED COMPENSATION +The following table sets forth, for each of the NEOs, certain information concerning nonqualified +deferred compensation for fiscal 2009. +Aggregate +Executive +Registrant +Earnings +Aggregate +Aggregate +Contributions +Contributions +during FY +Withdrawals / +Balance at +Name +during FY 2009 +during FY 2009 +2009 +Distributions +09/30/2009 +John A. Kraeutler +— +23,780 +(4,198 +) +— +180,789 +Melissa A. Lueke +— +— +— +— +— +William J. Motto +— +— +— +— +— +Antonio A. Interno +— +— +— +— +— +Richard L. Eberly +— +— +— +— +— +Our 401(k) Savings Plan (“401(k) Plan”) allows all US employees of the Company as of the first day +of their employment to set aside a portion of their compensation each year for their retirement +needs up to the limits set by the Internal Revenue Code. The Company contributes a matching +contribution of 100% of the first 3% of the employee’s contribution (i.e. up to 3% of an employee’s +salary) subject to Internal Revenue Code limitations. The Company may also contribute a +profit-sharing contribution at its discretion. Employee contributions are 100% vested immediately, +while Company contributions are subject to a graded vesting schedule of 20% per year for 5 years. +Participants are entitled to direct the investment of their accounts among various mutual funds +selected by the Company’s Fiduciary Committee. The Plan also provides that Company discretionary +profit sharing contributions may be invested in Company stock. Participants who terminate +employment are entitled to receive the vested portion of their accounts. +Antonio A. Interno, Senior Vice President, President and Managing Director of our European +operations, is a non-US employee. Mr. Interno receives a profit sharing allocation that is +commensurate with amounts received by executive officers who are US employees and participate in +our 401(k) Plan. Mr. Interno also receives retirement contributions based on amounts contributed +by Meridian Bioscience Europe srl pursuant to the Italian government pension system, INPS. The +amount of such contribution was $11,680 for fiscal 2009. +25 +Table of Contents +A salary continuation agreement with John A. Kraeutler allows the Company to contribute amounts +above the IRS limit. This agreement provides additional compensation after retirement or +separation from the Company under certain circumstances and is funded by a life insurance policy +with premiums paid by the Company. +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL +In the case of a disability, Meridian is obligated to pay Mr. William J. Motto 60% of his total +annual salary and bonus for a period of up to 60 months. In the case of death, Meridian is +obligated to pay to Mr. Motto’s designated beneficiaries up to $1 million. These benefits are to +be reduced by the gross amount of any life insurance payments or disability insurance payments made +to Mr. Motto, or his beneficiaries as the case may be, under any insurance policy or program +maintained by Meridian, other than group term life insurance programs maintained for all employees. +Mr. Kraeutler and Meridian are parties to an employment agreement dated December 29, 2008, which +sets forth compensation, non-competition, benefit and severance provisions and provides for a +payment equal to three times Mr. Kraeutler’s base salary (plus any salary earned but not paid) and +3-year average annual performance bonus if Mr. Kraeutler is terminated by Meridian without cause, +Mr. Kraeutler terminates his employment for good reason or upon a change in control of Meridian. +In the case of disability, Meridian is obligated to pay Mr. Kraeutler 100% of his base and +performance compensation, averaged from the three preceding fiscal years, until age 65. This +agreement was effective for a period of 36 months commencing December 29, 2008, automatically +extending each day for additional 36-month periods until either party terminates the agreement. +This agreement amended an earlier agreement, dated February 15, 2001, to comply with Section 409A +and is similar in substance to the pre-existing agreement. +Had a change in control occurred on September 30, 2009, Mr. Kraeutler would have been entitled to +the following under the agreement: +Salary +$ +1,354,046 +Annual Performance Bonus +478,130 +Total Payment +$ +1,832,176 +DIRECTOR COMPENSATION +For 2009, non-employee directors of Meridian receive $30,000 per year for serving as directors and +as members of committees of the Board. They also receive $1,500 for each meeting of the Board and +$1,000 for each committee meeting attended. They receive $750 for each Board meeting and $500 for +each committee meeting held by telephone. The Audit Committee Chairman receives an additional +$8,000 annually and the Compensation Committee Chairman receives an additional $3,000 annually. +The Board Secretary receives an additional $1,000 for serving at each meeting of a committee of +which he is not a member. In accordance with the terms and conditions set forth in the Company’s +2004 Equity Compensation Plan, each non-employee director is also granted a non-qualified option to +26 +Table of Contents +purchase 7,500 common shares at the time of election or re-election to the Board of Directors, with +the exercise price being the closing sale price on Nasdaq reported on the date of grant. Directors +who are employees of Meridian are not separately compensated for serving as directors. +The following table provides information on compensation related to fiscal 2009 for non-employee +directors who served during fiscal 2009. +Fees +Change in +Earned +Pension Value +or +Non-Equity +and Nonqualified +Paid in +Stock +Option +Incentive Plan +Deferred +All Other +Cash +Awards +Awards +Compensation +Compensation +Compensation +Total +Name +(1) +($) +($) +($) 1 +($) +Earnings +($) +($) +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +James M. Anderson +$ +7,500 +— +$ +36,001 +— +— +— +$ +43,501 +James A. Buzard +$ +46,500 +— +$ +84,240 +— +— +— +$ +130,740 +Gary P. Kreider +$ +51,500 +— +$ +84,240 +— +— +— +$ +135,740 +David C. Phillips +$ +54,500 +— +$ +84,240 +— +— +— +$ +138,740 +Robert J. Ready +$ +46,500 +— +$ +84,240 +— +— +— +$ +130,740 +1 +The amounts shown reflect the dollar amounts recognized for financial statement +reporting purposes with respect to fiscal year 2009 in accordance with SFAS No. 123(R). A +discussion of the assumptions used in calculating these values may be found in Note 7(b) on +page 66 to Company’s Annual Report on Form 10-K filed November 30, 2009. +SHAREHOLDER PROPOSALS FOR NEXT YEAR +The deadline for shareholder proposals to be included in the proxy statement for next year’s +meeting is August 12, 2010. +The form of Proxy for this meeting grants authority to the designated proxies to vote in their +discretion on any matters that come before the meeting except those set forth in Meridian’s proxy +statement and except for matters as to which adequate notice is received. In order for a notice to +be deemed adequate for the 2011 Annual Shareholders’ Meeting, it must be received prior to October +27, 2010. If there is a change in the anticipated date of next year’s Annual Shareholders’ Meeting +or these deadlines by more than 30 days, we will notify you of this change through our Form 8-K +and/or Form 10-Q filings. +Meridian’s Code of Regulations provides that only persons nominated by an officer, director or in +writing by a shareholder not earlier than 150 days nor later than 90 days prior to the meeting at +which directors are to be selected shall be eligible for election and that shareholder proposals be +presented not earlier than 150 days nor later than 90 days prior to the meeting at which the +proposals are to be presented. +27 +Table of Contents +QUESTIONS? +If you have questions or need more information about the annual meeting, write to: +Melissa Lueke, Executive Vice President, Chief Financial Officer and Secretary +Meridian Bioscience, Inc. +3471 River Hills Drive +Cincinnati, Ohio 45244 +or call us at (513) 271-3700. +For information about your record holdings call the Computershare Shareholder Services at (888) +294-8217. +28 +Table of Contents +MERIDIAN BIOSCIENCE, INC. +3471 RIVER HILLS DRIVE +CINCINNATI, OH 45244 +VOTE BY INTERNET - +www.proxyvote.com +Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. +ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS +If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. +VOTE +BY PHONE - 1-800-690-6903 +Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. +VOTE BY MAIL +Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. +TO VOTE, MARK BLOCKS BELOW +IN BLUE OR BLACK INK AS FOLLOWS: +M18506-P85082 +KEEP THIS PORTION FOR YOUR RECORDS +DETACH +AND RETURN THIS PORTION +ONLY +THIS PROXY CARD IS VALID ONLY WHEN +SIGNED AND DATED. +MERIDIAN BIOSCIENCE, INC. +The Board of +Directors recommends you vote +FOR the following proposal(s): +1. +Authority to elect as +directors the seven +nominees listed below. +Nominees: +For +Against +Abstain +1a. JAMES M. ANDERSON +o +o +o +1b. JAMES A. BUZARD +o +o +o +1c. JOHN A. KRAEUTLER +o +o +o +1d. GARY P. KREIDER +o +o +o +1e. WILLIAM J. MOTTO +o +o +o +1f. DAVID C. PHILLIPS +o +o +o +1g. ROBERT J. READY +o +o +o +For address changes and/or comments, please check +this box and write them on the back where indicated. +o +Please indicate if you plan to attend this meeting. +o +o +Yes +No +For +Against +Abstain +2. +To +ratify the appointment of Grant Thornton LLP as Meridian’s +independent registered public accountants for fiscal 2010. +o +o +o +NOTE: +Such other business as may properly come before the meeting or any +postponement or adjournment thereof. +Please sign +exactly as your names(s) appear(s) hereon, indicating, where proper, +official position or representative capacity. All joint holders must +sign. +Signature [PLEASE SIGN WITHIN +BOX] +Date +Signature (Joint Owners) +Date +Table of Contents +Important +Notice Regarding the +Availability of Proxy Materials for the Annual Meeting: +The Notice and Proxy Statement and Annual Report are available at www.proxyvote.com. +M18507-P85082 +Proxy - Meridian Bioscience, Inc. +This Proxy is submitted on behalf of the Board of +Directors +The undersigned hereby appoints JOHN A. KRAEUTLER or +MELISSA A. LUEKE, or either of them, proxies of the undersigned, each with the power of substitution, to vote +cumulatively or otherwise all shares of Common Stock which the undersigned would be entitled to vote on the matters +specified on the reverse side and, in their discretion, with respect to such other business as may properly come +before the Annual Meeting of Shareholders of Meridian Bioscience, Inc. to be held on January 21, 2010 at 2:00 p.m. at +Holiday Inn, 4501 Eastgate Boulevard, Cincinnati, Ohio and any postponement or adjournment of such Annual Meeting. +Address Changes/Comments: +(If you noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.) +(This proxy is continued and is to be signed on the reverse side.) +Table of Contents +*** Exercise Your Right to Vote *** +IMPORTANT NOTICE Regarding the Availability of Proxy Materials +MERIDIAN BIOSCIENCE, INC. +MERIDIAN BIOSCIENCE, INC. +3471 RIVER HILLS DRIVE +CINCINNATI, OH 45244 +Meeting Information +Meeting Type: ANNUAL +For holders as of: November 23, 2009 +Date: January 21, 2010 Time: 2:00 PM LOCAL +Location: +Holiday Inn +4501 Eastgate Boulevard +Cincinnati, Ohio 45245 +You are receiving this communication because you hold shares in the above named company. +This is not a ballot. +You cannot use this notice to vote these shares. +This communication presents only an overview of the more +complete proxy materials that are available to you on the Internet. You may view the +proxy materials online at www.proxyvote.com or easily request a paper copy (see reverse side). +We encourage you to access and +review all of the important information contained in the proxy materials before voting. +See the reverse side of this notice to +obtain proxy materials and voting instructions. +Table of Contents +— Before You Vote — +How to Access the Proxy Materials +Proxy Materials Available to VIEW or RECEIVE: +NOTICE AND PROXY STATEMENT ANNUAL REPORT +How to View Online: +Have the 12-Digit Control Number available (located on the following page) and visit: +www.proxyvote.com . +How to Request and Receive a PAPER or E-MAIL Copy: +If you want to receive a paper or e-mail copy of these documents, you must request one. There is NO +charge for requesting a copy. Please choose one of the following methods to make your request: +1) BY INTERNET : +www.proxyvote.com +2) BY TELEPHONE : +1-800-579-1639 +3) BY E-MAIL* : +sendmaterial@proxyvote.com +* +If requesting materials by e-mail, please send a blank e-mail with the 12-Digit Control Number +(located on the following page) in the subject line. +Requests, instructions +and other inquiries sent to this e-mail address will NOT be forwarded to your investment advisor. +Please make the request as instructed above on or before January 7, 2010 to facilitate timely delivery. +— How To Vote — +Please Choose One of the Following Voting Methods +Vote In Person: Many shareholder +meetings have attendance requirements including, but not limited to, the possession of an +attendance ticket issued by the entity holding the meeting. Please check the meeting materials +for any special requirements for meeting attendance. At the Meeting you will need to request +a ballot to vote these shares. +Vote By Internet: To vote now +by Internet, go to www.proxyvote.com . Have the 12 Digit Control Number available and follow the instructions. +Vote By Mail: You can vote by mail by requesting a paper copy of the materials, which will include a proxy card. +Table of Contents +Voting Items +The Board of Directors recommends you vote FOR +the following proposal(s): +1. +Authority to elect as directors the seven nominees listed below. +Nominees: +1a. +JAMES M. ANDERSON +1b. +JAMES A. BUZARD +2. To ratify the appointment of Grant Thornton LLP as +Meridian’s independent registered public accountants for fiscal 2010. +1c. +JOHN A. KRAEUTLER +1d. +GARY P. KREIDER +1e. +WILLIAM J. MOTTO +NOTE: Such other business as may properly come before +the meeting or any postponement or adjournment thereof. +1f. +DAVID C. PHILLIPS +1g. +ROBERT J. READY \ No newline at end of file diff --git a/raw/proxies/0000794172/0000950123-09-069728/proxy_rpt.txt b/raw/proxies/0000794172/0000950123-09-069728/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..30db69fe7073ff7defd0e52dbed83b92e1242eff --- /dev/null +++ b/raw/proxies/0000794172/0000950123-09-069728/proxy_rpt.txt @@ -0,0 +1,16 @@ +TRANSACTIONS WITH RELATED PERSONS +Todd Motto, the adult son of William J. Motto, is Vice President, Sales and Marketing. Todd Motto +received $264,679 in compensation for fiscal 2009. This compensation consisted of base salary of +$200,700, $8,850 of auto and professional allowances, $13,082 of retirement plan contributions, +$38,634 related to stock option awards expense related to awards earned in previous years, and +$3,413 for dividends on restricted stock granted under the 2004 Equity Compensation Plan. +Nasdaq rules require the Company to conduct an appropriate review of related party transactions +required to be disclosed by the Company pursuant to SEC Regulation S-K Item +12 +Table of Contents +404 for potential conflict of interest situations on an ongoing basis and that all such +transactions must be approved by the Audit Committee or another committee comprised of independent +directors. As a result, the Audit Committee annually reviews all such related party transactions +and approves each related party transaction if it determines that it is in the best interests of +the Company. Additionally, the Audit Committee’s Charter provides it the authority to review, +approve and monitor transactions involving the Company and “related persons” (directors and \ No newline at end of file diff --git a/raw/proxies/0000794172/0000950123-10-111857/proxy.txt b/raw/proxies/0000794172/0000950123-10-111857/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..241371608a58fa0ee8786efcfca38fe7fa845d6b --- /dev/null +++ b/raw/proxies/0000794172/0000950123-10-111857/proxy.txt @@ -0,0 +1,2633 @@ +DEF 14A +1 +l41218def14a.htm +DEF 14A +def14a +UNITED +STATES +SECURITIES AND EXCHANGE COMMISSION +WASHINGTON, D.C. 20549 +SCHEDULE +14A +(Rule 14a-101) +INFORMATION +REQUIRED IN PROXY STATEMENT +SCHEDULE 14A INFORMATION +Proxy +Statement Pursuant to Section 14(a) +of the Securities +Exchange Act of 1934 +(Amendment No. +) +Filed by the Registrant þ +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a- 6(e)(2) ) +þ +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to Section 14a-12 +Meridian Bioscience, Inc. +(Name of Registrant as Specified in Its Charter) +(Name of Person(s) Filing Proxy Statement if Other Than the Registrant) +Payment of Filing Fee (Check the appropriate box): +þ +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act +Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was +determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total Fee Paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) +and identify the filing for which the offsetting fee was paid previously. Identify the +previous filing by registration statement number, or the Form or Schedule and the date of its +filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +MERIDIAN BIOSCIENCE, INC. +3471 River Hills Drive +Cincinnati, Ohio 45244 +www.meridianbioscience.com +Notice of Annual Meeting +and Proxy Statement +Dear Shareholder: +Our Annual Meeting of Shareholders will be held at 2:00 p.m. on January 20, 2011 at the Holiday Inn +Eastgate, 4501 Eastgate Boulevard, Cincinnati, OH 45245. We hope you will attend. +At the meeting, you will hear a report on our operations and have a chance to meet your Directors +and Executive Officers. +This booklet includes the formal notice of the meeting and the proxy statement. The proxy +statement tells you more about the agenda and procedures for the meeting. It also describes how +the Board operates and gives personal information about our Director candidates. +We are pleased to once again take advantage of the U.S. Securities and Exchange Commission rules +that allow companies to furnish their proxy materials over the Internet. As a result, we are +mailing to most of our shareholders a Notice of Internet Availability of Proxy Materials (the +“Notice”) instead of a paper copy of this proxy statement and our Annual Report. The Notice +contains instructions on how to access and review those documents over the Internet. We believe +that this process will allow us to provide our shareholders with the information they need in a +more timely manner, while reducing the environmental impact and lowering the costs of printing and +distributing our proxy materials. If you received a Notice by mail and would like to receive a +printed copy of our proxy materials, you should follow the instructions for requesting such +materials included in the Notice. +Whether or not you plan to attend the meeting, please cast your proxy vote promptly, either +on-line, over the phone or by returning your signed and dated proxy card in the enclosed envelope. +Sincerely yours, +/s/ William J. Motto +William J. Motto +Executive Chairman of the Board +December 8, 2010 +NOTICE OF ANNUAL MEETING +OF +SHAREHOLDERS OF MERIDIAN BIOSCIENCE, INC. +Time: +2:00 p.m., Eastern Standard Time +Date: +January 20, 2011 +Place: +Holiday Inn Eastgate +4501 Eastgate Blvd. +Cincinnati, Ohio 45245 +Purpose: +• +Elect as Directors the six nominees named in the attached proxy materials +• +Ratify appointment of Grant Thornton LLP as Meridian’s independent +registered public accountants for fiscal year 2011 +• +Conduct other business if properly raised +Only shareholders of record on November 22, 2010 may vote at the meeting. The approximate +mailing date of this proxy statement and accompanying Proxy Card is December 8, 2010. +Your vote is important. Please cast your proxy vote promptly, either on-line, over the +phone or by returning your signed and dated proxy card in the enclosed envelope. +/s/ Melissa A. Lueke +Melissa A. Lueke +Secretary +December 8, 2010 +TABLE OF CONTENTS +Page +GENERAL INFORMATION +1 +ELECTION OF DIRECTORS +2 +RATIFICATION OF APPOINTMENT OF ACCOUNTANTS +5 +CORPORATE GOVERNANCE +6 +DIRECTORS AND EXECUTIVE OFFICERS +12 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS +14 +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +14 +TRANSACTIONS WITH RELATED PERSONS +14 +COMPENSATION DISCUSSION AND ANALYSIS +15 +SUMMARY COMPENSATION TABLE +24 +DIRECTOR COMPENSATION +29 +SHAREHOLDER PROPOSALS FOR NEXT YEAR +30 +QUESTIONS? +30 +Meridian makes available, free of charge on its website, all of its filings that are made +electronically with the Securities and Exchange Commission (“SEC”), including Forms 10-K, 10-Q and +8-K. These filings are also available on the SEC’s website (www.sec.gov). To access these filings, +go to our website (www.meridianbioscience.com). Copies of Meridian’s Annual Report on Form 10-K +for the fiscal year ended September 30, 2010, including financial statements and schedules thereto, +filed with the SEC, are also available without charge to shareholders upon written request +addressed to: +Melissa A. Lueke +Executive Vice President, Chief Financial Officer and Secretary +Meridian Bioscience, Inc. +3471 River Hills Drive +Cincinnati, Ohio 45244 +GENERAL INFORMATION +Who may vote +Shareholders of Meridian, as recorded in our stock register on November 22, 2010, may vote at the +meeting. As of that date, Meridian had 40,942,286 shares of Common Stock outstanding. +How to vote +You may vote in person at the meeting or by proxy. We recommend you vote by proxy even if you plan +to attend the meeting. You can always change your vote at the meeting. +How proxies work +Meridian’s Board of Directors is asking for your proxy. Giving us your proxy means you authorize +us to vote your shares at the meeting in the manner you direct. You may vote for all, some or none +of our Director candidates. You may also vote for or against the other proposals or abstain from +voting. +If you complete your proxy on-line, over the phone or sign and return the enclosed proxy card but +do not specify how to vote, we will vote your shares in favor of our Director candidates and the +ratification of appointment of Grant Thornton LLP as Meridian’s independent registered public +accountants for fiscal year 2011. If any other matters come before the meeting or any postponement +or adjournment thereof, each proxy will be voted in the discretion of the individuals named as +proxies on the card. +You may receive more than one proxy or voting card depending on how you hold your shares. Shares +registered in your name are covered by one card. If you hold shares through someone else, such as +a stockbroker, bank or nominee, you may get material from them asking how you want to vote. +Stockbrokers, banks and nominees holding shares for beneficial owners must vote those shares as +instructed. If the stockbroker, bank or nominee has not received instructions from you, the +beneficial owner, the stockbroker, bank or nominee generally has discretionary voting power only +with respect to the ratification of appointment of the independent registered public accountants. +However, a stockbroker, bank or nominee does not have discretion to vote for or against the +election of Directors. In order to avoid a broker non-vote of your shares on the election of +Directors, you must send voting instructions to your stockbroker, bank or nominee. +Revoking a proxy +You may revoke your proxy before it is voted by submitting a new proxy with a later date, by voting +in person at the meeting or by notifying Meridian’s Secretary in writing at the address under +“Questions?” on page 30. +1 +Quorum +In order to carry on the business of the meeting, we must have a quorum. This means at least a +majority of the outstanding shares eligible to vote must be represented at the meeting, either by +proxy or in person. +Votes needed +The six Director candidates receiving the most votes will be elected to fill the seats on the +Board. The ratification of appointment of accountants requires the favorable vote of a majority of +the votes cast. Only votes for or against these proposals count. Abstentions and broker non-votes +count for quorum purposes but not for voting purposes. Broker non-votes occur when a broker +returns a proxy card but does not have authority to vote on a particular proposal. +Other matters +Any other matters considered at the meeting, including postponement or adjournment, will require +the affirmative vote of a majority of the votes cast. +ELECTION OF DIRECTORS +(Item 1 on the Proxy Card) +The Nominating and Corporate Governance Committee of the Board of Directors has nominated for +re-election the following current Directors: James M. Anderson, John A. Kraeutler, Gary P. Kreider, +William J. Motto, David C. Phillips and Robert J. Ready. With the exception of Mr. James A. +Buzard, who is retiring at the end of his current term in January 2011 and not standing for +re-election, these nominees comprise the current Board of Directors. +Proxies solicited by the Board will be voted for the election of these nominees. All Directors +elected at the Annual Shareholders’ Meeting will be elected to hold office until the next annual +meeting. In voting to elect Directors, shareholders are entitled to cumulate their votes and to +give one candidate a number of votes equal to the number of Directors to be elected multiplied by +the number of shares held by the shareholder, or to distribute their votes on the same principle +among as many candidates as the shareholder sees fit. In order to invoke cumulative voting, notice +of cumulative voting must be given in writing by a shareholder to the Chief Executive Officer, a +Vice President or the Secretary of Meridian not less than 48 hours prior to the Annual +Shareholders’ Meeting. The proxies solicited include discretionary authority to cumulate votes. +All Meridian Directors are elected for one-year terms. Personal information on each of our +nominees is given below. +If a Director nominee becomes unavailable before the election, your proxy card authorizes us to +vote for a replacement nominee if the Board names one. +2 +The Board recommends that you vote FOR each of the following candidates: +James M. Anderson +Director since 2009 +Age: 68 +James M. Anderson is currently serving as Advisor to +the President of Cincinnati Children’s Hospital +Medical Center (“CCHMC”), following his retiring as +President and Chief Executive Officer of CCHMC on +December 31, 2009. He serves as chairman of the +Board of the Cincinnati Branch of the Federal +Reserve Bank of Cleveland. Prior to joining the +staff of CCHMC, Mr. Anderson was a partner in the +general corporate law department at Taft, Stettinius +& Hollister for 24 years (1968-1977; 1982-1996) and +president of US operations at Xomox Corporation, a +publicly-traded manufacturer of specialty process +controls (1977-1982). Mr. Anderson has also served +as director of Gateway Investment Advisors +(1997-2008). The Board believes that Mr. Anderson’s +corporate legal experience and his experience as CEO +of a large healthcare organization have given him a +wealth of insight into various corporate governance +and business management issues, which, along with +his status as an independent Director, make him an +integral member of the Board. +John A. Kraeutler +Director since 1997 +Age: 62 +John A. Kraeutler has nearly 40 years of experience +in the medical diagnostics industry and joined +Meridian as Executive Vice President and Chief +Operating Officer in January 1992. In July 1992, +Mr. Kraeutler was named President of Meridian, and +in January 2008, Mr. Kraeutler was named Chief +Executive Officer of Meridian. Before joining +Meridian, Mr. Kraeutler served as Vice President, +General Manager for a division of Carter-Wallace, +Inc. Prior to that, he held key marketing and +technical positions with Becton, Dickinson and +Company and Organon, Inc. Mr. Kraeutler’s long-time +service to Meridian, all in an executive capacity, +has given him significant insight into, and +familiarity with, all aspects of Meridian’s business +and the strategic vision for its continued success, +and makes his service on the Board extremely +beneficial. +Gary P. Kreider, Esq. +Director since 1991 +Age: 72 +Gary P. Kreider serves as Board Secretary. Mr. +Kreider is a senior partner in the Cincinnati law +firm of Keating Muething & Klekamp PLL, the +Company’s outside counsel. His primary practice +areas are securities law, mergers and acquisitions, +and general corporate law, and he has been with +Keating Muething & Klekamp since 1963. Effective +October 1, 2005, Mr. Kreider no longer has a vote or +partnership interest in the firm’s earnings or +revenues, although his affiliation with the firm +continues. Mr. Kreider has been an Adjunct +Professor of Law in securities regulation at the +University of Cincinnati College of Law since 1977 +and is a past Chairman of the Ohio State Bar +Association +3 +Corporation Law Committee. Mr. Kreider +is also a director of LSI Industries Inc. The Board +believes that Mr. Kreider’s legal experience as a +prominent corporate and securities law practitioner, +his public-company board service and his status as +an independent Director make him extremely qualified +to sit on the Board. +William J. Motto +Director since 1977 +Age: 69 +William J. Motto has more than 45 years of +experience in the pharmaceutical and diagnostics +products industries, is a founder of Meridian and +has been Chairman of the Board since 1977. Mr. +Motto became Executive Chairman of the Board in +January 2008. Before forming Meridian, Mr. Motto +served in various capacities for Wampole +Laboratories, Inc., Marion Laboratories, Inc. and +Analytab Products, Inc., a division of American Home +Products Corp. Mr. Motto’s experience as Meridian’s +founder, his breadth of experience within the +pharmaceutical and diagnostics products industries, +and his entrepreneurial approach to assessing +Meridian’s growth opportunities, give him +unparalleled insights into all aspects of Meridian’s +business and operations, which he, in turn, is able +to contribute to the Board as its Executive +Chairman. +David C. Phillips +Director since 2000 +Age: 72 +David C. Phillips serves as Chairman of the Audit +Committee. Mr. Phillips spent 32 years with Arthur +Andersen LLP. His service with this firm included +several managing partner leadership positions. +After retiring from Arthur Andersen in 1994, Mr. +Phillips became Chief Executive Officer of Downtown +Cincinnati, Inc., which is responsible for economic +revitalization of Downtown Cincinnati. Mr. Phillips +retired from DCI in 1999 to devote full time to +Cincinnati Works, Inc., an organization dedicated to +reducing the number of people living below the +poverty level by assisting them to strive towards +self-sufficiency through work, and his financial +consulting services. Mr. Phillips also serves as a +director of Cintas Corporation and served as a +director of Summit Mutual Funds, a registered +investment company, through 2009. The Board +believes that Mr. Phillips’ years of service as a +certified public accountant and trusted advisor to +his clients and business owners, which qualify him +as an “audit committee financial expert” under SEC +guidelines, give him significant experience in +preparing, auditing, analyzing and evaluating +financial statements and dealing with complex +accounting and business issues, all of which is +valuable to Meridian. +4 +Robert J. Ready +Director since 1986 +Age: 70 +Robert J. Ready serves as Chairman of the +Compensation Committee. Mr. Ready founded LSI +Industries Inc., Cincinnati, Ohio in 1976, which +engineers, manufactures and markets +commercial/industrial lighting and graphics +products, and has served as its President and +Chairman of its Board of Directors. In November +2010, Mr. Ready’s son became President of LSI, with +Mr. Ready continuing to serve as Chief Executive +Officer and Chairman of the Board. Meridian’s Board +believes that Mr. Ready’s years of experience as the +chief executive of a publicly-traded company and the +myriad, wide-ranging business issues encountered in +such capacity, as well as his status as an +independent Director, render his service on the +Board invaluable to Meridian. +RATIFICATION OF APPOINTMENT OF ACCOUNTANTS +(Item 2 on the Proxy Card) +Although not required, we are seeking shareholder ratification of the Audit Committee’s selection +of Grant Thornton LLP as Meridian’s independent registered public accounting firm for the 2011 +fiscal year. The affirmative vote of a majority of shares voting at the meeting is required for +ratification. If ratification is not obtained, the Audit Committee intends to continue the +employment of Grant Thornton at least through fiscal 2011. Representatives of Grant Thornton are +expected to be present at the Annual Shareholders’ Meeting and will be given an opportunity to make +a statement, if they so desire, and to respond to appropriate questions that may be asked by +shareholders. +Principal Accounting Firm Fees +Aggregate fees billed to Meridian by Grant Thornton LLP for fiscal years 2010 and 2009 are listed +below: +2010 +2009 +Audit Fees +$ +403,800 +$ +271,500 +Audit-Related Fees +336,300 +17,078 +Tax Fees +53,075 +— +$ +793,175 +$ +288,578 +Audit Fees. Audit fees are the fees billed for professional services rendered by Meridian’s +independent registered public accounting firm for their audit of Meridian’s consolidated annual +financial statements for the fiscal years ended September 30, 2010 and 2009, respectively, and +reviews of the unaudited quarterly consolidated financial statements contained in the reports on +Form 10-Q filed by Meridian during those years and on reporting on Meridian’s internal control +during those years. The fiscal 2010 amount includes fees +5 +associated with expanded audit services in connection with the acquisition of the Bioline group of +companies (collectively the “Bioline Group”). +Audit-Related Fees . Audit-related fees are the fees billed for assurance and related services that +are reasonably related to the performance of the audit or review of Meridian’s financial +statements. For 2010, such fees primarily relate to pre-acquisition due diligence and opening +balance sheet procedures associated with the Bioline Group acquisition. +Tax Fees. Tax fees are primarily comprised of services associated with the Bioline Group +acquisition, including structure consulting, transfer pricing analysis and various related +research. +The Board recommends that you vote FOR the ratification of appointment of Grant Thornton LLP as +Meridian’s independent registered public accounting firm for the 2011 fiscal year. +CORPORATE GOVERNANCE +As an Ohio corporation, Meridian is governed by the corporate laws of Ohio. Since its common +shares are publicly traded on the Nasdaq Global Select Market and it files reports with the +Securities and Exchange Commission, it is also subject to Nasdaq rules and federal securities laws. +Board Leadership Structure +Governance of the corporation is placed in the hands of the Directors who, in turn, elect officers +to manage the business operations. The Board oversees the management of Meridian on your behalf. +The Board reviews Meridian’s long-term strategic plans and exercises direct decision making +authority in all major decisions, such as acquisitions, the declaration of dividends, major capital +expenditures and the establishment of company policies. +The Board of Directors is responsible for evaluating and determining Meridian’s leadership +structure, and believes that separate individuals should serve in the capacities of Chairman of the +Board and Chief Executive Officer (CEO). It is the Board’s belief that such a two-person structure +best provides the Company with the right foundation to pursue its strategic and operational +objectives, while maintaining effective oversight and objective evaluation of the Company’s +performance. Currently, these key executive positions are held by Mr. William J. Motto, Executive +Chairman of the Board, and Mr. John A. Kraeutler, CEO. Mr. Motto has served as the Board’s +Chairman since 1977 and in such capacity is responsible for general Board activities including +presiding over all meetings of the Board and shareholders, setting agendas for Board meetings and +providing advice and counsel to Meridian’s management regarding the Company’s business and +operations. As CEO, Mr. Kraeutler is responsible for the general management, oversight, +supervision and control of the business affairs of Meridian, and ensuring that all orders and +resolutions of the Board are put into effect. With their many years of experience with the +Company, Meridian believes that Mr. Motto and Mr. Kraeutler are uniquely qualified to be Meridian’s +Executive Chairman and CEO, respectively. We believe that this leadership structure is currently +the most appropriate for +6 +Meridian, particularly in light of the requirement noted below that all Committees of the Board are +comprised solely of independent Directors. +In accordance with Nasdaq rules, our Board of Directors affirmatively determines the independence +of each Director and nominee for election as a Director in accordance with the elements of +independence set forth in the Nasdaq listing standards and Exchange Act rules. Meridian’s Director +Independence Standards are available at our website www.meridianbioscience.com . Based on +these standards, the Board has determined that each of the following members of the Board is +independent: James M. Anderson, James A. Buzard, Gary P. Kreider, David C. Phillips and Robert J. +Ready. Since revision of the Company’s Committee membership structure in 2009, Mr. Kreider, an +independent outside Director since 1991, neither chairs nor serves on any of the Board Committees. +He remains a Director and serves as recording secretary. Only the remaining independent Directors +serve on Committees of the Board. +During fiscal 2010, the Board of Directors met on six occasions and took one action in writing. +The independent Directors plan to meet at least two times during fiscal 2011 without the presence +of management Directors. The independent members of the Board had one such meeting in fiscal 2010. +The independent Directors select one of such Directors to preside over each session. +Meridian expects all Directors to attend shareholders’ meetings and all were in attendance at the +2010 Annual Shareholders’ Meeting. +Shareholders may communicate with the full Board or individual Directors on matters concerning +Meridian by mail or through our website, in each case to the attention of the Secretary, the +address for whom is set forth on page 30 of this proxy statement. +The Board’s Role in Risk Oversight +The Board of Directors, as a whole and also at the Committee level, plays a key role in operational +risk oversight at Meridian and works with management to understand the risks the Company faces, the +steps that management is taking to manage that risk and the level of risk appropriate for the +Company in light of its overall business strategy. The Board approves the high level strategies, +financial plans and policies of Meridian, setting the tone and direction for the appropriate levels +of risk-taking within the organization. +While overall responsibility for risk oversight rests with the Board, it is the Audit Committee +that has been given the primary responsibility of monitoring and evaluating the adequacy of +management’s risk assessment and risk management practices. This role is carried out through its +charter-mandated responsibilities related to Meridian’s (i) overall financial risks and exposures, +(ii) financial statement risks and exposures, (iii) financial reporting processes, (iv) compliance +with ethics policies and regulations, and (v) compliance with governmental and legal regulations, +including those contained within the Sarbanes-Oxley Act. The Audit Committee provides regular +reports to the full Board and works closely with management to update the full Board, as necessary, +on matters identified through these Committee risk oversight roles. +7 +Committees of the Board of Directors +The Board has adopted a Code of Ethics applicable to Meridian’s officers, Directors and employees. +This Code of Ethics is posted on www.meridianbioscience.com . To the extent permitted by Nasdaq +Marketplace Rule 5610, any amendments to or waivers from the Code of Ethics will be posted on our +website within four business days after the date of an amendment. +The Directors have organized themselves into the Committees described below. Each of these +Committees has a charter posted on www.meridianbioscience.com . Meridian does not have an Executive +Committee of its Board of Directors. +The Audit Committee is composed of David C. Phillips (Chairman), James M. Anderson, James A. Buzard +and Robert J. Ready. It met ten times during fiscal 2010 and took no actions in writing. Each +member is able to read and understand fundamental financial statements. David C. Phillips has been +designated as an Audit Committee financial expert as that term is defined by the Securities and +Exchange Commission. +The Committee oversees the accounting and financial reporting processes of Meridian and the audits +of its financial statements by its independent registered public accounting firm. The Committee is +solely responsible for the appointment, compensation, retention and oversight of Meridian’s +independent registered public accounting firm. The Audit Committee also evaluates information +received from Meridian’s independent registered public accounting firm and management to determine +whether the independent registered public accounting firm is independent of management. The +independent registered public accounting firm reports directly to the Audit Committee. +In addition, the Audit Committee has established procedures for the receipt, retention and +treatment of complaints received by Meridian concerning accounting, internal accounting controls or +auditing matters and has established procedures for the confidential and anonymous submission by +employees of any concerns they may have regarding questionable accounting or auditing matters. +The Audit Committee, or its Chairman, approves all audit and non-audit services performed for +Meridian by its independent registered public accounting firm before those services are commenced. +The Chairman reports to the full Committee at each of its meetings regarding pre-approvals he made +since the prior meeting and the Committee approves what he has done between meetings. For these +purposes, the Committee or its Chairman is provided with information as to the nature, extent and +purpose of each proposed service, as well as the approximate timeframe and proposed cost +arrangements for that service. +As previously noted, the Audit Committee also bears primary risk oversight responsibilities, +including responsibilities such as (i) overseeing the risks and exposures relating to the Company’s +financial statements and financial reporting process, (ii) overseeing the Company’s policies and +procedures for monitoring and mitigating such risks and exposures, and (iii) reviewing management’s +monitoring of the Company’s compliance with established ethics and legal policies and procedures. +8 +The Committee has submitted the following report for inclusion in this proxy statement. +REPORT OF THE AUDIT COMMITTEE +On April 19, 2010, the Audit Committee met with representatives of Grant Thornton and Meridian’s +internal accountants and reviewed with them the proposed 2010 Audit Plan, areas warranting +particular concentration on the audit and the effects of new accounting pronouncements. The Grant +Thornton representatives reviewed with the Committee required Audit Committee communications and +the status of the most recent Public Company Accounting Oversight Board (PCAOB) inspection results. +At its meeting on August 19, 2010, the Committee reviewed management’s strategic business plan and +related risk assessment, specifically discussing with management its risk management strategies +related to key financial and business risks. The Committee concluded that this annual in-depth +review and ongoing management updates of the integrated strategic and risk management plan were +appropriate in order to fulfill its risk oversight obligations. +At its meeting on November 10, 2010, the Committee reviewed and discussed with management, Grant +Thornton and Meridian’s accounting officers the results of the audit for fiscal 2010, including the +audited financial statements. The Committee reviewed the requirements of its Charter previously +adopted and the reports that were required to be disclosed to the Committee. The Committee +discussed with Grant Thornton the matters required to be discussed by PCAOB Interim Auditing +Standard AU Section 380, Communication with Audit Committees . The Grant Thornton representatives +reviewed with the Committee written disclosures required by applicable requirements of the PCAOB +regarding the independent accountants’ communications with the Audit Committee concerning +independence, discussed with the Committee the independent accountants’ independence, and has +presented a letter regarding that matter to the Committee. The Committee discussed with Grant +Thornton its independence. In concluding that the auditors are independent, we determined, among +other things, that the non-audit services provided by the auditors were compatible with their +independence. +Based on the above mentioned review, the Committee recommended to the Board of Directors that the +audited financial statements of Meridian be included in its Annual Report on Form 10-K for the year +ended September 30, 2010 for filing with the Securities and Exchange Commission. In addition, the +Committee amended its Charter, which can be viewed on the Company’s website +www.meridianbioscience.com . +During its meetings throughout the year, the Committee reviewed and assessed the Company’s +financial, financial control, financial reporting, and certain legal and regulatory risk exposures, +including reviewing procedures related to the receipt, retention and treatment of any complaints +concerning accounting, internal accounting controls or auditing matters. Also during its meetings +throughout the year, the Chairman of the Audit Committee reported to the full Committee the +independent accountants’ fees that had been pre-approved and the Committee approved such fees. +Certain fees were pre-approved by the full Committee. The Committee also reviewed the requirements +of and Meridian’s ongoing compliance with Section 404 of the Sarbanes-Oxley Act. +9 +Respectfully submitted, +Audit Committee +David C. Phillips (Chairman) +James M. Anderson +James A. Buzard +Robert J. Ready +The Compensation Committee is composed of Robert J. Ready (Chairman), James M. Anderson, James A. +Buzard and David C. Phillips and is responsible for establishing compensation for Executive +Officers and administering the Company’s compensation plans. This includes establishing salary +levels and bonus plans, making bonus and stock-based awards, and otherwise dealing in all matters +concerning compensation of the Executive Officers. During fiscal 2010, the Compensation Committee +met one time, and took the written action discussed later in this proxy statement regarding the +conversion of the vesting provisions of certain restricted stock grants from performance-based to +time-based. +In general, the Compensation Committee annually reviews the Company’s compensation programs and its +philosophy in setting performance targets in November of each year. At that time, the Company +provides the Compensation Committee with information on total compensation received for all +Executive Officers, including the sources of such compensation, for the immediately preceding +fiscal year and recommendations for the current fiscal year. In discharging the responsibilities +of the Board of Directors relating to compensation of the Company’s Chief Executive Officer and +other Executive Officers, the purposes of the Compensation Committee are, among others, (i) to +review and approve the compensation of the Company’s Chief Executive Officer and other Executive +Officers and (ii) to oversee the compensation policies and programs of the Company, including stock +and benefit plans. The Compensation Committee’s specific functions include adopting, administering +and approving the Company’s incentive compensation and stock plans and awards, including amendments +to the plans or awards and performing such duties and responsibilities under the terms of any +executive compensation plan, incentive-compensation plan or equity-based plan. The Compensation +Committee has the authority to delegate any of its responsibilities to subcommittees as the +Compensation Committee may deem appropriate in its sole discretion. The Compensation Committee has +the authority to engage consultants and advisors. The Compensation Committee did not engage a +consultant this year. The Compensation Committee has an appropriate level of contact among its +members and the Company’s Executive Officers in connection with the analysis of this data. +The Compensation Committee determines the amount and mix of compensation components for the +Executive Chairman, Mr. Motto. The Executive Chairman provides input and recommendations to the +Compensation Committee with respect to the compensation to be paid to the non-employee members of +the Board, as well as Mr. Kraeutler. As Meridian’s Chief Executive Officer, Mr. Kraeutler provides +recommendations to the Compensation Committee with respect to compensation to be paid to the other +corporate officers. +10 +To achieve compensation objectives, the Committee believes it is important to provide competitive +levels of compensation to retain the most qualified employees, to recognize individuals who exceed +expectations and to closely link executive compensation with corporate performance. The Committee +believes Meridian’s long-term objectives can be achieved through cash incentive compensation plans +and equity incentive compensation plans. +The Compensation Committee’s processes and procedures for the consideration and determination of +Executive and Director compensation are discussed in the section entitled “Compensation Discussion +and Analysis” in this proxy statement. +Compensation Committee Interlocks and Insider Participation +None of the members of the Compensation Committee has ever been an officer or employee of the +Company. None of the members of the Compensation Committee is or was a participant in any related +person transaction in fiscal 2010 (see the section entitled “Transactions With Related Persons” in +this proxy statement for a description of our policy on related person transactions). Lastly, none +of the members of the Compensation Committee is an Executive Officer of another entity at which one +of our Executive Officers serves on the Board of Directors. No Named Executive Officer of Meridian +serves as a Director or as a member of a committee of any company of which any of the Company’s +non-employee Directors are Executive Officers. +The Nominating and Corporate Governance Committee consists of James A. Buzard (Chairman), James M. +Anderson, David C. Phillips and Robert J. Ready. It met two times last year and took no actions in +writing. On November 11, 2010, the Committee considered and nominated the current Directors for +re-election, with the exception of Mr. Buzard who is retiring from the Board at the end of his +term. The Committee identifies qualified nominees for the Board, determines who will be nominated +by the Company for election to the Board and recommends to the full Board any changes in the size +of the Board. +In nominating Directors, the Committee takes into account, among other factors which it may deem +appropriate, the judgments, skill, diversity, business experience and the needs of the Board as its +function relates to the business of the Company. The Committee considers candidates for nomination +from a variety of sources including recommendations of shareholders. Shareholders desiring to +submit recommendations for nominations by the Committee should direct them to the Chairman of the +Nominating and Corporate Governance Committee in care of the Company at its address shown on the +cover page of this proxy statement. +The Nominating and Corporate Governance Committee will assess the qualifications of all candidates +for the Board on an equal basis. In identifying and considering candidates for nomination to the +Board, the Committee considers, among other factors, quality of experience, the needs of the +Company and the range of talent and experience currently represented on the Board. The Committee +evaluates such factors, among others, and does not assign any particular weighting or priority to +any of these factors, nor does the Committee have a formal policy with respect to diversity. +However, the Committee, working +11 +with the Board, considers the diversity of all of the Company’s stakeholders — including +shareholders, employees and customers — when engaging in corporate governance discussions. +During several Board meetings in fiscal 2010, the Board discussed the benefits of adding new +members to the Board, particularly in light of Mr. Buzard’s upcoming retirement from the Board. At +the present time, the Nominating and Corporate Governance Committee is not recommending any +additions to the Board. +DIRECTORS AND EXECUTIVE OFFICERS +This table lists the Executive Officers and Directors of Meridian and shows the number of +shares beneficially owned, as determined under SEC rules, on November 22, 2010. Beneficial +ownership includes any shares as to which the individual has sole or shared voting or investment +power and also any shares that the individual has the right to acquire as of January 21, 2011 (60 +days after November 22, 2010). +Common Stock +Beneficially Owned +Name +Position +Amount 1 +Percentage +William J. Motto +Executive Chairman of the Board of Directors +474,541 +1.2 +% +John A. Kraeutler +Chief Executive Officer and Director +366,261 +* +Antonio A. Interno 2 +Senior Vice President, +President and Managing +Director, +Meridian +Bioscience Europe +130,705 +* +Richard L. Eberly 3 +Executive Vice President, +President +Meridian Life Science +76,725 +* +Lawrence J. Baldini 4 +Executive Vice President, +Operations +and Information Systems +96,671 +* +Melissa A. Lueke 5 +Executive Vice President, +Chief +Financial Officer and +Secretary +168,765 +* +Susan A. Rolih 6 +Senior Vice President, +Regulatory Affairs & +Quality Assurance +139,250 +* +James M. Anderson 7, 8, 9, 10 +Director +16,000 +* +James A. Buzard, Ph.D 8, 9, 10 +Director +45,000 +* +Gary P. Kreider 11 +Director +37,588 +* +David C. Phillips 8, 9, 10 +Director +53,225 +* +Robert J. Ready 8, 9, 10 +Director +74,347 +* +All Executive Officers and Directors as a Group +1,679,078 +4.0 +% +12 +1 +Includes options exercisable within 60 days for Mr. Motto of 184,051 shares, Mr. +Kraeutler of 171,001 shares, Mr. Interno of 26,250 shares, Mr. Eberly of 54,000 shares, Mr. Baldini +of 54,000 shares, Ms. Lueke of 47,250 shares, Ms. Rolih of 102,375 shares, Mr. Anderson of 15,000 +shares, Mr. Buzard of 30,000 shares, Mr. Kreider of 35,214 shares, Mr. Phillips of 35,214 shares +and Mr. Ready of 61,284 shares. +2 +Antonio A. Interno was appointed Vice President in August 1991, Senior Vice President +in September 1997, and President, Managing Director, Meridian Bioscience Europe in October 2003. +He has been Managing Director of Meridian’s European subsidiaries, Meridian Bioscience Europe, +since February 1990. Age: 60 +3 +Richard L. Eberly was appointed Vice President of Sales and Marketing in January 1997, +Executive Vice President in May 2000, Executive Vice President, General Manager of Meridian Life +Science in February 2003 and Executive Vice President and President Meridian Life Science in +October 2005. He has over 19 years of experience in the medical diagnostics industry and joined +Meridian in March 1995. Prior to his appointment to Vice President of Sales and Marketing, Mr. +Eberly served as the Director of Sales for Meridian. Before joining Meridian, he held key sales +and marketing positions at Abbott Diagnostics, Division of Abbott Laboratories. Age: 49 +4 +Lawrence J. Baldini was appointed Vice President of Operations in April 2001 and +Executive Vice President, Operations and Information Systems in October 2005. Before joining +Meridian, Mr. Baldini held various operations management positions with Instrumentation +Laboratories and Fisher Scientific. Age: 51 +5 +Melissa A. Lueke was appointed Vice President, Chief Financial Officer and Secretary +in January 2001 and Executive Vice President, Chief Financial Officer and Secretary in November +2009. Prior to her appointment, Ms. Lueke served as Meridian’s Controller since March 2000 and +Acting Secretary from July 20, 2000 to January 23, 2001. Before joining Meridian, Ms. Lueke was +employed by Arthur Andersen LLP from June 1985 to January 1999, most recently as a Senior Audit +Manager. Age: 47 +6 +Susan A. Rolih was appointed Vice President of Regulatory Affairs and Quality +Assurance in May 2001 and Senior Vice President of Regulatory Affairs and Quality Assurance in +April 2008. Before joining Meridian, Ms. Rolih held various regulatory and quality positions with +Immucor, Inc. Age: 61 +7 +James M. Anderson’s first full year as a Director commenced in January 2010 following +shareholder election. Mr. Anderson was first appointed as a Director in July 2009. +8 +Audit Committee Member. +9 +Compensation Committee Member. +10 +Nominating and Corporate Governance Committee Member. +11 +Includes 325 shares held by his wife and 758 shares held as custodian for his +grandchildren. +* +Less than one percent. +13 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS +The following table lists the persons known by the Company to be the beneficial owners of more +than five percent of the Company’s Common Stock as of November 22, 2010, unless otherwise noted. +Beneficial ownership includes any shares as to which the individual has sole or shared voting or +investment power. +Name and address of beneficial owner +Amount and nature of +beneficial ownership +Percent of class 1 +BlackRock, Inc. +3,099,667 +7.64 +40 East 52 nd Street +New York, NY 10022 +Brown Capital Management, Inc. +2,528,609 +6.24 +1201 N. Calvert Street +Baltimore, MD 21202 +1 +For the beneficial owners listed in the table, the percentages listed reflect +disclosures in the Schedule 13Gs filed by each beneficial owner with the Securities and Exchange +Commission. +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Section 16 of the Securities Exchange Act of 1934 requires Meridian’s Executive Officers, +Directors and persons who own more than ten percent of a registered class of Meridian’s equity +securities to file reports of ownership and changes in ownership with the Securities and Exchange +Commission. Based on a review of the copies of such forms received by it, Meridian believes that +during the last fiscal year, all of its Executive Officers, Directors and ten percent stockholders +complied with the Section 16 reporting requirements, with the exceptions that (i) Mr. William J. +Motto filed a late ownership report with respect to an estate planning transaction involving shares +previously held in a trust, the assets of which reverted to Mr. Motto on January 2, 2010 and were +subsequently transferred by Mr. Motto into a different trust on January 12; and (ii) one late Form +4 was filed to report one grant of stock options with respect to each of independent Directors +Anderson, Buzard, Kreider, Phillips and Ready. In making these statements, Meridian has relied +upon examination of the copies of Forms 3, 4 and 5, and amendments thereto, and the written +representation of its Directors and Executive Officers. +TRANSACTIONS WITH RELATED PERSONS +During fiscal 2010, Todd Motto, the adult son of William J. Motto, served as Vice President, +Business Development (1/2010 — 9/2010) and Vice President, Sales and Marketing (10/2009 — +12/2009). Todd Motto received $266,337 in compensation for fiscal 2010. This compensation +consisted of $208,728 of base salary, $9,642 of auto and professional allowances, $12,373 of +retirement plan contributions, $19,110 related to the fiscal 2010 restricted stock grant, $12,784 +related to stock option awards expense related to awards earned in previous years, and $3,700 for +dividends on restricted stock granted under the 2004 Equity Compensation Plan. Effective September +30, 2010, Todd Motto reduced his involvement with the Company and effective October 1, 2010 is +Coordinator of Business Development. +14 +Nasdaq rules require the Company to conduct an appropriate review of related party transactions +required to be disclosed by the Company pursuant to SEC Regulation S-K Item 404 for potential +conflict of interest situations on an ongoing basis and that all such transactions must be approved +by the Audit Committee or another Committee comprised of independent Directors. As a result, the +Audit Committee annually reviews all such related party transactions and approves each related +party transaction if it determines that it is in the best interests of the Company. Additionally, +the Audit Committee’s Charter provides it the authority to review, approve and monitor transactions +involving the Company and “related persons” (Directors and Executive Officers or their immediate +family members, or shareholders owning five percent or greater of the Company’s outstanding stock). +This also covers any related person transaction that meets the minimum threshold for disclosure in +the proxy statement under the relevant SEC rules (generally, transactions involving amounts +exceeding $120,000 in which a related person has a direct or indirect material interest). In +considering the transaction, the Audit Committee may consider all relevant factors, including, as +applicable, (i) the Company’s business rationale for entering into the transaction; (ii) the +alternatives to entering into a related person transaction; (iii) whether the transaction is on +terms comparable to those available to third parties, or in the case of employment relationships, +to employees generally; (iv) the potential for the transaction to lead to an actual or apparent +conflict of interest and any safeguards imposed to prevent such actual or apparent conflicts; and +(v) the overall fairness of the transaction to the Company. This policy is included in the +Company’s Employee Handbook. The approval of such related person transactions are evidenced by +internal Company resolutions or memoranda. +COMPENSATION DISCUSSION AND ANALYSIS +Throughout this proxy statement, the individuals who served as the Company’s Chief Executive +Officer and Chief Financial Officer during fiscal 2010, as well as the other individuals listed in +the Summary Compensation Table below, are referred to as the “Named Executive Officers” or “NEOs.” +Compensation Philosophy and Objectives +Our policies regarding executive compensation programs are intended to balance motivating, +rewarding and retaining executives with a competitive compensation package, and maximizing +long-term shareholder value by linking compensation earned to both individual and Company +performance. Compensation typically includes base salary, eligibility for annual cash bonuses and +stock-based awards contingent on Company performance and/or future service, retirement plan +contributions and other Company-sponsored benefits. A significant portion of each Executive +Officer’s cash bonus and stock-based awards are dependent upon achieving business and financial +goals and realizing other performance objectives. Examples of Company performance metrics for +which we measure achievement are sales growth, net earnings growth and profit margins (gross +profit, operating income and net earnings). Annual performance targets for these metrics are set +at or above industry averages and historical results. Our compensation programs are intended to +reward individual contributions (for example, bringing a new product to market) and Company-wide +achievement of performance metric targets (for example, overall sales and net earnings growth). +15 +The Compensation Committee of the Board of Directors is responsible for the development and ongoing +oversight of compliance with this compensation philosophy. The Compensation Committee ensures that +the total compensation paid to the NEOs is fair, reasonable and competitive. +Establishing Compensation Levels +Compensation levels for the NEOs are driven by market pay levels, the Executive Officer’s +leadership performance and overall Company performance. The Compensation Committee relies upon a +combination of judgment (which is necessarily subjective) and guidelines (discussed herein), as +well as market data, in determining the amount and mix of compensation components for the Executive +Chairman. The compensation levels for the Chief Executive Officer are recommended to the +Compensation Committee by the Executive Chairman; the compensation levels for the other NEOs are +recommended by the Chief Executive Officer. The Compensation Committee has discretion to follow or +modify such recommended levels of compensation. The Compensation Committee considers as crucial +the input of our Executive Chairman and Chief Executive Officer in connection with its compensation +processes and decisions relating to NEO compensation. The Compensation Committee is not obligated +to follow their recommendations. The Company does not engage in strict numerical benchmarking in +determining the percentage increases for the NEOs. +Market Pay Levels +Market pay levels for the NEOs are determined annually in November for the upcoming calendar year. +From time to time, at the request of the Compensation Committee, an outside financial advisor is +used to gather and summarize for the Company disclosures of executive compensation paid by other +publicly traded companies in the diagnostic and life science industries, as well as those outside +such industries in the Greater Cincinnati area. This information concerns base salary, bonus +awards and long-term incentive awards such as stock options and/or restricted stock for these peer +companies, as well as their revenue, net earnings and market capitalization levels in order to take +company size into consideration. The Compensation Committee considers this competitive market +compensation paid by such companies, but does not attempt to maintain a certain target percentile +within a peer group or otherwise rely on that data to determine executive compensation. This means +that the Compensation Committee considers this information generally and as a reference point in +determining the amounts and elements of our compensation program. For example, the Compensation +Committee periodically reviews proxy statements of our industry peers to review their long-term +incentive components in order to understand compensation trends in stock options, restricted stock +and similar equity instruments. In other words, although it does not utilize such information for +benchmarking purposes, the Compensation Committee considers such information as part of its +decision-making process with respect to the Company’s executive compensation programs. +Company Performance +We believe that certain Company performance metrics drive shareholder value through stock price +appreciation and dividends. We take this belief into account in setting performance metric targets +that are considered in establishing the performance-based component of our compensation programs. +Performance metric targets that are taken into consideration in our +16 +compensation programs include sales growth, earnings growth and profit margins. These targets are +set at or above industry averages and historical results. +Our cash bonus and a portion of our stock-based award programs operate under the fundamental +principle that minimum levels of net earnings be achieved prior to any compensation being earned +under these programs. Net earnings targets are determined based on what the Company believes to be +meaningful growth rates relative to its industry peers and the Company’s performance objectives. +Stock-based awards granted under performance programs are generally forfeited if the Company does +not meet its minimum earnings targets as specified in each grant. However, as discussed more fully +below in Interplay of Compensation Elements , while the 2010 earnings target was not met, on +September 30, 2010, the Compensation Committee, in recognition of the achievement of certain key +strategic objectives during fiscal 2010, chose to convert the performance-based restricted shares +granted on November 12, 2009 to time-vested restricted shares. +Recovery of Prior Awards +Except as provided by applicable laws and regulations, we do not have a policy with respect to +adjustment or recovery of awards or payments if relevant Company performance measures upon which +previous awards were based are restated or otherwise adjusted in a manner that would reduce the +size of such award or payment. Under those circumstances, we expect that the Compensation +Committee and the Board would evaluate whether compensation adjustments were appropriate based upon +the facts and circumstances surrounding the applicable restatement or adjustment. +Tally Sheets +In setting the NEOs’ compensation, the Compensation Committee reviews all components of such +compensation through the use of tally sheets. These tally sheets provide the amount of total +compensation paid or earned by each NEO based on his or her base salary, cash bonus, stock-based +awards, retirement contributions and perquisites. The tally sheets reviewed provide all of the +information that is reflected in the Summary Compensation Table. The review by the Compensation +Committee analyzes how changes in any element of compensation would impact other elements, +particularly severance or change in control benefits, if applicable to the executive. Although +this year such analysis did not result in the issuance of additional awards, such analysis has +become an important component in the Compensation Committee’s review of executive compensation as +the tally sheet allows the Compensation Committee to consider an executive’s overall compensation +rather than only one or two specific components of an executive’s compensation. This allows the +Compensation Committee to make compensation decisions and evaluate management recommendations based +on a complete analysis of an executive’s total compensation. +17 +Components of Executive Compensation +Meridian’s executive compensation and benefits packages consist of: base salary, cash bonuses, +long-term equity incentive awards and Company-sponsored benefit and retirement plans. Each of +these components has a certain risk profile. +Element +Form of Compensation +Purpose +Risk Profile +Base Salaries +Cash +Provides +competitive, fixed +compensation to +attract and retain +exceptional +executive talent +Low to moderate +Annual Cash +Incentives +Cash +Provides a direct +financial incentive +to achieve +corporate and +individual +operating goals +Moderate to high +Long-Term Equity +Incentives +Incentive stock +options, +non-qualified stock +options, restricted +stock and stock +appreciation rights +Encourages +Executive Officers +to build and +maintain a +long-term equity +ownership position +in Meridian so that +their interests are +aligned with our +shareholders +High +Health, Retirement +and Other Benefits +Eligibility to +participate in +benefit plans +generally available +to our employees, +including +Retirement Plan +contributions, +premiums paid on +long-term +disability and life +insurance policies, +and certain +perquisites +Benefit plans are +part of a +broad-based +employee benefits +program; the +perquisites provide +competitive +benefits to our +Executive Officers +Low +The Compensation Committee has reviewed the risk profile of the components of the Company’s +executive compensation program, including the performance objectives and target levels used in +connection with incentive awards, and has considered the risks an NEO might be incentivized to take +with respect to such components. When establishing the mix among these components, the Compensation +Committee is careful not to encourage excessive risk taking. Specifically, the performance +objectives contained in the Company’s executive compensation programs have been balanced between +annual and long-term incentive compensation to ensure that both components are aligned and +consistent with our long-term business plan and that our overall mix of equity-based awards has +been allocated to promote an appropriate combination of incentive and retention objectives. +18 +The Compensation Committee believes that the Company’s executive compensation program does not +incentivize the NEOs to engage in business activities or other behavior that would threaten the +value of the Company or the investments of its shareholders. +The Compensation Committee continues to monitor and evaluate on an on-going basis the mix of +compensation, especially equity compensation, awarded to the Named Executive Officers, and the +extent to which such compensation aligns the interests of the NEOs with those of the Company’s +shareholders. In connection with this practice, the Compensation Committee has, from time to time, +reconsidered the structure of the Company’s executive compensation program and the relative +weighting of various compensation elements. As an example, since 2008 the Committee has granted a +mix of restricted stock awards and options to key executives in place of solely options. As +discussed below, some of the restricted stock awards are time-based, while others are +performance-based. +Interplay of Compensation Elements +We believe that each element of our compensation program plays a substantial role in maximizing +long-term value for our shareholders and employees because of the significant emphasis on +pay-for-performance principles. In fiscal 2010, we did not reach our minimum net earnings targets, +and therefore, our NEOs did not earn any cash bonuses. However, with regard to the restricted +shares of Common Stock granted in November 2009 for fiscal 2010, while the 2010 earnings target was +not met, on September 30, 2010, the Compensation Committee determined to convert the +performance-based restricted shares to time-vested restricted shares vesting in total in November +2013. This action was taken in recognition of the achievement in 2010 of several strategic +initiatives that position the Company for future growth, including, but not limited to, the launch +of the Company’s first product on its novel molecular platform, illumi gene ® and the +acquisition of the Bioline Group. We believe that the accomplishment of these strategic +initiatives is in line with our pay-for-performance principles, which have a significant effect on +the amount of compensation realized by our Executive Officers. +We strive to achieve an appropriate mix between equity incentive awards and cash payments in order +to meet our objectives. We use the Officers’ Performance Compensation Plan as another tool to +assess an executive’s total pay opportunities and whether we have provided the appropriate +incentives to accomplish our compensation objectives. Our mix of compensation elements is designed +to reward recent results and motivate long-term performance through a combination of cash and +stock-based awards. We also seek to balance compensation elements that are based on financial, +operational and strategic metrics with others that are based on the performance of Meridian shares +via application of the personal multiplier component of cash bonuses for the Executive Chairman and +the Chief Executive Officer. We believe the most important indicator of whether our compensation +objectives are being met is our ability to motivate our NEOs to deliver superior performance and +retain them to continue their careers with Meridian on a cost-effective basis. +19 +Base Salary +The Company pays salaries that are designed to attract, motivate and retain experienced executives +who will drive superior Company performance and maintain long-term shareholder value. The +Compensation Committee considers recommendations from the Executive Chairman and Chief Executive +Officer and approves annual base salaries that are commensurate with each NEO’s responsibilities +and performance, as well as Company performance in the prior fiscal year, which are competitive +with similar positions locally and in the industry. Salaries are set on a calendar year basis and +therefore salaries paid in the first three months of each fiscal year beginning on the first day of +October are set in the prior fiscal year. +For 2011, the Chief Executive Officer, Mr. Kraeutler, provided a recommendation to the Compensation +Committee that there be no salary increases for the NEOs. The Compensation Committee duly +considered this matter and followed this recommendation. +Cash Bonuses +The Compensation Committee believes that employees should be rewarded based on Company results and +individual performance. The Compensation Committee awards cash bonuses pursuant to the Officers’ +Performance Compensation Plan, contingent upon Company performance. Cash bonuses, if earned, are +paid in the first quarter of each fiscal year, for the prior year’s performance. Cash bonuses are +subject to the Company’s attainment of a specific net earnings target. Should the Company fail to +reach such net earnings target, no cash bonuses are paid. +Cash bonuses are also subject to the application of a personal achievement multiplier as +recommended by management, except that no such recommendation is made by management for the +Executive Chairman, Mr. Motto, or the Chief Executive Officer, Mr. Kraeutler. In evaluating the +personal achievement multipliers, the Compensation Committee takes into consideration the sales and +net earnings levels, sales and net earnings growth rates and achievement against plan, profit +margins and improvements therein, and individual achievements and leadership of the NEOs. Instead +of establishing specific quantifiable targets for each of these factors, the Compensation Committee +exercises its discretion in using the factors to determine each NEO’s personal achievement +multiplier. Specifically, the Compensation Committee does not establish measurable objective +targets in connection with its deliberation of such factors. The adoption and application of such +factors are intended to be discretionary and subjective so that the Compensation Committee can use +its business judgment to provide an appropriate incentive and award for performance that sustains +and enhances long-term shareholder value. The Compensation Committee believes that such +discretionary and subjective components allow it to respond appropriately as business and strategic +environments change and are appropriate for the size of the Company. The personal achievement +multiplier choices are 0.5, 1.0, 1.25, 1.5 or 2.0. For example, a personal achievement multiplier +of 1.25 would result in a bonus payout percentage of 37.5% when applied to a 30% base salary +component. +20 +Company Performance Component and 2010 Results +The 2010 Plan, which was similar in form to the plans utilized over the last several fiscal years, +provided for the granting of cash bonuses as a percent of base salary if 2010 net earnings reached +at least $37,650,000. For 2010, actual net earnings were below the minimum threshold, and +therefore, there were no cash bonuses awarded to the NEOs for fiscal 2010 performance. +2011 +At its November 11, 2010 meeting, the Compensation Committee approved the Officers’ Performance +Compensation Plan for fiscal 2011. The 2011 Plan will award cash bonuses if 2011 net earnings +reach $31,800,000, which the Compensation Committee believes is a meaningful increase from 2010 net +earnings of $26,647,000. Consistent with 2010, the 2011 Plan also provides for increasing bonus +awards tied to increasing net earnings beyond the initial minimum level. The 2011 Plan includes +six net earnings thresholds ranging from a low of $31,800,000 to a high of $33,800,000. These six +net earnings thresholds represent growth over 2010 net earnings ranging from a low of 19% to a high +of 27%. The corresponding potential bonus payouts as a percent of base salary, before application +of the personal multiplier, for the six net earnings thresholds ranged from a low of 10% to a high +of 60%. Depending on the level of net earnings achieved and the application of the personal +multiplier, cash bonuses for the NEOs could range from 5% to 120% of base salary. +Management and the Compensation Committee have intended that the earnings thresholds should be set +at meaningful rates so that management must be diligent, focused and effective in order to achieve +these goals. In other words, the Company and management believed at the time of the establishment +of these thresholds that they would be challenging to achieve and would require substantial efforts +from management. To this end, the Compensation Committee tends to set the thresholds consistent +with the earnings guidance range requiring that the low end of guidance is achieved before bonuses +are paid. +Long-Term Incentive Awards +The Compensation Committee believes that equity-based compensation encourages employees to commit +to the long-term goals of the Company. This ensures that the Company’s NEOs have a stake in the +long-term creation of shareholder value. A significant portion of the awards is performance-based, +meaning the NEOs’ ability to vest in that portion of awards is contingent upon the Company +achieving a minimum level of net earnings. +For fiscal 2011, at its meeting on November 11, 2010, the Compensation Committee approved two types +of restricted stock awards (or in the case of an NEO outside the US, restricted share units). The +first type of restricted stock award is performance based, where the NEOs’ ability to vest in such +awards is contingent upon the Company reaching a minimum level of net earnings of $33,400,000 for +fiscal 2011. This award would vest 25% per year over four years, if earned. The second type of +restricted stock award is not performance based, but rather vests 100% after four years. The +Compensation Committee believes that this latter award is appropriate to encourage retention of top +management talent during what has been, in their belief, one of the most challenging economic +environments over the last 20+ years. +21 +The following table summarizes the restricted stock awards for the NEOs. +No. of Shares of +Performance-Based +No. of Shares of Time- +NEO +Restricted Stock +Vested Restricted Stock +Chief Executive Officer +10,000 +10,000 +Executive Vice President, +Chief Financial Officer and +Secretary +7,500 +7,500 +Executive Chairman of the +Board of Directors +10,000 +10,000 +Senior Vice President, +President and Managing +Director, MBE +7,500 +7,500 +Executive Vice President, +President Meridian Life +Science +7,500 +7,500 +Although Meridian does not have a written policy regarding the timing or practices related to +granting equity awards, neither Meridian nor the Compensation Committee engages in spring-loading, +back-dating or bullet-dodging practices. Stock options and restricted stock awards are generally +granted at a regularly scheduled meeting of the Compensation Committee in the first quarter of the +fiscal year, after Meridian issues a press release announcing the results of the prior fiscal year. +Stock options are granted at the closing market price on the date of grant, pursuant to the 2004 +Equity Compensation Plan. Prior to the exercise of an option, the holder has no rights as a +stockholder with respect to the shares subject to such option, including no rights to vote or to +receive dividends. Prior to vesting of restricted shares, the holder has voting rights and will +receive any dividends declared on Meridian’s Common Stock. +Company-Sponsored Benefit and Retirement Plans +Meridian provides Company-sponsored benefit and retirement plans to the NEOs. In general, +executives participate in the Company’s benefit and retirement plans on the same basis as other +Company employees. The core benefit package includes health, dental, short and long-term +disability, and group term life insurance. Meridian generally provides retirement benefits to +executives through qualified (under the Internal Revenue Code) defined contribution plans. +In 1995, the Company entered into a salary continuation agreement with John A. Kraeutler to +supplement Mr. Kraeutler’s retirement savings. This agreement was amended on December 29, 2008 to +comply with the requirements of Section 409A of the Internal Revenue Code. This agreement provides +additional compensation after retirement or separation from the Company under certain circumstances +and is funded by a life insurance policy with +22 +premiums paid by the Company. Meridian incurred +expense of $24,731 in premiums during +fiscal 2010. +Other Personal Benefits +Allowances for automobiles and professional, financial and tax planning are made available to +Meridian’s NEOs and other corporate officers. The costs to the Company are included in the All +Other Compensation table on page 25. The Company believes these perquisites to be reasonable, +comparable to peer companies and consistent with the Company’s overall executive compensation +philosophy. +Internal Pay Equity +The Compensation Committee believes that the relative difference between the Chief Executive +Officer’s compensation and the compensation of the Company’s other executives has not increased +significantly over the years. Further, the Compensation Committee believes that the Company’s +internal pay equity structure is consistent with our peer group and is appropriate based upon the +contributions to the success of the Company and as a means of motivation to other executives and +employees. +Tax Deductibility of Pay +Section 162(m) of the Internal Revenue Code contains compensation deduction limitations for certain +highly compensated employees. One exception to this limitation is for performance-based +compensation that is approved by, among other things, a committee of “outside directors” (as +defined under IRS treasury regulations). The Committee believes that all compensation paid to the +NEOs for fiscal year 2010 is properly deductible under Section 162(m), but no assurance can be made +in this regard. +Actions of the Compensation Committee +In several meetings during the year, the Executive Chairman, Mr. Motto, the Chief Executive +Officer, Mr. Kraeutler, and the Compensation Committee Chairman discussed, among other things, +Meridian’s compensation system and its effectiveness in attracting and retaining top notch +employees. These individuals believe that the system, including the Officers’ Performance +Compensation Plan, is understood by employees and shareholders and has worked well in practice. +They noted that the underlying principles in this Plan have been followed for many years, even when +following such principles resulted in no bonuses being awarded (2001, 2009 and 2010) and +performance-based stock awards being forfeited (2001, 2008 and 2009). The Committee discussed on a +number of occasions the advisability of engaging a compensation consultant. The Compensation +Committee concluded that it did not want to engage a compensation consultant this year, in part +because of the relatively small number of Executive Officers and their frequent interaction. +At its November 12, 2009 meeting, the Compensation Committee discussed these matters, both with and +without the presence of management. The Compensation Committee discussed the recommendations of +the Executive Chairman and the Chief Executive Officer for compensation levels for all officers and +answered questions about individual recommendations and the general pay increases to be paid +throughout the Company. The Committee then made the compensation decisions, which are reflected in +the figures presented in this proxy statement. +23 +SUMMARY COMPENSATION TABLE +The following table summarizes the aggregate compensation paid, or earned, by each of the NEOs +for the fiscal years ended September 30, 2010, 2009 and 2008, respectively. +Change in +Pension Value +and +Nonqualified +Non-Equity +Deferred +Name and Principal +Stock +Option +Incentive Plan +Compensation +All Other +Position +Year +Salary +Bonus 1 +Awards 2 +Awards 3 +Compensation +Earnings +Compensation 4 +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +(i) +Total +John A. Kraeutler +2010 +$ +540,346 +— +$ +221,850 +$ +192,478 +— +— +$ +54,017 +$ +1,008,691 +Chief Executive Officer +2009 +$ +511,538 +— +— +— +— +— +$ +37,767 +$ +549,305 +2008 +$ +450,579 +$ +178,125 +— +$ +145,096 +— +— +$ +41,821 +$ +815,621 +Melissa A. +Lueke +2010 +$ +233,579 +— +$ +28,665 +$ +12,784 +— +— +$ +27,274 +$ +302,302 +Executive Vice President, Chief +2009 +$ +210,736 +— +— +$ +39,512 +— +— +$ +25,588 +$ +275,836 +Financial Officer and Secretary +2008 +$ +202,126 +$ +76,782 +— +$ +68,835 +— +— +$ +21,401 +$ +369,144 +William J. Motto +2010 +$ +540,346 +— +$ +221,850 +— +— +— +$ +95,424 +$ +857,620 +Executive Chairman of the +2009 +$ +524,999 +— +— +— +— +— +$ +87,816 +$ +612,815 +Board of Directors +2008 +$ +519,615 +$ +196,875 +— +$ +14,109 +— +— +$ +87,189 +$ +817,788 +Antonio A. +Interno 5 +2010 +$ +388,492 +— +$ +166,387 +— +— +— +$ +71,538 +$ +626,417 +Senior Vice President, +2009 +$ +382,370 +— +— +— +— +— +$ +47,854 +$ +430,224 +President and Managing +2008 +$ +414,605 +$ +124,607 +— +$ +7,029 +— +— +$ +47,241 +$ +593,482 +Director, MBE +Richard L. +Eberly +2010 +$ +275,341 +— +$ +28,665 +$ +13,440 +— +— +$ +39,314 +$ +356,760 +Executive Vice President, +2009 +$ +270,032 +— +— +$ +39,512 +— +— +$ +27,039 +$ +336,583 +President Meridian Life +2008 +$ +259,373 +$ +39,313 +— +$ +68,835 +— +— +$ +25,226 +$ +392,747 +Science +1 +The amounts shown in this column for 2008 reflect payments made pursuant to +the 2008 Officers’ Performance Compensation Plan for fiscal 2008. No payments were made +pursuant to the 2010 Officers’ Performance Compensation Plan or the 2009 Officers’ Performance +Compensation Plan as the targets were not reached for fiscal 2010 or fiscal 2009. +2 +The amounts shown reflect the dollar amounts recognized for financial +statement reporting purposes with respect to fiscal years 2010 and 2009 (the only fiscal years +in which grants of restricted stock have occurred) in accordance with ASC Topic 718 for prior +grants. No expense is included in this table related to restricted stock issued November 12, +2008. Because the required earnings target for Meridian was not reached for fiscal 2009, the +restricted shares have been cancelled. A discussion of the assumptions used in calculating +these values may be found in Note 8(b) on page 62 to the Company’s Annual Report on Form 10-K +filed November 29, 2010. +3 +The amounts shown reflect the dollar amounts recognized for financial +statement reporting purposes with respect to fiscal years 2010, 2009 and 2008 in accordance +with ASC Topic 718 for prior grants. No expense is included in this table related to options +issued November 12, 2007. Because the required earnings target was not reached for fiscal +2008, the options were forfeited. A discussion of the assumptions used in calculating these +values may be found in Note 8(b) on page 62 to the Company’s Annual Report on Form 10-K filed +November 29, 2010. +4 +See the All Other Compensation table below for amounts, which include certain +Company contributions, perquisites and other personal benefits. +24 +All Other Compensation +John A. +Melissa A. +William J. +Antonio A. +Richard L. +Fiscal 2010 +Kraeutler +Lueke +Motto +Interno +Eberly +Retirement Contributions +$ +13,800 +$ +13,174 +$ +13,800 +$ +22,032 +$ +13,059 +Auto Lease / Auto +Allowance +18,000 +8,000 +14,720 +27,021 +12,000 +Financial and Tax Planning +14,817 +550 +59,504 +— +1,750 +Restricted Stock Dividends +7,400 +5,550 +7,400 +5,550 +5,550 +Anniversary Awards +— +— +— +16,935 +6,955 +Totals +$ +54,017 +$ +27,274 +$ +95,424 +$ +71,538 +$ +39,314 +5 +Mr. Interno’s salary and bonus were €287,542 and €0, respectively, in +2010; €282,935 and €0, respectively, in 2009; and €276,640 and €82,992, respectively, in 2008. +All conversions were made at the average exchange rates for fiscal 2010, 2009 and 2008, +respectively. +GRANTS OF PLAN-BASED AWARDS +The following table sets forth, for each of the NEOs, information related to grants made during +fiscal 2010 under Meridian’s 2004 Equity Compensation Plan. +All other +All other +Stock +Option +Exercise +Estimated Future Payouts Under +Awards: +Awards: +or Base +Grant Date +Non-Equity Incentive Plan +Estimated Future Payouts Under +Number of +Number of +Price of +Fair Value +Awards +Equity Incentive Plan Awards +Shares of +Securities +Option +of Stock +Grant +Target +Max +Threshold +Target +Max +Stock or +Underlying +Awards +and Option +Name +Date +Threshold ($) +($) +($) +(#) +(#) +(#) +Units (#) 1 +Options (#) 2 +($/Sh) +Awards +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +(i) +(j) +(k) +(l) +John A. Kraeutler +11/12/09 +— +— +— +— +— +— +10,000 +— +— +$ +221,850 +Melissa A. Lueke +11/12/09 +— +— +— +— +— +— +7,500 +— +— +$ +166,387 +William J. Motto +11/12/09 +— +— +— +— +— +— +10,000 +— +— +$ +221,850 +Antonio A. Interno +11/12/09 +— +— +— +— +— +— +7,500 +— +— +$ +166,387 +Richard L. Eberly +11/12/09 +— +— +— +— +— +— +7,500 +— +— +$ +166,387 +8/4/10 +— +— +— +— +— +— +— +1,500 +$ +19.710 +$ +9,510 +1 +Restricted stock awards reflected were granted on November 12, 2009. At the +time of grant, half of each NEO’s restricted shares were time-based with 100% vesting after +four years, and the remaining half were performance-based, subject to attainment of a specified +earnings target for fiscal 2010. While the 2010 earnings target was not met, on September 30, +2010, the Compensation Committee of the Board of Directors chose to convert the +performance-based restricted shares to time-vested restricted shares vesting in total on +November 12, 2013 in recognition of the achievement in 2010 of several strategic initiatives +that position the Company for future growth. +25 +2 +Stock option award reflected has a ten-year term and vests in four equal annual +installments from the date of grant (i.e., vests 25% per year until fully vested on August 4, +2014). +OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END +The following table provides information on the NEOs’ holdings of equity awards under Meridian’s +2004 Equity Compensation Plan and the 1996 Stock Option Plan as of September 30, 2010. +Under these plans, general stock option awards have a ten-year term and vest in four equal annual +installments from the date of grant. The Company’s performance-based options that have been earned +to date, vest in three equal annual installments, beginning on the date of the earnings release +indicating that performance targets were met for the period. As previously described herein, the +restricted stock awards under these plans have been a combination of time-based and +performance-based grants, with all of the restricted stock holdings reflected in the following +table being time-based (see Note 7 to the table). +Equity +Incentive +Equity +Plan +Incentive +Awards: +Plan +Market or +Equity +Awards: +Payout +Incentive Plan +Number of +Value of +Awards: +Market +Unearned +Unearned +Number of +Number of +Number of +Number of +Value of +Shares, +Shares, +Securities +Securities +Securities +Shares or +Shares or +Units or +Units or +Underlying +Underlying +Underlying +Units of +Units of +Other +Other +Unexercised +Unexercised +Unexercised +Option +Option +Stock That +Stock That +Rights That +Rights That +Option (#) +Options (#) +Unearned +Exercise +Expiration +Have Not +Have Not +Have Not +Have Not +Name +Exercisable +Unexercisable +Options (#) +Price ($) +Date +Vested (#) +Vested ($) +Vested (#) +Vested ($) +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +(i) +(j) +John A. Kraeutler +— +123,751 +3 +— +$ +2.090 +9/30/11 +— +— +— +— +5,250 +2 +— +— +$ +4.525 +12/2/13 +— +— +— +— +10,500 +2 +— +— +$ +7.280 +12/7/14 +— +— +— +— +15,750 +2 +— +— +$ +14.007 +11/10/15 +— +— +— +— +10,500 +2 +5,250 +2 +— +$ +16.554 +11/15/16 +— +— +— +— +— +25,000 +4 +— +$ +33.090 +1/28/18 +— +— +— +— +— +25,000 +5 +— +$ +33.090 +1/28/18 +— +— +— +— +10,000 +7 +$ +218,700 +— +— +Melissa A. Lueke +— +22,500 +3 +— +$ +2.090 +9/30/11 +— +— +— +— +5,250 +2 +— +— +$ +4.525 +12/2/13 +— +— +— +— +10,500 +2 +— +— +$ +7.280 +12/7/14 +— +— +— +— +15,750 +2 +— +— +$ +14.007 +11/10/15 +— +— +— +— +10,500 +2 +5,250 +2 +— +$ +16.554 +11/15/16 +— +— +— +— +7,500 +7 +$ +164,025 +— +— +William J. Motto +— +113,063 +3 +— +$ +2.090 +9/30/11 +— +— +— +— +7,988 +1 +— +— +$ +2.800 +11/19/12 +— +— +— +— +15,750 +2 +— +— +$ +4.525 +12/2/13 +— +— +— +— +15,750 +2 +— +— +$ +7.280 +12/7/14 +— +— +— +— +15,750 +2 +— +— +$ +14.007 +11/10/15 +— +— +— +— +10,500 +2 +5,250 +2 +— +$ +16.554 +11/15/16 +— +— +— +— +10,000 +7 +$ +218,700 +— +— +26 +Antonio A. Interno +— +22,500 +3 +— +$ +2.090 +9/30/11 +— +— +— +— +10,500 +2 +— +— +$ +14.007 +11/10/15 +— +— +— +— +10,500 +2 +5,250 +2 +— +$ +16.554 +11/15/16 +— +— +— +— +7,500 +7 +$ +164,025 +— +— +Richard L. Eberly +— +22,500 +3 +— +$ +2.090 +9/30/11 +— +— +— +— +5,250 +2 +— +— +$ +7.280 +12/7/14 +— +— +— +— +10,500 +2 +— +— +$ +14.007 +11/10/15 +— +— +— +— +10,500 +2 +5,250 +2 +— +$ +16.554 +11/15/16 +— +— +— +— +— +1,500 +6 +— +$ +19.710 +8/4/20 +— +— +— +— +7,500 +7 +$ +164,025 +— +— +1 +Options vested on December 31, 2003. +2 +Options vest in three equal annual installments beginning one year from public +earnings release date for the fiscal year ending immediately following the grant date, +indicating that performance targets were met, occurring approximately one year from date of +grant. All such options reflected as unexercisable vest on November 14, 2010. +3 +Options vest on October 1, 2010. +4 +Options vest on January 22, 2011. +5 +Options vest on January 22, 2013. +6 +Options vest in four equal annual installments from the date of grant (i.e., vest +25% per year until fully vested on August 4, 2014. +7 +Shares/units vest on November 12, 2013. +OPTION EXERCISES AND STOCK VESTED +During fiscal 2010, the NEOs exercised no options nor vested in any restricted stock previously +granted. +NONQUALIFIED DEFERRED COMPENSATION +The following table sets forth, for each of the NEOs, certain information concerning nonqualified +deferred compensation for fiscal 2010. +Aggregate +Executive +Registrant +Earnings +Aggregate +Aggregate +Contributions +Contributions +during FY +Withdrawals / +Balance at +Name +during FY 2010 +during FY 2010 +2010 +Distributions +9/30/10 +John A. Kraeutler +— +$ +24,731 +$ +10,932 +— +$ +216,452 +Melissa A. Lueke +— +— +— +— +— +William J. Motto +— +— +— +— +— +Antonio A. Interno +— +— +— +— +— +Richard L. Eberly +— +— +— +— +— +Our 401(k) Savings Plan (“401(k) Plan”) allows all US employees of the Company as of the first +day of their employment to set aside a portion of their compensation each year for their retirement +needs up to the limits set by the Internal Revenue Code. The Company contributes a matching +contribution of 100% of the first 3% of the employee’s contribution +27 +(i.e., up to 3% of an employee’s salary) subject to Internal Revenue Code limitations. The Company +may also contribute a profit-sharing contribution at its discretion. Employee contributions are +100% vested immediately, while Company contributions are subject to a graded vesting schedule of +20% per year for 5 years. Participants are entitled to direct the investment of their accounts +among various mutual funds selected by the Company’s Fiduciary Committee. The Plan also provides +that Company discretionary profit-sharing contributions may be invested in Company stock. +Participants who terminate employment are entitled to receive the vested portion of their accounts. +Antonio A. Interno, Senior Vice President, President and Managing Director of our European +operations, is a non-US employee. Mr. Interno receives a profit-sharing allocation that is +commensurate with amounts received by Executive Officers who are US employees and participate in +our 401(k) Plan. Mr. Interno also receives retirement contributions based on amounts contributed +by Meridian Bioscience Europe srl pursuant to the Italian government pension system, INPS. The +amount of such contribution was $16,031 for fiscal 2010. +A salary continuation agreement with John A. Kraeutler allows the Company to contribute amounts +above the IRS limit. This agreement provides additional compensation after retirement or +separation from the Company under certain circumstances and is funded by a life insurance policy +with premiums paid by the Company. +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL +In the case of a disability, Meridian is obligated to pay Mr. William J. Motto 60% of his total +annual salary and bonus for a period of up to 60 months. In the case of death, Meridian is +obligated to pay to Mr. Motto’s designated beneficiaries up to $1 million. These benefits are to +be reduced by the gross amount of any life insurance payments or disability insurance payments made +to Mr. Motto, or his beneficiaries as the case may be, under any insurance policy or program +maintained by Meridian, other than group term life insurance programs maintained for all employees. +Mr. Kraeutler and Meridian are parties to an employment agreement dated December 29, 2008, which +sets forth compensation, non-competition, benefit and severance provisions and provides for a +payment equal to three times Mr. Kraeutler’s base salary (plus any salary earned but not paid) and +three-year average annual performance bonus if Mr. Kraeutler is terminated by Meridian without +cause, Mr. Kraeutler terminates his employment for good reason or upon a change in control of +Meridian. In the case of disability, Meridian is obligated to pay Mr. Kraeutler 100% of his base +and performance compensation, averaged from the three preceding fiscal years, until age 65. This +agreement was effective for a period of 36 months commencing December 29, 2008, automatically +extending each day for additional 36-month periods until either party terminates the agreement. +This agreement amended an earlier agreement, dated February 15, 2001, to comply with Section 409A +and is similar in substance to the pre-existing agreement. +28 +Had a change in control occurred on September 30, 2010, Mr. Kraeutler would have been entitled to +the following under the agreement: +Salary +$ +1,502,464 +Annual Performance Bonus +178,125 +Total Payment +$ +1,680,589 +DIRECTOR COMPENSATION +For fiscal 2010, non-employee Directors of Meridian received $30,000 per year for serving as +Directors and as members of Committees of the Board. They also received $1,500 for each meeting of +the Board and $1,000 for each Committee meeting attended. They received $750 for each Board +meeting and $500 for each Committee meeting held by telephone. The Audit Committee Chairman +receives an additional $8,000 annually and the Compensation Committee Chairman receives an +additional $3,000 annually. The Board Secretary receives an additional $1,000 for serving at each +meeting of a Committee of which he is not a member. In accordance with the terms and conditions +set forth in the Company’s 2004 Equity Compensation Plan, each non-employee Director is also +granted a non-qualified option to purchase 7,500 common shares at the time of election or +re-election to the Board of Directors, with the exercise price being the closing sale price on +Nasdaq reported on the date of grant. Directors who are employees of Meridian are not separately +compensated for serving as Directors. +The following table provides information on compensation related to fiscal 2010 for non-employee +Directors who served during fiscal 2010. +Fees +Change in +Earned +Pension Value +or +Non-Equity +and Nonqualified +Paid in +Stock +Option +Incentive Plan +Deferred +All Other +Cash +Awards +Awards +Compensation +Compensation +Compensation +Total +Name +($) +($) +($) 1 +($) +Earnings +($) +($) +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +James M. Anderson +$ +43,250 +— +$ +92,707 +— +— +— +$ +135,957 +James A. Buzard +$ +45,750 +— +$ +54,417 +— +— +— +$ +100,167 +Gary P. Kreider +$ +46,000 +— +$ +54,417 +— +— +— +$ +100,417 +David C. Phillips +$ +54,250 +— +$ +54,417 +— +— +— +$ +108,667 +Robert J. Ready +$ +49,000 +— +$ +54,417 +— +— +— +$ +103,417 +1 +The amounts shown reflect the dollar amounts recognized for financial +statement reporting purposes with respect to fiscal year 2010 in accordance with ASC Topic 718. +A discussion of the assumptions used in calculating these values may be found in Note 8(b) on +page 62 to the Company’s Annual Report on Form 10-K filed November 29, 2010. +29 +SHAREHOLDER PROPOSALS FOR NEXT YEAR +The deadline for shareholder proposals to be included in the proxy statement for next year’s +meeting is August 10, 2011. +The form of Proxy for this meeting grants authority to the designated proxies to vote in their +discretion on any matters that come before the meeting except those set forth in Meridian’s proxy +statement and except for matters as to which adequate notice is received. In order for a notice to +be deemed adequate for the 2012 Annual Shareholders’ Meeting, it must be received prior to October +25, 2011. If there is a change in the anticipated date of next year’s Annual Shareholders’ Meeting +or these deadlines by more than 30 days, we will notify you of this change through our Form 8-K +and/or Form 10-Q filings. +Meridian’s Code of Regulations provides that only persons nominated by an officer, Director or in +writing by a shareholder not earlier than 150 days nor later than 90 days prior to the meeting at +which Directors are to be selected shall be eligible for election and that shareholder proposals be +presented not earlier than 150 days nor later than 90 days prior to the meeting at which the +proposals are to be presented. +QUESTIONS? +If you have questions or need more information about the annual meeting, write to: +Melissa A. Lueke +Executive Vice President, Chief Financial Officer and Secretary +Meridian Bioscience, Inc. +3471 River Hills Drive +Cincinnati, Ohio 45244 +or call us at (513) 271-3700. +For information about your record holdings call the Computershare Shareholder Services at (888) +294-8217. +30 +MERIDIAN BIOSCIENCE, INC. +3471 RIVER HILLS DRIVE +CINCINNATI, OH 45244 +VOTE BY INTERNET - www.proxyvote.com +Use the Internet to transmit your voting instructions +and for electronic delivery of information up until 11:59 P.M. Eastern +Time the day before the cut-off date or meeting date. Have your proxy +card in hand when you access the web site and follow the instructions +to obtain your records and to create an electronic voting instruction +form. +ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS +If you would like to reduce the costs incurred by +our company in mailing proxy materials, you can consent to receiving +all future proxy statements, proxy cards and annual reports electronically +via e-mail or the Internet. To sign up for electronic delivery, please +follow the instructions above to vote using the Internet and, when +prompted, indicate that you agree to receive or access proxy materials +electronically in future years. +VOTE BY PHONE - 1-800-690-6903 +Use any touch-tone telephone to transmit your voting +instructions up until 11:59 P.M. Eastern Time the day before the cut-off +date or meeting date. Have your proxy card in hand when you call and +then follow the instructions. +VOTE BY MAIL +Mark, sign and date your proxy card and return it +in the postage-paid envelope we have provided or return it to Vote +Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. +TO VOTE, MARK BLOCKS +BELOW IN BLUE OR BLACK INK AS FOLLOWS: +M28082-P03361 +KEEP THIS PORTION FOR YOUR RECORDS +THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. +DETACH +AND RETURN THIS PORTION ONLY +MERIDIAN BIOSCIENCE, INC. +The Board of Directors recommends you vote +FOR the following proposals: +1. +Authority to elect as directors +the six nominees +listed below. +For +Against +Abstain +Nominees: +1a. JAMES M. ANDERSON +o +o +o +1b. JOHN A. KRAEUTLER +o +o +o +1c. GARY P. KREIDER +o +o +o +1d. WILLIAM J. MOTTO +o +o +o +1e. DAVID C. PHILLIPS +o +o +o +1f. ROBERT J. READY +o +o +o +For address changes and/or comments, please check +this box and write them on the back where indicated. +o +Please indicate if you plan to attend this +meeting. +o +Yes +o +No +For +Against +Abstain +2. +To +ratify the appointment of Grant Thornton LLP as Meridian’s +independent registered public accountants for fiscal 2011. +o +o +o +NOTE: Such other business as may properly come before the meeting or any postponement or adjournment thereof. +Please sign exactly as your name(s) appear(s) +hereon, indicating, where proper, official position or representative +capacity. All joint holders must sign. +Signature [PLEASE SIGN WITHIN +BOX] +Date +Signature (Joint Owners) +Date +Important +Notice Regarding the Availability of Proxy Materials for the Annual Meeting: +The Notice and Proxy Statement and Annual Report are available at www.proxyvote.com. +M28083-P03361 +Proxy - Meridian +Bioscience, Inc. +This Proxy is +submitted on behalf of the Board of +Directors. +The undersigned hereby appoints JOHN A. KRAEUTLER or MELISSA A. LUEKE, or either of them, proxies of the undersigned, each with the power of substitution, to vote cumulatively or otherwise all shares of Common Stock which the undersigned would be entitled to vote on the matters specified on the reverse side and, in their discretion, with respect to such other business as may +properly come before the Annual Meeting of Shareholders of Meridian +Bioscience, Inc. to be held on January 20, 2011 at 2:00 p.m. Eastern Time at the Holiday Inn Eastgate, +4501 Eastgate Boulevard, Cincinnati, Ohio 45245 and any postponement or adjournment of such Annual Meeting. +Address Changes/Comments: +(If you noted any +Address Changes and/or Comments above, please mark corresponding box on +the reverse side.) +(This proxy +is continued and is to be signed on the reverse side.) +*** Exercise Your Right to Vote *** +Important +Notice Regarding the Availability of Proxy Materials for the +Shareholder Meeting to Be Held on January 20, 2011. +MERIDIAN +BIOSCIENCE, INC. +MERIDIAN BIOSCIENCE, INC. +3471 RIVER HILLS DRIVE +CINCINNATI, OH 45244 +Meeting Information +Meeting +Type: ANNUAL +For holders as of: November 22, 2010 +Date: January 20, 2011 Time: +2:00 PM EST +Location: +Holiday Inn Eastgate +4501 Eastgate Boulevard +Cincinnati, OH 45245 +You are receiving +this communication because you hold shares in the above named company. +This is not a +ballot. You cannot use this notice to vote these shares. This communication +presents only an overview of the more complete proxy materials that are +available to you on the Internet. You may view the proxy materials online +at www.proxyvote.com or easily request a paper copy (see reverse +side). +We encourage +you to access and review all of the important information contained in +the proxy materials before voting. +See +the reverse side of this notice to obtain proxy materials and voting instructions. +— Before You Vote — +How to Access the Proxy Materials +Proxy +Materials Available to VIEW or RECEIVE: +NOTICE +AND PROXY STATEMENT ANNUAL +REPORT +How to View Online: +Have +the information that is printed in the box marked by the arrow à +XXXX XXXX XXXX +(located on the following page) and visit: www.proxyvote.com. +How +to Request and Receive a PAPER or E-MAIL Copy: +If +you want to receive a paper or e-mail copy of these documents, you +must request one. There is NO charge for requesting a copy. Please +choose one of the following methods to make your request: +1) BY INTERNET : +www.proxyvote.com +2) BY TELEPHONE : +1-800-579-1639 +3) BY E-MAIL* : +sendmaterial@proxyvote.com +* +If requesting materials by e-mail, please +send a blank e-mail with the information that is printed in +the box marked by the arrow à +XXXX XXXX +XXXX (located on the following page) in the subject +line. +Requests, +instructions and other inquiries sent to this e-mail address will +NOT be forwarded to your investment advisor. Please make the request +as instructed above on or before January 6, 2011 to facilitate timely +delivery. +— How To Vote — +Please Choose One of the Following Voting Methods +Vote In Person: +Many shareholder meetings have attendance requirements including, +but not limited to, the possession of an attendance ticket issued by +the entity holding the meeting. Please check the meeting materials for +any special requirements for meeting attendance. At the meeting, you +will need to request a ballot to vote these shares. +Vote +By Internet: To vote now by Internet, go to www.proxyvote.com. Have +the information that is printed in the box marked by the +arrow à +XXXX XXXX XXXX available +and follow the instructions. +Vote By Mail: +You can vote by mail by requesting a paper copy of the materials, +which will include a proxy card. +Voting +Items +The +Board of Directors recommends +you vote FOR the following proposals: +1. +Authority to elect +as directors the six +nominees listed below. +Nominees: +1a. +JAMES M. ANDERSON +1b. +JOHN A. KRAEUTLER +1c. +GARY P. KREIDER +1d. +WILLIAM J. MOTTO +1e. +DAVID C. PHILLIPS +1f. +ROBERT J. READY +2. +To ratify the appointment +of Grant Thornton LLP as Meridian’s independent registered public +accountants for fiscal 2011. +NOTE: Such other business +as may properly come before the meeting or any postponement or adjournment +thereof. \ No newline at end of file diff --git a/raw/proxies/0000794172/0000950123-10-111857/proxy_rpt.txt b/raw/proxies/0000794172/0000950123-10-111857/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..8d670afa2d26e0a0b8d5370c27981793590fa8cf --- /dev/null +++ b/raw/proxies/0000794172/0000950123-10-111857/proxy_rpt.txt @@ -0,0 +1,32 @@ +TRANSACTIONS WITH RELATED PERSONS +During fiscal 2010, Todd Motto, the adult son of William J. Motto, served as Vice President, +Business Development (1/2010 — 9/2010) and Vice President, Sales and Marketing (10/2009 — +12/2009). Todd Motto received $266,337 in compensation for fiscal 2010. This compensation +consisted of $208,728 of base salary, $9,642 of auto and professional allowances, $12,373 of +retirement plan contributions, $19,110 related to the fiscal 2010 restricted stock grant, $12,784 +related to stock option awards expense related to awards earned in previous years, and $3,700 for +dividends on restricted stock granted under the 2004 Equity Compensation Plan. Effective September +30, 2010, Todd Motto reduced his involvement with the Company and effective October 1, 2010 is +Coordinator of Business Development. +14 +Nasdaq rules require the Company to conduct an appropriate review of related party transactions +required to be disclosed by the Company pursuant to SEC Regulation S-K Item 404 for potential +conflict of interest situations on an ongoing basis and that all such transactions must be approved +by the Audit Committee or another Committee comprised of independent Directors. As a result, the +Audit Committee annually reviews all such related party transactions and approves each related +party transaction if it determines that it is in the best interests of the Company. Additionally, +the Audit Committee’s Charter provides it the authority to review, approve and monitor transactions +involving the Company and “related persons” (Directors and Executive Officers or their immediate +family members, or shareholders owning five percent or greater of the Company’s outstanding stock). +This also covers any related person transaction that meets the minimum threshold for disclosure in +the proxy statement under the relevant SEC rules (generally, transactions involving amounts +exceeding $120,000 in which a related person has a direct or indirect material interest). In +considering the transaction, the Audit Committee may consider all relevant factors, including, as +applicable, (i) the Company’s business rationale for entering into the transaction; (ii) the +alternatives to entering into a related person transaction; (iii) whether the transaction is on +terms comparable to those available to third parties, or in the case of employment relationships, +to employees generally; (iv) the potential for the transaction to lead to an actual or apparent +conflict of interest and any safeguards imposed to prevent such actual or apparent conflicts; and +(v) the overall fairness of the transaction to the Company. This policy is included in the +Company’s Employee Handbook. The approval of such related person transactions are evidenced by +internal Company resolutions or memoranda. \ No newline at end of file diff --git a/raw/proxies/0000794172/0000950152-03-010439/proxy.txt b/raw/proxies/0000794172/0000950152-03-010439/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..55dffb65338736bbc23d6c5988b3b9abbcc1df28 --- /dev/null +++ b/raw/proxies/0000794172/0000950152-03-010439/proxy.txt @@ -0,0 +1,1438 @@ +DEF 14A +1 +l04580adef14a.htm +MERIDIAN BIOSCIENCE, INC. +MERIDIAN BIOSCIENCE, INC. +Table of Contents +SCHEDULE 14A +(RULE 14a-101) +INFORMATION REQUIRED IN PROXY STATEMENT +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) +of the Securities Exchange Act of 1934 +(Amendment No. ___) +Filed by the Registrant þ +Filed by a Party other than the Registrant +o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as +permitted by Rule 14a-6(e)(2)) +þ +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Under Rule 14a-12 +Meridian Bioscience, Inc. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement if other +than the Registrant) +Payment of Filing Fee (Check the appropriate box): +þ +No fee required. +o +Fee computed on table below per Exchange Act +Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed +pursuant to Exchange Act Rule 0-11 (set forth the amount on +which the filing fee is calculated and state how it was +determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by +Exchange Act Rule 0-11(a)(2) and identify the filing for which +the offsetting fee was paid previously. Identify the previous +filing by registration statement number, or the Form or Schedule +and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +MERIDIAN BIOSCIENCE, INC. +3471 River Hills Drive +Cincinnati, Ohio 45244 +www.meridianbioscience.com +Notice of Annual Meeting +and Proxy Statement +Dear Shareholder: +Our Annual Meeting of Shareholders will be held at 2:00 p.m. on January 22, +2004 at Holiday Inn, 4501 Eastgate Boulevard, Cincinnati, OH 45245. We hope +you will attend. +At the meeting, you will hear a report on our operations and have a chance to +meet your directors and executive officers. After the meeting we will have +plant tours available for shareholders at our offices. +This booklet includes the formal notice of the meeting and the proxy statement. +The proxy statement tells you more about the agenda and procedures for the +meeting. It also describes how the Board operates and gives personal +information about our director candidates. +Please complete, sign, date, and return your proxy card promptly in the +enclosed envelope. +Sincerely yours, +/s/ William J. Motto +William J. Motto +Chairman of the Board +December 22, 2003 +Table of Contents +NOTICE OF ANNUAL MEETING +OF +SHAREHOLDERS OF MERIDIAN BIOSCIENCE, INC. +Time: +2:00 p.m., Eastern Time +Date: +January 22, 2004 +Place: +Holiday Inn +4501 Eastgate Boulevard +Cincinnati, OH 45245 +Purpose: +• +Elect directors +• +Ratify appointment of PricewaterhouseCoopers LLP as Meridian’s +independent public accountants for fiscal year 2004 +• +Conduct other business if properly raised +Only shareholders of record on December 8, 2003 may vote at the meeting. +The approximate mailing date of this Proxy Statement and accompanying Proxy +Card is December 23, 2003. +Your vote is important. Please complete, sign, date, and return your proxy +card promptly in the enclosed envelope. +/s/ Melissa Lueke +Melissa Lueke +Secretary +December 22, 2003 +TABLE OF CONTENTS +GENERAL INFORMATION +ELECTION OF DIRECTORS +RATIFICATION OF APPOINTMENT OF ACCOUNTANTS +CORPORATE GOVERNANCE +REPORT OF THE AUDIT COMMITTEE +REPORT OF THE COMPENSATION COMMITTEE +PRINCIPAL SHAREHOLDERS +DIRECTORS AND EXECUTIVE OFFICERS +SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +SUMMARY COMPENSATION TABLE +OPTION GRANTS IN LAST FISCAL YEAR +FISCAL 2003 OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES +PERFORMANCE GRAPH +QUESTIONS? +ANNEX A +MERIDIAN BIOSCIENCE, INC. AUDIT COMMITTEE CHARTER +AS REVISED BY THE BOARD OF DIRECTORS ON JULY 24, 2003 +Annual Meeting Proxy Card +Table of Contents +TABLE OF CONTENTS +Page +GENERAL INFORMATION +1 +ELECTION OF DIRECTORS +1 +RATIFICATION OF APPOINTMENT OF ACCOUNTANTS +3 +CORPORATE GOVERNANCE +5 +REPORT OF THE AUDIT COMMITTEE +7 +REPORT OF THE COMPENSATION COMMITTEE +7 +PRINCIPAL SHAREHOLDERS +9 +DIRECTORS AND EXECUTIVE OFFICERS +10 +SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +11 +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +12 +SUMMARY COMPENSATION TABLE +12 +OPTION GRANTS IN LAST FISCAL YEAR +14 +FISCAL 2003 OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES +14 +PERFORMANCE GRAPH +15 +QUESTIONS? +16 +MERIDIAN BIOSCIENCE, INC. AUDIT COMMITTEE CHARTER AS REVISED BY +THE BOARD OF DIRECTORS ON JULY 24, 2003 +A-1 +Table of Contents +GENERAL INFORMATION +Who may vote +Shareholders of Meridian, as recorded in our stock register on December 8, +2003, may vote at the meeting. As of that date, Meridian had 14,826,046 shares +of Common Stock outstanding. +How to vote +You may vote in person at the meeting or by proxy. We recommend you vote by +proxy even if you plan to attend the meeting. You can always change your vote +at the meeting. +How proxies work +Meridian’s Board of Directors is asking for your proxy. Giving us your proxy +means you authorize us to vote your shares at the meeting in the manner you +direct. You may vote for all, some or none of our director candidates. You +may also vote for or against the other proposals or abstain from voting. +If you sign and return the enclosed proxy card but do not specify how to vote, +we will vote your shares in favor of our director candidates and in favor of +the ratification of PricewaterhouseCoopers LLP as Meridian’s independent public +accountants for fiscal year 2004. +If any other matters come before the meeting or any adjournment, each proxy +will be voted in the discretion of the individuals named as proxies on the +card. +You may receive more than one proxy or voting card depending on how you hold +your shares. Shares registered in your name are covered by one card. If you +hold shares through someone else, such as a stockbroker, you may get material +from them asking how you want to vote. +Revoking a proxy +You may revoke your proxy before it is voted by submitting a new proxy with a +later date, by voting in person at the meeting, or by notifying Meridian’s +Secretary in writing at the address under “Questions?” on page 16. +Quorum +In order to carry on the business of the meeting, we must have a quorum. This +means at least a majority of the outstanding shares eligible to vote must be +represented at the meeting, either by proxy or in person. +Votes needed +The six director candidates receiving the most votes will be elected to fill +the seats on the Board. Ratification of appointment of accountants requires +the favorable vote of a majority of the votes cast. Only votes for or against +these proposals count. Abstentions and broker non-votes count for quorum +purposes but not for voting purposes. Broker non-votes occur when a broker +returns a proxy card but does not have authority to vote on a particular +proposal +Other Matters +Any other matters considered at the meeting, including adjournment, will +require the affirmative vote of a majority of the votes cast. +ELECTION OF DIRECTORS +(Item 1 on the Proxy Card) +The Nominating Committee of the Board of Directors has nominated for +re-election all of the following current directors: James A. Buzard, John A. +Kraeutler, Gary P. Kreider, William J. Motto, David C. Phillips and Robert J. +Ready. +-1- +Table of Contents +Proxies solicited by the Board will be voted for the election of these +nominees. All directors elected at the Annual Meeting will be elected to hold +office until the next annual meeting. In voting to elect directors, +shareholders are entitled to cumulate their votes and to give one candidate a +number of votes equal to the number of directors to be elected multiplied by +the number of shares held by the shareholder, or to distribute their votes on +the same principle among as many candidates as the shareholder sees fit. In +order to invoke cumulative voting, notice of cumulative voting must be given in +writing by a shareholder to the President, a Vice President or the Secretary of +Meridian not less than 48 hours prior to the Annual Meeting. The proxies +solicited include discretionary authority to cumulate votes. +Four of our six nominees are not Meridian employees. Only non-employee +directors serve on Meridian’s Audit, Compensation and Nominating committees. +All Meridian directors are elected for one-year terms. Personal information on +each of our nominees is given below. +If a director nominee becomes unavailable before the election, your proxy card +authorizes us to vote for a replacement nominee if the Board names one. +The Board recommends you vote FOR each of the following candidates: +James A. Buzard, Ph.D. +Director since 1990 +Age:76 +James A. Buzard, Ph.D. was Executive Vice President of +Merrell Dow Pharmaceuticals Inc. from March 1981 until +December 1989. From December 1989 until his retirement +in February 1990, he was Vice President of Marion +Merrell Dow, Inc. He has been a business consultant +since February 1990. +John A. Kraeutler +Director since 1997 +Age:55 +John A. Kraeutler has more than 25 years of experience +in the medical diagnostics industry and joined Meridian +as Executive Vice President and Chief Operating Officer +in January 1992. In July 1992, Mr. Kraeutler was named +President of Meridian. Before joining Meridian, Mr. +Kraeutler served as Vice President, General Manager for +a division of Carter-Wallace, Inc. Prior to that, he +held key marketing and technical positions with Becton, +Dickinson and Company and Organon, Inc. +Gary P. Kreider, Esq. +Director since 1991 +Age:65 +Gary P. Kreider serves as Chairman of the Compensation +Committee. Mr. Kreider has been a Senior Partner of +the Cincinnati law firm of Keating, Muething & Klekamp, +P.L.L., counsel to Meridian, since 1975. He is also an +Adjunct Professor of Law in securities at the +University of Cincinnati College of Law and a director +of LSI Industries Inc. +William J. Motto +Director since 1977 +Age:62 +William J. Motto has more than 35 years of experience +in the pharmaceutical and diagnostics products +industries, is a founder of Meridian and has been +Chairman of the Board since 1977. Before forming +Meridian, Mr. Motto served in various capacities for +Wampole Laboratories, Inc., Marion Laboratories, Inc. +and Analytab Products, Inc., a division of American +Home Products Corp. +-2- +Table of Contents +David C. Phillips +Director since 2000 +Age:65 +David C. Phillips serves as Chairman of the Audit +Committee. Mr. Phillips spent 32 years with Arthur +Andersen LLP. His service with this firm included +several managing partner leadership positions. After +retiring from Arthur Andersen in 1994, Mr. Phillips +became Chief Executive Officer of Downtown Cincinnati, +Inc., which is responsible for economic revitalization +of Downtown Cincinnati. Mr. Phillips retired from DCI +in 1999 to devote full time to Cincinnati Works, Inc., +an organization dedicated to reducing the number of +people living below the poverty level by assisting them +to strive towards self-sufficiency through work, and +his financial consulting services. Mr. Phillips serves +as a director of Cintas Corporation and Summit Family +of Mutual Funds. +Robert J. Ready +Director since 1986 +Age:63 +Robert J. Ready founded LSI Industries Inc., +Cincinnati, Ohio in 1976, which engineers, manufactures +and markets commercial/industrial lighting and graphics +products, and has served as its President and Chairman +of its Board of Directors since that time. +RATIFICATION OF APPOINTMENT OF ACCOUNTANTS +(Item 2 on the Proxy Card) +Although not required, the Board is seeking shareholder ratification of the +Audit Committee’s selection of PricewaterhouseCoopers LLP as Meridian’s +independent public accountants for fiscal 2004. The affirmative vote of a +majority of shares voting at the meeting is required for ratification. If +ratification is not obtained, the Board intends to continue the employment of +PricewaterhouseCoopers LLP at least through fiscal 2004. Representatives of +PricewaterhouseCoopers LLP are expected to be present at the Shareholders’ +Meeting and will be given an opportunity to make a statement, if they so +desire, and to respond to appropriate questions that may be asked by +shareholders. +Changes in the Company’s Certifying Accountant +On May 13, 2002, Meridian dismissed Arthur Andersen LLP as the independent +public accountant to audit Meridian’s consolidated financial statements. +Following a review of Meridian’s accounting services in recent years, the Board +of Directors initiated a process to solicit bids from Deloitte & Touche LLP, +Ernst & Young LLP, Grant Thornton LLP, and PricewaterhouseCoopers LLP. The +Audit Committee of the Board of Directors, after reviewing audit proposals from +all four firms selected PricewaterhouseCoopers as Meridian’s independent +accountants to replace Arthur Andersen, effective May 13, 2002. The Company +reported this change of accountant in a Current Report on Form 8-K filed with +the SEC on May 13, 2002. +Arthur Andersen’s report on Meridian’s financial statements for fiscal 2001 did +not contain an adverse opinion or a disclaimer of opinion, nor was it qualified +or modified as to uncertainty, audit scope, or accounting principles. During +fiscal 2001 and the subsequent interim periods preceding the replacement of +Arthur Andersen, there were no disagreements with Arthur Andersen on any matter +of accounting principles or +-3- +Table of Contents +practices, financial statement disclosure, or +auditing scope or procedure, which disagreement(s), if not resolved to the +satisfaction of Arthur Andersen, would have caused them to make a reference to +the subject matter of the disagreement(s) in connection with its report. +Meridian has authorized Arthur Andersen to respond fully to any inquiries by +PricewaterhouseCoopers. +Arthur Andersen did not advise Meridian either during its fiscal year 2001 or +during the subsequent interim periods preceding Arthur Andersen’s dismissal: +Ø +that the internal controls necessary for Meridian to develop +reliable financial statements did not exist; +Ø +that information had come to its attention that had led it to no +longer be able to rely on management’s representations, or that had +made it unwilling to be associated with the financial statements +prepared by management; +Ø +of the need to expand significantly the scope of its audit, or that +information had come to its attention during fiscal year 2001 or any +subsequent interim periods that if further investigated might +materially have impacted the fairness or reliability of either: (i) a +previously issued audit report or the underlying financial statements, +or (ii) the financial statements issued or to be issued covering the +fiscal period(s) subsequent to the date of the most recent financial +statements covered by an audit report, or have caused it to be +unwilling to rely on management’s representations or be associated with +Meridian’s financial statements; or +Ø +that information had come to its attention that it had concluded +materially impacts the fairness or reliability of either (i) a +previously issued audit report or the underlying financial statements, +or (ii) the financial statements issued or to be issued covering the +fiscal period(s) subsequent to the date of the most recent financial +statements covered by an audit report, including information that, +unless resolved to the accountant’s satisfaction, would prevent it from +rendering an unqualified audit report on those financial statements. +During fiscal year 2001 and during the interim period prior to engaging +PricewaterhouseCoopers, neither Meridian nor anyone on its behalf consulted +PricewaterhouseCoopers regarding either: (i) the application of accounting +principles to a specified transaction (either completed or proposed) or the +type of audit opinion that might be rendered on Meridian’s financial +statements, and no written report or oral advice was provided to Meridian that +PricewaterhouseCoopers concluded was an important factor considered by Meridian +in reaching a decision as to an accounting, auditing or financial reporting +issue; or (ii) any matter that was the subject of either a disagreement or a +reportable event. +Meridian provided Arthur Andersen LLP with a copy of the foregoing disclosures +and received from Arthur Andersen LLP a letter addressed to the Securities and +Exchange Commission stating its agreement with such disclosures. A copy of the +letter from Arthur Andersen was filed with the SEC as Exhibit 16 to the Form +8-K. +Principal Accounting Firm Fees: +Aggregate fees billed to Meridian by +-4- +Table of Contents +PricewaterhouseCoopers LLP for fiscal 2003 +were: +Audit Fees +$ +203,550 +Audit Related Fees +42,989 +Tax Fees +173,488 +All Other Fees +6,000 +$ +426,027 +CORPORATE GOVERNANCE +Meridian is an Ohio corporation and, therefore, governed by the corporate laws +of Ohio. Since its stock is publicly traded on Nasdaq and it files reports +with the Securities and Exchange Commission, it is also subject to NASD rules +as well as various provisions of federal securities laws as recently changed by +the Sarbanes-Oxley Act. +Governance of the corporation is placed in the hands of the directors who, in +turn, elect officers to manage the business operations. The Board oversees the +management of Meridian on your behalf. It reviews Meridian’s long-term +strategic plans and exercises direct decision making authority in all major +decisions, such as acquisitions, the declaration of dividends, major capital +expenditures and the establishment of Company policies. +During fiscal 2003, the Board of Directors met on six occasions and took action +by writing on no occasions. +Meridian expects all directors to attend shareholders meetings. Each director +attended the 2003 Annual Shareholders’ Meeting, all meetings of the Board and +all meetings of Committees of which he was a member. +Shareholders may communicate with the full Board or individual directors on +matters concerning Meridian by mail or through our website in each case to the +attention of the Secretary. +Shareholders desiring to submit recommendations for nominations by the +Committee should direct them to the Chairman in care of the Company at its +address shown on the cover page of this proxy statement. +Non-employee directors of Meridian receive $12,000 per year for serving as a +director and as members of committees of the Board. They also receive $1,000 +for each director or committee meeting attended, except if a committee meeting +occurs on the same day as a directors’ meeting the committee meeting fee is +$800. They receive $500 for each director or committee meeting held by +telephone. The Audit Committee Chairman and Compensation Committee Chairman +receive an additional $1,000 and $500, respectively, for each committee meeting +held. Each non-employee director is also granted a non-qualified option to +purchase 2,317 shares of Common Stock at the time of election or re-election to +the Board of Directors, with the exercise price being the closing sale price on +Nasdaq reported immediately prior to the date of grant. Directors who are +employees of Meridian are not separately compensated for serving as directors. +At its meeting on July 24, 2003, the Board adopted the Audit Committee Charter +attached to this proxy statement and a Code of Ethics for the Corporation. The +Code of Ethics will be sent without charge on request to the Secretary of the +Corporation. +-5- +Table of Contents +The independent directors will, during fiscal 2004, meet at least two times +without the presence of management directors. The independent members of the +Board had one such meeting in fiscal 2003. +The directors have organized themselves into the committees described below. +Each of these committees is composed of non-employee directors each of whom +meets the relevant independence requirements established by Nasdaq and the +Sarbanes-Oxley Act that apply to their particular assignments. Meridian does +not have an Executive Committee of its Board of Directors. +The Audit Committee is composed of David C. Phillips, Chairman, James A. Buzard +and Robert J. Ready. It met 7 times last year. +The Audit Committee operates pursuant to a Charter, a copy of which is attached +to this proxy statement. The Committee reviews and assesses the adequacy of +the Charter annually. On July 23, 2003 the Committee reviewed revisions to the +Company’s Audit Committee Charter and recommended approval of the revised +Charter by the Board of Directors. The Board of Directors approved the revised +Charter on July 24, 2003. +The Committee oversees the accounting and financial reporting processes of +Meridian and the audits of its financial statements by its outside auditors. +The Committee is solely responsible for the appointment, compensation, +retention and oversight of Meridian’s outside auditor. The Audit Committee +also evaluates information received from the outside auditor and Company +management to determine whether the outside auditor is independent of +management. The outside accounting firm reports directly to the Audit +Committee. +In addition, the Audit Committee has established procedures for the receipt, +retention and treatment of complaints received by Meridian concerning +accounting, internal accounting controls or auditing matters and has +established procedures for the confidential and anonymous submission by +employees of any concerns they may have regarding questionable accounting or +auditing matters. +At its meeting on July 23, 2003 the Committee reviewed a proposed Code of +Ethics and recommended that the Board adopt that as the Code of Ethics for the +Corporation. During the year the Committee has discussed with both +Pricewaterhouse Coopers and management the Company’s actions to establish +controls and procedures pursuant to new requirements of the Sarbanes-Oxley Act. +Each of the Audit Committee members is able to read and understand fundamental +financial statements. David C. Phillips has been designated as the Audit +Committee financial expert and is independent as that term is used in Item +7(d)(3)(iv) of Schedule 14A. +The Audit Committee, or its Chairman, approves all audit and non-audit services +performed for Meridian by its independent accountants prior to the time that +those services are commenced. The Chairman reports to the full Committee at +each of its meetings and the committee approves what he has done in the interim +between meetings. For these purposes, the Committee or its Chairman is +provided with information as to the nature, extent and purpose of each proposed +service, as well as the approximate timeframe and proposed cost arrangements +for that service. +The Committee has submitted the following report to shareholders. +-6- +Table of Contents +REPORT OF THE AUDIT +COMMITTEE +On August 13, 2003, the Committee met with representatives of Pricewaterhouse +Coopers and Meridian’s internal accountants and reviewed with them the proposed +2003 Audit Plan, areas warranting particular concentration on the audit and the +effects of new accounting pronouncements. The PricewaterhouseCoopers +representatives reviewed with the Committee written disclosures required by the +Independence Standards Board Standard No. 1 regarding independence of the +public accountants and presented a letter regarding that matter to the +Committee. +At its meeting on November 17, 2003, the Committee reviewed with management, +PricewaterhouseCoopers and Meridian’s accounting officers the results of the +audit for fiscal 2003, including the audited financial statements. The +Committee reviewed the requirements of its Charter previously adopted and the +reports that were required to be disclosed to the Committee. The Committee +discussed with PricewaterhouseCoopers the matters required to be discussed by +Statement on Auditing Standards No. 61. +The Committee met on December 12, 2003 to review a draft of the Form 10-K. +Based on their review the Committee recommended to the Board of Directors that +the audited financial statements of Meridian be included in its Annual Report +on Form 10-K for the year ended September 30, 2003 for filing with the +Securities and Exchange Commission. At the same meeting the Committee retained +Pricewaterhouse Coopers LLP as Meridian’s independent public accountants for +fiscal 2004 and directed that shareholder ratification of that selection be +sought at the 2004 Annual Shareholders’ Meeting. As part of its deliberations, +the Committee determined that PricewaterhouseCoopers was independent of +Meridian. +Respectfully submitted, +Audit Committee +David C. Phillips (Chairman) +Robert J. Ready +James A. Buzard +The Compensation Committee is responsible for establishing compensation for +management and administering Meridian’s stock option plans. +In determining the compensation of the Chief Executive Officer, the Committee’s +deliberations and voting take place without his presence. +The Compensation Committee met two times and took action in writing two times +during fiscal 2003. +The report of the Compensation Committee follows. +REPORT OF THE COMPENSATION +COMMITTEE +Meridian’s Compensation Committee is composed of Messrs. Kreider (Chairman), +Buzard, Phillips and Ready. The Compensation Committee is responsible for +establishing compensation for executive officers, establishing salary levels +and bonus plans, making bonus awards and otherwise dealing in all matters +concerning compensation of the executive officers and awarding stock options +for all employees. +At other meetings throughout the year, the Committee also awarded stock options +to officers and employees pursuant to Meridian’s Stock Option Plan. +-7- +Table of Contents +The results of the Committee’s deliberations for fiscal 2003 as they pertain to +the five most highly compensated officers are presented in the Summary +Compensation Table. +At its meeting on April 23, 2003, the Compensation Committee established a +death and disability program for Mr. Motto designed to replace the Company’s +split dollar life insurance program. That plan is described in footnotes to +the Summary Compensation Table. +At its meeting on November 18, 2003, the Committee established salary levels +for executive officers for fiscal 2004, which included increases of +approximately 4% plus merit adjustments in certain cases. They also +established a fiscal 2004 bonus award based on target net earnings levels from +$7,800,000 to $8,600,000. In addition, they awarded options to purchase +107,000 common shares, which will vest over a 3-year period commencing at such +time as Meridian’s net income for fiscal 2004 is determined. If such net +income is less than $8,200,000, those options will become void. +Respectfully submitted, +Compensation Committee +Gary P. Kreider (Chairman) +Robert J. Ready +James A. Buzard +David C. Phillips +Nominating Committee +Meridian’s Board of Directors formed a Nominating Committee on November 18, +2003 consisting of Robert J. Ready, Chairman, James A. Buzard and David C. +Phillips. The Committee met on that date and nominated the current directors +for re-election. The Board of Directors has established a Charter for the +Nominating Committee which is available free of charge by request to the +Secretary of the Corporation. Shareholders desiring to submit recommendations +for nominations by the Committee should direct them to the Chairman in care of +the Company at its address shown on the cover page of this proxy statement. +-8- +Table of Contents +PRINCIPAL SHAREHOLDERS +William J. Motto, Chairman of the Board, and Putnam Investment Management, LLC +are the only shareholders known by Meridian to own beneficially 5% or more of +its outstanding Common Stock as of December 8, 2003. Information has been +furnished by the persons listed and/or has been obtained from reports filed by +the persons listed with the Securities and Exchange Commission: +Amount and Nature of +Name of Beneficial Owner +Beneficial Ownership +Percent of Class +William J. Motto 1 +4,007,146 +26.9 +% +Putnam Investments, LLC 2 +1,181,240 +8.0 +% +1 The business address of Mr. Motto is 3471 River Hills Drive, Cincinnati, Ohio +45244. The shares of Common Stock reported as beneficially owned by Mr. Motto +include 35,000 shares subject to options exercisable within 60 days. +2 Based on Schedule 13G/A filed on August 11, 2003. The business address of +Putnam Investment Management, LLC is One Post Office Square, Boston, +Massachusetts 02109. +-9- +Table of Contents +DIRECTORS AND EXECUTIVE OFFICERS +This table lists the executive officers and directors of Meridian and shows how +much common stock each owned on December 8, 2003. +Common Stock +Beneficially Owned +Name +Position +Amount 1 +Percentage 2 +William J. Motto +Chairman of the Board +4,007,146 +2 +26.9 +% +of Directors, Chief +Executive Officer +John A. Kraeutler +President, Chief +306,046 +2.0 +% +Operating Officer and +Director +Antonio A. Interno 3 +President, Managing +246,876 +1.7 +% +Director of Meridian +Bioscience Europe +Richard L. Eberly 4 +Executive Vice +69,875 +* +President, General +Manager Meridian Life +Science +Kenneth J. Kozak 5 +Vice President, +29,100 +* +Research and +Development +Melissa A. Lueke 6 +Vice President, Chief +33,100 +* +Financial Officer and +Secretary +Susan A. Rolih 7 +Vice President of +15,000 +* +Regulatory Affairs & +Quality Systems +Lawrence J. Baldini 8 +Vice President of +15,000 +* +Operations +James A. Buzard, Ph.D. 9, +10, 11 +Director +27,930 +* +Gary P. Kreider 10, 12 +Director +47,080 +* +Robert J. Ready 9, 10, +11 +Director +29,635 +* +David C. Phillips 9, 10, +11 +Director +12,951 +* +All Executive Officers and +Directors as a Group +4,839,739 +31.5 +% +1 Includes options exercisable within 60 days from Mr. Motto of 60,000 shares, +Mr. Kraeutler of 226,038 shares, Mr. Interno of 22,000 shares, Mr. Eberly of +69,775 shares, Mr. Kozak of 29,100 shares, Mr. Buzard of 23,172 shares, Mr. +Kreider of 19,536 shares, Ms. Lueke of 20,500 shares, Mr. Phillips of 6,951 +shares, Mr. Ready of 23,172 shares, Ms. Rolih of 15,000 shares, and Mr. Baldini +of 10,000 shares. +2 See description of Common Stock ownership contained under “Principal +Shareholders.” +-10- +Table of Contents +3 Antonio A. Interno was appointed as a Vice President in August 1991, +appointed a Senior Vice President in September 1997, and appointed as +President, Managing Director of Meridian Bioscience Europe in October 2003. He +has been Managing Director of Meridian’s European subsidiaries, Meridian +Bioscience Europe since February 1990. +4 Richard L. Eberly was appointed Vice President of Sales and Marketing on +January 10, 1997, appointed an Executive Vice President in May 2000, and +appointed Executive Vice President, General Manager of Meridian Life Science in +February 2003. He has over 12 years of experience in the medical diagnostic +industry and joined Meridian in January 1995. Prior to his appointment to Vice +President of Sales and Marketing, Mr. Eberly served as the Director of Sales +for Meridian. Before joining Meridian, he held key sales and marketing +positions at Abbott Diagnostics. +5 Kenneth J. Kozak joined Meridian in October 1987 and was appointed Vice +President, Research and Development, on May 17, 1999. Prior to this +appointment, Mr. Kozak served as Director of Product Development for Meridian. +Before joining Meridian, Mr. Kozak held a variety of positions at the +University of Cincinnati College of Medicine. +6 Melissa A. Lueke was appointed Vice President, Chief Financial Officer and +Secretary on January 23, 2001. Prior to her appointment, Ms. Lueke served as +Meridian’s Controller since March 2000 and Acting Secretary from July 20, 2000 +to January 23, 2001. Before joining Meridian, Ms. Lueke was employed by Arthur +Andersen LLP from June 1985 to January 1999, most recently as a Senior Audit +Manager. +7 Susan A. Rolih was appointed Vice President of Regulatory Affairs and Quality +Systems on May 29, 2001. Before joining Meridian, Ms. Rolih held various +regulatory and quality positions with Immucor, Inc. +8 Lawrence J. Baldini was appointed Vice President of Operations on April 3, +2001. Before joining Meridian, Mr. Baldini held various operations management +positions with Instrumentation Laboratories and Fisher Scientific. +9 Audit Committee Member. +10 Compensation Committee Member. +11 Nominating Committee Member. +12 Includes 145 shares held by his wife, 1,000 shares held as custodian for his +minor child and 5,122 shares held by trusts of which Mr. Kreider is trustee and +a beneficiary. Also includes Meridian debentures convertible into 1,492 shares. +* Less than one percent. +SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Section 16 of the Securities Exchange Act of 1934 requires Meridian’s +executive officers, directors and persons who own more than ten percent of a +registered class of Meridian’s equity securities to file reports of ownership +and changes in ownership with the Securities and Exchange Commission. Based on +a review of the copies of such forms received by it, Meridian believes that +during the last fiscal year, all of its executive officers, directors and ten +percent stockholders complied with the Section 16 reporting requirements except +the following. A Form 4 to be filed on behalf of Mr. Ken Kozak was filed late. +The Form 4 was in regards to 100 shares of common stock awarded to Mr. Kozak on +October 22, 2002. On August 25, 2003, three Forms 4 were filed on behalf of +Mr. Antonio Interno late. The Forms 4 were in regard to sales of Meridian +common stock. The dates of the three transactions were August 5, 19 and 20. A +Form +-11- +Table of Contents +4 filed on behalf of Mr. John Kraeutler was filed late. The Form 4 was in +regards to a sale of Meridian common stock. +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +Gary P. Kreider, who is Chairman of the Compensation Committee, is a +senior partner of Keating, Muething & Klekamp, P.L.L., Cincinnati, Ohio, a law +firm that provided legal services to Meridian in fiscal 2003. +SUMMARY COMPENSATION TABLE +Annual Compensation +Name and Principal Position +Securities +Underlying +All Other +Year +Salary +Bonus +Options +Compensation +William J. Motto 1 +2003 +$ +395,000 +$251,813 +25,000 +$ +204,483 +Chairman of the Board of +Directors, +2002 +387,700 +-0- +55,000 +41,779 +Chief Executive Officer +2001 +387,700 +-0- +20,000 +50,298 +John A. Kraeutler 2 +2003 +$ +294,000 +$187,425 +25,000 +$ +96,133 +President, Chief Operating Officer +2002 +280,700 +-0- +55,000 +23,687 +2001 +280,700 +-0- +50,000 +32,165 +Antonio A. Interno 3 +2003 +$ +239,883 +$152,925 +10,000 +$ +20,200 +Senior Vice President, Managing +2002 +198,200 +-0- +10,000 +20,200 +Director MDE +2001 +192,100 +-0- +10,000 +16,200 +Richard L. Eberly 4 +2003 +$ +205,000 +$108,906 +10,000 +$ +37,300 +Executive Vice President, Sales, +2002 +177,700 +-0- +10,000 +27,480 +Marketing and Operations +2001 +177,700 +-0- +35,000 +22,532 +Melissa A. Lueke 5 +2003 +$ +163,000 +$103,913 +10,000 +$ +27,304 +Vice President, Chief Financial +2002 +157,800 +-0- +10,000 +13,686 +Officer and Secretary +2001 +145,900 +-0- +30,000 +13,759 +1 “All Other Compensation” for Mr. Motto includes (a) car allowances of +$14,600, $16,579 and $14,297 in 2003, 2002 and 2001, respectively, (b) +professional allowances of $25,000, $15,200 and $15,000 in 2003, 2002 and +2001, respectively, (c) premiums paid under Meridian’s Split-Dollar Life +Insurance Program of $11,697 in 2001, and (d) amounts accrued under +Meridian’s Savings and Investment Plan. Also included are $154,883 +representing loans forgiven that were incurred by Mr. Motto in connection +with the Split-Dollar Life Insurance Program, which has been terminated. +Todd Motto, the adult son of William J. Motto, is Vice President Sales and +Marketing Meridian Bioscience Europe. Todd Motto received approximately +$107,000 in compensation for fiscal 2003. +2 “All Other Compensation” for Mr. Kraeutler includes (a) car allowances of +$11,216, $12,595 and $10,280 in 2003, 2002 and 2001, respectively, (b) +professional allowances, (c) premiums paid under Meridian’s Split-Dollar +Life Insurance Program of $8,948 in 2001 and (d) amounts accrued under +Meridian’s Savings and Investment Plan of $10,000, $9,986 and $11,247 in +2003, 2002 and 2001, respectively. Also included are $69,917 representing +loans forgiven that were incurred by Mr. Kraeutler in connection with the +Split-Dollar Life Insurance Program, which has been terminated. Mr. +Kraeutler and Meridian are parties to an employment agreement dated February +15, 2001 which sets forth compensation, non-competition, benefit and +severance +-12- +Table of Contents +provisions and provides for a payment equal to three times Mr. +Kraeutler’s base salary (plus any salary earned but not paid) upon the +occurrence of certain events, including a change in control of Meridian. +The agreement is effective for a period of 36 months commencing February 15, +2001, automatically extending until either party terminates the agreement. +3 “All Other Compensation” for Mr. Interno includes (a) car allowances of +$16,200 in 2003, 2002 and 2001 and (b) amounts accrued under Meridian’s +Savings and Investment Plan. The increase in Mr. Interno’s salary during +fiscal 2002 reflects changes in exchange rates. There was no change to the +amount of salary in local currency during fiscal 2002. +4 “All Other Compensation” for Mr. Eberly includes (a) car allowances of +$8,472, $13,650 and $6,966 in 2003, 2002 and 2001, respectively, (b) +premiums paid under Meridian’s Split-Dollar Life Insurance Program of $4,190 +in 2002, (c) amounts accrued under Meridian’s Savings and Investment Plan of +$10,000, $9,640 and $9,706 in 2003, 2002 and 2001, respectively and (d) +reimbursement for education related expenses of $5,860 in 2001. Also +included are $15,828 representing loans forgiven that were incurred by Mr. +Eberly in connection with the Split-Dollar Life Insurance Program, which has +been terminated. +5 “All Other Compensation” for Ms. Lueke includes (a) car allowances of +$5,000, $5,000 and $3,000 in 2003, 2002 and 2001, respectively, (b) premiums +paid under Meridian’s Split-Dollar Life Insurance Program and (c) amounts +accrued under Meridian’s Savings and Investment Plan of $7,757, $8,686 and +$8,030 in 2003, 2002 and 2001, respectively. Also included are $13,547 +representing loans forgiven that were incurred by Ms. Lueke in connection +with the Split-Dollar Life Insurance Program, which has been terminated. +In April 2003, Meridian entered into an agreement with Mr. Motto creating a +death and disability program to replace the Corporation’s split dollar life +insurance program. The Agreement provides for disability compensation of +60% of average salary and bonus in the last three completed fiscal years to +be paid for five years from the date of disability until death, reduced by +any payments made through other policies maintained by Meridian. If Mr. +Motto dies while employed or while receiving the disability payments, the +Company would pay his designated beneficiaries $1,000,000 reduced by +payments made as disability compensation and reduced by any other insurance +on Mr. Motto’s life maintained by Meridian. The Agreement also provides for +the maintenance of health insurance on Mr. Motto and his spouse and their +survivor for five years after Mr. Motto’s separation from employment because +of death or disability and provides a right of registration for Mr. Motto on +three occasions for the purpose of public resale under the Securities Act of +1933 of Meridian securities owned by him. +-13- +Table of Contents +OPTION GRANTS IN LAST FISCAL YEAR +Potential Realized Value +at Assumed Annual Rates +Number of +of Price Appreciation for +Securities +% of Total Options +Exercise +Option Term +Underlying +Granted to +Price +Options +Employees in Fiscal +($/Per +Expiration +Names +Granted +2002 +Share) +Date +5% +10% +William J. Motto +21,450 +13 +% +$ +6.93 +11/19/12 +$ +242,133 +$ +385,556 +3,550 +2 +% +6.30 +11/19/12 +36,430 +58,009 +John A. Kraeutler +25,000 +15 +% +6.30 +11/19/12 +256,551 +408,514 +Antonio A. Interno +10,000 +6 +% +6.30 +11/19/12 +102,620 +163,406 +Richard L. Eberly +10,000 +6 +% +6.30 +11/19/12 +102,620 +163,406 +Melissa A. Lueke +10,000 +6 +% +6.30 +11/19/12 +102,620 +163,406 +FISCAL 2003 OPTION EXERCISES +AND FISCAL YEAR-END OPTION VALUES +Number of Securities +Value of Unexercised +Underlying Unexercised +In-the-Money Options at +Options at FY-End +FY-End +Shares Acquired +Value +Name +on Exercise +Realized +Exercisable/Unexercisable +Exercisable/Unexerciable +William J. Motto +$ +— +$ +— +60,000 / 60,000 +$149,724 / $305,130 +John A. Kraeutler +38,971 +205,211 +226,038 / 67,500 +514,548 / 328,681 +Antonio A. Interno +23,407 +77,194 +22,000 / 12,500 +37,300 / 60,406 +Richard L. Eberly +— +— +69,775 / 23,750 +197,765 / 139,259 +Melissa A. Lueke +5,000 +32,050 +20,500 / 22,500 +65,084 / 135,706 +-14- +Table of Contents +PERFORMANCE GRAPH +The following graph shows the yearly percentage change in Meridian’s +cumulative total shareholder return on its Common Stock as measured by dividing +the sum of (A) the cumulative amount of dividends, assuming dividend +reinvestment during the periods presented and (B) the difference between +Meridian’s share price at the end and the beginning of the periods presented; +by the share price at the beginning of the periods presented with the Wilshire +5000 Equity Index and a Peer Group Index. The Peer Group consists of Apogent +Technologies, Inc., Biomerica, Inc., Biosite, Inc., Diagnostic Products Corp., +Hycor Biomedical, Inc., Idexx Laboratories Corp., Neogen Corp., Quidel Corp. +and Trinity Biotech Plc. +-15- +Table of Contents +SHAREHOLDER PROPOSALS FOR NEXT YEAR +The deadline for shareholder proposals to be included in the Proxy +Statement for next year’s meeting is August 23, 2004. +The form of Proxy for this meeting grants authority to the designated +proxies to vote in their discretion on any matters that come before the meeting +except those set forth in Meridian’s Proxy Statement and except for matters as +to which adequate notice is received. In order for a notice to be deemed +adequate for the 2005 Annual Shareholders’ Meeting, it must be received prior +to November 5, 2004. If there is a change in the anticipated date of next +year’s annual meeting or these deadlines by more than 30 days, we will notify +you of this change through our Form 10-Q filings. +Meridian’s Code of Regulations provides that only persons nominated by an +officer, director or in writing by a shareholder at least five days prior to +the meeting at which directors are to be selected shall be eligible for +election. +QUESTIONS? +If you have questions or need more information about the annual meeting, +write to: +Melissa Lueke, Vice President, Chief Financial Officer and Secretary +Meridian Bioscience, Inc. +3471 River Hills Drive +Cincinnati, Ohio 45244 +or call us at (513) 271-3700. +For information about your record holdings call the Computershare Shareholder +Services at 1-888-294-8217. +-16- +Table of Contents +ANNEX A +MERIDIAN BIOSCIENCE, INC. +AUDIT COMMITTEE CHARTER +AS REVISED BY THE BOARD OF DIRECTORS ON JULY 24, 2003 +I. PURPOSE +The primary function of the Audit Committee is to assist the Company in +maintaining the integrity of its financial statements and to assist it in +providing full and fair disclosure of the financial aspects of its operations. +This function applies to the Company’s financial reports, financial press +releases, filings with the Securities and Exchange Commission and other +financial information provided by the Company to any governmental body or the +public; the Company’s systems of internal controls regarding finance, +accounting, legal compliance and ethics that management and the Board have +established; and the Company’s auditing, accounting and financial reporting +processes generally. Consistent with this function, the Committee should +encourage continuous improvement of, and should foster adherence to, the +Company’s policies, procedures and practices at all levels. The Committee +shall: +Serve as an independent and objective party to monitor the Company’s +financial reporting process and internal control system. +Review and appraise the audit efforts of the Company’s independent public +accountants. +Provide an open avenue of communication among the independent public +accountants, financial and senior management and the Board. +The Committee is authorized to employ, at the Company’s expense, any +outside experts, legal counsel, accountants or other personnel deemed by the +Committee in its collective judgment to be reasonably necessary, and in the +best interest of the Company and its shareholders, to enable the Committee to +fulfill its responsibilities. +II. COMPOSITION +The Committee shall be comprised of three or more directors as determined +by the Board, each of whom shall satisfy the independence and financial +literacy requirements prescribed by the NASD and Section 10A of the Securities +Exchange Act. At least one member of the Committee shall be an audit committee +financial expert as defined under the United States Securities and Exchange +Commission rules promulgated pursuant to § 407 of the Sarbanes-Oxley Act of +2002. +The members of the Committee shall be elected by the Board at the annual +organizational meeting of the Board and serve until their successors shall be +duly elected and qualified. Unless a Chairman is elected by the Board, the +members of the Committee shall designate a Chair. +A-1 +Table of Contents +III. MEETINGS +The Committee shall meet at least four times annually, and more frequently +as circumstances dictate. As part of its job to foster open communication, the +Committee should meet at least annually with management, the chief financial +officer and the independent public accountants in separate executive sessions +to discuss any matters that the Committee or any of these groups believe should +be discussed independently. In addition, the Committee or at least its Chair +should meet with the independent accountants and management quarterly to review +the Company’s financials. The Committee shall maintain minutes of its meetings +and activities. +IV. RESPONSIBILITIES AND DUTIES +To fulfill its responsibilities and duties the Committee shall: +Documents/Reports Review +1. +Review and update this Charter annually. +2. +Review the Company’s annual financial statements, financial +press releases, and any reports or other financial information +submitted to any governmental body, or the public, including any +certification, report, opinion, or review rendered by the +independent accountants. This information should be sent to the +Committee at least 24 hours before release. +Independent Accountants +3. +Appoint, compensate and oversee the independent public +accountants who audit the Company’s financial statements and +consider their independence and effectiveness. On an annual basis, +the Committee shall ensure the receipt from the independent public +accountants of their formal written statement delineating all +relationships between them and the Company. The Committee shall, as +appropriate, also discuss with the auditor any undisclosed +relationships or non-accounting services rendered to the Company or +any of its affiliates that could impact the objectivity and +independence of the independent public accountants, and take, or +recommend that the Board take, appropriate action to oversee the +independence of the independent accountants. +4. +Evaluate the performance of the independent public +accountants and discharge the independent public accountants when +circumstances warrant. +5. +Review most recent report of the Public Company Accounting +Oversight Board of its examination of the Company’s independent +public accountant. +6. +Ensure that lead audit partner of the independent public +accountant and the audit partner responsible for reviewing the audit +are rotated off the audit at least every five years with a five year +A-2 +Table of Contents +cooling off period. Ensure that all audit partners are rotated off +the audit at least every seven years with a two year cooling off +period. +7. +Pre-approve all audit and non-audit services and their +accompanying fees to be performed by the Company’s independent +public accountants. The Committee may delegate this function to the +Chairman of the Committee between meetings, with an obligation to +report any actions to the Committee. +The auditors may not perform: +• +bookkeeping, +• +financial information and systems design and implementation, +• +appraisal or valuation services or contribution-in-kind reports, +• +fairness opinions, +• +actuarial services, +• +internal audit outsourcing services, +• +management functions or human resources, +• +brokers or dealer, investment advisor +or investment banking services, +• +legal services and expert services +unrelated to the audit, and +• +any other service that the Accounting +Oversight Board determines by regulation is +impermissible. +8. +Ensure disclosure in the Company’s Form 10-K filed with the +SEC of any non-audit services approved to be performed by the +Company’s independent public accountants. +9. +Periodically consult with the independent public accountants +out of the presence of management about internal controls, the +fullness and accuracy of the Company’s financial statements, and the +adequacy/capability of financial staff given the business and +changes in operations. +10. +Review with the independent public accountants the +coordination of audit work to assure completeness of coverage, +reduction of redundant efforts, and the effective use of audit +resources. +11. +Discuss with the independent accountants any major risk +areas, critical accounting policies employed by the Company and any +preferred accounting policies that differ from those being employed +by the Company. +A-3 +Table of Contents +Financial Reporting Processes +12. +Meet with the independent accountants and the appropriate +company financial staff to plan the scope of each audit prior to +commencement of each audit process. +13. +In consultation with the independent public accountants, +review the integrity of the Company’s financial reporting processes, +both internal and external. +14. +Consider the independent accountants’ judgments about the +quality and appropriateness of the Company’s accounting principles +as applied in its financial reporting. +15. +Advise financial management and the independent public +accountants that they are expected to provide a timely analysis of +significant current financial reporting issues and practices. +Consider and approve, if appropriate, major changes to the Company’s +auditing and accounting principles and practices as suggested by the +independent accountants or management as developed by the Committee. +16. +Continue the process of reporting to the Committee by each of +management and the independent public accountants regarding any +significant judgments made in management’s preparation of the +financial statements and the view of each as to appropriateness of +such judgments. +17. +At least annually, review a report from the independent +public accountants as to all critical accounting policies and +practices, alternative treatments with financial information within +GAAP discussed with management, ramifications of the use of +alternative disclosures, the treatment preferred by the independent +public accounts in each instance, management letters and other +communications. +Process Improvement +18. +Following completion of the annual audit, review separately +with each of management and the independent public accountants any +significant difficulties encountered during the course of the audit, +including any restrictions on the scope of work or access to +required information. +19. +Resolve any disagreements between management and the +independent public accountants in connection with the preparation of +the financial statements. +20. +Consider and review with the independent public accountant: +a. +The adequacy of the Company’s internal controls +including computerized information system controls and +security. +b. +Report related findings and recommendations of +the independent public accountant together with management’s +responses. +A-4 +Table of Contents +21. +Review with the independent public accountants and management +the extent to which changes or improvements in financial or +accounting practices, as approved by the Committee, have been +implemented. This review should be conducted at an appropriate time +after implementation of changes or improvements, as decided by the +Committee. +22. +Review specifically all repeat audit points and +recommendations not implemented from prior audits. +Ethical and Legal +Compliance +23. +Establish, review and update periodically a Code of Ethics, a +Corporate Securities Trading Policy, Foreign Corrupt Practices Act +Policy and a Code of Ethical Conduct for financial managers and +ensure that these items are published to employees. +24. +Review management’s monitoring of the Company’s compliance +with these codes and policies, and review the systems management has +in place to ensure that the Company’s financial statements, reports +and other financial information disseminated to governmental +organizations, and the public satisfy legal requirements. +25. +Establish and maintain procedures for the receipt, retention +and treatment of complaints received by the Company regarding +accounting, internal accounting controls and auditing matters and +for the confidential, anonymous submission by employees and others +of concerns regarding questionable accounting or auditing matters. +26. +Review activities, organizational structure, and +qualifications of any internal audit efforts. +27. +Review with the Company’s counsel, any legal or regulatory +matter that could have a significant impact on the Company’s +financial statements. +28. +Review and approve all related-party transactions. +29. +Perform any other activities consistent with this Charter, +the Company’s By-laws and governing law, as the Committee or the +Board deems necessary or appropriate. +30. +Recommend to the Company whether the audited financial +statements should be included in the annual Form 10-K for submission +to the Securities and Exchange Commission. +31. +Prepare a Report of the Audit Committee for transmission to +shareholders through the annual Proxy Statement. +A-5 +Table of Contents +32. +Review the process utilized by management in presenting +certifications as to the financial statements to the Securities and +Exchange Commission. +33. +Review policies and procedures with respect to officers’ +expense accounts and perquisites, including their use of corporate +assets and request from the independent public accountant and review +a report as to all loans or extensions of credit by the Company to +its officers. +34. +Determine whether the provision of non-audit services by the +independent accountants is compatible with their independence. +A-6 +Table of Contents +[ ] +Mark this box with an X if you have made +changes to your name or address details above. +Annual Meeting Proxy Card +A Election of Directors +1. The Board of Directors recommends a vote FOR the listed nominees. +For +Withhold +For +Withhold +01 — James A. Buzard +[ ] +[ ] +04 — William J. Motto +[ ] +[ ] +02 — John A. Kraeutler +[ ] +[ ] +05 — David C. Phillips +[ ] +[ ] +03 — Gary P. Kreider +[ ] +[ ] +06 — Robert J. Ready +[ ] +[ ] +B Issues +The Board of Directors recommends a vote FOR the following proposal. +2. To ratify the appointment of PricewaterhouseCoopers LLP as independent +For +Against +Abstain +public accountants for fiscal 2004. +[ ] +[ ] +[ ] +C Authorized Signatures — Sign Here — This section must be completed for your +instructions to be executed. +NOTE: Please sign exactly as name appears hereon indicating, where proper, +official position or representative capacity. In the case of joint holders, all +should sign. +Signature 1 — Please keep signature within the box +Signature 2 — Please keep signature within the box +Date (mm/dd/yyyy) +Proxy — MERIDIAN BIOSCIENCE, INC. +PROXY FOR ANNUAL MEETING +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned hereby appoints WILLIAM J. MOTTO and MELISSA A. LUEKE, or +either of them, proxies of the undersigned, each with the power of +substitution, to vote cumulatively or otherwise all shares of Common Stock +which the undersigned would be entitled to vote on the matters specified below +and in their discretion with respect to such other business as may properly +come before the Annual Meeting of Shareholders of Meridian Bioscience, Inc. to +be held on January 22, 2004 at 2:00 P.M. Eastern Time at Holiday Inn, 4501 +Eastgate Boulevard, Cincinnati, Ohio and any postponement or adjournment of +such Annual Meeting. +THIS PROXY WILL BE VOTED AS RECOMMENDED BY THE BOARD OF DIRECTORS UNLESS A +CONTRARY CHOICE IS SPECIFIED. \ No newline at end of file diff --git a/raw/proxies/0000794172/0000950152-03-010439/proxy_rpt.txt b/raw/proxies/0000794172/0000950152-03-010439/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000794172/0000950152-04-009160/proxy.txt b/raw/proxies/0000794172/0000950152-04-009160/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..91eb86250a0c79fe8d3a1fb6200cdbf90d45b431 --- /dev/null +++ b/raw/proxies/0000794172/0000950152-04-009160/proxy.txt @@ -0,0 +1,2381 @@ +DEF 14A +1 +l11182adef14a.htm +MERIDIAN BIOSCIENCE, INC. +Meridian Bioscience, Inc. +Table of Contents +SCHEDULE 14A +(Rule 14a-101) +INFORMATION REQUIRED IN THE PROXY STATEMENT +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) +of the Securities Exchange Act of 1934 +(Amendment No. ___ ) +Filed by the Registrant [X] +Filed by a Party other than the Registrant [ ] +Check the appropriate box: +[ ] +Preliminary Proxy Statement +[ ] +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +[X] +Definitive Proxy Statement +[ ] +Definitive Additional Materials +[ ] +Soliciting Material Under Rule 14a-12 +Meridian Bioscience, Inc. +(Name of Registrant as Specified in Its Charter) +(Name of Person(s) Filing Proxy Statement if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +[X] +No fee required. +[ ] +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction +computed pursuant to Exchange Act Rule 0-11 (set forth the amount on +which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total Fee Paid: +[ ] +Fee paid previously with preliminary materials. +[ ] +Check box if any part of the fee is offset as provided by Exchange +Act Rule 0-11(a)(2) and identify the filing for which the offsetting +fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +MERIDIAN BIOSCIENCE, INC. +3471 River Hills Drive +Cincinnati, Ohio 45244 +www.meridianbioscience.com +Notice of Annual Meeting +and Proxy Statement +Dear Shareholder: +Our Annual Meeting of Shareholders will be held at 2:00 p.m. on January 20, +2005 at Holiday Inn, 4501 Eastgate Boulevard, Cincinnati, OH 45245. We hope +you will attend. +At the meeting, you will hear a report on our operations and have a chance to +meet your directors and executive officers. +This booklet includes the formal notice of the meeting and the proxy statement. +The proxy statement tells you more about the agenda and procedures for the +meeting. It also describes how the Board operates and gives personal +information about our director candidates. +Please complete, sign, date, and return your proxy card promptly in the +enclosed envelope. +Sincerely yours, +/s/ William J. Motto +William J. Motto +Chairman of the Board +December 22, 2004 +Table of Contents +NOTICE OF ANNUAL MEETING +OF +SHAREHOLDERS OF MERIDIAN BIOSCIENCE, INC. +Time: +2:00 p.m., Eastern Time +Date: +January 20, 2005 +Place: +Holiday Inn +4501 Eastgate Boulevard +Cincinnati, OH 45245 +Purpose: +• +Elect directors +• +Approve the Meridian Bioscience, Inc. 2004 Equity Compensation Plan +• +Ratify appointment of Grant Thornton LLP as Meridian’s +independent public accountants for fiscal year 2005 +• +Conduct other business if properly raised +Only shareholders of record on December 1, 2004 may vote at the meeting. +The approximate mailing date of this Proxy Statement and accompanying Proxy +Card is December 22, 2004. +Your vote is important. Please complete, sign, date, and return your proxy +card promptly in the enclosed envelope. +/s/ Melissa Lueke +Melissa Lueke +Secretary +December 22, 2004 +TABLE OF CONTENTS +Page +GENERAL INFORMATION +1 +ELECTION OF DIRECTORS +2 +RATIFICATION OF APPOINTMENT OF ACCOUNTANTS +7 +CORPORATE GOVERNANCE +9 +REPORT OF THE AUDIT COMMITTEE +11 +REPORT OF THE COMPENSATION COMMITTEE +12 +PRINCIPAL SHAREHOLDERS +15 +DIRECTORS AND EXECUTIVE OFFICERS +15 +SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +17 +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +17 +SUMMARY COMPENSATION TABLE +18 +OPTION GRANTS IN LAST FISCAL YEAR +19 +FISCAL 2004 OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES +19 +NEW PLAN BENEFITS +20 +PERFORMANCE GRAPH +21 +QUESTIONS? +23 +2004 EQUITY COMPENSATION PLAN +APPENDIX A +NOMINATING COMMITTEE CHARTER +APPENDIX B +PRICEWATERHOUSECOOPERS' +LETTER TO THE SECURITIES AND EXCHANGE COMMISSION +APPENDIX C +Table of Contents +GENERAL INFORMATION +Who may vote +Shareholders of Meridian, as recorded in our stock register on December 1, +2004, may vote at the meeting. As of that date, Meridian had 15,084,536 shares +of Common Stock outstanding. +How to vote +You may vote in person at the meeting or by proxy. We recommend you vote by +proxy even if you plan to attend the meeting. You can always change your vote +at the meeting. +How proxies work +Meridian’s Board of Directors is asking for your proxy. Giving us your proxy +means you authorize us to vote your shares at the meeting in the manner you +direct. You may vote for all, some or none of our director candidates. You +may also vote for or against the other proposals or abstain from voting. +If you sign and return the enclosed proxy card but do not specify how to vote, +we will vote your shares in favor of our director candidates, in favor of the +2004 Equity Compensation Plan and in favor of the ratification of appointment +of Grant Thornton LLP as Meridian’s independent public accountants for fiscal +year 2005. +If any other matters come before the meeting or any adjournment, each proxy +will be voted in the discretion of the individuals named as proxies on the +card. +You may receive more than one proxy or voting card depending on how you hold +your shares. Shares registered in your name are covered by one card. If you +hold shares through someone else, such as a stockbroker, you may get material +from them asking how you want to vote. +Revoking a proxy +You may revoke your proxy before it is voted by submitting a new proxy with a +later date, by voting in person at the meeting, or by notifying Meridian’s +Secretary in writing at the address under “Questions?” on page 23. +Quorum +In order to carry on the business of the meeting, we must have a quorum. This +means at least a majority of the outstanding shares eligible to vote must be +represented at the meeting, either by proxy or in person. +Votes needed +The six director candidates receiving the most votes will be elected to fill +the seats on the Board. Approval of the 2004 Equity Compensation Plan and the +ratification of appointment of accountants each requires the favorable vote of +a majority of the votes cast. Only votes for or against these proposals count. +Abstentions and broker non-votes count for quorum purposes but not for voting +purposes. Broker non-votes occur when a broker returns a proxy card but does +not have authority to vote on a particular proposal. +Other Matters +Any other matters considered at the meeting, including adjournment, will +require the affirmative vote of a majority of the votes cast. +- 1 - +Table of Contents +ELECTION OF DIRECTORS +(Item 1 on the Proxy Card) +The Nominating Committee of the Board of Directors has nominated for +re-election all of the following current directors: James A. Buzard, John A. +Kraeutler, Gary P. Kreider, William J. Motto, David C. Phillips and Robert J. +Ready. +Proxies solicited by the Board will be voted for the election of these +nominees. All directors elected at the Annual Meeting will be elected to hold +office until the next annual meeting. In voting to elect directors, +shareholders are entitled to cumulate their votes and to give one candidate a +number of votes equal to the number of directors to be elected multiplied by +the number of shares held by the shareholder, or to distribute their votes on +the same principle among as many candidates as the shareholder sees fit. In +order to invoke cumulative voting, notice of cumulative voting must be given in +writing by a shareholder to the President, a Vice President or the Secretary of +Meridian not less than 48 hours prior to the Annual Meeting. The proxies +solicited include discretionary authority to cumulate votes. +Four of our six nominees are not Meridian employees. Only non-employee +directors serve on Meridian’s Audit, Compensation and Nominating committees. +All Meridian directors are elected for one-year terms. Personal information on +each of our nominees is given below. +If a director nominee becomes unavailable before the election, your proxy card +authorizes us to vote for a replacement nominee if the Board names one. +The Board recommends you vote FOR each of the following candidates: +James +A. Buzard, Ph.D. +Director since 1990 +Age: 77 +James A. Buzard, Ph.D. was Executive Vice President +of Merrell Dow Pharmaceuticals Inc. from March 1981 +until December 1989. From December 1989 until his +retirement in February 1990, he was Vice President +of Marion Merrell Dow, Inc. He has been a business +consultant since February 1990. +John A. Kraeutler +Director since 1997 +Age: 56 +John A. Kraeutler has more than 25 years of +experience in the medical diagnostics industry and +joined Meridian as Executive Vice President and +Chief Operating Officer in January 1992. In July +1992, Mr. Kraeutler was named President of +Meridian. Before joining Meridian, Mr. Kraeutler +served as Vice President, General Manager for a +division of Carter-Wallace, Inc. Prior to that, he +held key marketing and technical positions with +Becton, Dickinson and Company and Organon, Inc. +- 2 - +Table of Contents +Gary P. Kreider, Esq. +Director since 1991 +Age: 66 +Gary P. Kreider serves as Chairman of the +Compensation Committee and Board Secretary. Mr. +Kreider has been a Senior Partner of the Cincinnati +law firm of Keating, Muething & Klekamp, P.L.L., +counsel to Meridian, since 1975. He is also an +Adjunct Professor of Law in securities at the +University of Cincinnati College of Law and a +director of LSI Industries Inc. +William J. Motto +Director since 1977 +Age: 63 +William J. Motto has more than 35 years of +experience in the pharmaceutical and diagnostics +products industries, is a founder of Meridian and +has been Chairman of the Board since 1977. Before +forming Meridian, Mr. Motto served in various +capacities for Wampole Laboratories, Inc., Marion +Laboratories, Inc. and Analytab Products, Inc., a +division of American Home Products Corp. +David C. Phillips +Director since 2000 +Age: 66 +David C. Phillips serves as Chairman of the Audit +Committee. Mr. Phillips spent 32 years with Arthur +Andersen LLP. His service with this firm included +several managing partner leadership positions. +After retiring from Arthur Andersen in 1994, Mr. +Phillips became Chief Executive Officer of Downtown +Cincinnati, Inc., which is responsible for economic +revitalization of Downtown Cincinnati. Mr. +Phillips retired from DCI in 1999 to devote full +time to Cincinnati Works, Inc., an organization +dedicated to reducing the number of people living +below the poverty level by assisting them to strive +towards self-sufficiency through work, and his +financial consulting services. Mr. Phillips serves +as a director of Cintas Corporation and Summit +Family of Mutual Funds. +Robert J. Ready +Director since 1986 +Age: 64 +Robert J. Ready serves as Chairman of the +Nominating Committee. Mr. Ready founded LSI +Industries Inc., Cincinnati, Ohio in 1976, which +engineers, manufactures and markets +commercial/industrial lighting and graphics +products, and has served as its President and +Chairman of its Board of Directors since that time. +APPROVAL OF THE 2004 EQUITY COMPENSATION PLAN +(Item 2 on the Proxy Card) +Meridian currently utilizes its 1996 Stock Option Plan, which has been approved +by the Shareholders, to grant stock options to employees. The 1996 Stock +Option Plan permits the granting of either incentive stock options or +nonqualified stock options to all employees of Meridian. Additionally, the +Company uses the 1999 Directors’ Stock Option Plan, which also has been +approved by Shareholders, to grant non-qualified stock options to non-employee +directors. As of December 1, 2004, there were options outstanding under these +two plans for employees and non-employee directors to purchase 941,456 shares +and there are +- 3 - +Table of Contents +18,527 shares available for the grant of additional options. +Objectives of the 2004 Equity Compensation Plan +The purposes of this Plan are to enable Meridian and its subsidiaries to +compete successfully in retaining and attracting key employees, directors and +advisors of outstanding ability, to stimulate the efforts of such persons +toward Meridian’s objectives and to encourage the alignment of their interests +with those of Meridian’s shareholders. +Administration of the Plan +The Plan shall be administered by the Compensation Committee. The Committee +shall have the authority to: +• +select eligible employees or advisors to whom awards may be granted; +• +determine the types and combinations of awards; +• +determine the number of Common Shares or monetary units which may be +subject to each award; +• +determine the terms and conditions of each award; and +• +modify or waive certain restrictions, limitations, terms or conditions +of previously granted awards in a manner consistent with the Plan. +Types of Awards +The Board of Directors desires additional flexibility regarding the type of +equity compensation Meridian may award to employees and advisors in the future. +Approval of the 2004 Equity Compensation Plan, as a replacement of the existing +1996 Stock Option Plan and the 1999 Directors’ Stock Option Plan, would provide +such flexibility and allow equity compensation to be awarded in the following +forms: +Stock Options +The Plan provides that the purchase price of Meridian’s Common Shares +purchasable under any stock option (incentive stock option or non-qualified +stock options) shall be determined by the Committee, provided that the purchase +price of any incentive stock option shall not be less than 100% of the fair +market value of Meridian’s Common Shares on the date that the option is +granted. Payment of the purchase price for option shares must be made in cash +unless some other form of consideration is approved by the Committee at or +after grant. +The period of any option shall be determined by the Committee, but no stock +option may be exercised later than ten years after the date of grant. The +aggregate fair market value, determined at the date of grant of the incentive +stock option, of Meridian’s Common Shares for which incentive stock options are +exercisable for the first time during any calendar year as to any participant +may not exceed $100,000. No person may receive options for more than 75,000 +Common Shares in any twelve month period. Incentive stock options granted to +persons owning more than 10% of the voting power of Meridian must be at 110% of +fair market value and may not be for a term of more than five years. +Each non-employee director is granted a non-qualified option to purchase 2,317 +- 4 - +Table of Contents +Common Shares at the time of election or re-election to the Board of Directors. +Stock Appreciation Rights +A Stock Appreciation Right (SAR) represents the right to receive, for each unit +awarded, cash and/or Common Shares of Meridian equal in value to the excess of +the fair market value of one common share on the date of exercise of the SAR +over the reference price per common share established on the date the SAR was +granted. The Plan provides that the Committee may grant SARs to any eligible +employee, advisor or non-employee director in accordance with terms and +conditions established by the Committee. An SAR shall have a term of no longer +than ten years from its grant date. SARs may be granted in tandem with stock +options, or separately as a non-tandem SAR. +Restricted and Unrestricted Stock Awards +Restricted stock awards will consist of Meridian’s Common Shares which are +subject to such conditions, restrictions and limitations as the Committee +determines to be appropriate. With respect to Meridian’s shares awarded as +restricted stock, after the full vesting of such awards the recipient shall +have all rights of a shareholder of Meridian, including the right to vote and +the right to receive cash dividends. Upon termination of employment during the +restriction period, all restricted stock shall be forfeited subject to such +exceptions as are authorized by the Committee as to termination of employment, +retirement, disability, death or special circumstances. The Committee may also +issue unrestricted shares on a bonus basis for no cash consideration. +Performance Awards +The Plan provides that the Committee may, in its discretion, grant Performance +Awards to eligible employees and advisors. A Performance Award shall consist of +the right to receive either Common Shares or cash of an equivalent value, or a +combination of both, at the end of a specified performance period or a fixed +dollar amount payable in cash or Common Shares, or a combination of both, at +the end of a specified performance period. The Committee shall determine the +eligible employees and advisors to whom and the time or times at which +Performance Awards shall be granted, the number of Common Shares or the amount +of cash to be awarded to any person, the duration of the period during which, +and the conditions under which a participant’s Performance Award will vest, and +any other terms and conditions of the Performance Award. The Committee may +condition the grant or vesting of a Performance Award upon the attainment of +specified performance goals; the appreciation in the fair market value, book +value or other measure of value of the Common Shares; the performance of the +Company based on earnings or cash flow; or such other factors or criteria as +the Committee shall determine. +Other Stock Unit Awards +The Plan provides that the Committee is authorized to grant to eligible +employees of Meridian and its affiliates, either alone or in addition to other +awards granted under the Plan, awards of Common Shares or other securities of +Meridian or any subsidiary of Meridian and other awards that are valued in +whole or in part by reference to, or are otherwise based on, Common Shares or +other securities of Meridian or any Meridian +- 5 - +Table of Contents +subsidiary (“Other Stock Unit Awards”). Other Stock Unit Awards may be paid in +cash, Common Shares, other property or in a combination thereof, as the +Committee shall determine. The Committee shall determine the employees to whom +Other Stock Unit Awards are to be made, the times at which such Awards are to +be made, the number of Common Shares to be granted pursuant to such awards and +all other conditions of such awards. Common Shares (including securities +convertible into Common Shares) and other securities granted pursuant to Other +Stock Unit Awards may be issued for no cash consideration or for such minimum +consideration as may be required by applicable law. Common shares (including +securities convertible into Common Shares) and other securities purchased +pursuant to purchase rights granted pursuant to Other Stock Unit Awards may be +purchased for such consideration as the Committee shall determine, which price +shall not be less than the fair market value of such Common Shares or other +securities on the date of grant, unless the Committee otherwise elects. +Termination and Acceleration of Awards +Awards terminate immediately if employment is terminated for cause or violation +of a written employment or non-competition agreement. Upon death, disability or +retirement, options become exercisable to their full extent and may be +exercisable for a period of one year after the date of death or disability, or +90 days in the case of retirement. In the case of a liquidation of Meridian or +any merger in which it is not the survivor or in which 75% or more of its +outstanding shares are converted in consideration other than stock, all awards +will become exercisable for a period of at least 20 days after notice of the +transaction, and thereafter will expire. If a Participant’s employment or +service is involuntarily terminated without cause (as determined by the +Committee in its sole discretion) during the twenty-four month period following +a Change in Control of Meridian, all awards will also become exercisable in +full. A Change in Control is deemed to have occurred if anyone, other than +William J. Motto or his affiliates, becomes the beneficial owner, as defined +under the Securities Exchange Act of 1934, of 25% or more of the voting power +of Meridian or if there is a change in a majority of the Board of Directors +effected without the approval of two-thirds of the then current directors. +Amendment and Termination of the 2004 Equity Compensation Plan +The Plan may be amended or terminated by the Board of Directors provided that +no such action shall impair the rights of a participant without the +participant’s consent and provided that no amendment shall be made without +shareholder approval which shall increase the total number of Common Shares +reserved for issuance under the Plan, or cause the Plan or any award granted +under the Plan to fail to meet certain tax conditions. +Federal Income Tax Consequences +The grant of an option or Stock Appreciation Right will create no tax +consequences for an optionee or Meridian. Upon exercising a non-qualified +stock option or SAR, the optionee must recognize ordinary income equal to the +difference between the exercise price and the fair market value of Common +Shares on the date of exercise and Meridian will be entitled to a +- 6 - +Table of Contents +tax deduction for the same amount. There is no regular income tax consequence +for the optionee upon an exercise of an incentive stock option, and no +deduction is available to Meridian unless the Common Shares are sold within two +years of the grant of the option or one year from its exercise, in which case +the tax treatment will be that accorded to the exercise of a non-qualified +option. +With respect to other awards granted under the Plan that are settled either in +cash or in Common Shares, or other property that is either transferable or not +subject to substantial risk of forfeiture, the participant must recognize +ordinary income equal to the cash or the fair market value of Common Shares or +other property received and Meridian will be entitled to a tax deduction for +the same amount. With respect to awards that are settled in Common Shares or +other property that is restricted as to transferability and subject to +substantial risk of forfeiture, the participant must recognize ordinary income +equal to the fair market value of the Common Shares or other property received +at the first time the Common Shares or other property became transferable or +not subject to substantial risk of forfeiture, whichever occurs earlier; +Meridian will be entitled to a tax deduction for the same amount. +Shares Available for Award +The Board of Directors believes it appropriate for the 2004 Equity Compensation +Plan to make available 650,000 Common Shares for potential awards in any of the +manners described above. If the 2004 Equity Compensation Plan is approved, it +is the intention of the Board of Directors that no more shares would be granted +under the 1996 Stock Option Plan or the 1999 Directors’ Stock Option Plan. The +per share closing price of Meridian’s Common Shares on December 1, 2004 was +$17.36. +This description of the Plan is not complete and is qualified in its entirety +to the Plan, as amended attached as Appendix A. +RATIFICATION OF APPOINTMENT OF ACCOUNTANTS +(Item 3 on the Proxy Card) +Although not required, the Board is seeking shareholder ratification of the +Audit Committee’s selection of Grant Thornton LLP as Meridian’s independent +registered public accounting firm for the 2005 fiscal year. The affirmative +vote of a majority of shares voting at the meeting is required for +ratification. If ratification is not obtained, the Audit Committee intends to +continue the employment of Grant Thornton at least through fiscal 2005. +Representatives of Grant Thornton are expected to be present at the +Shareholders’ Meeting and will be given an opportunity to make a statement, if +they so desire, and to respond to appropriate questions that may be asked by +shareholders. +PricewaterhouseCoopers, LLP served as Meridian’s independent registered public +accounting firm for fiscal 2004. On December 7, 2004 Meridian’s Audit +Committee dismissed PricewaterhouseCoopers LLP as the independent registered +public accounting firm engaged to audit its financial statements after a review +by the Audit Committee of PricewaterhouseCoopers’ proposed auditing and Section +404 attestation reporting charges for fiscal 2005. +- 7 - +Table of Contents +On December 14, 2004 Meridian’s Audit Committee engaged Grant Thornton LLP as +its independent registered public accounting firm. The Audit Committee had +previously reviewed proposals from Deloitte & Touche LLP, Grant Thornton LLP +and Ernst & Young LLP. +PricewaterhouseCoopers’ report on Meridian’s financial statements for each of +the last two fiscal years did not contain an adverse opinion or a disclaimer of +opinion, nor was it qualified or modified as to uncertainty, audit scope, or +accounting principles. During Meridian’s two most recent fiscal years and the +subsequent interim periods preceding the dismissal of PricewaterhouseCoopers, +there were no disagreements with PricewaterhouseCoopers on any matter of +accounting principles or practices, financial statement disclosure, or auditing +scope or procedure, which disagreement(s), if not resolved to the satisfaction +of PricewaterhouseCoopers, would have caused them to make a reference to the +subject matter of the disagreement(s) in connection with its report. Meridian +has authorized PricewaterhouseCoopers to respond fully to any inquiries by +Grant Thornton. +PricewaterhouseCoopers did not advise Meridian either during its two most +recent fiscal years or during the subsequent interim periods preceding +Meridian’s decision to dismiss PricewaterhouseCoopers: +• +that the internal controls necessary for Meridian to develop reliable +financial statements did not exist; +• +that information had come to its attention that had led it to no +longer be able to rely on management’s representations, or that had +made it unwilling to be associated with the financial statements +prepared by management; +• +of the need to expand significantly the scope of its audit, or that +information had come to its attention during the two most recent +fiscal years or any subsequent interim periods that if further +investigated might materially have impacted the fairness or +reliability of either: (i) a previously issued audit report or the +underlying financial statements, or (ii) the financial statements +issued or to be issued covering the fiscal period(s) subsequent to the +date of the most recent financial statements covered by an audit +report, or have caused it to be unwilling to rely on management’s +representations or be associated with Meridian’s financial statements; +or +• +that information had come to its attention that it had concluded +materially impacts the fairness or reliability of either (i) a +previously issued audit report or the underlying financial statements, +or (ii) the financial statements issued or to be issued covering the +fiscal period(s) subsequent to the date of the most recent financial +statements covered by an audit report, including information that, +unless resolved to the accountant’s satisfaction, would prevent it +from rendering an unqualified audit report on those financial +statements. +During the two most recent fiscal years and during the interim period prior to +engaging Grant Thornton, neither Meridian nor anyone on its behalf consulted +Grant Thornton regarding either: (i) the application of accounting principles +to a specified +- 8 - +Table of Contents +transaction (either completed or proposed) or the type of audit opinion that +might be rendered on Meridian’s financial statements, and no written report or +oral advice was provided to Meridian that Grant Thornton concluded was an +important factor considered by Meridian in reaching a decision as to an +accounting, auditing or financial reporting issue; or (ii) any matter that was +the subject of either a disagreement or a reportable event. +PricewaterhouseCoopers furnished Meridian with a letter addressed to the +Securities and Exchange Commission related to the disclosures in our current +report on Form 8-K filed with the Commission on December 13, 2004. The letter +was filed as Exhibit 16 to Form 8-K/A on December 22, 2004. +Principal Accounting Firm Fees: +Aggregate fees billed to Meridian by PricewaterhouseCoopers LLP for fiscal +years 2004 and 2003 are listed below: +2004 +2003 +Audit Fees +$ +216,375 +$ +203,550 +Audit Related Fees +30,498 +42,989 +Tax Fees +126,208 +173,488 +All Other Fees +— +6,000 +$ +373,081 +$ +426,027 +Audit Fees. Audit fees are the fees billed for professional services rendered +by Meridian’s independent registered public accounting firm for their audit of +Meridian’s consolidated annual financial statements for the years ended +September 30, 2004 and 2003, respectively, and reviews of the unaudited +quarterly consolidated financial statements contained in the reports on Form +10-Q filed by Meridian during those years. +Audit-Related Fees . Audit-related fees are the fees billed for assurance and +related services that are reasonably related to the performance of the audit or +review of Meridian’s financial statements. +Tax Fees. Tax fees are the fees billed for services related to tax compliance, +tax advice and tax planning. Tax services performed for Meridian by the +independent registered public accounting firm included compliance, planning and +advice with respect to both domestic and foreign subsidiaries of Meridian. +Fees for preparation of Meridian’s tax returns were $99,097 and $114,989 for +fiscal years 2004 and 2003, respectively. +All Other Fees. All other fees are the fees billed for services other than +those in the three categories previously described. +CORPORATE GOVERNANCE +Meridian is an Ohio corporation and, therefore, is governed by the corporate +laws of Ohio. Since its Common Shares are publicly traded on Nasdaq and it +files reports with the Securities and Exchange Commission, it is also subject +to NASD rules as well as various provisions of federal securities laws. +Governance of the corporation is placed in the hands of the directors who, in +turn, elect officers to manage the business operations. The Board oversees the +management of Meridian on your behalf. The following directors meet the NASD +requirements for +- 9 - +Table of Contents +independence: David C. Phillips, James A. Buzard, Robert J. Ready and Gary P. +Kreider. The Board reviews Meridian’s long-term strategic plans and exercises +direct decision making authority in all major decisions, such as acquisitions, +the declaration of dividends, major capital expenditures and the establishment +of company policies. +During fiscal 2004, the Board of Directors met on five occasions and took +action by writing on three occasions. +Meridian expects all directors to attend shareholders’ meetings. Each director +attended the 2004 Annual Shareholders’ Meeting, all meetings of the Board and +all meetings of Committees of which he was a member. +Shareholders may communicate with the full Board or individual directors on +matters concerning Meridian by mail or through our website in each case to the +attention of the Secretary. +Non-employee directors of Meridian receive $20,000 per year for serving as a +director and as members of committees of the Board. They also receive $1,500 +for each meeting of the Board and $1,000 for each committee meeting attended. +They receive $750 for each Board meeting and $500 for each committee meeting +held by telephone. The Audit Committee Chairman receives an additional $8,000 +annually and the Compensation Committee Chairman receives an additional $3,000 +annually. The Board Secretary receives an additional $1,000 for serving at +each meeting of a committee of which he is not a member. Each non-employee +director is also granted a non-qualified option to purchase 2,317 shares of +Common Stock at the time of election or re-election to the Board of Directors, +with the exercise price being the closing sale price on Nasdaq reported on the +date of grant. Directors who are employees of Meridian are not separately +compensated for serving as directors. +At its meeting on July 24, 2003, the Board adopted the Audit Committee Charter +and a Code of Ethics for Meridian’s officers, directors and employees. The +Audit Committee Charter was attached to the proxy statement for Meridian’s 2004 +Annual Shareholders’ Meeting. The Code of Ethics will be sent without charge +to any shareholder who sends a request to Meridian’s Secretary. +The independent directors plan to meet at least two times, during fiscal 2005, +without the presence of management directors. The independent members of the +Board had one such meeting in fiscal 2004. +The directors have organized themselves into the committees described below. +Each of these committees is composed entirely of non-employee directors who +meet the relevant independence requirements established by Nasdaq and the +Sarbanes-Oxley Act that apply to their particular assignments. Meridian does +not have an Executive Committee of its Board of Directors. +The Audit Committee is composed of David C. Phillips, Chairman, James A. Buzard +and Robert J. Ready. It met nine times last year. Each member of the Audit +Committee is independent as defined by the Nasdaq listing standards and the +Securities Exchange Act of 1934. Each member is able to read and understand +fundamental financial statements. David C. Phillips has been designated as the +Audit Committee financial +- 10 - +Table of Contents +expert as that term is defined in SEC regulations. +The Committee oversees the accounting and financial reporting processes of +Meridian and the audits of its financial statements by its independent +registered public accounting firm. The Committee is solely responsible for the +appointment, compensation, retention and oversight of Meridian’s independent +registered public accounting firm. The Audit Committee also evaluates +information received from Meridian’s independent registered public accounting +firm and management to determine whether the independent registered public +accounting firm is independent of management. The independent registered +public accounting firm reports directly to the Audit Committee. +In addition, the Audit Committee has established procedures for the receipt, +retention and treatment of complaints received by Meridian concerning +accounting, internal accounting controls or auditing matters and has +established procedures for the confidential and anonymous submission by +employees of any concerns they may have regarding questionable accounting or +auditing matters. +The Audit Committee, or its Chairman, approves all audit and non-audit services +performed for Meridian by its independent registered public accounting firm +before those services are commenced. The Chairman reports to the full +Committee at each of its meetings regarding pre-approvals he made since the +prior meeting and the Committee approves what he has done between meetings. +For these purposes, the Committee or its Chairman is provided with information +as to the nature, extent and purpose of each proposed service, as well as the +approximate timeframe and proposed cost arrangements for that service. +The Committee has submitted the following report to shareholders. +REPORT OF THE AUDIT COMMITTEE +On April 21, 2004, the Committee met with representatives of Pricewaterhouse +Coopers and Meridian’s internal accountants and reviewed with them the proposed +2004 Audit Plan, areas warranting particular concentration on the audit and the +effects of new accounting pronouncements. The PricewaterhouseCoopers +representatives reviewed with the Committee written disclosures required by the +Independence Standards Board Standard No. 1 regarding independence of the +registered public accounting firms and presented a letter regarding that matter +to the Committee. +At its meeting on November 16, 2004, the Committee reviewed with management, +PricewaterhouseCoopers and Meridian’s accounting officers the results of the +audit for fiscal 2004, including the audited financial statements. The +Committee reviewed the requirements of its Charter previously adopted and the +reports that were required to be disclosed to the Committee. The Committee +discussed with PricewaterhouseCoopers the matters required to be discussed by +Statement on Auditing Standards No. 61. +The Committee met on December 7, 2004 to review a draft of the Form 10-K. +Based on their review the Committee recommended to the Board of Directors that +the audited financial statements of Meridian be included in its Annual Report +on Form 10-K for the +- 11 - +Table of Contents +year ended September 30, 2004 for filing with the Securities and Exchange +Commission. +In early fiscal 2005, the Committee became concerned with proposed audit and +Section 404 attestation report charges for the 2005 fiscal year from its +accountants. It then solicited proposals from several accounting firms. After +analyzing proposals received, the Committee dismissed Pricewaterhouse Coopers +and retained Grant Thornton as Meridian’s independent public accountants for +fiscal 2005 and directed that shareholder ratification of that selection be +sought at the 2005 Annual Shareholders’ Meeting. As part of its deliberations, +the Committee determined that Grant Thornton was independent of Meridian. +During its meetings the Committee reviewed procedures related to the receipt, +retention and treatment of any complaints concerning accounting, internal +accounting controls or auditing matters. Also during its meetings, the Chairman +of the Audit Committee reported to the full Committee the independent +accountants’ fees that had been preapproved and the Committee approved such +fees. Certain fees were preapproved by the full Committee. The Committee also +reviewed the requirements and Meridian’s progress in implementing the +requirements of Section 404 of the Sarbanes-Oxley Act. +Respectfully submitted, +Audit Committee +David C. Phillips (Chairman) +Robert J. Ready +James A. Buzard +The Compensation Committee is responsible for establishing compensation for +executive officers. This includes establishing salary levels and bonus plans, +making bonus awards and otherwise dealing in all matters concerning +compensation of the executive officers and awarding stock options for all +employees. Meridian’s Compensation Committee is composed of Messrs. Kreider +(Chairman), Buzard, Phillips and Ready. +In determining the compensation of the Chief Executive Officer, the Committee’s +deliberations and voting take place without his presence. +The Compensation Committee met two times and did not take any actions in +writing during fiscal 2004. +The report of the Compensation Committee follows. +REPORT OF THE COMPENSATION COMMITTEE +At its meeting on November 18, 2003, the Committee established salary levels +for executive officers for fiscal 2004, which included increases of +approximately 4% plus merit adjustments in certain cases. The Committee’s +determinations were primarily based on the continued increases in Meridian’s +net earnings, improvements in its regulatory compliance efforts and its +relationship with its primary regulators and the Committee’s subjective +determination of individual performance based on consultation with management. +They also established a fiscal 2004 Bonus Plan based on net earnings levels +from $7,800,000 to $8,600,000. The Committee separately discussed the +appropriate compensation of the Chief Executive Officer, Mr. Motto. The +decision with respect to the appropriate compensation of Mr. Motto was based on +- 12 - +Table of Contents +the same factors used to determine the compensation of other executives. +At its meeting on November 17, 2004, the Committee determined bonuses for 2004. +Bonuses were established based on Meridian’s fiscal 2004 results and the +personal ratings of the executives in accordance with the 2004 Bonus Plan. Mr. +Kraeutler submitted to the Committee his personal ratings for each of the +executive officers, except for his own which was submitted by Mr. Motto. The +Committee awarded bonuses to each of the executives in accordance with the 2004 +Bonus Plan and each executive’s personal rating. +The results of the Committee’s deliberations relating to fiscal 2004 as they +pertain to the five most highly compensated officers are presented in the +Summary Compensation Table. +At its November 17, 2004 meeting the Compensation Committee established +executive compensation for 2005. The Committee considered studies commissioned +by Meridian comparing the compensation of executives of other Cincinnati area +companies and companies in the diagnostics field with compensation levels for +Meridian executives. The Committee also based its decisions on Meridian’s +performance in fiscal 2004 in which Meridian dealt successfully with various +issues and, at the same time, achieved revenues and earnings in excess of plan +and increased dividends to shareholders. In addition, the Committee discussed +the performance of each executive with management. Salary increases for +officers ranged from 2.5% to 10%. The Committee’s decision with respect to the +salary increase of Mr. Motto for 2005 was based on the accomplishments of +Meridian in the 2004 fiscal year and on the other factors used to determine the +compensation of other executives. +At the November 17, 2004 meeting, the Committee also adopted a 2005 Bonus Plan +based in part on net earnings levels from $10,300,000 to $11,200,000. The +purpose of the Plan is to provide a mechanism for stimulating and rewarding the +achievement of aggressive business goals. In addition to net earnings, bonuses +will also be based on ratings of personal achievement. Depending on net +earnings levels achieved and application of the personnel achievement rating, +the cash bonus available to the individual could range from 5% to 120% of the +individual’s base salary. +At its Meeting on December 7, 2004, the Committee awarded options to purchase +115,000 common shares for $16.38 per share, of which options for 91,000 shares +were awarded to executive officers. These options will vest over a 3-year +period commencing at such time as Meridian’s net income for fiscal 2005 is +determined. If net income is less than $10,800,000, those options will become +void. +At meetings throughout the year, the Committee awarded stock options to +officers and employees pursuant to Meridian’s Stock Option Plan. +Respectfully submitted, +Compensation Committee +Gary P. Kreider (Chairman) +Robert J. Ready +James A. Buzard +David C. Phillips +- 13 - +Table of Contents +The Nominating Committee identifies qualified nominees for the Board, +determines who will be nominated by the Company for election to the board and +recommends to the full board any changes in the size of the Board. The +Nominating Committee consists of Robert J. Ready, Chairman, James A. Buzard and +David C. Phillips. Each of the members is independent under NASD standards. +The Board of Directors has established a Charter for the Nominating Committee, +a copy of which is attached as Appendix B to this Proxy Statement. +In nominating directors, the Nominating Committee takes into account, among +other factors which it may deem appropriate, the judgments, skill, diversity, +business experience, and the needs of the Board as its function relates to the +business of the Company. The Committee considers candidates for nomination +from a variety of sources including recommendations of shareholders. +Shareholders desiring to submit recommendations for nominations by the +Committee should direct them to the Chairman in care of the Company at its +address shown on the cover page of this proxy statement. +The Nominating Committee met one time last year. On November 17, 2004 the +Committee considered and nominated the current directors for re-election. +- 14 - +Table of Contents +PRINCIPAL SHAREHOLDERS +William J. Motto, Chairman of the Board is the only shareholder known by +Meridian to own beneficially 5% or more of its outstanding Common Stock as of +December 1, 2004. Information has been furnished by the persons listed and/or +has been obtained from reports filed by the persons listed with the Securities +and Exchange Commission: +Amount and Nature +of Beneficial +Name of Beneficial Owner +Ownership +Percent of Class +William J. Motto 1 +3,787,146 +25.0 +% +1 The business address of Mr. Motto is 3471 River Hills +Drive, Cincinnati, Ohio 45244. The shares of Common Stock reported as +beneficially owned by Mr. Motto include 45,000 shares subject to options +exercisable within 60 days. +DIRECTORS AND EXECUTIVE OFFICERS +This table lists the executive officers and directors of Meridian and shows how +much common stock each owned on December 1, 2004. +Common Stock +Beneficially Owned +Name +Position +Amount 1 +Percentage 2 +William J. Motto +Chairman of the +Board of Directors, +Chief Executive +Officer +3,787,146 2 +25.0 +% +John A. Kraeutler +President, Chief +Operating Officer +and Director +266,508 +1.7 +% +Antonio A. Interno 3 +President, Managing +Director of +Meridian Bioscience +Europe +182,610 +1.2 +% +Richard L. Eberly 4 +Executive Vice +President, General +Manager Meridian +Life Science +100 +* +Kenneth J. Kozak 5 +Vice President, +Research and +Development +35,350 +* +Melissa A. Lueke 6 +Vice President, +Chief Financial +Officer and +Secretary +40,600 +* +Susan A. Rolih 7 +Vice President, +Regulatory Affairs +& Quality Systems +17,500 +* +- 15 - +Table of Contents +Common Stock +Beneficially Owned +Name +Position +Amount 1 +Percentage 2 +Lawrence J. Baldini 8 +Vice President, +Operations +12,919 +* +Gregory S. Ballish 9 +Vice President, +Sales and Marketing +2,700 +* +James A. Buzard, Ph.D. 10,11 +Director +30,247 +* +Gary P. Kreider 11, 12 +Director +35,664 +* +Robert J. Ready 10, 11 +Director +29,634 +* +David C. Phillips 10, 11 +Director +15,268 +* +All Executive Officers and Directors as a +Group +4,456,246 +28.8 +% +1 Includes options exercisable within 60 days from Mr. Motto +of 45,000 shares, Mr. Kraeutler of 186,500 shares, Mr. Interno of 14,500 +shares, Mr. Ballish of 2,500 shares, Mr. Kozak of 30,350 shares, Mr. Buzard of +23,171 shares, Mr. Kreider of 14,902 shares, Ms. Lueke of 19,250 shares, Mr. +Phillips of 9,268 shares, Mr. Ready of 23,171 shares and Ms. Rolih of 17,500 +shares. +2 See description of Common Stock ownership contained under +“Principal Shareholders.” +3 Antonio A. Interno was appointed as a Vice President in +August 1991, appointed a Senior Vice President in September 1997, and appointed +as President, Managing Director of Meridian Bioscience Europe in October 2003. +He has been Managing Director of Meridian’s European subsidiaries, Meridian +Bioscience Europe since February 1990. Age: 54 +4 Richard L. Eberly was appointed Vice President of Sales +and Marketing on January 10, 1997, appointed an Executive Vice President in May +2000, and appointed Executive Vice President, General Manager of Meridian Life +Science in February 2003. He has over 12 years of experience in the medical +diagnostic industry and joined Meridian in January 1995. Prior to his +appointment to Vice President of Sales and Marketing, Mr. Eberly served as the +Director of Sales for Meridian. Before joining Meridian, he held key sales and +marketing positions at Abbott Diagnostics. Age: 43 +5 Kenneth J. Kozak joined Meridian in October 1987 and was +appointed Vice President, Research and Development, on May 17, 1999. Prior to +this appointment, Mr. Kozak served as Director of Product Development for +Meridian. Before joining Meridian, Mr. Kozak held a variety of positions at the +University of Cincinnati College of Medicine. Age: 50 +6 Melissa A. Lueke was appointed Vice President, Chief +Financial Officer and Secretary on January 23, 2001. Prior to her appointment, +Ms. Lueke served as Meridian’s Controller since March 2000 and Acting Secretary +from July 20, 2000 to January 23, 2001. Before joining Meridian, Ms. Lueke was +employed by Arthur Andersen LLP from June 1985 to January 1999, most recently +as a Senior Audit Manager. Age: 41 +7 Susan A. Rolih was appointed Vice President of Regulatory +Affairs and Quality Systems on May 29, 2001. Before joining Meridian, Ms. Rolih +held various regulatory and quality positions with Immucor, Inc. Age: 55 +- 16 - +Table of Contents +8 Lawrence J. Baldini was appointed Vice President of +Operations on April 3, 2001. Before joining Meridian, Mr. Baldini held various +operations management positions with Instrumentation Laboratories and Fisher +Scientific. Age: 45 +9 Gregory S. Ballish was appointed Vice President Sales and +Marketing on January 12, 2004. Prior to this appointment, Mr. Ballish spent +five years in senior sales management and strategic customer marketing roles +with Janssen Pharmaceutica (Johnson & Johnson subsidiary). During his career, +Mr. Ballish held various senior positions with Ortho Clinical Diagnostics +(J&J), DuPont and Abbott Laboratories. Age: 46 +10 Audit Committee Member. +11 Compensation Committee Member. +12 Includes 145 shares held by his wife, 1,000 shares held +as custodian for his minor child and 9,621 shares held by trusts of which Mr. +Kreider is trustee and a beneficiary. Also includes Meridian debentures +convertible into 1,625 shares. +* Less than one percent. +SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Section 16 of the Securities Exchange Act of 1934 requires Meridian’s +executive officers, directors and persons who own more than ten percent of a +registered class of Meridian’s equity securities to file reports of ownership +and changes in ownership with the Securities and Exchange Commission. Based on +a review of the copies of such forms received by it, Meridian believes that +during the last fiscal year, all of its executive officers, directors and ten +percent stockholders complied with the Section 16 reporting requirements except +the following: Mssrs. James A. Buzard and Antonio Interno exercised stock +options on January 23, 2004 for which Form 4’s were filed on February 11, 2004. +Option grants made to Mssrs. Gary P. Kreider, Robert J. Ready, David C. +Phillips and James A. Buzard on January 21, 2004 were reported on Form 4’s +filed February 18, 2004. On August 12, 2004 Motto Vivo Family Limited +Partnership became an owner of 10% of the outstanding common stock of Meridian +and a Form 3 was filed to report the acquisition on October 29, 2004. +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +Gary P. Kreider, who is Chairman of the Compensation Committee, is a +senior partner of Keating, Muething & Klekamp, P.L.L., Cincinnati, Ohio, a law +firm that provided legal services to Meridian in fiscal 2004. +- 17 - +Table of Contents +SUMMARY COMPENSATION TABLE +Annual Compensation +Securities +Underlying +All Other +Name and Principal Position +Year +Salary +Bonus +Options +Compensation +William J. Motto 1 +2004 +$ +409,615 +$ +388,125 +7,000 +$ +56,723 +Chairman of the Board of Directors, +2003 +395,000 +251,813 +25,000 +204,483 +Chief Executive Officer +2002 +387,700 +-0- +55,000 +41,779 +John A. Kraeutler 2 +2004 +$ +306,308 +$ +290,625 +7,000 +$ +38,161 +President, Chief Operating Officer +2003 +294,000 +187,425 +25,000 +96,133 +2002 +280,700 +-0- +55,000 +23,687 +Antonio A. Interno 3 +2004 +$ +277,717 +$ +178,593 +7,000 +$ +38,161 +Senior Vice President, Managing +2003 +239,883 +152,925 +10,000 +20,200 +Director MDE +2002 +198,200 +-0- +10,000 +20,200 +Richard L. Eberly 4 +2004 +$ +211,923 +$ +167,187 +7,000 +$ +26,058 +Executive Vice President, Sales, +2003 +205,000 +108,906 +10,000 +37,300 +Marketing and Operations +2002 +177,700 +-0- +10,000 +27,480 +Melissa A. Lueke 5 +2004 +$ +169,157 +$ +133,597 +7,000 +$ +17,094 +Vice President, Chief Financial +2003 +163,000 +103,913 +10,000 +27,304 +Officer and Secretary +2002 +157,800 +-0- +10,000 +13,686 +1 “All Other Compensation” for Mr. Motto includes (a) car +allowances of $19,584, $14,600, and $16,579 in 2004, 2003 and 2002, +respectively, (b) professional allowances of $25,000, $25,000 and $15,200 in +2004, 2003 and 2002, respectively, and (c) amounts accrued under Meridian’s +Savings and Investment Plan. Also included in fiscal 2003 is $154,883 +representing loans forgiven that were incurred by Mr. Motto in connection +with the Split-Dollar Life Insurance Program, which has been terminated. +Todd Motto, the adult son of William J. Motto, is Vice President Sales and +Marketing Meridian Bioscience Europe. Todd Motto received approximately +$155,000 in compensation for fiscal 2004. +2 “All Other Compensation” for Mr. Kraeutler includes (a) +car allowances of $13,479, $11,216, and $12,595 in 2004, 2003 and 2002, +respectively, (b) professional allowances, and (c) amounts accrued under +Meridian’s Savings and Investment Plan of $12,339, $10,000, and $9,986 in +2004, 2003 and 2002, respectively. Also included in fiscal 2003 is $69,917 +representing loans forgiven that were incurred by Mr. Kraeutler in +connection with the Split-Dollar Life Insurance Program, which has been +terminated. Mr. Kraeutler and Meridian are parties to an employment +agreement dated February 15, 2001 which sets forth compensation, +non-competition, benefit and severance provisions and provides for a payment +equal to three times Mr. Kraeutler’s base salary (plus any salary earned but +not paid) upon the occurrence of certain events, including a change in +control of Meridian. The agreement is effective for a period of 36 months +commencing February 15, 2001, automatically extending until either party +terminates the agreement. +3 “All Other Compensation” for Mr. Interno includes (a) +car allowances of $32,161 in 2004 and $16,200 in 2003 and 2002 and (b) +amounts accrued under Meridian’s Savings and Investment Plan. +- 18 - +Table of Contents +4 “All Other Compensation” for Mr. Eberly includes (a) +car allowances of $14,003, $8,472, and $13,650 in 2004, 2003 and 2002, +respectively, and (b) amounts accrued under Meridian’s Savings and +Investment Plan of $12,055, $10,000, and $9,640 in 2004, 2003 and 2002, +respectively. Also included in fiscal 2003 is $15,828 representing loans +forgiven that were incurred by Mr. Eberly in connection with the +Split-Dollar Life Insurance Program, which has been terminated. +5 “All Other Compensation” for Ms. Lueke includes (a) car +allowances of $5,000 in each of 2004, 2003 and 2002, (b) amounts accrued +under Meridian’s Savings and Investment Plan of $11,319, $7,757, and $8,686 +in 2004, 2003 and 2002, respectively, and (c) professional allowances. Also +included in fiscal 2003 is $13,547 representing loans forgiven that were +incurred by Ms. Lueke in connection with the Split-Dollar Life Insurance +Program, which has been terminated. +OPTION GRANTS IN LAST FISCAL YEAR +Number of +Potential Realized Value +Securities +% of Total Options +Exercise +at Assumed Annual Rates +Underlying +Granted to +Price +of Price Appreciation for +Options +Employees in +($/Per +Expiration +Option Term +Names +Granted +Fiscal 2003 +Share) +Date +5% +10% +William J. Motto +7,000 +4 +% +$ +10.18 +12/02/13 +$ +116,075 +$ +184,830 +John A. Kraeutler +7,000 +4 +% +$ +10.18 +12/02/13 +$ +116,075 +$ +184,830 +Antonio A. Interno +7,000 +4 +% +$ +10.18 +12/02/13 +$ +116,075 +$ +184,830 +Richard L. Eberly +7,000 +4 +% +$ +10.18 +12/02/13 +$ +116,075 +$ +184,830 +Melissa A. Lueke +7,000 +4 +% +$ +10.18 +12/02/13 +$ +116,075 +$ +184,830 +FISCAL 2004 OPTION EXERCISES +AND FISCAL YEAR-END OPTION VALUES +Number of Securities +Value of Unexercised In- +Underlying Unexercised +the-Money Options at +Options at September 30, +September 30, 2004 +2004 +Shares Acquired +Value +Name +on Exercise +Realized +Exercisable/Unexercisable +Exercisable/Unexerciable +William J. Motto +— +$ +— +65,000/62,000 +$ +377,787/$493,848 +John A. Kraeutler +76,474 +353,915 +211,500/62,000 +984,246/496,080 +Antonio A. Interno +37,500 +121,419 +14,500/17,000 +29,196/108,180 +Richard L. Eberly +23,000 +188,424 +55,525/22,000 +245,056/162,280 +Melissa A. Lueke +13,750 +59,979 +19,250/22,000 +140,535/162,280 +- 19 - +Table of Contents +NEW PLAN BENEFITS +Below are benefits which Meridian anticipates will be awarded to the +individuals and groups listed under the 2004 Equity Compensation Plan in the +2005 fiscal year. +2004 Equity Compensation Plan +Name and Position +Number of Stock Options +William J. Motto +Chairman of the Board of Directors, Chief +Executive Officer +7,000 +John A. Kraeutler +President, Chief Operating Officer +7,000 +Antonio +A. Interno’ +Senior +Vice President, Managing Director +MDE +7,000 +Richard L. Eberly +Executive Vice President, Sales, Marketing +and Operations +7,000 +Melissa A. Lueke +Vice President, Chief Financial Officer and +Secretary +Executive Group +7,000 +35,000 +Non-Executive Director Group +9,268 +Non-Executive Officer Employee Group +81,000 +- 20 - +Table of Contents +EQUITY COMPENSATION PLAN INFORMATION +The following table presents summary information as of September 30, 2004 with +respect to all the Company’s equity compensation plans, except the Plan under +which shares of Common Stock issued to Directors are not subject to forfeiture +and are not appropriate for inclusion in the table. +(c) +Number of securities +(a) +remaining available for +Number of Securities to be +(b) +future issuance under +issued upon exercise of +Weighted-average +equity compensation +outstanding options, +exercise price of +plans (excluding +warrants +outstanding options, +securities reflected in +Plan Category +and rights +warrants and rights +column (a)) +Equity compensation +plans approved by +security holders +(1) +1,073,833 +$ +7.76 +23,277 +Equity compensation +plans not approved +by security holders +23,750 +8.13 +— +Total +1,097,583 +$ +7.77 +23,277 +(1) +1986 Stock Option Plan +1990 Director’s Stock Option Plan +1994 Director’s Stock Option Plan +1996 Stock Option Plan, as amended in 2001 +1999 Director’s Stock Option Plan +PERFORMANCE GRAPH +The following graph shows the yearly percentage change in Meridian’s +cumulative total shareholder return on its Common Stock as measured by dividing +the sum of (A) the cumulative amount of dividends, assuming dividend +reinvestment during the periods presented and (B) the difference between +Meridian’s share price at the end and the beginning of the periods presented; +by the share price at the beginning of the periods presented with the Wilshire +5000 Equity Index and a Peer Group Index. The Old Peer Group consists of +Apogent Technologies, Inc., Biomerica, Inc., Biosite, Inc., Diagnostic Products +Corp., Hycor Biomedical, Inc., Idexx Laboratories Corp., Neogen Corp., Quidel +Corp. and Trinity Biotech Plc. The New Peer Group consists of Biomerica, Inc., +Biosite, Inc., BioSource International Inc., Diagnostic Products Corp., Idexx +Laboratories Corp., Inverness Medical Innovation Inc., Orasure Technologies +Inc., Quidel Corp., Strategic Diagnostics Inc. and Trinity Biotech Plc. The +New Peer Group was formed to reflect the merger of some entities and the fact +that some entities were deemed no longer to represent Meridian’s peers. +- 21 - +Table of Contents +- 22 - +Table of Contents +SHAREHOLDER PROPOSALS FOR NEXT YEAR +The deadline for shareholder proposals to be included in the Proxy +Statement for next year’s meeting is August 24, 2005. +The form of Proxy for this meeting grants authority to the +designated proxies to vote in their discretion on any matters that come +before the meeting except those set forth in Meridian’s Proxy Statement +and except for matters as to which adequate notice is received. In order +for a notice to be deemed adequate for the 2006 Annual Shareholders’ +Meeting, it must be received prior to November 7, 2005. If there is a +change in the anticipated date of next year’s annual meeting or +these +deadlines by more than 30 days, we will notify you of this change through +our Form 10-Q filings. +Meridian’s Code of Regulations provides that only persons nominated +by an officer, director or in writing by a shareholder at least five days +prior to the meeting at which directors are to be selected shall be +eligible for election. +QUESTIONS? +If you have questions or need more information about the annual meeting, write to: +Melissa Lueke, Vice President, Chief Financial Officer and Secretary +Meridian Bioscience, Inc. +3471 River Hills Drive +Cincinnati, Ohio 45244 +or call us at (513) 271-3700. +For information about your record holdings call the Computershare Shareholder +Services at 1-888-294-8217. +- 23 - +Table of Contents +MERIDIAN BIOSCIENCE, INC. +2004 EQUITY COMPENSATION PLAN +December 7, 2004 +Table of Contents +Table Of Contents +Page +ARTICLE 1 +1 +ARTICLE 2 DEFINITIONS +1 +ARTICLE 3 ADMINISTRATION +4 +3.1 The Committee +4 +3.2 Awards +4 +3.3 Guidelines +4 +3.4 Delegation of Authority +4 +3.5 Decisions Final +5 +ARTICLE 4 COMMON SHARES SUBJECT TO PLAN +5 +4.1 Common Shares +5 +4.2 Adjustment Provisions. +5 +4.3 Merger, Dissolution or Liquidation +5 +4.4 Change of Control +6 +ARTICLE 5 DURATION OF PLAN +6 +ARTICLE 6 STOCK OPTIONS +6 +6.1 Grants +6 +6.2 Incentive Options +7 +6.3 Terms of Options +7 +6.4 Award of Non-Qualified Options to Non-Employee Directors +8 +ARTICLE 7 STOCK APPRECIATION RIGHTS +9 +7.1 Grants +9 +7.2 Term +9 +7.3 Exercise +9 +7.4 Payment +9 +7.5 Transferability and Termination +9 +ARTICLE 8 RESTRICTED AND UNRESTRICTED STOCK AWARDS +9 +8.1 Grants of Restricted Stock Awards +9 +8.2 Terms and Conditions of Restricted Stock Awards +10 +8.3 Unrestricted Stock Awards +10 +ARTICLE 9 PERFORMANCE AWARDS +10 +9.1 Performance Awards +10 +9.2 Terms and Conditions of Performance Awards +11 +ARTICLE 10 OTHER STOCK UNIT AWARDS +11 +ARTICLE 11 TRANSFERABILITY OF AWARDS +12 +i +Table of Contents +Table Of Contents +(Continued) +Page +ARTICLE 12 TERMINATION OF AWARDS +13 +12.1 Termination of Awards +13 +12.2 Acceleration of Vesting and Extension of Exercise Period Upon Termination +14 +ARTICLE 13 DEFERRALS +14 +ARTICLE 14 TERMINATION OR AMENDMENT OF PLAN +14 +ARTICLE 15 GENERAL PROVISIONS +15 +15.1 No Right to Continued Employment or Business Relationship +15 +15.2 No Right to Award +15 +15.3 No Claim/Uniformity +15 +15.4 Acceptance of Award Agreement +15 +15.5 Certificates for Common Shares +15 +15.6 No Offer to Sell Securities +15 +15.7 Other Plans +15 +15.8 Withholding of Taxes +16 +15.9 Reimbursement of Taxes +16 +15.10 Governing Law +16 +15.11 Liability +16 +15.12 Severability +16 +ii +Table of Contents +MERIDIAN BIOSCIENCE, INC. +2004 EQUITY COMPENSATION PLAN +ARTICLE 1 +OBJECTIVES +Meridian Bioscience, Inc. has established this 2004 Equity Compensation +Plan effective December 7, 2004 (the “Effective Date”). The purposes of this +Plan are to enable the Company and its Subsidiaries to compete successfully in +retaining and attracting key employees, directors and advisors of outstanding +ability, to stimulate the efforts of such persons toward the Company’s +objectives and to encourage the identification of their interests with those of +the Company’s shareholders. +ARTICLE 2 +DEFINITIONS +For purposes of this Plan, the following terms shall have the following +meanings: +2.1 “Advisor” means anyone who provides bona fide advisory or consultation +services to the Company other than the offer or sale of securities in a +capital-raising transaction. +2.2 “Award” means any one or more of the following: (a) Stock Options, +(b) Stock Appreciation Rights, in tandem with Stock Options or free-standing; +(c) Restricted Stock; (d) Common Shares conditioned upon meeting performance +criteria; and (e) other awards based in whole or in part by reference to or +otherwise based on the Company’s Common Shares, or other securities of the +Company or any Subsidiary. +2.3 “Award Agreement” means a written agreement setting forth the terms of +an Award. +2.4 “Award Date” or “Grant Date” means the date designated by the +Committee as the date upon which an Award is granted. +2.5 “Award Period” or “Term” means the period beginning on an Award Date +and ending on the expiration date of such Award. +2.6 “Board” means the Board of Directors of the Company. +2.7 “Code” means the Internal Revenue Code of 1986, as amended, or any +successor legislation. +2.8 “Committee” means the committee appointed by the Board and consisting +of one or more Directors, none of whom shall be eligible to receive any Award +except as provided in Section 7.4. Members of the Committee must qualify as +Non-Employee Directors as defined by Rule 16b-3(b)(3)(i). To the extent that +it is desired that compensation resulting from an Award be excluded from the +deduction limitation of Section 162(m) of the Code, all members of the +Table of Contents +Committee granting an Award also shall be “outside directors” within the +meaning of Section 162(m). +2.9 “Director” means a member of the Board. +2.10 “Disability” means a “permanent and total disability” within the +meaning of Section 22(e)(3) of the Code. +2.11 “Eligible Employee” means anyone, other than one who receives +retirement benefits, consulting fees, honorariums, and the like from the +Company, who performs services for the Company or a Subsidiary, including an +Officer or Director of the Company or a Subsidiary, compensated on a regular +basis by the Company or a Subsidiary. +2.12 “Fair Market Value” means the last closing price for a Common Share +on the NYSE, NASDAQ or any stock exchange or national trading or quotation +system on which such sales of Common Shares are reported. If the Common Shares +are not so traded or reported, Fair Market Value shall be set under procedures +established by the Committee. +2.13 “Incentive Option” means any Stock Option intended to be and +designated as an “Incentive Stock Option” within the meaning of Section 422 of +the Code or any successor provision. +2.14 “Non-Employee Director” means each director of the Company or its +subsidiaries, now serving as a director or elected hereafter, who is not also +an employee of the Company or any of its subsidiaries. +2.15 “Non-Qualified Option” means any Stock Option that is not an +Incentive Option. +2.16 “Non-Tandem SAR” means a Stock Appreciation Right granted without +reference to a Stock Option. +2.17 “Officer” means a person who is considered to be an officer of the +Company under Rule 16a-1(f). +2.18 “Option Price” or “Exercise Price” means the price per Common Share +at which a Common Share may be purchased upon the exercise of a Stock Option or +an Award. +2.19 “Other Stock Unit Awards” shall have the meaning set forth in Section +11.1 hereof. +2.20 “Participant” means a person to whom an Award has been made pursuant +to this Plan. +2.21 “Performance Award” means an Award of a fixed number of Common Shares +conditioned upon meeting performance criteria granted to a Participant pursuant +to Article 9. +- 2 - +Table of Contents +2.22 “Performance Period” means that period established by the Committee +at the time any Performance Award is granted or at any time thereafter during +which any performance goals established by the Committee with respect to such +an Award are to be measured. +2.23 “Plan” means this 2004 Equity Compensation Plan, as amended from time +to time. +2.24 “Reference Option” shall have the meaning set forth in Section 8.1 +hereof. +2.25 “Restricted Period” means the period of not less than three years +following the date of grant of any Restricted Stock Award, unless otherwise +provided by the Committee in the related Award Agreement. +2.26 “Restricted Stock” means Common Shares issued pursuant to a +Restricted Stock Award which are subject to the restrictions set forth in the +related Award Agreement. +2.27 “Restricted Stock Award” means an award of a fixed number of Common +Shares to a Participant which is subject to forfeiture provisions and other +conditions set forth in the Award Agreement. +2.28 “Retirement” means termination of employment or service from the +Company, other than a termination for the reasons specified in Sections 13.1.3 +or 13.1.4, and other than by death or Disability by an employee or a Director +who is at least 65 years of age, or 55 years of age with at least ten years of +employment with, or service on the Board of, the Company or a Subsidiary. +2.29 “Rule 16b-3” and “Rule 16a-1(f)” mean Securities and Exchange +Commission Regulations Section 240.16b-3 and Section 240.16a-1(f) or any +corresponding successor regulations. +2.30 “Stock Appreciation Right” or “SAR” means the right to receive, for +each unit of the SAR, cash and/or Common Shares equal in value to the excess of +the Fair Market Value of one Common Share on the date of exercise of the SAR over +the reference price +per Common Share established on the Grant Date of the SAR. +2.31 “Stock Option” means the right to purchase Common Shares granted +pursuant to Article 7. +2.32 “Subsidiary” means any corporation, partnership, joint venture, or +other entity of which the Company owns or controls, directly or indirectly, 25% +or more of the outstanding voting stock, or comparable equity participation and +voting power, or which the Company otherwise controls, by contract or any other +means. However, when the term “Subsidiary” is used in the context of an Award +of an Incentive Option, the applicable percentage shall be 50%. “Control” +means the power to direct or cause the direction of the management and policies +of a corporation or other entity. +2.33 “Tandem SAR” shall mean a Stock Appreciation Right granted with +reference to a Stock Option. +- 3 - +Table of Contents +2.34 “Transfer” means alienation, attachment, sale, assignment, pledge, +encumbrance, charge or other disposition; and the terms “Transferred” or +“Transferable” have corresponding meanings. +ARTICLE 3 +ADMINISTRATION +3.1 The Committee. This Plan shall be administered and interpreted by the +Committee. +3.2 Awards. The Committee is authorized to grant (i) Stock Options; (ii) +Stock Appreciation Rights, in tandem with Stock Options or free-standing; (iii) +Restricted Stock; (iv) Common Shares conditioned upon meeting performance +criteria; and (v) other awards based in whole or in part by reference to or +otherwise based on the Company’s Common Shares, or other securities of the +Company or any Subsidiaries (collectively, the “Awards”). In particular, the +Committee shall have the authority: +3.2.1 to select the Eligible Employees and Advisors to whom Awards may be +granted; +3.2.2 to determine the types and combinations of Awards to be granted; +3.2.3 to determine the number of Common Shares or monetary units which may +be subject to each Award; +3.2.4 to determine the terms and conditions, not inconsistent with the +terms of this Plan, of any Award, including, but not limited to, the term, +price, exercisability, method of exercise, any restriction or limitation on +transfer, any vesting schedule or acceleration, or any forfeiture provisions or +waiver, regarding any Award, and the related Common Shares, based on such +factors as the Committee shall determine; and +3.2.5 to modify or waive any restrictions or limitations contained in, and +grant extensions to the terms of or accelerate the vesting of, any outstanding +Award, other than Performance Awards, as long as such modifications, waivers, +extensions or accelerations are not inconsistent with the terms of this Plan, +but no such changes shall impair the rights of any Participant without his or +her consent. +3.3 Guidelines. The Committee is authorized to adopt, alter and repeal +administrative rules, guidelines and practices governing this Plan and perform +all acts, including the delegation of its administrative responsibilities, as +it deems advisable; to construe and interpret the terms and provisions of this +Plan and any Award issued under this Plan; and to otherwise supervise the +administration of this Plan. The Committee may correct any defect, supply any +omission or +reconcile any inconsistency in this Plan or in any related Award Agreement +in the manner and to the extent it deems necessary to carry this Plan into +effect. +3.4 Delegation of Authority. The Committee may delegate its authority to +Officers of the Company and its administrative duties to Officers or employees +of the Company except with respect to persons who are senior Officers of the +Company as defined by the Committee and +- 4 - +Table of Contents +except where performance goals for +particular compensation grants are intended to be excluded from the deduction +limitation imposed by Section 162(m) of the Code. +3.5 Decisions Final. Any action, decision, interpretation or +determination by or at the direction of the Committee concerning the +application or administration of this Plan shall be final and binding upon all +persons and need not be uniform with respect to its determination of +recipients, amount, timing, form, terms or provisions. +ARTICLE 4 +COMMON SHARES SUBJECT TO PLAN +4.1 Common Shares. Subject to adjustment as provided in Section 5.2, the +number of Common Shares which may be issued under this Plan shall not exceed +650,000 Common Shares. If any Award granted under this Plan shall expire, +terminate or be canceled for any reason without having been exercised in full, +the number of Common Shares not acquired that are subject to such Award shall +again be available for future grants. The Committee may make such other +determinations regarding the counting of Common Shares issued pursuant to this +Plan as it deems necessary or advisable, provided that such determinations +shall be permitted by law. Common Shares underlying a canceled Stock Option +shall be counted against the maximum number of Common Shares for which Stock +Options may be granted to an Eligible Employee or Advisor. The repricing of +Stock Options shall be strictly prohibited under this Plan. +4.2 Adjustment Provisions. +4.2.1 If the Company shall at any time change the number of issued Common +Shares, without new consideration to the Company, by stock dividend, split, +combination, recapitalization, reorganization, exchange of Common Shares, +liquidation or other change in corporate structure affecting the Common Shares, +or make a distribution of cash or property which has a substantial impact on +the value of issued Common Shares, the total number of Common Shares reserved +for issuance under the Plan shall be appropriately adjusted and the number of +Common Shares covered by each outstanding Award and the reference price or Fair +Market Value for each outstanding Award shall be adjusted so that the aggregate +consideration payable to the Company and the value of each such Award shall not +be changed. +4.2.2 The Committee may authorize the issuance, continuation or assumption +of Awards or provide for other equitable adjustments after changes in the +Common Shares resulting from any merger, consolidation, sale of assets, +acquisition of property or stock, recapitalization, reorganization or similar +occurrence in which the Company is the continuing or surviving entity, upon +such terms and conditions as it may deem equitable and appropriate. +4.3 Merger, Dissolution or Liquidation. If the dissolution or liquidation +of the Company or any merger, consolidation, exchange or other transaction in +which the Company is not the surviving entity or in which 75% or more of the +outstanding Common Shares of the Company are converted into cash, other +securities or other property, each outstanding Award shall terminate as of a +date fixed by the Committee provided that not less than twenty days written +notice of the date of expiration shall be given to each holder of an Award and +each outstanding Award shall be fully vested and each such holder shall have +the right during such +- 5 - +Table of Contents +period following notice to exercise the Award as to all +or any part of the Common Shares for which it is exercisable. +4.4 Change of Control. If a Participant’s employment or service is +involuntarily terminated without cause (as determined by the Committee in its +sole discretion) during the twenty-four month period following a Change in +Control of the Company, all outstanding Awards shall +become immediately exercisable in full. For purposes of this Agreement, a +“Change in Control” of the Company shall be deemed to have occurred if (a) any +“person,” as such term is used in Sections 13(d) and 14(d) of the Securities +Exchange Act of 1934, other than a trustee or other fiduciary holding +securities under an employee benefit plan of the Company or William J. Motto +and his heirs, lineal descendants, legatees and legal representatives of any of +the foregoing and the trustee of any bona fide trust of which one or more of +the foregoing are the sole beneficiaries or the grantors thereof, becomes the +“beneficial owner,” as such term is defined in Rule 13d-3 under that Act, +directly or indirectly, of securities of the Company representing 25% or more +of the combined voting power of the Company’s then outstanding securities; or +(b) during any period of one year (not including any period prior to the +execution of this Agreement), individuals who at the beginning of such period +constitute the Board and any new Director whose election by the Board or +nomination for election by the Company’s shareholders was approved by a vote of +at least two-thirds of the Directors then still in office who were either +Directors at the beginning of the period or whose election or nomination for +election was previously so approved, cease for any reason to constitute a +majority thereof. +Notwithstanding any other provision of this Plan, in the event of a Change +in Control, the Committee may, in its sole discretion, provide that each Stock +Option or SAR shall, upon the occurrence of a Change in Control, be cancelled +in exchange for a cash payment to be made within sixty days of the Change in +Control in an amount equal to the amount by which the price per Common Share in +connection with the Change in Control exceeds the purchase price per Common +Share under the Award Agreement for any Stock Option or SAR multiplied by the +number of Common Shares granted under the Award Agreement for any Stock Option +or SAR. +ARTICLE 5 +DURATION OF PLAN +This Plan shall terminate on the tenth anniversary of the Effective Date, +unless terminated sooner by the Board pursuant to Article 14. +ARTICLE 6 +STOCK OPTIONS +6.1 Grants. Stock Options may be granted alone or in addition to other +Awards granted under this Plan. Each Stock Option granted shall be designated +as either a Non-Qualified Option or an Incentive Option and in each case such +Stock Option may or may not include Stock Appreciation Rights. One or more +Stock Options and/or Stock Appreciation Rights may be granted to any Eligible +Employee or Advisor, except that no person shall receive during any 12-month +period Non-Qualified Stock Options and Stock Appreciation Rights covering more +than 75,000 Common Shares and only Non-Qualified Options may be granted to +Advisors. +- 6 - +Table of Contents +6.2 Incentive Options. Any Stock Option designated by the Committee as an +Incentive Option will be subject to the general provisions applicable to all +Stock Options granted under the Plan plus the following specific provisions: +6.2.1 If an Incentive Option is granted to a person who owns, directly or +indirectly, stock representing more than 10% of (i) the total combined voting +power of all classes of stock of the Company and its Subsidiaries, or (ii) a +corporation that owns 50% or more of the total combined voting power of all +classes of stock of the Company, then +6.2.1.1 the Option Price must equal at least 110% of the Fair +Market Value on the Grant Date; and +6.2.1.2 the Term of the Incentive Option shall not be greater +than five years from the Grant Date. +6.2.2 The aggregate Fair Market Value of Common Shares, determined at the +Grant Date, with respect to Incentive Options that may be exercised for the +first time by any individual +during any calendar year under this Plan or any other plan maintained by +the Company and its Subsidiaries shall not exceed $100,000. To the extent that +the aggregate Fair Market Value of Common Shares with respect to which +Incentive Options are exercisable for the first time by any individual during +any calendar year, under all plans of the Company and its Subsidiaries, exceeds +$100,000, such Incentive Options shall be treated as Non-Qualified Options. +6.2.3 Qualification under the Code. Notwithstanding anything in this Plan +to the contrary, no term of this Plan relating to Incentive Options shall be +interpreted, amended or altered, nor shall any discretion or authority granted +under this Plan be exercised, so as to disqualify this Plan under Section 422 +of the Code, or, without the consent of the Participants affected, to +disqualify any Incentive Option under Section 422 of the Code. +6.3 Terms of Stock Options. Except as otherwise required by Subsections +6.2 or 6.3, Stock Options granted under this Plan shall be subject to the +following terms and conditions and shall be in such form and contain such +additional terms and conditions, not inconsistent with the terms of this Plan, +as the Committee shall deem desirable: +6.3.1 Option Price. The Option Price shall be determined by the Committee +at the time of grant, except that no Incentive Option may be granted for an +Option Price less than 100% of Fair Market Value on the Grant Date. +6.3.2 Option Term. The Option Term shall be fixed by the Committee, but +no Incentive Option shall be exercisable more than ten years after its Award +Date, and no Non-Qualified Option shall be exercisable more than ten years +after its Award Date. +6.3.3 Exercisability. A Stock Option shall be exercisable at such time or +times and subject to such terms and conditions as shall be specified in the +Award Agreement, provided, however, that a Stock Option may not be exercised as +to less than Twenty-Five Common Shares at any one time or the total number +available for exercise at that time. +- 7 - +Table of Contents +6.3.4 Method of Exercise. Stock Options may be exercised in whole or in +part at any time during its Term by giving written notice of exercise to the +Company specifying the number of Common Shares to be purchased. Such notice +shall be accompanied by payment in full of the Option Price in cash unless some +other form of consideration is approved by the Committee at or after the grant +and once delivered, shall be irrevocable. +6.3.5 Transferability of Stock Options. Stock Options shall be +Transferable as provided in Article 12. +6.3.6 Termination. Stock Options shall terminate in accordance with +Article 12. +6.3.7 Buyout and Settlement Provisions. The Committee may at any time +offer to buy out a Stock Option previously granted, based on such terms and +conditions as the Committee shall establish. The Committee may also substitute +new Stock Options for previously granted Stock Options having higher Option +Prices than the new Stock Options being substituted therefor. +6.4 Award of Non-Qualified Options to Non-Employee Directors. +6.4.1 Grants. Each Non-Employee Director shall be granted a Non-Qualified +Option for 2,317 Common Shares upon appointment or election as a Director and +immediately after each subsequent Annual Shareholders’ Meeting if such person +is serving as a Director at such time either by virtue of being re-elected or +by virtue of serving a term in excess of one year. All grants shall be made on +the date of the event giving rise to the Non-Qualified Option. Such grants +shall continue until the number of Common Shares provided for in this Plan in +Article 5 are exhausted. The number of Common Shares specified herein shall be +subject to change in accordance with the adjustment provisions provided by +Section 5.2. +6.4.2 Terms and Conditions of Non-Qualified Options Granted to +Non-Employee Directors. +6.4.2.1 The Term of all Non-Qualified Options shall be ten +years from the Award Date. +6.4.2.2 The Option Price of all Non-Qualified Options shall be +the Fair Market Value of a Common Share on the Award Date. +6.4.2.3 All Non-Qualified Options shall be fully vested upon +grant. +6.4.2.4 All Non-Qualified Options shall be exercisable in the +manner provided in Subsection 7.3.3. +6.4.2.5 All Non-Qualified Options shall be Transferable as +provided in Article 12 and shall terminate in accordance with +Article 12, except that the timing provisions of Subsections 13.1.2 +and 13.1.5 may not be varied by Committee determination. +- 8 - +Table of Contents +6.4.3 Automatic Termination of Non-Qualified Option. Notwithstanding +anything contained herein to the contrary, if at any time a holder of a +Non-Qualified Option granted under this Plan becomes an employee, Officer or +Director of or a consultant to an entity which the Committee determines is a +competitor of the Company, such Non-Qualified Option shall automatically +terminate as of the date such conflicting relationship was established. +6.4.4 The provisions of this Section 7.4 replace the 1999 Directors’ Stock +Option Plan. +ARTICLE 7 +STOCK APPRECIATION RIGHTS +7.1 Grants. The Committee may, in its discretion, grant SARs to any +Eligible Employee, Advisor and/or Non-Employee Director. A SAR may be granted +either with or without reference to all or any part of a Stock Option. A +“Tandem SAR” is a SAR granted with reference to a Stock Option (the “Reference +Option”). A “Non-Tandem SAR” is a SAR granted without reference to a Stock +Option. If the Reference Option is a Non-Qualified Option, a Tandem SAR may be +granted at or after the date of the Reference Option; if the Reference Option +is an Incentive Option, the Grant Date of a Tandem SAR must be the same as the +Grant Date of the Reference Option. Any SAR shall have such terms and +conditions, not inconsistent with this Plan, as are established by the +Committee in connection with the Award. +7.2 Term. A Tandem SAR shall terminate and no longer be exercisable upon +the termination of its Reference Option. A Non-Tandem SAR may have a term no +longer than ten years from its Grant Date. +7.3 Exercise. A Tandem SAR may only be exercisable at the times and, in +whole or in part, to the extent that its Reference Option is exercisable. The +exercise of a Tandem SAR shall automatically result in the surrender of the +applicable portion of its Reference Option. A Non-Tandem SAR shall be +exercisable in whole or in part as provided in its Award Agreement. Written +notice of any exercise must be given in the form prescribed by the Committee. +7.4 Payment. For purposes of payment of a SAR, the reference price per +Common Share shall be the Option Price of the Reference Option in the case of a +Tandem SAR and shall be the Fair Market Value of a Common Share on the Grant +Date in the case of a Non-Tandem SAR. The Committee shall determine the form +of payment. +7.5 Transferability and Termination. SARs shall be Transferable as +provided in Article 12 and shall terminate in accordance with Article 12. +ARTICLE 8 +RESTRICTED AND UNRESTRICTED STOCK AWARDS +8.1 Grants of Restricted Stock Awards. The Committee may, in its +discretion, grant one or more Restricted Stock Awards to any Eligible Employee, +Advisor and/or Non-Employee Director. Each Restricted Stock Award shall +specify the number of Common Shares to be issued to the Participant, the date +of such issuance, the price, if any (as required by applicable law), to be paid +for such Common Shares by the Participant and the restrictions imposed on such +- 9 - +Table of Contents +Common Shares. The Committee may grant Restricted Stock Awards subject to the +attainment of specified performance goals, continued employment or such other +limitations or restrictions as the Committee may determine. +8.2 Terms and Conditions of Restricted Stock Awards. Restricted Stock +Awards shall be subject to the following provisions: +8.2.1 Issuance of Common Shares. Common Shares of Restricted Stock may be +issued immediately upon grant or upon vesting as determined by the Committee. +8.2.2 Stock Powers and Custody. If Common Shares of Restricted Stock are +issued immediately upon grant, the Committee may require the Participant to +deliver a stock power, endorsed in blank, relating to the Restricted Stock +covered by such an Award. If any stock certificates are issued in respect of +Common Shares of Restricted Stock awarded under this Plan, such certificates +shall be registered in the name of the Participant and shall bear an +appropriate legend referring to the terms, conditions and restrictions +applicable to such Award. The Committee may also require that the certificates +evidencing Restricted Stock be held in custody by the Company until the +restrictions on them shall have lapsed. +8.2.3 Shareholder Rights. Unless otherwise determined by the Committee at +the time of grant, Participants receiving Restricted Stock Awards shall not be +entitled to dividend or voting rights for the Restricted Stock until they are +fully vested. +8.2.4 Termination of Employment. Upon termination of employment during +the Restricted Period, all Restricted Stock shall be forfeited, subject to such +exceptions, if any, as are authorized by the Committee, as to termination of +employment, Retirement, Disability, death or special circumstances. +8.3 Unrestricted Stock Awards. The Committee may make awards of +unrestricted Common Shares to key Eligible Employees, Advisors and/or +Non-Employee Directors in recognition of outstanding achievements or +contributions by such employees and/or advisors. Unrestricted Common Shares +issued on a bonus basis may be issued for no cash consideration. Each +certificate for unrestricted Common Shares shall be registered in the name of +the Participant and delivered to the Participant. +ARTICLE 9 +PERFORMANCE AWARDS +9.1 Performance Awards. +9.1.1 Grant. The Committee may, in its discretion, grant Performance +Awards to Eligible Employees and Advisors. A Performance Award shall consist +of the right to receive either Common Shares or cash of an equivalent value, or +a combination of both, at the end of a specified Performance Period or a fixed +dollar amount payable in cash or Common Shares, or a combination of both, at +the end of a specified Performance Period. The Committee shall determine the +Eligible Employees and Advisors to whom and the time or times at which +Performance Awards shall be granted, the number of Common Shares or the amount +of cash to be awarded to any person, the duration of the period during which, +and the conditions under +- 10 - +Table of Contents +which, a Participant’s Performance Award will vest, +and the other terms and conditions of the Performance Award in addition to +those set forth in Subsection 9.2. +9.1.2 Criteria for Award. The Committee may condition the grant or +vesting of a Performance Award upon the attainment of specified performance +goals; the appreciation in the Fair Market Value, book value or other measure +of value of the Common Shares; the performance of the Company based on earnings +or cash flow; or such other factors or criteria as the Committee shall +determine. +9.2 Terms and Conditions of Performance Awards. Performance Awards shall +be subject to the following terms and conditions: +9.2.1 Dividends. Unless otherwise determined by the Committee at the +time of the grant of the Award, amounts equal to dividends declared during the +Performance Period with respect to any Common Shares covered by a Performance +Award will not be paid to the Participant. +9.2.2 Payment. Subject to the provisions of the Award Agreement and this +Plan, at the expiration of the Performance Period, share certificates, cash or +a combination of both, as the Committee may determine, shall be delivered to +the Participant, or his or her legal representative or guardian, in a number or +an amount equal to the vested portion of the Performance Award. Performance +Awards may be paid in a lump sum or in installments following the close of the +Performance Period or, in accordance with procedures established by the +Committee, on a deferred basis. +9.2.3 Transferability. Performance Awards shall be Transferable as +provided in Article 12. +9.2.4 Termination of Employment or Advisory Relationship. Subject to the +applicable provisions of the Award Agreement and this Plan, upon termination of +a Participant’s employment or advisory relationship with the Company or a +Subsidiary for any reason during the Performance Period for a given Award, the +Performance Award in question will vest or be forfeited in accordance with the +terms and conditions established by the Committee. +9.2.5 Tax Considerations. The Committee may designate whether any +Performance Award, either alone or in addition to other Awards granted under +this Plan, being granted to any Eligible Employee or Advisor is intended to be +“performance-based compensation” as that term is used in Section 162(m) of the +Code. Any such Awards designated to be “performance-based compensation” shall +be conditioned on the achievement of one or more performance measures discussed +herein or otherwise determined by the Committee, to the extent required by +section 162(m) of the Code. +ARTICLE 10 +OTHER STOCK UNIT AWARDS +10.1 The Committee is authorized to grant to employees of the Company and +its affiliates, either alone or in addition to other Awards granted under this +Plan, Awards of Common Shares or other securities of the Company or any +Subsidiary of the Company and other +- 11 - +Table of Contents +Awards that are valued in whole or in part +by reference to, or are otherwise based on, Common Shares or other securities +of the Company or any subsidiary of the Company (“Other Stock Unit Awards”). +Other Stock Unit Awards may be paid in cash, Common Shares, other property or +in a combination thereof, as the Committee shall determine. +10.2 The Committee shall determine the employees to whom Other Stock Unit +Awards are to be made, the times at which such Awards are to be made, the +number of Common Shares to be granted pursuant to such Awards and all other +conditions of such Awards. The provisions of Other Stock Unit Awards need not +be the same with respect to each recipient. The recipient shall not be +permitted to sell, assign, transfer, pledge, or otherwise encumber the Common +Shares or other securities which constitute Other Stock Unit Awards prior to +the later of: (i) the date on which the Common Shares or other securities are +issued, or (ii) the date on which any applicable restrictions, performance or +deferral period lapses. Common Shares (including securities convertible into +Common Shares) and other securities granted pursuant to Other Stock Unit Awards +may be issued +for no cash consideration or for such minimum consideration as may be +required by applicable law. Common Shares (including securities convertible +into Common Shares) and other securities purchased pursuant to purchase rights +granted pursuant to Other Stock Unit Awards may be purchased for such +consideration as the Committee shall determine, which price shall not be less +than the Fair Market Value of such Common Shares or other securities on the +Grant Date, unless the Committee otherwise elects. Unless the Committee +determines otherwise to address specific considerations, Other Stock Unit +Awards granted under this Plan shall have a vesting period of not less than one +year. +ARTICLE 11 +TRANSFERABILITY OF AWARDS +Awards and benefits payable under this Plan shall not be Transferable by +the Participant during his or her lifetime and may not be assigned, exchanged, +pledged, transferred or otherwise encumbered or disposed of except by will or +the laws of descent and distribution or, in the case of an Incentive Option, +except by a domestic relations order pursuant to Section 414(p)(1)(B) of the +Code. Awards shall be exercisable during a Participant’s lifetime only as set +forth in the preceding sentence by the Participant or, if permissible under +applicable law, by the Participant’s guardian or legal representative. +Notwithstanding the above, the Committee may, with respect to particular +Awards, other than Incentive Options, establish or modify the terms of the +Awards to allow the Awards to be Transferred, at the request of the +Participant, to trusts established by the Participant or as to which the +Participant is a grantor or to family members of the Participant or otherwise +for personal and tax planning purposes of the Participant. If the Committee +allows such Transfer, such Awards shall not be exercisable for a period of not +less than six months following the action of the Committee. To the extent the +Committee action allowing such Transfer occurs within the last six months of +the term of any Award granted under this Plan, other than an ISO, the term of +such Award shall automatically be extended for a period necessary to +accommodate the exercise limitation discussed in the preceding sentence or by +such other period as determined by the Committee. +- 12 - +Table of Contents +ARTICLE 12 +TERMINATION OF AWARDS +12.1 Termination of Awards. All Awards issued under this Plan shall +terminate as follows: +12.1.1 At Expiration of Term. During any period of continuous employment +or business relationship with the Company or a Subsidiary, an Award will be +terminated only if it is fully exercised or if it has expired by its terms or +by the terms of this Plan. For these purposes, any leave of absence approved +by the Company shall not be deemed to be a termination of employment, nor shall +such approved leave of absence toll the Term of any Award whereby the Term of +an Award would be extended to account for the time of the approved leave of +absence. +12.1.2 Death, Disability or Retirement. If a Participant’s employment by +the Company or a Subsidiary terminates by reason of death, Disability or +Retirement, or in the case of an advisory relationship, other than as a +Non-Employee Director, if such business relationship terminates by reason of +death or Disability, any Award held by such Participant, unless otherwise +determined by the Committee at grant, shall be fully vested and may thereafter +be exercised by the Participant or by the Participant’s beneficiary or legal +representative, for a period of one year following termination of employment, +death or Disability, and ninety days in the case of Retirement, or such longer +period as the Committee may specify at or after grant in all cases other than +Incentive Options, or until the expiration of the stated Term of such Award, +whichever period is shorter. +12.1.3 Termination for Cause. Awards shall terminate immediately if +employment is terminated for Cause or by voluntary action of the Participant +without the consent of the Company. “Cause” is defined as including, but not +limited to, theft of or intentional damage to the Company’s property, +intentional harm to the Company’s reputation, material breach of the +Participant’s duty of +fidelity to the Company, excessive use of alcohol, the use of illegal +drugs, the commission of a criminal act, willful violation of the Company’s +policies, or trading in Common Shares for personal gain based on knowledge of +the Company’s activities or results when such information is not available to +the general public. +12.1.4 Employment and Noncompetition Agreements. If an individual holding +an Award violates any term of any written employment, confidentiality or +noncompetition agreement between the Company and that person, all existing +Awards held by such person will terminate immediately. In addition, if at any +time of such violation such person has exercised an Award for Common Shares but +has not received certificates for the Common Shares to be issued, the Company +may void the Award and its exercise. Any such actions by the Company shall be +in addition to, and not in lieu of, any other rights or remedies available to +the Company in such circumstances. +12.1.5 Other. Except as provided above in this Section 13.1, unless +otherwise determined by the Committee at or after grant, if a Participant’s +employment by, or business relationship with, the Company or a Subsidiary +terminates for any reason other than death, as provided above, the Award will +terminate on the earlier to occur of the stated expiration date or ninety days +after termination of the employment or business relationship. If a Participant +dies +- 13 - +Table of Contents +during the ninety day period following the termination of the employment +or business relationship, any unexercised Award held by the Participant, or +transferred by the Participant in accordance with Article 12, shall be +exercisable, to the full extent that such Award was exercisable at the time of +death, by the heirs, beneficiaries or legal representative of the estate of the +Participant, for a period of one year after the date of termination of +employment of the Participant or until the expiration of the stated term of the +Award, whichever occurs first. +12.2 Acceleration of Vesting and Extension of Exercise Period Upon +Termination. +12.2.1 Notwithstanding anything contained in this Article 13, upon the +termination of employment of a Participant who is not an Officer or Director of +the Company, for reasons other than those provided in Sections 13.1.3 and +13.1.4, the Committee may, in its sole discretion, accelerate the vesting of +all or part of any Awards held by such terminated Participant, or Transferred +by the Participant in accordance with Article 11, so that such Awards are fully +or partially exercisable as of the date of termination, and may also extend the +permitted exercise period of such Awards for up to five years from the date of +termination, but in no event longer than the original expiration date of such +Award. +12.2.2 Except as provided in Section 12.2.1 or Section 4.2, in no event +will the continuation of the exercisability of an Award beyond the date of +termination of employment allow the Participant, or his or her beneficiaries or +heirs, to accrue additional rights under the Plan, or to purchase more Common +Shares through the exercise of an Award than could have been purchased on the +date that employment was terminated. +ARTICLE 13 +DEFERRALS +The Committee may permit recipients of Awards to defer the distribution of +all or part of any Award in accordance with such terms and conditions as the +Committee shall establish. +ARTICLE 14 +TERMINATION OR AMENDMENT OF PLAN +Notwithstanding any other provisions hereof to the contrary, the Board may +assume responsibilities otherwise assigned to the Committee and may at any +time, amend, in whole or in part, any provisions of this Plan, or suspend or +terminate it entirely; provided, however, that, unless otherwise required by +law, the rights of a Participant with respect to any Awards granted prior to +such amendment, suspension or termination may not be impaired without the +consent of such Participant. No amendment shall, without shareholder approval, +increase the number of Common Shares available under the Plan, cause the Plan +or any Award granted under the Plan to fail to meet +the conditions for exclusion of application of the $1,000,000 deduction +limitation imposed by the Section 162(m) of the Code or cause any Incentive +Option to fail to qualify as an “Incentive Stock Option” as defined by Section +422 of the Code. +- 14 - +Table of Contents +ARTICLE 15 +GENERAL PROVISIONS +15.1 No Right to Continued Employment or Business Relationship. Neither +the establishment of the Plan nor the granting of any Award hereunder shall +confer upon any Participant any right to continue in the employ of, or in any +business relationship with, the Company or any Subsidiary, or interfere in any +way with the right of the Company or any Subsidiary to terminate such +employment or business relationship at any time. +15.2 No Right to Award. No Eligible Employee, Advisor or Non-Employee +Director shall have the right to be selected to receive an Award under this +Plan or, having been so selected, to be selected to receive a future Award or +Stock Option. Neither the Award nor any benefits arising out of this Plan +shall constitute part of a Participant’s employment or service contract with +the Company or any Affiliate and, accordingly, this Plan and the benefits +hereunder may be terminated at any time in the sole and exclusive discretion of +the Company without giving rise to liability on the part of the Company or any +Affiliate for severance payments. +15.3 No Claim/Uniformity. Except as provided in Section 7.4, no Eligible +Employee, Advisor or Non-Employee Director shall have any claim to receive any +Award under this Plan, and there is no obligation for uniformity of treatment +of Participants under this Plan. +15.4 Acceptance of Award Agreement. The prospective recipient of any +Award under this Plan shall not, with respect to such Award, be deemed to have +become a Participant, or to have any rights with respect to such Award, until +and unless such recipient shall have accepted any Award Agreement or other +instrument evidencing the Award. +15.5 Certificates for Common Shares. All certificates for Common Shares +delivered under this Plan pursuant to any Award shall be subject to such +stock-transfer orders and other restrictions as the Committee may deem +advisable under the rules, regulations and other requirements of the Securities +and Exchange Commission, any stock exchange upon which the Common Shares are +then listed, and any applicable federal or state securities law, and the +Committee may cause a legend or legends to be put on any certificates to make +appropriate reference to such restrictions. +15.6 No Offer to Sell Securities. No Award granted hereunder shall be +construed as an offer to sell securities of the Company, and no such offer +shall be outstanding, unless and until the Committee in its sole discretion has +determined that any such offer, if made, would comply with all applicable +requirements of the federal securities laws and any other laws to which such +offer, if made, would be subject. +15.7 Other Plans. The value of, or income arising from, any Awards issued +under this Plan shall not be treated as compensation for purposes of any +pension, profit sharing, life insurance, Disability or other Retirement or +welfare benefit plan now maintained or hereafter adopted by the Company or any +Subsidiary, unless such plan specifically provides to the contrary. Nothing +contained in this Plan shall prevent the Company from adopting other or +additional compensation arrangements, subject to stockholder approval if such +approval is required. +- 15 - +Table of Contents +15.8 Withholding of Taxes. The Company may deduct from any payment to be +made pursuant to this Plan, or to otherwise require, prior to the issuance or +delivery of any Common Shares or the payment of any cash to a Participant, +payment by the Participant of any Federal, state, local or foreign taxes +required by law to be withheld. The Committee may permit any such withholding +obligation to be satisfied by reducing the number of Common Shares otherwise +deliverable or by accepting the delivery of previously owned Common Shares. +Any fraction of a +Common Share required to satisfy such tax obligations shall be disregarded +and the amount due shall be paid instead in cash by the Participant. +15.9 Reimbursement of Taxes. The Committee may provide in its discretion +that the Company may reimburse a Participant for federal, state, local and +foreign tax obligations incurred as a result of the grant or exercise of an +Award issued under this Plan. +15.10 Governing Law. This Plan and actions taken in connection with it +shall be governed by the laws of Ohio without regard to the principles of +conflict of laws. +15.11 Liability. No employee of the Company nor member of the Committee +or the Board shall be liable for any action or determination taken or made in +good faith with respect to this Plan or any Award granted hereunder and, to the +fullest extent permitted by law, all employees and members shall be indemnified +by the Company for any liability and expenses which may occur through any claim +or cause of action arising under or in connection with this Plan or any Awards +granted under this Plan. +15.12 Severability. If any provision of this Plan is or becomes invalid, +illegal or unenforceable in any jurisdiction, or would disqualify this Plan or +any Award under any law deemed applicable by the Committee, such provision +shall be construed or deemed amended to conform to applicable laws or if it +cannot be construed or deemed amended without, in the determination of the +Committee, materially altering the intent of this Plan, it shall be stricken +and the remainder of this Plan shall remain in full force and effect. +15.13 Shareholder Approval. This Plan is contingent upon approval by +shareholders at the Company’s 2005 Annual Shareholders’ Meeting. If such +approval is not obtained, this Plan shall become null and void and any Awards +made pursuant to it shall become null and void. +- 16 - +Table of Contents +MERIDIAN BIOSCIENCE, INC. +NOMINATING COMMITTEE CHARTER +This Charter has been adopted by the Board of Directors of Meridian +Bioscience, Inc. and may be modified by the Board from time to time. The +following are the purposes, duties and responsibilities of the Nominating +Committee: +1.To recommend to the Board any changes in the size of the Board and of its Committees; +2.To identify qualified nominees for the Board and determine the particular nominees who will be nominated by the Company for annual election to the Board. If there is a vacancy in any director’s seat, whether through an increase in the size of the Board or otherwise, the Committee shall recommend to the Board of Directors a nominee to fill such vacancy; +3.In nominating individuals as directors, the Committee shall take into account, among other factors which it may deem appropriate, the judgments, skill, diversity, business experience, and needs of the Board as its function relates to the business of the Company; +4.The Committee shall consider candidates proposed by management and stockholders as well as by its own members; +5.To identify Board members qualified to fill vacancies on Committees of the Board taking into account requirements of the National Association of Securities Dealers, federal and state law and the suitability of persons for particular Committee assignments and any other factors deemed appropriate by the Committee. +Table of Contents +December 21, 2004 +Securities and Exchange Commission +450 Fifth Street, N.W. +Washington, DC 20549 +Commissioners: +We have read the statements +made by Meridian Bioscience, Inc. (copy attached), which have been filed with the Commission, +pursuant to Item 4.01 of Form 8-K, as part of the Meridian +Bioscience, Inc.’s Form 8-K report dated December 7, 2004. +We agree with the statements concerning our Firm in Meridian +Bioscience’s Form 8-K dated December 7, 2004 filed on December +13, 2004 except that we have no basis to comment on the +procedures or criteria that may have been followed by the +Audit Committee of the Board of Directors in seeking +proposals, whether the intended results will be achieved, or +whether the levels of audit work proposed to be performed by +others was comparable to that proposed by PricewaterhouseCoopers LLP or sufficient to meet the reporting requirements +of Section 404 of the Sarbanes-Oxley Act of 2002. +Very truly yours, +PricewaterhouseCoopers LLP +Table of Contents +MERIDIAN BIOSCIENCE, INC. +PROXY +FOR +ANNUAL +MEETING +The undersigned hereby appoints WILLIAM J. MOTTO and MELISSA A. +LUEKE, or either of them, proxies of the undersigned, each with +the power of substitution, to vote cumulatively or otherwise all +shares of Common Stock which the undersigned would be entitled to +vote on the matters specified below and in their discretion with +respect to such other business as may properly come before the +Annual Meeting of Shareholders of Meridian Bioscience, Inc. to be +held on January 20, 2005 at 2:00 P.M. Eastern Time at Holiday Inn, +4501 Eastgate Boulevard, Cincinnati, Ohio and any postponement or +adjournment of such Annual Meeting. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE FOLLOWING PROPOSALS: +1. +Authority to elect as directors the six nominees listed below. +FOR +WITHHOLD AUTHORITY +JAMES A. BUZARD, JOHN A. KRAEUTLER, GARY P. KREIDER, WILLIAM J. MOTTO, +DAVID C. PHILLIPS AND ROBERT J. READY +WRITE THE NAME OF ANY NOMINEE(S) FOR WHOM AUTHORITY +TO VOTE IS WITHHELD +2. +To approve the Meridian Bioscience, Inc. 2004 Equity Compensation Plan +FOR +AGAINST +ABSTAIN +3. +To ratify the appointment of Grant Thornton LLP as independent public +accountants for fiscal 2005. +FOR +AGAINST +ABSTAIN +THIS PROXY WILL BE VOTED AS RECOMMENDED BY THE BOARD OF DIRECTORS UNLESS A +CONTRARY CHOICE IS SPECIFIED. +(This proxy is continued and is to be signed on the reverse side) +Date +, +Important: Please sign exactly as name appears hereon indicating, where +proper, official position or representative capacity. In the case of joint +holders, all should sign. +-24- +Table of Contents +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +-25- \ No newline at end of file diff --git a/raw/proxies/0000794172/0000950152-04-009160/proxy_rpt.txt b/raw/proxies/0000794172/0000950152-04-009160/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000794172/0000950152-05-009893/proxy.txt b/raw/proxies/0000794172/0000950152-05-009893/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..75ae643b0478e215321cc1b02327be121424df7e --- /dev/null +++ b/raw/proxies/0000794172/0000950152-05-009893/proxy.txt @@ -0,0 +1,1495 @@ +DEF 14A +1 +l17356adef14a.htm +MERIDIAN BIOSCIENCE, INC. DEF 14A +Meridian Bioscience, Inc. DEf 14A +Table of Contents +SCHEDULE 14A +(Rule 14a-101) +INFORMATION REQUIRED IN THE PROXY STATEMENT +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) +of the Securities Exchange Act of 1934 +(Amendment No. ___) +Filed by the Registrant þ +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +þ +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Under Rule 14a-12 +Meridian Bioscience, Inc. +(Name of Registrant as Specified in Its Charter) +(Name of Person(s) Filing Proxy Statement if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +þ +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to +Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and +state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total Fee Paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act +Rule 0-11(a)(2) and identify the filing for which the offsetting fee +was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +MERIDIAN BIOSCIENCE, INC. +3471 River Hills Drive +Cincinnati, Ohio 45244 +www.meridianbioscience.com +Notice of Annual Meeting +and Proxy Statement +Dear Shareholder: +Our Annual Meeting of Shareholders will be held at 2:00 p.m. on January 19, 2006 at Holiday Inn, +4501 Eastgate Boulevard, Cincinnati, OH 45245. We hope you will attend. +At the meeting, you will hear a report on our operations and have a chance to meet your directors +and executive officers. +This booklet includes the formal notice of the meeting and the proxy statement. The proxy statement +tells you more about the agenda and procedures for the meeting. It also describes how the Board +operates and gives personal information about our director candidates. +Please complete, sign, date, and return your proxy card promptly in the enclosed envelope. +Sincerely yours, +/s/ William J. Motto +William J. Motto +Chairman of the Board +December 19, 2005 +Table of Contents +NOTICE OF ANNUAL MEETING +OF +SHAREHOLDERS OF MERIDIAN BIOSCIENCE, INC. +Time: +2:00 p.m., Eastern Time +Date: +January 19, 2006 +Place: +Holiday Inn +4501 Eastgate Boulevard +Cincinnati, OH 45245 +Purpose: +• +Elect directors +• +Ratify appointment of Grant Thornton LLP as Meridian’s independent public accountants +for fiscal year 2006 +• +Conduct other business if properly raised +Only shareholders of record on December 1, 2005 may vote at the meeting. The approximate +mailing date of this Proxy Statement and accompanying Proxy Card is December 19, 2005. +Your vote is important. Please complete, sign, date, and return your proxy card promptly in +the enclosed envelope. +/s/ Melissa Lueke +Melissa Lueke +Secretary +December 19, 2005 +TABLE OF CONTENTS +Page +GENERAL INFORMATION +1 +ELECTION OF DIRECTORS +2 +RATIFICATION OF APPOINTMENT OF ACCOUNTANTS +3 +CORPORATE GOVERNANCE +6 +REPORT OF THE AUDIT COMMITTEE +7 +PRINCIPAL SHAREHOLDERS +11 +DIRECTORS AND EXECUTIVE OFFICERS +12 +SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +13 +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +14 +SUMMARY COMPENSATION TABLE +14 +FISCAL 2005 OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES +16 +PERFORMANCE GRAPH +17 +SHAREHOLDER PROPOSALS FOR NEXT YEAR +17 +QUESTIONS? +18 +AMENDED AND RESTATED AUDIT COMMITTEE CHARTER +APPENDIX A +Table of Contents +GENERAL INFORMATION +Who may vote +Shareholders of Meridian, as recorded in our stock register on December 1, 2005, may vote at the +meeting. As of that date, Meridian had 26,060,150 Commons Shares outstanding. +How to vote +You may vote in person at the meeting or by proxy. We recommend you vote by proxy even if you plan +to attend the meeting. You can always change your vote at the meeting. +How proxies work +Meridian’s Board of Directors is asking for your proxy. Giving us your proxy means you authorize us +to vote your shares at the meeting in the manner you direct. You may vote for all, some or none of +our director candidates. You may also vote for or against the other proposals or abstain from +voting. +If you sign and return the enclosed proxy card but do not specify how to vote, we will vote your +shares in favor of our director candidates and in favor of the ratification of appointment of Grant +Thornton LLP as Meridian’s independent public accountants for fiscal year 2006. +If any other matters come before the meeting or any adjournment, each proxy will be voted in the +discretion of the individuals named as proxies on the card. +You may receive more than one proxy or voting card depending on how you hold your shares. Shares +registered in your name are covered by one card. If you hold shares through someone else, such as a +stockbroker, you may get material from them asking how you want to vote. +Revoking a proxy +You may revoke your proxy before it is voted by submitting a new proxy with a later date, by voting +in person at the meeting, or by notifying Meridian’s Secretary in writing at the address under +“Questions?” on page 18. +Quorum +In order to carry on the business of the meeting, we must have a quorum. This means at least a +majority of the outstanding shares eligible to vote must be represented at the meeting, either by +proxy or in person. +Votes needed +The six director candidates receiving the most votes will be elected to fill the seats on the +Board. Ratification of appointment of accountants requires the favorable vote of a majority of the +votes cast. Only votes for or against this proposal count. Abstentions and broker non-votes count +for quorum purposes but not for voting purposes. Broker non-votes occur when a broker returns a +proxy card but does not have authority to vote on a particular proposal. +-1- +Table of Contents +Other Matters +Any other matters considered at the meeting, including adjournment, will require the affirmative +vote of a majority of the votes cast. +ELECTION OF DIRECTORS +(Item 1 on the Proxy Card) +The Nominating Committee of the Board of Directors has nominated for re-election all of the +following current directors: James A. Buzard, John A. Kraeutler, Gary P. Kreider, William J. Motto, +David C. Phillips and Robert J. Ready. +Proxies solicited by the Board will be voted for the election of these nominees. All directors +elected at the Annual Meeting will be elected to hold office until the next annual meeting. In +voting to elect directors, shareholders are entitled to cumulate their votes and to give one +candidate a number of votes equal to the number of directors to be elected multiplied by the number +of shares held by the shareholder, or to distribute their votes on the same principle among as many +candidates as the shareholder sees fit. In order to invoke cumulative voting, notice of cumulative +voting must be given in writing by a shareholder to the President, a Vice President or the +Secretary of Meridian not less than 48 hours prior to the Annual Meeting. The proxies solicited +include discretionary authority to cumulate votes. +Four of our six nominees are not Meridian employees. Only non-employee directors serve on +Meridian’s Audit, Compensation and Nominating committees. All Meridian directors are elected for +one-year terms. Personal information on each of our nominees is given below. +If a director nominee becomes unavailable before the election, your proxy card authorizes us to +vote for a replacement nominee if the Board names one. +The Board recommends you vote FOR each of the following candidates: +James A. Buzard, Ph.D. +Director since 1990 +Age: 78 +James A. Buzard, Ph.D. was Executive Vice President +of Merrell Dow Pharmaceuticals Inc. from March 1981 +until December 1989. From December 1989 until his +retirement in February 1990, he was Vice President +of Marion Merrell Dow, Inc. He has been a business +consultant since February 1990. +John A. Kraeutler +Director since 1997 +Age: 57 +John A. Kraeutler has more than 30 years of +experience in the medical diagnostics industry and +joined Meridian as Executive Vice President and +Chief Operating Officer in January 1992. In July +1992, Mr. Kraeutler was named President of +Meridian. Before joining Meridian, Mr. Kraeutler +served as Vice President, General Manager for a +division of Carter-Wallace, Inc. Prior to that, he +held key marketing and technical positions with +Becton, Dickinson and Company and Organon, Inc. +Gary P. Kreider +Director since 1991 +Age: 67 +Gary P. Kreider serves as Chairman of the +Compensation Committee and Board Secretary. For +over five years Mr. Kreider has been a senior +partner in the Cincinnati law firm of Keating +Muething +-2- +Table of Contents +Klekamp PLL, the Company’s outside +counsel. His primary practice areas are securities +law, mergers and acquisitions, and general +corporate law, and he has been with Keating +Muething Klekamp since 1963. Effective October 1, +2005 Mr. Kreider will no longer have a vote or +partnership interest in the firm’s earnings or +profits although his affiliation with the firm +shall continue. Mr. Kreider has been an Adjunct +Professor of Law in securities regulation at the +University of Cincinnati College of Law since 1977 +and is a past Chairman of the Ohio State Bar +Association Corporate Law Committee. Mr. Kreider is +also a Director of LSI Industries, Inc. +William J. Motto +Director since 1977 +Age: 64 +William J. Motto has more than 35 years of +experience in the pharmaceutical and diagnostics +products industries, is a founder of Meridian and +has been Chairman of the Board since 1977. Before +forming Meridian, Mr. Motto served in various +capacities for Wampole Laboratories, Inc., Marion +Laboratories, Inc. and Analytab Products, Inc., a +division of American Home Products Corp. +David C. Phillips +Director since 2000 +Age: 67 +David C. Phillips serves as Chairman of the Audit +Committee. Mr. Phillips spent 32 years with Arthur +Andersen LLP. His service with this firm included +several managing partner leadership positions. +After retiring from Arthur Andersen in 1994, Mr. +Phillips became Chief Executive Officer of Downtown +Cincinnati, Inc., which is responsible for economic +revitalization of Downtown Cincinnati. Mr. Phillips +retired from DCI in 1999 to devote full time to +Cincinnati Works, Inc., an organization dedicated +to reducing the number of people living below the +poverty level by assisting them to strive towards +self-sufficiency through work, and his financial +consulting services. Mr. Phillips serves as a +director of Cintas Corporation and Summit Family of +Mutual Funds. +Robert J. Ready +Director since 1986 +Age: 65 +Robert J. Ready serves as Chairman of the +Nominating Committee. Mr. Ready founded LSI +Industries Inc., Cincinnati, Ohio in 1976, which +engineers, manufactures and markets +commercial/industrial lighting and graphics +products, and has served as its President and +Chairman of its Board of Directors since that time. +RATIFICATION OF APPOINTMENT OF ACCOUNTANTS +(Item 2 on the Proxy Card) +Although not required, the Board is seeking shareholder ratification of the Audit Committee’s +selection of Grant Thornton LLP as Meridian’s independent registered public accounting firm for the +2006 fiscal year. The affirmative vote of a majority of shares voting at the meeting is required +for ratification. If ratification is not obtained, the Audit Committee intends to continue the +employment of Grant Thornton at least through fiscal 2006. +PricewaterhouseCoopers, LLP served as Meridian’s independent registered public accounting firm for +fiscal 2004. On December 7, 2004 Meridian’s Audit Committee dismissed +-3- +Table of Contents +PricewaterhouseCoopers LLP as the independent registered public accounting firm engaged to audit +its financial statements after a review by the Audit Committee of PricewaterhouseCoopers’ proposed +auditing and Section 404 attestation reporting charges for fiscal 2005. +On December 14, 2004 Meridian’s Audit Committee engaged Grant Thornton LLP as its independent +registered public accounting firm. The Audit Committee had previously reviewed proposals from +Deloitte & Touche LLP, Grant Thornton LLP and Ernst & Young LLP. +PricewaterhouseCoopers’ report on Meridian’s financial statements for each of the last two fiscal +years (2003 and 2004) did not contain an adverse opinion or a disclaimer of opinion, nor was it +qualified or modified as to uncertainty, audit scope, or accounting principles. During Meridian’s +two most recent fiscal years (2003 and 2004) and the subsequent interim periods preceding the +dismissal of PricewaterhouseCoopers, there were no disagreements with PricewaterhouseCoopers on any +matter of accounting principles or practices, financial statement disclosure, or auditing scope or +procedure, which disagreement(s), if not resolved to the satisfaction of PricewaterhouseCoopers, +would have caused them to make a reference to the subject matter of the disagreement(s) in +connection with its report. Meridian authorized PricewaterhouseCoopers to respond fully to any +inquiries by Grant Thornton. +PricewaterhouseCoopers did not advise Meridian either during its two most recent fiscal years (2003 +and 2004) or during the subsequent interim periods preceding Meridian’s decision to dismiss +PricewaterhouseCoopers: +• +that the internal controls necessary for Meridian to develop reliable financial +statements did not exist; +• +that information had come to its attention that had led it to no longer be able to rely +on management’s representations, or that had made it unwilling to be associated with the +financial statements prepared by management; +• +of the need to expand significantly the scope of its audit, or that information had come +to its attention during the two most recent fiscal years or any subsequent interim periods +that if further investigated might materially have impacted the fairness or reliability of +either: (i) a previously issued audit report or the underlying financial statements, or +(ii) the financial statements issued or to be issued covering the fiscal period(s) +subsequent to the date of the most recent financial statements covered by an audit report, +or have caused it to be unwilling to rely on management’s representations or be associated +with Meridian’s financial statements; or +• +that information had come to its attention that it had concluded materially impacts the +fairness or reliability of either (i) a previously issued audit report or the underlying +financial statements, or (ii) the financial statements issued or to be issued covering the +fiscal period(s) subsequent to the date of the most recent financial statements covered by +an audit report, including information that, unless resolved to the accountant’s +satisfaction, would prevent it from rendering an unqualified audit report on those +financial statements. +-4- +Table of Contents +During the two most recent fiscal years (2003 and 2004) and during the interim period prior to +engaging Grant Thornton, neither Meridian nor anyone on its behalf consulted Grant Thornton +regarding either: (i) the application of accounting principles to a specified transaction (either +completed or proposed) or the type of audit opinion that might be rendered on Meridian’s financial +statements, and no written report or oral advice was provided to Meridian that Grant Thornton +concluded was an important factor considered by Meridian in reaching a decision as to an +accounting, auditing or financial reporting issue; or (ii) any matter that was the subject of +either a disagreement or a reportable event. +PricewaterhouseCoopers furnished Meridian with a letter addressed to the Securities and Exchange +Commission related to the disclosures in our Current Report on Form 8-K filed with the Commission +on December 13, 2004. The letter was filed as Exhibit 16 to Form 8-K/A on December 22, 2004. +Principal Accounting Firm Fees: +Aggregate fees billed to Meridian by Grant Thornton for fiscal year 2005 and PricewaterhouseCoopers +LLP for fiscal year 2004 are listed below: +2005 +2004 +Audit Fees +$ +325,000 +$ +216,375 +Audit Related Fees +20,490 +30,498 +Tax Fees +— +126,208 +All Other Fees +68,419 +— +$ +413,909 +$ +373,081 +Audit Fees . Audit fees are the fees billed for professional services rendered by Meridian’s +independent registered public accounting firm for their audit of Meridian’s consolidated annual +financial statements for the years ended September 30, 2005 and 2004, respectively, and reviews of +the unaudited quarterly consolidated financial statements contained in the reports on Form 10-Q +filed by Meridian during those years, and on reporting on Meridian’s internal control for fiscal +2005. +Audit-Related Fees . Audit-related fees are the fees billed for assurance and related services that +are reasonably related to the performance of the audit or review of Meridian’s financial +statements. +Tax Fees . Tax fees are the fees billed for services related to tax compliance, tax advice and tax +planning. Tax services performed for Meridian by the independent registered public accounting firm +included compliance, planning and advice with respect to both domestic and foreign subsidiaries of +Meridian. Fees for preparation of Meridian’s tax returns by Pricewaterhouse Coopers LLP were +$99,097 for fiscal year 2004. +All Other Fees. All other fees are the fees billed for services other than those in the three +categories previously described, including services for the OEM Concepts, Inc. acquisition and +common stock offering. +-5- +Table of Contents +CORPORATE GOVERNANCE +Meridian is an Ohio corporation and, therefore, is governed by the corporate laws of Ohio. Since +its Common Shares are publicly traded on Nasdaq and it files reports with the Securities and +Exchange Commission, it is also subject to NASD rules as well as various provisions of federal +securities laws. +Governance of the corporation is placed in the hands of the directors who, in turn, elect officers +to manage the business operations. The Board oversees the management of Meridian on your behalf. +The following directors meet the NASD requirements for independence: David C. Phillips, James A. +Buzard, Robert J. Ready and Gary P. Kreider. The Board reviews Meridian’s long-term strategic plans +and exercises direct decision making authority in all major decisions, such as acquisitions, the +declaration of dividends, major capital expenditures and the establishment of company policies. +During fiscal 2005, the Board of Directors met on eleven occasions and took action by writing on +three occasions. +Meridian expects all directors to attend shareholders’ meetings. Each director attended the 2005 +Annual Shareholders’ Meeting, all meetings of the Board and all meetings of Committees of which he +was a member, except that Gary P. Kreider was unable to attend the Annual Meeting of the Directors +and Shareholders because he was out of the country at the time and James A. Buzard was unable to +attend the July 20, 2005 meetings due to delays in air travel. +Shareholders may communicate with the full Board or individual directors on matters concerning +Meridian by mail or through our website in each case to the attention of the Secretary. +Non-employee directors of Meridian receive $20,000 per year for serving as a director and as +members of committees of the Board. They also receive $1,500 for each meeting of the Board and +$1,000 for each committee meeting attended. They receive $750 for each Board meeting and $500 for +each committee meeting held by telephone. The Audit Committee Chairman receives an additional +$8,000 annually and the Compensation Committee Chairman receives an additional $3,000 annually. The +Board Secretary receives an additional $1,000 for serving at each meeting of a committee of which +he is not a member. Each non-employee director is also granted a non-qualified option to purchase +3,476 shares of Common Stock at the time of election or re-election to the Board of Directors, with +the exercise price being the closing sale price on Nasdaq reported on the date of grant. Directors +who are employees of Meridian are not separately compensated for serving as directors. +At its meeting on July 24, 2003, the Board adopted the Audit Committee Charter and a Code of Ethics +for Meridian’s officers, directors and employees. On November 10, 2005, the Board approved certain +amendments to the Audit Committee Charter. The amended and restated Audit Committee Charter is +attached to this Proxy Statement as Appendix A. The Code of Ethics will be sent without charge to +any shareholder who sends a request to Meridian’s Secretary. +The independent directors plan to meet at least one time, during fiscal 2006, without the presence +of management directors. The independent members of the Board had one such meeting in fiscal 2005. +-6- +Table of Contents +The directors have organized themselves into the committees described below. Each of these +committees is composed entirely of non-employee directors who meet the relevant independence +requirements established by Nasdaq and the Sarbanes-Oxley Act that apply to their particular +assignments. Meridian does not have an Executive Committee of its Board of Directors. +The Audit Committee is composed of David C. Phillips, Chairman, James A. Buzard and Robert J. +Ready. Each member is able to read and understand fundamental financial statements. David C. +Phillips has been designated as the Audit Committee financial expert as that term is defined in SEC +regulations. +The Committee oversees the accounting and financial reporting processes of Meridian and the audits +of its financial statements by its independent registered public accounting firm. The Committee is +solely responsible for the appointment, compensation, retention and oversight of Meridian’s +independent registered public accounting firm. The Audit Committee also evaluates information +received from Meridian’s independent registered public accounting firm and management to determine +whether the independent registered public accounting firm is independent of management. The +independent registered public accounting firm reports directly to the Audit Committee. +In addition, the Audit Committee has established procedures for the receipt, retention and +treatment of complaints received by Meridian concerning accounting, internal accounting controls or +auditing matters and has established procedures for the confidential and anonymous submission by +employees of any concerns they may have regarding questionable accounting or auditing matters. +The Audit Committee, or its Chairman, approves all audit and non-audit services performed for +Meridian by its independent registered public accounting firm before those services are commenced. +The Chairman reports to the full Committee at each of its meetings regarding pre-approvals he made +since the prior meeting and the Committee approves what he has done between meetings. For these +purposes, the Committee or its Chairman is provided with information as to the nature, extent and +purpose of each proposed service, as well as the approximate timeframe and proposed cost +arrangements for that service. +The Audit Committee met seven times and took no actions in writing during fiscal 2005. The +Committee has submitted the following report to shareholders. +REPORT OF THE AUDIT COMMITTEE +On August 19, 2005, the Committee met with representatives of Grant Thornton, LLP and Meridian’s +internal accountants and reviewed with them the proposed 2005 Audit Plan, areas warranting +particular concentration on the audit and the effects of new accounting pronouncements. The Grant +Thornton representatives reviewed with the Committee written disclosures required by the +Independence Standards Board Standard No. 1 regarding independence of the registered public +accounting firms and presented a letter regarding that matter to the Committee. +At its meeting on November 10, 2005, the Committee reviewed with management, Grant Thornton, and +Meridian’s accounting officers the results of the audit for fiscal 2005, including the audited +financial statements. The Committee reviewed the requirements of its Charter +-7- +Table of Contents +previously adopted and the reports that were required to be disclosed to the Committee. The +Committee discussed with Grant Thornton the matters required to be discussed by Statement on +Auditing Standards No. 61. As part of its deliberations, the Committee discussed with Grant +Thornton their independence and determined that Grant Thornton was independent of Meridian. +The Committee met on December 5, 2005 to review a draft of the Form 10-K. Based on their review, +the Committee recommended to the Board of Directors that the audited financial statements of +Meridian be included in its Annual Report on Form 10-K for the year ended September 30, 2005 for +filing with the Securities and Exchange Commission. +During its meetings, the Committee reviewed procedures related to the receipt, retention and +treatment of any complaints concerning accounting, internal accounting controls or auditing +matters. Also during its meetings, the Chairman of the Audit Committee reported to the full +Committee the independent accountants’ fees that had been preapproved and the Committee approved +such fees. Certain fees were preapproved by the full Committee. The Committee also reviewed the +requirements and Meridian’s progress in implementing the requirements of Section 404 of the +Sarbanes-Oxley Act. +Respectfully submitted, +Audit Committee +David C. Phillips (Chairman) +Robert J. Ready +James A. Buzard +The Compensation Committee is responsible for establishing compensation for executive officers. +This includes establishing salary levels and bonus plans, making bonus awards and otherwise dealing +in all matters concerning compensation of the executive officers. The Committee also awards stock +options for all employees. Meridian’s Compensation Committee is composed of Messrs. Kreider +(Chairman), Buzard, Phillips and Ready. +The Compensation Committee met two times and took action in writing on one occasion during fiscal +2005. +The report of the Compensation Committee follows. +REPORT OF THE COMPENSATION COMMITTEE +The Compensation Committee is responsible for setting salaries and establishing and maintaining +bonus plans for executive officers. It also administers and grants awards under Meridian’s 2004 +Equity Compensation Plan. +Salaries are set on a calendar year basis and therefore salaries paid in the first three months of +each fiscal year beginning October 1 are set in the prior year. A significant portion of +compensation for fiscal 2005 was in the form of performance bonuses, as is noted in the Summary +Compensation Table. The bonuses in the Summary Compensation Table for fiscal 2005 were based upon +the achievement of earnings levels starting at $10,300,000, which was substantially in excess of +fiscal 2004 earnings of $9,185,000. Options granted for fiscal 2005 to +-8- +Table of Contents +executive officers and business unit leaders were based upon the achievement of net earnings in +fiscal 2005 of at least $10,800,000. If that earnings level had not been met, the options would +have become void. Since the earnings level was met, those options run for a period of ten years +from grant and vest over a three year period that commences with the announcement of fiscal 2005 +results. The Committee believes that these plans for bonuses and options effectively tied a +significant portion of each executive’s total pay package to Company performance in fiscal 2005. +The Committee met on November 10, 2005 to set compensation for 2006. No members of management +participated in this meeting and the only persons present were the Committee members. Salary +increases of 5% were awarded to all executive officers, with the exception of Messrs. Motto and +Kraeutler, reflecting the Committee’s favorable view of the performance of the management team in +fiscal 2005. Mr. Motto recommended that Mr. Kraeutler’s increase be 10% in view of the outstanding +results the Company had achieved in fiscal 2005 and Mr. Kraeutler’s additional efforts in +Meridian’s equity offering and its acquisition of OEM Concepts. There was no recommendation as to +Mr. Motto’s salary, but the Committee determined that his compensation should also be increased 10% +because of his efforts in leading the Company through the outstanding year and his work in the +equity offering and the OEM acquisition. In making its decisions on salary, the Committee had +available benchmarks prepared by the Company’s outside financial advisor showing salary ranges for +various levels of executives in the industry and in the Cincinnati area. The Committee also +reviewed a tabulation of all total compensation paid to each executive officer in salary, bonus, +allowances, profit sharing contribution and miscellaneous items in making their decision. The +Committee believes that its performance based plans with respect to bonuses and options for +executive officers have worked well for the Company, even in circumstances such as fiscal 2002 in +which no bonuses were awarded and options were forfeited because the minimum earning levels were +not met in that year. +At its November 10, 2005 meeting, the Committee also reviewed the Company’s results and the +application of the 2005 Bonus Plan and objectives established for the previous year. The Committee +approved the bonus awards pursuant to that Plan in the amounts shown in the Summary Compensation +Table. +At the same meeting, the Committee established an Officers’ Compensation Plan for fiscal 2006. The +Plan follows the format of prior years’ plans with bonuses based upon the achievement of earnings +levels. For fiscal 2006 the minimum earnings level was set at $16,100,000, which is a meaningful +increase from the $12,565,000, which Meridian earned in fiscal 2005. The Plan covers six possible +steps ranging from $16,100,000 to $17,600,000. In addition to the net earnings test, the bonuses +are to be based on ratings of personal achievement, which are then applied to any bonuses earned. +Depending on net earnings levels achieved and the application of personal achievement ratings, cash +bonuses available to each individual covered by the Plan could range from 5% to 120% of the +individual’s base salary. Options were also awarded to each executive officer to purchase 10,500 +shares of common stock at a price of $21.01 per share pursuant to the 2004 Equity Compensation +Plan. These options will become void if net earnings for fiscal 2006 are less than $16,950,000, +but if that level is reached, the options will be for a period of ten years and vest over a three +year period commencing with the announcement of fiscal 2006 results. The earnings test for both +the bonus and option plans excludes positive and negative effects associated with extraordinary +developments as defined in the Plan, including adjustments for acquisitions and other matters. +-9- +Table of Contents +The Committee believes that its plans will ensure that if the executive officers receive meaningful +bonuses and the options granted in November 2005 vest, it will be because their efforts, +individually and as a team, will have enabled Meridian to achieve significant increases in net +earnings for the benefit of all shareholders. +Respectfully submitted, +Compensation Committee +Gary P. Kreider (Chairman) +Robert J. Ready +James A. Buzard +David C. Phillips +The Nominating Committee identifies qualified nominees for the Board, determines who will be +nominated by the Company for election to the board and recommends to the full board any changes in +the size of the Board. The Nominating Committee consists of Robert J. Ready, Chairman, James A. +Buzard and David C. Phillips. +The Board of Directors has established a Charter for the Nominating Committee, a copy of which was +attached as Appendix B to the proxy statement for Meridian’s 2005 Annual Shareholders’ Meeting. +In nominating directors, the Nominating Committee takes into account, among other factors which it +may deem appropriate, the judgments, skill, diversity, business experience, and the needs of the +Board as its function relates to the business of the Company. The Committee considers candidates +for nomination from a variety of sources including recommendations of shareholders. Shareholders +desiring to submit recommendations for nominations by the Committee should direct them to the +Chairman of the Nominating Committee in care of the Company at its address shown on the cover page +of this proxy statement. +The Nominating Committee met one time last year. On November 10, 2005, the Committee considered and +nominated the current directors for re-election. +-10- +Table of Contents +PRINCIPAL SHAREHOLDERS +William J. Motto, Chairman of the Board is the only shareholder known by Meridian to own +beneficially 5% or more of its outstanding Common Stock as of December 1, 2005. Information has +been furnished by the persons listed and/or has been obtained from reports filed by the persons +listed with the Securities and Exchange Commission: +Amount and Nature +of Beneficial +Name of Beneficial Owner +Ownership +Percent of Class +William J. Motto 1 +3,446,406 +13.2 +% +1 +The business address of Mr. Motto is 3471 River Hills Drive, Cincinnati, Ohio +45244. The shares of Common Stock reported as beneficially owned by Mr. Motto include 41,000 shares +subject to options exercisable within 60 days. +-11- +Table of Contents +DIRECTORS AND EXECUTIVE OFFICERS +This table lists the executive officers and directors of Meridian and shows how much common stock +each owned on December 1, 2005. +Common Stock +Beneficially Owned +Name +Position +Amount 1 +Percentage 2 +William J. Motto +Chairman of the Board of +Directors, Chief Executive Officer +3,446,406 +2 +13.2 +% +John A. Kraeutler +President, Chief Operating Officer +and Director +330,227 +1.3 +% +Antonio A. Interno 3 +President and Managing Director +of Meridian Bioscience Europe +247,415 +* +Richard L. Eberly 4 +Executive Vice President, President +Meridian Life Science +11,150 +* +Kenneth J. Kozak 5 +Vice President, Research and +Development +64,025 +* +Melissa A. Lueke 6 +Vice President, Chief Financial +Officer and Secretary +71,885 +* +Susan A. Rolih 7 +Vice President, Regulatory Affairs +& Quality Systems +33,500 +* +Lawrence J. Baldini 8 +Vice President, Operations and +Information Systems +26,000 +* +Todd W. Motto 9 +Vice President, Sales and Marketing +665,698 +2.6 +% +James A. Buzard, Ph.D. 10, 11 +Director +48,851 +* +Gary P. Kreider 11, 12 +Director +59,586 +* +Robert J. Ready 10, 11 +Director +47,931 +* +David C. Phillips 10, 11 +Director +26,380 +* +All Executive Officers and Directors +as a Group +5,079,054 +19.5 +% +1 +Includes options exercisable within 60 days from Mr. William J. Motto of 41,000 +shares, Mr. Kraeutler of 201,215 shares, Mr. Eberly of 3,500 shares, Mr. Kozak of 56,525 shares, +Ms. Lueke of 27,875 shares, Ms. Rolih of 22,250 shares, Mr. Baldini of 3,500 shares, Mr. Todd W. +Motto of 7,700 shares, Mr. Buzard of 34,760 shares, Mr. Kreider of 25,832 shares, Mr. Ready of +34,760 shares, and Mr. Phillips of 17,380 shares. +2 +See description of Common Stock ownership contained under “Principal Shareholders.” +3 +Antonio A. Interno was appointed as a Vice President in August 1991, appointed a +Senior Vice President in September 1997, and appointed as President, Managing Director of Meridian +Bioscience Europe in October 2003. He has been Managing Director of Meridian’s European +subsidiaries, Meridian Bioscience Europe since February 1990. Age: 55 +4 +Richard L. Eberly was appointed Vice President of Sales and Marketing on January 10, +1997, appointed an Executive Vice President in May 2000, appointed Executive Vice President, +General Manager of Meridian Life Science in February 2003, and appointed Executive Vice +-12- +Table of Contents +President and President Meridian Life Science in October 2005. He has over 18 years of experience +in the medical diagnostic industry and joined Meridian in January 1995. Prior to his appointment to +Vice President of Sales and Marketing, Mr. Eberly served as the Director of Sales for Meridian. +Before joining Meridian, he held key sales and marketing positions at Abbott Diagnostics. Age: 44 +5 +Kenneth J. Kozak joined Meridian in October 1987 and was appointed Vice President, +Research and Development, on May 17, 1999. Prior to this appointment, Mr. Kozak served as Director +of Product Development for Meridian. Before joining Meridian, Mr. Kozak held a variety of positions +at the University of Cincinnati College of Medicine. Age: 51 +6 +Melissa A. Lueke was appointed Vice President, Chief Financial Officer and Secretary +on January 23, 2001. Prior to her appointment, Ms. Lueke served as Meridian’s Controller since +March 2000 and Acting Secretary from July 20, 2000 to January 23, 2001. Before joining Meridian, +Ms. Lueke was employed by Arthur Andersen LLP from June 1985 to January 1999, most recently as a +Senior Audit Manager. Age: 42 +7 +Susan A. Rolih was appointed Vice President of Regulatory Affairs and Quality Systems +on May 29, 2001. Before joining Meridian, Ms. Rolih held various regulatory and quality positions +with Immucor, Inc. Age: 56 +8 +Lawrence J. Baldini was appointed Vice President of Operations on April 3, +2001 and appointed Executive Vice President Operations and Information Systems in October +2005. Before joining Meridian, Mr. Baldini held various operations management positions +with Instrumentation Laboratories and Fisher Scientific. Age: 46 +9 +Todd W. Motto was appointed Vice President of Sales and Marketing on October 3, +2005. Prior to this appointment, Mr. Motto served in a number of different sales and marketing +positions for Meridian, beginning in 1993. Most recently, he served as Meridian’s Vice President +of Sales and Marketing, Meridian Bioscience Europe for the last five years. Age: 39 +10 +Audit Committee Member. +11 +Compensation Committee Member. +12 +Includes 217 shares held by his wife, 1,500 shares held as custodian for his minor +child, 6,183 shares held by trusts of which Mr. Kreider is trustee and a beneficiary, and Meridian +debentures convertible into 2,689 shares. +* +Less than one percent. +SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Section 16 of the Securities Exchange Act of 1934 requires Meridian’s executive officers, directors +and persons who own more than ten percent of a registered class of Meridian’s equity securities to +file reports of ownership and changes in ownership with the Securities and +-13- +Table of Contents +Exchange Commission. Based on a review of the copies of such forms received by it, Meridian +believes that during the last fiscal year, all of its executive officers, directors and ten percent +stockholders complied with the Section 16 reporting requirements. +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +Gary P. Kreider, who is Chairman of the Compensation Committee, is a senior partner of Keating, +Muething & Klekamp, P.L.L., Cincinnati, Ohio, a law firm that provided legal services to Meridian +in fiscal 2005. +SUMMARY COMPENSATION TABLE +Annual Compensation +Securities +Underlying +All Other +Name and Principal Position +Year +Salary +Bonus +Options +Compensation 6 +William J. Motto 1 +2005 +$ +422,168 +$ +510,213 +10,500 +$ +76,550 +Chairman of the Board of +Directors, +2004 +409,615 +388,125 +10,500 +56,723 +Chief Executive Officer +2003 +395,000 +251,813 +37,500 +204,483 +John A. Kraeutler 2 +2005 +$ +328,123 +$ +401,760 +10,500 +$ +31,114 +President, Chief Operating Officer +2004 +306,308 +290,625 +10,500 +30,819 +2003 +294,000 +187,425 +37,500 +96,133 +Antonio A. Interno 3 +2005 +$ +308,011 +$ +275,447 +10,500 +$ +30,967 +President and Managing Director of +2004 +277,717 +178,593 +10,500 +38,161 +MBE +2003 +239,883 +152,925 +15,000 +20,200 +Richard L. Eberly 4 +2005 +$ +219,473 +$ +199,341 +10,500 +$ +24,510 +Executive Vice President, President +2004 +211,923 +167,187 +10,500 +26,058 +MLS +2003 +205,000 +108,906 +15,000 +37,300 +Melissa A. Lueke 5 +2005 +$ +174,752 +$ +158,520 +10,500 +$ +17,475 +Vice President, Chief Financial +2004 +169,157 +133,597 +10,500 +17,094 +Officer and Secretary +2003 +163,000 +103,913 +15,000 +27,304 +1 +“All Other Compensation” for Mr. Motto includes (a) car allowances of $20,000, +$19,584, and $14,600 in 2005, 2004 and 2003, respectively, (b) professional allowances of $45,000, +$25,000 and $25,000 in 2005, 2004 and 2003, respectively, and (c) amounts accrued under Meridian’s +Savings and Investment Plan. Todd W. Motto, the adult son of William J. Motto, is Vice President of +Sales and Marketing. Todd W. Motto received approximately $174,270 in compensation for fiscal 2005. +Pursuant to the terms of an Agreement Concerning Disability and Death, Meridian is required to +provide certain benefits to Mr. Motto or to his designated beneficiaries upon his death or +disability. In the case of a disability, Meridian is obligated to pay Mr. Motto 60 % of his total +annual salary and bonus for a period of up to 60 months. In the case of death, Meridian is +obligated to pay to Mr. Motto’s designated beneficiaries up to $1 million. These benefits are to +be reduced by the gross amount of any insurance payments made to Mr. Motto under any insurance +policy or program maintained by Meridian. +-14- +Table of Contents +2 +“All Other Compensation” for Mr. Kraeutler includes (a) car allowances of $12,280, +$13,479, and $11,216 in 2005, 2004 and 2003, respectively, (b) professional allowances, and (c) +amounts accrued under Meridian’s Savings and Investment Plan of $11,550, $12,339, and $10,000 in +2005, 2004 and 2003, respectively. Mr. Kraeutler and Meridian are parties to an employment +agreement dated February 15, 2001 which sets forth compensation, non-competition, benefit and +severance provisions and provides for a payment equal to three times Mr. Kraeutler’s base salary +(plus any salary earned but not paid) upon the occurrence of certain events, including a change in +control of Meridian. The agreement automatically extends until either party terminates the +agreement. +3 +“All Other Compensation” for Mr. Interno includes (a) car allowances of $25,409, +$32,161, and $16,200 in 2005, 2004 and 2003, respectively and (b) amounts accrued under Meridian’s +Savings and Investment Plan. +4 +“All Other Compensation” for Mr. Eberly includes (a) car allowances of $12,000, +$14,003, and $8,472 in 2005, 2004 and 2003, respectively, (b) professional allowances, and (c) +amounts accrued under Meridian’s Savings and Investment Plan of $11,550, $12,055, and $10,000 in +2005, 2004 and 2003, respectively. +5 +“All Other Compensation” for Ms. Lueke includes (a) car allowances of $5,000 in each +of 2005, 2004 and 2003, (b) amounts accrued under Meridian’s Savings and Investment Plan of +$11,550, $11,319, and $7,757 in 2005, 2004 and 2003, respectively, and (c) professional allowances. +6 +“All Other Compensation” for fiscal 2003 includes loans forgiven in connection with +the Split-Dollar Life Insurance Program, which has been terminated. These loans were incurred in +the amounts of $154,883 by Mr. Motto, $69,917 by Mr. Kraeutler, $15,828 by Mr. Eberly, and $13,547 +by Ms. Lueke. +-15- +Table of Contents +OPTION GRANTS IN LAST FISCAL YEAR +% of Total +Potential Realized +Number of +Options +Value at Assumed +Securities +Granted to +Exercise +Annual Rates of +Underlying +Employees +Price +Price Appreciation +Options +in Fiscal +($/Per +Expiration +for Option Term +Names +Granted +2005 +Share) +Date +5% +10% +William J. Motto +10,500 +5 +% +$ +10.92 +12/07/14 +$ +186,769 +$ +297,399 +John A. Kraeutler +10,500 +5 +% +$ +10.92 +12/07/14 +$ +186,769 +$ +297,399 +Antonio A. Interno +10,500 +5 +% +$ +10.92 +12/07/14 +$ +186,769 +$ +297,399 +Richard L. Eberly +10,500 +5 +% +$ +10.92 +12/07/14 +$ +186,769 +$ +297,399 +Melissa A. Lueke +10,500 +5 +% +$ +10.92 +12/07/14 +$ +186,769 +$ +297,399 +FISCAL 2005 OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES +Number of Securities +Shares +Underlying Unexercised +Value of Unexercised In- +Acquired +Options at +the-Money Options at +on +Value +September 30, 2005 +September 30, 2005 +Name +Exercise +Realized +Exercisable/Unexercisable +Exercisable/Unexercisable +William J. Motto +30,000 +$ +96,750 +71,000/100,000 +$ +1,131,172/$1,647,046 +John A. Kraeutler +101,535 +907,835 +219,215/100,000 +3,246,156/1,649,276 +Antonio A. Interno +21,750 +108,238 +3,500/32,500 +48,696/463,571 +Richard L. Eberly +90,787 +428,632 +3,500/32,500 +48,696/463,571 +Melissa A. Lueke +12,000 +62,763 +27,875/32,500 +484,438/463,571 +-16- +Table of Contents +PERFORMANCE GRAPH +The following graph shows the yearly percentage change in Meridian’s cumulative total shareholder +return on its Common Stock as measured by dividing the sum of (A) the cumulative amount of +dividends, assuming dividend reinvestment during the periods presented and (B) the difference +between Meridian’s share price at the end and the beginning of the periods presented; by the share +price at the beginning of the periods presented with the Wilshire 5000 Equity Index and a Peer +Group Index. The Peer Group consists of Biomerica, Inc., Biosite, Inc., BioSource International +Inc., Diagnostic Products Corp., Idexx Laboratories Corp., Inverness Medical Innovation Inc., +Orasure Technologies Inc., Quidel Corp., Strategic Diagnostics Inc. and Trinity Biotech Plc. +SHAREHOLDER PROPOSALS FOR NEXT YEAR +The deadline for shareholder proposals to be included in the Proxy Statement for next year’s +meeting is August 21, 2006. +The form of Proxy for this meeting grants authority to the designated proxies to vote in their +discretion on any matters that come before the meeting except those set forth in Meridian’s Proxy +Statement and except for matters as to which adequate notice is received. In order for a notice to +be deemed adequate for the 2007 Annual Shareholders’ Meeting, it must be received prior to November +4, 2006. If there is a change in the anticipated date of next year’s annual meeting or these +deadlines by more than 30 days, we will notify you of this change through our Form l0-Q filings. +-17- +Table of Contents +Meridian’s Code of Regulations provides that only persons nominated by an officer, director or in +writing by a shareholder at least five days prior to the meeting at which directors are to be +selected shall be eligible for election. +QUESTIONS? +If you have questions or need more information about the annual meeting, write to: +Melissa Lueke, Vice President, Chief Financial Officer and Secretary +Meridian Bioscience, Inc. +3471 River Hills Drive +Cincinnati, Ohio 45244 +or call us at (513) 271-3700. +For information about your record holdings call the Computershare Shareholder Services at +1-888-294-8217. +-18- +Table of Contents +APPENDIX A +MERIDIAN BIOSCIENCE, INC. +AUDIT COMMITTEE CHARTER +AS REVISED BY THE BOARD OF DIRECTORS ON NOVEMBER, 10, 2005 +I. +PURPOSE +The primary function of the Audit Committee is to assist the Company in maintaining the +integrity of its financial statements and to assist it in providing full and fair disclosure of the +financial aspects of its operations. This function applies to the Company’s financial reports, +financial press releases, filings with the Securities and Exchange Commission and other financial +information provided by the Company to any governmental body or the public; the Company’s systems +of internal controls regarding finance, accounting, legal compliance and ethics that management and +the Board have established; and the Company’s auditing, accounting and financial reporting +processes generally. Consistent with this function, the Committee should encourage continuous +improvement of, and should foster adherence to, the Company’s policies, procedures and practices at +all levels. The Committee shall: +Serve as an independent and objective party to monitor the Company’s financial reporting +process and internal control system. +Review and appraise the audit efforts of the Company’s independent public accountants. +Provide an open avenue of communication among the independent public accountants, financial +and senior management and the Board. +The Committee is authorized to employ, at the Company’s expense, any outside experts, legal +counsel, accountants or other personnel deemed by the Committee in its collective judgment to be +reasonably necessary, and in the best interest of the Company and its shareholders, to enable the +Committee to fulfill its responsibilities. 1 +II. +COMPOSITION +The Committee shall be comprised of three or more directors as determined by the Board, +each of whom shall satisfy the independence and financial literacy requirements prescribed by the +NASD and Section 10A of the Securities Exchange Act. 2 At least one member of the +Committee shall be an audit committee financial expert as defined under the United States +Securities and Exchange Commission rules promulgated pursuant to § 407 of the Sarbanes-Oxley Act of +2002. 3 +The members of the Committee shall be elected by the Board at the annual organizational +meeting of the Board and serve until their successors shall be duly elected and qualified. Unless +a Chairman is elected by the Board, the members of the Committee shall designate a Chair. +III. +MEETINGS +The Committee shall meet at least four times annually, and more frequently as +circumstances dictate. As part of its job to foster open communication, the Committee should meet +at least annually with management, the chief financial officer and the independent public +accountants in separate executive sessions to discuss any matters that the Committee or any of +A-1 +Table of Contents +these groups believe should be discussed independently. In addition, the Committee or at +least its Chair should meet with the independent accountants and management quarterly to review the +Company’s financials. The Committee shall maintain minutes of its meetings and activities. +IV. +RESPONSIBILITIES AND DUTIES +To fulfill its responsibilities and duties the Committee shall: +Documents/Reports Review +1. +Review and update this Charter annually. 4 +2. +Review the Company’s annual financial statements, financial +press releases, and any reports or other financial information submitted to +any governmental body, or the public, including any certification, report, +opinion, or review rendered by the independent accountants. This information +should be sent to the Committee at least 24 hours before release. 5 +Independent Accountants +3. +Appoint, compensate and oversee the independent public accountants who +audit the Company’s financial statements and consider their independence and +effectiveness. On an annual basis, the Committee shall ensure the receipt from +the independent public accountants of their formal written statement +delineating all relationships between them and the Company. The Committee +shall, as appropriate, also discuss with the auditor any undisclosed +relationships or non-accounting services rendered to the Company or any of its +affiliates that could impact the objectivity and independence of the +independent public accountants, and take, or recommend that the Board take, +appropriate action to oversee the independence of the independent +accountants. 6 +4. +Evaluate the performance of the independent public +accountants and discharge the independent public accountants when +circumstances warrant. 7 +5. +Review most recent report of the Public Company Accounting +Oversight Board of its examination of the Company’s independent public +accountant. 8 +6. +Ensure that lead audit partner of the independent public +accountant and the audit partner responsible for reviewing the audit are +rotated off the audit at least every five years with a five year cooling off +period. Ensure that all audit partners are rotated off the audit at least +every seven years with a two year cooling off period. 9 +A-2 +Table of Contents +7. +Pre-approve all audit and non-audit services and their +accompanying fees to be performed by the Company’s independent public +accountants. The Committee may delegate this function to the Chairman of the +Committee between meetings, with an obligation to report any actions to the +Committee. 10 +The auditors may not perform: +• +bookkeeping, +• +financial information and systems design and implementation, +• +appraisal or valuation services or contribution-in-kind reports, +• +fairness opinions, +• +actuarial services, +• +internal audit outsourcing services, +• +management functions or human resources, +• +brokers or dealer, investment advisor or +investment banking services, +• +legal services and expert services +unrelated to the audit, and +• +any other service that the Accounting +Oversight Board determines by regulation is +impermissible. 11 +8. +Ensure disclosure in the Company’s Form 10-K filed with the SEC of any +non-audit services approved to be performed by the Company’s independent +public accountants. 12 +9. +Periodically consult with the independent public accountants +out of the presence of management about internal controls, the fullness and +accuracy of the Company’s financial statements, and the adequacy/capability of +financial staff given the business and changes in operations. 13 +10. +Review with the independent public accountants the +coordination of audit work to assure completeness of coverage, reduction of +redundant efforts, and the effective use of audit resources. 14 +11. +Discuss with the independent accountants any major risk +areas, critical accounting policies employed by the Company and any preferred +accounting policies that differ from those being employed by the +Company. 15 +A-3 +Table of Contents +Financial Reporting Processes +12. +Meet with the independent accountants and the appropriate company +financial staff to plan the scope of each audit prior to commencement of each +audit process. 16 +13. +In consultation with the independent public accountants, +review the integrity of the Company’s financial reporting processes, both +internal and external. 17 +14. +Consider the independent accountants’ judgments about the +quality and appropriateness of the Company’s accounting principles as applied +in its financial reporting. 18 +15. +Advise financial management and the independent public +accountants that they are expected to provide a timely analysis of significant +current financial reporting issues and practices. +16. +Consider and approve, if appropriate, major changes to the +Company’s auditing and accounting principles and practices as suggested by the +independent accountants or management as developed by the +Committee. 19 +17. +Continue the process of reporting to the Committee by each of +management and the independent public accountants regarding any significant +judgments made in management’s preparation of the financial statements and the +view of each as to appropriateness of such judgments. 20 +18. +Conduct an inquiry with the CEO and the CFO regarding the +quality of earnings for the period. +19. +Conduct an inquiry of management regarding any significant +risks and exposures to the business and steps to minimize. +20. +At least annually, review a report from the independent +public accountants as to all critical accounting policies and practices, +alternative treatments with financial information within GAAP discussed with +management, ramifications of the use of alternative disclosures, the treatment +preferred by the independent public accounts in each instance, management +letters and other communications. 21 +A-4 +Table of Contents +Process Improvement +21. +Following completion of the annual audit, review separately with each of +management and the independent public accountants any significant difficulties +encountered during the course of the audit, including any restrictions on the +scope of work or access to required information. 22 +22. +Resolve any disagreements between management and the +independent public accountants in connection with the preparation of the +financial statements. 23 +23. +Consider and review with the independent public accountant: +a. +The adequacy of the Company’s internal +controls including computerized information system controls and +security. +b. +Report related findings and recommendations +of the independent public accountant together with management’s +responses. 24 +24. +Review with the independent public accountants and management +the extent to which changes or improvements in financial or accounting +practices, as approved by the Committee, have been implemented. This review +should be conducted at an appropriate time after implementation of changes or +improvements, as decided by the Committee. 25 +25. +Review specifically all repeat audit points and +recommendations not implemented from prior audits. 26 +Ethical and Legal Compliance +26. +Establish, review and update periodically a Code of Ethics, a Corporate +Securities Trading Policy, Foreign Corrupt Practices Act Policy and a +Code of Ethical Conduct for financial managers and ensure that +these items are published to employees. 27 +27. +Review management’s monitoring of the Company’s compliance +with these codes and policies, and review the systems management has in place +to ensure that the Company’s financial statements, reports and other financial +information disseminated to governmental organizations, and the public satisfy +legal requirements. 28 +28. +Establish and maintain procedures for the receipt, retention +and treatment of complaints received by the Company regarding accounting, +internal accounting controls and auditing matters and +A-5 +Table of Contents +for the confidential, anonymous submission by employees and others of +concerns regarding questionable accounting or auditing +matters. 29 +29. +Review activities, organizational structure, and +qualifications of any internal audit efforts. 30 +30. +Review with the Company’s counsel, any legal or regulatory +matter that could have a significant impact on the Company’s financial +statements. 31 +31. +Review and approve all related-party +transactions. 32 +32. +Perform any other activities consistent with this Charter, +the Company’s By-laws and governing law, as the Committee or the Board deems +necessary or appropriate. 33 +33. +Recommend to the Company whether the audited financial +statements should be included in the annual Form 10-K for submission to the +Securities and Exchange Commission. 34 +34. +Prepare a Report of the Audit Committee for transmission to +shareholders through the annual Proxy Statement. 35 +35. +Review the process utilized by management in presenting +certifications as to the financial statements to the Securities and Exchange +Commission. 36 +36. +Review policies and procedures with respect to officers’ +expense accounts and perquisites, including their use of corporate assets and +request from the independent public accountant and review a report as to all +loans or extensions of credit by the Company to its officers. 37 +37. +Determine whether the provision of non-audit services by the +independent accountants is compatible with their independence. 38 +38. +Annually perform a review of the Audit Committee +effectiveness. +1 +NASD Rule 4350(d)(1)(C). Sarbanes-Oxley §301. +2 +NASD Rule 4350(d)(2)(A). Sarbanes-Oxley §301. +3 +NASD Rule 4350(d)(2)(A). Sarbanes-Oxley §407. +4 +NASD Rule 4350(d)(1). +5 +Recommended. +6 +NASD Rule 4350(d)(1)(C). Sarbanes-Oxley §301. Regulation S-K Item 306. Schedule 14A Item 9. +7 +Sarbanes-Oxley §301. +A-6 +Table of Contents +8 +Recommended. +9 +Sarbanes-Oxley §203. +10 +NASD Rule 4350(d)(1)(C). Sarbanes-Oxley §202. +11 +Sarbanes-Oxley §201 +12 +Sarbanes-Oxley §202 +13 +Recommended. +14 +Recommended. +15 +Regulation S-K Item 306. +16 +Recommended. +17 +Recommended. +18 +Recommended. +19 +Recommended. +20 +Recommended. +21 +Sarbanes-Oxley §204. +22 +Recommended. +23 +Sarbanes-Oxley §301. +24 +Recommended. +25 +Recommended. +26 +Recommended. +27 +Recommended. +28 +Recommended. +29 +NASD Rule 4350(d)(1)(C). Sarbanes-Oxley §301. +30 +Recommended. +31 +Recommended. +32 +NASD Rule 4350(h) +33 +Recommended. +34 +Regulation S-K Item 306. +35 +Regulation S-K Item 306. Schedule 14A Item 9. +36 +Recommended. +37 +Recommended. +38 +Schedule 14A Item 9. +A-7 +Table of Contents +o +Mark box +with an X if you have made +changes to your name or address details above. +Annual Meeting Proxy Card +A +Election of Directors +1. +Authority to elect as directors the six nominees listed below. +The Board of Directors recommends a vote FOR the listed nominees. +For +Withhold +For +Withhold +01 — JAMES A. BUZARD +o +o +05 — WILLIAM J. MOTTO +o +o +02 — JOHN A. KRAUETLER +o +o +06 — DAVID C. PHILLIPS +o +o +03 — GARY P. KREIDER +o +o +07 — ROBERT J. READY +o +o +B +Issues +The Board of Directors recommends a vote FOR the following proposal. +For +Against +Abstain +2. +To ratify the appointment of Grant Thornton LLP as +independent public accountants for fiscal 2006. +o +o +o +C +Authorized Signatures — Sign Here — This section must be completed for your instructions to be executed. +NOTE: Please sign exactly as name appears hereon indicating, where proper, official position or representative capacity. In the case of joint holders, you should sign. +Signature 1 — Please keep signature within the box +Signature 2 — Please keep signature within the box +Date (mm/dd/yyyy) +/ +/ +n +1 U P X H H H P P P P 007187 +— +001CD40001 00HPWA +Table of Contents +Proxy — Meridian Bioscience, Inc. +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The +undersigned hereby appoints WILLIAM J. MOTTO and MELISSA A. LUEKE, or either of them, +proxies of the undersigned, each with the power of substitution, to vote cumulatively or otherw all +shares of Common Stock which the undersigned would be entitled to vote on the matters specified on +the reverse side and in their discretion with respect to such other business as may prop come +before the Annual Meeting of Shareholders of Meridian Bioscience, Inc. to be held on January 19, +2006 at 2:00 P.M. Eastern Time at Holiday Inn, 4501 Eastgate Boulevard, Cincinnati, and any +postponement or adjournment of such Annual Meeting. +THIS PROXY WILL BE VOTED AS RECOMMENDED BY THE BOARD OF DIRECTORS UNLESS A CONTRARY CHOICE IS SPECIFIED. +(This proxy is continued and is to be signed on the reverse side) \ No newline at end of file diff --git a/raw/proxies/0000794172/0000950152-05-009893/proxy_rpt.txt b/raw/proxies/0000794172/0000950152-05-009893/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000794172/0000950152-06-010095/proxy.txt b/raw/proxies/0000794172/0000950152-06-010095/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..3b93493809228a87cb658110918a7fa07ae3958e --- /dev/null +++ b/raw/proxies/0000794172/0000950152-06-010095/proxy.txt @@ -0,0 +1,1305 @@ +DEF 14A +1 +l23658adef14a.htm +MERIDIAN BIOSCIENCE, INC. DEF 14A +Meridian Bioscience, Inc. DEF 14A +Table of Contents +SCHEDULE 14A +(Rule 14a-101) +INFORMATION REQUIRED IN THE PROXY STATEMENT +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) +of the Securities Exchange Act of 1934 +(Amendment No. ___) +Filed by the Registrant þ +Filed by a Party other than the Registrant o +Check the appropriate box: +o Preliminary Proxy Statement +o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +þ Definitive Proxy Statement +o Definitive Additional Materials +o Soliciting Material Under Rule 14a-12 +Meridian Bioscience, Inc. +(Name of Registrant as Specified in Its Charter) +(Name of Person(s) Filing Proxy Statement if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +þ +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to +Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and +state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total Fee Paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange +Act Rule 0-11(a)(2) and identify the filing for which the offsetting +fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +MERIDIAN BIOSCIENCE, INC. +3471 River Hills Drive +Cincinnati, Ohio 45244 +www.meridianbioscience.com +Notice of Annual Meeting +and Proxy Statement +Dear Shareholder: +Our Annual Meeting of Shareholders will be held at 2:00 p.m. on January 18, 2007 at the Holiday +Inn, 4501 Eastgate Boulevard, Cincinnati, OH 45245. We hope you will attend. +At the meeting, you will hear a report on our operations and have a chance to meet your directors +and executive officers. +This booklet includes the formal notice of the meeting and the proxy statement. The proxy +statement tells you more about the agenda and procedures for the meeting. It also describes how +the Board operates and gives personal information about our director candidates. +Please complete, sign, date, and return your proxy card promptly in the enclosed envelope. +Sincerely yours, +/s/ William J. Motto +William J. Motto +Chairman of the Board +December 18, 2006 +Table of Contents +NOTICE OF ANNUAL MEETING +OF +SHAREHOLDERS OF MERIDIAN BIOSCIENCE, INC. +Time: +2:00 p.m., Eastern Time +Date: +January 18, 2007 +Place: +Holiday Inn +4501 Eastgate Boulevard +Cincinnati, OH 45245 +Purpose: +• +Elect directors +• +Approve the Meridian Bioscience, Inc. Officers’ Performance Compensation Plan +• +Ratify appointment of Grant Thornton LLP as Meridian’s independent public +accountants for fiscal year 2007 +• +Conduct other business if properly raised +Only shareholders of record on December 1, 2006 may vote at the meeting. The approximate +mailing date of this Proxy Statement and accompanying Proxy Card is December 18, 2006. +Your vote is important. Please complete, sign, date, and return your proxy card promptly in +the enclosed envelope. +/s/ Melissa Lueke +Melissa Lueke +Secretary +December 18, 2006 +TABLE OF CONTENTS +Page +GENERAL INFORMATION +1 +ELECTION OF DIRECTORS +2 +APPROVAL OF THE OFFICERS’ PERFORMANCE COMPENSATION PLAN +3 +RATIFICATION OF APPOINTMENT OF ACCOUNTANTS +6 +CORPORATE GOVERNANCE +7 +REPORT OF THE AUDIT COMMITTEE +9 +REPORT OF THE COMPENSATION COMMITTEE +10 +DIRECTORS AND EXECUTIVE OFFICERS +13 +SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +14 +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +14 +OPTION GRANTS IN LAST FISCAL YEAR +16 +FISCAL 2006 OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES +16 +PERFORMANCE GRAPH +17 +QUESTIONS? +18 +OFFICERS’ PERFORMANCE COMPENSATION PLAN +ANNEX A +Table of Contents +GENERAL INFORMATION +Who may vote +Shareholders of Meridian, as recorded in our stock register on December 1, 2006, may vote at the +meeting. As of that date, Meridian had 26,215,202 shares of Common Stock outstanding. +How to vote +You may vote in person at the meeting or by proxy. We recommend you vote by proxy even if you plan +to attend the meeting. You can always change your vote at the meeting. +How proxies work +Meridian’s Board of Directors is asking for your proxy. Giving us your proxy means you authorize +us to vote your shares at the meeting in the manner you direct. You may vote for all, some or none +of our director candidates. You may also vote for or against the other proposals or abstain from +voting. +If you sign and return the enclosed proxy card but do not specify how to vote, we will vote your +shares in favor of our director candidates, in favor of the Officers’ Performance Compensation Plan +and in favor of the ratification of appointment of Grant Thornton LLP as Meridian’s independent +public accountants for fiscal year 2007. +If any other matters come before the meeting or any adjournment, each proxy will be voted in the +discretion of the individuals named as proxies on the card. +You may receive more than one proxy or voting card depending on how you hold your shares. Shares +registered in your name are covered by one card. If you hold shares through someone else, such as +a stockbroker, you may get material from them asking how you want to vote. +Revoking a proxy +You may revoke your proxy before it is voted by submitting a new proxy with a later date, by voting +in person at the meeting, or by notifying Meridian’s Secretary in writing at the address under +“Questions?” on page 18. +Quorum +In order to carry on the business of the meeting, we must have a quorum. This means at least a +majority of the outstanding shares eligible to vote must be represented at the meeting, either by +proxy or in person. +Votes needed +The six director candidates receiving the most votes will be elected to fill the seats on the +Board. Approval of the Officers’ Performance Compensation Plan and the ratification of appointment +of accountants each require the favorable vote of a majority of the votes cast. Only votes for or +against these proposals count. Abstentions and broker non-votes count for quorum purposes but +-1- +Table of Contents +not for voting purposes. Broker non-votes occur when a broker returns a proxy card but does not +have authority to vote on a particular proposal. +Other Matters +Any other matters considered at the meeting, including adjournment, will require the affirmative +vote of a majority of the votes cast. +ELECTION OF DIRECTORS +(Item 1 on the Proxy Card) +The Nominating Committee of the Board of Directors has nominated for re-election all of the +following current directors: James A. Buzard, John A. Kraeutler, Gary P. Kreider, William J. Motto, +David C. Phillips and Robert J. Ready. +Proxies solicited by the Board will be voted for the election of these nominees. All directors +elected at the Annual Meeting will be elected to hold office until the next annual meeting. In +voting to elect directors, shareholders are entitled to cumulate their votes and to give one +candidate a number of votes equal to the number of directors to be elected multiplied by the number +of shares held by the shareholder, or to distribute their votes on the same principle among as many +candidates as the shareholder sees fit. In order to invoke cumulative voting, notice of cumulative +voting must be given in writing by a shareholder to the President, a Vice President or the +Secretary of Meridian not less than 48 hours prior to the Annual Meeting. The proxies solicited +include discretionary authority to cumulate votes. +Four of our six nominees are not Meridian employees. Only non-employee directors serve on +Meridian’s Audit, Compensation and Nominating committees. All Meridian directors are elected for +one-year terms. Personal information on each of our nominees is given below. +If a director nominee becomes unavailable before the election, your proxy card authorizes us to +vote for a replacement nominee if the Board names one. +The Board recommends you vote FOR +each of the following +candidates: +James A. +Buzard, Ph.D. +Director since 1990 +Age: 79 +James A. Buzard, Ph.D. was Executive +Vice President of Merrell Dow +Pharmaceuticals Inc. from March 1981 +until December 1989. From December +1989 until his retirement in +February 1990, he was Vice President +of Marion Merrell Dow, Inc. He has +been a business consultant since +February 1990. +John A. Kraeutler +Director since 1997 +Age: 58 +John A. Kraeutler has more than 30 +years of experience in the medical +diagnostics industry and joined +Meridian as Executive Vice President +and Chief Operating Officer in +January 1992. In July 1992, Mr. +Kraeutler was named President of +Meridian. Before joining Meridian, +Mr. Kraeutler served as Vice +President, General Manager for a +division of Carter-Wallace, Inc. +Prior to that, he held key marketing +and technical positions with Becton, +Dickinson and Company and Organon, +Inc. +-2- +Table of Contents +Gary P. Kreider, Esq. +Director since 1991 +Age: 68 +Gary P. Kreider serves as Chairman of the +Compensation Committee and Board Secretary. For +over five years Mr. Kreider has been a senior +partner in the Cincinnati law firm of Keating +Muething & Klekamp PLL, the Company’s outside +counsel. His primary practice areas are securities +law, mergers and acquisitions, and general corporate +law, and he has been with Keating Muething & Klekamp +since 1963. Effective October 1, 2005 Mr. Kreider +no longer has a vote or partnership interest in the +firm’s earnings although his affiliation with the +firm continues. Mr. Kreider has been an Adjunct +Professor of Law in securities regulation at the +University of Cincinnati College of Law since 1977 +and is a past Chairman of the Ohio State Bar +Association Corporate Law Committee. Mr. Kreider is +also a Director of LSI Industries Inc. +William J. Motto +Director since 1977 +Age: 65 +William J. Motto has more than 35 years of +experience in the pharmaceutical and diagnostics +products industries, is a founder of Meridian and +has been Chairman of the Board since 1977. Before +forming Meridian, Mr. Motto served in various +capacities for Wampole Laboratories, Inc., Marion +Laboratories, Inc. and Analytab Products, Inc., a +division of American Home Products Corp. +David C. Phillips +Director since 2000 +Age: 68 +David C. Phillips serves as Chairman of the Audit +Committee. Mr. Phillips spent 32 years with Arthur +Andersen LLP. His service with this firm included +several managing partner leadership positions. +After retiring from Arthur Andersen in 1994, Mr. +Phillips became Chief Executive Officer of Downtown +Cincinnati, Inc., which is responsible for economic +revitalization of Downtown Cincinnati. Mr. Phillips +retired from DCI in 1999 to devote full time to +Cincinnati Works, Inc., an organization dedicated to +reducing the number of people living below the +poverty level by assisting them to strive towards +self-sufficiency through work, and his financial +consulting services. Mr. Phillips serves as a +director of Cintas Corporation and Summit Family of +Mutual Funds. +Robert J. Ready +Director since 1986 +Age: 66 +Robert J. Ready serves as Chairman of the Nominating +Committee. Mr. Ready founded LSI Industries Inc., +Cincinnati, Ohio in 1976, which engineers, +manufactures and markets commercial/industrial +lighting and graphics products, and has served as +its President and Chairman of its Board of Directors +since that time. +APPROVAL OF THE OFFICERS’ PERFORMANCE COMPENSATION PLAN +(Item 2 on the Proxy Card) +Shareholders are being asked to approve Meridian’s Officers’ Performance Compensation Plan. A copy +of this Plan is attached to these proxy materials as Annex A (the “Plan”). This Plan has been in use +for numerous years, in substantially the same form, as a mechanism for stimulating and rewarding +the achievement of aggressive business goals. Management believes the Plan is an integral part of +the Company’s success as compensation earned under the Plan is based on achieving aggressively +targeted levels of net earnings and individual performance. +This Plan is being presented for shareholder approval so that the compensation expense for awards +under the Plan will be tax deductible for the Company and not subject to limitations on +-3- +Table of Contents +deductibility as outlined under Section 162(m) of the Internal Revenue Code of 1986, as amended. +Under the Plan, the Company may grant cash bonus awards to the chief executive officer, the four +other most highly compensated officers, and certain other operating officers of the Company, based on the +satisfaction of pre-established performance goals set forth in the Plan. +The Plan is designed to take into account Section 162(m) of the Internal Revenue Code which +generally denies corporate tax deductions for annual compensation exceeding $1,000,000 paid to the +chief executive officer and the four other most highly compensated officers of a public company as +of the end of the Company’s taxable year (“Covered Employees”). Certain types of compensation, +including performance-based compensation, are excluded from this deduction limit. In an effort to +ensure that compensation payable under the Plan to Covered Employees will qualify as +performance-based compensation, the material terms of the performance goals in the Plan must be +disclosed to and approved-by shareholders before the compensation is paid. The material terms of +the Plan and the performance measures described below are being submitted by the Company for +approval by the shareholders at the Annual Meeting. Upon shareholder approval, the Company +believes that compensation payable pursuant to the Plan will be deductible for federal income tax +purposes under most circumstances, but there can be no assurance in this regard. Moreover, under +certain circumstances such as death, disability and retirement, compensation not qualified under +Section 162(m) of the Internal Revenue Code may be payable. By approving the Plan, the +shareholders will be approving, among other things, the performance measures (other than the +personal achievement measures), eligibility requirements and annual incentive award limits +contained therein. +The Plan . The Compensation Committee of the Board of Directors has approved the Plan. The Company +proposes as a business criterion the measure of annual net earnings. The following description of +the material terms of the Plan is qualified in its entirety by reference to the complete text set +forth in Annex A. +Administration . Executive officers and operating officers of the Company are entitled to +participate in the Plan. Employees hired after March 31 of each fiscal year may not be eligible to +receive a bonus for the fiscal year ending September 30. Employees hired after October 1 of each +fiscal year but before March 31 will be eligible for a pro-rated bonus for the fiscal year ending +September 30. Employees who terminate employment before September 30 are normally ineligible. +Eligible employees must be on the Company’s payroll on the date the bonus checks are distributed. +The Company estimates that as of the date hereof, approximately 9 employees are eligible to +participate in the Plan. +The Plan provides for the payment of cash bonuses as a percentage of base salary at designated net +earnings levels. Eligible employees shall receive a bonus equal to a percentage of the employee’s +base salary depending on the level of Company net earnings achieved for the fiscal year. The net +earnings targets shall be established by the Compensation Committee of the Board of Directors +within 90 days after the start of each fiscal year. Base salaries for each eligible employee must +be established and fixed for the fiscal year at the time that the Company earnings targets are +established by the Compensation Committee. The earnings objectives exclude the positive and +negative effects associated with extraordinary developments as disclosed in the Company’s Form +10-K. The computation also includes a personal achievement multiplier. The multiplier for the +Chairman and Chief Executive Officer will be determined by the +-4- +Table of Contents +Compensation Committee. +Shareholders are not being asked to approve any personal achievement measures. However, +shareholder approval of the measure of annual net earnings shall be sufficient for the usage of +such measure for awards in future fiscal years. +Achievement and Discontinuance . The Board of Directors or the Compensation Committee has the right +to modify, suspend, or terminate the Plan at any time, but such right shall not include the +discretion to increase compensation after performance targets are established and the period of +service has commenced in violation of Section 162(m). +Federal Income Tax Consequences . The Company believes that under present law the following are the +federal income tax consequences generally arising with respect to awards granted under the Plan. +This summary is for shareholder informative purposes and is not intended to provide tax advice to +Plan participants. +Plan participants must generally recognize ordinary income equal to the cash value of awards +received. Subject to Section 162(m), the Company will be entitled to a deduction for the same +amount. +The foregoing provides only a general description of the application of federal income tax laws to +certain types of awards under the Plan. The summary does not address the effects of foreign, state +and local tax laws. Because of the complexities of the tax laws, Plan participants are encouraged +to consult a tax advisor as to their individual circumstances. +New Plan Benefits . Because incentive awards are made based on the achievement of future net +earnings targets and personal achievement ratings, it cannot be determined at this time what +benefits or amounts, if any, will be paid or allocated to any person or group of persons under the +Plan. Amounts which have been paid to certain executive officers under the plan (which was +substantially the same as the Plan described above) for the last three fiscal years are reported in +the Summary Compensation Table on page 15. +-5- +Table of Contents +PLAN BENEFITS +OFFICERS’ PERFORMANCE COMPENSATION PLAN +Name and Position +Dollar Value +William J. Motto +$ +490,875 +Chairman of the Board, +Chief Executive Officer +John A. Kraeutler +388,500 +President, +Chief Operating Officer +Antonio A. Interno +291,748 +Senior Vice President, President and +Managing Director Meridian +Bioscience Europe +Richard L. Eberly +73,500 +Executive Vice +President, President +Meridian Life Science +Lawrence J. Baldini +215,250 +Executive Vice +President, Operations and +Information Systems +Entire Executive Group +$ +1,981,104 +The above represents the amounts earned and paid for 2006 under the plan in place which was +substantially the same as the Plan described above. The amounts to be paid for 2007 are +undeterminable. +The Board of Directors of the Company unanimously recommends that you vote “FOR” the approval of +the Meridian Officers’ Performance Compensation Plan and annual net earnings as the measure used to +determine the amount of cash bonus payments to be awarded under the Plan. +RATIFICATION OF APPOINTMENT OF ACCOUNTANTS +(Item 3 on the Proxy Card) +Although not required, the Board is seeking shareholder ratification of the Audit Committee’s +selection of Grant Thornton LLP as Meridian’s independent registered public accounting firm for the +2007 fiscal year. The affirmative vote of a majority of shares voting at the meeting is required +for ratification. If ratification is not obtained, the Audit Committee intends to continue the +employment of Grant Thornton at least through fiscal 2007. Representatives of Grant Thornton are +expected to be present at the Shareholders’ Meeting and will be given an opportunity to make a +statement, if they so desire, and to respond to appropriate questions that may be asked by +shareholders. +-6- +Table of Contents +Principal Accounting Firm Fees : +Aggregate fees billed to Meridian by Grant Thornton LLP for fiscal years 2006 and 2005 are listed +below: +2006 +2005 +Audit Fees +$ +295,000 +$ +325,000 +Audit Related Fees +19,428 +80,554 +All Other Fees +16,160 +8,355 +$ +330,588 +$ +413,909 +Audit Fees. Audit fees are the fees billed for professional services rendered by Meridian’s +independent registered public accounting firm for their audit of Meridian’s consolidated annual +financial statements for the years ended September 30, 2006 and 2005, respectively, and reviews of +the unaudited quarterly consolidated financial statements contained in the reports on Form 10-Q +filed by Meridian during those years and on reporting on Meridian’s internal control during those +years. +Audit-Related Fees . Audit-related fees are the fees billed for assurance and related services that +are reasonably related to the performance of the audit or review of Meridian’s financial +statements. In 2005, such fees primarily related to services for the OEM Concepts, Inc. acquisition +and common share offering. +All Other Fees. All other fees are the fees billed for services other than those in the categories +previously described, primarily for the audit of the Company’s benefit plan. +CORPORATE GOVERNANCE +Meridian is an Ohio corporation and, therefore, is governed by the corporate laws of Ohio. Since +its Common Shares are publicly traded on Nasdaq and it files reports with the Securities and +Exchange Commission, it is also subject to NASD rules as well as various provisions of federal +securities laws. +Governance of the corporation is placed in the hands of the directors who, in turn, elect officers +to manage the business operations. The Board oversees the management of Meridian on your behalf. +The following directors meet the NASD requirements for independence: David C. Phillips, James A. +Buzard, Robert J. Ready and Gary P. Kreider. The Board reviews Meridian’s long-term strategic +plans and exercises direct decision making authority in all major decisions, such as acquisitions, +the declaration of dividends, major capital expenditures and the establishment of company policies. +During fiscal 2006, the Board of Directors met on four occasions and took action in writing on one +occasion. +-7- +Table of Contents +Meridian expects all directors to attend shareholders’ meetings. Each director attended the 2006 +Annual Shareholders’ Meeting, all meetings of the Board and all meetings of Committees of which he +was a member. +Shareholders may communicate with the full Board or individual directors on matters concerning +Meridian by mail or through our website in each case to the attention of the Secretary. +Non-employee directors of Meridian receive $20,000 per year for serving as a director and as +members of committees of the Board. They also receive $1,500 for each meeting of the Board and +$1,000 for each committee meeting attended. They receive $750 for each Board meeting and $500 for +each committee meeting held by telephone. The Audit Committee Chairman receives an additional +$8,000 annually and +the Compensation Committee Chairman receives an additional $3,000 annually. The Board Secretary +receives an additional $1,000 for serving at each meeting of a committee of which he is not a +member. Each non-employee director is also granted a non-qualified option to purchase 3,476 shares +of Common Stock at the time of election or re-election to the Board of Directors, with the exercise +price being the closing sale price on Nasdaq reported on the date of grant. Directors who are +employees of Meridian are not separately compensated for serving as directors. +At its meeting on July 24, 2003, the Board adopted the Audit Committee Charter and a Code of Ethics +for Meridian’s officers, directors and employees. On November 10, 2005, the Board approved certain +amendments for the Audit Committee Charter. The amended Audit Committee Charter was attached to +the proxy statement for Meridian’s 2006 Annual Shareholders’ Meeting. The Code of Ethics will be +sent without charge to any shareholder who sends a request to Meridian’s Secretary. +The independent directors plan to meet at least two times during fiscal 2007 without the presence +of management directors. The independent members of the Board had one such meeting in fiscal 2006. +The directors have organized themselves into the committees described below. Each of these +committees is composed entirely of non-employee directors who meet the relevant independence +requirements established by Nasdaq and the Sarbanes-Oxley Act that apply to their particular +assignments. Meridian does not have an Executive Committee of its Board of Directors. +The Audit Committee is composed of David C. Phillips, Chairman, James A. Buzard and Robert J. +Ready. It met seven times last year. Each member of the Audit Committee is independent as defined +by the Nasdaq listing standards and the Securities Exchange Act of 1934. Each member is able to +read and understand fundamental financial statements. David C. Phillips has been designated as the +Audit Committee financial expert as that term is defined in SEC regulations. +The Committee oversees the accounting and financial reporting processes of Meridian and the audits +of its financial statements by its independent registered public accounting firm. The Committee is +solely responsible for the appointment, compensation, retention and oversight of Meridian’s +independent registered public accounting firm. The Audit Committee also evaluates information +received from Meridian’s independent registered public accounting firm and management to determine +whether the independent registered public accounting firm is +-8- +Table of Contents +independent of management. The +independent registered public accounting firm reports directly to the Audit Committee. +In addition, the Audit Committee has established procedures for the receipt, retention and +treatment of complaints received by Meridian concerning accounting, internal accounting controls or +auditing matters and has established procedures for the confidential and anonymous submission by +employees of any concerns they may have regarding questionable accounting or auditing matters. +The Audit Committee, or its Chairman, approves all audit and non-audit services performed for +Meridian by its independent registered public accounting firm before those services are commenced. +The Chairman reports to the full Committee at each of its meetings regarding pre-approvals he made +since the prior meeting and the Committee approves what he has done between meetings. For these +purposes, the Committee or its Chairman is provided with information as to the nature, extent and +purpose of each proposed service, as well as the approximate timeframe and proposed cost +arrangements for that service. +The Committee has submitted the following report to shareholders. +REPORT OF THE AUDIT COMMITTEE +On April 19, 2006, the Committee met with representatives of Grant Thornton and Meridian’s internal +accountants and reviewed with them the proposed 2006 Audit Plan, areas warranting particular +concentration on the audit and the effects of new accounting pronouncements. The Grant Thornton +representatives reviewed with the Committee written disclosures required by the Independence +Standards Board Standard No. 1 regarding independence of the registered public accounting firms and +presented a letter regarding that matter to the Committee. The Committee discussed with Grant +Thornton its independence. +At its meeting on November 14, 2006, the Committee reviewed with management, Grant Thornton and +Meridian’s accounting officers the results of the audit for fiscal 2006, including the audited +financial statements. The Committee reviewed the requirements of its Charter previously adopted +and the reports that were required to be disclosed to the Committee. The Committee discussed with +Grant Thornton the matters required to be discussed by Statement on Auditing Standards No. 61. +The Committee met on November 27, 2006 to review and discuss a draft of the Form 10-K, including +the audited financial statements therein. Based on their review the Committee recommended to the +Board of Directors that the audited financial statements of Meridian be included in its Annual +Report on Form 10-K for the year ended September 30, 2006 for filing with the Securities and +Exchange Commission. +During its meetings, the Committee reviewed procedures related to the receipt, retention and +treatment of any complaints concerning accounting, internal accounting controls or auditing +matters. Also during its meetings, the Chairman of the Audit Committee reported to the full +Committee the independent accountants’ fees that had been preapproved and the Committee approved +such fees. Certain fees were preapproved by the full Committee. The Committee also +-9- +Table of Contents +reviewed the +requirements of and Meridian’s on-going compliance with Section 404 of the Sarbanes-Oxley Act. +Respectfully submitted, +Audit Committee +David C. Phillips (Chairman) +Robert J. Ready +James A. Buzard +The Compensation Committee is responsible for establishing compensation for executive officers. +This includes establishing salary levels and bonus plans, making bonus awards and otherwise dealing +in all matters concerning compensation of the executive officers and awarding stock options for all +employees. Meridian’s Compensation Committee is composed of Messrs. Kreider (Chairman), Buzard, +Phillips and Ready. +In determining the compensation of the Chief Executive Officer, the Committee’s deliberations and +voting take place without his presence. Mr. Kreider recused himself from voting on compensation +issues as required to comply with the performance-based compensation exception to Section 162(m) of +the Internal Revenue Code. +The Compensation Committee met two times and did not take any actions in writing during fiscal +2006. +The report of the Compensation Committee follows. +REPORT OF THE COMPENSATION COMMITTEE +Salaries are set on a calendar year basis and therefore salaries paid in the first three months of +each fiscal year beginning October 1 are set in the prior year. A significant portion of +compensation for fiscal 2006 was in the form of performance bonuses, as is noted in the Summary +Compensation Table. Compensation for executive officers for fiscal 2006 was set by the Committee +on November 10, 2005. In preparation for the meeting, the members reviewed charts showing the +compensation paid and earned for 2005 along with management recommendations for 2006. Management +suggested that salaries increase by approximately 5% for each person, with the exception of the +President and Chief Operating Officer, for which there was a 10% recommendation. The materials +previously supplied also discussed the potential application of the compensation deduction +limitations of Section 162(m) of the Internal Revenue Code and whether it was likely that those +limitations would apply to Meridian. The Committee had also been presented with a survey showing +salary ranges of various levels of executives in public companies in the industry and in the +Greater Cincinnati area. After discussion, the Committee adopted management’s recommendations on +salary increases. The Committee next considered Mr. Motto’s performance, as to which it had no +recommendations. The Committee determined that his compensation should be increased 10% because of +his efforts in leading the Company through an outstanding year in fiscal 2005, his work on the +Company’s equity offering in fiscal 2005 and the acquisition of OEM Concepts, Inc. These salaries +are reflected in the Summary Compensation Table. +-10- +Table of Contents +At its November 10, 2005 meeting, the Board also considered management’s recommendation for an +Officers’ Performance Compensation Plan (2006 Plan). The 2006 Plan text had previously been sent +to the Committee members. The 2006 Plan provided for the granting of bonuses as a percent of +compensation if fiscal 2006 earnings reached at least $16,100,000, which the Committee believed was +a meaningful increase from the $12,565,000 earned in fiscal 2005. The 2006 Plan provided for +several steps of bonus awards if earnings increased beyond the initial level and the application of +a personal achievement multiplier as recommended by management. The 2006 Plan was implemented and +the bonuses awarded are reflected in the Summary Compensation Table. +At that meeting the Committee also awarded options to purchase 10,500 shares of Common Stock at an +exercise price based on the current market value. Those options were exercisable for a period of +ten years, but were subject to forfeiture if the earnings level in the Company’s Performance +Compensation Plan of $16,950,000 was not reached. Once the earnings level was reached, the options +would vest over three years from that date. Since net earnings of $16,950,000 was reached, those +options are now in effect and are reflected in the option tables presented in this proxy statement. +The Committee met on November 15, 2006 to set compensation for 2007. No members of management +participated in this meeting and the only persons present were the Committee members. The +Committee reviewed the compensation programs of the Company and the Company’s philosophy in setting +performance goals as the most important part of its overall compensation program. The Committee +also had available a report submitted by the Chairman, as well as material supplied by the Company, +which showed total compensation received by all executive officers from all sources in fiscal 2006 +and recommendations for 2007. +The Committee reviewed bonus awards made pursuant to the 2006 Plan previously approved by the +Board. The Committee noted from financial materials presented that net earnings for fiscal 2006 +exceeded the highest level in the performance plan and then reviewed the personal multiplier +element of the bonus award as recommended by management. The Committee made several changes to the +multipliers, which increased the amount of bonus paid. The Committee received no recommendations +as to the multiplier for the Chairman and CEO, but set that at the highest level being paid to +several other officers based on his leadership of the Company in its outstanding year in fiscal +2006. +The Committee also discussed salaries and allowances for auto and professional fees for 2007. The +Committee reviewed management’s recommendations calling for salary increases ranging from a high of +17% to a low of 3% for the persons identified in the Summary Compensation Table and auto and +professional allowances at generally the same level as in fiscal 2006. The Committee followed +these recommendations. The Committee received no recommendation as to the Chairman and CEO. The +Committee set his salary at an increase of 8%, which the Committee believed was appropriate based +on his leadership of the Company in fiscal 2006. +At the same meeting, the Committee established an Officers’ Performance Compensation Plan (the +Plan) for fiscal 2007. The Plan follows the format of similar plans that have been in place for +numerous years, with bonuses based upon the achievement of net earnings levels. The Plan includes +six levels of net earnings targets. For fiscal 2007, the minimum net earnings level was set at a +level that represents 22% growth above fiscal 2006 actual net earnings. In addition to the +-11- +Table of Contents +net earnings test, the bonuses are to be based on ratings of personal achievement, which are then +applied to any bonuses earned. Depending on net earnings levels achieved and the application of +personal achievement ratings, cash bonuses available to each individual covered by the Plan could +range generally from 5% to 120% of the individual’s base salary. Options were also awarded to each +executive officer to purchase 10,500 shares of common stock at a price of $24.83 per share, +pursuant to the 2004 Equity Compensation Plan. These options will become void if net earnings for +fiscal 2007 are less than $23,600,000. However, if that level is reached, the options will be +exercisable for a period of ten years and vest over a three year period commencing with the +announcement of fiscal 2007 results. The earnings test for both the bonus and option plans +excludes positive and negative effects associated with extraordinary developments as defined in the +Plan, including adjustments for acquisitions and other matters. +The Committee believes that its plans will ensure that if the executive officers receive meaningful +bonuses and the options granted in November 2006 vest, it will be because their efforts, +individually and as a team, will have enabled Meridian to achieve significant increases in net +earnings for the benefit of all shareholders. +Respectfully submitted, +Compensation Committee +Gary P. Kreider (Chairman) +Robert J. Ready +James A. Buzard +David C. Phillips +The Nominating Committee identifies qualified nominees for the Board, determines who will be +nominated by the Company for election to the board and recommends to the full board any changes in +the size of the Board. The Nominating Committee consists of Robert J. Ready, Chairman, James A. +Buzard and David C. Phillips. +The Board of Directors has established a Charter for the Nominating Committee, a copy of which was +attached as Appendix B to the proxy statement for Meridian’s 2005 Annual Shareholders’ Meeting. +In nominating directors, the Nominating Committee takes into account, among other factors which it +may deem appropriate, the judgments, skill, diversity, business experience, and the needs of the +Board as its function relates to the business of the Company. The Committee considers candidates +for nomination from a variety of sources including recommendations of shareholders. Shareholders +desiring to submit recommendations for nominations by the Committee should direct them to the +Chairman in care of the Company at its address shown on the cover page of this proxy statement. +The Nominating Committee met one time last year. On November 14, 2006 the Committee considered and +nominated the current directors for re-election. +-12- +Table of Contents +DIRECTORS AND EXECUTIVE OFFICERS +This table lists the executive officers and directors of Meridian and shows how much common stock +each owned on December 1, 2006. +Common Stock +Beneficially Owned +Name +Position +Amount 1 +Percentage +William J. Motto +Chairman of the +Board of Directors, +Chief Executive +Officer +523,125 +2.0 +% +John A. Kraeutler +President, Chief +Operating Officer +and Director +328,227 +1.2 +% +Antonio A. Interno 2 +Senior Vice +President, +President and +Managing Director +of Meridian +Bioscience Europe +157,715 +* +Richard L. Eberly 3 +Executive Vice +President, +President Meridian +Life Science +7,000 +* +Lawrence J. Baldini 4 +Executive Vice +President, +Operations and +Information Systems +33,000 +* +Kenneth J. Kozak 5 +Vice President, +Research and +Development +51,000 +* +Melissa A. Lueke 6 +Vice President, +Chief Financial +Officer and +Secretary +78,885 +* +Susan A. Rolih 7 +Vice President, +Regulatory Affairs +& Quality Assurance +40,500 +* +Todd W. Motto 8 +Vice President, +Sales and Marketing +603,198 +2.3 +% +James A. Buzard, Ph.D 9, 10 +Director +48,951 +* +Gary P. Kreider 10, 11 +Director +51,684 +* +Robert J. Ready 9, 10 +Director +51,407 +* +David C. Phillips 9, 10 +Director +21,496 +* +All Executive Officers and Directors +as a Group +1,996,188 +7.5 +% +1 +Includes options exercisable within 60 days from Mr. William Motto of 48,000 shares, +Mr. Kraeutler of 190,215 shares, Mr. Eberly of 7,000 shares, Mr. Kozak of 48,000 shares, Ms. Lueke +of 19,875 shares, Ms. Rolih of 29,250 shares, Mr. Baldini of 7,000 shares, Mr. Todd Motto of 14,550 +shares, Mr. Buzard of 34,760 shares, Mr. Kreider of 29,308 shares, Mr. Ready of 34,760 shares and +Mr. Phillips of 3,476 shares. +2 +Antonio A. Interno was appointed Vice President in August 1991, appointed Senior Vice +President in September 1997, and appointed President, Managing Director of Meridian Bioscience +Europe in October 2003. He has been Managing Director of Meridian’s European subsidiaries, +Meridian Bioscience Europe since February 1990. Age: 56 +3 +Richard L. Eberly was appointed Vice President of Sales and Marketing on January 10, +1997, appointed Executive Vice President in May 2000, appointed Executive Vice President, General +Manager of Meridian Life Science in February 2003 and appointed Executive Vice President and +President Meridian Life Science in October 2005. He has over 18 years of experience in the medical +diagnostic industry and joined Meridian in January 1995. Prior to his +-13- +Table of Contents +appointment to Vice President of Sales and Marketing, Mr. Eberly served as the Director of Sales +for Meridian. Before joining Meridian, he held key sales and marketing positions at Abbott +Diagnostics. Age: 45 +4 +Lawrence J. Baldini was appointed Vice President of Operations on April 3, 2001 and +appointed Executive Vice President Operations and Information Systems in October 2005. Before +joining Meridian, Mr. Baldini held various operations management positions with Instrumentation +Laboratories and Fisher Scientific. Age: 47 +5 +Kenneth J. Kozak joined Meridian in October 1987 and was appointed Vice President, +Research and Development, on May 17, 1999. Prior to this appointment, Mr. Kozak served as Director +of Product Development for Meridian. Before joining Meridian, Mr. Kozak held a variety of positions +at the University of Cincinnati College of Medicine. Age: 52 +6 +Melissa A. Lueke was appointed Vice President, Chief Financial Officer and Secretary +on January 23, 2001. Prior to her appointment, Ms. Lueke served as Meridian’s Controller since +March 2000 and Acting Secretary from July 20, 2000 to January 23, 2001. Before joining Meridian, +Ms. Lueke was employed by Arthur Andersen LLP from June 1985 to January 1999, most recently as a +Senior Audit Manager. Age: 43 +7 +Susan A. Rolih was appointed Vice President of Regulatory Affairs and Quality +Assurance on May 29, 2001. Before joining Meridian, Ms. Rolih held various regulatory and quality +positions with Immucor, Inc. Age: 57 +8 +Todd W. Motto was appointed Vice President Sales and Marketing on October 3, 2005. +Prior to this, Mr. Motto served in a number of different sales and marketing positions for +Meridian, beginning in 1993. Most recently, he served as Meridian’s Director of Sales and +Marketing, Meridian Bioscience Europe for the last five years. Age: 40 +9 +Audit Committee Member. +10 +Compensation Committee Member. +11 +Includes 217 shares held by his wife, 1,500 shares held as custodian for his minor +child and 7,217 shares held by trusts of which Mr. Kreider is trustee and a beneficiary. +* +Less than one percent. +SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Section 16 of the Securities Exchange Act of 1934 requires Meridian’s executive officers, +directors and persons who own more than ten percent of a registered class of Meridian’s equity +securities to file reports of ownership and changes in ownership with the Securities and Exchange +Commission. Based on a review of the copies of such forms received by it, Meridian believes that +during the last fiscal year, all of its executive officers, directors and ten percent stockholders +complied with the Section 16 reporting requirements except the following: the company filed a Form +4 for Mr. Interno on May 18, 2006 reflecting sales of 25,800 shares executed on April 26, 2006 and +24,200 shares executed on May 4, 2006. +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +Gary P. Kreider, who is Chairman of the Compensation Committee, is a senior partner of Keating +Muething & Klekamp PLL, Cincinnati, Ohio, a law firm that provided legal services to Meridian in +fiscal 2006. +-14- +Table of Contents +SUMMARY COMPENSATION TABLE +Annual Compensation +Securities +Underlying +All Other +Name and Principal Position +Year +Salary +Bonus +Options +Compensation +William J. Motto 1 +2006 +$ +456,155 +$ +490,875 +10,500 +$ +136,811 +Chairman of the Board of +Directors, +2005 +422,168 +510,213 +10,500 +131,900 +Chief Executive Officer +2004 +409,615 +388,125 +10,500 +56,723 +John A. Kraeutler 2 +2006 +$ +360,573 +$ +388,500 +10,500 +$ +38,054 +President, Chief Operating Officer +2005 +328,123 +401,760 +10,500 +31,114 +2004 +306,308 +290,625 +10,500 +30,819 +Antonio A. Interno 3 +2006 +$ +307,192 +$ +291,748 +10,500 +$ +30,588 +Senior Vice President, Managing +2005 +308,011 +275,447 +10,500 +30,967 +Director MDE +2004 +277,717 +178,593 +10,500 +38,161 +Richard L. Eberly 4 +2006 +$ +244,598 +$ +73,500 +10,500 +$ +26,101 +Executive Vice President, Sales, +2005 +219,473 +199,341 +10,500 +24,510 +Marketing and Operations +2004 +211,923 +167,187 +10,500 +26,058 +Lawrence J. Baldini 5 +2006 +$ +204,385 +$ +215,250 +10,500 +$ +18,985 +Vice President, Chief Financial +2005 +166,260 +153,389 +10,500 +16,550 +Officer and Secretary +2004 +153,106 +145,254 +10,500 +16,137 +1 +“All Other Compensation” for Mr. Motto includes (a) car allowances of $18,861, +$20,000 and $19,584 in 2006, 2005 and 2004, respectively, (b) amounts accrued under Meridian’s +Savings and Investment Plan and (c) professional allowances of $50,000, $45,000 and $25,000 in +2006, 2005 and 2004, respectively. In the case of a disability, Meridian is obligated to pay +Mr. Motto 60% of his total annual salary and bonus for a period of up to 60 months. In the case +of death, Meridian is obligated to pay to Mr. Motto’s designated beneficiaries up to $1 million. +These benefits are to be reduced by the gross amount of any insurance payments made to Mr. +Motto under any insurance policy or program maintained by Meridian. Todd Motto, the adult son +of William J. Motto, is Vice President, Sales and Marketing. Todd Motto received approximately +$326,475 in compensation for fiscal 2006. +2 +“All Other Compensation” for Mr. Kraeutler includes (a) car allowances of +$17,064, $12,280, and $13,479 in 2006, 2005 and 2004, respectively, (b) amounts accrued under +Meridian’s Savings and Investment Plan of $12,600, $11,550, and $12,339 in 2006, 2005 and 2004, +respectively, and (c) professional allowances. Mr. Kraeutler and Meridian are parties to an +employment agreement dated February 15, 2001 which sets forth compensation, non-competition, +benefit and severance provisions and provides for a payment equal to three times Mr. Kraeutler’s +base salary (plus any salary earned but not paid) upon the occurrence of certain events, +including a change in control of Meridian. The agreement was effective for a period of 36 +months commencing February 15, 2001, automatically extending until either party terminates the +agreement. In the case of disability, Meridian is obligated to pay Mr. Kraeutler 100% of his +base and performance compensation, averaged from the preceding fiscal years, until age 65. +3 +“All Other Compensation” for Mr. Interno includes (a) car allowances of +$24,588, $25,409 and $32,161 in 2006, 2005 and 2004, respectively, and (b) retirement +contributions. Mr. Interno’s salary was € 249,870, € 241,684, and € 231,750 in 2006, 2005, and +2004. Mr. Interno’s bonus was € 227,651, € 216,810, and € 146,875 in 2006, 2005, and 2004. The +U.S. dollar compensation amounts include fluctuations in the exchange rates between the U.S. +dollar and the Euro. +-15- +Table of Contents +4 +“All Other Compensation” for Mr. Eberly includes (a) car allowances of +$12,001, $12,000, and $14,003 in 2006, 2005 and 2004, respectively, (b) amounts accrued under +Meridian’s Savings and Investment Plan of $12,600, $11,550, and $12,055 in 2006, 2005 and 2004, +respectively, and (c) professional allowances. +5 +“All Other Compensation” for Mr. Baldini includes (a) car allowances of +$6,000, $5,000 and $5,000 in 2006, 2005 and 2004, respectively (b) amounts accrued under +Meridian’s Savings and Investment Plan of $12,600, $11,550, and $10,837 in 2006, 2005 and 2004, +respectively, and (c) professional allowances. +OPTION GRANTS IN LAST FISCAL YEAR +Potential Realized Value +at Assumed Annual Rates +of Price Appreciation for +Option Term +Number of +Securities +% of Total Options +Exercise +Underlying +Granted to +Price +Options +Employees in +($/Per +Expiration +Names +Granted +Fiscal 2006 +Share) +Date +5% +10% +William J. Motto +10,500 +5 +% +$ +21.01 +11/10/2015 +$ +359,342 +$ +572,193 +John A. Kraeutler +10,500 +5 +% +$ +21.01 +11/10/2015 +$ +359,342 +$ +572,193 +Antonio A. Interno +10,500 +5 +% +$ +21.01 +11/10/2015 +$ +359,342 +$ +572,193 +Richard L. Eberly +10,500 +5 +% +$ +21.01 +11/10/2015 +$ +359,342 +$ +572,193 +Lawrence J. Baldini +10,500 +5 +% +$ +21.01 +11/10/2015 +$ +359,342 +$ +572,193 +FISCAL 2006 OPTION EXERCISES +AND FISCAL YEAR-END OPTION VALUES +Number of Securities +Value of Unexercised In- +Underlying Unexercised +the-Money Options at +Options at September 30, +September 30, 2006 +2006 +Shares +Acquired on +Value +Name +Exercise +Realized +Exercisable/Unexercisable +Exercisable/Unexercisable +William J. Motto +37,125 +$ +584,834 +48,000 / 96,375 +$ +871,738 / $1,708,752 +John A. Kraeutler +36,000 +493,884 +190,215 / 103,500 +3,391,392 / 1,853,931 +Antonio A. Interno +3,500 +42,291 +0 / 36,000 +0 / 478,551 +Richard L. Eberly +3,500 +51,741 +7,000 / 36,000 +102,596 / 478,551 +Lawrence J. Baldini +3,500 +54,996 +7,000 / 36,000 +102,596 / 478,551 +-16- +Table of Contents +PERFORMANCE GRAPH +The following graph shows the yearly percentage change in Meridian’s cumulative total +shareholder return on its Common Stock as measured by dividing the sum of (A) the cumulative amount +of dividends, assuming dividend reinvestment during the periods presented and (B) the difference +between Meridian’s share price at the end and the beginning of the periods presented; by the share +price at the beginning of the periods presented with the Wilshire 5000 Equity Index and a Peer +Group Index. The Old Peer Group consists of Biomerica, Inc., Biosite, Inc., Idexx Laboratories +Corp., Inverness Medical Innovations Inc., Neogen Corp., Orasure Technologies Inc., Quidel Corp., +Strategic Diagnostics Inc. and Trinity Biotech Plc. The New Peer Group consists of Biomerica, +Inc., Biosite, Inc., Idexx Laboratories Corp., Inverness Medical Innovations, Invitrogen Corp., +Neogen Corp., Orasure Technologies Inc., Quidel Corp., Stratagene Corp., Strategic Diagnostics Inc. +and Trinity Biotech Plc. The Old Peer Group is different from the New Peer Group because of +acquisitions of Meridian’s peers made by other companies during 2006. +-17- +Table of Contents +SHAREHOLDER PROPOSALS FOR NEXT YEAR +The deadline for shareholder proposals to be included in the Proxy Statement for next year’s +meeting is August 15, 2007. +The form of Proxy for this meeting grants authority to the designated proxies to vote in their +discretion on any matters that come before the meeting except those set forth in Meridian’s Proxy +Statement and except for matters as to which adequate notice is received. In order for a notice to +be deemed adequate for the 2007 Annual Shareholders’ Meeting, it must be received prior to November +5, 2007. If there is a change in the anticipated date of next year’s annual meeting or these +deadlines by more than 30 days, we will notify you of this change through our Form 10-Q filings. +Meridian’s Code of Regulations provides that only persons nominated by an officer, director or +in writing by a shareholder at least five days prior to the meeting at which directors are to be +selected shall be eligible for election. +QUESTIONS? +If you have questions or need more information about the annual meeting, write to: +Melissa Lueke, Vice President, Chief Financial Officer and Secretary +Meridian Bioscience, Inc. +3471 River Hills Drive +Cincinnati, Ohio 45244 +or call us at (513) 271-3700. +For information about your record holdings call the Computershare Shareholder Services at (888) +294-8217. +-18- +Table of Contents +ANNEX A +MERIDIAN BIOSCIENCE, INC. +OFFICERS’ PERFORMANCE COMPENSATION PLAN +I. PURPOSE +The purpose of this Plan is to define a mechanism for stimulating and rewarding the +achievement of aggressive business goals, as agreed to by the Board of Directors. +II. SCOPE +This Plan includes operating officers of the Company. +III. GOALS +1. To provide an objective means of stimulating and rewarding performance based upon meeting +specific business achievement levels. +2. To provide a mechanism for rewarding individual performance based upon his/her +contribution to the attainment of those achievement levels. +IV. ELIGIBILITY REQUIREMENTS +1. Employees hired after March 31 may not be eligible to receive a bonus. +2. Employees hired after October 1 but before March 31 are eligible for a pro-rata bonus. +3. Employees who terminate before September 30 are normally ineligible. Also, employees +must be on the payroll on the date the bonus checks are distributed. +V. BONUS CALCULATIONS +A. Potential Payout . Eligible employees shall receive a bonus equal to a +percentage of the employee’s base salary depending on the level of Company net earnings +achieved for the fiscal year. The net earnings targets shall be established by the +Compensation Committee of the Board of Directors within 90 days after the start of each +fiscal year. Base salaries for each eligible employee must be established and fixed for the +fiscal year at the time that the Company earnings targets are established by the +Compensation Committee. The percentage of base salary for this portion of the calculation +is capped at 60%. +Corporate Achievement +Company Net Earnings +Level +for Fiscal Year (000) +% of Base Salary(A) +1 +Determined annually +Determined annually +2 +Determined annually +Determined annually +3 +Determined annually +Determined annually +4 +Determined annually +Determined annually +5 +Determined annually +Determined annually +6 +Determined annually +Determined annually +Table of Contents +B. Personal Achievement ** +Rating +Multiplier (B) +1 +Determined annually +2 +Determined annually +3 +Determined annually +4 +Determined annually +5 +Determined annually +C. Calculation +Base Salary x Corporate Achievement Level % (A) x Personal Achievement Multiplier (B) +Item A excludes the positive and negative effects associated with extraordinary developments +as disclosed in the Company’s Form 10-K. In the event of an acquisition during the Plan +year, restructuring, purchase accounting and extraordinary charges associated with such +acquisitions as disclosed in the Company’s Form 10-K will be added back to actual net +earnings achieved to determine net earnings for bonus payout. If the acquisition provides +accretive earnings, this will be included for purposes of bonus calculations as a means to +incent management to pursue accretive acquisitions and in recognition of the significant +time and effort necessary to complete such acquisitions. Furthermore, upon completion of +acquisitions, the interest income assumed in the plan will be adjusted to reflect cash used. +** The Compensation Committee may adjust the Personal Achievement Multiplier to account for +extraordinary developments but in no event shall such Personal Achievement Multiplier exceed +5.0x. The Compensation Committee may not increase compensation payable under this Plan in +excess of the amounts provided herein. +D. Deferral of Bonus Payment +Officers may elect to defer payment of bonus to January 15 of the following calendar year. +Such election must be made in writing prior to March 31, of the applicable fiscal year. +Table of Contents +o +Mark this box with an X if you have made +changes to your name or address details above +Annual Meeting Proxy Card +A +Election of Directors +1. +Authority to elect as directors the six nominees listed below. +The Board of Directors recommends a vote FOR the listed nominees. +For Withhold +For Withhold +01 — JAMES A. BUZARD +o o +04 — WILLIAM J. MOTTO +o o +For Withhold +For Withhold +02 — JOHN A. KRAEUTLER +o o +05 — DAVID C. PHILLIPS +o o +For Withhold +For Withhold +03 — GARY P. KREIDER +o o +06 — ROBERT J. READY +o o +B +Issues +The Board of Directors recommends a +vote FOR the following proposals. +2. +To approve the Meridian Bioscience, Inc. Officers’ Performance Compensation Plan and annual +net earnings as the factor used to determine the amount of cash bonus payments to be awarded +under the business achievement levels under the Plan. +For Against Abstain +o o o +3. +To ratify the appointment of Grant Thornton LLP as independent public accountants for fiscal +2007. +For Against Abstain +o o o +C +Authorized Signatures — Sign Here — This section must be completed for your instructions to be executed. +NOTE: Please sign exactly as name(s) appear(s) hereon, indicating, where proper, official position +or representative capacity. All joint holders must sign. +Signature 1 — Please keep signature within the box +Signature 2 — Please keep signature within the box +Date (mm/dd/yyyy) +Table of Contents +Proxy – Company Name +THIS PROXY IS SUBMITTED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned hereby appoints WILLIAM J. MOTTO or MELISSA A. LUEKE, or either of them, +proxies of the undersigned, each with the power of substitution, to vote cumulatively or otherwise +all shares of Common Stock which the undersigned would be entitled to vote on the matters specified +on the reverse side and in their discretion with respect to such other business as may properly +come before the Annual Meeting of Shareholders of Meridian Bioscience, Inc. to be held on January +18, 2007 at 2:00 p.m. at Holiday Inn, 4501 Eastgate Boulevard, Cincinnati, Ohio and any +postponement or adjournment of such Annual Meeting. +THE PROXY WILL BE VOTED AS RECOMMENDED BY THE BOARD OF DIRECTORS UNLESS A CONTRARY CHOICE IS +SPECIFIED. +(This proxy is continued and is to be signed on the reverse side.) +THANK YOU FOR VOTING \ No newline at end of file diff --git a/raw/proxies/0000794172/0000950152-06-010095/proxy_rpt.txt b/raw/proxies/0000794172/0000950152-06-010095/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000794172/0000950152-08-010080/proxy.txt b/raw/proxies/0000794172/0000950152-08-010080/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..cad3339a48461830bd292df7e500aed27ccb7fdc --- /dev/null +++ b/raw/proxies/0000794172/0000950152-08-010080/proxy.txt @@ -0,0 +1,2220 @@ +DEF 14A +1 +l34724adef14a.htm +FORM DEF 14A +FORM DEF 14A +Table of Contents +UNITED STATES SECURITIES AND EXCHANGE COMMISSION +WASHINGTON, D.C. 20549 +SCHEDULE 14A +(Rule 14a-101) +INFORMATION REQUIRED IN PROXY STATEMENT +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) +of the Securities Exchange Act of 1934 +(Amendment No. ___ ) +Filed by the Registrant þ +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a- 6(e)(2) ) +þ +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to Section 14a-12 +Meridian Bioscience, Inc. +(Name of Registrant as Specified in Its Charter) +(Name of Person(s) Filing Proxy Statement if Other Than the Registrant) +Payment of Filing Fee (Check the appropriate box): +þ +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to +Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and +state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total Fee Paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange +Act Rule 0-11(a)(2) and identify the filing for which the offsetting +fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +MERIDIAN BIOSCIENCE, INC. +3471 River Hills Drive +Cincinnati, Ohio 45244 +www.meridianbioscience.com +Notice of Annual Meeting +and Proxy Statement +Dear Shareholder: +Our Annual Meeting of Shareholders will be held at 2:00 p.m. on January 22, 2009 at the Holiday +Inn, 4501 Eastgate Boulevard, Cincinnati, OH 45245. We hope you will attend. +At the meeting, you will hear a report on our operations and have a chance to meet your directors +and executive officers. +This booklet includes the formal notice of the meeting and the proxy statement. The proxy +statement tells you more about the agenda and procedures for the meeting. It also describes how +the Board operates and gives personal information about our director candidates. +We are pleased to take advantage of new U.S. Securities and Exchange Commission rules that allow +companies to furnish their proxy materials over the Internet. As a result, we are mailing to most +of our shareholders a Notice of Internet Availability of Proxy Materials (the “Notice”) instead of +a paper copy of this proxy statement and our Annual Report. The Notice contains instructions on +how to access and review those documents over the Internet. We believe that this new process will +allow us to provide our shareholders with the information they need in a more timely manner, while +reducing the environmental impact and lowering the costs of printing and distributing our proxy +materials. If you received a Notice by mail and would like to receive a printed copy of our proxy +materials, you should follow the instructions for requesting such materials included in the Notice. +Whether or not you plan to attend the meeting, please complete, sign, date, and return your proxy +card promptly in the enclosed envelope. +Sincerely yours, +/s/ William J. Motto +William J. Motto +Executive Chairman of the Board +December 9, 2008 +Table of Contents +NOTICE OF ANNUAL MEETING +OF +SHAREHOLDERS OF MERIDIAN BIOSCIENCE, INC. +Time: +2:00 p.m., Eastern Standard Time +Date: +January 22, 2009 +Place: +Holiday Inn +4501 Eastgate Blvd. +Cincinnati, Ohio 45245 +Purpose: +• +Elect as directors the six nominees named in the attached proxy materials +• +Ratify appointment of Grant Thornton LLP as Meridian’s independent +registered public accountants for fiscal year 2009 +• +Conduct other business if properly raised +Only shareholders of record on November 24, 2008 may vote at the meeting. The approximate +mailing date of this proxy statement and accompanying Proxy Card will be December 12, 2008. +Your vote is important. Please complete, sign, date, and return your proxy card promptly +in the enclosed envelope. +/s/ Melissa Lueke +Melissa Lueke +Secretary +December 9, 2008 +Table of Contents +TABLE OF CONTENTS +Page +GENERAL INFORMATION +1 +ELECTION OF DIRECTORS +2 +RATIFICATION OF APPOINTMENT OF ACCOUNTANTS +4 +CORPORATE GOVERNANCE +5 +DIRECTORS AND EXECUTIVE OFFICERS +10 +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +11 +TRANSACTIONS WITH RELATED PERSONS +12 +COMPENSATION DISCUSSION AND ANALYSIS +12 +SUMMARY COMPENSATION TABLE +21 +DIRECTOR COMPENSATION +26 +SHAREHOLDER PROPOSALS FOR NEXT YEAR +27 +QUESTIONS? +27 +Meridian makes available, free of charge on its website, all of its filings that are made +electronically with the Securities and Exchange Commission (“SEC”), including Forms 10-K, 10-Q and +8-K. These filings are also available on the SEC’s website (www.sec.gov). To access these filings, +go to our website (www.meridianbioscience.com). Copies of Meridian’s Annual Report on Form 10-K +for the fiscal year ended September 30, 2008, including financial statements and schedules thereto, +filed with the SEC, are also available without charge to shareholders upon written request +addressed to: +Melissa Lueke, Vice President, Chief Financial Officer and Secretary +Meridian Bioscience, Inc. +3471 River Hills Drive +Cincinnati, Ohio 45244 +Table of Contents +GENERAL INFORMATION +Who may vote +Shareholders of Meridian, as recorded in our stock register on November 24, 2008, may vote at the +meeting. As of that date, Meridian had 40,315,680 shares of Common Stock outstanding. +How to vote +You may vote in person at the meeting or by proxy. We recommend you vote by proxy even if you plan +to attend the meeting. You can always change your vote at the meeting. +How proxies work +Meridian’s Board of Directors is asking for your proxy. Giving us your proxy means you authorize +us to vote your shares at the meeting in the manner you direct. You may vote for all, some or none +of our director candidates. You may also vote for or against the other proposals or abstain from +voting. +If you sign and return the enclosed proxy card but do not specify how to vote, we will vote your +shares in favor of our director candidates and the ratification of appointment of Grant Thornton +LLP as Meridian’s independent registered public accountants for fiscal year 2009. If any other +matters come before the meeting or any postponement or adjournment thereof, each proxy will be +voted in the discretion of the individuals named as proxies on the card. +You may receive more than one proxy or voting card depending on how you hold your shares. Shares +registered in your name are covered by one card. If you hold shares through someone else, such as +a stockbroker, you may get material from them asking how you want to vote. +Revoking a proxy +You may revoke your proxy before it is voted by submitting a new proxy with a later date, by voting +in person at the meeting, or by notifying Meridian’s Secretary in writing at the address under +“Questions?” on page 27. +Quorum +In order to carry on the business of the meeting, we must have a quorum. This means at least a +majority of the outstanding shares eligible to vote must be represented at the meeting, either by +proxy or in person. +Votes needed +The six director candidates receiving the most votes will be elected to fill the seats on the +Board. The ratification of appointment of accountants requires the favorable vote of a majority of +the votes cast. Only votes for or against these proposals count. Abstentions and broker non-votes +count for quorum purposes but not for voting purposes. Broker non-votes +1 +Table of Contents +occur when a broker returns a proxy card but does not have authority to vote on a particular +proposal. +Other Matters +Any other matters considered at the meeting, including postponement or adjournment, will require +the affirmative vote of a majority of the votes cast. +ELECTION OF DIRECTORS +(Item 1 on the Proxy Card) +The Nominating Committee of the Board of Directors has nominated for re-election all of the +following current directors: James A. Buzard, John A. Kraeutler, Gary P. Kreider, William J. Motto, +David C. Phillips and Robert J. Ready. +Proxies solicited by the Board will be voted for the election of these nominees. All directors +elected at the Annual Shareholders’ Meeting will be elected to hold office until the next annual +meeting. In voting to elect directors, shareholders are entitled to cumulate their votes and to +give one candidate a number of votes equal to the number of directors to be elected multiplied by +the number of shares held by the shareholder, or to distribute their votes on the same principle +among as many candidates as the shareholder sees fit. In order to invoke cumulative voting, notice +of cumulative voting must be given in writing by a shareholder to the Chief Executive Officer, a +Vice President or the Secretary of Meridian not less than 48 hours prior to the Annual +Shareholders’ Meeting. The proxies solicited include discretionary authority to cumulate votes. +All Meridian directors are elected for one-year terms. Personal information on each of our +nominees is given below. +If a director nominee becomes unavailable before the election, your proxy card authorizes us to +vote for a replacement nominee if the Board names one. +2 +Table of Contents +The Board recommends that you vote FOR each of the following candidates: +James A. Buzard, Ph.D. +Director since 1990 +Age: 81 +James A. Buzard, Ph.D. was Executive Vice President +of Merrell Dow Pharmaceuticals Inc. from March 1981 +until December 1989. From December 1989 until his +retirement in February 1990, he was Vice President +of Marion Merrell Dow, Inc. He has been a business +consultant since February 1990. +John A. Kraeutler +Director since 1997 +Age: 60 +John A. Kraeutler has more than 30 years of +experience in the medical diagnostics industry and +joined Meridian as Executive Vice President and +Chief Operating Officer in January 1992. In July +1992, Mr. Kraeutler was named President of +Meridian, and in January 2008, Mr. Kraeutler was +named Chief Executive Officer of Meridian. Before +joining Meridian, Mr. Kraeutler served as Vice +President, General Manager for a division of +Carter-Wallace, Inc. Prior to that, he held key +marketing and technical positions with Becton, +Dickinson and Company and Organon, Inc. +Gary P. Kreider, Esq. +Director since 1991 +Age: 70 +Gary P. Kreider serves as Chairman of the +Compensation Committee and Board Secretary. Mr. +Kreider serves as a senior partner in the +Cincinnati law firm of Keating Muething & Klekamp +PLL, the Company’s outside counsel. His primary +practice areas are securities law, mergers and +acquisitions, and general corporate law, and he has +been with Keating Muething & Klekamp since 1963. +Effective October 1, 2005, Mr. Kreider no longer +has a vote or partnership interest in the firm’s +earnings or revenues, although his affiliation with +the firm continues. Mr. Kreider has been an +Adjunct Professor of Law in securities regulation +at the University of Cincinnati College of Law +since 1977 and is a past Chairman of the Ohio State +Bar Association Corporate Law Committee. Mr. +Kreider is also a director of LSI Industries Inc. +William J. Motto +Director since 1977 +Age: 67 +William J. Motto has more than 35 years of +experience in the pharmaceutical and diagnostics +products industries, is a founder of Meridian and +has been Chairman of the Board since 1977. Mr. +Motto became Executive Chairman of the Board in +January 2008. Before forming Meridian, Mr. Motto +served in various capacities for Wampole +Laboratories, Inc., Marion Laboratories, Inc. and +Analytab Products, Inc., a division of American +Home Products Corp. +3 +Table of Contents +David C. Phillips +Director since 2000 +Age: 70 +David C. Phillips serves as Chairman of the Audit +Committee. Mr. Phillips spent 32 years with Arthur +Andersen LLP. His service with this firm included +several managing partner leadership positions. After +retiring from Arthur Andersen in 1994, Mr. Phillips +became Chief Executive Officer of Downtown Cincinnati, +Inc., which is responsible for economic revitalization +of Downtown Cincinnati. Mr. Phillips retired from DCI +in 1999 to devote full time to Cincinnati Works, Inc., +an organization dedicated to reducing the number of +people living below the poverty level by assisting +them to strive towards self-sufficiency through work, +and his financial consulting services. Mr. Phillips +serves as a director of Cintas Corporation and Summit +Family of Mutual Funds. +Robert J. Ready +Director since 1986 +Age: 68 +Robert J. Ready serves as Chairman of the Nominating +Committee. Mr. Ready founded LSI Industries Inc., +Cincinnati, Ohio in 1976, which engineers, +manufactures and markets commercial/industrial +lighting and graphics products, and has served as its +President and Chairman of its Board of Directors since +that time. +RATIFICATION OF APPOINTMENT OF ACCOUNTANTS +(Item 2 on the Proxy Card) +Although not required, we are seeking shareholder ratification of the Audit Committee’s selection +of Grant Thornton LLP as Meridian’s independent registered public accounting firm for the 2009 +fiscal year. The affirmative vote of a majority of shares voting at the meeting is required for +ratification. If ratification is not obtained, the Audit Committee intends to continue the +employment of Grant Thornton at least through fiscal 2009. Representatives of Grant Thornton are +expected to be present at the Annual Shareholders’ Meeting and will be given an opportunity to make +a statement, if they so desire, and to respond to appropriate questions that may be asked by +shareholders. +4 +Table of Contents +Principal Accounting Firm Fees : +Aggregate fees billed to Meridian by Grant Thornton LLP for fiscal years 2008 and 2007 are listed +below: +2008 +2007 +Audit Fees +$ +283,000 +$ +283,000 +Audit-Related Fees +38,229 +31,002 +$ +321,229 +$ +314,002 +Audit Fees. Audit fees are the fees billed for professional services rendered by Meridian’s +independent registered public accounting firm for their audit of Meridian’s consolidated annual +financial statements for the fiscal years ended September 30, 2008 and 2007, respectively, and +reviews of the unaudited quarterly consolidated financial statements contained in the reports on +Form 10-Q filed by Meridian during those years and on reporting on Meridian’s internal control +during those years. +Audit-Related Fees . Audit-related fees are the fees billed for assurance and related services that +are reasonably related to the performance of the audit or review of Meridian’s financial +statements. +The Board recommends that you vote FOR the ratification of appointment of Grant Thornton LLP as +Meridian’s independent registered public accounting firm for the 2009 fiscal year. +CORPORATE GOVERNANCE +As an Ohio corporation, Meridian is governed by the corporate laws of Ohio. Since its common +shares are publicly traded on the Nasdaq Global Select Market and it files reports with the +Securities and Exchange Commission, it is also subject to Nasdaq rules and federal securities laws. +Governance of the corporation is placed in the hands of the directors who, in turn, elect officers +to manage the business operations. The Board oversees the management of Meridian on your behalf. +The Board reviews Meridian’s long-term strategic plans and exercises direct decision making +authority in all major decisions, such as acquisitions, the declaration of dividends, major capital +expenditures and the establishment of company policies. +In accordance with Nasdaq rules, our Board of Directors affirmatively determines the independence +of each director and nominee for election as a director in accordance with the elements of +independence set forth in the Nasdaq listing standards and Exchange Act rules. Meridian’s Director +Independence Standards are available at our website www.meridianbioscience.com . Based on +these standards, the Board determined that each of the following members of the Board is +independent: David C. Phillips, James A. Buzard, +5 +Table of Contents +Robert J. Ready and Gary P. Kreider. Only independent directors serve on Committees of the Board. +During fiscal 2008, the Board of Directors met on four occasions. The independent directors plan +to meet at least two times during fiscal 2009 without the presence of management directors. The +independent members of the Board had four such meetings in fiscal 2008. The independent directors +select one of such directors to preside over each session. +Meridian expects all directors to attend shareholders’ meetings. Each director attended the 2008 +Annual Shareholders’ Meeting, all meetings of the Board and all meetings of Committees of which he +was a member. +Shareholders may communicate with the full Board or individual directors on matters concerning +Meridian by mail or through our website in each case to the attention of the Secretary, the address +for whom is set forth on the last page of this proxy statement. +The Board has adopted a Code of Ethics applicable to Meridian’s officers, directors and employees. +This Code of Ethics is posted on www.meridianbioscience.com . To the extent permitted by Nasdaq +Marketplace Rule 4350(n), any amendments to or waivers from the Code of Ethics will be posted on +our website within four business days after the date of an amendment. +The directors have organized themselves into the committees described below. Each of these +Committees has a charter posted on www.meridianbioscience.com . Meridian does not have an Executive +Committee of its Board of Directors. +The Audit Committee is composed of David C. Phillips, Chairman, James A. Buzard and Robert J. +Ready. It met nine times during fiscal 2008. Each member is able to read and understand +fundamental financial statements. David C. Phillips has been designated as an Audit Committee +financial expert as that term is defined by the Securities and Exchange Commission. +The Committee oversees the accounting and financial reporting processes of Meridian and the audits +of its financial statements by its independent registered public accounting firm. The Committee is +solely responsible for the appointment, compensation, retention and oversight of Meridian’s +independent registered public accounting firm. The Audit Committee also evaluates information +received from Meridian’s independent registered public accounting firm and management to determine +whether the independent registered public accounting firm is independent of management. The +independent registered public accounting firm reports directly to the Audit Committee. +In addition, the Audit Committee has established procedures for the receipt, retention and +treatment of complaints received by Meridian concerning accounting, internal accounting controls or +auditing matters and has established procedures for the confidential and anonymous submission by +employees of any concerns they may have regarding questionable accounting or auditing matters. +6 +Table of Contents +The Audit Committee, or its Chairman, approves all audit and non-audit services performed for +Meridian by its independent registered public accounting firm before those services are commenced. +The Chairman reports to the full Committee at each of its meetings regarding pre-approvals he made +since the prior meeting and the Committee approves what he has done between meetings. For these +purposes, the Committee or its Chairman is provided with information as to the nature, extent and +purpose of each proposed service, as well as the approximate timeframe and proposed cost +arrangements for that service. +The Committee has submitted the following report. +REPORT OF THE AUDIT COMMITTEE +On May 5, 2008, the Audit Committee met with representatives of Grant Thornton and Meridian’s +internal accountants and reviewed with them the proposed 2008 Audit Plan, areas warranting +particular concentration on the audit and the effects of new accounting pronouncements. The Grant +Thornton representatives reviewed with the Committee written disclosures required by applicable +requirements of the Public Company Accounting Oversight Board regarding the independent +accountants’ communications with the Audit Committee concerning independence and has presented a +letter regarding that matter to the Committee. The Committee discussed with Grant Thornton its +independence. In concluding that the auditors are independent, we determined, among other things, +that the nonaudit services provided by the auditors were compatible with their independence. +At its meeting on November 11, 2008, the Committee reviewed and discussed with management, Grant +Thornton and Meridian’s accounting officers the results of the audit for fiscal 2008, including the +audited financial statements. The Committee reviewed the requirements of its Charter previously +adopted and the reports that were required to be disclosed to the Committee. The Committee +discussed with Grant Thornton the matters required to be discussed by Statement on Auditing +Standards No. 61, as amended, (AICPA Professional Standards, Vol. 1 AU Section 380), as adopted by +the Public Company Accounting Oversight Board in Rule 3200T. +Based on the above mentioned review, the Committee recommended to the Board of Directors that the +audited financial statements of Meridian be included in its Annual Report on Form 10-K for the year +ended September 30, 2008 for filing with the Securities and Exchange Commission. +During its meetings throughout the year, the Committee reviewed procedures related to the receipt, +retention and treatment of any complaints concerning accounting, internal accounting controls or +auditing matters. Also during its meetings throughout the year, the Chairman of the Audit Committee +reported to the full Committee the independent accountants’ fees that had been pre-approved and the +Committee approved such fees. Certain fees were pre-approved by the full Committee. The Committee +also reviewed the requirements of and Meridian’s ongoing compliance with Section 404 of the +Sarbanes-Oxley Act. +7 +Table of Contents +Respectfully submitted, +Audit Committee +David C. Phillips (Chairman) +Robert J. Ready +James A. Buzard +The Compensation Committee is composed of Messrs. Kreider (Chairman), Buzard, Phillips and Ready +and is responsible for establishing compensation for executive officers and administering the +Company’s compensation plans. This includes establishing salary levels and bonus plans, making +bonus and stock-based awards, and otherwise dealing in all matters concerning compensation of the +executive officers. The Compensation Committee met two times and took one action in writing during +fiscal 2008. +In general, the Compensation Committee annually reviews the Company’s compensation programs and its +philosophy in setting performance targets in November of each year. At that time, the Company +provides the Compensation Committee with information on total compensation received for all +executive officers, including the sources of such compensation, for the immediately preceding +fiscal year and recommendations for the current fiscal year. In discharging the responsibilities +of the Board of Directors relating to compensation of the Company’s Chief Executive Officer and +other executive officers, the purposes of the Compensation Committee are, among others, (i) to +review and approve the compensation of the Company’s Chief Executive Officer and other executive +officers and (ii) to oversee the compensation policies and programs of the Company, including stock +and benefit plans. The Compensation Committee’s specific functions include adopting, administering +and approving the Company’s incentive compensation and stock plans and awards, including amendments +to the plans or awards and performing such duties and responsibilities under the terms of any +executive compensation plan, incentive-compensation plan or equity-based plan. The Compensation +Committee has the authority to delegate any of its responsibilities to subcommittees as the +Compensation Committee may deem appropriate in its sole discretion. The Compensation Committee has +the authority to engage consultants and advisors. Although the Compensation Committee did not +engage a consultant this year, it received the services of a financial advisor who collected and +assembled executive compensation data from peer companies. The Compensation Committee has an +appropriate level of contact among its members and the Company’s executive officers in connection +with the analysis of this data. +Prior to January 2008, William J. Motto served as Chairman of the Board and Chief Executive +Officer, and John A. Kraeutler served as President and Chief Operating Officer. In January 2008, +Mr. Motto was named Executive Chairman and Mr. Kraeutler was named Chief Executive Officer. +The Executive Chairman, Mr. Motto, provides input and recommendations to the Compensation Committee +with respect to the compensation to be paid to the non-employee members of the Board, as well as +Mr. Kraeutler, both in his former positions as President and Chief Operating Officer, and his +current position as Chief Executive Officer. As Meridian’s +8 +Table of Contents +Chief Executive Officer, Mr. Kraeutler provides recommendations to the Compensation Committee with +respect to compensation to be paid to the other corporate officers. +To achieve compensation objectives, the Committee believes it is important to provide competitive +levels of compensation to retain the most qualified employees, to recognize individuals who exceed +expectations and to closely link executive compensation with corporate performance. The Committee +believes Meridian’s long-term objectives can be achieved through cash incentive compensation plans +and equity incentive compensation plans. +The Compensation Committee’s processes and procedures for the consideration and determination of +executive and director compensation are discussed in the section entitled “Compensation Discussion +and Analysis” in this proxy statement. +Compensation Committee Interlocks and Insider Participation +Gary P. Kreider, who is a member of the Compensation Committee, is affiliated with Keating Muething +& Klekamp PLL, Cincinnati, Ohio, a law firm that provided legal services to the Company in fiscal +year 2008. Mr. Kreider has no vote or interest in the firm’s earnings or revenues. One of Mr. +Kreider’s children is a partner in the firm. None of the members of the Compensation Committee has +ever been an officer or employee of the Company. None of the members of the Compensation Committee +is or was a participant in any related person transaction in fiscal 2008 (see the section entitled +“Transactions With Related Persons” in this proxy statement for a description of our policy on +related person transactions). Lastly, none of the members of the Compensation Committee is an +executive officer of another entity at which one of our executive officers serves on the Board of +Directors. No named executive officer of Meridian serves as a director or as a member of a +committee of any company of which any of the Company’s non-employee directors are executive +officers. +The Nominating Committee consists of Robert J. Ready, Chairman, James A. Buzard and David C. +Phillips. It met one time last year. On November 12, 2008, the Nominating Committee considered +and nominated the current directors for re-election. The Nominating Committee identifies qualified +nominees for the Board, determines who will be nominated by the Company for election to the Board +and recommends to the full Board any changes in the size of the Board. +In nominating directors, the Nominating Committee takes into account, among other factors which it +may deem appropriate, the judgments, skill, diversity, business experience, and the needs of the +Board as its function relates to the business of the Company. The Committee considers candidates +for nomination from a variety of sources including recommendations of shareholders. Shareholders +desiring to submit recommendations for nominations by the Committee should direct them to the +Executive Chairman in care of the Company at its address shown on the cover page of this proxy +statement. +The Nominating Committee will assess the qualifications of all candidates for the Board on an equal +basis. In identifying and considering candidates for nomination to the Board of Directors, the +Nominating Committee considers, among other factors, quality of experience, +9 +Table of Contents +the needs of the Company and the range of talent and experience currently represented on the Board. +DIRECTORS AND EXECUTIVE OFFICERS +This table lists the executive officers and directors of Meridian and shows the number of shares +beneficially owned, as determined under SEC rules, on November 24, 2008. Beneficial ownership +includes any shares as to which the individual has sole or shared voting or investment power and +also any shares that the individual has the right to acquire as of January 23, 2009 (60 days after +November 24, 2008). +Common Stock +Beneficially Owned +Name +Position +Amount 1 +Percentage +William J. Motto +Executive Chairman of the Board of Directors +374,443 +* +John A. Kraeutler +Chief Executive Officer and Director +302,010 +* +Antonio A. Interno 2 +Senior Vice President, President and Managing Director, Meridian Bioscience Europe +75,205 +* +Richard L. Eberly 3 +Executive Vice President, President Meridian Life Science +21,000 +* +Lawrence J. Baldini 4 +Executive Vice President, Operations and Information Systems +31,000 +* +Melissa A. Lueke 5 +Vice President, Chief Financial Officer and Secretary +113,265 +* +Susan A. Rolih 6 +Senior Vice President, Regulatory Affairs & Quality Assurance +97,500 +* +Todd W. Motto 7, 8 +Vice President, Sales and Marketing +409,314 +1.0 +% +Grady Barnes 9 +Vice President, Research and Development +9,000 +* +James A. Buzard, Ph.D 10, 11, 12 +Director +71,712 +* +Gary P. Kreider 11, 12, 13 +Director +23,463 +* +Robert J. Ready 10, 11, 12 +Director +72,543 +* +David C. Phillips 10, 11, 12 +Director +30,850 +* +All Executive Officers and Directors as a +Group +1,631,305 +4.0 +% +1 +Includes options exercisable within 60 days for Mr. William Motto of 55,238 shares, +Mr. Kraeutler of 95,175 shares, Mr. Interno of 15,750 shares, Mr. Eberly of 15,750 shares, Ms. +Lueke of 31,500 shares, Ms. Rolih of 75,375 shares, Mr. Baldini of 15,750 shares, Mr. Todd Motto of +52,875 shares, Mr. Barnes of 3,750 shares, Mr. +10 +Table of Contents +Buzard of 56,712 shares, Mr. Kreider of 20,214 shares, Mr. Ready of 56,712 shares and Mr. Phillips +of 20,214 shares. +2 +Antonio A. Interno was appointed Vice President in August 1991, Senior Vice President +in September 1997, and President, Managing Director, Meridian Bioscience Europe in October 2003. +He has been Managing Director of Meridian’s European subsidiaries, Meridian Bioscience Europe, +since February 1990. Age: 58 +3 +Richard L. Eberly was appointed Vice President of Sales and Marketing in January 1997, +Executive Vice President in May 2000, Executive Vice President, General Manager of Meridian Life +Science in February 2003 and Executive Vice President and President Meridian Life Science in +October 2005. He has over 18 years of experience in the medical diagnostics industry and joined +Meridian in March 1995. Prior to his appointment to Vice President of Sales and Marketing, Mr. +Eberly served as the Director of Sales for Meridian. Before joining Meridian, he held key sales +and marketing positions at Abbott Diagnostics, Division of Abbott Laboratories. Age: 47 +4 +Lawrence J. Baldini was appointed Vice President of Operations in April 2001 and +Executive Vice President, Operations and Information Systems in October 2005. Before joining +Meridian, Mr. Baldini held various operations management positions with Instrumentation +Laboratories and Fisher Scientific. Age: 49 +5 +Melissa A. Lueke was appointed Vice President, Chief Financial Officer and Secretary +in January 2001. Prior to her appointment, Ms. Lueke served as Meridian’s Controller since March +2000 and Acting Secretary from July 20, 2000 to January 23, 2001. Before joining Meridian, Ms. +Lueke was employed by Arthur Andersen LLP from June 1985 to January 1999, most recently as a Senior +Audit Manager. Age: 45 +6 +Susan A. Rolih was appointed Vice President of Regulatory Affairs and Quality +Assurance in May 2001 and Senior Vice President of Regulatory Affairs and Quality Assurance in +April 2008. Before joining Meridian, Ms. Rolih held various regulatory and quality positions with +Immucor, Inc. Age: 59 +7 +Todd W. Motto was appointed Vice President Sales and Marketing in October 2005. Prior +to this, Mr. Motto served in a number of different sales and marketing positions for Meridian, +beginning in 1993. Most recently, he served as Meridian’s Director of Sales and Marketing, +Meridian Bioscience Europe for the last five years. Age: 42 +8 +Includes 89,407 shares held as custodian for his children. +9 +Grady Barnes Ph.D. was hired as Vice President Research and Development in May 2007 +and appointed as an officer in January 2008. Before joining Meridian, Dr. Barnes held various +positions in R&D and Product Development for Abbott Laboratories. Age 54. +10 +Audit Committee Member. +11 +Compensation Committee Member. +12 +Nominating Committee Member. +13 +Includes 325 shares held by his wife and 2,166 shares held as custodian for his +grandchildren. +* +Less than one percent. +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Section 16 of the Securities Exchange Act of 1934 requires Meridian’s executive officers, +directors and persons who own more than ten percent of a registered class of Meridian’s equity +securities to file reports of ownership and changes in ownership with the Securities and Exchange +Commission. Based on a review of the copies of such forms received by it, +11 +Table of Contents +Meridian believes that during the last fiscal year, all of its executive officers, directors and +ten percent stockholders complied with the Section 16 reporting requirements, with the exceptions +that Mr. Kraeutler and Mr. Todd Motto each filed one late ownership report, each with respect to +one transaction. In making these statements, Meridian has relied upon examination of the copies of +Forms 3, 4, and 5, and amendments thereto, and the written representation of its directors and +executive officers. +TRANSACTIONS WITH RELATED PERSONS +Todd Motto, the adult son of William J. Motto, is Vice President, Sales and Marketing. Todd Motto +received $348,488 in compensation for fiscal 2008. This compensation consisted of base salary of +$186,157, bonus of $73,125 under the Officers’ Performance Compensation Plan, $8,850 of auto and +professional allowances, $12,401 of retirement plan contributions, and $67,955 related to stock +option awards. +Nasdaq rules require the Company to conduct an appropriate review of related party transactions +required to be disclosed by the Company pursuant to SEC Regulation S-K Item 404 for potential +conflict of interest situations on an ongoing basis and that all such transactions must be approved +by the Audit Committee or another committee comprised of independent directors. As a result, the +Audit Committee annually reviews all such related party transactions and approves each related +party transaction if it determines that it is in the best interests of the Company. Additionally, +the Audit Committee’s Charter provides it the authority to review, approve and monitor transactions +involving the Company and “related persons” (directors and executive officers or their immediate +family members, or shareholders owning five percent or greater of the Company’s outstanding stock). +This also covers any related person transaction that meets the minimum threshold for disclosure in +the proxy statement under the relevant SEC rules (generally, transactions involving amounts +exceeding $120,000 in which a related person has a direct or indirect material interest). In +considering the transaction, the Audit Committee may consider all relevant factors, including, as +applicable, (i) the Company’s business rationale for entering into the transaction; (ii) the +alternatives to entering into a related person transaction; (iii) whether the transaction is on +terms comparable to those available to third parties, or in the case of employment relationships, +to employees generally; (iv) the potential for the transaction to lead to an actual or apparent +conflict of interest and any safeguards imposed to prevent such actual or apparent conflicts; and +(v) the overall fairness of the transaction to the Company. This policy is included in the +Company’s Employee Handbook. The approval of such related person transactions are evidenced by +internal Company resolutions or memoranda. +COMPENSATION DISCUSSION AND ANALYSIS +Throughout this proxy statement, the individuals who served as the Company’s Chief Executive +Officers and Chief Financial Officer during fiscal 2008, as well as the other individuals listed in +the Summary Compensation Table below, are referred to as the “named executive officers” or “NEOs.” +Prior to January 2008, William J. Motto served as Chairman of the Board and Chief Executive +Officer, and John A. Kraeutler served as President and Chief Operating Officer. In January 2008, +Mr. Motto was named Executive Chairman and Mr. Kraeutler was named Chief Executive Officer. +12 +Table of Contents +Compensation Philosophy and Objectives +Our policies regarding executive compensation programs are intended to balance motivating, +rewarding, and retaining executives with a competitive compensation package, and maximizing +long-term shareholder value by linking compensation earned to both individual and Company +performance. Compensation typically includes base salary, eligibility for annual cash bonuses and +stock-based awards contingent on Company performance, retirement plan contributions, and other +Company-sponsored benefits. A significant portion of each executive officer’s cash bonus and +stock-based awards are dependent upon achieving business and financial goals and realizing other +performance objectives. Examples of Company performance metrics for which we measure achievement +are sales growth, net earnings growth and profit margins (gross profit, operating income and net +earnings). Annual performance targets for these metrics are set at or above industry averages and +historical results. Our compensation programs are intended to reward individual contributions (for +example, bringing a new product to market) and Company-wide achievement of performance metric +targets (for example, overall sales and net earnings growth). +The Compensation Committee of the Board of Directors is responsible for the institution and ongoing +oversight of compliance with this compensation philosophy. The Compensation Committee ensures that +the total compensation paid to the NEOs is fair, reasonable, and competitive. +Establishing Compensation Levels +Compensation levels for the NEOs are driven by market pay levels, the executive officer’s +leadership performance and overall Company performance. The Compensation Committee relies upon a +combination of judgment and guidelines, as well as market data, in determining the amount and mix +of compensation elements for the Executive Chairman. The compensation levels for Mr. Kraeutler, +both in his former positions as President and Chief Operating Officer, and his current position as +Chief Executive Officer are recommended to the Compensation Committee by the Executive Chairman; +the compensation levels for the other NEOs are recommended by Mr. Kraeutler. The Compensation +Committee may decide to follow or modify such recommended levels of compensation. The Compensation +Committee considers as crucial the input of our Executive Chairman and Chief Executive Officer in +connection with its compensation processes and decisions relating to NEO compensation. The +Compensation Committee is not obligated to follow their recommendations. The Company does not +engage in strict numerical benchmarking in determining the percentage increases for the NEOs. +Market Pay Levels +Market pay levels for the NEOs are determined annually in November for the upcoming calendar year. +From time to time, at the request of the Compensation Committee, an outside financial advisor is +used to gather and summarize for the Company public disclosures of executive compensation made by +other companies in the diagnostic and life science industries, as well as those in the Greater +Cincinnati area. This information concerns base +13 +Table of Contents +salary, bonus awards and long-term incentive awards such as stock options and/or restricted stock +for these peer companies, as well as their revenue, net earnings and market capitalization levels +in order to take company size into consideration. The Compensation Committee uses this information +as part of its decision-making process with respect to the Company’s executive compensation +programs. +Company Performance +We believe that certain Company performance metrics drive shareholder value through stock price +appreciation and dividends. We take this belief into account in setting performance metric targets +that are considered in establishing the performance-based component of our compensation programs. +Performance metric targets that are taken into consideration in our compensation programs include +sales growth, earnings growth and profit margins. These targets are set at or above industry +averages and historical results. +Our performance-based cash bonus and stock-based award programs operate under the fundamental +principle that minimum levels of net earnings be achieved prior to any compensation being earned +under these programs. Net earnings targets are determined based on what the Company believes to be +meaningful growth rates relative to its industry peers and the Company’s performance objectives. +Stock-based awards granted under performance programs are forfeited if the Company does not meet +its minimum earnings targets as specified in each grant. +Recovery of Prior Awards +Except as provided by applicable laws and regulations, we do not have a policy with respect to +adjustment or recovery of awards or payments if relevant Company performance measures upon which +previous awards were based are restated or otherwise adjusted in a manner that would reduce the +size of such award or payment. Under those circumstances, we expect that the Compensation +Committee and the Board would evaluate whether compensation adjustments were appropriate based upon +the facts and circumstances surrounding the applicable restatement or adjustment. +Tally Sheets +In setting the NEOs’ compensation, the Compensation Committee reviews all components of the +executive officers’ compensation through the use of tally sheets. These tally sheets provide the +amount of total compensation paid or earned by the NEO based on his or her base salary, cash bonus, +stock-based awards, retirement contributions, and perquisites. The tally sheets reviewed provide +all of the information that is reflected in the Summary Compensation Table. The review by the +Compensation Committee analyzes how changes in any element of compensation would impact other +elements, particularly severance or change in control benefits, if applicable to the executive. +Although this year such analysis did not result in the issuance of additional awards, such analysis +has become an important component in the Compensation Committee’s review of executive compensation +as the tally sheet allows the Compensation Committee to consider an executive’s overall +compensation rather than only one or two specific components of an executive’s compensation. This +14 +Table of Contents +allows the Compensation Committee to make compensation decisions and evaluate management +recommendations based on a complete analysis of an executive’s total compensation. +Components of Executive Compensation for 2008 +Meridian’s executive compensation and benefits packages consist of: base salary, cash bonuses, +long-term equity incentive awards, and Company-sponsored benefit and retirement plans. Each of +these components is detailed below. +Element +Form of Compensation +Purpose +Base Salaries +Cash +Provides competitive, +fixed compensation to +attract and retain +exceptional executive +talent +Annual Cash Incentives +Cash +Provides a direct +financial incentive +to achieve corporate +and individual +operating goals +Long-Term Equity +Incentives +Incentive stock +options, +non-qualified stock +options, restricted +stock and stock +appreciation rights +Encourages executive +officers to build and +maintain a long-term +equity ownership +position in Meridian +so that their +interests are aligned +with our shareholders +Health, Retirement and +Other Benefits +Eligibility to +participate in +benefit plans +generally available +to our employees, +including Retirement +Plan contributions, +premiums paid on +long-term disability +and life insurance +policies; and certain +perquisites +Benefit plans are +part of a broad-based +employee benefits +program; the +perquisites provide +competitive benefits +to our executive +officers +Base Salary +The Company pays salaries that are designed to attract, motivate and retain experienced executives +who will drive superior Company performance and maintain long-term shareholder value. The +Compensation Committee considers recommendations from the Executive Chairman and Chief Executive +Officer and approves annual base salaries that are commensurate with each NEO’s responsibilities +and performance, as well as Company +15 +Table of Contents +performance in the prior fiscal year, which are competitive with similar positions locally and in +the industry. Salaries are set on a calendar year basis and therefore salaries paid in the first +three months of each fiscal year beginning October 1 st are set in the prior fiscal year. +For 2008, the Chief Executive Officer, Mr. Motto at the time, and the President and Chief Operating +Officer, Mr. Kraeutler at the time, provided recommendations to the Compensation Committee for +salary increases for the NEOs, other than themselves, ranging from 4% to 5%. The Compensation +Committee followed these recommendations. The Compensation Committee set the salary increase for +the Chief Executive Officer, Mr. Motto at the time, and the President and Chief Operating Officer, +Mr. Kraeutler at the time, at 5% based on their satisfaction with the accomplishments of those +officers in fiscal 2007. +Upon Mr. Kraeutler’s appointment to Chief Executive Officer in January 2008, his annual salary was +increased from $420,000 to $475,000; his annual professional allowance was increased from $15,000 +to $18,000; and he received two stock option grants totaling 50,000 shares. 25,000 options have a +term of 10 years and vest in full on January 22, 2011. 25,000 options have a term of 10 years and +vest January 22, 2013. Both grants have an exercise price equal to the closing stock price on the +grant date. These compensation increases were set by the Compensation Committee based on Mr. +Kraeutler’s new responsibilities as Chief Executive Officer. +Salary increase amounts for the NEOs were considered by the Committee to be consistent with the +percentage increases in salary provided in general to other Meridian employees. +Cash Bonuses +The Compensation Committee believes that employees should be rewarded based on Company results and +individual performance. The Compensation Committee awards cash bonuses pursuant to the Officers’ +Performance Compensation Plan for fiscal 2008, contingent upon Company performance. Cash bonuses, +if earned, are paid in the first quarter of each fiscal year, for the prior year’s performance. +Company Performance Component +The 2008 Plan, which was similar in form to the plan utilized in fiscal 2007, provided for the +granting of cash bonuses as a percent of base salary if 2008 net earnings reached at least +$29,000,000. This was a meaningful increase from the 2007 net earnings of $24,296,000, excluding a +favorable adjustment to tax reserves in the amount of $2,425,000, related to the expiration of the +statute of limitations on certain income tax returns. This favorable adjustment to tax reserves +was excluded in establishing earnings targets for 2008 because it was a discrete event that was not +an element of current operating strategies. The 2008 Plan also provided for increasing bonus +awards tied to increasing net earnings beyond the initial minimum level. Depending on the level of +net earnings achieved and the application of the personal multiplier, cash bonuses could range from +5% to 120% of base salary. The Company’s management and the Committee intend for the net earnings +targets to be set at meaningful growth rates so that management must be diligent, focused and +effective to achieve these targets. In other words, the Company’s management believed at the time +of the +16 +Table of Contents +establishment of these net earnings targets that such targets would be challenging to achieve and +would require substantial efforts from management. +Actual net earnings for 2008 were $30,202,000, a record for the Company and 24% growth over 2007, +which represented achievement at the Level 3 threshold. The 2008 Plan included six net earnings +thresholds. +Individual Performance Component +Cash bonuses are also subject to the application of a personal achievement multiplier as +recommended by management, except that no such recommendation is made by management for the +Executive Chairman, Mr. Motto, or the Chief Executive Officer, Mr. Kraeutler. The Compensation +Committee followed these recommendations for fiscal 2008. The Compensation Committee set the +personal achievement multiplier for the Executive Chairman and the Chief Executive Officer at the +highest level being paid to several other officers based on their leadership of the Company in 2008 +and the Company’s overall sales and net earnings growth. +In evaluating the personal achievement multipliers for the NEOs for 2008, the Compensation +Committee took into consideration the Company’s record sales and net earnings, its sales and net +earnings growth rates over 2007, and the individual achievements and leadership of the NEOs that +led to the record operating results. For the Executive Chairman, Chief Executive Officer and Chief +Financial Officer, individual achievements were evaluated based on consolidated sales and net +earnings growth; improvements in consolidated gross profit margin, operating income margin and net +earnings margin; and each operating segment’s sales and operating income performance against plan. +For the Senior Vice President, President and Managing Director of Meridian Bioscience Europe, +individual achievements were evaluated based on overall organic sales growth (excluding the effects +of currency), management of expenses and launches of new products for the European Diagnostics +operating segment. For the Executive Vice President, Operations and Information Systems, +individual achievements were evaluated based on improvements in production efficiencies via +implementation of automated manufacturing equipment in the US Diagnostics manufacturing facility, +which led to improvements in gross profit margin, as well as implementation efforts for new +computer systems for the US Diagnostics and Life Science operating segments. +Cash bonuses earned by the NEOs are included in the “Bonus” column of the Summary Compensation +Table on page 21. +2009 +At its November 12, 2008 meeting, the Compensation Committee approved the Officers’ Performance +Compensation Plan for fiscal 2009. The 2009 Plan will award cash bonuses if 2009 net earnings +reach at least $36,050,000, which the Compensation Committee believes is a meaningful increase from +2008 net earnings of $30,202,000. The 2009 Plan also provides for increasing bonus awards tied to +increasing net earnings beyond the initial minimum level. Depending on the level of net earnings +achieved and the application of the personal +17 +Table of Contents +multiplier, cash bonuses could range from 5% to 120% of base salary, similar to the 2008 Plan +discussed above. +Long-term incentive awards +The Compensation Committee believes that equity-based compensation encourages employees to commit +to the long-term goals of the Company. This ensures that the Company’s NEOs have a stake in the +long-term creation of shareholder value. Historically, long-term incentive awards have been in the +form of stock options. The Compensation Committee is moving towards a mix of stock options and +restricted stock in order to provide NEOs with a mixed equity portfolio. In either case, the +awards are performance-based, meaning the NEOs’ ability to vest in the awards is contingent upon +Company earnings levels. +Relative to fiscal 2008, on November 14, 2007, the Compensation Committee awarded each NEO options +to purchase 15,750 shares of Common Stock at an exercise price equal to the closing market price on +that date. These options were subject to forfeiture if earnings did not reach $30,775,000. This +earnings level was not reached and, as such, these options were forfeited. These options are not +reflected in the option tables presented in this proxy statement. +Relative to fiscal 2009, at its meeting on November 12, 2008, the Compensation Committee awarded +each NEO 5,250 restricted shares of Common Stock (or in the case of an NEO outside the US, +restricted share units). These restricted shares are subject to forfeiture if 2009 earnings do not +reach at least $36,950,000. +Although Meridian does not have a written policy regarding the timing or practices related to +granting equity awards, neither Meridian nor the Compensation Committee engages in spring-loading, +back-dating or bullet-dodging practices. Stock options and restricted stock awards are generally +granted at a regularly scheduled meeting of the Compensation Committee in the first quarter of the +fiscal year, after Meridian issues a press release announcing the results of the prior fiscal year. +Stock options are granted at the closing market price on the date of grant, pursuant to the 2004 +Equity Compensation Plan. Prior to the exercise of an option, the holder has no rights as a +stockholder with respect to the shares subject to such option, including no rights to vote or to +receive dividends. Prior to vesting of restricted shares, the holder has voting rights and will +receive any dividends declared on Meridian’s Common Stock. Options and restricted shares granted +to the NEOs are set forth in the Grants of Plan-Based Awards Table on page 22. +Company-Sponsored Benefit and Retirement Plans +Meridian provides Company-sponsored benefit and retirement plans to the NEOs. In general, +executives participate in the Company’s benefit and retirement plans on the same basis as other +Company employees. The core benefit package includes health, dental, short and long-term +disability, and group term life insurance. Meridian generally provides retirement benefits to +executives through qualified (under the Internal Revenue Code) defined contribution plans. +18 +Table of Contents +In 1995, the Company entered into a salary continuation agreement with John A. Kraeutler to +supplement Mr. Kraeutler’s retirement savings. This agreement provides additional compensation +after retirement or separation from the Company under certain circumstances and is funded by a life +insurance policy with premiums paid by the Company. Meridian incurred expense of $21,520 in +premiums during fiscal 2008. +Other Personal Benefits +Allowances for automobiles and professional, financial, and tax planning are made available to +Meridian’s NEOs and other corporate officers. The costs to the Company are included in the All +Other Compensation Tables on page 22. The Company believes these perquisites to be reasonable, +comparable to peer companies, and consistent with the Company’s overall executive compensation +philosophy. +Interplay of Compensation Elements +We believe that each element of our compensation program plays a substantial role in maximizing +long-term value for our shareholders and employees because of the significant emphasis on +pay-for-performance principles. Generally, in 2008 approximately 21% to 24% of an NEO’s total +compensation was dependent upon achieving business and financial goals, and realizing other +performance objectives identified in the Performance Compensation Plan. As such, through this mix +of pay, non-performance has a significant effect on the amount of compensation realized by +executive officers. +We consider competitive market compensation paid by other companies, such as similarly sized +Greater Cincinnati based companies and industry peers, but we do not attempt to maintain a certain +target percentile within a peer group or otherwise rely on that data to determine executive +compensation. Rather, Meridian incorporates flexibility into our compensation programs and in the +assessment process to respond to and adjust for the evolving business environment. We strive to +achieve an appropriate mix between equity incentive awards and cash payments in order to meet our +objectives. We use the Performance Compensation Plan as another tool to assess an executive’s +total pay opportunities and whether we have provided the appropriate incentives to accomplish our +compensation objectives. Our mix of compensation elements is designed to reward recent results and +motivate long-term performance through a combination of cash and stock-based awards. We also seek +to balance compensation elements that are based on financial, operational and strategic metrics +with others that are based on the performance of Meridian shares via application of the personal +multiplier component of cash bonuses for the Executive Chairman and the Chief Executive Officer. +We believe the most important indicator of whether our compensation objectives are being met is our +ability to motivate our NEOs to deliver superior performance and retain them to continue their +careers with Meridian on a cost-effective basis. +Internal Pay Equity +The Compensation Committee believes that the relative difference between the Chief Executive +Officer’s compensation and the compensation of the Company’s other executives +19 +Table of Contents +has not increased significantly over the years. Further, the Compensation Committee believes that +the Company’s internal pay equity structure is consistent with our peer group and is appropriate +based upon the contributions to the success of the Company and as a means of motivation to other +executives and employees. +Tax Deductibility of Pay +Section 162(m) of the Internal Revenue Code contains compensation deduction limitations for certain +highly compensated employees. One exception to this limitation is for performance-based +compensation that is approved by, among other things, a committee of “outside directors” (as +defined under IRS treasury regulations). While Mr. Kreider, the Chairman of the Compensation +Committee, participates in the discussions regarding executive compensation, he recuses himself +from voting on all performance-based compensation issues so that the Company can take full +advantage of the above-described performance-based compensation deduction under Section 162(m). +The Committee believes that all compensation paid to the NEOs for fiscal year 2008 is properly +deductible under Section 162(m), but no assurance can be made in this regard. +Actions of the Committee +In several meetings during the year, the Executive Chairman, Mr. Motto, the Chief Executive +Officer, Mr. Kraeutler, and the Compensation Committee Chairman discussed, among other things, +Meridian’s compensation system and its effectiveness in attracting and retaining top notch +employees. These individuals believed that the system, including the Officers’ Performance +Compensation Plan, is understood by employees and shareholders and has worked well in practice. +They noted that the underlying principles in this Plan have been followed for many years, even +when, as in 2001 and most recently in 2008, following such principles resulted in no bonuses being +awarded (2001) and performance stock options being forfeited (2001 and 2008). The Committee +discussed on a number of occasions the advisability of engaging a compensation consultant. The +Compensation Committee concluded that it did not want to engage a compensation consultant this +year, in part because of the relatively small number of executive officers and their frequent +interaction. +At its November 14, 2007 meeting, the Compensation Committee discussed these matters, both with and +without the presence of management. The Compensation Committee discussed the recommendations of +the Executive Chairman and the Chief Executive Officer for compensation levels for all officers and +answered questions about individual recommendations and the general pay increases to be paid +throughout the Company. The Committee then made the compensation decisions, which are reflected in +the figures presented in this proxy statement. +20 +Table of Contents +COMPENSATION COMMITTEE REPORT +The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis +required by Item 402(b) of Regulation S-K with management. Based on these reviews and discussions, +the Compensation Committee recommended to the Board of Directors that the Compensation Discussion +and Analysis be included in the Company’s proxy statement on Schedule 14A. +Members of the Compensation Committee: +Gary P. Kreider (Chairman) +Robert J. Ready +James A. Buzard +David C. Phillips +SUMMARY COMPENSATION TABLE +The following table summarizes the aggregate compensation paid, or earned, by each of the NEOs for +the fiscal years ended September 30, 2008 and 2007, respectively. +Change in +Pension Value +and +Nonqualified +Non-Equity +Deferred +Name and Principal +Stock +Option +Incentive Plan +Compensation +All Other +Position +Year +Salary +Bonus 1 +Awards +Awards 2 +Compensation +Earnings +Compensation 3 +Total +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +(i) +John A. Kraeutler +2008 +$ +450,579 +$ +178,125 +$ +145,096 +$ +41,821 +$ +815,621 +Chief Executive Officer +2007 +$ +391,928 +$ +300,005 +$ +— +$ +133,239 +$ +— +$ +— +$ +42,925 +$ +868,097 +Melissa A. Lueke +Vice President, Chief +Financial Officer, and +2008 +$ +202,126 +$ +76,782 +$ +68,835 +$ +21,401 +$ +369,144 +Secretary +2007 +$ +192,283 +$ +146,251 +$ +— +$ +87,761 +$ +— +$ +— +$ +20,878 +$ +447,173 +William J. Motto +Executive Chairman of the +2008 +$ +519,615 +$ +196,875 +$ +14,109 +$ +87,189 +$ +817,788 +Board of Directors +2007 +$ +494,904 +$ +378,750 +$ +— +$ +132,407 +$ +— +$ +— +$ +91,077 +$ +1,097,138 +Antonio A. Interno 4 +Senior Vice President, +President and Managing +2008 +$ +414,605 +$ +124,607 +$ +7,029 +$ +47,241 +$ +593,482 +Director, MBE +2007 +$ +353,575 +$ +220,983 +$ +— +$ +125,345 +$ +— +$ +— +$ +42,476 +$ +742,379 +Lawrence J. Baldini, +Executive Vice President, +Operations and Information +2008 +$ +223,901 +$ +85,053 +$ +68,835 +$ +21,291 +$ +399,080 +Systems +2007 +$ +213,045 +$ +162,006 +$ +— +$ +87,761 +$ +— +$ +— +$ +20,009 +$ +482,821 +1 +The amounts shown in this column reflect payments made pursuant to the 2008 and +2007 Officers’ Performance Compensation Plans, respectively. +2 +The amounts shown reflect the dollar amounts recognized for financial statement +reporting purposes with respect to fiscal years 2008 and 2007 in accordance with SFAS No. +123(R). No expense is included in this table related to options issued November 12, 2007. +Because the required earnings target for Meridian was not reached for fiscal 2008, the options +were forfeited. A discussion of the assumptions used in calculating these values may be found +in Note 6 (b) on page 64 to Company’s Annual Report on Form 10-K filed +November 26, 2008. +21 +Table of Contents +3 +See All Other Compensation charts below for amounts, which include certain Company +contributions, perquisites and other personal benefits. +Fiscal 2008 +John A. +Melissa A. +William J. +Antonio A. +Lawrence J. +Kraeutler +Lueke +Motto +Interno +Baldini +Retirement Contributions +$ +12,401 +$ +12,401 +$ +12,401 +$ +17,212 +$ +12,401 +Auto Lease / Auto Allowance +17,405 +6,000 +14,518 +30,029 +6,000 +Financial and Tax Planning +12,015 +3,000 +60,270 +— +2,890 +Totals +$ +41,821 +$ +21,401 +$ +87,189 +$ +47,241 +$ +21,291 +Fiscal 2007 +John A. +Melissa A. +William J. +Antonio A. +Lawrence J. +Kraeutler +Lueke +Motto +Interno +Baldini +Retirement Contributions +$ +12,158 +$ +12,079 +$ +12,158 +$ +15,892 +$ +12,099 +Auto Lease / Auto Allowance +15,798 +6,000 +18,919 +26,584 +6,000 +Financial and Tax Planning +14,969 +2,799 +60,000 +— +1,910 +Totals +$ +42,925 +$ +20,878 +$ +91,077 +$ +42,476 +$ +20,009 +4 +Mr. Interno’s salary and bonus were €276,640 and €82,992, respectively in +2008. Mr. Interno’s salary and bonus were €266,001 and €166,250, respectively in 2007. +All conversions were made at the average exchange rates for fiscal 2008 and 2007, respectively. +GRANTS OF PLAN-BASED AWARDS 3 +All other +All other +Stock +Option +Exercise +Awards: +Awards: +of Base +Estimated Future Payouts Under Non- +Estimated Future Payouts Under +Number of +Number of +Price of +Grant Date Fair +Equity Incentive Plan Awards +Equity Incentive Plan Awards +Shares of +Securities +Option +Value of Stock +Target +Max +Target +Max +Stock or +Underlying +Awards +and Option +Name +Grant Date +Threshold ($) +($) +($) +Threshold ($) +($) +($) +Units (#) +Options (#) 1 +($/Sh) +Awards 2 +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +(i) +(j) +(k) +(l) +John A. Kraeutler +01/28/2008 +— +— +— +— +— +— +— +50,000 +$ +33.09 +$ +719,140 +1 +Stock option awards have a ten-year term and vest 25,000 on January 22, 2011 and +25,000 on January 22, 2013. +2 +The amount shown reflects the dollar amounts recognized for financial statement +reporting purposes in accordance with SFAS No. 123(R). A discussion of the assumptions used in +calculating these values may be found in Note 6 (b) on page 64 to Company’s Annual Report on Form +10-K filed November 26, 2008. +3 +No expense is included in this table related to options issued November 12, 2007. +Because the required earnings target for Meridian was not reached for fiscal 2008, the options were +forfeited. +22 +Table of Contents +Outstanding Equity Awards at Fiscal Year-End +The following table provides information on the current holdings of stock option awards by the NEOs +under Meridian’s 2004 Equity Compensation Plan and the 1996 Stock Option Plan. The columns related +to stock awards have been deleted because there are no outstanding stock awards held by any of the +NEOs. +Under the Company’s stock option plans, general stock option awards have a ten-year term and vest +in four equal annual installments from the date of grant. The Company’s performance-based options, +if earned, vest in three equal annual installments, beginning on the date of the earnings release +indicating that performance targets were met for the period. +Equity Incentive +Plan Awards: +Number of +Number of +Number of +Securities +Securities +Securities +Underlying +Underlying +Underlying +Unexercised +Unexercised +Unexercised +Option +Option (#) +Option (#) +Unearned Options +Exercise +Option Grant +Option +Name +Exercisable +Unexercisable +(#) +Price ($) +Date +Expiration Date +William J. Motto +— +113,063 +4 +— +$ +2.090 +10/01/2001 +09/30/2011 +7,988 +1 +— +— +$ +2.800 +11/19/2002 +11/19/2012 +15,750 +2 +— +— +$ +4.525 +12/02/2003 +12/02/2013 +15,750 +2 +— +— +$ +7.280 +12/07/2004 +12/07/2014 +10,500 +2 +5,250 +2 +— +$ +14.007 +11/10/2005 +11/10/2015 +5,250 +2 +10,500 +2 +— +$ +16.554 +11/15/2006 +11/15/2016 +Melissa A. Lueke +— +22,500 +4 +— +$ +2.090 +10/01/2001 +09/30/2011 +5,250 +2 +— +— +$ +4.525 +12/02/2003 +12/02/2013 +10,500 +2 +— +— +$ +7.280 +12/07/2004 +12/07/2014 +10,500 +2 +5,250 +2 +— +$ +14.007 +11/10/2005 +11/10/2015 +5,250 +2 +10,500 +2 +— +$ +16.554 +11/15/2006 +11/15/2016 +John A. Kraeutler +28,125 +3 +— +— +$ +3.195 +11/16/2000 +11/15/2010 +— +123,751 +4 +— +$ +2.090 +10/01/2001 +09/30/2011 +35,550 +1 +— +— +$ +2.800 +11/19/2002 +11/19/2012 +5,250 +2 +— +— +$ +4.525 +12/02/2003 +12/02/2013 +10,500 +2 +— +— +$ +7.280 +12/07/2004 +12/07/2014 +10,500 +2 +5,250 +2 +— +$ +14.007 +11/10/2005 +11/10/2015 +5,250 +2 +10,500 +2 +— +$ +16.554 +11/15/2006 +11/15/2016 +— +25,000 +5 +— +$ +33.090 +01/28/2008 +01/28/2018 +— +25,000 +6 +— +$ +33.090 +01/28/2008 +01/28/2018 +Antonio A. Interno +— +22,500 +4 +— +$ +2.090 +10/01/2001 +09/30/2011 +5,250 +2 +— +— +$ +7.280 +12/07/2004 +12/07/2014 +5,250 +2 +5,250 +2 +— +$ +14.007 +11/10/2005 +11/10/2015 +5,250 +2 +10,500 +2 +— +$ +16.554 +11/15/2006 +11/15/2016 +Lawrence J. Baldini +— +22,500 +4 +— +$ +2.090 +10/01/2001 +09/30/2011 +5,250 +2 +— +— +$ +7.280 +12/07/2004 +12/07/2014 +5,250 +2 +5,250 +2 +— +$ +14.007 +11/10/2005 +11/10/2015 +5,250 +2 +10,500 +2 +— +$ +16.554 +11/15/2006 +11/15/2016 +1 +Options vested on 12/31/2003. +2 +Options vest in three equal annual installments beginning one year from public +earnings release date for the fiscal year ending immediately following the grant date, indicating +that performance targets were met, occurring approximately one year from date of grant. +3 +Options vested in four equal annual installments beginning one year from the date of +grant. +4 +Options vest on 10/01/2010. +5 +Options vest on 01/22/2011. +6 +Options vest on 01/22/2013. +23 +Table of Contents +OPTION EXERCISES AND STOCK VESTED +Option Awards +Stock Awards +Number of +Shares +Number of +Acquired on +Value Realized on +Shares Acquired +Value Realized +Name +Exercise (#) +Exercise ($) 1 +on Vesting (#) +On Vesting ($) +(a) +(b) +(c) +(d) +(e) +William J. Motto +48,263 +$ +1,343,159 +— +— +Melissa A. Lueke +11,250 +$ +302,456 +— +— +John A. Kraeutler +106,447 +$ +2,581,895 +— +— +Antonio A. Interno +15,750 +$ +349,587 +— +— +Lawrence J. Baldini +15,750 +$ +400,003 +— +— +1 +Amounts reflect the difference between the exercise price of the option and the market +price at the time of exercise. +NONQUALIFIED DEFERRED COMPENSATION +The following table sets forth, for each of the NEOs, certain information concerning nonqualified +deferred compensation for fiscal 2008. +Executive +Contributions +Registrant +Aggregate +Aggregate +during FY +Contributions +Earnings during +Withdrawals / +Aggregate Balance +Name +2008 +during FY 2008 +FY 2008 +Distributions +at 09/30/2008 +William J. Motto +— +— +— +— +— +Melissa A. Lueke +— +— +— +— +— +John A. Kraeutler +— +21,520 +— +— +161,207 +Antonio A. Interno +— +— +— +— +— +Lawrence J. Baldini +— +— +— +— +— +Our 401(k) Savings Plan (“401(k) Plan”) allows all US employees of the Company as of the first day +of their employment to set aside a portion of their compensation each year for their retirement +needs up to the limits set by the Internal Revenue Code. The Company contributes a matching +contribution of 100% of the first 3% of the employee’s contribution (i.e. up to 3% of an employee’s +salary) subject to Internal Revenue Code limitations. The Company may also contribute a +profit-sharing contribution at its discretion. Employee contributions are 100% vested immediately, +while Company contributions are subject to a graded vesting schedule of 20% per year for 5 years. +Participants are entitled to direct the +24 +Table of Contents +investment of their accounts among various mutual funds selected by the Company’s Fiduciary +Committee. The Plan also provides that Company discretionary profit sharing contributions may be +invested in Company stock. Participants who terminate employment are entitled to receive the +vested portion of their accounts. +Antonio A. Interno, Senior Vice President, President and Managing Director of our European +operations, is a non-US employee. Mr. Interno receives a profit sharing allocation that is +commensurate with amounts received by executive officers who are US employees and participate in +our 401(k) Plan. Mr. Interno also receives retirement contributions based on amounts contributed +by Meridian Bioscience Europe srl pursuant to the Italian government pension system, INPS. The +amount of such contribution was $11,711 for fiscal 2008. +A salary continuation agreement with John A. Kraeutler allows the Company to contribute amounts +above the IRS limit. This agreement provides additional compensation after retirement or +separation from the Company under certain circumstances and is funded by a life insurance policy +with premiums paid by the Company. +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL +In the case of a disability, Meridian is obligated to pay Mr. Motto 60% of his total annual salary +and bonus for a period of up to 60 months. In the case of death, Meridian is obligated to pay to +Mr. Motto’s designated beneficiaries up to $1 million. These benefits are to be reduced by the +gross amount of any life insurance payments or disability insurance payments made to Mr. Motto, or +his beneficiaries as the case may be, under any insurance policy or program maintained by Meridian, +other than group term life insurance programs maintained for all employees. +Mr. Kraeutler and Meridian are parties to an employment agreement dated February 15, 2001 which +sets forth compensation, non-competition, benefit and severance provisions and provides for a +payment equal to three times Mr. Kraeutler’s base salary (plus any salary earned but not paid) and +3-year average annual performance bonus if Mr. Kraeutler is terminated by Meridian without cause, +Mr. Kraeutler terminates his employment for good reason or upon a change in control of Meridian. +In the case of disability, Meridian is obligated to pay Mr. Kraeutler 100% of his base and +performance compensation, averaged from the three preceding fiscal years, until age 65. The +agreement was effective for a period of 36 months commencing February 15, 2001, automatically +extending each day for additional 36-month periods until either party terminates the agreement. +25 +Table of Contents +Had a change in control occurred on September 30, 2008, Mr. Kraeutler would have been entitled to +the following under the agreement: +Salary +$ +1,203,080 +Annual Performance Bonus +866,630 +Total Payment +$ +2,069,710 +DIRECTOR COMPENSATION +For 2008, non-employee directors of Meridian receive $30,000 per year for serving as directors and +as members of committees of the Board. They also receive $1,500 for each meeting of the Board and +$1,000 for each committee meeting attended. They receive $750 for each Board meeting and $500 for +each committee meeting held by telephone. The Audit Committee Chairman receives an additional +$8,000 annually and the Compensation Committee Chairman receives an additional $3,000 annually. +The Board Secretary receives an additional $1,000 for serving at each meeting of a committee of +which he is not a member. In accordance with the terms and conditions set forth in the Company’s +2004 Equity Compensation Plan, each non-employee director is also granted a non-qualified option to +purchase 7,500 common shares at the time of election or re-election to the Board of Directors, with +the exercise price being the closing sale price on Nasdaq reported on the date of grant. Directors +who are employees of Meridian are not separately compensated for serving as directors. +The following table provides information on compensation related to fiscal 2008 for non-employee +directors who served during fiscal 2008. +Fees +Change in +Earned +Pension Value +or +Non-Equity +and Nonqualified +Paid in +Stock +Option +Incentive Plan +Deferred +All Other +Cash +Awards +Awards +Compensation +Compensation +Compensation +Total +Name (1) +($) +($) +($) 1 +($) +Earnings +($) +($) +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +James A. Buzard +$ +48,000 +— +$ +111,312 +— +— +— +$ +159,312 +Gary P. Kreider +$ +52,000 +— +$ +111,312 +— +— +— +$ +163,312 +David C. Phillips +$ +56,000 +— +$ +111,312 +— +— +— +$ +167,312 +Robert J. Ready +$ +48,000 +— +$ +111,312 +— +— +— +$ +159,312 +1 +The amounts shown reflect the dollar amounts recognized for financial statement +reporting purposes with respect to fiscal year 2008 in accordance with SFAS No. 123(R). A +discussion of the assumptions used in calculating these values may be found in Note 6 (b) on +page 64 to Company’s Annual Report on Form 10-K filed November 26, 2008. +26 +Table of Contents +SHAREHOLDER PROPOSALS FOR NEXT YEAR +The deadline for shareholder proposals to be included in the proxy statement for next year’s +meeting is August 14, 2009. +The form of Proxy for this meeting grants authority to the designated proxies to vote in their +discretion on any matters that come before the meeting except those set forth in Meridian’s proxy +statement and except for matters as to which adequate notice is received. In order for a notice to +be deemed adequate for the 2009 Annual Shareholders’ Meeting, it must be received prior to October +29, 2008. If there is a change in the anticipated date of next year’s Annual Shareholders’ Meeting +or these deadlines by more than 30 days, we will notify you of this change through our Form 8-K +and/or Form 10-Q filings. +Meridian’s Code of Regulations provides that only persons nominated by an officer, director or in +writing by a shareholder not earlier than 150 days nor later than 90 days prior to the meeting at +which directors are to be selected shall be eligible for election and that shareholder proposals be +presented not earlier than 150 days nor later than 90 days prior to the meeting at which the +proposals are to be presented. +QUESTIONS? +If you have questions or need more information about the annual meeting, write to: +Melissa Lueke, Vice President, Chief Financial Officer and Secretary +Meridian Bioscience, Inc. +3471 River Hills Drive +Cincinnati, Ohio 45244 +or call us at (513) 271-3700. +For information about your record holdings call the Computershare Shareholder Services at (888) +294-8217. +27 +Table of Contents +MERIDIAN BIOSCIENCE, INC. +3471 RIVER HILLS DRIVE +CINCINNATI, OH 45244 +VOTE BY INTERNET - www.proxyvote.com +Use the Internet to transmit your voting +instructions and for electronic delivery of +information up until 11:59 P.M. Eastern Time the day +before the cut-off date or meeting date. Have your +proxy card in hand when you access the web site and +follow the instructions to obtain your records and +to create an electronic voting instruction form. +ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS +If you would like to reduce the costs incurred by +our company in mailing proxy materials, you can +consent to receiving all future proxy statements, +proxy cards and annual reports electronically via +e-mail or the Internet. To sign up for electronic +delivery, please follow the instructions above to +vote using the Internet and, when prompted, indicate +that you agree to receive or access proxy materials +electronically in future years. +VOTE BY PHONE - 1-800-690-6903 +Use any touch-tone telephone to transmit your voting +instructions up until 11:59 P.M. Eastern Time the +day before the cut-off date or meeting date. Have +your proxy card in hand when you call and then +follow the instructions. +VOTE BY MAIL +Mark, sign and date your proxy card and return it in +the postage-paid envelope we have provided or return +it to Vote Processing, c/o Broadridge, 51 Mercedes +Way, Edgewood, NY 11717. +TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: +MRDIN1 +KEEP THIS PORTION FOR YOUR RECORDS +THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. +DETACH AND RETURN THIS PORTION ONLY +MERIDIAN BIOSCIENCE, INC. +A +Election of Directors +The Board of Directors recommends a +vote FOR the listed nominees. +1. +Authority to elect as directors the six nominees listed below. +For +Against +Abstain +Nominees: +1a. JAMES A. BUZARD +o +o +o +1b. JOHN A. KRAEUTLER +o +o +o +1c. GARY P. KREIDER +o +o +o +1d. WILLIAM J. MOTTO +o +o +o +1e. DAVID C. PHILLIPS +o +o +o +1f. ROBERT J. READY +o +o +o +B +Issue +The Board of Directors recommends a vote FOR the following proposal. +For +Against +Abstain +2. +To ratify the appointment of Grant Thornton LLP as Meridian’s independent registered public accountants for fiscal 2009. +o +o +o +For address changes and/or comments, please check this box and write them on the back where indicated. +o +C +Authorized Signatures - Sign here - This section +must be completed for your instructions to be +executed. +Note: Please sign exactly as name(s) appear(s) +hereon, indicating, where proper, official +position or representative capacity. All joint +holders must sign. +Signature [PLEASE SIGN WITHIN BOX] +Date +Signature (Joint Owners) +Date +Table of Contents +MRDIN2 +Proxy – Meridian Bioscience, Inc. +THIS PROXY IS SUBMITTED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned hereby appoints WILLIAM J. MOTTO or MELISSA A. LUEKE, or either of +them, proxies of the undersigned, each with the power of substitution, to vote cumulatively or otherwise all shares of Common Stock which the undersigned +would be entitled to vote on the matters specified on the reverse side and, in their discretion, with respect to such other business as may properly come +before the Annual Meeting of Shareholders of Meridian Bioscience, Inc. to be held on January 22, 2009 at 2:00 p.m. at Holiday Inn, 4501 +Eastgate Boulevard, Cincinnati, Ohio and any postponement or adjournment of such Annual Meeting. +Address Changes/Comments: +(If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.) +(This proxy is continued and is to be signed on the reverse side.) +Table of Contents +MERIDIAN BIOSCIENCE, INC. +** IMPORTANT NOTICE ** +Regarding the Availability of Proxy Materials +You are receiving this communication because you hold shares in the +above company, and the materials you should review before you cast your +vote are now available. +This communication presents only an overview of the more +complete proxy materials that are available to you on the Internet. +We encourage you to access and review all of the important +information contained in the proxy materials before voting. +MERIDIAN BIOSCIENCE, INC. +3471 RIVER HILLS DRIVE +CINCINNATI, OH 45244 +Shareholder Meeting to be held on 01/22/09 +Proxy Materials Available +• +Annual Report on Form 10-K +• +Proxy Statement +PROXY MATERIALS - VIEW OR RECEIVE +You can choose to view the materials online or receive a +paper or e-mail copy. There is NO charge for requesting +a copy. Requests, instructions and other inquiries will +NOT be forwarded to your investment advisor. +To facilitate timely delivery please make the request +as instructed below on or before 01/08/09. +HOW TO VIEW MATERIALS VIA THE INTERNET +Have the 12 Digit Control Number(s) available and visit: +www.proxyvote.com +HOW TO REQUEST A COPY OF MATERIALS +1) BY INTERNET +- +www.proxyvote.com +2) BY TELEPHONE +- +1-800-579-1639 +3) BY E-MAIL* +- +sendmaterial@proxyvote.com +*If requesting materials by e-mail, please send a blank e-mail +with the 12 Digit Control Number (located on the following +page) in the subject line. +See the Reverse Side for Meeting Information and Instructions on How to Vote +R1MB11 +Table of Contents +Meeting Information +Meeting Type: +Annual Meeting +Meeting Date: +01/22/09 +Meeting Time: +2:00 P.M. Local Time +For holders as of: +11/24/08 +Meeting Location: +Holiday Inn Eastgate 4501 Eastgate +Blvd. Cincinnati, OH 45245 +Meeting Directions: +For Meeting Directions Please Call: +513-752-4400 +How To Vote +Vote In Person +Many shareholder meetings have attendance requirements +including, but not limited to, the possession of an +attendance ticket issued by the entity holding the +meeting. Please check the meeting materials for any +special requirements for meeting attendance. At the +Meeting you will need to request a ballot to vote these +shares. +Vote By Internet +To vote now by Internet, go to WWW.PROXYVOTE.COM. Use +the Internet to transmit your voting instructions and +for electronic delivery of information up until 11:59 +P.M. Eastern Time the day before the cut-off date or +meeting date. Have your notice in hand when you access +the web site and follow the instructions. +R1MB12 +Table of Contents +Voting items +A +Election of Directors +The Board of Directors recommends +a vote FOR the listed nominees. +1. +Authority to elect as directors the six +nominees listed below. +Nominees: +1a. +JAMES A. BUZARD +1b. +JOHN A. KRAEUTLER +1c. +GARY P. KREIDER +1d. +WILLIAM J. MOTTO +1e. +DAVID C. PHILLIPS +1f. +ROBERT J. READY +B +Issue +The Board of Directors recommends a vote FOR the following proposal. +2. +To ratify the appointment of Grant Thornton LLP as Meridian’s independent registered public accountants for +fiscal 2009. +R1MB13 +Table of Contents +R1MB14 \ No newline at end of file diff --git a/raw/proxies/0000794172/0000950152-08-010080/proxy_rpt.txt b/raw/proxies/0000794172/0000950152-08-010080/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..c0a8cbba396f204681add6755629b5f6e64303e9 --- /dev/null +++ b/raw/proxies/0000794172/0000950152-08-010080/proxy_rpt.txt @@ -0,0 +1,27 @@ +TRANSACTIONS WITH RELATED PERSONS +Todd Motto, the adult son of William J. Motto, is Vice President, Sales and Marketing. Todd Motto +received $348,488 in compensation for fiscal 2008. This compensation consisted of base salary of +$186,157, bonus of $73,125 under the Officers’ Performance Compensation Plan, $8,850 of auto and +professional allowances, $12,401 of retirement plan contributions, and $67,955 related to stock +option awards. +Nasdaq rules require the Company to conduct an appropriate review of related party transactions +required to be disclosed by the Company pursuant to SEC Regulation S-K Item 404 for potential +conflict of interest situations on an ongoing basis and that all such transactions must be approved +by the Audit Committee or another committee comprised of independent directors. As a result, the +Audit Committee annually reviews all such related party transactions and approves each related +party transaction if it determines that it is in the best interests of the Company. Additionally, +the Audit Committee’s Charter provides it the authority to review, approve and monitor transactions +involving the Company and “related persons” (directors and executive officers or their immediate +family members, or shareholders owning five percent or greater of the Company’s outstanding stock). +This also covers any related person transaction that meets the minimum threshold for disclosure in +the proxy statement under the relevant SEC rules (generally, transactions involving amounts +exceeding $120,000 in which a related person has a direct or indirect material interest). In +considering the transaction, the Audit Committee may consider all relevant factors, including, as +applicable, (i) the Company’s business rationale for entering into the transaction; (ii) the +alternatives to entering into a related person transaction; (iii) whether the transaction is on +terms comparable to those available to third parties, or in the case of employment relationships, +to employees generally; (iv) the potential for the transaction to lead to an actual or apparent +conflict of interest and any safeguards imposed to prevent such actual or apparent conflicts; and +(v) the overall fairness of the transaction to the Company. This policy is included in the +Company’s Employee Handbook. The approval of such related person transactions are evidenced by +internal Company resolutions or memoranda. \ No newline at end of file diff --git a/raw/proxies/0000794172/0001021408-01-511794/proxy.txt b/raw/proxies/0000794172/0001021408-01-511794/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..9ca9bdad733328c15410bce04ce8326bf88cea3c --- /dev/null +++ b/raw/proxies/0000794172/0001021408-01-511794/proxy.txt @@ -0,0 +1,645 @@ +DEF 14A +1 +ddef14a.txt +DEFINITIVE PROXY STATEMENT +SCHEDULE 14A +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) +of the Securities and Exchange Act of 1934 +(Amendment No. ___ ) +Filed by the Registrant [X] +Filed by a Party other than the Registrant [_] +Check the appropriate box: +[_] Preliminary Proxy Statement +[_] CONFIDENTIAL, FOR USE OF THE +COMMISSION ONLY (AS PERMITTED BY +RULE 14A-6(E)(2)) +[X] Definitive Proxy Statement +[_] Definitive Additional Materials +[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12 +Meridian Bioscience, Inc. +-------------------------------------------------------------------------------- +(Name of Registrant as Specified In Its Charter) +-------------------------------------------------------------------------------- +(Name of Person(s) Filing Proxy Statement if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +[X] No fee required. +[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. +(1) Title of each class of securities to which transaction applies: +------------------------------------------------------------------------- +(2) Aggregate number of securities to which transaction applies: +------------------------------------------------------------------------- +(3) Per unit price or other underlying value of transaction computed +pursuant to Exchange Act Rule 0-11 (set forth the amount on which +the filing fee is calculated and state how it was determined): +------------------------------------------------------------------------- +(4) Proposed maximum aggregate value of transaction: +------------------------------------------------------------------------- +[_] Fee paid previously with preliminary materials. +[_] Check box if any part of the fee is offset as provided by Exchange +Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was +paid previously. Identify the previous filing by registration statement number, +or the Form or Schedule and the date of its filing. +(1) Amount Previously Paid: +------------------------------------------------------------------------- +(2) Form, Schedule or Registration Statement No.: +------------------------------------------------------------------------- +(3) Filing Party: +------------------------------------------------------------------------- +(4) Date Filed: +------------------------------------------------------------------------- +MERIDIAN BIOSCIENCE, INC. +3471 River Hills Drive +Cincinnati, Ohio 45244 +Notice of Annual Meeting +and Proxy Statement +Dear Shareholder: +Our Annual Meeting of Shareholders will be held at 3:00 p.m. on January 22, 2002 +at Ivy Hills Country Club, 7711 Ivy Hills Boulevard, Cincinnati, Ohio. We hope +you will attend. At the meeting, you will hear a report on our operations and +have a chance to meet your directors and executives. +This booklet includes the formal notice of the meeting and the proxy statement. +The proxy statement tells you more about the agenda and procedures for the +meeting. It also describes how the Board operates and gives personal information +about our director candidates. +Please complete, sign, date, and return your proxy card promptly in the enclosed +envelope. +Sincerely yours, +/s/ William J. Motto +William J. Motto +Chairman of the Board +December 26, 2001 +NOTICE OF ANNUAL MEETING +OF +SHAREHOLDERS OF MERIDIAN BIOSCIENCE, INC. +Time: +3:00 p.m., Eastern Time +Date: +January 22, 2002 +Place: +Ivy Hills Country Club +7711 Ivy Hills Boulevard +Cincinnati, Ohio +Purpose: +. Elect directors +. Ratify appointment of Arthur Andersen LLP as Meridian's independent +public accountants for fiscal year 2002 +. Conduct other business if properly raised +Only shareholders of record on December 3, 2001 may vote at the meeting. +The approximate mailing date of this Proxy Statement and accompanying Proxy Card +is December 27, 2001. +Your vote is important. Please complete, sign, date, and return your proxy +card promptly in the enclosed envelope. +/s/ Melissa Lueke +Melissa Lueke +Secretary +December 26, 2001 +-4- +GENERAL INFORMATION +Who may vote +Shareholders of Meridian, as recorded in our stock register on December 3, 2001, +may vote at the meeting. As of that date, Meridian had 14,599,170 shares of +Common Stock outstanding. +How to vote +You may vote in person at the meeting or by proxy. We recommend you vote by +proxy even if you plan to attend the meeting. You can always change your vote at +the meeting. +How proxies work +Meridian's Board of Directors is asking for your proxy. Giving us your proxy +means you authorize us to vote your shares at the meeting in the manner you +direct. You may vote for all, some or none of our director candidates. You may +also vote for or against the other proposals or abstain from voting. +If you sign and return the enclosed proxy card but do not specify how to vote, +we will vote your shares in favor of our director candidates and in favor of the +ratification of Arthur Andersen LLP as Meridian's independent public accountants +for fiscal year 2002. +If any other matters come before the meeting or any adjournment, each proxy will +be voted in the discretion of the individuals named as proxies on the card. +You may receive more than one proxy or voting card depending on how you hold +your shares. Shares registered in your name are covered by one card. If you hold +shares through someone else, such as a stockbroker, you may get material from +them asking how you want to vote. +Revoking a proxy +You may revoke your proxy before it is voted by submitting a new proxy with a +later date, by voting in person at the meeting, or by notifying Meridian's +Secretary in writing at the address under "Questions?" on page 14. +Quorum +In order to carry on the business of the meeting, we must have a quorum. This +means at least a majority of the outstanding shares eligible to vote must be +represented at the meeting, either by proxy or in person. +Votes needed +The six director candidates receiving the most votes will be elected to fill the +seats on the Board. +Ratification of appointment of accountants requires the favorable vote of a +majority of the votes cast. Only votes for or against these proposals count. +Other Matters +Any other matters considered at the meeting, including adjournment, will require +the affirmative vote of a majority of the votes cast. +ELECTION OF DIRECTORS +(Item 1 on the Proxy Card) +The Board has nominated the director candidates named below. +The Board of Directors oversees the management of Meridian on your behalf. The +Board reviews Meridian's long-term strategic plans and exercises direct +decision-making authority in key areas, such as choosing the Chief Executive +Officer, setting the scope of his authority to manage Meridian's business day to +day and evaluating management's performance. +The Board is nominating for election all of the following current directors: +James A. Buzard, John A. Kraeutler, Gary P. Kreider, William J. Motto, David C. +Phillips and Robert J. Ready. +Proxies solicited by the Board will be voted for the election of these nominees. +All directors elected at the Annual Meeting will be elected to hold office until +the next annual meeting. In voting to elect directors, shareholders are entitled +to cumulate their votes and to give one candidate a number of votes equal to the +number of directors to be elected multiplied by the number of shares held by the +shareholder, or to distribute their votes on the same principle among as many +candidates as the shareholder sees fit. In order to invoke cumulative voting, +notice of cumulative voting must be given in writing by a shareholder to the +President, a Vice President or the Secretary of Meridian not less than 48 hours +prior to the Annual Meeting. The proxies solicited include discretionary +authority to cumulate votes. +-5- +Four of our six nominees are not Meridian employees. Only non-employee directors +serve on Meridian's Audit and Compensation committees. All Meridian directors +are elected for one-year terms. Personal information on each of our nominees is +given below. +Board meetings last year: 8 +Actions in writing last year: 7 +If a director nominee becomes unavailable before the election, your proxy card +authorizes us to vote for a replacement nominee if the Board names one. +The Board recommends you vote FOR each of the following candidates: +-------------------------------------------------------------------------------------------------------------- +James A. Buzard, Ph.D. James A. Buzard, Ph.D. serves as Chairman of the Compensation Committee. +Director since 1990 From March 1981 until December 1989, he was Executive Vice President of +Merrell Dow Pharmaceuticals Inc. From December 1989 until his +retirement in February 1990, he was Vice President of Marion Merrell +Dow, Inc. He has been a business consultant since February 1990. +-------------------------------------------------------------------------------------------------------------- +John A. Kraeutler John A. Kraeutler has more than 20 years of experience in the medical +Director since 1997 diagnostics industry and joined Meridian as Executive Vice President and +Chief Operating Officer in January 1992. In July 1992, Mr. Kraeutler +was named President of Meridian. Before joining Meridian, Mr. Kraeutler +served as Vice President, General Manager for a division of +Carter-Wallace, Inc. Prior to that, he held key marketing and technical +positions with Becton, Dickinson and Company and Organon, Inc. +-------------------------------------------------------------------------------------------------------------- +Gary P. Kreider, Esq. Gary P. Kreider has been a Senior Partner of the Cincinnati law firm of +Director since 1991 Keating, Muething & Klekamp, P.L.L., counsel to Meridian, since 1975. +He is also an Adjunct Professor of Law in securities at the University +of Cincinnati College of Law and a director of Lenox Bancorp, Inc. +-------------------------------------------------------------------------------------------------------------- +William J. Motto William J. Motto has more than 25 years of experience in the +Director since 1977 pharmaceutical and diagnostics products industries, is a founder of +Meridian and has been Chairman of the Board since 1977. Before forming +Meridian, Mr. Motto served in various capacities for Wampole +Laboratories, Inc., Marion Laboratories, Inc. and Analytab Products, +Inc., a division of American Home Products Corp. +-------------------------------------------------------------------------------------------------------------- +David C. Phillips David C. Phillips spent 32 years with Arthur Andersen LLP. His service +Director since 2000 with this firm included several managing partner leadership positions. +After retiring from Arthur Andersen in 1994, Mr. Phillips became Chief +Executive Officer of Downtown Cincinnati, Inc., which is responsible for +economic revitalization of Downtown Cincinnati. Mr. Phillips retired +from DCI in 1999 to devote full time to Cincinnati Works, Inc., an +organization dedicated to reducing the number of people living below the +poverty level by assisting them to strive towards selfsufficiency +through work. +-------------------------------------------------------------------------------------------------------------- +Robert J. Ready Robert J. Ready serves as Chairman of the Audit Committee. In 1976, Mr. +Director since 1986 Ready founded LSI Industries, Inc., Cincinnati, Ohio, which engineers, +manufactures and markets commercial/industrial lighting and graphics +products, and has served as its President and Chairman of its Board of +Directors since that time. +---------------------------------------------------------------------------------------------------------------- +-6- +RATIFICATION OF APPOINTMENT OF ACCOUNTANTS +(Item 2 on the Proxy Card) +Although not required, the Board is seeking shareholder ratification of its +selection of Arthur Andersen LLP as Meridian's independent public accountants +for fiscal 2002. The affirmative vote of a majority of shares voting at the +meeting is required for ratification. If ratification is not obtained, the Board +intends to continue the employment of Arthur Andersen LLP at least through +fiscal 2002. Representatives of Arthur Andersen LLP are expected to be present +at the Shareholders' Meeting and will be given an opportunity to make a +statement, if they so desire, and to respond to appropriate questions that may +be asked by shareholders. +Principal Accounting Firm Fees: +------------------------------- +Aggregate fees billed to Meridian for fiscal 2001 by Meridian's principal +accounting firm, Arthur Andersen LLP, are as follows: +Audit Fees $241,100 +Financial Information +Systems Design and +Implementation Fees - (b) +-------- +241,100 +All Other Fees 352,000(a)(b) +-------- +$593,100 +======== +(a) Includes fees for tax and other non-audit services. +(b) The Audit Committee has considered whether the provision of these services +is compatible with maintaining the principal accountant's independence. +DIRECTOR COMPENSATION +Non-employee directors of Meridian receive $12,000 per year for serving as a +director and as members of committees of the Board. They also receive $1,000 for +each director or committee meeting attended, except if a committee meeting +occurs on the same day as a directors' meeting the committee meeting fee is +$800. They receive $500 for each director or committee meeting held by +telephone. Committee chairmen receive an additional $500 for each committee +meeting held. Each non-employee director is also granted a non-qualified option +to purchase 2,317 shares of Common Stock at the time of election or re-election +to the Board of Directors, with the exercise price being the closing sale price +on Nasdaq reported immediately prior to the date of grant. If a change in +control occurs, non-employee directors will receive lump-sum payments equal to +ten times their annual compensation received in the prior fiscal year. Directors +who are employees of Meridian are not separately compensated for serving as +directors. +BOARD COMMITTEES +The Board appoints committees to help carry out its duties. In particular, Board +committees work on key issues in greater detail than would be possible at full +Board meetings. Each committee reviews the results of its meetings with the full +Board. The Board of Directors does not have a nominating committee or executive +committee. +The Audit Committee is responsible for reviewing Meridian's internal accounting +operations. It also recommends the employment of independent accountants and +reviews the relationship between Meridian and its outside accountants. +Meetings last year: 5 +Actions in writing last year: 0 +REPORT OF THE AUDIT COMMITEE +Meridian's Audit Committee is composed of Messrs. Ready (Chairman), Buzard and +Kreider. All of the members of the Committee meet the NASD standards for +independence and financial literacy. +In April 2000, the Board adopted the Audit Committee Charter, which was attached +to last year's Proxy Statement as Appendix I. The Charter outlines the +activities and responsibilities of the Committee. +In August 2001, the Committee met with representatives of Arthur Andersen and +Meridian's internal accountants and reviewed with them the proposed 2001 Audit +Plan, areas warranting particular concentration on the audit and the effects of +new accounting pronouncements. The Committee also reviewed business analysis and +initial risk assessments and the implementation of new accounting rules on +business combinations, goodwill and intangible assets presented by Arthur +Andersen. +At its meeting in November 2001, the Committee reviewed with management, Arthur +Andersen and Meridian's accounting officers the results of the audit for fiscal +2001, including the audited financial statements. The Committee reviewed the +requirements +-7- +of its Charter previously adopted and the reports that were required to be +disclosed to the Committee. The Committee discussed with Arthur Andersen the +matters required to be discussed by Statement on Auditing Standards No. 61. The +Arthur Andersen representatives reviewed with the Committee written disclosures +required by the Independence Standards Board Standard No. 1 regarding +independence of the public accountants and presented a letter regarding that +matter to the Committee. +Relying upon the discussions and reviews described above, the Committee +recommended to the Board of Directors that the audited financial statements of +Meridian be included in its Annual Report on Form 10-K for the year ended +September 30, 2001 for filing with the Securities and Exchange Commission. +Respectfully submitted, +Audit Committee +Robert J. Ready (Chairman) +James A. Buzard +Gary P. Kreider +The Compensation Committee is responsible for establishing compensation for +management and administering Meridian's stock option plans. +Meetings last year: 8 +Actions in writing last year: 2 +COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION +Report of the Compensation Committee +Meridian's Compensation Committee is composed of Messrs. Buzard (Chairman), +Kreider, Phillips and Ready. The Compensation Committee is responsible for +establishing compensation for executive officers, establishing salary levels and +bonus plans, making bonus awards and otherwise dealing in all matters concerning +compensation of the executive officers and awarding stock options for all +employees. +At its meeting on November 16, 2000, the Committee set the salaries for the +executive officers for fiscal 2001 as shown in the Summary Compensation Table. +The Committee had available to it in establishing executive salaries the +recommendations of management with respect to overall staff level compensation +for the coming fiscal year for Meridian. The Committee took into account these +considerations plus the financial performance of Meridian during fiscal 2000 in +establishing salary levels. It determined the compensation for the Chief +Executive Officer in the same manner it did for its other executive officers. +The Committee also considered a fiscal 2001 bonus award program based on +targeted earnings levels. The Committee met without Meridian's management in +making its decisions. At its meeting on November 16, 2000 and at other meetings +throughout the year, the Committee also awarded stock options pursuant to +Meridian's Stock Option Plan to various employees including the stock options to +executive officers listed elsewhere in this Proxy Statement. +At its meeting in September 2001, the Committee awarded incentive stock options +to certain employees and executive officers, which are tied to net earnings and +stock price targets. One series of options will vest immediately if Meridian's +net earnings for fiscal 2002 are at least $6,821,000. The other series will vest +if the stock price reaches designated price levels for 30 consecutive days +during fiscal 2002 plus the first 30 days of fiscal 2003 with the vesting +schedule being one-third at $12, one-third at $13 and one-third at $14. If these +targets are not reached, the options will not vest until nine years after the +date of grant. They also vest if Meridian or substantially all of its assets are +sold in fiscal 2002. +At its meeting on November 14, 2001, the Committee maintained salary levels for +Messrs. Motto, Kraeutler, Eberly and Interno for fiscal 2002 at fiscal 2001 +levels, granted increases to operating officers and established a fiscal 2002 +bonus award based on targeted net earnings levels from $6,475,000 to $7,500,000. +Respectfully submitted, +Compensation Committee +James A. Buzard (Chairman) +Robert J. Ready +Gary P. Kreider +David C. Phillips +-8- +PRINCIPAL SHAREHOLDERS +William J. Motto, Chairman of the Board, and Putnam Investments, LLC are the +only shareholders known by Meridian to own beneficially 5% or more of its +outstanding Common Stock as of December 3, 2001. Information has been furnished +by the persons listed and/or has been obtained from reports filed by the persons +listed with the Securities and Exchange Commission: +Amount and Nature of Percent +Name of Beneficial Owner Beneficial Ownership of Class +------------------------ -------------------- -------- +William J. Motto/1/ 4,292,514 29.4% +Putnam Investments, LLC/2/ 1,801,982 12.3% +1. The business address of Mr. Motto is 3471 River Hills Drive, Cincinnati, +Ohio 45244. The shares of Common Stock reported as beneficially owned by Mr. +Motto include 60,646 shares held by the William J. Motto Family Charitable +Remainder Unitrust and 25,000 shares subject to options exercisable within 60 +days. +2. The business address of Putnam Investments, LLC is One Post Office Square, +Boston, Massachusetts 02109. The shares of Common Stock reported as beneficially +owned by Putnam Investments, LLC includes shares held by Putnam Investment +Management, LLC and The Putnam Advisory Company, LLC, two wholly-owned +subsidiaries of Putnam Investments, LLC. The shares of Common Stock reported as +beneficially owned by Putnam Investments, LLC are as of September 30, 2001, the +latest date such information is available to Meridian. +-9- +DIRECTORS AND EXECUTIVE OFFICERS +This table lists the executive officers and directors of Meridian and shows how +much common stock each owned on December 3, 2001. +Common Stock +Beneficially Owned +Name and Age Position Amount/1/ Percentage/2/ +------------ -------- --------- ------------- +William J. Motto Chairman of the Board of Directors, +60 Chief Executive Officer 4,292,514/2/ 29.4% +John A. Kraeutler President, Chief Operating Officer +53 and Director 275,767 1.9% +Antonio A. Interno/3/ Senior Vice President 380,585 2.6% +51 +Richard L. Eberly/4/ Executive Vice President 32,875 * +40 +Kenneth J. Kozak/5/ Vice President, Research and +47 Development 7,159 * +Melissa A. Lueke/6/ Vice President, Chief Financial +38 Officer and Secretary 9,100 * +Susan A. Rolih/7/ Vice President of Regulatory Affairs +52 & Quality Systems -- -- +Lawrence J. Baldini/8/ Vice President of Operations 3,000 * +42 +James A. Buzard, Ph.D./9/ Director 27,393 * +74 +Gary P. Kreider/9/ Director 48,403/10/ * +63 +Robert J. Ready/9/ Director 29,098 * +61 +David C. Phillips/11/ Director 8,317 * +63 +--------------------------------------------- +All Executive Officers +and Directors as a Group 5,114,211 33.9% +1. Includes options exercisable within 60 days from Mr. Motto of 25,000 shares, +Mr. Kraeutler of 269,573 shares, Mr. Interno of 66,616 shares, Mr. Eberly of +32,775 shares, Mr. Kozak of 6,850 shares, Mr. Buzard of 22,635 shares, Mr. +Kreider of 18,538 shares, Ms. Lueke of 6,500 shares, Mr. Phillips of 2,317 +shares and Mr. Ready of 22,635 shares. +2. See description of Common Stock ownership contained under "Principal +Shareholder." +3. Antonio A. Interno was appointed as a Vice President in August 1991 and +appointed a Senior Vice President in September 1997. He has been Managing +Director of Meridian's European subsidiary, Meridian Diagnostics Europe +since February 1990. +4. Richard L. Eberly was appointed Vice President of Sales and Marketing on +January 10, 1997 and appointed an Executive Vice President in May 2000. He +has over 12 years of experience in the medical diagnostic industry and +joined Meridian in January 1995. Prior to his appointment to Vice President +of Sales and Marketing, Mr. Eberly served as the Director of Sales for +Meridian. Before joining Meridian, he held key sales and marketing positions +at Abbott Diagnostics. +5. Kenneth J. Kozak joined Meridian in October 1987 and was appointed Vice +President, Research and Development, on May 17, 1999. Prior to this +appointment, Mr. Kozak served as Director of Product Development for +Meridian. Before joining Meridian, Mr. Kozak held a variety of positions at +the University of Cincinnati College of Medicine. +6. Melissa A. Lueke was appointed Vice President, Chief Financial Officer and +Secretary on January 23, 2001. Prior to her appointment, Ms. Lueke served as +Meridian's Controller since March 2000 and Acting Secretary from July 20, +2000 to January 23, 2001. Before joining Meridian, Ms. Lueke was employed by +Arthur Andersen LLP from June 1985 to January 1999, most recently as a +Senior Audit Manager. +-10- +7. Susan A. Rolih was appointed Vice President of Regulatory Affairs and +Quality Systems on May 29, 2001. Before joining Meridian, Ms. Rolih held +various regulatory and quality positions with Immucor, Inc. +8. Lawrence J. Baldini was appointed Vice President of Operations on April 3, +2001. Before joining Meridian, Mr. Baldini held various operations +management positions with Instrumentation Laboratories and Fisher +Scientific. +9. Audit Committee Member and Compensation Committee Member. +10. Includes 5,145 shares held directly by his wife, 1,000 shares held as +custodian for his minor child and 9,364 shares held by trusts of which Mr. +Kreider is trustee and a beneficiary. Also includes Meridian debentures +convertible into 1,615 shares. +11. Compensation Committee Member. +* Less than one percent. +-11- +SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Section 16 of the Securities Exchange Act of 1934 requires Meridian's +executive officers, directors and persons who own more than ten percent of a +registered class of Meridian's equity securities to file reports of ownership +and changes in ownership with the Securities and Exchange Commission. Based on +a review of the copies of such forms received by it, Meridian believes that +during the last fiscal year, all of its executive officers, directors and ten +percent stockholders complied with the Section 16 reporting requirements except +as follows: Mr. Kozak filed a December 1999 Form 4 in January 2001, Mr. Buzard +filed an October 2000 Form 4 in December 2000, Mr. Phillips filed an April 2001 +Form 4 in June 2001 and Mr. Motto filed an amended March 2001 Form 4 in May +2001. For each of the above individuals, the delinquent report concerned just +one transaction. +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +Gary P. Kreider, who is a member of the Compensation Committee, is a senior +partner of Keating, Muething & Klekamp, P.L.L., Cincinnati, Ohio, a law firm +that provided legal services to Meridian in fiscal 2001. +SUMMARY COMPENSATION TABLE +Annual Compensation +Securities +Name and Underlying All Other +Principal Position Year Salary Bonus Options Compensation/1/ +------------------ ---- ------ ----- ------- --------------- +William J. Motto 2001 $387,700 $ -0- 20,000 $50,298 +Chairman of the Board of Directors, 2000 371,000 104,344 20,000 43,908 +Chief Executive Office 1999 355,000 144,813 - 41,139 +John A. Kraeutler/2/ 2001 $293,500 $ -0- 50,000 $32,165 +President, Chief Operating Officer 2000 280,400 75,544 50,000 31,401 +1999 267,900 111,738 50,000 25,121 +Antonio A. Interno 2001 $192,100 $ -0- 10,000 $16,200 +Senior Vice President, Managing 2000 200,000 32,837 15,000 16,200 +Director MDE 1999 210,000 59,527 - +Richard L. Eberly 2001 $177,700 $ -0- 35,000 $22,532 +Executive Vice President, Sales, 2000 170,000 43,594 10,000 35,813 +Marketing and Operations 1999 116,000 64,150 7,500 26,028 +Melissa A. Lueke 2001 $145,900 $ -0- 30,000 $13,759 +Vice President, Chief Financial - - - - - +Officer and Secretary - - - - - +1 Amounts accrued under Meridian's Savings and Investment Plan. Also +includes certain education related expenses, professional fees and car +allowances, as well as premiums paid under Meridian's Split-Dollar +Insurance Program. Under this Program, Meridian has purchased insurance +policies on the lives of Mr. Motto, Mr. Kraeutler, Mr. Eberly and Ms. +Lueke. These individuals are responsible for a portion of the premiums and +Meridian pays the remainder. Upon the death of any of these individuals, +Meridian will receive that portion of the benefits paid that equals the +premiums paid by Meridian on the respective policy. The beneficiary named +by the decedent will receive the remainder of the death benefits. The +premiums paid to the insurer under these policies for the fiscal years +ended September 2001, 2000 and 1999 were $11,697, $11,182, and $10,411, +respectively, for Mr. Motto; $8,948, $7,422, and $7,058, respectively, for +Mr. Kraeutler; $4,190, $2,487, and $755, respectively, for Mr. Eberly; and +$2,729 for Ms. Lueke for 2001. +2 Mr. Kraeutler and Meridian are parties to an employment agreement dated +February 15, 2001 which sets forth compensation, non-competition, benefit +and severance provisions and provides for a payment equal to three times +Mr. Kraeutler's base salary (plus any salary earned but not paid) upon the +occurrence of certain events, including a change in control of Meridian. +The agreement is effective for a period of 36 months commencing February +15, 2001, automatically extending until either party terminates the +agreement. +Todd Motto, the adult son of William J. Motto, is Director International +Marketing MBE at Meridian. Todd Motto received $78,000 in compensation +for fiscal 2001 and options to purchase 1,500 shares of Meridian common +stock at an exercise price of $3.09 per share. +-12- +OPTION GRANTS IN LAST FISCAL YEAR +--------------------------------- +% of Total Potential Realized Value +Number of Options at Assumed Annual +Securities Granted to Rates of Price Appreciation +Underlying Employees Exercise for Option Term +Options in Fiscal Price Expiration --------------- +---------- +Names Granted 2001 ($/Per Share) Date 5% 10% +----- ------- ---- ------------ ---- -- --- +Willam J. Motto 20,000 7% $7.1875 11/15/10 $234,154 $ 372,850 +John A. Kraeutler 50,000 17% 7.1875 11/15/10 585,384 932,126 +Antonio A. Interno 10,000 3% 7.1875 11/15/10 117,077 186,425 +15,000 5% 7.1875 11/15/10 175,615 279,638 +Richard L. Eberly +20,000 7% 2.5000 2/13/11 81,445 129,687 +10,000 3% 7.1875 11/15/10 117,077 186,425 +Melissa A. Lueke +20,000 7% 2.5000 2/13/11 81,445 129,687 +FISCAL 2001 OPTION EXERCISES +AND FISCAL YEAR-END OPTION VALUES +--------------------------------- +Number of Securities Value of Unexercised In- +Underlying Unexercised the-Money Options at +Options at FY-End FY-End +Shares Acquired +--------------- +Name on Exercise Value Realized Exercisable/Unexercisable Exercisable/Unexercisable +---- ----------- -------------- ------------------------- ------------------------- +William J. Motto - - 25,000/25,000 $-/$- +John A. Kraeutler - - 269,573/137,500 301/- +Antonio A. Interno - - 66,616/25,500 -/- +Richard L. Eberly - - 32,775/50,750 -/44,000 +Melissa A. Lueke - - 6,500/41,500 -/44,000 +-13- +PERFORMANCE GRAPH +The following graph shows the yearly percentage change in Meridian's +cumulative total shareholder return on its Common Stock as measured by dividing +the sum of (A) the cumulative amount of dividends, assuming dividend +reinvestment during the periods presented and (B) the difference between +Meridian's share price at the end and the beginning of the periods presented; by +the share price at the beginning of the periods presented with the Wilshire 5000 +Equity Index and a Peer Group Index. The Peer Group consists of Apogent +Technologies, Inc., Biomerica, Inc., Biosite, Inc., Diagnostic Products Corp., +Hemagen Diagnostics, Inc., Hycor Biomedical, Inc., Idexx Laboratories Corp., +Neogen Corp., Quidel Corp. and Trinity Biotech Plc. +COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* +AMONG MERIDIAN BIOSCIENCE, INC., THE WILSHIRE 5000 INDEX AND A PEER GROUP +Cumulative Total Return +9/96 9/97 9/98 9/99 9/00 9/01 +MERIDIAN BIOSCIENCE, INC. 100.00 90.41 59.14 63.76 64.87 40.78 +WILSHIRE 5000 100.00 138.21 142.75 181.22 213.03 151.35 +PEER GROUP 100.00 87.32 82.76 98.12 119.86 121.66 +-14- +SHAREHOLDER PROPOSALS FOR NEXT YEAR +The deadline for shareholder proposals to be included in the Proxy +Statement for next year's meeting is August 28, 2002. +The form of Proxy for this meeting grants authority to the designated +proxies to vote in their discretion on any matters that come before the meeting +except those set forth in Meridian's Proxy Statement and except for matters as +to which adequate notice is received. In order for a notice to be deemed +adequate for the 2003 Annual Shareholders' Meeting, it must be received prior to +November 11, 2002. If there is a change in the anticipated date of next year's +annual meeting or these deadlines by more than 30 days, we will notify you of +this change through our Form 10-Q filings. +Meridian's Code of Regulations provides that only persons nominated by an +officer, director or in writing by a shareholder at least five days prior to the +meeting at which directors are to be selected shall be eligible for election. +QUESTIONS? +If you have questions or need more information about the annual meeting, +write to: +Melissa Lueke, Vice President, Chief Financial Officer and Secretary +Meridian Bioscience, Inc. +3471 River Hills Drive +Cincinnati, Ohio 45244 +or call us at (513) 271-3700. +For information about your record holdings call the Fifth Third Bank Shareholder +Services at 1-800-837-2755. +TABLE OF CONTENTS Page +------------------------------------------------------------------ +GENERAL INFORMATION.......................................... 4 +ELECTION OF DIRECTORS........................................ 4 +RATIFICATION OF APPOINTMENT OF ACCOUNTANTS................... 6 +DIRECTOR COMPENSATION........................................ 6 +BOARD COMMITTEES............................................. 6 +REPORT OF THE AUDIT COMMITEE................................. 6 +COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION...... 7 +PRINCIPAL SHAREHOLDERS....................................... 8 +DIRECTORS AND EXECUTIVE OFFICERS............................. 9 +SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE......... 11 +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.. 11 +OPTION GRANTS IN LAST FISCAL YEAR............................ 12 +FISCAL 2001 OPTION EXERCISES................................. 12 +PERFORMANCE GRAPH............................................ 13 +SHAREHOLDER PROPOSALS FOR NEXT YEAR.......................... 14 +QUESTIONS?................................................... 14 +MERIDIAN BIOSCIENCE, INC. +PROXY The undersigned hereby appoints WILLIAM J. MOTTO and MELISSA A. +FOR LUEKE, or either of them, proxies of the undersigned, each with +ANNUAL the power of substitution, to vote cumulatively or otherwise all +MEETING shares of Common Stock which the undersigned would be entitled to +vote on the matters specified below and in their discretion with +respect to such other business as may properly come before the +Annual Meeting of Shareholders of Meridian Bioscience, Inc. to be +held on January 22, 2002 at 3:00 P.M. Eastern Time at Ivy Hills +Country Club, 7711 Ivy Hills Boulevard, Cincinnati, Ohio or any +adjournment of such Annual Meeting. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING PROPOSALS: +1. Authority to elect as directors the six nominees listed below. +FOR ____ WITHHOLD AUTHORITY ____ +JAMES A. BUZARD, JOHN A. KRAEUTLER, GARY P. KREIDER, WILLIAM J. MOTTO, +DAVID C. PHILLIPS AND ROBERT J. READY +WRITE THE NAME OF ANY NOMINEE(S) FOR WHOM AUTHORITY TO VOTE IS +WITHHELD ____________________________________________ +2. To ratify the appointment of Arthur Andersen LLP as independent public +accountants for fiscal 2002. +FOR ____ AGAINST ____ ABSTAIN ____ +THIS PROXY WILL BE VOTED AS RECOMMENDED BY THE BOARD OF DIRECTORS +UNLESS A CONTRARY CHOICE IS SPECIFIED. +(This proxy is continued and is to be signed on the reverse side) +Date __________________________, ______ +_______________________________________ +_______________________________________ +Important: Please sign exactly as name appears hereon indicating, where proper, +official position or representative capacity. In the case of joint holders, all +should sign. +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS \ No newline at end of file diff --git a/raw/proxies/0000794172/0001021408-01-511794/proxy_rpt.txt b/raw/proxies/0000794172/0001021408-01-511794/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000794172/0001145443-07-003870/proxy.txt b/raw/proxies/0000794172/0001145443-07-003870/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..6efaec6e7273a148cf2b6be9aa50c60806f9b8bf --- /dev/null +++ b/raw/proxies/0000794172/0001145443-07-003870/proxy.txt @@ -0,0 +1,1351 @@ +DEF 14A +1 +d22374_def14a.htm +UNITED STATES SECURITIES AND EXCHANGE COMMISSION +WASHINGTON, D.C. 20549 +SCHEDULE 14A +(Rule 14a-101) +INFORMATION REQUIRED IN PROXY STATEMENT +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) +of the Securities Exchange Act of 1934 +(Amendment No. ___ ) +Filed by the Registrant x +Filed by a Party other than the Registrant o +Check the appropriate box: +o Preliminary Proxy Statement +o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x Definitive Proxy Statement +o Definitive Additional Materials +o Soliciting Material Pursuant to Section 14a-12 +Meridian Bioscience, Inc. +(Name of Registrant as Specified in Its Charter) +(Name of Person(s) Filing Proxy Statement if Other Than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title +of each class of securities to which transaction applies: +(2) +Aggregate +number of securities to which transaction applies: +(3) +Per +unit price or other underlying value of transaction computed pursuant to Exchange Act +Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it +was determined): +(4) +Proposed +maximum aggregate value of transaction: +(5) +Total +Fee Paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule +0-11(a)(2) and identify the filing for which the offsetting fee was paid +previously. Identify the previous filing by registration statement number, or +the Form or Schedule and the date of its filing. +(1) +Amount +Previously Paid: +(2) +Form, +Schedule or Registration Statement No.: +(3) +Filing +Party: +(4) +Date Filed: +MERIDIAN BIOSCIENCE, INC. +3471 River Hills Drive +Cincinnati, Ohio 45244 +www.meridianbioscience.com +Notice of Annual Meeting +and Proxy Statement +Dear Shareholder: +Our Annual Meeting of Shareholders will be held at 3:00 p.m. on January 22, 2008 at the Holiday Inn, 4501 Eastgate Boulevard, Cincinnati, OH 45245. We hope you will attend. +At the meeting, you will hear a report on our operations and have a chance to meet your directors and executive officers. +This booklet includes the formal notice of the meeting and the proxy statement. The proxy statement tells you more about the agenda and procedures for the meeting. It also describes how the Board operates and gives personal information about our director candidates. +Please complete, sign, date, and return your proxy card promptly in the enclosed envelope. +Sincerely yours, +/s/ William J. Motto +William J. Motto +Chairman of the Board +December 19, 2007 +1 +NOTICE OF ANNUAL MEETING +OF +SHAREHOLDERS OF MERIDIAN BIOSCIENCE, INC. +Time: +3:00 p.m., Eastern Time +Date: +January 22, 2008 +Place: +Holiday Inn +4501 Eastgate Blvd. +Cincinnati, Ohio 45245 +Purpose: +• +Elect directors +• +Ratify appointment of Grant Thornton LLP as Meridian’s independent registered public accountants for fiscal year 2008 +• +Amend our Amended Code of Regulations to permit our directors to amend such Regulations under certain circumstances without shareholder approval +• +Amend our 2004 Equity Compensation Plan, Amended and Restated through January 19, 2006, to increase the number of shares authorized to be issued under such Plan from 1,462,500 to 3,000,000 +• +Conduct other business if properly raised +Only shareholders of record on December 3, 2007 may vote at the meeting. The approximate mailing date of this Proxy Statement and accompanying Proxy Card is December 19, 2007. +Your vote is important. Please complete, sign, date, and return your proxy card promptly in the enclosed envelope. +/s/ Melissa Lueke +Melissa Lueke +Secretary +December 19, 2007 +2 +TABLE OF CONTENTS +Page +GENERAL INFORMATION +4 +ELECTION OF DIRECTORS +5 +RATIFICATION OF APPOINTMENT OF ACCOUNTANTS +7 +AMENDMENT OF THE COMPANY’S AMENDED CODE OF REGULATIONS +8 +AMENDMENT OF THE COMPANY’S EQUITY COMPENSATION PLAN +9 +CORPORATE GOVERNANCE +15 +DIRECTORS AND EXECUTIVE OFFICERS +20 +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +21 +CERTAIN RELATED PERSON TRANSACTIONS +21 +COMPENSATION DISCUSSION AND ANALYSIS +22 +SUMMARY COMPENSATION TABLE +31 +DIRECTOR COMPENSATION +36 +SHAREHOLDER PROPOSALS FOR NEXT YEAR +36 +QUESTIONS? +37 +ANNEX A – AMENDMENT TO AMENDED CODE OF REGULATIONS +A-1 +ANNEX B – AMENDMENT TO 2004 EQUITY COMPENSATION PLAN +B-1 +3 +GENERAL INFORMATION +Who may vote +Shareholders of Meridian, as recorded in our stock register on December 3, 2007, may vote at the meeting. As of that date, Meridian had 39,944,797 shares of Common Stock outstanding. +How to vote +You may vote in person at the meeting or by proxy. We recommend you vote by proxy even if you plan to attend the meeting. You can always change your vote at the meeting. +How proxies work +Meridian’s Board of Directors is asking for your proxy. Giving us your proxy means you authorize us to vote your shares at the meeting in the manner you direct. You may vote for all, some or none of our director candidates. You may also vote for or against the other proposals or abstain from voting. +If you sign and return the enclosed proxy card but do not specify how to vote, we will vote your shares in favor of our director candidates, the ratification of appointment of Grant Thornton LLP as Meridian’s independent registered public accountants for fiscal year 2008, the amendment of our Amended Code of Regulations, and the amendment of our 2004 Equity Compensation Plan, Amended and Restated through January 19, 2006, all on the terms described herein. +If any other matters come before the meeting or any adjournment, each proxy will be voted in the discretion of the individuals named as proxies on the card. +You may receive more than one proxy or voting card depending on how you hold your shares. Shares registered in your name are covered by one card. If you hold shares through someone else, such as a stockbroker, you may get material from them asking how you want to vote. +Revoking a proxy +You may revoke your proxy before it is voted by submitting a new proxy with a later date, by voting in person at the meeting, or by notifying Meridian’s Secretary in writing at the address under “Questions?” on page 37. +Quorum +In order to carry on the business of the meeting, we must have a quorum. This means at least a majority of the outstanding shares eligible to vote must be represented at the meeting, either by proxy or in person. +4 +Votes needed +The six director candidates receiving the most votes will be elected to fill the seats on the Board. Each of the ratification of appointment of accountants, the amendment of our Amended Code of Regulations, and the amendment of our 2004 Equity Compensation Plan, Amended and Restated through January 19, 2006 requires the favorable vote of a majority of the votes cast. Only votes for or against these proposals count. Abstentions and broker non-votes count for quorum purposes but not for voting purposes. Broker non-votes occur when a broker returns a proxy card but does not have authority to vote on a particular proposal. +Other Matters +Any other matters considered at the meeting, including postponement or adjournment, will require the affirmative vote of a majority of the votes cast. +ELECTION OF DIRECTORS +(Item 1 on the Proxy Card) +The Nominating Committee of the Board of Directors has nominated for re-election all of the following current directors: James A. Buzard, John A. Kraeutler, Gary P. Kreider, William J. Motto, David C. Phillips and Robert J. Ready. +Proxies solicited by the Board will be voted for the election of these nominees. All directors elected at the Annual Meeting will be elected to hold office until the next annual meeting. In voting to elect directors, shareholders are entitled to cumulate their votes and to give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of shares held by the shareholder, or to distribute their votes on the same principle among as many candidates as the shareholder sees fit. In order to invoke cumulative voting, notice of cumulative voting must be given in writing by a shareholder to the President, a Vice President or the Secretary of Meridian not less than 48 hours prior to the Annual Meeting. The proxies solicited include discretionary authority to cumulate votes. +All Meridian directors are elected for one-year terms. Personal information on each of our nominees is given below. +If a director nominee becomes unavailable before the election, your proxy card authorizes us to vote for a replacement nominee if the Board names one. +5 +The Board recommends you vote FOR each of the following candidates: +James A. Buzard, Ph.D. +Director since 1990 +Age: 80 +James A. Buzard, Ph.D. was Executive Vice President of Merrell Dow Pharmaceuticals Inc. from March 1981 until December 1989. From December 1989 until his retirement in February 1990, he was Vice President of Marion Merrell Dow, Inc. He has been a business consultant since February 1990. +John A. Kraeutler +Director since 1997 +Age: 59 +John A. Kraeutler has more than 30 years of experience in the medical diagnostics industry and joined Meridian as Executive Vice President and Chief Operating Officer in January 1992. In July 1992, Mr. Kraeutler was named President of Meridian. Before joining Meridian, Mr. Kraeutler served as Vice President, General Manager for a division of Carter-Wallace, Inc. Prior to that, he held key marketing and technical positions with Becton, Dickinson and Company and Organon, Inc. +Gary P. Kreider, Esq. +Director since 1991 +Age: 69 +Gary P. Kreider serves as Chairman of the Compensation Committee and Board Secretary. Mr. Kreider served as a senior partner in the Cincinnati law firm of Keating Muething & Klekamp PLL, the Company’s outside counsel. His primary practice areas are securities law, mergers and acquisitions, and general corporate law, and he has been with Keating Muething & Klekamp since 1963. Effective October 1, 2005, Mr. Kreider no longer has a vote or partnership interest in the firm’s earnings, although his affiliation with the firm continues. Mr. Kreider has been an Adjunct Professor of Law in securities regulation at the University of Cincinnati College of Law since 1977 and is a past Chairman of the Ohio +State Bar Association Corporate Law Committee. Mr. Kreider is also a Director of LSI Industries Inc. +William J. Motto +Director since 1977 +Age: 66 +William J. Motto has more than 35 years of experience in the pharmaceutical and diagnostics products industries, is a founder of Meridian and has been Chairman of the Board since 1977. Before forming Meridian, Mr. Motto served in various capacities for Wampole Laboratories, Inc., Marion Laboratories, Inc. and Analytab Products, Inc., a division of American Home Products Corp. +6 +David C. Phillips +Director since 2000 +Age: 69 +David C. Phillips serves as Chairman of the Audit Committee. Mr. Phillips spent 32 years with Arthur Andersen LLP. His service with this firm included several managing partner leadership positions. After retiring from Arthur Andersen in 1994, Mr. Phillips became Chief Executive Officer of Downtown Cincinnati, Inc., which is responsible for economic revitalization of Downtown Cincinnati. Mr. Phillips retired from DCI in 1999 to devote full time to Cincinnati Works, Inc., an organization dedicated to reducing the number of people living below the poverty level by assisting them to strive towards self-sufficiency through work, and his financial consulting services. Mr. Phillips serves as a director of Cintas Corporation and Summit Family of Mutual Funds. +Robert J. Ready +Director since 1986 +Age: 67 +Robert J. Ready serves as Chairman of the Nominating Committee. Mr. Ready founded LSI Industries Inc., Cincinnati, Ohio in 1976, which engineers, manufactures and markets commercial/industrial lighting and graphics products, and has served as its President and Chairman of its Board of Directors since that time. +RATIFICATION OF APPOINTMENT OF ACCOUNTANTS +(Item 2 on the Proxy Card) +Although not required, we are seeking shareholder ratification of the Audit Committee’s selection of Grant Thornton LLP as Meridian’s independent registered public accounting firm for the 2008 fiscal year. The affirmative vote of a majority of shares voting at the meeting is required for ratification. If ratification is not obtained, the Audit Committee intends to continue the employment of Grant Thornton at least through fiscal 2008. Representatives of Grant Thornton are expected to be present at the Shareholders’ Meeting and will be given an opportunity to make a statement, if they so desire, and to respond to appropriate questions that may be asked by shareholders. +7 +Principal Accounting Firm Fees : +Aggregate fees billed to Meridian by Grant Thornton LLP for fiscal years 2007 and 2006 are listed below: +2007 +2006 +Audit Fees +$283,000 +$295,000 +Audit Related Fees +31,002 +35,588 +$314,002 +$330,588 +Audit Fees. Audit fees are the fees billed for professional services rendered by Meridian’s independent registered public accounting firm for their audit of Meridian’s consolidated annual financial statements for the fiscal years ended September 30, 2007 and 2006, respectively, and reviews of the unaudited quarterly consolidated financial statements contained in the reports on Form 10-Q filed by Meridian during those years and on reporting on Meridian’s internal control during those years. +Audit-Related Fees . Audit-related fees are the fees billed for assurance and related services that are reasonably related to the performance of the audit or review of Meridian’s financial statements. +The Board recommends that you vote FOR the ratification of appointment of Grant Thornton LLP as Meridian’s independent registered public accounting firm for the 2008 fiscal year. +AMENDMENT OF THE COMPANY’S AMENDED CODE OF REGULATIONS +(Item 3 on the Proxy Card) +The Board is recommending that the Company’s Amended Code of Regulations be amended to allow the Board to amend such Regulations without shareholder approval in the circumstances described in this proxy statement and as set forth on Annex A. +Article X of Meridian’s Regulations allows shareholders to amend the Regulations by the affirmative vote or written consent of the shareholders of record entitled to exercise a majority of the voting power. Annex A shows the new language of Article X reflecting the proposed amendment. +The Ohio Revised Code was amended on October 12, 2006 to, among other things, allow directors to amend Regulations in certain respects without shareholder approval. +Prior to the amendments, almost all changes to Regulations were required to be accomplished by shareholder action. The 2006 amendments liberalized the law to allow directors to amend the Regulations without shareholder approval in various areas that are not deemed to impact +8 +fundamental shareholder rights. The amendments first require the shareholders to grant amending authority to the directors through the Articles or Regulations. However, the Ohio law reserves to the shareholders the sole authority to amend the Regulations in various areas, such as those defining or limiting the exercise of the authority of shareholders, setting the percentage of shareholders entitled to call special meetings, establishing notices of meetings and qualifications of shareholders, establishing quorum definitions, setting terms and classifications of directors, and removing directors and filling vacancies in the Board of Directors. Shareholders can always override amendments made by directors and Regulations may never divest shareholders of the power to adopt, amend or repeal Regulations. +The directors, once granted general authority by shareholders, will therefore be free to amend the Regulations in such areas as the establishment of the fiscal year, the time and place of meetings, advance notice provisions of proposals and director nominations, establishment of officers and committees, and enactment of indemnification provisions. +The Board believes that the amendment to the Regulations as set forth on Annex A is in the best interests of Meridian’s shareholders because the amendment will allow Meridian to adapt to Ohio’s statutory business framework and will allow the Board to act quickly to respond to the needs of the Company that arise from time to time. +The Board recommends that you vote FOR amendment of Meridian’s Amended Code of Regulations to allow the Board to amend such Regulations without shareholder approval in the circumstances described in this proxy statement. +AMENDMENT OF THE COMPANY’S 2004 EQUITY COMPENSATION PLAN +(Item 4 on the Proxy Card) +The Board is recommending that the Company’s 2004 Equity +Compensation Plan, amended and restated through January 19, 2006, be amended to provide 1,537,500 additional common shares +available for issuance as set forth on Annex B. This Plan was adopted at the +2005 Annual Shareholder’s Meeting. With the continued growth of the Company +and the passage of time, nearly all of the 1,462,500 shares provided by the Plan +have been subjected to awards. The Board believes the Plan has served the +Company well and considers it advisable to have an additional 1,537,500 shares +available for issuance in order to provide awards that are designed to attract +and retain key employees. If approved, this amendment would increase the maximum +available shares from 1,462,500 to 3,000,000. The closing sale price for +Meridian’s common shares on Nasdaq on December 3, 2007 was $30.77 per +share. +The Compensation Committee established by the Board administers the Plan. The Compensation Committee evaluates the duties of employees and their present and potential contributions to the Company and such other factors as it deems relevant in determining key persons to whom awards under the Plan will be granted and the number of shares covered by such grants. All employees, directors, and consultants of the Company are eligible to be considered by the Compensation Committee for the grant of awards under the Plan. +9 +The Plan authorizes the Compensation Committee to grant i) stock options, ii) stock appreciation rights (SARs), iii) restricted and unrestricted stock awards, iv) performance awards, and v) other stock unit awards. Historically, Plan awards have been limited to stock options. The availability of other types of awards provides flexibility to the Compensation Committee in determining the components of equity-based compensation. +Options may be granted either as Incentive Stock Options designed to provide certain tax benefits under the Internal Revenue Code or as Non-Qualified Options without such benefits. Generally, the Compensation Committee expects to award only Non-Qualified Options in order for the Company to receive a federal income tax benefit. The Plan provides that all options are to be granted with exercise prices not less than the closing price of Meridian common shares on the date of grant (i.e., 100% of fair market value on the date of grant). Options may be granted for varying periods of up to ten years. Under the Plan, no person may receive options for more than 112,500 common shares in any twelve-month period. Persons who beneficially own 10% or more of the Company’s outstanding common shares may not be granted Incentive Stock Options for terms exceeding five years and the exercise prices of such options +must be at least 110% of fair market value at the time of grant. +SARs may be granted under the Plan. The Plan provides that SARs may be awarded to eligible employees, advisors, or non-employee directors as determined by the Compensation Committee. A SAR may be granted for varying periods of up to ten years, in tandem with stock options, or separately as a non-tandem SAR. +Both restricted and unrestricted stock awards may be granted under the Plan. Restricted stock awards are subject to conditions, restrictions and limitations that the Compensation Committee determines to be appropriate. Upon full vesting of restricted stock awards, the recipient shall have all rights of a shareholder of the Company, including the rights to vote and to receive cash dividends. The Compensation Committee may also issue unrestricted shares. +The Plan gives the Compensation Committee discretion to grant Performance Awards to eligible employees and advisors, as determined by the Compensation Committee. The Compensation Committee has discretion as to the times at which Performance Awards shall be granted, the number of common shares or the amount of cash to be awarded, the duration and conditions for vesting, and any other terms and conditions of the Performance Award to any person. The Compensation Committee may condition the grant or vesting of a Performance Award upon the attainment of specified performance goals; the appreciation in the fair market value, book value or other measure of value of the common shares; the performance of the Company based on earnings or cash flow; or such other factors or criteria as the Compensation Committee shall determine. +The Plan also provides that the Compensation Committee may grant, either alone or in addition to other awards, awards of common shares or other securities of the Company or any of its subsidiaries and other awards whose value is based on common shares or other securities of the Company or any of its subsidiaries. These other awards may be paid in cash, common shares, other property or a combination thereof. The Compensation Committee has +10 +discretion as to the times at which awards will be granted, the number of shares or the amount of cash to be awarded, the duration and conditions for vesting, and any other terms and conditions of the award to any person. Common shares (including securities convertible into common shares) and other securities granted as other awards may be issued for no cash consideration or any minimum consideration required by applicable law. Common shares (including securities convertible into common shares) and other securities purchased pursuant to purchase rights granted as other awards may be purchased for such consideration as determined by the Compensation Committee, so long as the price is not less than the fair market value of the common shares or other securities on the date of grant, unless the Compensation Committee otherwise elects. +Unvested awards terminate immediately if the person holding them is terminated for any reason other than death, total permanent disability or retirement. In the case of death or permanent disability, any outstanding awards become fully vested and exercisable for one year. In the case of retirement, any outstanding awards become fully vested and exercisable for 90 days. However, if a person is involuntarily terminated without cause, as determined by the Compensation Committee, during the twenty-four month period following a change in control of the Company, all awards will become exercisable in full. +11 +EQUITY COMPENSATION PLAN INFORMATION +The following table presents summary information as of September 30, 2007 with respect to all of our equity compensation plans. +Plan Category +(a) +Number of +Securities to be +issued upon +exercise of +outstanding +options, +warrants and +rights +(b) +Weighted- +average +exercise price +of outstanding +options, +warrants +and rights +(c) +Number of +securities +remaining +available for +future issuance +under equity +compensation +plans (excluding +securities +reflected in +column (a)) +Equity compensation plans approved by security holders (1) +1,877,059 +$7.684 +530,775 +Equity compensation plans not approved by security holders +54,825 +11.454 +- +Total +1,931,884 +$7.79 +530,775 +(1) +1994 Director’s Stock Option Plan +1996 Stock Option Plan, as amended in 2001 +1999 Director’s Stock Option Plan +2004 Equity Compensation Plan, as amended +TAX TREATMENT OF AWARDS +The United States federal income tax consequences related to the issuance of the different types of awards that may be granted under the Plan are summarized below. Persons who are granted awards under the Plan should consult their own tax advisors to determine the tax consequences based on their particular circumstances. +Incentive Stock Options +An Incentive Stock Option results in no taxable income to the optionee or deduction to the Company at the time it is granted or exercised. However, the excess of the fair market value of the shares at the time of exercise over the option price is an item of adjustment in computing the alternative minimum taxable income of the optionee. If the optionee holds the stock received as a result of an exercise of an Incentive Stock Option for at least two years from the date of the grant and one year from the date of exercise, then the amount realized on +12 +disposition of the stock in excess of the option price is treated as a long-term capital gain, and the Company will not be entitled to a deduction for federal income tax purposes. If the shares are disposed of during this period (i.e., a “disqualifying disposition”), then the optionee will include in income, as compensation for the year of the disposition, an amount equal to the excess, if any, of the fair market value of the shares at the time of exercise over the option price (or, if less, the excess of the amount realized upon disposition over the option price). The excess, if any, of the sale price over the fair market value on the date of exercise will be a capital gain. In the event of a disqualifying disposition, the Company will be entitled to a deduction, in the year of such disposition, for the amount includible in the optionee’s income as compensation. The optionee’s basis in the shares +acquired upon exercise of an Incentive Stock Option is equal to the option price paid, plus any amount includible in his or her income as a result of a disqualifying disposition. +Non-Qualified Options +A Non-Qualified Option results in no taxable income to the optionee or deduction to the Company at the time it is granted. An optionee exercising a Non-Qualified option will, at that time, realize compensation taxable as ordinary income equal to the excess of the fair market value of the shares over the option price. Subject to the applicable provisions of the Internal Revenue Code, the Company will be entitled to a deduction for federal income tax purposes in the year of exercise in an amount equal to the taxable compensation recognized by the optionee. +The optionee’s basis in such shares is equal to the sum of the option price plus the amount includible in his or her income as compensation upon exercise. Any gain (or loss) upon subsequent disposition of the shares will be a capital gain (or loss). +Stock Appreciation Rights +Generally, the recipient of a SAR under the Plan will not recognize taxable income at the time the SAR is granted. If a recipient receives the appreciation inherent in the SARs in cash, the cash will be taxed as ordinary income to the recipient at the time it is received. If a recipient receives the appreciation inherent in the SARs in stock, the spread between the then current market value and the base price will be compensation taxed as ordinary income to the recipient at the time it is received. In general, there will be no federal income tax deduction allowed to the Company upon the grant or termination of SARs. However, upon the settlement of an SAR, the Company will be entitled to a deduction equal to the amount of ordinary income the recipient is required to recognize as a result of the settlement. +Other Awards +The current federal income tax consequences of other awards authorized under the Plan are generally in accordance with the following: (i) restricted stock is generally subject to ordinary income tax on the value of the stock at the time the restrictions lapse, unless the recipient elects to accelerate recognition as of the date of grant; (ii) stock unit awards are generally subject to ordinary income tax at the time of payment; (iii) unrestricted stock awards are generally subject to ordinary income tax at the time of grant; and +13 +(iv) Performance Awards are generally subject to ordinary income tax on the value of the stock and/or amount of cash received at the time of payment of the award. In each of the foregoing cases, the Company will generally be entitled to a corresponding federal income tax deduction at the same time the recipient recognizes ordinary income. +Section 162(m) +Compensation of persons who are “covered employees” of the Company is subject to the tax deduction limits of Section 162(m) of the Internal Revenue Code. Awards that qualify as “performance-based compensation” are exempt from Section 162(m), thus allowing the Company the full federal tax deduction otherwise permitted for such compensation. If approved by the Company’s shareholders, the Plan as amended is intended to enable the Compensation Committee to grant awards to covered employees that will be exempt from the deduction limits of Section 162(m). However, no assurances can be made in this regard. +Section 409A +Section 409A of the Internal Revenue Code applies to compensation vested or deferred after December 31, 2004. +Section 409A generally provides that unless certain requirements are met, amounts deferred under a non qualified plan for all taxable years are includable in gross income to the extent not +subject to a substantial risk of forfeiture. Generally speaking, an amount is “vested” on the date that the employee’s right to receive the amount is no longer conditioned on the employee’s +performance of substantial future services, and “deferred compensation” is compensation earned currently, the payment of which is deferred to a later taxable year. +Section 409A may apply to Non-Qualified options, restricted stock units, Performance Awards and other awards under the Plan. The provisions of the Plan have been drafted to be in good +faith compliance with Section 409A as interpreted under the guidance currently available. However, no assurances can be made in this regard as the Compensation Committee shall have discretion under the +Plan to grant awards to which Section 409A may apply. +14 +Plan Benefits +Because incentive awards under the Plan can be made based on the achievement of future net earnings targets and personal achievement ratings, it cannot be determined at this time what awards, benefits or amounts, if any, will be paid or allocated to any person or group of persons under the Plan. Awards which have been paid to certain executive officers under the plan for the last fiscal year are reported in the Summary Compensation Table on page 31 and as set forth below. +PLAN BENEFITS +2004 EQUITY COMPENSATION PLAN +Name and Position +Number of Options +William J. Motto +Chairman of the Board, Chief Executive Officer +15,750 +Melissa A. Lueke, +Vice President, Chief Financial Officer, and Secretary +15,750 +John A. Kraeutler +President, Chief Operating Officer +15,750 +Antonio A. Interno +Senior Vice President, President and Managing Director, Meridian Bioscience Europe +15,750 +Richard L. Eberly +Executive Vice President, President Meridian Life Science +15,750 +Entire Executive Group +126,000 +The Board recommends that you vote FOR amending Meridian’s 2004 Equity Compensation Plan to provide 1,537,500 additional shares available for issuance. +CORPORATE GOVERNANCE +As an Ohio corporation, Meridian is governed by the corporate laws of Ohio. Since its common shares are publicly traded on the Nasdaq Global Select Market and it files reports with the Securities and Exchange Commission, it is also subject to Nasdaq rules and federal securities laws. +15 +Governance of the corporation is placed in the hands of the directors who, in turn, elect officers to manage the business operations. The Board oversees the management of Meridian on your behalf. The Board reviews Meridian’s long-term strategic plans and exercises direct decision making authority in all major decisions, such as acquisitions, the declaration of dividends, major capital expenditures and the establishment of company policies. +In accordance with Nasdaq rules, our Board of Directors affirmatively +determines the independence of each director and nominee for election as a +director in accordance with the elements of independence set forth in the Nasdaq +listing standards and Exchange Act rules. Meridian’s Director Independence +Standards are available at our website www.meridianbioscience.com . Based on +these standards, the Board determined that each of the following members of +the Board is independent: David C. Phillips, James A. Buzard, Robert J. Ready +and Gary P. Kreider. Only independent directors serve on Committees of the +Board. +During fiscal 2007, the Board of Directors met on four occasions. The independent directors plan to meet at least two times during fiscal 2008 without the presence of management directors. The independent members of the Board had one such meeting in fiscal 2007. The independent directors select one of such directors to preside over each session. +Meridian expects all directors to attend shareholders’ meetings. Each director attended the 2007 Annual Shareholders’ Meeting, all meetings of the Board and all meetings of Committees of which he was a member. +Shareholders may communicate with the full Board or individual directors on matters concerning Meridian by mail or through our website in each case to the attention of the Secretary, the address for whom is set forth on the last page of this proxy statement. +The Board has adopted a Code of Ethics applicable to Meridian’s officers, directors and employees. This Code of Ethics is posted on www.meridianbioscience.com . To the extent permitted by Nasdaq Marketplace Rule 4350(n), any amendments to or waivers from the Code of Ethics will be posted on our website within four business days after the date of an amendment. +The directors have organized themselves into the committees described below. Each of these Committees has a charter posted on www.meridianbioscience.com . Meridian does not have an Executive Committee of its Board of Directors. +The Audit Committee is composed of David C. Phillips, Chairman, James A. Buzard and Robert J. Ready. It met nine times during fiscal 2007. Each member is able to read and understand fundamental financial statements. David C. Phillips has been designated as the Audit Committee financial expert as that term is defined in SEC regulations. +The Committee oversees the accounting and financial reporting processes of Meridian and the audits of its financial statements by its independent registered public accounting firm. The Committee is solely responsible for the appointment, compensation, retention and oversight of Meridian’s independent registered public accounting firm. The Audit Committee also evaluates information received from Meridian’s independent registered +16 +public accounting firm and management to determine whether the independent registered public accounting firm is independent of management. The independent registered public accounting firm reports directly to the Audit Committee. +In addition, the Audit Committee has established procedures for the receipt, retention and treatment of complaints received by Meridian concerning accounting, internal accounting controls or auditing matters and has established procedures for the confidential and anonymous submission by employees of any concerns they may have regarding questionable accounting or auditing matters. +The Audit Committee, or its Chairman, approves all audit and non-audit services performed for Meridian by its independent registered public accounting firm before those services are commenced. The Chairman reports to the full Committee at each of its meetings regarding pre-approvals he made since the prior meeting and the Committee approves what he has done between meetings. For these purposes, the Committee or its Chairman is provided with information as to the nature, extent and purpose of each proposed service, as well as the approximate timeframe and proposed cost arrangements for that service. +The Committee has submitted the following report. +REPORT OF THE AUDIT COMMITTEE +On August 16, 2007, the Audit Committee met with representatives of Grant Thornton and Meridian’s internal accountants and reviewed with them the proposed 2007 Audit Plan, areas warranting particular concentration on the audit and the effects of new accounting pronouncements. The Grant Thornton representatives reviewed with the Committee written disclosures required by the Independence Standards Board Standard No. 1 regarding independence of the registered public accounting firms and has presented a letter regarding that matter to the Committee. The Committee discussed with Grant Thornton its independence. In concluding that the auditors are independent, we determined, among other things, that the nonaudit services provided by the auditors were compatible with their independence. +At its meeting on November 13, 2007, the Committee reviewed and discussed with management, Grant Thornton and Meridian’s accounting officers the results of the audit for fiscal 2007, including the audited financial statements. The Committee reviewed the requirements of its Charter previously adopted and the reports that were required to be disclosed to the Committee. The Committee discussed with Grant Thornton the matters required to be discussed by Statement on Auditing Standards No. 61, as amended. +Based on the above mentioned review, the Committee recommended to the Board of Directors that the audited financial statements of Meridian be included in its Annual Report on Form 10-K for the year ended September 30, 2007 for filing with the Securities and Exchange Commission. +During its meetings, the Committee reviewed procedures related to the receipt, retention and treatment of any complaints concerning accounting, internal accounting controls or auditing matters. Also during its meetings, the Chairman of the Audit Committee reported to the full +17 +Committee the independent accountants’ fees that had been pre-approved and the Committee approved such fees. Certain fees were pre-approved by the full Committee. The Committee also reviewed the requirements of and Meridian’s on-going compliance with Section 404 of the Sarbanes-Oxley Act. +Respectfully submitted, +Audit Committee +David C. Phillips (Chairman) +Robert J. Ready +James A. Buzard +The Compensation Committee is composed of Messrs. Kreider (Chairman), Buzard, Phillips and Ready and is responsible for establishing compensation for executive officers and administering the Company’s compensation plans. This includes establishing salary levels and bonus plans, making bonus and stock option awards, and otherwise dealing in all matters concerning compensation of the executive officers. The Compensation Committee met two times and did not take any actions in writing during fiscal 2007. +In general, the Compensation Committee annually reviews the Company’s compensation programs and its philosophy in setting performance targets in November of each year. At that time, the Company provides the Compensation Committee with information on total compensation received for all executive officers, including the sources of such compensation, for the immediately preceding fiscal year and recommendations for the current fiscal year. In discharging the responsibilities of the Board of Directors relating to compensation of the Company’s Chief Executive Officer and other executive officers, the purposes of the Compensation Committee are, among others, (i) to review and approve the compensation of the Company’s Chief Executive Officer and other executive officers and (ii) to oversee the compensation policies and programs of the Company, including stock and benefit plans. The Compensation +Committee’s specific functions include adopting, administering and approving the Company’s incentive compensation and stock plans and awards, including amendments to the plans or awards and performing such duties and responsibilities under the terms of any executive compensation plan, incentive-compensation plan or equity-based plan. The Compensation Committee has the authority to delegate any of its responsibilities to subcommittees as the Compensation Committee may deem appropriate in its sole discretion. The Compensation Committee has the authority to engage consultants and advisors. Although the Compensation Committee did not engage a consultant this year, it received the services of a financial advisor who collected and assembled executive compensation data from peer companies. The CEO provides input and recommendations to the Compensation Committee with respect to the compensation to be paid to the non-employee members of the Board as well as Meridian’s +President. Meridian’s President provides recommendations to the Compensation Committee with respect to compensation to be paid to the other corporate officers, other than himself. +To achieve compensation objectives, the Committee believes it is important to provide competitive levels of compensation to retain the most qualified employees, to recognize +18 +individuals who exceed expectations and to closely link executive compensation with corporate performance. The methods by which the Committee believes Meridian’s long-term objectives can be achieved are through incentive compensation plans and equity compensation plans. +The Compensation Committee’s processes and procedures for the consideration and determination of executive and director compensation are discussed in the section entitled “Compensation Discussion and Analysis”. +Compensation Committee Interlocks and Insider Participation +Gary P. Kreider, who is a member of the Compensation Committee, is +affiliated with Keating Muething & Klekamp PLL, Cincinnati, Ohio, a law firm +that provided legal services to the Company in fiscal year 2007. Mr. Kreider has +no vote or interest in the firm’s earnings. Two of Mr. Kreider’s +children are partners in the firm. Except as described above, none of the +members of the Compensation Committee has ever been an officer or employee of +the Company. None of the members of the Compensation Committee is or was a +participant in any related person transaction in fiscal 2007 (see the section +titled Certain Related Person Transactions in this proxy statement for a description of +our policy on related person transactions). Lastly, none of the members of the +Compensation Committee is an executive officer of another entity, at which one +of our executive officers serves on the Board of Directors. No named executive +officer of Meridian serves as a director or as a member of a committee of any +company of which any of the Company’s non-employee directors are executive +officers. +The Nominating Committee consists of Robert J. Ready, Chairman, James A. Buzard and David C. Phillips. It met one time last year. On November 14, 2007, the Nominating Committee considered and nominated the current directors for re-election. The Nominating Committee identifies qualified nominees for the Board, determines who will be nominated by the Company for election to the Board and recommends to the full Board any changes in the size of the Board. +In nominating directors, the Nominating Committee takes into account, among other factors which it may deem appropriate, the judgments, skill, diversity, business experience, and the needs of the Board as its function relates to the business of the Company. The Committee considers candidates for nomination from a variety of sources including recommendations of shareholders. Shareholders desiring to submit recommendations for nominations by the Committee should direct them to the Chairman in care of the Company at its address shown on the cover page of this proxy statement. +The Nominating Committee will assess the qualifications of all candidates for the Board on an equal basis. In identifying and considering candidates for nomination to the Board of Directors, the Nominating Committee considers, among other factors, quality of experience, the needs of the Company and the range of talent and experience currently represented on the Board. +19 +DIRECTORS AND EXECUTIVE OFFICERS +This table lists the executive officers and directors of Meridian and shows the number of shares beneficially owned, as determined under SEC rules, on December 3, 2007. Beneficial ownership includes any shares as to which the individual has sole or shared voting or investment power and also any shares that the individual has the right to acquire as of February 1, 2008 (60 days after December 3, 2007). +Common Stock +Beneficially Owned +Name +Position +Amount 1 +Percentage +William J. Motto +Chairman of the Board of Directors, Chief Executive Officer +380,197 +1.0% +John A. Kraeutler +President, Chief Operating Officer and Director +386,229 +1.0% +Antonio A. Interno 2 +Senior Vice President, President and Managing Director of Meridian Bioscience Europe +104,205 +* +Richard L. Eberly 3 +Executive Vice President, President Meridian Life Science +15,750 +* +Lawrence J. Baldini 4 +Executive Vice President, Operations and Information Systems +38,250 +* +Melissa A. Lueke 5 +Vice President, Chief Financial Officer and Secretary +92,265 +* +Susan A. Rolih 6 +Vice President, Regulatory Affairs & Quality Assurance +76,500 +* +Todd W. Motto 7 +Vice President, Sales and Marketing +889,547 +2.2% +James A. Buzard, Ph.D 8, 9 +Director +75,712 +* +Gary P. Kreider 9, 10 +Director +37,423 +* +Robert J. Ready 8, 9 +Director +84,610 +* +David C. Phillips 8, 9 +Director +26,214 +* +All Executive Officers and Directors as a Group +2,206,902 +5.5% +1 Includes options exercisable within 60 days from Mr. William +Motto of 39,488 shares, Mr. Kraeutler of 177,862 shares, +Mr. Eberly of 15,750 shares, Ms. Lueke of 15,750 shares, Ms. Rolih of +59,625 shares, Mr. Baldini of 15,750 shares, Mr. Todd Motto of 37,575 shares, +Mr. Buzard of 54,426 shares, Mr. Kreider of 17,928 shares, Mr. Ready of 54,426 +shares and Mr. Phillips of 12,714 shares. +2 Antonio A. Interno was appointed Vice President in August 1991, Senior Vice President in September 1997, and President, Managing Director of Meridian Bioscience Europe in October 2003. He has been Managing Director of Meridian’s European subsidiaries, Meridian Bioscience Europe, since February 1990. Age: 57 +20 +3 Richard L. Eberly was appointed Vice President of Sales and Marketing on January 10, 1997, Executive Vice President in May 2000, Executive Vice President, General Manager of Meridian Life Science in February 2003 and Executive Vice President and President Meridian Life Science in October 2005. He has over 18 years of experience in the medical diagnostic industry and joined Meridian in January 1995. Prior to his appointment to Vice President of Sales and Marketing, Mr. Eberly served as the Director of Sales for Meridian. Before joining Meridian, he held key sales and marketing positions at Abbott Diagnostics. Age: 46 +4 Lawrence J. Baldini was appointed Vice President of Operations on April 3, 2001 and Executive Vice President Operations and Information Systems in October 2005. Before joining Meridian, Mr. Baldini held various operations management positions with Instrumentation Laboratories and Fisher Scientific. Age: 48 +5 Melissa A. Lueke was appointed Vice President, Chief Financial Officer and Secretary on January 23, 2001. Prior to her appointment, Ms. Lueke served as Meridian’s Controller since March 2000 and Acting Secretary from July 20, 2000 to January 23, 2001. Before joining Meridian, Ms. Lueke was employed by Arthur Andersen LLP from June 1985 to January 1999, most recently as a Senior Audit Manager. Age: 44 +6 Susan A. Rolih was appointed Vice President of Regulatory Affairs and Quality Assurance on May 29, 2001. Before joining Meridian, Ms. Rolih held various regulatory and quality positions with Immucor, Inc. Age: 58 +7 Todd W. Motto was appointed Vice President Sales and Marketing on October 3, 2005. Prior to this, Mr. Motto served in a number of different sales and marketing positions for Meridian, beginning in 1993. Most recently, he served as Meridian’s Director of Sales and Marketing, Meridian Bioscience Europe for the last five years. Age: 41 +8 Audit Committee Member. +9 Compensation Committee Member. +10 Includes 325 shares held by his wife, 2,258 shares held as custodian for his minor child and grandchildren, and 5,825 shares held by trusts of which Mr. Kreider is trustee and a beneficiary. +* Less than one percent. +SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Section 16 of the Securities Exchange Act of 1934 requires Meridian’s executive officers, directors and persons who own more than ten percent of a registered class of Meridian’s equity securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Based on a review of the copies of such forms received by it, Meridian believes that during the last fiscal year, all of its executive officers, directors and ten percent stockholders complied with the Section 16 reporting requirements. In making these statements, Meridian has relied upon examination of the copies of Forms 3, 4, and 5, and amendments thereto, and the written representation of its directors and executive officers. +CERTAIN RELATED PERSON TRANSACTIONS +Todd Motto, the adult son of William J. Motto, is Vice President, Sales and Marketing. Todd Motto received $343,311 in compensation for fiscal 2007. This compensation consisted of base salary of $168,273, bonus of $131,254 under the Officers’ Performance Compensation +21 +Plan, $8,834 of auto and professional allowances, $11,972 of retirement plan contributions, and $22,978 related to stock option awards. +Nasdaq rules require the Company to conduct an appropriate review of related party transactions required to be disclosed by the Company pursuant to SEC Regulation S-K Item 404 for potential conflict of interest situations on an ongoing basis and that all such transactions must be approved by the Audit Committee or another committee comprised of independent directors. As a result, the Audit Committee annually reviews all such related party transactions and approves each related party transaction if it determines that it is in the best interests of the Company. Additionally, the Audit Committee’s Charter provides it the authority to review, approve and monitor transactions involving the Company and “related persons” (directors and executive officers or their immediate family members, or shareholders owning five percent or greater of the Company’s outstanding stock). This also covers +any related person transaction that meets the minimum threshold for disclosure in the proxy statement under the relevant SEC rules (generally, transactions involving amounts exceeding $120,000 in which a related person has a direct or indirect material interest). In considering the transaction, the Audit Committee may consider all relevant factors, including, as applicable, (i) the Company’s business rationale for entering into the transaction; (ii) the alternatives to entering into a related person transaction; (iii) whether the transaction is on terms comparable to those available to third parties, or in the case of employment relationships, to employees generally; (iv) the potential for the transaction to lead to an actual or apparent conflict of interest and any safeguards imposed to prevent such actual or apparent conflicts; and (vi) the overall fairness of the transaction to the Company. While the Company adheres to this policy for potential related person transactions, the +policy, except as described above, is not in written form and approval of such related person transactions are evidenced by internal Company resolutions where applicable and/or our practice of approving transactions in this manner. +COMPENSATION DISCUSSION AND ANALYSIS +Throughout this proxy statement, the individuals who served as the Company’s Chief Executive Officer and Chief Financial Officer during fiscal 2007, as well as the other individuals listed in the Summary Compensation Table below, are referred to as the “named executive officers” or “NEOs”. +Compensation Philosophy and Objectives +Our policies regarding executive compensation programs are intended to balance motivating, rewarding, and retaining executives with a competitive compensation package, and maximizing long-term shareholder value by linking compensation earned to both individual and Company performance. Compensation typically includes base salary, eligibility for annual cash bonuses and stock options contingent on Company performance, retirement plan contributions, and other Company-sponsored benefits. A significant portion of each executive officer’s cash bonus and stock options are dependent upon achieving business and financial goals and realizing other performance objectives. Examples of Company performance metrics for which we measure achievement are sales growth, net earnings growth and profit margins (gross, operating income and net earnings). Annual performance +22 +targets for these metrics are set at or above industry averages and historical results. Our compensation programs are intended to reward individual contributions (for example, bringing a new product to market) and Company-wide achievement of performance metric targets (for example, overall sales and net earnings growth). +The Compensation Committee of the Board of Directors is responsible for the institution and ongoing oversight of compliance with this compensation philosophy. The Compensation Committee ensures that the total compensation paid to the NEOs is fair, reasonable, and competitive. +Establishing Compensation Levels +Compensation levels for the NEOs are driven by market pay levels, the executive officer’s leadership performance and overall Company performance. The Compensation Committee relies upon a combination of judgment and guidelines, as well as market data, in determining the amount and mix of compensation elements for the CEO. The compensation levels for the President are recommended to the Compensation Committee by the CEO and for the other NEOs by the President. The Compensation Committee may decide to follow or modify such recommended levels of compensation. The Compensation Committee considers as crucial the input of our CEO and President in connection with its compensation processes and decisions relating to NEO compensation. Although the Compensation Committee is not obligated to follow their recommendations, the Compensation Committee views their input as meaningful. +Market Pay Levels +Market pay levels for the NEOs are determined annually in November for +the upcoming calendar year. From time to time, at the request of the Compensation +Committee, an outside financial advisor is used to gather and summarize for the +Company public disclosures of executive compensation made by other companies in +the diagnostic and life science industries, as well as those in the Greater +Cincinnati area. This information concerns base salary, bonus awards and +long-term incentive awards such as stock options for these peer companies, as +well as their revenue, net earnings and market capitalization levels in order to +take company size into consideration. The Compensation Committee uses this +information as part of its decision-making process with respect to the +Company’s executive compensation programs. +Company Performance +We believe that certain Company performance metrics drive shareholder value through stock price appreciation and dividends. We take this belief into account in setting performance metric targets that are considered in establishing the performance-based component of our compensation programs. Performance metric targets that are taken into consideration in our compensation programs include sales growth, earnings growth and profit margins. These targets are set at or above industry averages and historical results. +23 +Our performance-based cash bonus and stock option programs operate under the fundamental principle that minimum levels of net earnings be achieved prior to any compensation being earned under these programs. Net earnings targets are determined based on what the Company believes to be meaningful growth rates relative to its industry peers and the Company’s performance objectives. Stock options granted under performance programs are forfeited if the Company does not meet its minimum earnings targets as specified in each grant. +Recovery of Prior Awards +Except as provided by applicable laws and regulations, we do not have a policy with respect to adjustment or recovery of awards or payments if relevant company performance measures upon which previous awards were based are restated or otherwise adjusted in a manner that would reduce the size of such award or payment. Under those circumstances, we expect that the Compensation Committee and the Board would evaluate whether compensation adjustments were appropriate based upon the facts and circumstances surrounding the applicable restatement or adjustment. +Tally Sheets +In setting the NEOs’ compensation, the Compensation Committee reviews all components of the executive officers’ compensation through the use of tally sheets. These tally sheets provide the amount of total compensation paid or earned by the NEO based on his or her base salary, cash bonus, stock options, retirement contributions, and perquisites. The tally sheets reviewed provide all of the information that is reflected in the Summary Compensation Table except for amounts and descriptions of perquisites not required to be specifically identified by SEC regulations. The review by the Compensation Committee analyzes how changes in any element of compensation would impact other elements, particularly severance or change in control benefits, if applicable to the executive. Although this year such analysis did not result in the determination of certain awards, such analysis has become an important +component in the Compensation Committee’s review of executive compensation as the tally sheet allows the Compensation Committee to consider an executive’s overall compensation rather than only one or two specific components of an executive’s compensation. This allows the Compensation Committee to make compensation decisions and evaluate management recommendations based on a complete analysis of an executive’s total compensation. +24 +Components of Executive Compensation for 2007 +Meridian’s executive compensation and benefits packages consist of: base salary, cash bonuses, long-term incentive awards in the form of stock options, and Company-sponsored benefit and retirement plans. Each of these components is detailed below. +Element +Form of Compensation +Purpose +Base Salaries +Cash +Provides competitive, fixed compensation to attract and retain exceptional executive talent +Annual Cash Incentives +Cash +Provides a direct financial incentive to achieve corporate and individual operating goals +Long-Term Equity Incentives +Incentive stock options, non-qualified stock options, restricted stock and stock appreciation rights +Encourages executive officers to build and maintain a long-term equity ownership position in Meridian so that their interests are aligned with our shareholders +Health, Retirement and Other Benefits +Eligibility to participate in benefit plans generally available to our employees, including Retirement Plan contributions, premiums paid on long-term disability and life insurance policies; and certain perquisites +Benefit plans are part of a broad-based employee benefits program; the perquisites provide competitive benefits to our executive officers +Base Salary +The Company pays salaries that are designed to attract, motivate and +retain experienced executives who will drive superior Company performance and +maintain long-term shareholder value. The Compensation Committee considers +recommendations from the CEO and the President and approves annual base salaries +that are commensurate with each NEO’s +responsibilities and performance, as well as Company performance in the prior +fiscal year, which are competitive with similar positions locally and in the +industry. Salaries are set on a calendar year basis and therefore salaries paid +in the first three months of each fiscal year beginning October 1 st +are set in the prior fiscal year. +25 +For 2007, the CEO and the President provided recommendations to the Compensation Committee for salary increases for the NEOs other than themselves, ranging from 3% to 5%. The Compensation Committee followed these recommendations. The Compensation Committee set the salary increase for the CEO and the President at 8% based on their satisfaction with the accomplishments of those officers in fiscal 2006. +Cash Bonuses +The Compensation Committee believes that employees should be rewarded based on Company results and individual performance. The Compensation Committee awards cash bonuses pursuant to the Officers’ Performance Compensation Plan, contingent upon Company performance. Cash bonuses, if earned, are paid in the first quarter of each fiscal year, for the prior year’s performance. +Company Performance Component +The 2007 Plan, approved by shareholders in 2006, provided for the granting of cash bonuses as a percent of base salary if 2007 earnings reached at least $22,300,000, which was a meaningful increase from the 2006 actual earnings of $18,333,000. The 2007 Plan also provided for increasing bonus awards tied to increasing net earnings beyond the initial minimum level. Depending on the level of net earnings achieved and the application of the personal multiplier, cash bonuses could range from 5% to 120% of base salary. +The minimum earnings threshold of $22,300,000 and the corresponding earnings tiers for increasing bonus awards were established on the basis that the favorable adjustment to tax reserves in the amount of $2,425,000, related to the expiration of the statute of limitations on certain income tax returns would be excluded because this was a discrete event that was not an element of current year operating strategies. +Actual net earnings for 2007 were $24,296,000, excluding the favorable tax reserve adjustment discussed above, a record for the Company and 33% growth over 2006, which represented achievement at the Level 5 threshold. The 2007 Plan included six net earnings thresholds. +Individual Performance Component +Cash bonuses are also subject to the application of a personal achievement multiplier as recommended by management, except that no such recommendation is made by management for the CEO. The Compensation Committee followed these recommendations for fiscal 2007. The Compensation Committee set the personal achievement multiplier for the CEO at the highest level being paid to several other officers based on his leadership of the Company in 2007 and its overall sales and net earnings growth. +In evaluating the personal achievement multipliers for the NEOs for 2007, the Compensation Committee took into consideration the Company’s record sales and net earnings, its sales and net earnings growth rates over 2006, and the individual achievements and leadership of the NEOs that led to the record operating results. +26 +Cash bonuses earned by the NEOs are included in the “Bonus” column of the Summary Compensation Table on page 31. +2008 +At its November 14, 2007 meeting, the Compensation Committee approved the Officers’ Performance Compensation Plan for fiscal 2008. The 2008 Plan will award cash bonuses if 2008 net earnings reach at least $29,000,000, which the Compensation Committee believes is a meaningful increase from 2007 net earnings of $24,296,000, excluding the favorable tax reserve adjustment discussed above. The 2008 Plan also provides for increasing bonus awards tied to increasing net earnings beyond the initial minimum level. Depending on the level of net earnings achieved and the application of the personal multiplier, cash bonuses could range from 5% to 120% of base salary, similar to the 2007 Plan discussed above. +Long-term incentive awards +Long-term incentive awards in 2007 consisted of stock options. The Compensation Committee believes that equity-based compensation encourages employees to commit to the long-term goals of the Company. This ensures that the Company’s NEOs have a stake in the long-term creation of shareholder value. +Stock option awards are contingent upon Company earnings levels and are made annually to all NEOs. On November 15, 2006, the Compensation Committee awarded each NEO options to purchase 15,750 shares of Common Stock at an exercise price equal to the closing market price on that date. These options have a maximum term of ten years, but were subject to forfeiture if earnings did not reach $23,600,000. Similar to the discussion under Cash Bonuses, this minimum earnings threshold was established on the basis that the favorable adjustment to tax reserves in the amount of $2,425,000 related to the expiration of the statute of limitations on certain income tax returns would be excluded . This earnings level was exceeded and these options are now in effect, vesting in three equal installments beginning November 14, 2008. These options are reflected in the option +tables presented in this proxy statement. +At its meeting on November 14, 2007, the Compensation Committee awarded each NEO options to purchase 15,750 shares of Common Stock at an exercise price equal to the closing market price on this date. These options have a maximum term of ten years and are subject to forfeiture if 2008 earnings do not reach $30,775,000. +Although Meridian does not have a written policy regarding the timing or practices related to granting equity awards, neither Meridian nor the Compensation Committee engages in spring-loading, back-dating or bullet-dodging practices. Stock options are generally granted at a regularly scheduled meeting of the Compensation Committee in the first quarter of the fiscal year, after Meridian issues a press release announcing the results of the prior fiscal year. Stock options are granted at the closing market price on the date of grant, pursuant to the 2004 Equity Compensation Plan. Prior to the exercise of an option, the holder has no rights as a stockholder with respect to the shares subject to such option, including no rights to +27 +vote or to receive dividends. Options granted to the NEOs are set forth in the Grants of Plan-Based Awards Table on page 32. +Company-Sponsored Benefit and Retirement Plans +Meridian provides Company-sponsored benefit and retirement plans to the NEOs. In general, executives participate in the Company’s benefit and retirement plans on the same basis as other Company employees. The core benefit package includes health, dental, short and long-term disability, and group term life insurance. Meridian generally provides retirement benefits to executives through qualified (under the Internal Revenue Code) defined contribution plans. +In 1995, the Company entered into a salary continuation agreement with John A. Kraeutler to supplement Mr. Kraeutler’s retirement savings. This agreement provides additional compensation after retirement or separation from the Company under certain circumstances and is funded by a life insurance policy with premiums paid by the Company. Mr. Kraeutler’s benefit is limited to the cash surrender value of the life insurance policy. Meridian incurred expense of $18,120 in premiums during fiscal 2007. +Other Personal Benefits +Allowances for automobiles and professional, financial, and tax planning are made available to Meridian’s NEOs and other corporate officers. The costs to the Company are included in the All Other Compensation Table on page 31. The Company believes these perquisites to be reasonable, comparable to peer companies, and consistent with the Company’s overall executive compensation philosophy. +Interplay of Compensation Elements +We believe that each element of our compensation program plays a substantial role in maximizing long-term value for our shareholders and employees because of the significant emphasis on pay-for-performance principles. Generally, in 2007 approximately 37% to 49% of an NEO’s total compensation was dependent upon achieving business and financial goals, and realizing other performance objectives identified in the Performance Compensation Plan. As such, through this mix of pay, non-performance has a significant effect on the amount of compensation realized by executive officers. +We consider competitive market compensation paid by other companies, such as similarly sized greater-Cincinnati based companies and industry peers, but we do not attempt to maintain a certain target percentile within a peer group or otherwise rely on that data to determine executive compensation. Rather, Meridian incorporates flexibility into our compensation programs and in the assessment process to respond to and adjust for the evolving business environment. We strive to achieve an appropriate mix between equity incentive awards and cash payments in order to meet our objectives. We use the Performance Compensation Plan as another tool to assess an executive’s total pay opportunities and whether we have provided the appropriate incentives to accomplish our compensation objectives. Our mix of compensation elements is designed to reward recent results and motivate long-term performance through a +combination of cash and stock option +28 +awards. We also seek to balance compensation elements that are based on financial, operational and strategic metrics with others that are based on the performance of Meridian shares via application of the personal multiplier component of cash bonuses for the CEO and President. We believe the most important indicator of whether our compensation objectives are being met is our ability to motivate our NEOs to deliver superior performance and retain them to continue their careers with Meridian on a cost-effective basis. +Internal Pay Equity +The Compensation Committee believes that the relative difference between the CEO’s compensation and the compensation of the Company’s other executives has not increased significantly over the years. Further, the Compensation Committee believes that the Company’s internal pay equity structure is consistent with our peer group and is appropriate based upon the contributions to the success of the Company and as a means of motivation to other executives and employees. +Tax Deductibility of Pay +Section 162(m) of the Internal Revenue Code contains compensation deduction limitations for certain highly compensated employees. One exception to this limitation is for performance-based compensation that is approved by, among other things, a committee of “outside directors” (as defined under IRS treasury regulations). While Mr. Kreider, the Chairman of the Compensation Committee, participates in the discussions regarding executive compensation, he recuses himself from voting on all performance-based compensation issues so that the Company can take full advantage of the above-described performance-based compensation deduction under Section 162(m). The Committee believes that all compensation paid to the NEOs for fiscal year 2007 is properly deductible under Section 162(m), but no assurance can be made in this regard. +Actions of the Committee +In several meetings during the year, the CEO and the Compensation Committee Chairman discussed, among other things, Meridian’s compensation system and its effectiveness in attracting and retaining top notch employees. Both believed that the system, including the Officers’ Performance Compensation Plan, is understood by employees and shareholders and has worked well in practice. They noted that the underlying principles in this Plan have been followed for many years, even when, as in 2001, following such principles resulted in no bonuses being awarded and performance stock options being forfeited. The Committee discussed on a number of occasions the advisability of engaging a compensation consultant. The Compensation Committee concluded that it did not want to engage a compensation consultant this year, in part because of the relatively small number of executive officers and their frequent interaction. +At its November 15, 2006 meeting, the Compensation Committee discussed these matters, both with and without the presence of management. The Compensation Committee discussed the recommendations of the CEO and the President for compensation levels for all officers and answered questions about individual recommendations and the general pay +29 +increases to be paid throughout the Company. The Committee then made the compensation decisions, which are reflected in the figures presented in this Proxy Statement. +COMPENSATION COMMITTEE REPORT +The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management. Based on these reviews and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s proxy statement on Schedule 14A. +Members of the Compensation Committee: +Gary P. Kreider (Chairman) +Robert J. Ready +James A. Buzard +David C. Phillips +30 +SUMMARY COMPENSATION TABLE +The following table summarizes the aggregate compensation paid, or earned, by each of the NEOs for the fiscal year ended September 30, 2007. +Name and Principal +Position +Year +Salary +Bonus 1 +Stock +Awards +Option +Awards 2 +Non-Equity +Incentive Plan +Compensation +Change in +Pension Value +and +Nonqualified +Deferred +Compensation +Earnings +All Other +Compensation 3 +Total +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +(i) +William J. Motto +Chairman of the Board of Directors, Chief Executive Officer +2007 +$494,904 +$378,750 +$ - +$109,666 +$ - +$ - +$91,077 +$1,074,397 +Melissa A. Lueke +Vice President, Chief Financial Officer, and Secretary +2007 +$192,283 +$146,251 +$ - +$22,978 +$ - +$ - +$20,878 +$382,390 +John A. Kraeutler +President, Chief Operating Officer +2007 +$391,928 +$300,005 +$ - +$109,666 +$ - +$ - +$42,925 +$844,524 +Antonio A. Interno 4 +Senior Vice President, President and Managing Director, MBE +2007 +$353,575 +$220,983 +$ - +$109,666 +$ - +$ - +$42,476 +$726,700 +Richard L. Eberly, +Executive Vice President, President Meridian Life Science +2007 +$250,121 +$142,380 +$ - +$22,978 +$ - +$ - +$28,097 +$443,576 +1 The amounts shown in this column reflect payments made pursuant to the Officers’ Performance Compensation Plan. +2 The amounts shown reflect the dollar amounts recognized for financial statement reporting purposes with respect to fiscal year 2007 in accordance with SFAS No. 123(R). A discussion of the assumptions used in calculating these values may be found in Note 8 (b) on page 63 to Company’s Annual Report on Form 10-K filed November 30, 2007. +3 See All Other Compensation chart below for amounts, which includes certain Company contributions, perquisites and other personal benefits. +William J. +Motto +Melissa A. +Lueke +John A. +Kraeutler +Antonio A. +Interno +Richard L. +Eberly +Retirement Contributions +$12,158 +$12,079 +$12,158 +$15,892 +$14,967 +Auto Lease / Auto Allowance +18,919 +6,000 +15,798 +26,584 +12,000 +Financial and Tax Planning +60,000 +2,799 +14,969 +- +1,130 +Totals +$91,077 +$20,878 +$42,925 +$42,476 +$28,097 +4 Mr. Interno’s salary and bonus were €266,001 and €166,250, respectively in 2007. All conversions were made at the average exchange rate for fiscal 2007. +31 +GRANTS OF PLAN-BASED AWARDS +Name +Grant Date +Estimated Future Payouts Under Non- +Equity Incentive Plan Awards +Estimated Future Payouts Under +Equity Incentive Plan Awards +All other +Stock +Awards: +Number of +Shares of +Stock or +Units (#) +All other +Option +Awards: +Number +of +Securities +Underlying +Options +(#) 1 +Exercise of +Base Price +of Option +Awards +($/Sh) +Grant Date Fair +Value of Stock +and Option +Awards 2 +Threshold ($) +Target ($) +Max ($) +Threshold ($) +Target ($) +Max ($) +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +(i) +(j) +(k) +(l) +William J. Motto +11/15/06 +- +- +- +- +- +- +- +15,750 +$16.554 +$109,666 +Melissa A. Lueke +11/15/06 +- +- +- +- +- +- +- +15,750 +$16.554 +$70,277 +John A. Kraeutler +11/15/06 +- +- +- +- +- +- +- +15,750 +$16.554 +$109,666 +Antonio A. Interno +11/15/06 +- +- +- +- +- +- +- +15,750 +$16.554 +$109,666 +Richard L. Eberly +11/15/06 +- +- +- +- +- +- +- +15,750 +$16.554 +$70,277 +1 Stock option awards have a ten-year term and vest in three equal annual installments, starting with the earnings release indicating that performance targets were met. +2 The amounts shown reflect the dollar amounts to be recognized for financial statement reporting purposes in accordance with SFAS No. 123(R). A discussion of the assumptions used in calculating these values may be found in Note 8 (b) on page 63 to Company’s Annual Report on Form 10-K filed November 30, 2007. +Outstanding Equity Awards at Fiscal Year-End +The following table provides information on the current holdings of stock option awards by the NEOs under Meridian’s 2004 Equity Compensation and 1996 Stock Option Plans. The columns related to stock awards have been deleted because there are no outstanding stock awards held by any of the NEOs. +Under the Company’s stock option plans, general stock option awards have a ten-year term and vest in four equal annual installments from the date of grant. The Company’s performance-based options, if earned, vest in three equal annual installments, beginning on the date of the earnings release indicating that performance targets were met for the period. +32 +Name +Number of +Securities +Underlying +Unexercised +Option (#) +Exercisable +Number of +Securities +Underlying +Unexercised +Option (#) +Unexercisable +Equity Incentive +Plan Awards: +Number of +Securities +Underlying +Unexercised +Unearned Options +(#) +Option +Exercise +Price ($) +Option Grant +Date +Option +Expiration Date +William J. Motto +- +113,063 4 +- +$2.090 +10/01/2001 +09/30/2011 +7,988 1 +- +- +$2.800 +11/19/2002 +11/19/2012 +15,750 2 +- +- +$4.525 +12/02/2003 +12/02/2013 +10,500 2 +5,250 2 +- +$7.280 +12/07/2004 +12/07/2014 +5,250 2 +10,500 2 +- +$14.007 +11/10/2005 +11/10/2015 +- +15,750 2 +- +$16.554 +11/15/2006 +11/15/2016 +Melissa A. Lueke +- +22,500 4 +- +$2.090 +10/01/2001 +09/30/2011 +5,250 2 +- +- +$4.525 +12/02/2003 +12/02/2013 +5,250 2 +5,250 2 +- +$7.280 +12/07/2004 +12/07/2014 +5,250 2 +10,500 2 +- +$14.007 +11/10/2005 +11/10/2015 +- +15,750 2 +- +$16.554 +11/15/2006 +11/15/2016 +John A. Kraeutler +25,312 6 +- +- +$5.556 +04/22/1998 +04/21/2008 +16,875 5 +- +- +$5.556 +04/22/1998 +04/21/2008 +56,250 3 +- +- +$3.000 +10/30/1998 +09/30/2008 +28,125 3 +- +- +$3.195 +11/16/2000 +11/15/2010 +- +123,751 4 +- +$2.090 +10/01/2001 +09/30/2011 +35,550 1 +- +- +$2.800 +11/19/2002 +11/19/2012 +5,250 2 +- +- +$4.525 +12/02/2003 +12/02/2013 +5,250 2 +5,250 2 +- +$7.280 +12/07/2004 +12/07/2014 +5,250 2 +10,500 2 +- +$14.007 +11/10/2005 +11/10/2015 +- +15,750 2 +- +$16.554 +11/15/2006 +11/15/2016 +Antonio A. Interno +- +22,500 4 +- +$2.090 +10/01/2001 +09/30/2011 +- +5,250 2 +- +$7.280 +12/07/2004 +12/07/2014 +- +10,500 2 +- +$14.007 +11/10/2005 +11/10/2015 +- +15,750 2 +- +$16.554 +11/15/2006 +11/15/2016 +Richard L. Eberly +- +22,500 4 +- +$2.090 +10/01/2001 +09/30/2011 +5,250 2 +- +- +$4.525 +12/02/2003 +12/02/2013 +5,250 2 +5,250 2 +- +$7.280 +12/07/2004 +12/07/2014 +5,250 2 +10,500 2 +- +$14.007 +11/10/2005 +11/10/2015 +- +15,750 2 +- +$16.554 +11/15/2006 +11/15/2016 +1 Options vested on 12/31/2003. +2 Options vest in three equal annual installments beginning one year from public earnings release date for the fiscal year ending immediately following the grant date, indicating that performance targets were met, occurring approximately one year from date of grant. +3 Options vested in four equal annual installments beginning one year from the date of grant. +4 Options vest on 10/01/2010. +5 Options vested on 04/22/2002. +6 Options vested in three equal annual installments beginning on 04/22/1999. +33 +OPTION EXERCISES AND STOCK VESTED +Option Awards +Stock Awards +Name +Number of Shares +Acquired on +Exercise (#) +Value Realized on +Exercise ($) 1 +Number of +Shares Acquired +on Vesting (#) +Value Realized +On Vesting ($) +(a) +(b) +(c) +(d) +(e) +William J. Motto +- +$ - +- +- +Melissa A. Lueke +41,063 +$637,450 +- +- +John A. Kraeutler +115,200 +$1,983,006 +- +- +Antonio A. Interno +10,500 +$114,287 +- +- +Richard L. Eberly +10,500 +$134,447 +- +- +1 Amounts reflect the difference between the exercise price of the option and the market price at the time of exercise. +NONQUALIFIED DEFERRED COMPENSATION +The following table sets forth, for each of the NEOs, certain information concerning nonqualified deferred compensation for fiscal 2007. +Name +Executive +Contributions +during FY +2007 +Registrant +Contributions +during FY 2007 +Aggregate +Earnings during +FY 2007 +Aggregate +Withdrawals / +Distributions +Aggregate Balance +at 09/30/2007 +William J. Motto +- +- +- +- +- +Melissa A. Lueke +- +- +- +- +- +John A. Kraeutler +- +18,120 +- +- +211,757 +Antonio A. Interno +- +- +- +- +- +Richard L. Eberly +- +- +- +- +- +Our 401(k) Savings Plan (“401(k) Plan”) allows all US employees of the company as of the first day of their employment to set aside a portion of their compensation each year for their retirement needs up to the limits set by the Internal Revenue Code. The Company contributes a matching contribution of 100% of the first 3% of the employee’s contribution (i.e. up to 3% of an employee’s salary) subject to Internal Revenue Code limitations. The Company may also contribute a profit-sharing contribution at its discretion. Employee contributions are 100% vested immediately, while Company contributions are subject to a graded vesting schedule of 20% per year for 5 years. Participants are entitled to direct the investment of their accounts among various mutual funds selected by the Company’s +34 +Fiduciary Committee. The Plan also provides that Company discretionary profit sharing contributions may be invested in Company stock. Participants who terminate employment are entitled to receive the vested portion of their accounts. +Antonio A. Interno, senior Vice President, President and Managing Director of our European operations, is a non-US employee. Mr. Interno receives a profit sharing allocation that is commensurate with amounts received by executive officers who are US employees and participate in our 401(k) Plan. Mr. Interno also receives retirement contributions based on amounts contributed by Meridian Bioscience Europe srl pursuant to the Italian government pension system, INPS. The amount of such contribution was $10,633 for fiscal 2007. +A salary continuation agreement with John A. Kraeutler allows the Company to contribute amounts above the IRS limit. This agreement provides additional compensation after retirement or separation from the Company under certain circumstances and is funded by a life insurance policy with premiums paid by the Company. Mr. Kraeutler’s benefit is limited to the cash surrender value of the policy. +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL +In the case of a disability, Meridian is obligated to pay Mr. Motto 60% of his total annual salary and bonus for a period of up to 60 months. In the case of death, Meridian is obligated to pay to Mr. Motto’s designated beneficiaries up to $1 million. These benefits are to be reduced by the gross amount of any life insurance payments or disability insurance payments made to Mr. Motto, or his beneficiaries as the case may be, under any insurance policy or program maintained by Meridian, other than group term life insurance programs maintained for all employees. +Mr. Kraeutler and Meridian are parties to an employment agreement dated February 15, 2001 which sets forth compensation, non-competition, benefit and severance provisions and provides for a payment equal to three times Mr. Kraeutler’s base salary (plus any salary earned but not paid) and 3-year average annual performance bonus upon the occurrence of certain events, including a change in control of Meridian. In the case of disability, Meridian is obligated to pay Mr. Kraeutler 100% of his base and performance compensation, averaged from the three preceding fiscal years, until age 65. The agreement was effective for a period of 36 months commencing February 15, 2001, automatically extending each day for additional 36-month periods until either party terminates the agreement. +Had a change in control occurred on September 30, 2007, Mr. Kraeutler would have been entitled to the following under the agreement: +Salary +$1,080,624 +Annual Performance Bonus +1,090,265 +Total Payment +$2,170,889 +35 +DIRECTOR COMPENSATION +For 2007, non-employee directors of Meridian receive $22,000 per year for serving as a directors and as members of committees of the Board. They also receive $1,500 for each meeting of the Board and $1,000 for each committee meeting attended. They receive $750 for each Board meeting and $500 for each committee meeting held by telephone. The Audit Committee Chairman receives an additional $8,000 annually and the Compensation Committee Chairman receives an additional $3,000 annually. The Board Secretary receives an additional $1,000 for serving at each meeting of a committee of which he is not a member. Each non-employee director is also granted a non-qualified option to purchase 7,500 common shares at the time of election or re-election to the Board of Directors, with the exercise price being the closing sale price on Nasdaq reported on the date of grant. Directors who are employees of Meridian are +not separately compensated for serving as directors. +The following table provides information on compensation related to fiscal 2007 for non-employee directors who served during fiscal 2007. +Name (1) +Fees +Earned +or +Paid in +Cash +($) +Stock +Awards +($) +Option +Awards +($) 1 +Non-Equity +Incentive Plan +Compensation +($) +Change in +Pension Value +and Nonqualified +Deferred +Compensation +Earnings +All Other +Compensation +($) +Total +($) +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +James A. Buzard +$37,000 +- +$53,602 +- +- +- +$90,602 +Gary P. Kreider +$41,000 +- +$53,602 +- +- +- +$94,602 +David C. Phillips +$45,000 +- +$53,602 +- +- +- +$98,602 +Robert J. Ready +$36,000 +- +$53,602 +- +- +- +$89,602 +1 The amounts shown reflect the dollar amounts recognized for financial statement reporting purposes with respect to fiscal year 2007 in accordance with SFAS No. 123(R). A discussion of the assumptions used in calculating these values may be found in Note 8 (b) on page 63 to Company’s Annual Report on Form 10-K filed November 30, 2007. +On November 14, 2007, the Compensation Committee increased beginning 2008 the annual retainer for non-employee Board members to $30,000. +SHAREHOLDER PROPOSALS FOR NEXT YEAR +The deadline for shareholder proposals to be included in the Proxy Statement for next year’s meeting is August 19, 2008. +The form of Proxy for this meeting grants authority to the designated proxies to vote in their discretion on any matters that come before the meeting except those set forth in Meridian’s Proxy Statement and except for matters as to which adequate notice is received. In order for a notice to be deemed adequate for the 2008 Annual Shareholders’ Meeting, it must be received prior to November 4, 2008. If there is a change in the anticipated date of next year’s +36 +annual meeting or these deadlines by more than 30 days, we will notify you of this change through our Form 10-Q filings. +Meridian’s Code of Regulations provides that only persons nominated by an officer, director or in writing by a shareholder at least 5 days prior to the meeting at which directors are to be selected shall be eligible for election and that shareholder proposals be presented at least 15 days prior to the meeting. +QUESTIONS? +If you have questions or need more information about the annual meeting, write to: +Melissa Lueke, Vice President, Chief Financial Officer and Secretary +Meridian Bioscience, Inc. +3471 River Hills Drive +Cincinnati, Ohio 45244 +or call us at (513) 271-3700. +For information about your record holdings call the Computershare Shareholder Services at (888) 294-8217. +37 +ANNEX A +AMENDMENT TO AMENDED CODE OF REGULATIONS +ARTICLE X +Amendments +This Code of Regulations of the Corporation (and as it may be amended from time to time) may be amended or added to by the affirmative vote or the written consent of the Shareholders of record entitled to exercise a majority of the voting power on such proposal or by the directors to the extent permitted by the Ohio Revised Code ; provided, however, that if an amendment or addition is adopted by written consent without a meeting of the Shareholders, it shall be the duty of the Secretary to enter the amendment or addition in the records of the Corporation, and to mail a copy of such amendment or addition to each Shareholder of record who would be entitled to vote thereon and did not participate in the adoption thereof. +A-1 +ANNEX B +AMENDMENT FOR 2004 EQUITY COMPENSATION PLAN +4.1 Common Stock . Subject to adjustment as provided in Section 4.2, the number of Common Shares which may be issued under this Plan shall not exceed 975,000 3,000,000 Common Shares. If any Award granted under this Plan shall expire, terminate or be canceled for any reason without having been exercised in full, the number of shares of Common Shares not acquired that are subject to such Award shall again be available for future grants. The Committee may make such other determinations regarding the counting of shares of Common Shares issued pursuant to this Plan as it deems necessary or advisable, provided that such determinations shall be permitted by law. Common Stock underlying a +canceled Stock Option shall be counted against the maximum number of Common Shares for which Stock Options may be granted to an Eligible Employee or Advisor. The repricing of Stock Options shall be strictly prohibited under this Plan. +B-1 +o +Mark this box with an X if you have made +changes to your name or address details above. +Annual Meeting Proxy Card +A +Election of Directors +1. +Authority to elect as directors the six nominees listed below. +The Board of Directors recommends a vote FOR the listed nominees. +For Withhold +For Withhold +01 — JAMES A. BUZARD +o o +04 — WILLIAM J. MOTTO +o o +For Withhold +For Withhold +02 — JOHN A. KRAEUTLER +o o +05 — DAVID C. PHILLIPS +o o +For Withhold +For Withhold +03 — GARY P. KREIDER +o o +06 — ROBERT J. READY +o o +B +Issues +The Board of Directors recommends a +vote FOR the following proposals. +2. +To ratify the appointment of Grant Thornton LLP as Meridian’s independent registered public accounting firm for fiscal 2008. +For Against Abstain +o o +o +3. +To amend the Company’s Amended Code of Regulations to allow the Board of Directors to amend such regulations without shareholder approval in certain circumstances. +For Against Abstain +o o o +4. +To amend Meridian’s 2004 Equity Compensation Plan, amended and restated through January 19, 2006, to provide 1,537,500 additional common shares available for issuance. +For Against Abstain +o o o +C +Authorized Signatures — Sign Here — This section must be completed for your instructions to be executed. +NOTE: Please sign exactly as name(s) appear(s) hereon, indicating, where proper, official position +or representative capacity. All joint +holders must sign. +Signature 1 — Please keep signature within the box +Signature 2 — Please keep signature within the box +Date (mm/dd/yyyy) +Proxy – Company Name +THIS PROXY IS SUBMITTED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned hereby appoints WILLIAM J. MOTTO or MELISSA A. LUEKE, or either of them, +proxies of the undersigned, each with the power of substitution, to vote cumulatively or otherwise +all shares of Common Stock which the undersigned would be entitled to vote on the matters specified +on the reverse side and in their discretion with respect to such other business as may properly +come before the Annual Meeting of Shareholders of Meridian Bioscience, Inc. to be held on January +22, 2008 at 3:00 p.m. at Holiday Inn, 4501 Eastgate Boulevard, Cincinnati, Ohio and any +postponement or adjournment of such Annual Meeting. +THE PROXY WILL BE VOTED AS RECOMMENDED BY THE BOARD OF DIRECTORS UNLESS A CONTRARY CHOICE IS +SPECIFIED. +(This proxy is continued and is to be signed on the reverse side.) +THANK YOU FOR VOTING \ No newline at end of file diff --git a/raw/proxies/0000794172/0001145443-07-003870/proxy_rpt.txt b/raw/proxies/0000794172/0001145443-07-003870/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..42bcb95a2233b932282074143502f135fc1aaff1 --- /dev/null +++ b/raw/proxies/0000794172/0001145443-07-003870/proxy_rpt.txt @@ -0,0 +1,7 @@ +CERTAIN RELATED PERSON TRANSACTIONS +Todd Motto, the adult son of William J. Motto, is Vice President, Sales and Marketing. Todd Motto received $343,311 in compensation for fiscal 2007. This compensation consisted of base salary of $168,273, bonus of $131,254 under the Officers’ Performance Compensation +21 +Plan, $8,834 of auto and professional allowances, $11,972 of retirement plan contributions, and $22,978 related to stock option awards. +Nasdaq rules require the Company to conduct an appropriate review of related party transactions required to be disclosed by the Company pursuant to SEC Regulation S-K Item 404 for potential conflict of interest situations on an ongoing basis and that all such transactions must be approved by the Audit Committee or another committee comprised of independent directors. As a result, the Audit Committee annually reviews all such related party transactions and approves each related party transaction if it determines that it is in the best interests of the Company. Additionally, the Audit Committee’s Charter provides it the authority to review, approve and monitor transactions involving the Company and “related persons” (directors and executive officers or their immediate family members, or shareholders owning five percent or greater of the Company’s outstanding stock). This also covers +any related person transaction that meets the minimum threshold for disclosure in the proxy statement under the relevant SEC rules (generally, transactions involving amounts exceeding $120,000 in which a related person has a direct or indirect material interest). In considering the transaction, the Audit Committee may consider all relevant factors, including, as applicable, (i) the Company’s business rationale for entering into the transaction; (ii) the alternatives to entering into a related person transaction; (iii) whether the transaction is on terms comparable to those available to third parties, or in the case of employment relationships, to employees generally; (iv) the potential for the transaction to lead to an actual or apparent conflict of interest and any safeguards imposed to prevent such actual or apparent conflicts; and (vi) the overall fairness of the transaction to the Company. While the Company adheres to this policy for potential related person transactions, the +policy, except as described above, is not in written form and approval of such related person transactions are evidenced by internal Company resolutions where applicable and/or our practice of approving transactions in this manner. \ No newline at end of file diff --git a/raw/proxies/0000794172/0001193125-11-340406/proxy.txt b/raw/proxies/0000794172/0001193125-11-340406/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..deec44c5bc46de851d30c14667f77c7c0eda3278 --- /dev/null +++ b/raw/proxies/0000794172/0001193125-11-340406/proxy.txt @@ -0,0 +1,3952 @@ +DEF 14A +1 +d261196ddef14a.htm +DEF 14A +DEF 14A +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +WASHINGTON, D.C. 20549 +SCHEDULE 14A +(Rule 14a-101) +INFORMATION REQUIRED IN PROXY STATEMENT +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of the +Securities Exchange Act of 1934 +(Amendment No. ) +Filed by the +Registrant x Filed by a +Party other than the Registrant ¨ +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material Pursuant to Section 14a-12 +Meridian Bioscience, Inc. +(Name of Registrant as Specified in Its Charter) +(Name of Person(s) Filing Proxy Statement if Other Than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the +filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total Fee paid: +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify +the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +MERIDIAN BIOSCIENCE, INC. +3471 River Hills Drive +Cincinnati, Ohio 45244 +www.meridianbioscience.com +Notice of Annual Meeting +and Proxy Statement +Dear Shareholder: +Our Annual Meeting of Shareholders will be held at 2:00 p.m. on January 25, 2012 at the Holiday Inn Eastgate, 4501 Eastgate Boulevard, Cincinnati, +OH 45245. We hope you will attend. +At the meeting, you will hear a report on our operations and have a chance to meet your Directors and +Executive Officers. +This booklet includes the formal notice of the meeting and the proxy statement. The proxy statement tells you more about +the agenda and procedures for the meeting. It also describes how the Board operates and gives personal information about our Director candidates. +We are pleased to once again take advantage of the U.S. Securities and Exchange Commission rules that allow companies to furnish their proxy materials over the Internet. As a result, we are mailing to +most of our shareholders a Notice of Internet Availability of Proxy Materials (the “Notice”) instead of a paper copy of this proxy statement and our Annual Report. The Notice contains instructions on how to access and review those +documents over the Internet. We believe that this process allows us to provide our shareholders with the information they need in a more timely manner, while reducing the environmental impact and lowering the costs of printing and distributing our +proxy materials. If you received a Notice by mail and would like to receive a printed copy of our proxy materials, you should follow the instructions for requesting such materials included in the Notice. +Whether or not you plan to attend the meeting, please cast your proxy vote promptly, either on-line, over the phone or by returning your signed and dated +proxy card in the enclosed envelope. +Sincerely yours, +/s/ William J. Motto +William J. Motto +Executive Chairman of the Board +December 14, 2011 +Table of Contents +NOTICE OF ANNUAL MEETING +OF +SHAREHOLDERS OF MERIDIAN BIOSCIENCE, INC. +Time: +2:00 p.m., Eastern Standard Time +Date: +January 25, +2012 +Place: +Holiday Inn Eastgate +4501 Eastgate Blvd. +Cincinnati, Ohio 45245 +Purpose: +• +Elect as Directors the five nominees named in the attached proxy materials +• +Conduct an advisory vote on our executive compensation (“Say-on-Pay”) +• +Conduct an advisory vote on the preference for the frequency of future Say-on-Pay votes (“Say-on-Frequency”) +• +Ratify appointment of Grant Thornton LLP as Meridian’s independent registered public accountants for fiscal year 2012 +• +Reapprove Meridian’s 2004 Equity Compensation Plan and its performance measurements for purposes of Section 162(m) of the Internal Revenue +Code +• +Approve the Meridian Bioscience, Inc. 2012 Stock Incentive Plan +• +Conduct other business if properly raised +Only shareholders of record on November 28, 2011 may vote at the meeting. The approximate mailing date of this proxy statement and accompanying Proxy Card is December 14, 2011. +Your vote is important. Please cast your proxy vote promptly, either on-line, over the phone or by returning your signed and dated proxy card in the +enclosed envelope. +/s/ Melissa A. Lueke +Melissa A. Lueke +Secretary +December 14, 2011 +Table of Contents +TABLE OF CONTENTS +Page +GENERAL INFORMATION +1 +ELECTION OF DIRECTORS +3 +SAY-ON-PAY +6 +SAY-ON-FREQUENCY +7 +RATIFICATION OF APPOINTMENT OF ACCOUNTANTS +8 +REAPPROVAL OF 2004 EQUITY COMPENSATION PLAN AND ITS PERFORMANCE MEASURES +9 +APPROVAL OF 2012 STOCK INCENTIVE PLAN +19 +CORPORATE GOVERNANCE +29 +DIRECTORS AND EXECUTIVE OFFICERS +35 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS +37 +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +37 +TRANSACTIONS WITH RELATED PERSONS +38 +COMPENSATION DISCUSSION AND ANALYSIS +38 +SUMMARY COMPENSATION TABLE +48 +DIRECTOR COMPENSATION +55 +SHAREHOLDER PROPOSALS FOR NEXT YEAR +56 +QUESTIONS? +56 +ANNEX A: 2004 EQUITY COMPENSATION PLAN +A-1 +ANNEX B: 2012 STOCK INCENTIVE PLAN +B-1 +Meridian makes available, free of charge on its website, all of its filings that are made electronically with the +Securities and Exchange Commission (“SEC”), including Forms 10-K, 10-Q and 8-K. These filings are also available on the SEC’s website (www.sec.gov). To access these filings, go to our website (www.meridianbioscience.com). Copies of +Meridian’s Annual Report on Form 10-K for the fiscal year ended September 30, +Table of Contents +2011, including financial statements and schedules thereto, filed with the SEC, are also available without charge to shareholders upon written request addressed to: +Melissa A. Lueke +Executive Vice President, +Chief Financial Officer and Secretary +Meridian Bioscience, Inc. +3471 River Hills Drive +Cincinnati, Ohio 45244 +Table of Contents +GENERAL INFORMATION +Who may vote +Shareholders of Meridian, as recorded in our stock register on +November 28, 2011, may vote at the meeting. As of that date, Meridian had 41,243,045 shares of Common Stock outstanding. +How to +vote +You may vote in person at the meeting or by proxy. We recommend you vote by proxy even if you plan to attend the meeting. You can +always change your vote at the meeting. +How proxies work +Meridian’s Board of Directors is asking for your proxy. Giving us your proxy means you authorize us to vote your shares at the meeting in the manner you direct. You may vote for all, some or none of +our Director candidates. You may also vote for or against the other proposals or abstain from voting. +If you complete your proxy on-line, +over the phone or sign and return the enclosed proxy card but do not specify how to vote, we will vote your shares in favor of: (i) our Director candidates; (ii) our executive compensation; (iii) the annual frequency of future +Say-on-Pay votes; (iv) the ratification of appointment of Grant Thornton LLP as Meridian’s independent registered public accountants for fiscal year 2012; (v) the re-approval of the 2004 Equity Compensation Plan and its performance +measures; and (vi) the approval of the 2012 Stock Incentive Plan. If any other matters come before the meeting or any postponement or adjournment thereof, each proxy will be voted in the discretion of the individuals named as proxies on the +card. +You may receive more than one proxy or voting card depending on how you hold your shares. Shares registered in your name are covered by +one card. If you hold shares through someone else, such as a stockbroker, bank or nominee, you may get material from them asking how you want to vote. +Stockbrokers, banks and nominees holding shares for beneficial owners must vote those shares as instructed. If the stockbroker, bank or nominee has not received instructions from you, the beneficial +owner, the stockbroker, bank or nominee generally has discretionary voting power only with respect to the ratification of appointment of the independent registered public accountants. However, a stockbroker, bank or nominee does not have discretion +to vote for or against the election of Directors and certain other matters subject to a vote if they have not received voting instructions. In order to avoid a broker non-vote of your shares on the election of Directors and the other matters subject +to a vote, you must send voting instructions to your stockbroker, bank or nominee. +Solicitation of proxies +Solicitation of proxies is being made by management at the direction of Meridian’s Board of Directors, without additional compensation, through the +mail, in person or by telephone. The cost of preparing and mailing the Notice and the proxy statement and any accompanying material will be borne by Meridian. In addition, Meridian will request brokers and other +1 +Table of Contents +custodians, nominees and fiduciaries to forward proxy soliciting material to the beneficial owners of shares held of record and Meridian will reimburse them for their expenses in so doing. +Meridian has retained the services of Georgeson Inc. (“Georgeson”), an independent proxy solicitation firm, to assist in the solicitation of proxies. Georgeson will receive a fee of approximately $10,000 as compensation for its services +and will be reimbursed for its out-of-pocket expenses. +Revoking a proxy +You may revoke your proxy before it is voted by submitting a new proxy with a later date, by voting in person at the meeting or by notifying +Meridian’s Secretary in writing at the address under “Questions?” on page 56. +Quorum +In order to carry on the business of the meeting, we must have a quorum. This means at least a majority of the outstanding shares eligible to vote must be +represented at the meeting, either by proxy or in person. +Votes needed +The five Director candidates receiving the most votes will be elected to fill the seats on the Board. The approval on an advisory basis of our executive compensation (Proposal No. 2), the +ratification of appointment of accountants, the re-approval of the 2004 Equity Compensation Plan and its compensation measures, and the approval of the 2012 Stock Incentive Plan require the favorable vote of a majority of the votes cast. Only votes +for or against these proposals count, with abstentions not being counted either for or against these proposals. +The advisory vote on the +frequency of say-on-pay votes (every one, two, or three years) (Proposal No. 3) is a plurality vote, and we will consider shareholders to have expressed a non-binding preference for the frequency option that receives the most favorable votes. +Abstentions from voting on this proposal will have the same effect as not expressing a preference. +Abstentions and broker non-votes count for +quorum purposes but, as indicated above, will not count for voting purposes. Broker non-votes occur when a broker returns a proxy card but does not have authority to vote on a particular proposal. +Other matters +Any other matters +considered at the meeting, including postponement or adjournment, will require the affirmative vote of a majority of the votes cast. +2 +Table of Contents +ELECTION OF DIRECTORS +(Item 1 on the Proxy Card) +The +Nominating and Corporate Governance Committee of the Board of Directors has nominated for re-election the following current Directors: James M. Anderson, John A. Kraeutler, Gary P. Kreider, William J. Motto, David C. Phillips and Robert J. Ready. +Mr. Kreider has declined the nomination and is, therefore, not standing for re-election to the Board of Directors. +Proxies solicited by +the Board will be voted for the election of these nominees. All Directors elected at the Annual Shareholders’ Meeting will be elected to hold office until the next annual meeting. In voting to elect Directors, shareholders are entitled to +cumulate their votes and to give one candidate a number of votes equal to the number of Directors to be elected multiplied by the number of shares held by the shareholder, or to distribute their votes on the same principle among as many candidates +as the shareholder sees fit. In order to invoke cumulative voting, notice of cumulative voting must be given in writing by a shareholder to the Chief Executive Officer, a Vice President or the Secretary of Meridian not less than 48 hours prior to +the Annual Shareholders’ Meeting. The proxies solicited include discretionary authority to cumulate votes. +All Meridian Directors are +elected for one-year terms. Personal information on each of our nominees is given below. +If a Director nominee becomes unavailable before the +election, your proxy card authorizes us to vote for a replacement nominee if the Board names one. +The Board recommends that shareholders +vote FOR each of the following candidates: +James M. Anderson +Director +since 2009 +Age: 69 +James M. Anderson serves as Chairman of the Nominating and Corporate Governance Committee. He currently serves as Advisor to the President of Cincinnati Children’s Hospital +Medical Center (“CCHMC”), following his retiring as President and Chief Executive Officer of CCHMC on December 31, 2009. He serves as chairman of the Board of the Cincinnati Branch of the Federal Reserve Bank of Cleveland. Prior to +joining the staff of CCHMC, Mr. Anderson was a partner in the general corporate law department at Taft, Stettinius & Hollister for 24 years (1968-1977; 1982-1996) and president of U.S. operations at Xomox Corporation, a publicly-traded +manufacturer of specialty process controls (1977-1982). Mr. Anderson has also served as director of Gateway Investment Advisors (1997-2008). The Board believes that Mr. Anderson’s corporate legal experience and his experience as CEO of a large +healthcare organization have given him a wealth of insight into various corporate governance and business management issues, which, along with his status as an independent Director, make him an integral member of the +Board. +3 +Table of Contents +John A. Kraeutler +Director +since 1997 +Age: 63 +John A. Kraeutler has nearly 40 years of experience in the medical diagnostics industry and joined Meridian as Executive Vice President and Chief Operating Officer in January +1992. In July 1992, Mr. Kraeutler was named President of Meridian, and in January 2008, Mr. Kraeutler was named Chief Executive Officer of Meridian. Before joining Meridian, Mr. Kraeutler served as Vice President, General Manager for a division of +Carter-Wallace, Inc. Prior to that, he held key marketing and technical positions with Becton, Dickinson and Company and Organon, Inc. Mr. Kraeutler’s long-time service to Meridian, all in an executive capacity, has given him significant +insight into, and familiarity with, all aspects of Meridian’s business and the strategic vision for its continued success, and makes his service on the Board extremely beneficial. +William J. Motto +Director +since 1977 +Age: 70 +William J. Motto has more than 45 years of experience in the pharmaceutical and diagnostics products industries, is a founder of Meridian and has been Chairman of the Board since +1977. Mr. Motto became Executive Chairman of the Board in January 2008. Before forming Meridian, Mr. Motto served in various capacities for Wampole Laboratories, Inc., Marion Laboratories, Inc. and Analytab Products, Inc., a division of American +Home Products Corp. Mr. Motto’s experience as Meridian’s founder, his breadth of experience within the pharmaceutical and diagnostics products industries, and his entrepreneurial approach to assessing Meridian’s growth opportunities, +give him unparalleled insights into all aspects of Meridian’s business and operations, which he, in turn, is able to contribute to the Board as its Executive Chairman. +4 +Table of Contents +David C. Phillips +Director +since 2000 +Age: 73 +David C. Phillips serves as Chairman of the Audit Committee. Mr. Phillips spent 32 years with Arthur Andersen LLP. His service with this firm included several managing partner +leadership positions. After retiring from Arthur Andersen in 1994, Mr. Phillips became Chief Executive Officer of Downtown Cincinnati, Inc., which is responsible for economic revitalization of Downtown Cincinnati. Mr. Phillips retired from DCI in +1999 to devote full time to Cincinnati Works, Inc., an organization dedicated to reducing the number of people living below the poverty level by assisting them to strive towards self-sufficiency through work, and his financial consulting services. +Mr. Phillips also serves as a director of Cintas Corporation and served as a director of Summit Mutual Funds, a registered investment company, through 2009. The Board believes that Mr. Phillips’ years of service as a certified public accountant +and trusted advisor to his clients and business owners, which qualify him as an “audit committee financial expert” under SEC guidelines, give him significant experience in preparing, auditing, analyzing and evaluating financial statements +and dealing with complex accounting and business issues, all of which is valuable to Meridian. +Robert J. Ready +Director since +1986 +Age: 71 +Robert J. Ready serves as Chairman of the Compensation Committee. Mr. Ready founded LSI Industries Inc., Cincinnati, Ohio in 1976, which engineers, manufactures and markets +commercial/industrial lighting and graphics products, and is currently its Chief Executive Officer and Chairman of its Board of Directors. Meridian’s Board believes that Mr. Ready’s years of experience as the chief executive of a +publicly-traded company and the myriad, wide-ranging business issues encountered in such capacity, as well as his status as an independent Director, render his service on the Board invaluable to Meridian. +5 +Table of Contents +ADVISORY VOTE ON COMPENSATION OF NAMED EXECUTIVE OFFICERS +(“SAY-ON-PAY” PROPOSAL) +(Item 2 on the Proxy Card) +The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd Act”), enacted in July 2010, requires that we provide our shareholders with the opportunity to vote to approve, on a +non-binding, advisory basis, the compensation of our named executives officers as disclosed in this proxy statement in accordance with the compensation disclosure rules of the Securities and Exchange Commission (“SEC”). +As described in detail below under the heading “Compensation Discussion and Analysis” beginning on page 38 of this proxy statement, we seek to +closely align the interests of our named executive officers with the interests of our shareholders. We structure our programs to discourage excessive risk-taking through a balanced use of compensation vehicles and metrics with an overall goal of +delivering sustained long-term shareholder value while aligning our executives’ interests with those of our shareholders. Further, our programs require that a substantial portion of each named executive officer’s compensation be contingent +on delivering performance results that benefit our shareholders. Our compensation programs are designed to reward our named executive officers for the achievement of short-term and long-term strategic and operational goals and the achievement of +increased total shareholder return. +The vote on this matter is not intended to address any specific element of compensation; rather, the vote +relates to the compensation of our named executive officers, as described in this proxy statement in accordance with the compensation disclosure rules of the SEC. The vote is advisory, which means that the vote is not binding on the Company, our +Board of Directors or the Compensation Committee. The Board and the Compensation Committee will review and consider the voting results when making future decisions regarding our executive compensation program. +Accordingly, we ask our shareholders to approve, on an advisory basis, the compensation of the named executive officers, as disclosed in this proxy +statement pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis, the Summary Compensation Table and the other related tables and disclosure. +The Board of Directors recommends that shareholders vote FOR the approval of the compensation of our named executive officers as disclosed in +this proxy statement. +6 +Table of Contents +ADVISORY VOTE ON THE FREQUENCY OF FUTURE ADVISORY VOTES ON COMPENSATION OF NAMED +EXECUTIVE OFFICERS (“SAY-ON-FREQUENCY” PROPOSAL) +(Item 3 on the Proxy Card) +The Dodd Act also provides that shareholders must be given the opportunity to vote, on a non-binding, advisory basis, for their preference as to how +frequently we should seek future advisory votes on the compensation of our named executive officers as disclosed in accordance with the compensation disclosure rules of the SEC, which we refer to as an advisory vote on executive compensation. By +voting with respect to this Proposal No. 3, shareholders may indicate whether they would prefer that we conduct future advisory votes on executive compensation once every one, two or three years. +Our Board of Directors has determined that an advisory vote on executive compensation that occurs each year is the most appropriate alternative for the +Company at this time, and therefore, our Board recommends that you vote for annual advisory votes on executive compensation. The Board of Directors has determined that an annual advisory vote on executive compensation will allow our shareholders to +provide timely, direct input on the Company’s executive compensation philosophy, policies and practices as disclosed in the proxy statement each year. The Board believes that an annual vote is therefore consistent with the Company’s +efforts to engage in an ongoing dialogue with our shareholders on executive compensation and corporate governance matters. However, shareholders should note that because the advisory vote on executive compensation occurs well after the beginning of +the compensation year, and because the different elements of our executive compensation programs are designed to operate in an integrated manner and to complement one another, in many cases it may not be appropriate or feasible to change our +executive compensation programs in consideration of any one year’s advisory vote on executive compensation by the time of the following year’s annual meeting of shareholders. +This vote is advisory and not binding on the Company or our Board of Directors in any way. The Board and the Compensation Committee will carefully review the voting results. Notwithstanding the +Board’s recommendation and the outcome of the shareholder vote, the Board may in the future decide to conduct advisory votes on a more or less frequent basis and may vary its practice based on factors such as discussions with shareholders and +the adoption of material changes to compensation programs. +Shareholders may cast a vote on the preferred voting frequency by selecting the +option of every one year, two years, or three years (or abstain) when voting in response to this Proposal No. 3. Shareholders will not be voting to approve or disapprove the recommendation of the Board of Directors. +The Board of Directors recommends that shareholders vote FOR the option of “one year” as the preferred frequency for future advisory +votes on executive compensation. +7 +Table of Contents +RATIFICATION OF APPOINTMENT OF ACCOUNTANTS +(Item 4 on the Proxy Card) +Although not +required, we are seeking shareholder ratification of the Audit Committee’s selection of Grant Thornton LLP as Meridian’s independent registered public accountants for the 2012 fiscal year. The affirmative vote of a majority of shares +voting at the meeting is required for ratification. If ratification is not obtained, the Audit Committee intends to continue the employment of Grant Thornton at least through fiscal 2012. Representatives of Grant Thornton are expected to be present +at the Annual Shareholders’ Meeting and will be available to make a statement, if they so desire, and to respond to appropriate questions asked by shareholders. +Principal Accounting Firm Fees +Aggregate fees billed to Meridian by Grant Thornton LLP for +fiscal years 2011 and 2010 are listed below: +2011 +2010 +Audit Fees +$ +405,067 +$ +408,349 +Audit-Related Fees +19,528 +325,145 +Tax Fees +209,684 +53,075 +$ +634,279 +$ +786,569 +Audit Fees. Audit fees are the fees billed for professional services rendered by Meridian’s +independent registered public accounting firm for their (i) audit of Meridian’s consolidated annual financial statements for the fiscal years ended September 30, 2011 and 2010, respectively, (ii) reviews of the unaudited +quarterly consolidated financial statements contained in the reports on Form 10-Q filed by Meridian during those years, (iii) completion of audits of Bioline Group statutory audits in the United Kingdom during those years, and +(v) reporting on Meridian’s internal control during those years. +Audit-Related Fees . Audit-related fees are +the fees billed for assurance and related services that are reasonably related to the performance of the audit or review of Meridian’s financial statements. For 2010, such fees primarily related to pre-acquisition due diligence and opening +balance sheet procedures associated with the Bioline Group acquisition. +Tax Fees. Tax fees for fiscal 2011 are the fees billed +for U.S. federal and state tax return preparation and compliance, as well as consultation and research on various matters such as sales and use tax, international tax and equity award issues, and transfer pricing. For 2010, such fees were primarily +comprised of services associated with the Bioline Group acquisition, including structure consulting, transfer pricing analysis and various related research. +The Board recommends that shareholders vote FOR the ratification of appointment of Grant Thornton LLP as Meridian’s independent registered public accountants for the 2012 fiscal year. +8 +Table of Contents +REAPPROVAL OF MERIDIAN’S 2004 EQUITY COMPENSATION PLAN AND ITS PERFORMANCE +MEASUREMNENTS FOR PURPOSES OF SECTION 162(m) OF THE INTERNAL REVENUE CODE +(Item 5 on the Proxy Card) +In January 2004, Meridian shareholders approved our 2004 Equity Compensation Plan (the “2004 Plan”), including related performance measurements +and goals. The 2004 Plan has been amended from time to time and was most recently amended by shareholders at the 2008 Annual Meeting and by the Board in 2011. +In accord with Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) and the regulations under that Section, we are requesting shareholders to reapprove the 2004 Plan +and the material terms of the performance measurements and goals set forth in the 2004 Plan. The Board believes that reapproval of the Plan and its performance measurements and goals is desirable and necessary to meet Meridian’s objectives of +attracting, motivating and retaining employees, directors and consultants. The following performance measurements and goals were approved by our shareholders when the 2004 Plan was originally adopted in 2004: “appreciation in the Fair Market +Value, book value or other measure of value of the Common Shares; the performance of the Company based on earnings or cash flow; or such other factors or criteria as the Committee shall determine.” The Board amended the 2004 Plan in November +2005 and identified the additional performance measurements described below, and such performance measurements and goals have not been changed since that time. +Set forth below are: (i) a summary of the principal features of the 2004 Plan; (ii) a description of the U.S. federal income tax consequences under the 2004 Plan; and (iii) a description of +the performance measurements and goals under the 2004 Plan proposed for reapproval. +1. +Summary of the 2004 Equity Compensation Plan +The following is a summary of the material terms of the 2004 Plan and is qualified in its entirety by the full text of the 2004 Plan, which is set forth as Annex A to this proxy statement. +Objectives of the 2004 Plan +The +2004 Plan was established to enable Meridian and its subsidiaries to compete successfully in retaining, attracting and motivating key employees, directors and advisors of outstanding ability, to stimulate the efforts of such persons toward +Meridian’s objectives and to encourage the alignment of their interests with those of Meridian’s shareholders. +Administration +of the 2004 Plan +The 2004 Plan is administered by the Compensation Committee of the Board (the “Committee”). The Committee +has the authority to: +9 +Table of Contents +• +select eligible employees or consultants to whom awards may be granted; +• +determine the types and combinations of awards; +• +determine the number of Common Shares or monetary units which may be subject to each award; +• +determine the terms and conditions of each award; and +• +modify or waive certain restrictions, limitations, terms or conditions of previously granted awards in a manner consistent with the 2004 Plan. +Types of Awards +The 2004 Plan provides flexibility regarding the types of equity compensation Meridian awards to employees, directors and consultants by allowing equity compensation to be awarded in the following forms: +Stock Options +Stock +options granted under the 2004 Plan may be either incentive stock options (or “ISOs” within the meaning of Section 422 of the Code) or nonqualified stock options (or “NQSOs”), which do not meet those requirements. A +description of these two types of stock options appears below under the heading “Certain Federal Income Tax Consequences with Respect to Awards.” +The 2004 Plan provides that the purchase price of Meridian’s shares purchasable under any stock option shall be determined by the Committee, provided that the purchase price of any ISO shall not be +less than 100% of the fair market value of Meridian’s shares on the date that the option is granted. Payment of the purchase price for the exercise of stock options must be made in cash unless some other form of consideration is approved by the +Committee at or after the date of grant. +The term of any stock option shall be determined by the Committee, but no stock option may be +exercised later than ten years after the date of grant. The aggregate fair market value, determined at the date of grant of an ISO, of Meridian’s shares for which ISOs are exercisable for the first time during any calendar year as to any +participant may not exceed $100,000. The Board amended the 2004 Plan in 2011 to provide that no person may receive stock options for more than 300,000 shares in any twelve month period. ISOs granted to persons owning more than 10% of the voting +power of Meridian must be at 110% of fair market value and may not be for a term of more than five years. +Each non-employee director is +granted NQSOs to purchase 7,500 shares, or such other number as may be determined by the Board from time to time, at the time of appointment, election or re-election, as the case may be, to the Board. +10 +Table of Contents +Stock Appreciation Rights +A Stock Appreciation Right (“SAR”) represents the right to receive, for each unit awarded, cash and/or shares of Meridian equal in value to the excess of the fair market value of one share +on the date of exercise of the SAR over the reference price per share established on the date the SAR was granted. The 2004 Plan provides that the Committee may grant SARs to any eligible employee, advisor or non-employee director in accordance with +terms and conditions established by the Committee. No SAR shall have a term longer than ten years from its grant date. SARs may be granted in tandem with stock options, or separately as non-tandem SARs. The Board amended the 2004 Plan in 2011 to +provide that no person may receive SARs for more than 300,000 shares in any twelve month period. +Restricted and Unrestricted Stock +Awards +Restricted stock awards consist of Meridian’s shares which are subject to such conditions, restrictions and limitations as +the Committee determines. With respect to Meridian’s shares awarded as restricted stock, unless otherwise determined by the Committee, after the full vesting of such awards the recipient has all rights of a shareholder of Meridian, including +the right to vote and the right to receive cash dividends. Upon termination of employment during the restriction period, all restricted stock awards shall be forfeited subject to such exceptions as are authorized by the Committee as to termination +of employment, retirement, disability, death or special circumstances. The Committee may also issue unrestricted shares on a bonus basis for no cash consideration. The Board amended the 2004 Plan in 2011 to provide that no person may receive +restricted or unrestricted stock awards for more than 100,000 shares in any twelve month period. +Performance Awards +The 2004 Plan provides that the Committee may, in its discretion, grant performance awards to eligible employees and advisors. A performance award shall +consist of the right to receive either shares or cash of an equivalent value, or a combination of both, at the end of a specified performance period or a fixed dollar amount payable in cash or shares, or a combination of both, at the end of a +specified performance period. The Committee determines the eligible employees and consultants to whom, and the time or times at which, performance awards shall be granted, the number of shares or the amount of cash to be awarded to any person, the +duration of the period during which, and the conditions under which a participant’s performance award will vest, and any other terms and conditions of the performance award. The Committee may condition the grant or vesting of a performance +award upon the attainment of specified performance goals, the appreciation in the fair market value, book value or other measure of value of the shares, the performance of the Company based on earnings or cash flow, or such other factors or criteria +as the Committee shall determine. The Board amended the 2004 Plan in 2011 to provide that no person may receive these other performance awards for more than 100,000 shares in any twelve month period. +11 +Table of Contents +Other Stock Unit Awards +The 2004 Plan provides that the Committee is authorized to grant to eligible employees of Meridian and its affiliates, either alone or in addition to other awards granted under the 2004 Plan, awards of +shares or other securities of Meridian or any Meridian subsidiary and other awards that are valued in whole or in part by reference to, or are otherwise based on, shares or other securities of Meridian or any Meridian subsidiary. These other stock +unit awards may be paid in cash, shares, other property or in a combination thereof, as the Committee determines. The Committee shall determine the employees to whom these other stock unit awards are to be made, the times at which such awards are to +be made, the number of shares to be granted pursuant to such awards and all other conditions of such awards. Shares (including securities convertible into shares) and other securities granted pursuant to these other stock unit awards may be issued +for no cash consideration or for such minimum consideration as may be required by applicable law. Shares (including securities convertible into shares) and other securities purchased pursuant to purchase rights granted pursuant to these other stock +unit awards may be purchased for such consideration as the Committee determines, which price shall not be less than the fair market value of such shares or other securities on the date of grant, unless the Committee otherwise elects. The Board +amended the 2004 Plan in 2011 to provide that no person may receive these other stock unit awards for more than 100,000 shares in any twelve month period. +Termination and Acceleration of Awards +Awards terminate immediately if employment +is terminated for cause or violation of a written employment or non-competition agreement. Upon death, disability or retirement, stock options become exercisable to their full extent and may be exercisable for a period of one year after the date of +death or disability, or 90 days in the case of retirement. In the case of a dissolution or liquidation of Meridian or any merger in which it is not the survivor or in which 75% or more of its outstanding shares are converted into cash, other +securities or other property, all awards will become exercisable for a period of at least 20 days after written notice of the transaction, and thereafter will expire. If a participant’s employment or service is involuntarily terminated +without cause (as determined by the Committee in its sole discretion) during the twenty-four month period following a Change in Control of Meridian, all awards will also become exercisable in full. Under the 2004 Plan, a Change in Control is deemed +to have occurred if anyone, other than William J. Motto or his affiliates, becomes the beneficial owner, as defined under the Securities Exchange Act of 1934, of 25% or more of the voting power of Meridian or if there is a change in a majority of +the Board effected without the approval of two-thirds of the then current directors. +Amendment and Termination of the 2004 Equity +Compensation Plan +The 2004 Plan may be amended or terminated by the Board provided that no such action shall impair the rights of a +participant without the participant’s consent and provided that no amendment shall be made without shareholder approval which shall increase the total number of shares reserved for issuance under the 2004 Plan, or cause the 2004 Plan or any +award granted under the 2004 Plan to fail to meet certain tax conditions. +12 +Table of Contents +Shares Available for Award +The 2004 Plan authorizes 3,000,000 shares for potential awards in any of the manners described above. As of December 1, 2011 approximately 170,000 shares remain available for issuance under the 2004 +Plan. The per share closing price of Meridian’s Common Stock on December 1, 2011 was $18.88. +Plan Benefits +Below are benefits which Meridian has awarded and anticipates will be awarded under the 2004 Plan to the individuals and groups listed +in the 2012 fiscal year. +Name and Position +Number of +Stock Options +Number of +Restricted Stock +Unit Awards +William J. Motto +Executive Chairman of the Board of Directors +112,500 +(1) +27,500 +(2) +John A. Kraeutler +Chief Executive Officer +112,500 +(1) +27,500 +(2) +Richard L. Eberly +Executive Vice President, Chief Commercial Officer +112,500 +(1) +22,500 +(2) +Marco C. Calzavara +President and Managing Director, Meridian Bioscience Europe +— +50,000 +(3) +Melissa A. Lueke +Executive Vice President, Chief Financial Officer and Secretary +105,000 +(1) +15,000 +(4) +Executive Group +367,500 +(1) +77,500 +(5) +Non-Executive Director Group +30,000 +(6) +— +Non-Executive Officer Employee Group +300,000 +(1) +97,500 +(7) +13 +Table of Contents +(1) +Three equal tranches of options. Each tranche vests one year after achieving a defined revenue target in 2013, 2014 and 2015. The options for a particular tranche are +forfeited if the revenue target is not achieved. +(2) +Three tranches of 2,500 Restricted Stock Units (RSUs). Each tranche vests one year after achieving a defined revenue target in 2013, 2014 and 2015. The RSUs for a +particular tranche are forfeited if the revenue target is not achieved. The remaining RSUs are described in (4) below. +(3) +Three tranches of 11,667 RSUs. Each tranche vests one year after achieving a defined revenue target in 2013, 2014 and 2015. The RSUs for a particular tranche are +forfeited if the revenue target is not achieved. Remaining 15,000 RSUs are described in (4) below. +(4) +Half of each award is time-based, vesting in full November 9, 2015, while the other half is earned upon achieving a defined Net Earnings target for 2012. If the +target is not achieved, the RSUs are forfeited. +(5) +With exception of the Senior Vice President of Research and Development who received an additional 10,000 time-based RSUs and 7,500 RSUs as described in (2) above, +awards are the same as described in (4) above. +(6) +Annual award of 7,500 options upon election to the Board of Directors. +(7) +Three tranches of 5,000 RSUs for three employees; each tranche vests one year after achieving a defined revenue target in 2013, 2014, 2015. The RSUs for a particular +tranche are forfeited if the revenue target is not achieved. The remaining 52,500 RSUs are described in (4) above. +The +following table presents summary information as of September 30, 2011 with respect to all of our equity compensation plans (number of securities information in thousands). +Plan Category +(a) +Number +of +Securities to be +issued upon +exercise of +outstanding +options, warrants +and rights +(b) +Weighted- +average +exercise +price of +outstanding +options, +warrants and +rights +(c) +Number of +securities +remaining available +for future issuance +under equity +compensation plans +(excluding securities +reflected in column +(a)) +Equity compensation plans approved by security holders (1) +982 +$ +15.844 +1,597 +Equity compensation plans not approved by security holders +6 +19.285 +— +Total (2) +988 +$ +15.864 +1,597 +(1) +1996 Stock Option Plan, as amended in 2001 +1999 Director’s Stock Option Plan +2004 Equity Compensation Plan, as amended +(2) +Weighted-average remaining term of 5.0515 years +14 +Table of Contents +2. +Certain Federal Income Tax Consequences with Respect to Awards +The following information is not intended to be a complete discussion of the U.S. federal income tax consequences of participation in the 2004 Plan and is qualified in its entirety by references to the +Code and the regulations adopted under the Code. The provisions of the Code described in this section include current tax law only and do not reflect any proposals to revise current tax law. The federal income tax consequences applicable to +officers, directors, and other persons who are subject to potential liability under Section 16(b) of the Exchange Act may be different than the federal income tax consequences applicable to persons who are not subject to Section 16(b). The +federal income tax consequences applicable to all persons, whether or not subject to Section 16(b), are described below. +Incentive +Stock Options +Generally, under the Code, an optionee will not realize taxable income by reason of the grant or exercise of an ISO +granted pursuant to the 2004 Plan (see, however, discussion of alternative minimum tax below). If an optionee exercises an ISO and does not dispose of the shares until the later of (i) two years from the date the option was granted and +(ii) one year from the date of exercise, the entire gain, if any, realized upon disposition of such shares will be taxable to the optionee as long-term capital gain, and Meridian will not be entitled to any deduction. If an optionee disposes of +the shares within the period of two years from the date of grant or one year from the date of exercise (a “disqualifying disposition”), the optionee generally will realize ordinary income in the year of disposition and Meridian will +receive a corresponding deduction in an amount equal to the excess of (i) the lesser of (a) the amount, if any, realized on the disposition and (b) the fair market value of the shares on the date the option was exercised over +(ii) the option price. Any additional gain realized on the disposition will be short-term or long-term capital gain and any loss will be long-term or short-term capital loss. The optionee will be considered to have disposed of a share if he or +she sells, exchanges, makes a gift of or transfers legal title to the share (except transfers, among others, by pledge, on death or to a spouse). If the disposition is by sale or exchange, the optionee’s tax basis will equal the amount paid for +the shares plus any ordinary income realized as a result of the disqualifying disposition. +The exercise of an ISO may subject the optionee to +the so-called “alternative minimum tax” (“AMT”). The amount by which the fair market value of the shares purchased at the time of the exercise exceeds the option exercise price is an adjustment for purposes of computing the AMT. +In the event of a disqualifying disposition of the shares in the same taxable year as exercise of the ISO, no adjustment is then required for purposes of the AMT, but regular income tax, as described above, may result from such disqualifying +disposition. +An optionee who surrenders shares as payment of the exercise price of his or her ISO generally will not recognize gain or loss +on his or her surrender of such shares. The surrender of shares previously acquired upon exercise of an ISO in payment of the exercise price of another ISO, is, however, a “disposition” of such stock. If the ISO holding period requirements +described above have not been satisfied with respect to such stock, such disposition will be a disqualifying disposition that may cause the optionee to recognize ordinary income as discussed above. +15 +Table of Contents +Under the Code, all of the shares received by an optionee upon exercise of an ISO by surrendering shares +will be subject to the ISO holding period requirements. Of those shares, a number of shares (the “Exchange Shares”) equal to the number of shares surrendered by the optionee will have the same tax basis for capital gains purposes +(increased by any ordinary income recognized as a result of a disqualifying disposition of the surrendered shares if they were ISO shares) and the same capital gains holding period as the shares surrendered. For purposes of determining ordinary +income upon a subsequent disqualifying disposition of the Exchange Shares, the amount paid for such shares will be deemed to be the fair market value of the shares surrendered. The balance of the shares received by the optionee will have a tax basis +(and a deemed purchase price) of zero and a capital gains holding period beginning on the date of exercise. The ISO holding period for all shares will be the same as if the option had been exercised for cash. +Non-Qualified Stock Options +Generally, there will be no federal income tax consequences to either the optionee or Meridian on the grant of NQSOs pursuant to the 2004 Plan. On the +exercise of a NQSO, the optionee has taxable ordinary income equal to the excess of the fair market value of the shares acquired on the exercise date over the option price of the shares. Meridian will be entitled to a federal income tax deduction +(subject to the limitations contained in Section 162(m)) in an amount equal to such excess, provided that Meridian complies with applicable reporting rules. +Upon the sale of stock acquired by exercise of a NQSO, optionees will realize long-term or short-term capital gain or loss depending upon their holding period for such stock. For individuals, capital +losses are deductible only to the extent of capital gains for the year plus $3,000. An optionee who surrenders shares in payment of the exercise price of a NQSO will not recognize gain or loss with respect to the shares so delivered unless such +shares were acquired pursuant to the exercise of an ISO and the delivery of such shares is a disqualifying disposition. See “Incentive Stock Options” above. The optionee will recognize ordinary income on the exercise of the NQSO as +described above. Of the shares received in such an exchange, that number of shares equal to the number of shares surrendered have the same tax basis and capital gains holding period as the shares surrendered. The balance of shares received will have +a tax basis equal to their fair market value on the date of exercise and the capital gains holding period will begin on the date of exercise. +Stock Appreciation Rights +A +participant who is awarded a SAR will not have taxable income upon the grant of such SAR and Meridian will not be entitled to a tax deduction by reason of such grant. Upon the exercise of a SAR, a participant will recognize taxable ordinary income +equal to the amount of cash and the fair market value of any shares of common stock received. Meridian may generally claim a deduction at that time equal to the amount recognized as ordinary income by the participant. +16 +Table of Contents +Restricted and Unrestricted Stock Awards +The taxability of a stock award to a participant is dependent upon the extent to which the award is restricted on the date of grant. If a stock award is +either transferable or not subject to a substantial risk of forfeiture, a participant will recognize taxable ordinary income on the date of grant. If a stock award is both non-transferable and subject to a substantial risk of forfeiture on the date +of grant, then unless an election is made as described below, a participant will not recognize taxable ordinary income on the date of grant, but will at such time or times as the stock award becomes either transferable or not subject to a +substantial risk of forfeiture in an amount equal to the fair market value of such shares at that time. Within thirty days of receipt of a stock award that is not transferable and subject to a substantial risk of forfeiture, a participant may file +an election with the Internal Revenue Service to include as taxable ordinary income in the year of receipt an amount equal to the fair market value of the shares subject to the award at the time of receipt. In such event, any subsequent appreciation +in the value of such shares will not be taxable as compensation to a participant upon the vesting of shares subject to the award. However, if shares subject to the award are forfeited subsequent to such election, a participant will not be entitled +to a tax deduction. For purposes of determining the amount of taxable gain or loss upon a subsequent disposition of shares issued pursuant to such an award, the amount of ordinary income to a participant will be treated as the cost basis for such +shares. Shares which are held for more than one year after vesting (or in the event of an election as described above, the date of receipt) generally will qualify for long-term capital gain treatment. Meridian will be entitled to a deduction in such +amount and at such time as ordinary income becomes taxable to the participant. +Performance Awards +The tax consequences of a performance award depend upon the nature of the underlying award and if and when the performance goals are achieved. If a +performance award consists of a promise to deliver common stock at a future date based upon the satisfaction of certain targets, such awards will be subject to federal income taxation as ordinary income based upon the fair market value of the common +stock on the date such performance awards are earned by a participant by satisfying the performance goals, provided such awards are not then subject to a substantial risk of forfeiture. +Other Stock Unit Awards +A participant will not be subject to federal income +taxation upon the grant of other stock unit awards. A participant will be subject to tax as ordinary taxable income upon payout of other stock unit awards in an amount equal to the sum of the cash and the fair market value of Common Stock received. +Application of Section 409a to Deferred Compensation Arrangements +The 2004 Plan provides that the Committee may permit recipients of awards to defer the distribution of all or part of any award in accordance with such terms and conditions as the Committee shall +establish. To the extent that a participant makes such a deferral election, +17 +Table of Contents +Section 409A of the Code, which was enacted as part of the American Jobs Creation Act of 2004, subjects the deferral arrangement to certain substantive requirements including (among other +items) deferral election and payment timing requirements. In the event that a deferral arrangement fails to comply with Code Section 409A in form or operation, a participant may become subject to: (i) the imposition of Federal income tax +on all amounts deferred in the tax year in which the amounts are deferred (or, if later, in the tax year when the receipt of the benefits are no longer subject to a substantial risk of forfeiture); (ii) a penalty tax of 20 percent of the +includable amount (in addition to the regular income tax at ordinary income rates); and (iii) interest at the underpayment rate plus 1 percent from the time the amount was first deferred (or, if later, the tax year when the benefits are no +longer subject to a substantial risk of forfeiture) until the time the amount is included in income. +Withholding of Tax; Company +Deduction +Generally, whenever a participant realizes ordinary income under the 2004 Plan, a corresponding deduction is available to +Meridian provided Meridian complies with certain reporting requirements. Under Section 162(m), however, Meridian will be denied a deduction for certain compensation exceeding $1,000,000 paid to its “covered employees,” who generally +are the Chief Executive Officer and the four other highest paid executive officers, excluding (among other things) certain performance-based compensation. +Meridian is entitled to withhold, or secure payment from a participant in lieu of withholding, the amount of any tax required by law to be withheld or paid by Meridian with respect to any amount payable +or shares issuable under a participant’s award. +Conclusion +The foregoing summarizes the U.S. federal income tax consequences, and does not include a discussion of state and local income tax or foreign tax consequences of participation in the 2004 Plan. +Participants are encouraged to consult their own tax advisors regarding the federal, state and local tax consequences in their particular circumstances and with respect to their particular awards. +3. +Performance Goals to be Approved by Shareholders +As noted at the beginning of this proposal, we are seeking reapproval of the 2004 Plan and the performance measurements and goals under the 2004 Plan so that performance based awards may have the benefit +of potential income tax deduction under Section 162(m) of the Code. When the 2004 Plan was adopted in 2004, shareholders approved “appreciation in the Fair Market Value, book value or other measure of value of the Common Shares; the +performance of the Company based on earnings or cash flow; or such other factors or criteria as the Committee shall determine” as performance measurements. The Board amended the 2004 Plan on November 10, 2005 and identified the additional +performance measurements described below and such performance measurements have not been changed since then. +The Committee, which administers +the 2004 Plan, may make performance based awards tied to achievement of one or more objective performance measurers. Under Section 9.1.2 of the 2004 Plan, the Committee may use the following specific performance measures individually +18 +Table of Contents +or in any combination to set performance targets for awards which may qualify as performance based awards as follows: +“. . . appreciation in the Fair Market Value, book value or other measure of value of the Common Shares; the performance of the Company or groups within the Company based on increases in sales, +earnings (which may include an add back for taxes, interest, and/or depreciation and amortization), operating earnings, profit margins, earnings per Common Share, cash flow, favorable comparison to established budgets, return on stockholders’ +equity, return on assets, attainment of strategic and operational initiatives, market share, comparisons with various stock market indices, reduction in costs or a combination of such factors; personal performance measures or such other similar +factors or criteria as the Committee shall determine.” +The Company continues to believe that the above measurements and goals, which we +are asking shareholders to reapprove along with the 2004 Plan, are appropriate ones to utilize in connection with potential performance based awards as they are linked to our business and are objective in nature. We further believe that these +performance measurements and goals used alone or in combination give the Committee sufficient flexibility to impose meaningful performance conditions which, if achieved, will benefit the Company and its shareholders and provide potential rewards for +key associates at our Company. +The Board of Directors recommends that shareholders vote FOR the reapproval of the Meridian 2004 +Equity Compensation Plan and its performance measurements for purposes of Section +162(m) of the Internal Revenue Code. +APPROVAL OF MERIDIAN BIOSCIENCE, INC. 2012 STOCK INCENTIVE PLAN (Item 6 +on the Proxy Card) +In 2011, the Board voted unanimously to approve and recommend to shareholders the approval of the 2012 Stock Incentive +Plan (the “2012 Plan”), the principal provisions of which are described below. +Set forth below are: (i) a summary of the +principal features of the 2012 Plan; and (ii) a description of the U.S. federal income tax consequences under the 2012 Plan. +1. +Summary of the 2012 Stock Incentive Plan +The following is a summary of the material terms of the 2012 Plan and is qualified in its entirety by the full text of the 2012 Plan, which is set forth +as Annex B to this proxy statement. +19 +Table of Contents +Objectives of the 2012 Plan +The Board believes that stock-based awards are an important element of the Company’s compensation programs. The 2012 Plan promotes the Company’s compensation philosophy and objectives by: +(i) providing long-term incentives to those persons with significant responsibility for the success and growth of the Company, (ii) motivating participants to achieve the long-term success and growth of the Company, (iii) providing a +vehicle to tie a significant portion of compensation to the long-term performance of the Company’s shares, (iv) enabling the Company to attract and retain skilled and qualified officers, other employees, directors, and consultants who are +expected to contribute to the Company’s success in a competitive market for such individuals, (v) facilitating ownership of the Company’s shares, and (vi) aligning the personal interests of officers, employees, and others in the +Company’s long-term growth and profitability with the interests of the Company’s shareholders. The 2012 Plan will effectively replace the 2004 Plan. As of December 1, 2011, approximately 170,000 shares remained available for grant +under the 2004 Plan, and the Board approved the 2012 Plan to provide a sufficient pool, and broad variety, of stock and stock-based awards. Subject to shareholder approval at the Annual Meeting, the 2012 Plan will be effective as of January 25, +2012. Information on the total number of shares available under the Company’s existing equity compensation plans and subject to outstanding options and rights is presented in the Equity Compensation Plan Information table on page 14. +The 2012 Plan allows the Company the flexibility to grant a variety of stock and stock-based awards, including stock options and stock +appreciation rights, granted separately or in tandem with each other, and restricted shares and restricted share units, both time vested or conditioned on the attainment of performance goals. The 2012 Plan is also designed to allow compliance with +Section 162(m). It is intended that awards under the 2012 Plan with a performance component (which does not include time-vested share awards) generally will satisfy the requirements for performance based compensation under Section 162(m) +while granting the Compensation Committee the authority to grant nonperformance-based awards where it deems appropriate. Section 162(m) generally places a $1,000,000 limit on the tax deduction allowable for compensation paid (or accrued for tax +purposes) with respect to the Chief Executive Officer and the three other highest-paid executives (excluding the chief financial officer) during a tax year, unless the compensation meets certain requirements. All stock incentive awards to the +Company’s most highly compensated executives that may be made over the next few years are expected to be granted under the 2012 Plan. +Shares Subject to the 2012 Plan +The aggregate number of common shares that may be issued under the 2012 Plan is 3,000,000. The 2012 Plan provides for appropriate adjustments in the +number of shares subject to the 2012 Plan (and other share limitations contained therein and described below) and to grants previously made if there is a share split, dividend, reorganization, or other relevant change affecting the Company’s +corporate structure or its shares. If shares under an award are not issued prior to the expiration, termination, cancellation or forfeiture of the award, then those shares would again be available for inclusion in future grants. Upon the effective +date of the 2012 Plan, prior Company equity plans for which shares remain +20 +Table of Contents +available for grant will be terminated. The shares available under such prior plans will be made available for grant under the 2012 Plan, as well as shares subject to outstanding awards under +such prior plans which thereafter are forfeited, settled in cash, cancelled or expire; provided that all outstanding awards under such prior plans remain outstanding and are administered and settled in accordance with the provisions of the prior +plans, as applicable. +Other Share Limitations +The maximum number of shares subject to restricted shares or restricted share units that may be granted under the 2012 Plan is 1,000,000. The maximum number of shares subject to stock options that may be +granted under the 2012 Plan is 3,000,000. The maximum number of shares subject to restricted shares or restricted share units that may be granted to an individual in a calendar year is 100,000 shares, and the maximum number of shares subject to +stock options or stock appreciation rights that may be granted to an individual in a calendar year is 300,000 shares. +Eligible +Participants +Officers and key employees of the Company, any consultant to the Company, and the Company’s non-employee directors +are eligible to receive awards under the 2012 Plan. Awards are granted to those persons with significant responsibility for the Company’s success and growth. +Administration +The 2012 Plan is administered by a committee (the +“Committee”) consisting of at least three directors appointed by the Board, all of whom meet the definitions of the terms “outside director” set forth in the regulations under Section 162(m), “independent director” +set forth in The Nasdaq Stock Market, Inc. rules, and “non-employee director” set forth in Rule 16b-3 under the Exchange Act. Unless determined otherwise by the Board, the Compensation Committee will administer the 2012 Plan and has +the authority under the 2012 Plan to: (i) select the employees, consultants, and Directors to whom awards are granted; (ii) determine the type and timing of awards and the appropriate award agreement evidencing each award; +(iii) determine the number of shares covered by each award and all other terms and conditions of awards, not inconsistent with the terms of the 2012 Plan; (iv) determine whether an award is, or is intended to be, performance based +compensation within the meaning of 162(m); (v) determine whether terms, conditions, and objectives have been met or, including, without limitation, making certifications related thereto, if permissible, should be modified or waived, not +inconsistent with the terms of the 2012 Plan; (vi) cancel or suspend an award, or determine whether an amount or payment of an award should be reduced or eliminated; (vii) determine administrative rules, guidelines, and practices governing +the 2012 Plan; and (viii) interpret the provisions of and otherwise supervise the administration of the 2012 Plan. +21 +Table of Contents +Stock Options +Stock options granted under the 2012 Plan must be in the form of either ISOs, which meet the requirements of Section 422 of the Code, or nonqualified stock options (“NQSOs”), which do not +meet those requirements. The term of a stock option is fixed by the Committee, but may not exceed ten years, and stock options are exercisable at such time or times as determined by the Committee. The exercise price of a stock option cannot be less +than the fair market value of the shares on the date of grant, which generally means the last closing price of a share as reported on The Nasdaq Stock Market on the date of the grant. The grantee may pay the stock option exercise price either in +cash or such other manner authorized in the 2012 Plan or the applicable award agreement, including the tender of shares. Shares tendered by participants as full or partial payment of the exercise price will not become available for issuance under +the 2012 Plan. The 2012 Plan prohibits stock option repricing. +Code Limitations on Incentive Stock Options +The Code currently places certain limitations on ISO awards. In addition to the other limitations described in the 2012 Plan, an ISO may only be granted +to full or part-time employees (including officers and Directors who are also employees) of the Company. The total fair market value of shares subject to ISOs which are exercisable for the first time by any participant in any given calendar year +cannot exceed $100,000 (valued as of the date of grant). No ISO may be exercisable more than three months following termination of employment for any reason other than death or disability, nor more than one year with respect to disability +terminations, or such stock option will no longer qualify as an ISO and shall be treated as an NQSO. ISOs will also be non-transferable in accordance with the provisions of the Code. Additional restrictions apply to the grant of ISOs to holders of +in excess of 10% of the Company’s outstanding Common Stock. +Stock Appreciation Rights +The Committee may grant stock appreciation rights (“SAR”) separately or in connection with a stock option granted under the 2012 Plan. If a +grantee exercises a SAR, the grantee will receive an amount equal to the excess of the then-fair market value of the shares with respect to which the SAR is being exercised over the stock option exercise price of the shares, in the case of a SAR in +connection with a stock option, or the exercise price of the SAR, in the case of an independent SAR. The SAR exercise price must be at least 100% of the fair market value of the underlying shares on the date of grant, and the term of such SAR may +not exceed ten years. Payment may be made in cash, in shares, or in a combination of cash and shares, as the Committee determines. If a SAR granted in connection with a stock option is exercised in whole or in part, the right under the related stock +option to purchase shares with respect to which the SAR has been exercised will terminate to the same extent. If a stock option is exercised, any SAR related to the shares purchased upon exercise of the stock option will terminate. To the extent +that the number of shares reserved for issuance upon the grant of a SAR exceeds the number actually issued upon exercise of a SAR, such shares will not become available for issuance under the 2012 Plan. The 2012 Plan prohibits SAR repricing. +22 +Table of Contents +Restricted Share and Restricted Share Unit Awards +The Committee may grant restricted share awards which consist of shares issued by the Company to a participant for no consideration, or for a purchase +price which may be below their fair market value, and are subject to forfeiture in the event of termination of the participant’s employment prior to vesting and subject to restrictions on sale or other transfer by the participant. Unless +otherwise determined by the Committee, participants who hold restricted shares have voting rights with respect to the shares and have the right to receive dividend distributions, in cash or shares, payable to the extent the restrictions on the +applicable restricted shares lapse. The Committee may also grant restricted share unit awards which are substantially similar to restricted share awards but which generally do not give the participant-holder the rights of a shareholder prior to +lapse of the restrictions and, upon such lapse, may be settled in cash, shares, or a combination of both. The Committee may provide for the payment in cash or shares equal to the amount of dividends paid from time to time on the number of shares +that would become payable upon vesting of the restricted share unit award. The Committee may provide that restrictions lapse after the passage of time (time-vested), upon certain events (such as death, disability, or retirement) or upon the +attainment of specified performance objectives (performance-vested). The Committee may waive any restrictions or accelerate the date or dates on which restrictions lapse except no waiver may apply to a term that is not within the Committee’s +discretion to waive under the 2012 Plan. +Performance Based Exception +The Committee may grant awards in a manner that is intended to qualify for the performance based exception to the deductibility limitations of Section 162(m) and conditioned upon the achievement of +performance goals as the Committee shall determine, in its sole discretion. The performance goals shall be based on one or more performance measures, and the Committee shall specify the time period or periods during which the performance goals must +be met. The performance measure(s) may be described in terms of objectives that are related to the individual participant, the Company, or a subsidiary, division, department, region, function, or business unit of the Company, and shall consist of +one or more or any combination of the following criteria: cash flow, profit, revenue, stock price, market share, sales, net income, operating income, return ratios, earnings per share, earnings (which may include an add back for taxes, interest, +and/or depreciation and amortization), operating earnings, profit margins, earnings per Common Share, favorable comparison to established budgets, return on shareholders’ equity, return on assets, attainment of strategic and operational +initiatives, comparisons with various stock market indices, reduction in costs or a combination of such factors, personal performance measures, working capital, total assets, net assets, return on sales, return on invested capital, gross margin, +costs, shareholders’ equity, shareholder return and/or productivity or productivity improvement. Performance goals may be expressed in absolute terms or relative to the performance of other entities or the prior performance of Meridian. The +Committee may adjust or modify the performance objectives or periods, provided that any such modifications meet the requirements of Section 162(m), to the extent applicable unless the Committee determines that such requirements should not be +satisfied. Awards intended to qualify for the performance based exception shall not vest or be paid until the Committee certifies that the performance goals have been achieved. +23 +Table of Contents +Unrestricted Share Awards +The Committee may grant unrestricted shares on a bonus or other basis for no cash consideration. +Transferability of Awards +No +award is transferable other than by will or the laws of descent and distribution, except the Committee may, in its discretion, provide that an award (other than an ISO) is transferable without consideration to a participant’s family member (as +defined in the 2012 Plan), subject to such terms and conditions as the Committee may impose. All awards shall be exercisable, during the participant’s lifetime, only by the participant or a permitted transferee. +Termination of Employment +Generally, awards are forfeited upon a participant’s termination of employment; however, the 2012 Plan provides that the Committee: (i) may +allow a participant to exercise vested stock options or SARs for a period of time after termination, if not terminated for cause; and (ii) has discretion to provide the extent to which, if any, the vesting of any award is accelerated or +forfeited due to a participant’s, death, disability, or retirement, provided that, for awards intended to be performance-based compensation within the meaning of Section 162(m), no vesting may occur or no distribution may be made prior to +the attainment of the performance goals, unless otherwise provided by Section 162(m). +Change in Control +Except as otherwise provided in an award agreement, upon a “change in control” as defined in the 2012 Plan: (i) all outstanding stock +options and SARs automatically become fully exercisable; and (ii) all restricted share and restricted share unit awards automatically become fully vested. +Recoupment Policy +Awards are subject to forfeiture or repayment pursuant to the +terms of any applicable compensation recoupment or recovery policy adopted by the Company, Committee, or Board, including any policy adopted to comply with the rules of any stock exchange on which the shares are traded or the SEC. +Discontinuation of 2012 Plan, Amendments, and Award Substitutions +The Board may amend, alter, or discontinue the 2012 Plan at any time, provided that any such amendment, alteration, or discontinuance has been approved by the Company’s shareholders, if shareholder +approval is required under applicable laws, regulations, or exchange requirements (including for the purpose of qualification under Section 162(m) as “performance-based compensation”), and does not materially and adversely impair the +rights of any grantee, without his or her consent, under any award previously granted. The 2012 Plan could be amended without shareholder approval in certain nonmaterial ways that could +24 +Table of Contents +result in an increased cost to the Company. No Awards shall be made under the 2012 Plan after the tenth anniversary of the effective date. +Plan Benefits +No benefits or +amounts have been granted, awarded, or received under the 2012 Plan, and the amount of awards payable under the 2012 Plan to any participant is not determinable, as awards are discretionary and participation is determined each fiscal year. +2. +Certain Federal Tax Consequences with Respect to Awards +The following information is not intended to be a complete discussion of the U.S. federal income tax consequences of participation in the 2012 Plan and is qualified in its entirety by references to the +Code and the regulations adopted under the Code. The provisions of the Code described in this section include current tax law only and do not reflect any proposals to revise current tax law. The federal income tax consequences applicable to +officers, directors, and other persons who are subject to potential liability under Section 16(b) of the Exchange Act may be different than the federal income tax consequences applicable to persons who are not subject to Section 16(b). The +federal income tax consequences applicable to all persons, whether or not subject to Section 16(b), are described below. +Incentive +Stock Options +Generally, under the Code, an optionee will not realize taxable income by reason of the grant or exercise of an ISO +granted pursuant to the 2012 Plan (see, however, discussion of alternative minimum tax below). If an optionee exercises an ISO and does not dispose of the shares until the later of (i) two years from the date the option was granted and +(ii) one year from the date of exercise, the entire gain, if any, realized upon disposition of such shares will be taxable to the optionee as long-term capital gain, and Meridian will not be entitled to any deduction. If an optionee disposes of +the shares within the period of two years from the date of grant or one year from the date of exercise (a “disqualifying disposition”), the optionee generally will realize ordinary income in the year of disposition and Meridian will +receive a corresponding deduction in an amount equal to the excess of (i) the lesser of (a) the amount, if any, realized on the disposition and (b) the fair market value of the shares on the date the option was exercised over +(ii) the option price. Any additional gain realized on the disposition will be short-term or long-term capital gain and any loss will be long-term or short-term capital loss. The optionee will be considered to have disposed of a share if he or +she sells, exchanges, makes a gift of or transfers legal title to the share (except transfers, among others, by pledge, on death or to a spouse). If the disposition is by sale or exchange, the optionee’s tax basis will equal the amount paid for +the shares plus any ordinary income realized as a result of the disqualifying disposition. +The exercise of an ISO may subject the optionee to +the so-called “alternative minimum tax” (“AMT”). The amount by which the fair market value of the shares purchased at the time of the exercise exceeds the option exercise price is an adjustment for purposes of computing the AMT. +In the event of a disqualifying disposition of the shares in the same taxable year as +25 +Table of Contents +exercise of the ISO, no adjustment is then required for purposes of the AMT, but regular income tax, as described above, may result from such disqualifying disposition. +An optionee who surrenders shares as payment of the exercise price of his or her ISO generally will not recognize gain or loss on his or her surrender of +such shares. The surrender of shares previously acquired upon exercise of an ISO in payment of the exercise price of another Incentive Stock Option, is, however, a “disposition” of such stock. If the ISO holding period requirements +described above have not been satisfied with respect to such stock, such disposition will be a disqualifying disposition that may cause the optionee to recognize ordinary income as discussed above. +Under the Code, all of the shares received by an optionee upon exercise of an ISO by surrendering shares will be subject to the Incentive Stock Option +holding period requirements. Of those shares, a number of shares (the “Exchange Shares”) equal to the number of shares surrendered by the optionee will have the same tax basis for capital gains purposes (increased by any ordinary income +recognized as a result of a disqualifying disposition of the surrendered shares if they were ISO shares) and the same capital gains holding period as the shares surrendered. For purposes of determining ordinary income upon a subsequent disqualifying +disposition of the Exchange Shares, the amount paid for such shares will be deemed to be the fair market value of the shares surrendered. The balance of the shares received by the optionee will have a tax basis (and a deemed purchase price) of zero +and a capital gains holding period beginning on the date of exercise. The ISO holding period for all shares will be the same as if the option had been exercised for cash. +Non-Qualified Stock Options +Generally, there will be no federal income tax +consequences to either the optionee or Meridian on the grant of NQSO pursuant to the 2012 Plan. On the exercise of a NQSO, the optionee has taxable ordinary income equal to the excess of the fair market value of the shares acquired on the exercise +date over the option price of the shares. Meridian will be entitled to a federal income tax deduction (subject to the limitations contained in Section 162(m)) in an amount equal to such excess, provided that Meridian complies with applicable +reporting rules. +Upon the sale of stock acquired by exercise of a NQSO, optionees will realize long-term or short-term capital gain or loss +depending upon their holding period for such stock. For individuals, capital losses are deductible only to the extent of capital gains for the year plus $3,000. An optionee who surrenders shares in payment of the exercise price of a NQSO will not +recognize gain or loss with respect to the shares so delivered unless such shares were acquired pursuant to the exercise of an Incentive Stock Option and the delivery of such shares is a disqualifying disposition. See “Incentive Stock +Options” above. The optionee will recognize ordinary income on the exercise of the NQSO as described above. Of the shares received in such an exchange, that number of shares equal to the number of shares surrendered have the same tax basis and +capital gains holding period as the shares surrendered. The balance of shares received will have a tax basis equal to their fair market value on the date of exercise and the capital gains holding period will begin on the date of exercise. +26 +Table of Contents +Stock Appreciation Rights +A participant who is awarded a SAR will not have taxable income upon the grant of such SAR and Meridian will not be entitled to a tax deduction by reason of such grant. Upon the exercise of a SAR, a +participant will recognize taxable ordinary income equal to the amount of cash and the fair market value of any shares of common stock received. Meridian may generally claim a deduction at that time equal to the amount recognized as ordinary income +by the participant. +Restricted Share and Restricted Share Unit Awards +The taxability of a restricted share and restricted share unit awards to a participant is dependent upon the extent to which the award is restricted on the date of grant. If the award is either +transferable or not subject to a substantial risk of forfeiture, a participant will recognize taxable ordinary income on the date of grant. If the award is both non-transferable and subject to a substantial risk of forfeiture on the date of grant, +then unless an election is made as described below, a participant will not recognize taxable ordinary income on the date of grant, but will at such time or times as an award becomes either transferable or not subject to a substantial risk of +forfeiture in an amount equal to the fair market value of such shares at that time. Within thirty days of receipt of an award that is not transferable and subject to a substantial risk of forfeiture, a participant may file an election with the +Internal Revenue Service to include as taxable ordinary income in the year of receipt an amount equal to the fair market value of the shares subject to the award at the time of receipt. In such event, any subsequent appreciation in the value of such +shares will not be taxable as compensation to a participant upon the vesting of shares subject to the award. However, if shares subject to the award are forfeited subsequent to such election, a participant will not be entitled to a tax deduction. +For purposes of determining the amount of taxable gain or loss upon a subsequent disposition of shares issued pursuant to such an award, the amount of ordinary income to a participant will be treated as the cost basis for such shares. Shares which +are held for more than one year after vesting (or in the event of an election as described above, the date of receipt) generally will qualify for long-term capital gain treatment. Meridian will be entitled to a deduction in such amount and at such +time as ordinary income becomes taxable to the participant. +Application of Section 409a to Deferred Compensation Arrangements +The 2012 Plan provides that the Committee may permit recipients of Awards to defer the distribution of all or part of any Award in +accordance with such terms and conditions as the Committee shall establish. To the extent that a participant makes such a deferral election, Section 409A of the Code, which was enacted as part of the American Jobs Creation Act of 2004, subjects +the deferral arrangement to certain substantive requirements including (among other items) deferral election and payment timing requirements. In the event that a deferral arrangement fails to comply with Code Section 409A in form or operation, +a participant may become subject to: (i) the imposition of Federal income tax on all amounts deferred in the tax year in which the amounts are deferred (or, if later, in the tax year when the receipt of the benefits are no longer subject to a +substantial risk of forfeiture); (ii) a penalty tax of 20 percent of the includable amount (in addition to the regular income tax at ordinary income +27 +Table of Contents +rates); and (iii) interest at the underpayment rate plus 1 percent from the time the amount was first deferred (or, if later, the tax year when the benefits are no longer subject to a +substantial risk of forfeiture) until the time the amount is included in income. +Withholding of Tax; Company Deduction +Generally, whenever a participant realizes ordinary income under the 2012 Plan, a corresponding deduction is available to Meridian +provided Meridian complies with certain reporting requirements. Under Section 162(m), however, Meridian will be denied a deduction for certain compensation exceeding $1,000,000 paid to its “covered employees,” who generally are the +Chief Executive Officer and the four other highest paid executive officers, excluding (among other things) certain performance-based compensation. +Meridian is entitled to withhold, or secure payment from a participant in lieu of withholding, the amount of any tax required by law to be withheld or paid by Meridian with respect to any amount payable +or shares issuable under a participant’s award. +Conclusion +The foregoing summarizes the U.S. federal income tax consequences, and does not include a discussion of state and local income tax or foreign tax consequences of participation in the 2012 Plan. +Participants are encouraged to consult their own tax advisors regarding the federal, state and local tax consequences in their particular circumstances and with respect to their particular awards. +The Board of Directors recommends that shareholders vote FOR the approval of the Meridian 2012 Stock Incentive Plan. +28 +Table of Contents +CORPORATE GOVERNANCE +As an Ohio corporation, Meridian is governed by the corporate laws of Ohio. Since its common shares are publicly traded on the Nasdaq Global Select Market +and it files reports with the Securities and Exchange Commission, it is also subject to Nasdaq rules and federal securities laws. +Board +Leadership Structure +Governance of the corporation is placed in the hands of the Directors who, in turn, elect officers to manage the +business operations. The Board oversees the management of Meridian on your behalf. The Board reviews Meridian’s long-term strategic plans and exercises direct decision making authority in all major decisions, such as acquisitions, the +declaration of dividends, major capital expenditures and the establishment of company policies. +On November 30, 2011, the Board approved +Corporate Governance Guidelines, which are available at our website www.meridianbioscience.com . These Guidelines define how the Board operates and evaluates its performance. +The Board of Directors is responsible for evaluating and determining Meridian’s leadership structure, and believes that separate individuals should serve in the capacities of Chairman of the Board +and Chief Executive Officer (CEO). It is the Board’s belief that such a two-person structure best provides the Company with the right foundation to pursue its strategic and operational objectives, while maintaining effective oversight and +objective evaluation of the Company’s performance. Currently, these key executive positions are held by Mr. William J. Motto, Executive Chairman of the Board, and Mr. John A. Kraeutler, CEO. Mr. Motto has served as the +Board’s Chairman since 1977 and in such capacity is responsible for general Board activities including presiding over all meetings of the Board and shareholders, setting agendas for Board meetings and providing advice and counsel to +Meridian’s management regarding the Company’s business and operations. As CEO, Mr. Kraeutler is responsible for the general management, oversight, supervision and control of the business affairs of Meridian, and ensuring that all +orders and resolutions of the Board are put into effect. With their many years of experience with the Company, Meridian believes that Mr. Motto and Mr. Kraeutler are uniquely qualified to be Meridian’s Executive Chairman and CEO, +respectively. We believe that this leadership structure is currently the most appropriate for Meridian, particularly in light of the requirement noted below that all Committees of the Board are comprised solely of independent Directors. +In accordance with Nasdaq rules, our Board of Directors affirmatively determines the independence of each Director and nominee for election as a Director +in accordance with the elements of independence set forth in the Nasdaq listing standards and Exchange Act rules. Meridian’s Director Independence Standards are available at our website www.meridianbioscience.com . Based on these +standards, the Board has determined that each of the following members of the Board is independent: James M. Anderson, Gary P. Kreider, David C. Phillips and Robert J. Ready. Mr. Kreider neither chaired nor served on any of the Board +Committees during his current term. He remains a Director through the end of his current term, with only Mr. Anderson, Mr. Phillips and Mr. Ready serving on Committees of the Board. +29 +Table of Contents +During fiscal 2011, the Board of Directors met on five occasions and took no actions in writing. The +independent Directors plan to meet at least two times during fiscal 2012 without the presence of management Directors. The independent members of the Board had no such meetings in fiscal 2011. The independent Directors select one of such Directors +to preside over each session. +Meridian expects all Directors to attend shareholders’ meetings and all were in attendance at the 2011 +Annual Shareholders’ Meeting. +Shareholders may communicate with the full Board or individual Directors on matters concerning Meridian by +mail or through our website, in each case to the attention of the Secretary, the address for whom is set forth on page 56 of this proxy statement. +The Board’s Role in Risk Oversight +The Board of Directors, as a whole and also at the +Committee level, plays a key role in operational risk oversight at Meridian and works with management to understand the risks the Company faces, the steps that management is taking to manage that risk and the level of risk appropriate for the +Company in light of its overall business strategy. The Board approves the high level strategies, financial plans and policies of Meridian, setting the tone and direction for the appropriate levels of risk-taking within the organization. +While overall responsibility for risk oversight rests with the Board, it is the Audit Committee that has been given the primary responsibility of +monitoring and evaluating the adequacy of management’s risk assessment and risk management practices. This role is carried out through its charter-mandated responsibilities related to Meridian’s (i) overall financial risks and +exposures, (ii) financial statement risks and exposures, (iii) financial reporting processes, (iv) compliance with ethics policies and regulations, and (v) compliance with governmental and legal regulations, including those +contained within the Sarbanes-Oxley Act. The Audit Committee provides regular reports to the full Board and works closely with management to update the full Board, as necessary, on matters identified through these Committee risk oversight roles. +Committees of the Board of Directors +The Board has adopted a Code of Ethics applicable to Meridian’s officers, Directors and employees. This Code of Ethics is posted on www.meridianbioscience.com . To the extent permitted by +Nasdaq Marketplace Rule 5610, any amendments to or waivers from the Code of Ethics will be posted on our website within four business days after the date of an amendment. +The Directors have organized themselves into the Committees described below. Each of these Committees has a charter posted on www.meridianbioscience.com . Meridian does not have an Executive +Committee of its Board of Directors. +The Audit Committee is composed of David C. Phillips (Chairman), James M. Anderson and +Robert J. Ready. It met nine times during fiscal 2011 and took no actions in writing. Each member is able to read and understand fundamental financial statements. David C. Phillips +30 +Table of Contents +has been designated as an Audit Committee financial expert as that term is defined by the Securities and Exchange Commission. +The Committee oversees the accounting and financial reporting processes of Meridian and the audits of its financial statements by its independent registered public accounting firm. The Committee is solely +responsible for the appointment, compensation, retention and oversight of Meridian’s independent registered public accounting firm. The Audit Committee also evaluates information received from Meridian’s independent registered public +accounting firm and management to determine whether the independent registered public accounting firm is independent of management. The independent registered public accounting firm reports directly to the Audit Committee. +In addition, the Audit Committee has established procedures for the receipt, retention and treatment of complaints received by Meridian concerning +accounting, internal accounting controls or auditing matters and has established procedures for the confidential and anonymous submission by employees of any concerns they may have regarding questionable accounting or auditing matters. +The Audit Committee, or its Chairman, approves all audit and non-audit services performed for Meridian by its independent registered public accounting +firm before those services are commenced. The Chairman reports to the full Committee at each of its meetings regarding pre-approvals he made since the prior meeting and the Committee approves what he has done between meetings. For these purposes, +the Committee or its Chairman is provided with information as to the nature, extent and purpose of each proposed service, as well as the approximate timeframe and proposed cost arrangements for that service. +As previously noted, the Audit Committee also bears primary risk oversight responsibilities, including responsibilities such as (i) overseeing the +risks and exposures relating to the Company’s financial statements and financial reporting process, (ii) overseeing the Company’s policies and procedures for monitoring and mitigating such risks and exposures, and (iii) reviewing +management’s monitoring of the Company’s compliance with established ethics and legal policies and procedures. +The Committee has +submitted the following report for inclusion in this proxy statement. +REPORT OF THE AUDIT COMMITTEE +On April 20, 2011, the Audit Committee met with representatives of Grant Thornton and Meridian’s internal accountants and reviewed with them +the proposed 2011 Audit Plan, areas warranting particular concentration on the audit and the effects of new accounting pronouncements. The Grant Thornton representatives reviewed with the Committee required Audit Committee communications and the +status of the most recent Public Company Accounting Oversight Board (PCAOB) inspection results. +At its meeting on August 18, 2011, the +Committee reviewed management’s strategic business plan and related risk assessment, specifically discussing with management its risk management strategies related to key financial and business risks. The Committee concluded +31 +Table of Contents +that this annual in-depth review and ongoing management updates of the integrated strategic and risk management plan were appropriate in order to fulfill its risk oversight obligations. The +Committee also reviewed the requirements of its Charter previously adopted and the reports that were required to be disclosed to the Committee. +At its meeting on November 8, 2011, the Committee reviewed and discussed with management, Grant Thornton and Meridian’s accounting officers the +results of the audit for fiscal 2011, including the audited financial statements. The Committee discussed with Grant Thornton the matters required to be discussed by PCAOB Interim Auditing Standard AU Section 380, Communication with Audit +Committees . The Grant Thornton representatives reviewed with the Committee written disclosures required by applicable requirements of the PCAOB regarding the independent accountants’ communications with the Audit Committee concerning +independence, discussed with the Committee the independent accountants’ independence, and has presented a letter regarding that matter to the Committee. The Committee discussed with Grant Thornton its independence. In concluding that the +auditors are independent, we determined, among other things, that the non-audit services provided by the auditors were compatible with their independence. +Based on the above mentioned review, the Committee recommended to the Board of Directors that the audited financial statements of Meridian be included in its Annual Report on Form 10-K for the year ended +September 30, 2011 for filing with the Securities and Exchange Commission. +During its meetings throughout the year, the Committee +reviewed and assessed the Company’s financial, financial control, financial reporting, and certain legal and regulatory risk exposures, including reviewing procedures related to the receipt, retention and treatment of any complaints concerning +accounting, internal accounting controls or auditing matters. Also during its meetings throughout the year, the Chairman of the Audit Committee reported to the full Committee the independent accountants’ fees that had been pre-approved and the +Committee approved such fees. Certain fees were pre-approved by the full Committee. The Committee also reviewed the requirements of and Meridian’s ongoing compliance with Section 404 of the Sarbanes-Oxley Act. +Respectfully submitted, +Audit Committee +David C. Phillips (Chairman) +James M. Anderson +Robert J. Ready +32 +Table of Contents +The Compensation Committee is composed of Robert J. Ready (Chairman), James M. Anderson, and +David C. Phillips and is responsible for establishing compensation for Executive Officers and administering the Company’s compensation plans. This includes establishing salary levels and bonus plans, making bonus and stock-based awards, and +otherwise dealing in all matters concerning compensation of the Executive Officers. During fiscal 2011, the Compensation Committee met three times, and took no actions in writing. +In general, the Compensation Committee annually reviews the Company’s compensation programs and its philosophy in setting performance targets in November of each year. At that time, the Company +provides the Compensation Committee with information on total compensation received for all Executive Officers, including the sources of such compensation, for the immediately preceding fiscal year and recommendations for the current fiscal year. In +discharging the responsibilities of the Board of Directors relating to compensation of the Company’s Chief Executive Officer and other Executive Officers, the purposes of the Compensation Committee are, among others, (i) to review and +approve the compensation of the Company’s Chief Executive Officer and other Executive Officers and (ii) to oversee the compensation policies and programs of the Company, including stock and benefit plans. The Compensation Committee’s +specific functions include adopting, administering and approving the Company’s incentive compensation and stock plans and awards, including amendments to the plans or awards and performing such duties and responsibilities under the terms of any +executive compensation plan, incentive-compensation plan or equity-based plan. The Compensation Committee has the authority to delegate any of its responsibilities to subcommittees as the Compensation Committee may deem appropriate in its sole +discretion. The Compensation Committee has the authority to engage consultants and advisors. The Compensation Committee did not engage a consultant this year. The Compensation Committee has an appropriate level of contact among its members and the +Company’s Executive Officers in connection with the analysis of this data. +The Compensation Committee determines the amount and mix of +compensation components for the Executive Chairman, Mr. Motto. The Executive Chairman provides input and recommendations to the Compensation Committee with respect to the compensation to be paid to the non-employee members of the Board, as well +as Mr. Kraeutler. As Meridian’s Chief Executive Officer, Mr. Kraeutler provides recommendations to the Compensation Committee with respect to compensation to be paid to the other corporate officers. +To achieve compensation objectives, the Committee believes it is important to provide competitive levels of compensation to retain the most qualified +employees, to recognize individuals who exceed expectations and to closely link executive compensation with corporate performance. The Committee believes Meridian’s long-term objectives can be achieved through cash incentive compensation plans +and equity incentive compensation plans. +The Compensation Committee’s processes and procedures for the consideration and determination +of Executive and Director compensation are discussed in the section entitled “Compensation Discussion and Analysis” in this proxy statement. +33 +Table of Contents +Compensation Committee Interlocks and Insider Participation +None of the members of the Compensation Committee has ever been an officer or employee of the Company. None of the members of the Compensation Committee +is or was a participant in any related person transaction in fiscal 2011 (see the section entitled “Transactions With Related Persons” in this proxy statement for a description of our policy on related person transactions). Lastly, none of +the members of the Compensation Committee is an Executive Officer of another entity at which one of our Executive Officers serves on the Board of Directors. No Named Executive Officer of Meridian serves as a Director or as a member of a committee of +any company of which any of the Company’s non-employee Directors are Executive Officers. +The Nominating and Corporate Governance +Committee consists of James M. Anderson (Chairman), David C. Phillips and Robert J. Ready. It met one time last year and took no actions in writing. On November 9, 2011, the Committee considered and nominated the current Directors for +re-election, with Mr. Kreider subsequently declining the nomination on December 6, 2011. The Committee identifies qualified nominees for the Board, determines who will be nominated by the Company for election to the Board and recommends to +the full Board any changes in the size of the Board. +In nominating Directors, the Committee takes into account, among other factors which it +may deem appropriate, the judgment, skill, diversity, and business experience of the potential nominee and the needs of the Board as its function relates to the business of the Company. The Committee considers candidates for nomination from a +variety of sources including recommendations of shareholders. Shareholders desiring to submit recommendations for nominations by the Committee should direct them to the Chairman of the Nominating and Corporate Governance Committee in care of the +Company at its address shown on the cover page of this proxy statement. +The Nominating and Corporate Governance Committee will assess the +qualifications of all candidates for the Board on an equal basis. In identifying and considering candidates for nomination to the Board, the Committee considers, among other factors, quality of experience, the needs of the Company and the range of +talent and experience currently represented on the Board. The Committee evaluates such factors, among others, and does not assign any particular weighting or priority to any of these factors, nor does the Committee have a formal policy with respect +to diversity. However, the Committee, working with the Board, considers the diversity of all of the Company’s stakeholders – including shareholders, employees and customers – when engaging in corporate governance discussions. +34 +Table of Contents +DIRECTORS AND EXECUTIVE OFFICERS +This table lists the Executive Officers and Directors of Meridian and shows the number of shares beneficially owned, as determined under SEC rules, on +November 28, 2011. Beneficial ownership includes any shares as to which the individual has sole or shared voting or investment power and also any shares that the individual has the right to acquire as of January 27, 2012 (60 days after +November 28, 2011). +Common Stock +Beneficially Owned +Name +Position +Amount 1 +Percentage +William J. Motto +Executive Chairman of the Board of Directors +521,562 +1.3 +% +John A. Kraeutler +Chief Executive Officer and Director +260,323 +* +Richard L. Eberly 2 +Executive Vice President, Chief Commercial Officer +47,100 +* +Lawrence J. Baldini 3 +Executive Vice President, Operations and Information Systems +79,250 +* +Melissa A. Lueke 4 +Executive Vice President, Chief Financial Officer and Secretary +138,765 +* +Susan A. Rolih 5 +Senior Vice President, Regulatory Affairs & Quality Assurance +132,050 +* +Marco G. Calzavara 6 +President and Managing Director, Meridian Bioscience Europe +800 +* +Vecheslav A. Elagin 7 +Senior Vice President, Research and Development +18,000 +* +Marviette D. Johnson 8 +Vice President, +Human +Resources +17,303 +* +James M. Anderson 9, 10 , 11 +Director +33,500 +* +Gary P. Kreider 1 2 +Director +47,638 +* +David C. Phillips 9, 10 , 11 +Director +61,408 +* +Robert J. Ready 9, 10 , 11 +Director +77,115 +* +All Executive Officers and Directors as a Group +1,434,814 +3.4 +% +1 +Includes options +exercisable within 60 days for Mr. Motto of 70,988 shares, Mr. Kraeutler of 72,250 shares, Mr. Eberly of 31,875 shares, Mr. Baldini of 31,750 shares, Ms. Lueke of 47,250 shares, Ms. Rolih of 85,800 shares, +Dr. Elagin of 5,500 shares, Ms. Johnson of 5,750 shares, Mr. Anderson of 22,500 shares, Mr. Kreider of 42,714 shares, Mr. Phillips of 42,714 shares and Mr. Ready of 63,570 shares. +2 +Richard L. Eberly was appointed Vice President of Sales and Marketing in January 1997, Executive Vice President in May 2000, Executive Vice President, +General Manager of Meridian Life Science in February 2003, Executive Vice President and President Meridian Life Science in October 2005 and Chief Commercial Officer in February 2011. He has over 20 years of experience in the medical diagnostics +industry and joined Meridian in March 1995. Prior to his appointment to Vice President of Sales and Marketing, Mr. Eberly served as the +35 +Table of Contents +Director of Sales for Meridian. Before joining Meridian, he held key sales and marketing positions at Abbott Diagnostics, Division of Abbott Laboratories. Age: 50 +3 +Lawrence J. Baldini was appointed Vice President of Operations in April 2001 and Executive Vice President, Operations and Information Systems in +October 2005. Before joining Meridian, Mr. Baldini held various operations management positions with Instrumentation Laboratories and Fisher Scientific. Age: 52 +4 +Melissa A. Lueke was appointed Vice President, Chief Financial Officer and Secretary in January 2001 and Executive Vice President, Chief Financial +Officer and Secretary in November 2009. Prior to her appointment, Ms. Lueke served as Meridian’s Controller since March 2000 and Acting Secretary from July 20, 2000 to January 23, 2001. Before joining Meridian, Ms. Lueke was +employed by Arthur Andersen LLP from June 1985 to January 1999, most recently as a Senior Audit Manager. Age: 48 +5 +Susan A. Rolih was appointed Vice President of Regulatory Affairs and Quality Assurance in May 2001 and Senior Vice President of Regulatory Affairs and +Quality Assurance in April 2008. Before joining Meridian, Ms. Rolih held various regulatory and quality positions with Immucor, Inc. Age: 62 +6 +Marco G. Calzavara, founder of the Bioline Group, which Meridian acquired July 20, 2010, was appointed President and Managing Director of Meridian +Bioscience Europe in April 2011. Prior to this appointment, Mr. Calzavara had served as President of the Bioline Group of Companies since 1992. Age: 57 +7 +Vecheslav A. Elagin joined Meridian in August 2009 as Vice President of Research and Development, and was appointed Senior Vice President of Research +and Development in November 2011. Before joining Meridian, Dr. Elagin held various executive research and development positions, most recently with Madison Life Science (August 2008 – August 2009), EraGen Biosciences (May 2006 – +August 2008) and Third Wave Technologies (June 2003 – May 2006). Age: 44 +8 +Marviette D. Johnson served as Director of Human Resources from January 2006 to April 2008, as Senior Director of Human Resources from April 2008 to +November 2009 and was appointed to her current position of Vice President of Human Resources in November 2009. Before joining Meridian in 2003, Ms. Johnson held various human resources leadership positions within the hospitality industry, +including with Marriott International and Millennium Copthorne. Age: 43 +9 +Audit Committee Member. +10 +Compensation Committee Member. +11 +Nominating and +Corporate Governance Committee Member. +12 +Includes 325 shares held by his wife, 758 shares held as custodian for his grandchildren and 2,500 shares in an IRA to which he serves as advisor. +* +Less than one percent. +36 +Table of Contents +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS +The following table lists the persons known by the Company to be the beneficial owners of more than five percent of the Company’s Common Stock as of +November 28, 2011, unless otherwise noted. Beneficial ownership includes any shares as to which the individual has sole or shared voting or investment power. +Name and address of beneficial owner +Amount and nature of +beneficial ownership +Percent of +class 1 +BlackRock, Inc. +40 East 52 nd Street +New York, NY 10022 +3,064,975 +7.53 +Neuberger Berman Group LLC +605 Third Avenue +New York, NY 10158 +2,920,190 +7.13 +Brown Capital Management, LLC +1201 N. Calvert Street +Baltimore, MD 21202 +2,715,723 +6.63 +T. Rowe Price Associates, Inc. +100 E. Pratt Street +Baltimore, MD 21202 +2,356,175 +5.70 +The Vanguard Group +100 Vanguard Blvd. +Malvern, PA 19355 +2,113,126 +5.19 +1 +For the beneficial +owners listed in the table, the percentages listed reflect disclosures in the Schedule 13Gs filed by each beneficial owner with the SEC. +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Section 16 of the Securities Exchange Act of 1934 requires Meridian’s Executive Officers, Directors and persons who own more than ten percent of +a registered class of Meridian’s equity securities to file reports of ownership and changes in ownership with the SEC. Based on a review of the copies of such forms received by it, Meridian believes that during the last fiscal year, all of its +Executive Officers, Directors and ten percent stockholders complied with the Section 16 reporting requirements, with the exceptions that (i) one late ownership report was filed for each of Mr. Lawrence J. Baldini and +Mr. Antonio A. Interno with respect to the exercise of stock options; (ii) one late ownership report was filed for Mr. Richard L. Eberly with respect to the grant of options in connection with his promotion to Chief +Commercial Officer; (iii) one late ownership report was filed for independent Director Robert J. Ready with respect to a sale of common shares; and (iv) one late ownership report was filed for Mr. William J. Motto with respect to +an estate planning transaction. In making these statements, Meridian has relied upon examination of the copies of Forms 3, 4 and 5, and amendments thereto, and the written representation of its Directors and Executive Officers. +37 +Table of Contents +TRANSACTIONS WITH RELATED PERSONS +During fiscal 2011, Todd Motto, the adult son of William J. Motto, served as Business Development Coordinator, receiving $125,048 in compensation for +fiscal 2011. This compensation consisted of $110,256 of base salary, $2,000 of auto and professional allowances, $8,992 of retirement plan contributions, and $3,800 for dividends on restricted stock granted under the 2004 Plan. Effective +October 1, 2011, Todd Motto provides business development services on a limited basis at a rate of $250 per hour, primarily to wrap up projects he previously had in process. +Nasdaq rules require the Company to conduct an appropriate review of related party transactions required to be disclosed by the Company pursuant to SEC Regulation S-K Item 404 for potential conflict +of interest situations on an ongoing basis and that all such transactions must be approved by the Audit Committee or another Committee comprised of independent Directors. As a result, the Audit Committee annually reviews all such related party +transactions and approves each related party transaction if it determines that it is in the best interests of the Company. Additionally, the Audit Committee’s Charter provides it the authority to review, approve and monitor transactions +involving the Company and “related persons” (Directors and Executive Officers or their immediate family members, or shareholders owning five percent or greater of the Company’s outstanding stock). This also covers any related person +transaction that meets the minimum threshold for disclosure in the proxy statement under the relevant SEC rules (generally, transactions involving amounts exceeding $120,000 in which a related person has a direct or indirect material interest). In +considering the transaction, the Audit Committee may consider all relevant factors, including, as applicable, (i) the Company’s business rationale for entering into the transaction; (ii) the alternatives to entering into a related +person transaction; (iii) whether the transaction is on terms comparable to those available to third parties, or in the case of employment relationships, to employees generally; (iv) the potential for the transaction to lead to an actual +or apparent conflict of interest and any safeguards imposed to prevent such actual or apparent conflicts; and (v) the overall fairness of the transaction to the Company. This policy is included in the Company’s Employee Handbook. The +approval of such related person transactions are evidenced by internal Company resolutions or memoranda. +COMPENSATION DISCUSSION AND ANALYSIS +Throughout this proxy statement, the individuals who served as the Company’s Chief Executive Officer and Chief Financial Officer during fiscal 2011, as well as the other individuals listed in the +Summary Compensation Table below, are referred to as the “Named Executive Officers” or “NEOs.” +Compensation Philosophy +and Objectives +Our policies regarding executive compensation programs are intended to balance motivating, rewarding and retaining +executives with a competitive compensation package, and maximizing long-term shareholder value by linking compensation earned to both individual and Company performance. Compensation typically includes base salary, eligibility for annual cash +bonuses and stock-based awards contingent on Company performance and/or +38 +Table of Contents +future service, retirement plan contributions and other Company-sponsored benefits. A significant portion of each Executive Officer’s cash bonus and stock-based awards are dependent upon +achieving business and financial goals and realizing other performance objectives. Examples of Company performance metrics for which we measure achievement are sales growth, net earnings growth and profit margins (gross profit, operating income and +net earnings). Annual performance targets for these metrics are set at or above industry averages and historical results. Our compensation programs are intended to reward individual contributions (for example, bringing a new product to market) and +Company-wide achievement of performance metric targets (for example, overall sales and net earnings growth). +The Compensation Committee of +the Board of Directors is responsible for the development and ongoing oversight of compliance with this compensation philosophy. The Compensation Committee ensures that the total compensation paid to the NEOs is fair, reasonable and competitive. +Establishing Compensation Levels +Compensation levels for the NEOs are driven by market pay levels, the NEO’s leadership performance and overall Company performance. The Compensation Committee relies upon a combination of judgment +(which is necessarily subjective) and guidelines (discussed herein), as well as market data, in determining the amount and mix of compensation components for the Executive Chairman. The compensation levels for the Chief Executive Officer are +recommended to the Compensation Committee by the Executive Chairman; the compensation levels for the other NEOs are recommended by the Chief Executive Officer. The Compensation Committee has discretion to follow or modify such recommended levels of +compensation. The Compensation Committee considers as crucial the input of our Executive Chairman and Chief Executive Officer in connection with its compensation processes and decisions relating to NEO compensation. The Compensation Committee is not +obligated to follow their recommendations. The Company does not engage in strict numerical benchmarking in determining the percentage modifications for the NEOs. +Market Pay Levels +Market pay levels for the NEOs are determined annually in November for +the upcoming calendar year. From time to time, at the request of the Compensation Committee, an outside financial advisor is used to gather and summarize for the Company disclosures of executive compensation paid by other publicly traded companies +in the diagnostic and life science industries, as well as those outside such industries in the Greater Cincinnati area. This information concerns base salary, bonus awards and long-term incentive awards such as stock options and/or restricted stock +for these peer companies, as well as their revenue, net earnings and market capitalization levels in order to take company size into consideration. The Compensation Committee considers this competitive market compensation paid by such companies, but +does not attempt to maintain a certain target percentile within a peer group or otherwise rely on that data to determine executive compensation. This means that the Compensation Committee considers this information generally and as a reference point +in determining the amounts and elements of our compensation program. For example, the Compensation Committee periodically reviews proxy statements of our industry peers to review their long-term incentive components in order to understand +compensation trends in +39 +Table of Contents +stock options, restricted stock and similar equity instruments. In other words, although it does not utilize such information for benchmarking purposes, the Compensation Committee considers such +information as part of its decision-making process with respect to the Company’s executive compensation programs. +Company Performance +We believe that certain Company performance metrics drive shareholder value through stock price appreciation and +dividends. We take this belief into account in setting performance metric targets that are considered in establishing the performance-based component of our compensation programs. Performance metric targets that are taken into consideration in our +compensation programs include sales growth, earnings growth and profit margins. These targets are set at or above industry averages and historical results. In addition to these metrics, the ultimate success of the commercialization of our +illumi gene ® molecular platform will be driven by the number and rate of instrument +placements, and the build-out of the related product menu. We have recently implemented performance metric targets for instrument placement rates and product menu expansion in our compensation programs. +Our cash bonus and a portion of our stock-based award programs operate under the fundamental principle that minimum levels of net earnings be achieved +prior to any compensation being earned under these programs. Net earnings targets are determined based on what the Company believes to be meaningful growth rates relative to its industry peers and the Company’s performance objectives. +Stock-based awards granted under performance programs are generally forfeited if the Company does not meet its minimum earnings targets as specified in each grant. +Recovery of Prior Awards +Except as provided by applicable laws and regulations, we do not +have a policy with respect to adjustment or recovery of awards or payments if relevant Company performance measures upon which previous awards were based are restated or otherwise adjusted in a manner that would reduce the size of such award or +payment. Under those circumstances, we expect that the Compensation Committee and the Board would evaluate whether compensation adjustments were appropriate based upon the facts and circumstances surrounding the applicable restatement or adjustment. +Tally Sheets +In setting the +NEOs’ compensation, the Compensation Committee reviews all components of such compensation through the use of tally sheets. These tally sheets provide the amount of total compensation paid or earned by each NEO based on his or her base salary, +cash bonus, stock-based awards, retirement contributions and perquisites. The tally sheets reviewed provide all of the information that is reflected in the Summary Compensation Table. The review by the Compensation Committee analyzes how changes in +any element of compensation would impact other elements, particularly severance or change in control benefits, if applicable to the executive. Although this year such analysis did not result in the issuance of additional awards, such analysis has +become an important component in the Compensation Committee’s review of executive compensation as the tally sheet allows the Compensation Committee to consider an executive’s overall compensation rather than only one or two specific +components of an executive’s compensation. This allows the +40 +Table of Contents +Compensation Committee to make compensation decisions and evaluate management recommendations based on a complete analysis of an executive’s total compensation. +Components of Executive Compensation +Meridian’s executive compensation and benefits packages consist of: base salary, cash bonuses, long-term equity incentive awards, Company-sponsored +benefit and retirement plans, and change in control severance benefits. Each of these components has a certain risk profile. +Element +Form of Compensation +Purpose +Risk Profile +Base Salaries +Cash +Provides competitive, fixed compensation to attract and retain exceptional executive talent +Low to +moderate +Annual Cash Incentives +Cash +Provides a direct financial incentive to achieve corporate and individual operating goals +Moderate +to high +Long-Term Equity Incentives +Incentive stock options, non-qualified stock options, restricted stock, restricted stock units and/or stock appreciation rights +Encourages Executive Officers to build and maintain a long-term equity ownership position in Meridian so that their interests are aligned with our shareholders +High +Health, Retirement and Other Benefits +Eligibility to participate in benefit plans generally available to our employees, including Retirement Plan contributions, premiums paid on long-term disability and life +insurance policies, and certain perquisites +Benefit plans are part of a broad-based employee benefits program; the perquisites provide competitive benefits to our Executive Officers +Low +Change in Control Severance Benefits +Cash and continuation of certain benefits +Encourages Executive Officers to maximize value for shareholders in the event that the Company becomes subject to a change in control transaction +Moderate +to high +41 +Table of Contents +The Compensation Committee has reviewed the risk profile of the components of the Company’s executive +compensation program, including the performance objectives and target levels used in connection with incentive awards, and has considered the risks an NEO might be incentivized to take with respect to such components. When establishing the mix among +these components, the Compensation Committee is careful not to encourage excessive risk taking. Specifically, the performance objectives contained in the Company’s executive compensation programs have been balanced between annual and long-term +incentive compensation to ensure that both components are aligned and consistent with our long-term business plan and that our overall mix of equity-based awards has been allocated to promote an appropriate combination of incentive and retention +objectives. +The Compensation Committee believes that the Company’s executive compensation program does not incentivize the NEOs to +engage in business activities or other behavior that would threaten the value of the Company or the investments of its shareholders. +The +Compensation Committee continues to monitor and evaluate on an on-going basis the mix of compensation, especially equity compensation, awarded to the Named Executive Officers, and the extent to which such compensation aligns the interests of the +NEOs with those of the Company’s shareholders. In connection with this practice, the Compensation Committee has, from time to time, reconsidered the structure of the Company’s executive compensation program and the relative weighting of +various compensation elements. During fiscal 2012, the Compensation Committee approved a new equity incentive program (discussed below) that is intended to complement the historical mix of time-based and performance-based equity awards. +Interplay of Compensation Elements +We +believe that each element of our compensation program plays a substantial role in maximizing long-term value for our shareholders and employees because of the significant emphasis on pay-for-performance principles. In fiscal 2011, we did not reach +our minimum net earnings targets, and therefore, our NEOs did not earn any cash bonuses or performance-based equity awards. +We strive to +achieve an appropriate mix between equity incentive awards and cash payments in order to meet our objectives. We use the Officers’ Performance Compensation Plan as another tool to assess an executive’s total pay opportunities and whether +we have provided the appropriate incentives to accomplish our compensation objectives. Our mix of compensation elements is designed to reward recent results and motivate long-term performance through a combination of cash and stock-based awards. We +also seek to balance compensation elements that are based on financial, operational and strategic metrics with others that are based on the performance of Meridian shares via application of the personal multiplier component of cash bonuses for the +Executive Chairman and the Chief Executive Officer. We believe the most important indicator of whether our compensation objectives are being met is our ability to motivate our NEOs to deliver superior performance and retain them to continue their +careers with Meridian on a cost-effective basis. +42 +Table of Contents +Base Salary +The Company pays salaries that are designed to attract, motivate and retain experienced executives who will drive superior Company performance and maintain long-term shareholder value. The Compensation +Committee considers recommendations from the Executive Chairman and Chief Executive Officer and approves annual base salaries that are commensurate with each NEO’s responsibilities and performance, as well as Company performance in the prior +fiscal year, which are competitive with similar positions locally and in the industry. Salaries are set on a calendar year basis and therefore salaries paid in the first three months of each fiscal year beginning on the first day of October are set +in the prior fiscal year. +For 2012, the Chief Executive Officer, Mr. Kraeutler, provided a recommendation to the Compensation Committee +for 3% salary increases for the NEOs, except for two individuals for whom the recommendation was for 10% increases, based on a promotion for one individual and a market salary adjustment for the other individual. The Compensation Committee duly +considered and followed these recommendations. +Cash Bonuses +The Compensation Committee believes that employees should be rewarded based on Company results and individual performance. The Compensation Committee awards cash bonuses pursuant to the Officers’ +Performance Compensation Plan, contingent upon Company performance. Cash bonuses, if earned, are paid in the first quarter of each fiscal year, for the prior year’s performance. Cash bonuses are subject to the Company’s attainment of a +specific net earnings target. Should the Company fail to reach such net earnings target, no cash bonuses are paid. +Cash bonuses are also +subject to the application of a personal achievement multiplier as recommended by management, except that no such recommendation is made by management for the Executive Chairman, Mr. Motto, or the Chief Executive Officer, Mr. Kraeutler. In +evaluating the personal achievement multipliers, the Compensation Committee takes into consideration the sales and net earnings levels, sales and net earnings growth rates and achievement against plan, profit margins and improvements therein, and +individual achievements and leadership of the NEOs. Instead of establishing specific quantifiable targets for each of these factors, the Compensation Committee exercises its discretion in using the factors to determine each NEO’s personal +achievement multiplier. Specifically, the Compensation Committee does not establish measurable objective targets in connection with its deliberation of such factors. The adoption and application of such factors are intended to be discretionary and +subjective so that the Compensation Committee can use its business judgment to provide an appropriate incentive and award for performance that sustains and enhances long-term shareholder value. The Compensation Committee believes that such +discretionary and subjective components allow it to respond appropriately as business and strategic environments change and are appropriate for the size of the Company. The personal achievement multiplier choices are 0 (zero), 0.75, 1.0, 1.25, 1.5 +or 2.0. For example, a personal achievement multiplier of 1.25 would result in a bonus payout percentage of 37.5% when applied to a 30% base salary component. A personal achievement multiplier of 0 (zero) would result in no bonus payout and is +intended for circumstances where the NEO’s performance is far less than satisfactory. +43 +Table of Contents +Company Performance Component and 2011 Results +The 2011 Officer’s Performance Compensation Plan, which was similar in form to the plans utilized over the last several fiscal years, provided for +the granting of cash bonuses as a percentage of base salary if 2011 net earnings reached $31,800,000. For 2011, actual net earnings were below the minimum threshold, and therefore, there were no cash bonuses awarded to the NEOs for fiscal 2011 +performance. +2012 +At its +November 9, 2011 meeting, the Compensation Committee approved the Officers’ Performance Compensation Plan for fiscal 2012. The 2012 Plan will award cash bonuses if 2012 net earnings reach $35,400,000, which the Compensation Committee +believes is a meaningful increase from 2011 net earnings of $28,394,000. These net earnings amounts exclude the costs related to consolidation of our Saco, Maine facility into our Memphis, Tennessee facility, and the reorganization of our global +sales and marketing organization. Consistent with 2011, the 2012 Plan also provides for increasing bonus awards tied to increasing net earnings beyond the initial minimum level. The 2012 Plan includes six net earnings thresholds ranging from a low +of $35,400,000 to a high of $37,800,000. These six net earnings thresholds represent growth over 2011 net earnings ranging from a low of 25% to a high of 33%. The corresponding potential bonus payouts as a percent of base salary, before application +of the personal multiplier, for the six net earnings thresholds ranged from a low of 10% to a high of 60%. Depending on the level of net earnings achieved and the application of the personal multiplier, cash bonuses for the NEOs could range from 0% +to 120% of base salary. +Management and the Compensation Committee have intended that the earnings thresholds should be set at meaningful +rates so that management must be diligent, focused and effective in order to achieve these goals. In other words, the Company and management believed at the time of the establishment of these thresholds that they would be challenging to achieve and +would require substantial efforts from management. To this end, the Compensation Committee tends to set the thresholds consistent with the earnings guidance range requiring that the low end of guidance is achieved before bonuses are paid. +Long-Term Incentive Awards +The Compensation Committee believes that equity-based compensation encourages employees to commit to the long-term goals of the Company. This ensures that +the Company’s NEOs have a stake in the long-term creation of shareholder value. A significant portion of the awards is performance-based, meaning the NEOs’ ability to vest in that portion of awards is contingent upon the Company achieving +a minimum level of net earnings. +For fiscal 2012, at its meeting on November 9, 2011, the Compensation Committee approved two types of +restricted stock unit awards. The first type of restricted stock unit award is performance-based, where the NEOs’ ability to vest in such awards is contingent upon the Company reaching a minimum level of net earnings of $37,800,000 for fiscal +2012. This award would vest 25% per year over four years, if earned. The second type of restricted stock award is time-based and fully vests after four years. The Compensation Committee believes that this latter award is appropriate to +encourage retention of top management talent during what continues to be, in their belief, one of the most challenging economic +44 +Table of Contents +environments over the last 20+ years. +In addition to the restricted +stock unit awards mentioned in the previous paragraph, at its meeting on November 9, 2011, the Compensation Committee approved an additional equity award plan. The objective of this award is to reward NEOs for meeting Company revenue targets in +advance of planned expectations, in light of the commercialization of our illumi gene ® +molecular platform. The awards are in the form of non-qualified stock options and restricted stock units, and can only be earned if cumulative revenue thresholds are met three months (one fiscal quarter) in advance of planned expectations (for +example, two years of revenues are achieved in 1.75 years). The revenue thresholds (cumulative) are as follows: +• +$414 million for the 21-month period October 1, 2011 through June 30, 2013; +• +$684 million for the 33-month period October 1, 2011 through June 30, 2014; and +• +$1.009 billion for the 45-month period October 1, 2011 through June 30, 2015. +These cumulative revenue thresholds operate independently, meaning, if the 2013 target expires before achievement, the 2014 and 2015 targets remain +active. +The following table summarizes the equity awards for the NEOs. +NEO +No. of Shares of +Performance- +Based RSUs +No. of Shares of +Time-Based +RSUs +Additional +Equity Award +Program +RSUs +Additional +Equity Award +Program +Options +Chief Executive Officer +10,000 +10,000 +7,500 +112,500 +EVP, CFO and Secretary +7,500 +7,500 +— +105,000 +Executive Chairman of the Board +10,000 +10,000 +7,500 +112,500 +EVP, CCO +7,500 +7,500 +7,500 +112,500 +Pres. and Managing Director, MBE +7,500 +7,500 +35,000 +— +Although Meridian does not have a written policy regarding the timing or practices related to granting equity awards, +neither Meridian nor the Compensation Committee engages in spring-loading, back-dating or bullet-dodging practices. Stock options and restricted stock awards are generally granted at a regularly scheduled meeting of the Compensation Committee +in the first quarter of the fiscal year, after Meridian issues a press release announcing the results of the prior fiscal year. Stock options are granted at the closing +45 +Table of Contents +market price on the date of grant, pursuant to the 2004 Equity Compensation Plan. Prior to the exercise of an option, the holder has no rights as a stockholder with respect to the shares subject +to such option, including no rights to vote or to receive dividends. Prior to vesting of restricted stock units, the holder will receive dividend equivalent payments. Restricted stock units do not have voting rights. +Company-Sponsored Benefit and Retirement Plans +Meridian provides Company-sponsored benefit and retirement plans to the NEOs. In general, executives participate in the Company’s benefit and retirement plans on the same basis as other Company +employees. The core benefit package includes health, dental, short and long-term disability, and group term life insurance. Meridian generally provides retirement benefits to executives through qualified (under the Internal Revenue Code) defined +contribution plans. +The Company and Mr. Kraeutler are parties to a salary continuation agreement to supplement Mr. Kraeutler’s +retirement savings. This agreement provides monthly compensation of $5,000 for 120 months after retirement or separation from the Company under certain circumstances. +Change in Control Severance Benefits +The Compensation Committee believes that a reasonable +level of salary and Company-sponsored benefit protection provides a means of retention and allows the NEOs to remain focused on achievement of Company goals and objectives in the event that the Company becomes subject to a merger or acquisition +transaction. This component of compensation would only be paid in the event of a change in control of the Company, under certain qualifying conditions. For the NEOs other than the CEO and Executive Chairman, this component of compensation would +include two years’ salary, performance bonus and core benefits. For the CEO, this component of compensation would include three years’ salary, performance bonus and core benefits. This benefit is not available to the Executive Chairman. +Other Personal Benefits +Allowances for automobiles and professional, financial and tax planning are made available to Meridian’s NEOs and other corporate officers. The costs +to the Company are included in the All Other Compensation table on page 49. The Company believes these perquisites to be reasonable, comparable to peer companies and consistent with the Company’s overall executive compensation philosophy. +Internal Pay Equity +The +Compensation Committee believes that the relative difference between the Chief Executive Officer’s compensation and the compensation of the Company’s other executives has not increased significantly over the years. Further, the +Compensation Committee believes that the Company’s internal pay equity structure is consistent with our peer group and is appropriate based upon the contributions to the success of the Company and as a means of motivation to other executives +and employees. +46 +Table of Contents +Tax Deductibility of Pay +Section 162(m) of the Internal Revenue Code contains compensation deduction limitations for certain highly compensated employees. One exception to this limitation is for performance-based +compensation that is approved by, among other things, a committee of “outside directors” (as defined under IRS treasury regulations). The Committee believes that all compensation paid to the NEOs for fiscal year 2011 is properly deductible +under Section 162(m), but no assurance can be made in this regard. +Actions of the Compensation Committee +In several meetings during the year, the Executive Chairman, Mr. Motto, the Chief Executive Officer, Mr. Kraeutler, and the Compensation +Committee Chairman discussed, among other things, Meridian’s compensation system and its effectiveness in attracting and retaining top notch employees. These individuals believe that the system, including the Officers’ Performance +Compensation Plan, is understood by employees and shareholders and has worked well in practice. They noted that the underlying principles in the plan have been followed for many years, even when following such principles resulted in no bonuses being +awarded (2001, 2009, 2010 and 2011) and performance-based stock awards being forfeited (2001, 2008, 2009 and 2011). The Committee discussed on a number of occasions the advisability of engaging a compensation consultant. The Compensation Committee +concluded that it did not want to engage a compensation consultant this year, in part because of the relatively small number of Executive Officers and their frequent interaction. +At its November 9, 2011 meeting, the Compensation Committee discussed these matters, both with and without the presence of management. The Compensation Committee discussed the recommendations of the +Executive Chairman and the Chief Executive Officer for compensation levels for all officers and answered questions about individual recommendations and the general pay increases to be paid throughout the Company. The Committee then made the +compensation decisions, which are reflected in the figures presented in this proxy statement. +47 +Table of Contents +SUMMARY COMPENSATION TABLE +The following table summarizes the aggregate compensation paid, or earned, by each of the NEOs for the fiscal years ended September 30, 2011, 2010 +and 2009, respectively. +Name and Principal Position +(a) +Year +(b) +Salary +(c) +Bonus 1 +(d) +Stock +Awards 2 +(e) +Option +Awards 3 +(f) +Non-Equity +Incentive Plan +Compensation +(g) +Change in +Pension Value +and +Nonqualified +Deferred +Compensation +Earnings +(h) +All +Other +Compensation 4 +(i) +Total +John A. Kraeutler +Chief Executive Officer +2011 +2010 +2009 +$ +$ +$ +546,000 +540,346 +511,538 +— +— +— +$ +$ +228,300 +221,850 +— +— +— +— +— +— +— +— +— +— +$ +$ +$ +69,111 +54,017 +37,767 +$ +$ +$ +843,411 +816,213 +549,305 +Melissa A. Lueke +Executive Vice President, +Chief Financial Officer and Secretary +2011 +2010 +2009 +$ +$ +$ +238,493 +233,579 +210,736 +— +— +— +$ +$ +171,225 +166,387 +— +— +— +— +— +— +— +— +— +— +$ +$ +$ +40,640 +27,274 +25,588 +$ +$ +$ +450,358 +427,240 +236,324 +William J. Motto +Executive Chairman of the Board of Directors +2011 +2010 +2009 +$ +$ +$ +546,000 +540,346 +524,999 +— +— +— +$ +$ +228,300 +221,850 +— +— +— +— +— +— +— +— +— +— +$ +$ +$ +110,825 +95,424 +87,816 +$ +$ +$ +885,125 +857,620 +612,815 +Richard L. Eberly +Executive Vice President, +Chief Commercial Officer +2011 +2010 +2009 +$ +$ +$ +326,466 +275,341 +270,032 +— +— +— +$ +$ +171,225 +166,387 +— +$ +$ +48,355 +9,510 +— +— +— +— +— +— +— +$ +$ +$ +44,910 +39,314 +27,039 +$ +$ +$ +590,956 +490,552 +297,071 +Marco G. Calzavara 5 +President and Managing Director, MBE +2011 +2010 +2009 +$ +$ +270,406 +35,855 +— +$ +96,003 +— +— +$ +193,945 +— +— +— +— +— +— +— +— +— +— +— +$ +$ +20,474 +1,631 +— +$ +$ +580,828 +37,486 +— +Antonio A. Interno 6 +Former Senior Vice President, +President and Managing Director, MBE +2011 +2010 +2009 +$ +$ +$ +190,198 +388,492 +382,370 +— +— +— +$ +$ +171,225 +166,387 +— +— +— +— +— +— +— +— +— +— +$ +$ +$ +810,678 +71,538 +47,854 +$ +$ +$ +1,172,101 +626,417 +430,224 +1 +Aside from +payments to Bioline Group employees for fiscal 2011, which Mr. Calzavara was considered for fiscal 2011 bonus purposes, no payments were made pursuant to the Officers’ Performance Compensation Plan for fiscal 2011, 2010 or 2009 as the +corporate-wide targets were not reached for any of the respective fiscal years. +2 +The amounts shown reflect the grant date fair value of the restricted stock issued during fiscal years 2011, 2010 and 2009 in accordance with ASC Topic +718. No expense is included in this table related to restricted stock issued November 12, 2008 or the performance-based portion of the restricted stock issued November 11, 2010. Because the required earnings target for Meridian was not +reached for fiscal 2009 or fiscal 2011, the performance-based restricted shares have been cancelled. Regarding the performance-based restricted stock issued November 12, 2009, while the 2010 earnings target was not met, on September 30, +2010, the Compensation Committee of the Board of Directors chose to convert the performance-based restricted shares to time-vested restricted shares in recognition of the achievement in 2010 of several strategic initiatives that positioned the +Company for future growth. As a result, the grant date fair value of such shares is reflected during fiscal 2010 in the above table. A discussion of the assumptions used in calculating these values may be found in Note 8(b) on page 67 to the +Company’s Annual Report on Form 10-K filed November 29, 2011. +3 +The amounts shown reflect the grant date fair value of the restricted stock issued during fiscal years 2011, 2010 and 2009 in accordance with ASC Topic +718. A discussion of the assumptions used in calculating these values may be found in Note 8(b) on page 67 to the Company’s Annual Report on Form 10-K filed November 29, 2011. +48 +Table of Contents +4 +See the All Other +Compensation table below for amounts, which include certain Company contributions, perquisites and other personal benefits. +Fiscal 2011 +All Other Compensation +John A. +Kraeutler +Melissa A. +Lueke +William J. +Motto +Richard L. +Eberly +Marco G. +Calzavara +Antonio A. +Interno +Retirement Contributions +$ +14,060 +$ +13,865 +$ +14,060 +$ +14,060 +$ +6,625 +$ +21,610 +Auto Lease / Auto Allowance +17,251 +8,000 +13,965 +12,000 +11,650 +13,938 +Financial and Tax Planning +15,000 +1,675 +60,000 +1,750 +— +— +Restricted Stock Dividends +22,800 +17,100 +22,800 +17,100 +2,199 +8,550 +Separation Payment +— +— +— +— +— +766,580 +Totals +$ +69,111 +$ +40,640 +$ +110,825 +$ +44,910 +$ +20,474 +$ +810,678 +5 +Mr. Calzavara’s salary and bonus were £169,000 and £60,000, respectively, in 2011; and £23,000 and £0, respectively, +in 2010. All conversions were made at the average exchange rates for fiscal 2011 and 2010, respectively. +5 +On March 31, 2011, Mr. Interno retired from his position with Meridian. In connection with his retirement and resignation Mr. Interno +(ii) received the €550,000 one-time payment detailed in the All Other Compensation table above, and (ii) executed a professional services agreement under which he will provide certain services to the Company through December 31, +2012, for which he will receive monthly payments of €6,500. In addition, upon his retirement and in accordance with the Company’s 2004 Equity Compensation Plan, as Amended and Restated through January 22, 2008, 7,500 time-based +Restricted Stock Units (“RSUs”) awarded November 12, 2009 and 7,500 time-based RSUs awarded November 11, 2010 became fully vested. Mr. Interno’s salary and bonus were €136,426 and €0, respectively, in 2011; +€287,542 and €0, respectively, in 2010; and €282,935 and €0, respectively, in 2009. All conversions were made at the average exchange rates for fiscal 2011, 2010 and 2009, respectively. +GRANTS OF PLAN-BASED AWARDS +The +following table sets forth, for each of the NEOs, information related to grants made during fiscal 2011 under Meridian’s 2004 Equity Compensation Plan. +Name +Grant +Date +Estimated Future Payouts Under +Non-Equity Incentive Plan +Awards +Estimated Future Payouts Under +Equity Incentive Plan Awards +All other +Stock +Awards: +Number of +Shares of +All other +Option +Awards: +Number of +Securities +Exercise +or Base +Price of +Option +Grant Date +Fair Value +of Stock +Threshold ($) +Target +($) +Max +($) +Threshold +(#) +Target +(#) +Max +(#) +Stock or +Units (#) 1,2 +Underlying +Options (#) 3 +Awards +($/Sh) +and Option +Awards +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +(i) +(j) +(k) +(l) +John A. Kraeutler +11/11/10 +— +— +— +— +— +— +10,000 +— +— +$ +228,300 +Melissa A. Lueke +11/11/10 +— +— +— +— +— +— +7,500 +— +— +$ +171,225 +William J. Motto +11/11/10 +— +— +— +— +— +— +10,000 +— +— +$ +228,300 +Richard L. Eberly +11/11/10 +01/31/11 +— +— +— +— +— +— +— +— +— +— +— +— +7,500 +— +— +10,000 +$ +— +21.94 +$ +$ +171,225 +48,355 +Marco G. Calzavara +04/21/11 +— +— +— +— +— +— +7,900 +— +— +$ +193,945 +Antonio A. Interno +11/11/10 +— +— +— +— +— +— +7,500 +— +— +$ +171,225 +49 +Table of Contents +1 +With the exception of Mr. Calzavara (see Note 2 below), restricted stock awards reflected were granted on November 11, 2010. At the time of +grant, half of each NEO’s restricted shares were time-based with 100% vesting after four years, and the remaining half were performance-based, subject to attainment of a specified earnings target for fiscal 2011. As the 2011 earnings target was +not met, the performance-based restricted shares have been cancelled and are not reflected in the table above. +2 +Mr. Calzavara’s restricted stock unit (“RSU”) award is comprised of the following, all of which were granted on April 21, +2011: +(i) +Award of 3,200 RSUs in recognition of Mr. Calzavara becoming a Meridian employee as of July 20, 2010, the acquisition date of the Bioline Group, of which +Mr. Calzavara was a co-founder. These RSUs vest in four equal installments on the anniversary date of the Bioline Group acquisition (i.e., vests 25% per year until fully vested on July 20, 2014). +(ii) +Award of 3,200 RSUs in recognition of Mr. Calzavara being promoted. These RSUs vest in four equal installments on the January 31 of each year (i.e., vests +25% per year until fully vested on January 31, 2015). +(iii) +Award of 3,000 RSUs in connection with the annual equity incentive program, similar to the awards discussed in Note 1 for remaining NEOs. At the time of grant, half of +Mr. Calzavara’s RSUs were time-based with 100% vesting on November 11, 2014, and the remaining half were performance-based, subject to attainment of a specified earnings target for fiscal 2011. As the 2011 earnings target was not met, +the performance-based RSUs have been cancelled and are not reflected in the table above. +3 +Stock option award reflected was made in recognition of Mr. Eberly’s promotion, has a ten-year term and vests in four equal annual +installments from the date of grant (i.e., vests 25% per year until fully vested on January 31, 2015). +OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END +The following table provides information on the NEOs’ holdings of equity awards under Meridian’s 2004 Equity Compensation Plan and the 1996 Stock Option Plan as of September 30, 2011. +Under these plans, general stock option awards have a ten-year term and vest in four equal annual installments from the date of grant. The +Company’s performance-based options that have been earned to date, vest in three equal annual installments, beginning on the date of the earnings release indicating that performance targets were met for the period. As previously described +herein, the restricted stock awards under these plans have been a combination of time-based and performance-based grants, with all of the restricted stock holdings reflected in the following table being time-based (see Notes 7, 8, 9 & 10 to the +table). +50 +Table of Contents +Name +(a) +Number of +Securities +Underlying +Unexercised +Option (#) +Exercisable +(b) +Number of +Securities +Underlying +Unexercised +Options (#) +Unexercisable +(c) +Equity +Incentive Plan +Awards: +Number +of +Securities +Underlying +Unexercised +Unearned +Options (#) +(d) +Option +Exercise +Price ($) +(e) +Option +Expiration +Date +(f) +Number of +Shares or +Units of +Stock That +Have Not +Vested (#) +(g) +Market +Value of +Shares or +Units of +Stock That +Have Not +Vested ($) +(h) +Equity +Incentive +Plan +Awards: +Number of +Unearned +Shares, +Units +or +Other +Rights That +Have Not +Vested (#) +(i) +Equity +Incentive +Plan +Awards: +Market or +Payout +Value of +Unearned +Shares, +Units +or +Other +Rights That +Have Not +Vested ($) +(j) +John A. Kraeutler +5,250 +10,500 +15,750 +15,750 +25,000 +2 +2 +2 +2 +3 +— +— +— +— +— +25,000 +4 +— +— +— +— +— +— +$ +$ +$ +$ +$ +$ +4.525 +7.280 +14.007 +16.554 +33.090 +33.090 +12/02/13 +12/07/14 +11/10/15 +11/15/16 +01/28/18 +01/28/18 +— +— +— +— +— +— +10,000 +10,000 +7 +8 +$ +$ +— +— +— +— +— +— +157,400 +157,400 +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +Melissa A. Lueke +5,250 +10,500 +15,750 +15,750 +2 +2 +2 +2 +— +— +— +— +— +— +— +— +$ +$ +$ +$ +4.525 +7.280 +14.007 +16.554 +12/02/13 +12/07/14 +11/10/15 +11/15/16 +— +— +— +— +7,500 +7,500 +7 +8 +$ +$ +— +— +— +— +118,050 +118,050 +— +— +— +— +— +— +— +— +— +— +— +— +William J. Motto +7,988 +15,750 +15,750 +15,750 +15,750 +1 +2 +2 +2 +2 +— +— +— +— +— +— +— +— +— +— +$ +$ +$ +$ +$ +2.800 +4.525 +7.280 +14.007 +16.554 +11/19/12 +12/02/13 +12/07/14 +11/10/15 +11/15/16 +— +— +— +— +— +10,000 +10,000 +7 +8 +$ +$ +— +— +— +— +— +157,400 +157,400 +— +— +— +— +— +— +— +— +— +— +— +— +— +— +Richard L. Eberly +5,250 +10,500 +15,750 +375 +— +2 +2 +2 +5 +— +— +— +1,125 +10,000 +5 +6 +— +— +— +— +— +$ +$ +$ +$ +$ +7.280 +14.007 +16.554 +19.710 +21.940 +12/07/14 +11/10/15 +11/15/16 +08/04/20 +01/31/21 +— +— +— +— +— +7,500 +7,500 +7 +8 +$ +$ +— +— +— +— +— +118,050 +118,050 +— +— +— +— +— +— +— +— +— +— +— +— +— +— +Marco G. Calzavara +2,400 +3,200 +1,500 +9 +10 +8 +$ +$ +$ +37,776 +50,368 +23,610 +— +— +— +— +— +— +Antonio A. Interno +— +— +— +— +— +— +— +— +— +1 +Options vested on December 31, 2003. +2 +Options vested in three equal annual installments beginning one year from public earnings release date for the fiscal year ending immediately following +the grant date, indicating that performance targets were met, occurring approximately one year from date of grant. +51 +Table of Contents +3 +Options vested on January 22, 2011. +4 +Options vest on January 22, 2013. +5 +Options vest in four equal annual installments from the date of grant (i.e., vest 25% per year until fully vested on August 4, 2014). +6 +Options vest in four equal annual installments from the date of grant (i.e., vest 25% per year until fully vested on January 31, 2015). +7 +Shares/units vest on November 12, 2013. +8 +Shares/units vest on November 11, 2014. +9 +Units vest in four equal annual installments from the July 20, 2010 date of the Bioline Group acquisition (i.e., vest 25% per year until +fully vested on July 20, 2014). The first 800 unit tranche of the originally granted units vested on July 20, 2011 and are not reflected in the above table. +10 +Units vest in four equal annual installments from January 31, 2011 (i.e., vest 25% per year until fully vested on January 31, 2015). +OPTION EXERCISES AND STOCK VESTED +The following table sets forth, for each of the NEOs, information on options exercised and restricted stock vested during fiscal 2011. +Option Awards +Stock Awards +Name +(a) +Number of +Shares +Acquired on +Exercise (#) +(b) +Value Realized +on Exercise +($) +(1) +(c) +Number of +Shares +Acquired on +Vesting (#) +(d) +Value Realized +On Vesting +($) +(2) +(e) +John A. Kraeutler +123,751 +$ +1,921,447 +— +$ +— +Melissa A. Lueke +22,500 +$ +466,650 +— +$ +— +William J. Motto +113,063 +$ +1,762,222 +— +$ +— +Richard L. Eberly +22,500 +$ +484,020 +— +$ +— +Marco G. Calzavara +— +$ +— +800 +$ +21,856 +Antonio A. Interno +48,750 +$ +659,594 +15,000 +$ +359,850 +1 +Amounts reflect the difference between the exercise price of the option and the market price of Meridian common shares at the time of exercise. +2 +Amounts reflect the market price of Meridian common shares at the time of restricted stock or restricted units vesting. +52 +Table of Contents +NONQUALIFIED DEFERRED COMPENSATION +The following table sets forth, for each of the NEOs, certain information concerning nonqualified deferred compensation for fiscal 2011. +Name +Executive +Contributions +during FY 2011 +Registrant +Contributions +during FY 2011 +Aggregate +Earnings +during FY +2011 +Aggregate +Withdrawals / +Distributions +Aggregate +Balance at +9/30/11 +John A. Kraeutler +— +— +($ +4,267 +) +— +$ +212,185 +Melissa A. Lueke +— +— +— +— +— +William J. Motto +— +— +— +— +— +Richard L. Eberly +— +— +— +— +— +Marco G. Calzavara +— +— +— +— +— +Antonio A. Interno +— +— +— +— +— +Our 401(k) Savings Plan (“401(k) Plan”) allows all U.S. employees of the Company as of the first day of their +employment to set aside a portion of their compensation each year for their retirement needs up to the limits set by the Internal Revenue Code. The Company contributes a matching contribution of 100% of the first 3% of the employee’s +contribution (i.e., up to 3% of an employee’s salary) subject to Internal Revenue Code limitations. The Company may also contribute a profit-sharing contribution at its discretion. Employee contributions are 100% vested immediately, while +Company contributions are subject to a graded vesting schedule of 20% per year for 5 years. Participants are entitled to direct the investment of their accounts among various mutual funds selected by the Company’s Fiduciary Committee. The +Plan also provides that Company discretionary profit-sharing contributions may be invested in Company stock. Participants who terminate employment are entitled to receive the vested portion of their accounts. +Marco G. Calzavara, current President of our European operations, is a non-U.S. employee who participates in a retirement savings plan similar to the +401(k) Plan described above. Under the plan, Mr. Calzavara may contribute up to 5% of salary, with the Company matching 100% of his contribution. During fiscal 2011, the Company’s matching contribution to Mr. Calzavara’s account +totaled $6,625. +Additionally, Antonio A. Interno, former Senior Vice President, President and Managing Director of our European operations, +was a non-U.S. employee. Mr. Interno received a profit-sharing allocation that is commensurate with amounts received by Executive Officers who are U.S. employees and participate in our 401(k) Plan. Mr. Interno also received retirement +contributions based on amounts contributed by Meridian Bioscience Europe s.r.l. pursuant to the Italian government pension system, INPS. The amount of such contribution was $8,269 for fiscal 2011. +A salary continuation agreement with John A. Kraeutler allows the Company to contribute amounts above the IRS limit. This agreement, as amended +August 3, 2011, provides additional compensation of $5,000 per month for 120 months following retirement or separation from the Company under certain circumstances. +53 +Table of Contents +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL +In the case of a disability, Meridian is obligated to pay Mr. William J. Motto 60% of his total annual salary and bonus for a period of up to 60 +months. In the case of death, Meridian is obligated to pay to Mr. Motto’s designated beneficiaries up to $1 million. These benefits are to be reduced by the gross amount of any life insurance payments or disability insurance payments made +to Mr. Motto, or his beneficiaries as the case may be, under any insurance policy or program maintained by Meridian, other than group term life insurance programs maintained for all employees. +Mr. Kraeutler and Meridian are parties to an employment agreement dated December 29, 2008, which sets forth compensation, non-competition, +benefit and severance provisions and provides for a payment equal to three times Mr. Kraeutler’s base salary (plus any salary earned but not paid) and three-year average annual performance bonus if Mr. Kraeutler is terminated by +Meridian without cause, Mr. Kraeutler terminates his employment for good reason or upon a change in control of Meridian. In the case of disability, Meridian is obligated to pay Mr. Kraeutler 100% of his base and performance compensation, +averaged from the three preceding fiscal years, until age 65. This agreement was effective for a period of 36 months commencing December 29, 2008, automatically extending each day for additional 36-month periods until either party terminates +the agreement. This agreement amended an earlier agreement, dated February 15, 2001, to comply with Section 409A and is similar in substance to the pre-existing agreement. +Had a change in control occurred on September 30, 2011, Mr. Kraeutler would have been entitled to the following under the agreement: +Salary +$ +1,597,885 +Annual Performance Bonus +— +Total Payment +$ +1,597,885 +In addition, on March 18, 2011, the Board of Directors adopted the Meridian Bioscience, Inc. Change in Control +Severance Compensation Policy (the “Policy”), which applies to the Company’s Named Executive Officers (as defined in Item 402 of Regulation S-K) and other Executive Officers of the Company and its affiliates other than the +Executive Chairman and Chief Executive Officer – with Mr. Kraeutler’s benefits and provisions provided in the separate, individual agreement described above. Generally, subject to certain conditions surrounding post-change in control +employment, in the event of a qualifying change in control, each Executive Officer covered under the Policy will be entitled to: +• +Base salary, accrued bonus and certain other benefits through the later of the effective date of the change in control or termination of employment; +• +Lump sum payment equal to two (2) times the sum of (i) the base salary in effect immediately preceding the change in control, and +(ii) the average of the bonus amounts paid for each of the two fully-completed fiscal years immediately preceding the change in control; and +54 +Table of Contents +• +Continued participation in the Company’s medical and dental plans for a twenty-four (24) month period following the effective date of the +change in control. +Had a change in control occurred on September 30, 2011, the NEOs to which the Policy applied at +that date (Ms. Lueke, Mr. Eberly and Mr. Calzavara) would have been entitled to the following lump sum payments under the Policy: +Melissa A. +Lueke +Richard L. +Eberly +Marco G. +Calzavara +Salary +$ +472,072 +$ +601,807 +$ +306,261 +Annual Performance Bonus +— +— +96,003 +Total Lump Sum Payment +$ +472,072 +$ +601,807 +$ +402,264 +DIRECTOR COMPENSATION +For fiscal 2011, non-employee Directors of Meridian received $30,000 per year for serving as Directors and as members of Committees of the Board. They also received $1,500 for each meeting of the Board +and $1,000 for each Committee meeting attended. They received $750 for each Board meeting and $500 for each Committee meeting held by telephone. The Audit Committee Chairman received an additional $8,000 annually and the Compensation Committee +Chairman received an additional $3,000 annually. The Board Secretary received an additional $1,000 for serving at each meeting of a Committee of which he is not a member. In accordance with the terms and conditions set forth in the 2004 Plan, each +non-employee Director was also granted a non-qualified option to purchase 7,500 common shares at the time of election or re-election to the Board of Directors, with the exercise price being the closing sale price on Nasdaq reported on the date of +grant. Directors who are employees of Meridian are not separately compensated for serving as Directors. +The following table provides +information on compensation related to fiscal 2011 for non-employee Directors who served during fiscal 2011. +Name +Fees +Earned +or +Paid +in +Cash +($) +Stock +Awards +($) 1 +Option +Awards +($) 1 +Non-Equity +Incentive Plan +Compensation +($) +Change +in +Pension Value +and Nonqualified +Deferred +Compensation +Earnings +All Other +Compensation +($) +Total +($) +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +James M. Anderson +$ +46,000 +— +$ +36,383 +— +— +— +$ +82,383 +James A. Buzard 2 +$ +22,500 +$ +110,000 +— +— +— +— +$ +132,500 +Gary P. Kreider +$ +49,000 +— +$ +36,383 +— +— +— +$ +85,383 +David C. Phillips +$ +55,750 +— +$ +36,383 +— +— +— +$ +92,133 +Robert J. Ready +$ +50,750 +— +$ +36,383 +— +— +— +$ +87,133 +55 +Table of Contents +1 +The amounts shown reflect the grant date fair value of the awards made in fiscal year 2011 in accordance with ASC Topic 718. A discussion of the +assumptions used in calculating these values may be found in Note 8(b) on page 67 to the Company’s Annual Report on Form 10-K filed November 29, 2011. +2 +Mr. Buzard +retired from the Board at the end of his term in January 2011. In recognition of his years of service to Meridian, Mr. Buzard was granted shares of Meridian common stock with a market value of $110,000 as of the date of grant. +SHAREHOLDER PROPOSALS FOR NEXT YEAR +The deadline for shareholder proposals to be included in the proxy statement for next year’s meeting is August 16, 2012. +The form of Proxy for this meeting grants authority to the designated proxies to vote in their discretion on any matters that come before the meeting +except those set forth in Meridian’s proxy statement and except for matters as to which adequate notice is received. In order for a notice to be deemed adequate for the 2013 Annual Shareholders’ Meeting, it must be received prior to +October 31, 2012. If there is a change in the anticipated date of next year’s Annual Shareholders’ Meeting or these deadlines by more than 30 days, we will notify you of this change through our Form 8-K and/or Form 10-Q filings. +Meridian’s Code of Regulations provides that only persons nominated by an officer, Director or in writing by a shareholder not earlier +than 150 days nor later than 90 days prior to the meeting at which Directors are to be selected shall be eligible for election and that shareholder proposals be presented not earlier than 150 days nor later than 90 days prior to the meeting at which +the proposals are to be presented. +QUESTIONS? +If you have questions or need more information about the annual meeting, write to: +Melissa A. +Lueke +Executive Vice President, Chief Financial Officer and Secretary +Meridian Bioscience, Inc. +3471 River Hills Drive +Cincinnati, Ohio 45244 +or call us at +(513) 271-3700. +For information about your record holdings call the Computershare Shareholder Services at (888) 294-8217. +56 +Table of Contents +ANNEX A +MERIDIAN BIOSCIENCE, INC. 2004 EQUITY COMPENSATION PLAN +MERIDIAN BIOSCIENCE, INC. +2004 EQUITY COMPENSATION PLAN +A-1 +Table of Contents +TABLE OF CONTENTS +Article 1 OBJECTIVES +A-3 +Article 2 DEFINITIONS +A-3 +Article 3 ADMINISTRATION +A-6 +Article 4 COMMON SHARES SUBJECT TO PLAN +A-7 +Article 5 DURATION OF PLAN +A-9 +Article 6 STOCK OPTIONS +A-9 +Article 7 STOCK APPRECIATION RIGHTS +A-12 +Article 8 RESTRICTED AND UNRESTRICTED STOCK AWARDS +A-12 +Article 9 PERFORMANCE AWARDS +A-13 +Article 10 OTHER STOCK UNIT AWARDS +A-15 +Article 11 TRANSFERABILITY OF AWARDS +A-15 +Article 12 TERMINATION OF AWARDS +A-16 +Article 13 DEFERRALS +A-18 +Article 14 TERMINATION OR AMENDMENT OF PLAN +A-18 +Article 15 GENERAL PROVISIONS +A-18 +A-2 +Table of Contents +MERIDIAN BIOSCIENCE, INC. +2004 EQUITY COMPENSATION PLAN +ARTICLE 1 +OBJECTIVES +Meridian Bioscience, Inc. established this 2004 Equity Compensation Plan effective December 7, 2004 (the “Effective +Date”). The Plan was Amended and Restated as of November 9, 2005 to reflect, among other things, changes in the number of Shares occasioned by the three-for-two split of the Common Shares which occurred September 2, 2005 and for other +reasons on January 19, 2006 and January 22, 2008. The purposes of this Plan are to enable the Company and its Subsidiaries to compete successfully in retaining and attracting key employees, directors and advisors of outstanding ability, to +stimulate the efforts of such persons toward the Company’s objectives and to encourage the identification of their interests with those of the Company’s shareholders. +ARTICLE 2 +DEFINITIONS +For purposes of this Plan, the following terms shall have the following meanings: +2.1. “Advisor” means anyone who provides bona fide advisory or consultation services to the Company other than the offer or +sale of securities in a capital-raising transaction. +2.2. “Award” means any one or more of the following: +(a) Stock Options, (b) Stock Appreciation Rights, in tandem with Stock Options or free-standing; (c) Restricted Stock; (d) Performance Awards; and (e) other awards based in whole or in part by reference to or otherwise based +on the Company’s Common Shares, or other securities of the Company or any Subsidiary. +2.3. “Award Agreement” +means a written agreement setting forth the terms of an Award. +2.4. “Award Date” or “Grant Date” means +the date designated by the Committee as the date upon which an Award is granted. +2.5. “Award Period” or +“Term” means the period beginning on an Award Date and ending on the expiration date of such Award. +2.6. +“Board” means the Board of Directors of the Company. +2.7. “Code” means the Internal Revenue Code of 1986, +as amended, or any successor legislation. +2.8. “Committee” means the committee appointed by the Board and +consisting of one or more Directors who qualify as Non-Employee Directors as defined by Rule 16b-3(b)(3)(i). To the extent that it is desired that compensation resulting from an Award +A-3 +Table of Contents +be excluded from the deduction limitation of Section 162(m) of the Code, all members of the Committee granting an Award also shall be “outside directors” within the meaning of +Section 162(m). +2.9. “Covered Employee” means an employee covered by Section 162(m) of the Code, which as +of the effective date of this Plan includes any individual who, on the last day of the taxable year is the Chief Executive Officer (or person acting in that capacity) or one of the four highest compensated Officers (other than the Chief Executive +Officer) as determined under rules of the Securities and Exchange Commission. +2.10. “Director” means a member of +the Board. +2.11. “Disability” means a “permanent and total disability” within the meaning of +Section 22(e)(3) of the Code. +2.12. “Eligible Employee” means anyone, other than one who receives retirement +benefits, consulting fees, honorariums, and the like from the Company, who performs services for the Company or a Subsidiary, including an Officer or Director of the Company or a Subsidiary, compensated on a regular basis by the Company or a +Subsidiary. +2.13. “Fair Market Value” means the last closing price for a Common Share on the NYSE, NASDAQ or any +stock exchange or national trading or quotation system on which such sales of Common Shares are reported. If the Common Shares are not so traded or reported, Fair Market Value shall be set under procedures established by the Committee. +2.14. “Incentive Option” means any Stock Option intended to be and designated as an “Incentive Stock Option” within +the meaning of Section 422 of the Code or any successor provision. +2.15. “Non-Employee Director” means each +Director of the Company or its subsidiaries, now serving as a Director or elected hereafter, who is not also an employee of the Company or any of its subsidiaries. +2.16. “Non-Qualified Option” means any Stock Option that is not an Incentive Option. +2.17. “Non-Tandem SAR” means a Stock Appreciation Right granted without reference to a Stock Option. +2.18. “Officer” means the president, principal financial officer, principal accounting officer, any vice president in charge of a principal business unit, division or function (such as sales, +administration or finance) or any other officer who performs a significant policy-making function. +A-4 +Table of Contents +2.19. “Option Price” or “Exercise Price” means the price per Common +Share at which a Common Share may be purchased upon the exercise of a Stock Option or an Award. +2.20. “Other Stock Unit +Awards” shall have the meaning set forth in Section 10.1 hereof. +2.21. “Participant” means a person to +whom an Award has been made pursuant to this Plan. +2.22. “Performance Award” means an Award of a fixed number of +Common Shares or cash conditioned upon meeting performance criteria granted to a Participant pursuant to Article 9. +2.23. +“Performance Period” means that period established by the Committee at the time any Performance Award is granted or at any time thereafter during which any performance goals established by the Committee with respect to such an Award are to +be measured. +2.24. “Plan” means this 2004 Equity Compensation Plan, as amended from time to time. +2.25. “Reference Option” shall have the meaning set forth in Section 7.1 hereof. +2.26. “Restricted Period” means the period of not less than three years following the date of grant of any Restricted Stock +Award, unless otherwise provided by the Committee in the related Award Agreement. +2.27. “Restricted Stock” means +Common Shares issued pursuant to a Restricted Stock Award which are subject to the restrictions set forth in the related Award Agreement. +2.28. “Restricted Stock Award” means an Award of a fixed number of Common Shares to a Participant which is subject to forfeiture provisions and other conditions set forth in the Award Agreement. +2.29. “Retirement” means termination of employment or service from the Company, other than a termination for the +reasons specified in Sections 12.1.3 or 12.1.4, and other than by death or Disability by an employee or a Director who is at least 65 years of age, or 55 years of age with at least ten years of employment with, or service on the Board of, the +Company or a Subsidiary. +2.30. “Rule 16b-3” mean Securities and Exchange Commission Regulation +Section 240.16b-3 or any corresponding successor regulation. +2.31. “Stock Appreciation Right” or +“SAR” means the right to receive, for each unit of the SAR, cash and/or Common Shares equal in value to the excess of the Fair +A-5 +Table of Contents +Market Value of one Common Share on the date of exercise of the SAR over the reference price per Common Share established on the Grant Date of the SAR. +2.32. “Stock Option” means the right to purchase Common Shares granted pursuant to Article 6. +2.33. “Subsidiary” means any corporation, partnership, joint venture, or other entity of which the Company owns or controls, +directly or indirectly, 25% or more of the outstanding voting stock, or comparable equity participation and voting power, or which the Company otherwise controls, by contract or any other means. However, when the term “Subsidiary” is used +in the context of an Award of an Incentive Option, the applicable percentage shall be 50%. “Control” means the power to direct or cause the direction of the management and policies of a corporation or other entity. +2.34. “Tandem SAR” means a Stock Appreciation Right granted with reference to a Stock Option. +2.35. “Transfer” means alienation, attachment, sale, assignment, pledge, encumbrance, charge or other disposition; and the +terms “Transferred” or “Transferable” have corresponding meanings. +ARTICLE 3 +ADMINISTRATION +3.1. Committee . This Plan shall be administered and interpreted by the Committee. +3.2. Awards . The Committee is authorized to grant (i) Stock Options; (ii) Stock Appreciation Rights, in tandem with Stock Options or free-standing; (iii) Restricted Stock; +(iv) Common Shares conditioned upon meeting performance criteria; and (v) other awards based in whole or in part by reference to or otherwise based on the Company’s Common Shares, or other securities of the Company or any Subsidiaries +(collectively, the “Awards”). In particular, the Committee shall have the authority: +3.2.1 to select +the persons to whom Awards may be granted; +3.2.2 to determine the types and combinations of Awards to be +granted; +3.2.3 to determine the number of Common Shares or monetary units which may be subject to each Award; +3.2.4 to determine the terms and conditions, not inconsistent with the terms of this Plan, of any Award, +including, but not limited to, the term, price, exercisability, method of exercise, any restriction or limitation on Transfer, any vesting schedule or acceleration, the application of performance goals as set forth in Section 9.1.2, or any +forfeiture provisions or waiver, regarding any Award, and the related Common Shares, based on such factors as the Committee shall determine; and +A-6 +Table of Contents +3.2.5 to modify or waive any restrictions or limitations contained in, and +grant extensions to the terms of or accelerate the vesting of, any outstanding Award, as long as such modifications, waivers, extensions or accelerations are not inconsistent with the terms of this Plan for those Awards intended to be Incentive +Options or meet the conditions of Section 162(m) of the Code, but no such changes shall impair the rights of any Participant without his or her consent. +3.3. Guidelines . The Committee is authorized to adopt, alter and repeal administrative rules, guidelines and practices governing this Plan and perform all acts, including the delegation of its +administrative responsibilities, as it deems advisable; to construe and interpret the terms and provisions of this Plan and any Award issued under this Plan; and to otherwise supervise the administration of this Plan. The Committee may correct any +defect, supply any omission or reconcile any inconsistency in this Plan or in any related Award Agreement in the manner and to the extent it deems necessary to carry this Plan into effect. +3.4. Delegation of Authority . The Committee may delegate its authority to Officers of the Company and its administrative +duties to Officers or employees of the Company except with respect to persons who are senior Officers of the Company as defined by the Committee and except where performance goals for particular compensation grants are intended to be excluded from +the deduction limitation imposed by Section 162(m) of the Code. +3.5. Decisions Final . Any action, decision, +interpretation or determination by or at the direction of the Committee concerning the application or administration of this Plan shall be final and binding upon all persons and need not be uniform with respect to its determination of recipients, +amount, timing, form, terms or provisions. +ARTICLE 4 +COMMON SHARES SUBJECT TO PLAN +4.1. Common Shares . Subject to +adjustment as provided in Section 4.2, the number of Common Shares which may be issued under this Plan shall not exceed 3,000,000 Common Shares. If any Award granted under this Plan shall expire, terminate or be canceled for any reason without +having been exercised in full, the number of Common Shares not acquired that are subject to such Award shall again be available for future grants. The Committee may make such other determinations regarding the counting of Common Shares issued +pursuant to this Plan as it deems necessary or advisable, provided that such determinations shall be permitted by law. Common Shares underlying a canceled Stock Option shall be counted against the maximum number of Common Shares for which Stock +Options may be granted to an Eligible Employee or Advisor. The repricing of Stock Options shall be strictly prohibited under this Plan. +4.2. Adjustment Provisions . +4.2.1 If the Company shall at +any time after November 9, 2005 change the number of issued Common Shares, without new consideration to the Company, by +A-7 +Table of Contents +stock dividend, split, combination, recapitalization, reorganization, exchange of Common Shares, liquidation or other change in corporate structure affecting the Common Shares, or make a +distribution of cash or property which has a substantial impact on the value of issued Common Shares, the total number of Common Shares reserved for issuance under the Plan shall be appropriately adjusted and the number of Common Shares covered by +each outstanding Award and the reference price or Fair Market Value for each outstanding Award shall be adjusted so that the aggregate consideration payable to the Company and the value of each such Award shall not be changed. +4.2.2 The Committee may authorize the issuance, continuation or assumption of Awards or provide for other equitable +adjustments after changes in the Common Shares resulting from any merger, consolidation, sale of assets, acquisition of property or stock, recapitalization, reorganization or similar occurrence in which the Company is the continuing or surviving +entity, upon such terms and conditions as it may deem equitable and appropriate. +4.3. Merger, Dissolution or +Liquidation . Upon the dissolution or liquidation of the Company or any merger, consolidation, exchange or other transaction in which the Company is not the surviving entity or in which 75% or more of the outstanding Common Shares of the +Company are converted into cash, other securities or other property, each outstanding Award shall terminate as of a date fixed by the Committee provided that not less than twenty days written notice of the date of expiration shall be given to each +holder of an Award and each outstanding Award shall be fully vested and each such holder shall have the right during such period following notice to exercise the Award as to all or any part of the Common Shares for which it is exercisable. +4.4. Change of Control . If a Participant’s employment or service is involuntarily terminated without cause +(as determined by the Committee in its sole discretion) during the twenty-four month period following a Change in Control of the Company, all outstanding Awards shall become immediately exercisable in full. For purposes of this Agreement, a +“Change in Control” of the Company shall be deemed to have occurred if (a) any “person,” as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, other than a trustee or other fiduciary +holding securities under an employee benefit plan of the Company or William J. Motto and his heirs, lineal descendants, legatees and legal representatives of any of the foregoing and the trustee of any bona fide trust of which one or more of the +foregoing are the sole beneficiaries or the grantors thereof, becomes the “beneficial owner,” as such term is defined in Rule 13d-3 under that Act, directly or indirectly, of securities of the Company representing 25% or more of the +combined voting power of the Company’s then outstanding securities; or (b) during any period of one year (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the +Board and any new Director whose election by the Board or nomination for election by the Company’s shareholders was approved by a vote of at least two-thirds of the Directors then still in office who were either Directors at the beginning of +the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof. +A-8 +Table of Contents +Notwithstanding any other provision of this Plan, in the event of a Change in Control, the +Committee may, in its sole discretion, provide that each Stock Option or SAR shall, upon the occurrence of a Change in Control, be cancelled in exchange for a cash payment to be made within sixty days of the Change in Control in an amount equal to +the amount by which the price per Common Share in connection with the Change in Control exceeds the purchase price per Common Share under the Award Agreement for any Stock Option or SAR multiplied by the number of Common Shares granted under the +Award Agreement for any Stock Option or SAR. +ARTICLE 5 +DURATION OF PLAN +This Plan shall terminate on the tenth anniversary of +the Effective Date, unless terminated sooner by the Board pursuant to Article 14. The provisions of the Plan shall remain operative with respect to all outstanding Awards until their expiration. +ARTICLE 6 +STOCK OPTIONS +6.1. Grants . Stock Options may be granted alone or in addition to other Awards granted under this Plan. Each Stock Option granted shall be designated as either a Non-Qualified Option or an +Incentive Option and in each case such Stock Option may or may not include Stock Appreciation Rights. One or more Stock Options and/or Stock Appreciation Rights may be granted to any Eligible Employee or Advisor, except that no person shall receive +during any 12-month period Non-Qualified Stock Options and Stock Appreciation Rights covering more than 300,000 Common Shares and only Non-Qualified Options may be granted to Advisors. +6.2. Incentive Options . Any Stock Option designated by the Committee as an Incentive Option will be subject to the general +provisions applicable to all Stock Options granted under the Plan plus the following specific provisions: +6.2.1 If an Incentive Option is granted to a person who owns, directly or indirectly, stock representing more than 10% of +(i) the total combined voting power of all classes of stock of the Company and its Subsidiaries, or (ii) a corporation that owns 50% or more of the total combined voting power of all classes of stock of the Company, then +6.2.1.1 the Option Price must equal at least 110% of the Fair Market Value on the Grant Date; and +6.2.1.2 the Term of the Incentive Option shall not be greater than five years from the Grant Date. +6.2.2 The aggregate Fair Market Value of Common Shares, determined at the Grant Date, with respect to Incentive Options +that may be exercised for the first time by any individual during any calendar year under this Plan or any other plan maintained by the Company and its Subsidiaries shall not exceed $100,000. To the extent that the aggregate Fair Market Value of +Common Shares with respect to which Incentive +A-9 +Table of Contents +Options are exercisable for the first time by any individual during any calendar year, under all plans of the Company and its Subsidiaries, exceeds $100,000, such Incentive Options shall be +treated as Non-Qualified Options. +6.2.3 Qualification under the Code . Notwithstanding anything in +this Plan to the contrary, no term of this Plan relating to Incentive Options shall be interpreted, amended or altered, nor shall any discretion or authority granted under this Plan be exercised, so as to disqualify this Plan under Section 422 +of the Code, or, without the consent of the Participants affected, to disqualify any Incentive Option under Section 422 of the Code. +6.2.4 Limitation on Incentive Options . The aggregate number of Common Shares under this Plan that may be issued with respect to Incentive Options shall not exceed the total number of Shares +authorized for the Plan. +6.3. Terms of Stock Options . Except as otherwise required by Subsection 6.2, Stock +Options granted under this Plan shall be subject to the following terms and conditions and shall be in such form and contain such additional terms and conditions, not inconsistent with the terms of this Plan pertaining to Incentive Options and +options intended to meet the conditions of Section 162(m) of the Code, as the Committee shall deem desirable: +6.3.1 Option Price . The Option Price shall be determined by the Committee at the time of grant, except that no Incentive Option may be granted for an Option Price less than 100% of Fair Market +Value on the Grant Date. +6.3.2 Option Term . The Option Term shall be fixed by the Committee, but +no Incentive Option shall be exercisable more than ten years after its Award Date. +6.3.3 +Exercisability . A Stock Option shall be exercisable at such time or times and subject to such terms and conditions as shall be specified in the Award Agreement, provided, however, that a Stock Option may not be exercised as to less than +Twenty-Five Common Shares at any one time or the total number available for exercise at that time. +6.3.4 +Method of Exercise . A Stock Option may be exercised in whole or in part at any time during its Term by giving written notice of exercise to the Company specifying the number of Common Shares to be purchased. Such notice shall be +accompanied by payment in full of the Option Price in cash or through the tender of previously-owned Shares which for such purposes shall be valued at their Fair Market Value unless some other form of consideration is approved by the Committee. Once +delivered, an exercise shall be irrevocable. +6.3.5 Transferability of Stock Options . Stock Options +shall be Transferable as provided in Article 11. +6.3.6 Termination . Stock Options shall terminate +in accordance with Article 12. +A-10 +Table of Contents +6.3.7 Buyout and Settlement Provisions . The Committee may at any +time offer to buy out a Stock Option previously granted, based on such terms and conditions as the Committee shall establish; however, such terms shall not effectively reprice the options (offer to buy out option shall not exceed the difference +between the Fair Market Value of the Common Share and the Exercise Price on the date of the offer) and in no event shall the Committee without approval of the Company’s shareholders within twelve (12) months of the date of such Committee +action, buy out a Stock Option previously granted with an Exercise Price on the date of such buy out greater than the Fair Market Value of the Common Shares underlying such Stock Option. +6.4. Award of Non-Qualified Options to Non-Employee Directors . +6.4.1 Grants . Each Non-Employee Director shall be granted a Non-Qualified Option for 7,500 Common Shares, or such +other number as may be determined by the Board of Directors from time to time, upon appointment or election as a Director and immediately after each subsequent Annual Shareholders’ Meeting if such person is serving as a Director at such time +either by virtue of being re-elected or by virtue of serving a term in excess of one year. All grants shall be made on the date of the event giving rise to the Non-Qualified Option. Such grants shall continue until the number of Common Shares +provided for in this Plan in Article 4 are exhausted. The number of Common Shares specified herein shall be subject to change in accordance with the adjustment provisions provided by Section 4.2. +6.4.2 Terms and Conditions of Options Granted to Non-Employee Directors . +6.4.2.1 The Term of all Options shall be ten years from the Award Date. +6.4.2.2 The Option Price of all Options shall be the Fair Market Value of a Common Share on the Award Date. +6.4.2.3 All Options shall become vested to the extent of 25% at the completion of each ninety day period following the +date of grant. +6.4.2.4 All Options shall be exercisable in the manner provided in Subsections 6.3.3 and 6.3.4. +6.4.2.5 All Options shall be Transferable as provided in Article 11 and shall terminate only upon the +expiration of their term or in accordance with Section 6.4.3. +6.4.3 Automatic Termination of +Non-Qualified Option . Notwithstanding anything contained herein to the contrary, if at any time a holder of an Option granted to a Non-Employee Director under this Plan becomes an employee, Officer or Director of or a consultant to an entity +which the Committee determines is a competitor of the Company, such Option shall automatically terminate as of the date such conflicting relationship was established. +A-11 +Table of Contents +6.4.4 The provisions of this Section 6.4 replace the 1999 +Directors’ Stock Option Plan. +ARTICLE 7 +STOCK APPRECIATION RIGHTS +7.1. Grants . The Committee may, in +its discretion, grant SARs to any Eligible Employee, Advisor and/or Non-Employee Director. A SAR may be granted either with or without reference to all or any part of a Stock Option. A “Tandem SAR” is a SAR granted with reference to a +Stock Option (the “Reference Option”). A “Non-Tandem SAR” is a SAR granted without reference to a Stock Option. If the Reference Option is a Non-Qualified Option, a Tandem SAR may be granted at or after the date of the Reference +Option; if the Reference Option is an Incentive Option, the Grant Date of a Tandem SAR must be the same as the Grant Date of the Reference Option. Any SAR shall have such terms and conditions, not inconsistent with this Plan, as are established by +the Committee in connection with the Award. +7.2. Term . A Tandem SAR shall terminate and no longer be exercisable +upon the termination of its Reference Option. A Non-Tandem SAR may have a term no longer than ten years from its Grant Date. +7.3. Exercise . A Tandem SAR may only be exercisable at the times and, in whole or in part, to the extent that its Reference Option +is exercisable. The exercise of a Tandem SAR shall automatically result in the surrender of the applicable portion of its Reference Option. A Non-Tandem SAR shall be exercisable in whole or in part as provided in its Award Agreement. Written notice +of any exercise must be given in the form prescribed by the Committee. +7.4. Payment . For purposes of payment of a SAR, +the reference price per Common Share shall be the Option Price of the Reference Option in the case of a Tandem SAR and shall be the Fair Market Value of a Common Share on the Grant Date in the case of a Non-Tandem SAR. The Committee shall determine +the form of payment. +7.5. Transferability and Termination . SARs shall be Transferable as provided in Article 11 and +shall terminate in accordance with Article 12. +ARTICLE 8 +RESTRICTED AND UNRESTRICTED STOCK AWARDS +8.1. Grants of Restricted Stock Awards . The Committee may, in its discretion, grant one or more Restricted Stock Awards to any Eligible Employee, Advisor and/or Non-Employee Director. Each +Restricted Stock Award shall specify the number of Common Shares to be issued to the Participant, the date of such issuance, the price, if any (as required by applicable law), to be paid for such Common Shares by the Participant and the restrictions +imposed on such Common Shares. The Committee may grant Restricted Stock Awards subject to the attainment of specified performance goals as set forth in Section 9.1.2, continued employment or such other limitations or restrictions as the +Committee may determine. No person shall receive during any twelve-month period +A-12 +Table of Contents +Restricted Stock Awards or awards of unrestricted Common Shares covering more than 100,000 Common Shares. +8.2. Terms and Conditions of Restricted Stock Awards . Restricted Stock Awards shall be subject to the following provisions: +8.2.1 Issuance of Common Shares . Common Shares of Restricted Stock may be issued immediately upon grant or +upon vesting as determined by the Committee. 8.2.2 Stock Powers and Custody. If Common Shares of Restricted Stock are issued immediately upon grant, the Committee may require the Participant to deliver a stock power, endorsed in blank, relating to +the Restricted Stock covered by such an Award. If any stock certificates are issued in respect of Common Shares of Restricted Stock awarded under this Plan, such certificates shall be registered in the name of the Participant and shall bear an +appropriate legend referring to the terms, conditions and restrictions applicable to such Award. The Committee may also require that the certificates evidencing Restricted Stock be held in custody by the Company until the restrictions on them shall +have lapsed. +8.2.2 Shareholder Rights . Unless otherwise determined by the Committee at the time of +grant, Participants receiving Restricted Stock Awards shall not be entitled to dividend or voting rights for the Restricted Stock until they are fully vested. +8.2.3 Termination of Employment . Upon termination of employment during the Restricted Period, all Restricted Stock shall be forfeited, subject to such exceptions, if any, as are authorized by +the Committee, as to termination of employment, Retirement, Disability, death or special circumstances. +8.3. Unrestricted +Stock Awards . The Committee may make awards of unrestricted Common Shares to key Eligible Employees, Advisors and/or Non-Employee Directors in recognition of outstanding achievements or contributions by such employees and/or advisors. +Unrestricted Common Shares issued on a bonus basis may be issued for no cash consideration. Each certificate for unrestricted Common Shares shall be registered in the name of the Participant and delivered to the Participant. +ARTICLE 9 +PERFORMANCE AWARDS +9.1. Performance Awards . +9.1.1 Grant . The +Committee may, in its discretion, grant Performance Awards to Eligible Employees and Advisors. A Performance Award shall consist of the right to receive either Common Shares or cash of an equivalent value, or a combination of both, at the end of a +specified Performance Period or a fixed dollar amount payable in cash or Common Shares, or a combination of both, at the end of a specified Performance Period. The Committee shall determine the Eligible Employees and Advisors to whom and the time or +times at which Performance Awards shall be granted, the number of Common Shares or the amount of cash to be awarded to any person, the duration of the period during which, and the conditions under which, a Participant’s Performance Award +A-13 +Table of Contents +will vest, and the other terms and conditions of the Performance Award in addition to those set forth in Subsection 9.2. No person shall receive during any twelve-month period Performance Awards +covering more than 100,000 Common Shares. +9.1.2 Criteria for Award . The Committee may condition +the grant or vesting of a Performance Award upon the attainment of specified performance goals, including but not limited to, appreciation in the Fair Market Value, book value or other measure of value of the Common Shares; the performance of the +Company or groups within the Company based on increases in sales, earnings (which may include an add back for taxes, interest, and/or depreciation and amortization), operating earnings, profit margins, earnings per Common Share, cash flow, favorable +comparison to established budgets, return on stockholders’ equity, return on assets, attainment of strategic and operational initiatives, market share, comparisons with various stock market indices, reduction in costs or a combination of such +factors; personal performance measures or such other similar factors or criteria as the Committee shall determine +9.2. +Terms and Conditions of Performance Awards . Performance Awards shall be subject to the following terms and conditions: +9.2.1 Dividends . Unless otherwise determined by the Committee at the time of the grant of the Award, amounts equal to dividends declared during the Performance Period with respect to any +Common Shares covered by a Performance Award will not be paid to the Participant. +9.2.2 +Payment . Subject to the provisions of the Award Agreement and this Plan, at the expiration of the Performance Period, share certificates, cash or a combination of both, as the Committee may determine, shall be delivered to the +Participant, or his or her legal representative or guardian, in a number or an amount equal to the vested portion of the Performance Award. Performance Awards may be paid in a lump sum or in installments following the close of the Performance Period +or, in accordance with procedures established by the Committee, on a deferred basis. +9.2.3 +Transferability . Performance Awards shall be Transferable as provided in Article 11. +9.2.4 +Termination of Employment or Advisory Relationship . Subject to the applicable provisions of the Award Agreement and this Plan, upon termination of a Participant’s employment or advisory relationship with the Company or a Subsidiary +for any reason during the Performance Period for a given Award, the Performance Award in question will vest or be forfeited in accordance with the terms and conditions established by the Committee. +9.2.5 Tax Considerations . The Committee may designate whether any Performance Award, either alone or in +addition to other Awards granted under this Plan, being granted to any Eligible Employee or Advisor is intended to be “performance-based compensation” as that term is used in Section 162(m) of the Code. Any such Awards designated to +be “performance-based compensation” shall be conditioned on the +A-14 +Table of Contents +achievement of one or more performance measures discussed herein or otherwise determined by the Committee, to the extent required by section 162(m) of the Code. +ARTICLE 10 +OTHER STOCK UNIT AWARDS +10.1. The Committee is authorized to grant to employees of the Company and its affiliates, either alone or in addition to other Awards granted under this Plan, Awards of Common Shares or other securities +of the Company or any Subsidiary of the Company and other Awards that are valued in whole or in part by reference to, or are otherwise based on, Common Shares or other securities of the Company or any subsidiary of the Company (“Other Stock +Unit Awards”). Other Stock Unit Awards may be paid in cash, Common Shares, other property or in a combination thereof, as the Committee shall determine. No person shall receive during any twelve-month period Other Stock Unit Awards covering +more than 100,000 Common Shares. +10.2. The Committee shall determine the employees to whom Other Stock Unit Awards are to be +made, the times at which such Awards are to be made, the number of Common Shares to be granted pursuant to such Awards and all other conditions of such Awards. The provisions of Other Stock Unit Awards need not be the same with respect to each +recipient. The recipient shall not be permitted to sell, assign, transfer, pledge, or otherwise encumber the Common Shares or other securities which constitute Other Stock Unit Awards prior to the later of: (i) the date on which the Common +Shares or other securities are issued, or (ii) the date on which any applicable restrictions, performance or deferral period lapses. Common Shares (including securities convertible into Common Shares) and other securities granted pursuant to +Other Stock Unit Awards may be issued for no cash consideration or for such minimum consideration as may be required by applicable law. Common Shares (including securities convertible into Common Shares) and other securities purchased pursuant to +purchase rights granted pursuant to Other Stock Unit Awards may be purchased for such consideration as the Committee shall determine, which price shall not be less than the Fair Market Value of such Common Shares or other securities on the Grant +Date, unless the Committee otherwise elects. Unless the Committee determines otherwise to address specific considerations, Other Stock Unit Awards granted under this Plan shall have a vesting period of not less than one year. +ARTICLE 11 +TRANSFERABILITY OF AWARDS +Awards and benefits payable under this Plan shall not be Transferable by the Participant during his or her lifetime and may not be assigned, exchanged, pledged, transferred or otherwise encumbered or +disposed of except by will or the laws of descent and distribution or, in the case of an Incentive Option, except by a domestic relations order pursuant to Section 414(p)(1)(B) of the Code. Awards shall be exercisable during a +Participant’s lifetime only as set forth in the preceding sentence by the Participant or, if permissible under applicable law, by the Participant’s guardian or legal representative. +A-15 +Table of Contents +Notwithstanding the above, the Committee may, with respect to particular Awards, other than +Incentive Options, establish or modify the terms of the Awards to allow the Awards to be Transferred, at the request of the Participant, to trusts established by the Participant or as to which the Participant is a grantor or to family members of the +Participant or otherwise for personal and tax planning purposes of the Participant. If the Committee allows such Transfer, such Awards shall not be exercisable for a period of not less than six months following the action of the Committee. To the +extent the Committee action allowing such Transfer occurs within the last six months of the term of any Award granted under this Plan, other than an Incentive Option, the term of such Award shall automatically be extended for a period necessary to +accommodate the exercise limitation discussed in the preceding sentence or by such other period as determined by the Committee. In no event can a SAR be Transferred if it was issued as a Tandem SAR with an Incentive Option as a Reference Option +unless the SAR is Transferred with the Incentive Option and the Transfer satisfies the other terms of this Plan. +ARTICLE 12 +TERMINATION OF AWARDS +12.1. Termination of Awards . All Awards issued under this Plan, except for those issued to Non-Employee Directors as provided in Section 6.4, shall terminate as follows: +12.1.1 At Expiration of Term . During any period of continuous employment or business relationship with the +Company or a Subsidiary, an Award will be terminated only if it is fully exercised or if it has expired by its terms or by the terms of this Plan. For these purposes, any leave of absence approved by the Company shall not be deemed to be a +termination of employment, nor shall such approved leave of absence toll the Term of any Award whereby the Term of an Award would be extended to account for the time of the approved leave of absence. +12.1.2 Death, Disability or Retirement . If a Participant’s employment by the Company or a Subsidiary +terminates by reason of death, Disability or Retirement, or in the case of an advisory relationship if such business relationship terminates by reason of death or Disability, any Award held by such Participant, unless otherwise determined by the +Committee at grant, shall be fully vested and may thereafter be exercised by the Participant or by the Participant’s beneficiary or legal representative, for a period of one year following termination of employment, death or Disability, and +ninety days in the case of Retirement, or such longer period as the Committee may specify at or after grant in all cases other than Incentive Options, or until the expiration of the stated Term of such Award, whichever period is shorter. +12.1.3 Termination for Cause . Awards shall terminate immediately if employment is terminated for Cause or by +voluntary action of the Participant without the consent of the Company. “Cause” is defined as including, but not limited to, theft of or intentional damage to the Company’s property, intentional harm to the Company’s reputation, +material breach of the Participant’s duty of fidelity to the Company, excessive use of alcohol, the use of illegal drugs, the commission of a criminal act, willful violation +A-16 +Table of Contents +of the Company’s policies, or trading in Common Shares for personal gain based on knowledge of the Company’s activities or results when such information is not available to the general +public. +12.1.4 Employment and Noncompetition Agreements . If an individual holding an Award +violates any term of any written employment, confidentiality or noncompetition agreement between the Company and that person, all existing Awards held by such person will terminate immediately. In addition, if at any time of such violation such +person has exercised an Award for Common Shares but has not received certificates for the Common Shares to be issued, the Company may void the Award and its exercise. Any such actions by the Company shall be in addition to, and not in lieu of, any +other rights or remedies available to the Company in such circumstances. +12.1.5 Other . Except as +provided above in this Section 12.1, unless otherwise determined by the Committee at or after grant, if a Participant’s employment by, or business relationship with, the Company or a Subsidiary terminates for any reason other than death, +as provided above, the Award will terminate on the earlier to occur of the stated expiration date or ninety days after termination of the employment or business relationship. If a Participant dies during the ninety day period following the +termination of the employment or business relationship, any unexercised Award held by the Participant, or transferred by the Participant in accordance with Article 11, shall be exercisable, to the full extent that such Award was exercisable at the +time of death, by the heirs, beneficiaries or legal representative of the estate of the Participant, for a period of one year after the date of termination of employment of the Participant or until the expiration of the stated term of the Award, +whichever occurs first. +12.2. Acceleration of Vesting and Extension of Exercise Period Upon Termination . +12.2.1 Notwithstanding anything contained in this Article 12, upon the termination of employment of a Participant who is +not an Officer or Director of the Company, for reasons other than those provided in Sections 12.1.3 and 12.1.4, the Committee may, in its sole discretion, accelerate the vesting of all or part of any Awards held by such terminated Participant, or +Transferred by the Participant in accordance with Article 11, so that such Awards are fully or partially exercisable as of the date of termination, and may also extend the permitted exercise period of such Awards for up to five years from the date +of termination, but in no event longer than the original expiration date of such Award. Under the Code, extensions of the Term of Incentive Options will cause the Option to become non-qualified unless the exercise price is reset to be at least equal +to the Fair Market Value on the date of extension and the other requirements of an Incentive Option are satisfied at that time. +12.2.2 Except as provided in Section 12.2.1 or Section 4.2, in no event will the continuation of the exercisability of an Award beyond the date of termination of employment allow the +Participant, or his or her beneficiaries or heirs, to accrue additional rights under the Plan, or to purchase more Common Shares through the exercise of an Award than could have been purchased on the date that employment was terminated. +A-17 +Table of Contents +ARTICLE 13 +DEFERRALS +The Committee may permit recipients of Awards to defer the +distribution of all or part of any Award in accordance with such terms and conditions as the Committee shall establish. +ARTICLE 14 +TERMINATION OR AMENDMENT OF PLAN +Notwithstanding any other provisions hereof to the contrary, the Board may assume responsibilities otherwise assigned to the Committee and may at any time, amend, in whole or in part, any provisions of +this Plan, or suspend or terminate it entirely; provided, however, that, unless otherwise required by law, the rights of a Participant with respect to any Awards granted prior to such amendment, suspension or termination may not be impaired without +the consent of such Participant. No amendment shall, without shareholder approval, increase the number of Common Shares available under the Plan, increase the number of Common Shares for which Incentive Options may be granted, cause the Plan or any +Award granted to Covered Employees under the Plan to fail to meet the conditions for exclusion of application of the $1,000,000 deduction limitation imposed by the Section 162(m) of the Code where the Award was granted with the intention of +avoiding such limitations, or without the consent of the Participant. +ARTICLE 15 +GENERAL PROVISIONS +15.1. No Right to Continued Employment or Business Relationship . Neither the establishment of the Plan nor the granting of any Award hereunder shall confer upon any Participant any right to +continue in the employ of, or in any business relationship with, the Company or any Subsidiary, or interfere in any way with the right of the Company or any Subsidiary to terminate such employment or business relationship at any time. +15.2. No Right to Award . No Eligible Employee, Advisor or Non-Employee Director shall have the right to be selected to +receive an Award under this Plan or, having been so selected, to be selected to receive a future Award or Stock Option. Neither the Award nor any benefits arising out of this Plan shall constitute part of a Participant’s employment or service +contract with the Company or any Affiliate and, accordingly, this Plan and the benefits hereunder may be terminated at any time in the sole and exclusive discretion of the Company without giving rise to liability on the part of the Company or any +Affiliate for severance payments. +15.3. No Claim/Uniformity . Except as provided in Section 6.4, no Eligible +Employee, Advisor or Non-Employee Director shall have any claim to receive any Award under this Plan, and there is no obligation for uniformity of treatment of Participants under this Plan. +A-18 +Table of Contents +15.4. Acceptance of Award Agreement . The prospective recipient of any Award +under this Plan shall not, with respect to such Award, be deemed to have become a Participant, or to have any rights with respect to such Award, until and unless such recipient shall have accepted any Award Agreement or other instrument evidencing +the Award. +15.5. Certificates for Common Shares . All certificates for Common Shares delivered under this Plan +pursuant to any Award shall be subject to such stock-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon +which the Common Shares are then listed, and any applicable federal or state securities law, and the Committee may cause a legend or legends to be put on any certificates to make appropriate reference to such restrictions. +15.6. No Offer to Sell Securities . No Award granted hereunder shall be construed as an offer to sell securities of the +Company, and no such offer shall be outstanding, unless and until the Committee in its sole discretion has determined that any such offer, if made, would comply with all applicable requirements of the federal securities laws and any other laws to +which such offer, if made, would be subject. +15.7. Other Plans . The value of, or income arising from, any Awards +issued under this Plan shall not be treated as compensation for purposes of any pension, profit sharing, life insurance, Disability or other Retirement or welfare benefit plan now maintained or hereafter adopted by the Company or any Subsidiary, +unless such plan specifically provides to the contrary. Nothing contained in this Plan shall prevent the Company from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required. +15.8. Withholding of Taxes . The Company may deduct from any payment to be made pursuant to this Plan, or otherwise require, +prior to the issuance or delivery of any Common Shares or the payment of any cash to a Participant, or at any time thereafter as requested by the Company (including without limitation at such time that a Participant makes an election under section +83(b) of the Code), payment by the Participant of any Federal, state, local or foreign taxes required by law to be withheld. The Company may withhold from payroll and/or any other amounts payable to the Participants all sums required to satisfy such +tax obligations. In addition, the Committee may permit any such withholding obligations to be satisfied by reducing the number of Common Shares otherwise deliverable or by accepting the delivery of previously owned Common Shares. Any fraction of a +Common Share required to satisfy such tax obligations shall be disregarded and the amount due shall be paid instead in cash by the Participant. +15.9. Reimbursement of Taxes . The Committee may provide in its discretion that the Company may reimburse a Participant for federal, state, local and foreign tax obligations incurred as a +result of the grant or exercise of an Award issued under this Plan. +A-19 +Table of Contents +15.10. Grants to Covered Employees . Notwithstanding anything to the contrary in +this Plan, Awards granted under the Plan to Covered Employees may be granted in a manner such that the Company’s income tax deduction for the compensation attributable to the Awards is not limited to the deduction restriction imposed by +Section 162(m) of the Code (“Performance-Based Awards”). +15.11. Governing Law . This Plan and +actions taken in connection with it shall be governed by the laws of Ohio without regard to the principles of conflict of laws. +15.12. Liability . No employee of the Company nor member of the Committee or the Board shall be liable for any action or +determination taken or made in good faith with respect to this Plan or any Award granted hereunder and, to the fullest extent permitted by law, all employees and members shall be indemnified by the Company for any liability and expenses which may +occur through any claim or cause of action arising under or in connection with this Plan or any Awards granted under this Plan. +15.13. Severability . If any provision of this Plan is or becomes invalid, illegal or unenforceable in any jurisdiction, or would +disqualify this Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws or if it cannot be construed or deemed amended without, in the determination of the +Committee, materially altering the intent of this Plan, it shall be stricken and the remainder of this Plan shall remain in full force and effect. +15.14. Shareholder Approval . This Plan was approved by shareholders at the Company’s 2005 Annual Shareholders’ Meeting and amended in certain respects by the Board of Directors and +restated January 22, 2008. +A-20 +Table of Contents +ANNEX B +MERIDIAN BIOSCIENCE, INC. 2012 STOCK INCENTIVE PLAN +MERIDIAN BIOSCIENCE, INC. +2012 STOCK INCENTIVE PLAN +B-1 +Table of Contents +TABLE OF CONTENTS +1. Purposes +B-4 +2. Definitions +B-4 +3. Administration of the Plan +B-8 +(a) Authority of Committee +B-8 +(b) Binding Authority +B-9 +(c) Delegation of Authority +B-9 +4. Eligibility +B-9 +5. Common Shares Subject to the Plan +B-9 +(a) Authorized Number of Common Shares +B-9 +(b) Share Counting +B-10 +(c) Award Limitations +B-10 +(d) Shares to be Delivered +B-10 +6. Awards to Participants +B-11 +(a) Stock Options +B-11 +(b) Stock Appreciation Rights +B-13 +(c) Restricted Shares and Restricted Share Units +B-14 +(d) Performance-Based Exception +B-15 +(e) Unrestricted Share Awards +B-16 +7. Deferred Payment +B-16 +8. Dilution and Other Adjustments +B-16 +9. Change in Control +B-17 +10. Termination +B-17 +(a) Termination by Death, Disability, or Retirement +B-17 +(b) Termination for Cause +B-17 +(c) Other Terminations +B-17 +(d) Limitation for ISOs +B-18 +(e) Transfers and Leaves of Absence +B-18 +11. Recoupment or Recovery Policy +B-18 +12. Miscellaneous Provisions +B-18 +(a) Rights as a Shareholder +B-18 +(b) No Loans +B-18 +(c) Assignment or Transfer +B-18 +(d) Withholding Taxes +B-19 +(e) No Rights to Awards +B-19 +(f) Beneficiary Designation +B-19 +B-2 +Table of Contents +(g) Fractional Shares +B-19 +(h) Unfunded Plan +B-19 +(i) Severability +B-20 +(j) Limitation of Liability +B-20 +(k) Successors +B-20 +(l) Code Section 409A Compliance +B-20 +13. Effective Date, Amendments, Governing Law and Plan Termination +B-20 +(a) Effective Date +B-20 +(b) Amendments +B-20 +(c) Governing Law +B-21 +(d) Plan Termination +B-21 +B-3 +Table of Contents +MERIDIAN BIOSCIENCE, INC. +2012 STOCK INCENTIVE PLAN +1. +Purposes +The +purposes of the Plan are to provide long-term incentives to those persons with significant responsibility for the success and growth of the Company, to align the interests of such persons with those of the Company’s shareholders, to assist the +Company in recruiting, retaining and motivating employees, directors and consultants on a competitive basis and to link compensation to performance. +2. +Definitions +For +purposes of the Plan, the following capitalized terms shall have the meanings specified below: +(a) “Affiliate” has +the meaning set forth in Rule 12b-2 under the Exchange Act. +(b) “Award” means a grant of Stock Options, Stock +Appreciation Rights, Restricted Shares or Restricted Share Units, or any or all of them, to a Participant . +(c) “Award +Agreement” means an agreement, either in written or electronic format, between the Company and a Participant setting forth the terms and conditions of an Award granted to the Participant. +(d) “Beneficial Owner” has the meaning given in Rule 13d-3 under the Exchange Act. +(e) “Board” means the Board of Directors of the Company. +(f) “Cause” means with respect to any Participant, unless otherwise provided in the applicable Award Agreement, (i) the +Participant’s conviction or misappropriation of money or other property or conviction of a felony, or a guilty plea or plea of nolo contendere by Participant with respect to a felony, (ii) conduct by the Participant that is in competition +with the Company, conduct by a Participant that breaches the Participant’s duty of loyalty to the Company or a Participant’s willful misconduct, any of which materially injures the Company, (iii) a willful and material breach by the +Participant of his or her obligations under any agreement entered into between the Participant and the Company that materially injures the Company, or (iv) the Participant’s failure to substantially perform his or her duties with the +Company (other than by reason of the Participant’s Disability). For Participants subject to Section 16 of the Exchange Act, the determination of whether any conduct, action or failure to act constitutes “Cause” shall be made by +the Committee in its sole discretion. +(g) “Change in Control” means the occurrence of any of the following events: +(i) Any Person (including a “group” as defined in Section 14(d) of the Exchange Act) other than +an Exempt Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing more than 35% of the combined voting +B-4 +Table of Contents +power of the Company’s then-outstanding securities; provided, however, that no Change of Control shall be deemed to have occurred as a result of a change in ownership percentage resulting +solely from an acquisition of securities by the Company; +(ii) During any two (2) consecutive years, +individuals who at the beginning of such two (2) year period constitute the Board and any new director whose election to the Board or nomination for election by the Company’s shareholders was approved by a vote of at least two-thirds of +the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved cease for any reason to constitute at least a majority of the Board; +(iii) A reorganization, merger or consolidation of the Company in each case, unless, following such reorganization, merger +or consolidation, all or substantially all of the individuals and entities who were the Beneficial Owners of the Company’s outstanding voting securities immediately prior thereto beneficially own, directly or indirectly, more than 50% of the +combined voting power of the Company’s then-outstanding voting securities entitled to vote generally in the election of directors resulting from such reorganization, merger or consolidation in substantially the same proportions as their +ownership immediately prior to such reorganization, merger or consolidation of the outstanding voting securities of the Company; or +(iv) A liquidation, dissolution, sale or other disposition of all or substantially all of the assets of the Company (other than in a transaction in which all or substantially all of the individuals and +entities who were the Beneficial Owners of the Company’s outstanding voting securities immediately prior to such sale or other disposition beneficially own, directly or indirectly, substantially all of the combined voting power of the +Company’s then-outstanding voting securities entitled to vote generally in the election of directors of the acquiror of such assets (either directly or through one or more subsidiaries) in substantially the same proportions as their ownership +immediately prior to such sale or other disposition). +(h) “Code” means the Internal Revenue Code of 1986, as +amended, and any rules, regulations or guidance promulgated thereunder. Any reference to the Code or a section thereof shall also refer to any successor Code or section. +(i) “Committee” means a committee appointed by the Board consisting of at least three members of the Board, all meeting the definitions of “outside director” set forth in Code +Section 162(m), “independent director” set forth in The Nasdaq Stock Market rules, and “non-employee director” set forth in Rule 16b-3 of the Exchange Act, or any successor definitions adopted for a similar purpose by the +Internal Revenue Service, any national securities exchange on which the Common Shares are listed or the Securities and Exchange Commission. +(j) “Common Share” or “Common Shares” means one or more of the common shares, without par value, of the Company. +(k) “Company” means Meridian Bioscience, Inc., a corporation organized under the laws of the State of Ohio, its subsidiaries, +divisions and affiliated businesses. +(l) “Date of Grant” means the date on which the Committee authorizes the grant +of an Award or such later date as may be specified by the Committee in such authorization. +B-5 +Table of Contents +(m) “Disability” means a Participant’s physical or mental incapacity +resulting from personal injury, disease, illness or other condition which (i) prevents him or her from performing his or her duties for the Company, as determined by the Committee or its designee, and (ii) results in his or her termination +of employment or service with the Company. The Committee may substitute a different definition for the term “Disability” in its discretion as it deems appropriate. +(n) “Effective Date” has the meaning set forth in Section 13(a). +(o) “Exchange Act” means the Securities Exchange Act of 1934, as amended, and any rules, regulations, schedules or guidance +promulgated thereunder. Any reference to the Exchange Act or a section thereof shall also refer to any successor Exchange Act or section. +(p) “Exempt Person” shall mean William J. Motto, his spouse, his children and their spouses, and his grandchildren (or the legal representative of such person), and each trust for the benefit of +any such person. +(q) “Exercise Price” means the purchase price of a Common Share covered by a Stock Option or SAR, +as applicable. +(r) “Fair Market Value” on any date means the closing price of the Common Shares as reported on The +Nasdaq Stock Market or, if applicable, any other national securities exchange on which the Common Shares are principally traded, or, if there were no sales of Common Shares on such date, then on the immediately preceding date on which there were any +sales of Common Shares. If the Common Shares cease to be traded on a national securities exchange, the Fair Market Value shall be determined pursuant to a reasonable valuation method prescribed by the Committee. In the case of an ISO (or Tandem +SAR), Fair Market Value shall be determined by the Committee in accordance with Code Section 422. For Awards intended to be exempt from Code Section 409A, Fair Market Value shall be determined by the Committee in accordance with Code +Section 409A. +(s) “Full-Value Award” means Restricted Shares or Restricted Share Units. +(t) “ISO” means an Incentive Stock Option satisfying the requirements of Code Section 422 and designated as an ISO by the +Committee. +(u) “Non-Employee Director” means a member of the Board who is not an employee of the Company. +(v) “NQSO” means a non-qualified Stock Option that does not satisfy the requirements of Code Section 422 or +that is not designated as an ISO by the Committee. +(w) “Participant” means a person eligible to receive an Award +under the Plan, as set forth in Section 4, and designated by the Committee to receive an Award subject to the conditions set forth in the Plan and any Award Agreement. +(x) “Performance-Based Exception” means the performance-based exception to the deductibility limitations of Code Section 162(m), as set forth in Code Section 162(m)(4)(C). +B-6 +Table of Contents +(y) “Performance Goals” means the goals established by the Committee, as described +in Section 6(d)(ii). +(z) “Performance Measures” means the criteria set out in Section 6(d)(iii) that may +be used by the Committee as the basis for a Performance Goal. +(aa) “Performance Period” means the period +established by the Committee during which the achievement of Performance Goals is assessed in order to determine whether and to what extent an Award that is conditioned on attaining Performance Goals has been earned. +(bb) “Person” shall have the meaning given in Section 3(a)(9) of the Exchange Act, except that such term shall not include +(i) the Company or any of its Affiliates, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to +an offering of such securities or (iv) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of Company securities. +(cc) “Plan” means the Meridian Bioscience, Inc. 2012 Stock Incentive Plan, as amended and restated from time to time. +(dd) “Prior Plan” means the Meridian Bioscience, Inc. 2004 Equity Compensation Plan, as amended and restated. +(ee) “Restricted Shares” means Common Shares that are subject to restrictions, as described in Section 6(c). +(ff) “Restricted Share Units” means a right, as described in Section 6(c), denominated in Common Shares to +receive an amount, payable in either cash, Common Shares, Restricted Shares, or a combination thereof, equal to the value of a specified number of Common Shares. +(gg) “Restriction Period” means, with respect to any Full-Value Award, the period during which any risk of forfeiture or other restrictions set by the Committee, including performance +restrictions, remain in effect until such time as they have lapsed under the terms and conditions of the Full-Value Award or as otherwise determined by the Committee, including the Performance Period for Full-Value Awards intended to qualify for the +Performance-Based Exception. +(hh) “Retirement” means retirement with the Company at or after age 65 or at or after +the later of age 55 and ten years of service. +(ii) “Securities Act” means the Securities Act of 1933, as amended, +and any rules, regulations, schedules or guidance promulgated thereunder. Any reference to the Securities Act or a section thereof shall also refer to any successor Securities Act or section. +(jj) “Stock Appreciation Right” or “SAR” means the right, as described in Section 6(b), to receive a payment +equal to the excess of the Fair Market Value of a Common Share on the date the SAR is exercised over the Exercise Price established for that SAR at the time of grant, multiplied by the number of Common Shares with respect to which the SAR is +exercised. +B-7 +Table of Contents +(kk) “Stock Option” means the right, as described in Section 6(a), to +purchase Common Shares at a specified price for a specified period of time. Stock Options include ISOs and NQSOs. +(ll) +“Tandem SAR” means a SAR granted in tandem with a Stock Option. +3. +Administration of the Plan +(a) Authority of Committee . The Plan shall be administered by the Committee. Unless otherwise determined by the Board, the Compensation Committee of the Board shall serve as the Committee. +The Committee shall have all the powers vested in it by the terms of the Plan, such powers to include the sole and exclusive authority to (within the limitations described in the Plan): +(i) select Participants to be granted Awards under the Plan and grant Awards pursuant to the terms of the Plan; +(ii) determine the type, size and terms of the Awards to be granted to each Participant; +(iii) determine the time when Awards are to be granted and any conditions that must be satisfied before an Award is +granted; +(iv) establish objectives and conditions for earning an Award; +(v) determine all other terms and conditions, not inconsistent with the terms of the Plan and any operative employment or +other agreement, of any Award granted under the Plan, and determine the appropriate Award Agreement evidencing the Award; +(vi) determine whether the terms, conditions, and objectives for earning an Award have been met, including, without limitation, any such determination or certification, as the case may be, required for +compliance with Code Section 162(m); +(vii) modify or waive the terms and conditions of Awards granted +under the Plan, not inconsistent with the terms of the Plan and any operative employment or other agreement, accelerate the vesting, exercise or payment of an Award or cancel or suspend an Award; +(viii) determine whether the amount or payment of an Award should be reduced or eliminated, and determine if, when and +under what conditions payment of all or any part of any Award may be deferred; +(ix) determine the guidelines +and/or procedures for the payment or exercise of Awards; +(x) determine whether an Award should qualify, +regardless of its amount, as deductible in its entirety for federal income tax purposes, including whether any Awards granted to an employee should qualify for the Performance-Based Exception; +B-8 +Table of Contents +(xi) adopt, alter and repeal such administrative rules, guidelines and +practices governing the Plan; +(xii) construe, interpret, administer and implement the Plan, any Award +Agreements or related documents and correct any defect, supply an omission or reconcile any inconsistency in or between the Plan, any Award Agreement or related documents; and +(xiii) make factual determinations with respect to the Plan and any Awards and otherwise supervise the administration of +the Plan. +(b) Binding Authority . The Committee’s interpretations of the Plan, and all actions taken and +determinations made by the Committee pursuant to the powers vested in it under the Plan, shall be conclusive and binding on all parties, including the Company, its shareholders and all Participants. +(c) Delegation of Authority . To the extent not prohibited by law or the rules of the national securities exchange on which +the Company’s Common Shares are listed, the Committee may allocate its authority hereunder to one or more of its members or delegate its authority hereunder to one or more Non-Employee Directors, except that no such allocation or delegation +shall be permitted with respect to Awards intended to qualify for the Performance-Based Exception, and may grant authority to employees of the Company to execute documents on behalf of the Committee or to otherwise assist in the administration and +operation of the Plan. +4. +Eligibility +Subject to the terms +and conditions of the Plan, the Committee may select, from all eligible persons, Participants to whom Awards shall be granted under the Plan and shall determine the nature and amount of each Award. Eligible persons include any of the following +individuals: (i) any officer or employee of the Company, (ii) any consultant (as defined in the General Instructions to the Form S-8 registration statement under the Securities Act) to the Company, and (iii) any Non-Employee Director. +All Awards shall be evidenced by an Award Agreement, and Awards may be conditioned upon the Participant’s execution of an Award Agreement. +5. +Common Shares Subject to the Plan +(a) Authorized Number of Common Shares . Unless otherwise authorized by the Company’s shareholders and subject to this Section 5 and Section 8, the maximum aggregate number of +Common Shares available for issuance under the Plan is 3,000,000, plus (i) the number of Common Shares that, on the Effective Date, are available to be granted under the Prior Plan but which are not then subject to outstanding awards under the +Prior Plan, and (ii) the number of Common Shares subject to outstanding awards under the Prior Plan as of the Effective Date which thereafter are forfeited, settled in cash or cancelled or expire. Upon the Effective Date, the Prior Plan will +terminate; provided that all outstanding awards under the Prior Plan as of the Effective Date shall remain outstanding and shall be administered and settled in accordance with the provisions of the Prior Plan, as applicable. +(i) The maximum number of Common Shares available for grant with respect to Full-Value Awards is 1,000,000. +B-9 +Table of Contents +(ii) The maximum number of Common Shares available for issuance with respect +to options is 3,000,000. +(b) Share Counting . The following rules shall apply in determining the number of +Common Shares available for grant under the Plan: +(i) Common Shares subject to any Award shall be counted +against the maximum share limitation as one Common Share for every Common Share subject thereto. +(ii) To the +extent that any Award is forfeited, cancelled, settled in cash, returned to the Company for failure to satisfy vesting requirements or other conditions of the Award or otherwise terminates without an issuance of Common Shares being made, the maximum +share limitation shall be credited with one Common Share for each Common Share subject to such Award, and such number of credited Common Shares may again be made subject to Awards under the Plan. +(iii) Any Common Shares tendered by a Participant or withheld as full or partial payment of withholding or other taxes or +as payment for the exercise or conversion price of an Award or repurchased by the Company with Stock Option proceeds shall not be added back to the number of Common Shares available for issuance under the Plan. Upon exercise of a SAR, the number of +Common Shares subject to the Award that are being exercised shall be counted against the maximum aggregate number of Common Shares that may be issued under the Plan on the basis of one Common Share for every Common Share subject thereto, regardless +of the actual number of Common Shares used to settle the SAR upon exercise. +(iv) Any Common Shares underlying +Awards granted through the assumption of, or in substitution for, outstanding awards previously granted to individuals who become employees of the Company as a result of a merger, consolidation, acquisition or other corporate transaction shall not, +unless required by law or regulation, count against the reserve of available Common Shares under the Plan. +(c) Award +Limitations . Subject to the adjustment provisions of Section 8, the following limits shall apply with respect to Awards intended to quality for the Performance-Based Exception: +(i) The maximum aggregate number of Common Shares that may be subject to Stock Options or SARs granted in any calendar +year to any one Participant shall be 300,000 Common Shares. +(ii) The maximum aggregate number of Common Shares +that may be subject to Full-Value Awards granted in any calendar year to any one Participant shall be 100,000 Common Shares. +(d) Shares to be Delivered . Common Shares to be delivered by the Company under the Plan may consist in whole or in part of +authorized but unissued shares or treasury shares. +B-10 +Table of Contents +6. +Awards to Participants +(a) Stock Options . +(i) Grants . Subject to +the terms and conditions of the Plan, Stock Options may be granted to Participants, in such number and upon such terms and conditions as the Committee determines, and may consist of ISOs or NQSOs. Stock options may be granted alone or with Tandem +SARs. With respect to Stock Options granted with Tandem SARs, the exercise of either such Stock Options or Tandem SARs will result in the simultaneous cancellation of the same number of Stock Options or Tandem SARs, as the case may be. +(ii) Exercise Price . The Exercise Price shall be equal to or, at the Committee’s discretion, greater than the +Fair Market Value on the date the Stock Option is granted, unless the Stock Option was granted through the assumption of, or in substitution for, outstanding awards previously granted to individuals who became employees of the Company as a result of +a merger, consolidation, acquisition or other corporate transaction, in which case the assumption or substitution shall be accomplished in a manner that permits the Stock Option to be exempt from Code Section 409A. +(iii) Term . The term of Stock Options shall be determined by the Committee in its sole discretion, but in no event +shall the term exceed ten years from the Date of Grant. +(iv) ISO Limits . ISOs may be granted only to +Participants who are employees of the Company (or of any parent or subsidiary corporation within the meaning of Code Section 424) on the Date of Grant, and may only be granted to an employee who, at the time the Stock Option is granted, does +not own more than ten percent of the total combined voting power of all classes of stock of the Company (or of any parent or subsidiary corporation within the meaning of Code Section 424), unless (A) the Exercise Price is at least 110% +percent of the Fair Market Value on the Date of Grant, and (B) the ISO is not exercisable after five years from the Date of Grant. The aggregate Fair Market Value of all Common Shares, determined at the time the ISOs are granted, with respect +to which ISOs are exercisable by a Participant for the first time during any calendar year (under all plans of the Company) shall not exceed $100,000 or such other amount as may subsequently be specified by the Code. If such Fair Market Value +exceeds the $100,000 limit, the ISOs exceeding the limit shall be treated as NQSOs, taking the Stock Options in the order each was granted. The terms of all ISOs shall be consistent with and contain or be deemed to contain all provisions required to +qualify as an “incentive stock option” under Code Section 422. +(v) No Repricing . Subject +to the adjustment provisions of Section 8, without the approval of the Company’s shareholders, (A) the Exercise Price for any outstanding Stock Option may not be decreased after the Date of Grant, (B) no outstanding Stock Option +may be surrendered to the Company as consideration for the grant of a new Stock Option with a lower Exercise Price, and (C) no other modifications to any outstanding Stock Option may be made that would be treated as a “repricing” +under the then applicable rules, regulations or listing requirements adopted by the national securities exchange on which the Common Shares are listed. +B-11 +Table of Contents +(vi) Form of Payment . Vested Stock Options may be exercised in whole +or in part, and the Exercise Price shall be paid to the Company at the time of exercise, subject to any applicable rules or regulations adopted by the Committee: +(A) +to the extent permitted by applicable law, pursuant to cashless exercise procedures that are approved by the Committee; +(B) +through the tender of unrestricted Common Shares owned by the Participant (or by delivering a certification or attestation of ownership of such Common Shares) valued at +their Fair Market Value on the date of exercise; +(C) +in cash or its equivalent; or +(D) +by any combination of (A), (B), and (C) above. +(vii) No Dividends or Shareholder Rights . No dividends or dividend equivalents may be paid on Stock Options. Except as otherwise provided herein, a Participant shall have no rights as a holder of +Common Shares covered by a Stock Option unless and until such Common Shares have been registered to the Participant as the owner. +(viii) Terms and Conditions of Non-Qualified Options Granted to Non-Employee Directors . Each Non-Employee Director shall be granted a NQSO for 7,500 Common Shares, or such other number as may be +determined by the Board of Directors from time to time, upon appointment or election and immediately after each subsequent annual meeting of shareholders if such person is serving as a Non-Employee Director at such time either by virtue of being +re-elected or serving a term in excess of one year. All grants shall be made on the date of the event giving rise to the NQSO and shall have an Exercise Price of Fair Market Value on such date. Such grants shall vest in four equal installments +beginning ninety (90) days after such date and each ninety (90) days thereafter or at such other time(s) as the Board or the Committee shall have otherwise determined. +(A) +All NQSOs granted to Non-Employee Directors shall be exercisable in the manner provided in Section 6(a) for a term of ten years. +(B) +All NQSOs granted to Non-Employee Directors shall be transferable as provided in Section 12(c) and shall terminate in accordance with Section 10(a), except +that the timing provisions of Subsections 10(a) and 10(c) may not be varied by Committee determination. +(C) +Notwithstanding anything contained herein to the contrary, if at any time a Non-Employee Director holder of a NQSO granted under the Plan becomes an +employee, officer or director of or a consultant to an entity which the Committee determines is a competitor of the Company, such NQSO shall automatically +B-12 +Table of Contents +terminate as of the date such conflicting relationship was established. +(b) Stock Appreciation Rights . +(i) +Grants . Subject to the terms and provisions of the Plan, SARs may be granted to Participants, in such number and upon such terms and conditions as the Committee determines, and may be granted alone or as Tandem SARs. With respect to +Tandem SARs, the exercise of either such Stock Options or SARs will result in the simultaneous cancellation of the same number of Tandem SARs or Stock Options, as the case may be. +(ii) Exercise Price . The Exercise Price shall be equal to or, at the Committee’s discretion, greater +than Fair Market Value on the date the SAR is granted, unless the SAR was granted through the assumption of, or in substitution for, outstanding awards previously granted to individuals who became employees of the Company as a result of a merger, +consolidation, acquisition or other corporate transaction involving the Company, in which case the assumption or substitution shall be accomplished in a manner that permits the SAR to be exempt from Code Section 409A. +(iii) Term . The term of a SAR shall be determined by the Committee in its sole discretion, but in no event +shall the term exceed ten years from the Date of Grant; provided that, each SAR granted in tandem with a Stock Option shall terminate upon the termination or exercise of the related Stock Option. +(iv) No Repricing . Subject to the adjustment provisions of Section 8, without the approval of the +Company’s shareholders, (A) the Exercise Price for any outstanding SAR may not be decreased after the Date of Grant, (B) no outstanding SAR may be surrendered to the Company as consideration for the grant of a new SAR with a lower +Exercise Price, and (C) no other modifications to any outstanding SAR may be made that would be treated as a “repricing” under the then applicable rules, regulations or listing requirements adopted by the national securities exchange +on which the Common Shares are listed. +(v) Form of Payment . Vested SARs may be exercised in +whole or in part, and the Committee may authorize payment of a SAR in the form of cash, Common Shares valued at its Fair Market Value on the date of the exercise or a combination thereof, or by any other method as the Committee may determine. +(vi) Tandem SARs . Tandem SARs may be exercised for all or part of the Common Shares subject to +the related Stock Option upon the surrender of the right to exercise the equivalent portion of the related Stock Option. A Tandem SAR may be exercised only with respect to the Common Shares for which its related Stock Option is then exercisable. +Notwithstanding any other provision of the Plan to the contrary, with respect to a Tandem SAR granted in connection with an ISO: (A) the Tandem SAR will expire no later than the expiration of the underlying ISO; (B) the value of the payout +with respect to the Tandem SAR may be for no more than 100% of the excess of the Fair Market Value of the Common Shares subject to the underlying ISO at the time the Tandem SAR is exercised over the Exercise Price of the +B-13 +Table of Contents +underlying ISO; and (C) the Tandem SAR may be exercised only when the Fair Market Value of the Common Shares subject to the ISO exceeds the Exercise Price of the ISO. +(vii) No Dividends or Shareholder Right s . No dividends or dividend equivalents may be paid on SARs. Except +as otherwise provided herein, a Participant shall have no rights as a holder of Common Shares covered by a SAR unless and until such Common Shares have been registered to the Participant as the owner. +(c) Restricted Shares and Restricted Share Units . +(i) Grants . Subject to the terms and provisions of the Plan, Restricted Shares and Restricted Share Units +may be granted to Participants in such number and upon such terms and conditions as the Committee determines. Restricted Shares will be registered in the name of the Participant and deposited with the Company or its agent in certificated or +book-entry form. +(ii) Restrictions . Restricted Shares or Restricted Share Units may be granted +at no cost or at a purchase price determined by the Committee, which may be less than the Fair Market Value, but subject to such terms and conditions as the Committee determines, including, without limitation: forfeiture conditions, transfer +restrictions, restrictions based upon the achievement of specific performance goals (Company-wide, divisional and/or individual), which may be based on one or more Performance Measures, time-based restrictions on vesting and/or restrictions under +applicable federal or state securities laws. Subject to Sections 9 and 10, for Awards to employees, no Restricted Shares or Restricted Share Units conditioned upon the achievement of performance shall be based on a Restriction Period of less than +one year, and, except as may be determined by the Committee, any Restriction Period based solely on continued employment or service (time-based) shall be for a minimum of three years, subject to (A) pro rata or graded vesting prior to the +expiration of such time-based Restriction Period, and (B) acceleration due to the Participant’s death, Disability or Retirement, in each case as specified in the applicable Award Agreement; provided that the Restriction Period applicable +to the first vesting date of an Award subject to pro rata or graded vesting (as referenced in (A) above) may be for less than one year, provided the first vesting date is no earlier than the fiscal year-end date of the fiscal year during which +the Award was granted. To the extent the Restricted Shares or Restricted Share Units are intended to qualify for the Performance-Based Exception, except as may be determined by the Committee, the applicable restrictions shall be based on the +achievement of Performance Goals over a Performance Period, as described in Section 6(d). +(iii) +Transfer Restrictions . During the Restriction Period, Restricted Shares and Restricted Share Units may not be sold, assigned, transferred or otherwise disposed of, or mortgaged, pledged or otherwise encumbered. In order to enforce the +limitations imposed upon the Restricted Shares, the Committee may (A) cause a legend or legends to be placed on any certificates evidencing such Restricted Shares, and/or (B) cause “stop transfer” instructions to be issued, as it +deems necessary or appropriate. +(iv) Dividends and Voting Rights . Unless otherwise determined by +the Committee, during the Restriction Period, Participants who hold Restricted Shares shall have the right to receive dividends in cash or other property or other distribution or rights in respect of the Restricted Shares and shall have the right to +vote the Restricted Shares as the record owners; +B-14 +Table of Contents +provided that, unless otherwise determined by the Committee, any dividends or other property payable to a Participant during the Restriction Period shall be distributed to the Participant only if +and when the restrictions imposed on the applicable Restricted Shares lapse. Unless otherwise determined by the Committee, during the Restriction Period, Participants who hold Restricted Shares Units shall be credited with dividend equivalents in +respect of such Restricted Share Units; provided that, unless otherwise determined by the Committee, such dividend equivalents shall be distributed (without interest) to the Participant only if and when the restrictions imposed on the applicable +Restricted Share Units lapse. Participants shall have no other rights as a shareholder with respect to Restricted Share Units unless otherwise determined by the Committee. Notwithstanding the forgoing, no Restricted Shares or Restricted Share Units +conditioned upon the achievement of performance shall provide the Participant with dividend or shareholder rights unless otherwise determined by the Committee; provided that an Award Agreement may provide for payment (in money or shares) equal to +the dividends paid on the number of Common Shares payable upon vesting of such Restricted Shares or Restricted Share Units or at any time prior thereto. +(v) Payment of Restricted Share Units . Restricted Share Units that become payable in accordance with their terms and conditions shall be settled in cash, Common Shares, Restricted Shares, or +a combination thereof, as determined by the Committee. +(vi) Ownership . Restricted Shares shall +be registered in the name of the Participant on the books and records of the Company or its designee (or by one or more physical certificates if physical certificates are issued) subject to the applicable restrictions imposed by the Plan. At the end +of the Restriction Period that applies to Restricted Shares, the number of shares to which the Participant is entitled shall be delivered to the Participant free and clear of the restrictions, either in certificated or book-entry form. No Common +Shares shall be registered in the name of the Participant with respect to Restricted Share Units, and Participants shall have no ownership interest in the Common Shares to which the Restricted Share Units relate, unless and until payment is made in +Common Shares. +(vii) Forfeiture . If a Participant who holds Restricted Shares or Restricted +Share Units fails to satisfy the restrictions, terms or conditions applicable to the Award, except as otherwise determined by the Committee, the Participant shall forfeit the Restricted Shares or Restricted Share Units. The Committee may at any time +waive such restrictions or accelerate the date or dates on which the restrictions will lapse; however, to the extent the Restricted Shares or Restricted Share Units are intended to qualify for the Performance-Based Exception, the provisions of +Section 6(d)(iv) will apply. +(d) Performance-Based Exception . +(i) Grants . Subject to the provisions of the Plan, Full-Value Awards granted in a manner that is intended to +qualify for the Performance-Based Exception shall be conditioned upon the achievement of Performance Goals as the Committee shall determine, in its sole discretion. +(ii) Performance Goals . Performance Goals shall be based on one or more Performance Measures, over a +Performance Period, as to be determined by the Committee. +B-15 +Table of Contents +(iii) Performance Measures . The Performance Measure(s) may be +described in terms of objectives that are related to the individual Participant or objectives that are Company-wide or related to a subsidiary, division, department, region, function or business unit of the Company, and shall consist of one or more +or any combination of the following criteria: cash flow, profit, revenue, stock price, market share, sales, net income, operating income, return ratios, earnings per share, earnings (which may include an add back for taxes, interest, and/or +depreciation and amortization), operating earnings, profit margins, earnings per Common Share, favorable comparison to established budgets, return on shareholders’ equity, return on assets, attainment of strategic and operational initiatives, +comparisons with various stock market indices, reduction in costs or a combination of such factors, personal performance measures, working capital, total assets, net assets, return on sales, return on invested capital, gross margin, costs, +shareholders’ equity, shareholder return and/or productivity or productivity improvement. The Performance Goals based on these Performance Measures may be expressed in absolute terms or relative to the performance of other entities. +(iv) Treatment of Awards . With respect to any Full-Value Award that is intended to qualify for the +Performance-Based Exception: (A) the Committee shall interpret the Plan and this Section 6(d) in light of Code Section 162(m), (B) the Committee shall not amend the Full-Value Award in any way that would adversely affect the +treatment of the Full-Value Award under Code Section 162(m), and (C) such Full-Value Award shall not vest or be paid until the Committee shall first have certified that the Performance Goals have been achieved. +(e) Unrestricted Share Awards . +Subject to the terms and provisions of the Plan, the Committee may grant awards of unrestricted Common Shares to Participants in such number and upon such terms and conditions as the Committee determines +in recognition of outstanding achievements or contributions by such Participants or otherwise. Unrestricted Common Shares issued on a bonus basis may be issued for no cash consideration. +7. +Deferred Payment +Subject to the terms of the Plan, the Committee may determine that all or a portion of any Award to a Participant, whether it is to be +paid in cash, Common Shares or a combination thereof, shall be deferred or may, in its sole discretion, approve deferral elections made by Participants. Deferrals shall be for such periods and upon such terms as the Committee may determine in its +sole discretion, which terms shall comply with Code Section 409A. +8. +Dilution and Other Adjustments +In the event of any merger, reorganization, consolidation, liquidation, recapitalization, reclassification, redesignation, stock dividend, other distribution (whether in the form of cash, shares or +otherwise), stock split, reverse stock split, spin off, combination, repurchase or exchange of shares or issuance of warrants or rights to purchase shares or other securities, or other change in corporate structure affecting the Common Shares, the +Committee shall make such adjustments in the aggregate number and type of Common Shares which may be delivered and the individual award maximums as set forth in Section 5, the number and type of Common +B-16 +Table of Contents +Shares subject to outstanding Awards and the Exercise Price or other price of Common Shares subject to outstanding Awards (provided the number of Common Shares subject to any Award shall always +be a whole number), as may be and to the extent determined to be appropriate and equitable by the Committee to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan. Such adjustment shall +be conclusive and binding for all purposes of the Plan. Any such adjustment of an ISO or SAR shall be made in compliance with Code Sections 422 and 424, and no such adjustment shall be made that would cause any Award which is or becomes subject to +Code Section 409A to fail to comply with the requirements of Code Section 409A or is exempt from Code Section 409A to become subject to Code Section 409A. +9. +Change in Control +Notwithstanding any other provision of the Plan to the contrary, immediately upon the occurrence of a Change in Control, the following +provisions of this Section 9 shall apply except to the extent an Award Agreement provides for a different treatment (in which case the Award Agreement shall govern): +(a) all outstanding Stock Options and SARs vest and become fully exercisable; and +(b) all Full-Value Awards become fully vested. +10. +Termination +(a) +Termination by Death, Disability, or Retirement . The terms and conditions of the Participant’s Award Agreement shall govern the extent, if at all, to which the vesting of any Award is accelerated or forfeited due to a +Participant’s death, Disability, or Retirement; provided that, for Full-Value Awards intended to qualify for the Performance-Based Exception, no vesting may occur or no distribution may be made prior to the attainment of the Performance Goals. +(b) Termination for Cause . If a Participant’s employment or service terminates for Cause, (i) all +Stock Options and SARs (or portions thereof) which have not been exercised, whether vested or not, and (ii) all Full-Value Awards, shall immediately be forfeited upon termination, including such Awards that are subject to performance conditions +(or unearned portions thereof). +(c) Other Terminations . If a Participant’s employment or service +terminates, voluntarily or involuntarily, for any reason other than death, Disability, Retirement or Cause, (i) any vested portion of Stock Options or SARs held by the Participant at the time of termination may be exercised for a period of +three months (or such other period as the Committee may specify at or after the time of grant) from the termination date, or until the expiration of the original term of the Stock Option or SAR, whichever period is shorter, (ii) no unvested +portion of any Stock Option or SAR shall become vested, including such Awards that are subject to performance conditions (or unearned portions thereof), and (iii) all Full-Value Awards, including such Awards that are subject to performance +conditions (or unearned portions thereof), shall immediately be forfeited upon termination. +B-17 +Table of Contents +(d) Limitation for ISOs . No ISO may be exercised more than three months +following termination of employment for any reason (including Retirement) other than death or Disability, nor more than one year following termination of employment for the reason of death or Disability (as defined in Code Section 422), or such +Award will no longer qualify as an ISO and shall thereafter be, and receive the tax treatment applicable to, a NQSO. For this purpose, a termination of employment is cessation of employment, under the rules applicable to ISOs, such that no +employment relationship exists between the Participant and the Company. +(e) Transfers and Leaves of Absence . +The transfer of a Participant within the Company shall not be deemed a termination of employment except as required by Code Sections 422 and 409A, and other applicable laws. The following leaves of absences are not deemed to be a termination of +employment: +(i) if approved in writing by the Company, for military service, sickness or any other purpose +approved by the Company, and the period of absence does not exceed 90 days; +(ii) if in excess of 90 days, if +approved in writing by the Company, but only if the Participant’s right to reemployment is guaranteed by statute or contract and provided that the Participant returns to work within 30 days after the end of such absence; and +(iii) subject to the restrictions of Code Section 409A and to the extent that such discretion is permitted by law, if +the Committee determines in its discretion that the absence is not a termination of employment. +11. +Recoupment or Recovery Policy +Any Award shall be subject to forfeiture or repayment pursuant to the terms of any applicable compensation recoupment or recovery policy adopted by the Company, Committee or Board, as thereafter amended, +including any policy adopted to comply with the rules of any stock exchange on which the Common Shares are traded or the Securities and Exchange Commission. +12. +Miscellaneous Provisions +(a) Rights as a Shareholder . Except as otherwise provided herein, a Participant shall have no rights as a shareholder with respect to Awards hereunder, unless and until the Common Shares +have been registered to the Participant as the owner. +(b) No Loans . No loans from the Company to Participants +shall be permitted in connection with the Plan. +(c) Assignment or Transfer . Except as otherwise provided under +the Plan, no Award or any rights or interests therein shall be transferable other than by will or the laws of descent and distribution. The Committee may, in its discretion, provide that an Award (other than an ISO) is transferable without the +payment of any consideration to a Participant’s family member, subject to such terms and conditions as the Committee may impose. For this purpose, “family member” has the meaning given to such term in the General Instructions to the +Form S-8 registration statement under the Securities Act. All Awards shall be exercisable, during the Participant’s lifetime, only by the Participant or a person who is a permitted transferee pursuant +B-18 +Table of Contents +to this Section 12(c). Once awarded, the Common Shares (other than Restricted Shares) received by Participants may be freely transferred, assigned, pledged or otherwise subjected to lien, +subject to the restrictions imposed by the Securities Act, Section 16 of the Exchange Act and the Company’s Insider Trading Policy, each as amended. +(d) Withholding Taxes . The Company shall have the right to deduct from all Awards paid in cash to a Participant any taxes required by law to be withheld with respect to such Awards. All +statutory minimum applicable withholding taxes arising with respect to Awards paid in Common Shares to a Participant shall be satisfied by the Company retaining Common Shares having a Fair Market Value on the date the tax is to be determined that is +equal to the amount of such statutory minimum applicable withholding tax (rounded, if necessary, to the next lowest whole number of Common Shares); provided, however, that, subject to any restrictions or limitations that the Company deems +appropriate, a Participant may elect to satisfy such statutory minimum applicable withholding tax through cash or cash proceeds. +(e) No Rights to Awards . Neither the Plan nor any action taken hereunder shall be construed as giving any person any right to be retained in the employ or service of the Company, and the +Plan shall not interfere with or limit in any way the right of the Company to terminate any person’s employment or service at any time. Except as set forth herein, no employee or other person shall have any claim or right to be granted an Award +under the Plan. By accepting an Award, the Participant acknowledges and agrees that (i) the Award will be exclusively governed by the Plan, including the right of the Company to amend or cancel the Plan at any time without the Company incurring +liability to the Participant (except, to the extent the terms of the Award so provide, for Awards already granted under the Plan), (ii) the Participant is not entitled to future award grants under the Plan or any other plan, and (iii) the +value of any Awards received shall be excluded from the calculation of termination or other severance payments or benefits. +(f) Beneficiary Designation . To the extent allowed by the Committee, each Participant under the Plan may name any +beneficiary or beneficiaries to whom any benefit under the Plan is to be paid in case of his or her death before he or she receives all of such benefit. Unless the Committee determines otherwise, each such designation shall revoke all prior +designations by the same Participant, shall be in a form prescribed by the Committee and shall be effective only when received in writing by the Company during the Participant’s lifetime. In the absence of any such designation, benefits +remaining unpaid at the Participant’s death shall be paid to the Participant’s estate. +(g) Fractional +Shares . Fractional Common Shares shall not be issued or transferred under an Award, but the Committee may direct that cash be paid in lieu of fractional shares or may round off fractional shares, in its discretion. +(h) Unfunded Plan . The Plan shall be unfunded and any benefits under the Plan shall represent an unsecured promise to pay +by the Company. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award Agreement shall give the Participant any rights that are greater than those of a general unsecured creditor +of the Company. +B-19 +Table of Contents +(i) Severability . If any provision of the Plan is deemed illegal or invalid, +the illegality or invalidity shall not affect the remaining provisions of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. +(j) Limitation of Liability . Members of the Board and the Committee and officers and employees of the Company who are their +designees acting under the Plan shall be fully protected in relying in good faith upon the advice of counsel and shall incur no liability except for gross or willful misconduct in the performance of their duties hereunder. +(k) Successors . All obligations of the Company with respect to Awards granted under the Plan shall be binding on any +successor to the Company, whether as a result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company. +(l) Code Section 409A Compliance . Each Award granted under the Plan is intended to be either exempt from or in +compliance with the requirements of Code Section 409A and any regulations or guidance that may be adopted thereunder, including any transition relief available under applicable guidance. The Plan may be amended or interpreted by the Committee +as it determines appropriate in accordance with Code Section 409A and to avoid a plan failure under Code Section 409A(a)(1). If a Participant is a “specified employee” as defined in Code Section 409A at the time of the +Participant’s separation from service with the Company, then solely to the extent necessary to avoid the imposition of any additional tax under Code Section 409A, the commencement of any payments or benefits under an Award shall be +deferred until the date that is six months following the Participant’s separation from service (or such other period as required to comply with Code Section 409A). +13. +Effective Date, Amendments, Governing Law and Plan Termination +(a) Effective Date . The Effective Date of the Plan is the date on which the Company’s shareholders approve the Plan at a duly held shareholder meeting. +(b) Amendments . +(i) Amendment of the Plan . The Committee or the Board may at any time terminate or amend the Plan in whole or in part, but no such action shall materially and adversely affect any rights or +obligations with respect to any Awards granted prior to the date of such termination or amendment without the consent of the affected Participant, except to the extent that the Committee reasonably determines that such termination or amendment is +necessary or appropriate to comply with applicable law or the rules and regulations of any stock exchange on which the Common Shares are traded or to preserve any intended favorable, or avoid any unintended unfavorable, tax effects for the Company, +Plan or Participants. Notwithstanding the foregoing, unless the Company’s shareholders shall have first approved the amendment, no amendment of the Plan shall be effective if the amendment would: (A) increase the maximum number of Common +Shares that may be delivered under the Plan or to any one individual (except to the extent made pursuant to Section 8 hereof), (B) extend the maximum period during which Awards may be granted under the Plan, (C) add to the types of +awards that can be made under the Plan, (D) modify the requirements as to eligibility for participation in the Plan, (E) permit a +B-20 +Table of Contents +repricing or decrease the Exercise Price to less than the Fair Market Value on the Date of Grant of any Stock Option or SAR, except for adjustments made pursuant to Section 8, +(F) materially increase benefits to Participants, or (G) otherwise require shareholder approval pursuant to the Plan or applicable law or the rules of the principal securities exchange on which Common Shares are traded. +(ii) Amendment of Awards . The Committee may amend, prospectively or retroactively, the terms of an Award, +provided that no such amendment is inconsistent with the terms of the Plan or would materially and adversely affect the rights of any Participant without his or her written consent. +(c) Governing Law . To the extent not preempted by Federal law, the Plan and all Award Agreements are construed in +accordance with and governed by the laws of the State of Ohio. The Plan is not intended to be governed by the Employment Retirement Income Security Act of 1974, and shall be so construed and administered. +(d) Plan Termination . No Awards shall be made under the Plan after the tenth anniversary of the Effective Date. +B-21 +Table of Contents +VOTE BY INTERNET - www.proxyvote.com +Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in +hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. +Electronic Delivery of Future PROXY MATERIALS +If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail +or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. +VOTE BY PHONE - 1-800-690-6903 +Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have +your proxy card in hand when you call and then follow the instructions. +VOTE BY MAIL +Mark, sign and date your +proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. +TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: +KEEP THIS PORTION +FOR YOUR RECORDS +THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION +ONLY +The Board of Directors recommends you vote FOR the following: +For +All +Withhold +All +For All Except +To withhold authority to vote for any individual nominee(s), mark +“For All Except” and write the number(s) of the nominee(s) on the line below. +1. +Election of Directors +Nominees +¨ +¨ +¨ +01 JAMES M. +ANDERSON 02 JOHN A. KRAEUTLER 03 WILLIAM J. MOTTO 04 DAVID C. +PHILLIPS 05 ROBERT J. READY +The Board of Directors recommends you +vote +FOR the following proposal: +For +Against +Abstain +For +Against +Abstain +2. +Advisory vote on named executive officer compensation. +¨ +¨ +¨ +5. +To reapprove the Meridian 2004 Equity Compensation Plan and its performance measurements. +¨ +¨ +¨ +The Board of Directors +recommends +you vote 1 YEAR on the following +proposal: +3 years +2 years +1 year +Abstain +3. +Advisory vote on the frequency of future advisory votes on named executive officer compensation. +¨ +¨ +¨ +¨ +6. +To approve the Meridian 2012 Stock Incentive Plan. +¨ +¨ +¨ +NOTE: Such other business as may properly come before the meeting or any postponement or adjournment thereof. +The Board of Directors recommends you vote FOR proposals 4, 5 and 6. +For +Against +Abstain +4. +To ratify the appointment of Grant Thornton LLP as Meridian’s independent registered public accountants for fiscal year 2012. +¨ +¨ +¨ +For address change/comments, mark here. +¨ +(see reverse for instructions) +Yes +No +Please indicate if you plan to attend this +meeting +¨ +¨ +Please sign exactly as your name(s) appear(s) hereon, indicating, where proper, official position or representative +capacity. +All joint holders must sign. +Signature [PLEASE SIGN WITHIN BOX] +Date +Signature (Joint Owners) +Date +0000118682_1 R1.0.0.11699 +Table of Contents +Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: +The Annual Report, Notice & Proxy Statement is/are available at www.proxyvote.com . +Proxy - +Meridian Bioscience, Inc. +This Proxy +is submitted on behalf of the Board of Directors. +The +undersigned hereby appoints JOHN A. KRAEUTLER or MELISSA A. LUEKE, or either of them, proxies of the undersigned, each with the power of substitution, to vote cumulatively or otherwise all shares of Common Stock which the undersigned would be +entitled to vote on the matters specified on the reverse side and, in their discretion, with respect to such other business as may properly come before the Annual Meeting of Shareholders of Meridian Bioscience, Inc. to be held on January 25, +2012, at 2:00 p.m. Eastern Time, at the Holiday Inn Eastgate, 4501 Eastgate Boulevard, Cincinnati, Ohio 45245 and any postponement or adjournment of such Annual Meeting. +Address Change/Comments: +__________________________________________________________________________________________ +___________________________________________________________________________________________ +___________________________________________________________________________________________ +(If you +noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.) +(This proxy is continued and is to be signed on the reverse side.) +0000118164_2 R1.0.0.11699 +Table of Contents +*** Exercise Your Right to Vote *** +Important Notice Regarding the Availability of Proxy Materials for the +Shareholder Meeting to Be Held on January 25, 2012 +MERIDIAN BIOSCIENCE, INC. +Meeting Information +Meeting Type: Annual Meeting +For holders as of: November 28, 2011 +Date: January 25, 2012 Time: 2:00 PM EST +Location: Holiday +Inn Eastgate +4501 Eastgate Boulevard +Cincinnati, OH 45245 +You are receiving this communication because you hold shares in the +above named company. +This is not a ballot. You cannot use this notice to vote these shares. This communication presents only an overview of the more complete +proxy materials that are available to you on the Internet. You may view the proxy materials online at www.proxyvote.com or easily request a paper copy (see reverse side). +We encourage you to access and review all of the important information contained in +the proxy materials before voting. +See the reverse side of this notice to obtain proxy materials and voting instructions. +0000118163_1 R1.0.0.11699 +Table of Contents +— Before You Vote — +How to Access the Proxy Materials +Proxy Materials Available to VIEW or RECEIVE: +1. Annual Report 2. Notice & Proxy +Statement +How to View Online: +Have the information that is printed in the box marked by the arrow g XXXX XXXX XXXX (located on the following page) and visit: +www.proxyvote.com . +How to Request and Receive a PAPER or E-MAIL Copy: +If you want to receive a paper or e-mail copy of these documents, you must request one. There is NO charge for requesting +a copy. Please choose one of the following methods to make your request: +1) BY INTERNET : +www.proxyvote.com +2) BY TELEPHONE : 1-800-579-1639 +3) BY E-MAIL* : sendmaterial@proxyvote.com +* +If requesting materials by e-mail, please send a blank e-mail with the information that is printed in the box marked by the arrow g XXXX XXXX XXXX (located on the following page) in the subject line. +Requests, instructions and other inquiries sent to this e-mail address will NOT be forwarded to your investment advisor. Please make the request as instructed above on or before January 11, 2012 to +facilitate timely delivery. +— How To Vote — +Please Choose One of the Following Voting Methods +Vote In Person: Many shareholder meetings have attendance requirements including, but not limited to, the possession of an +attendance ticket +issued by the entity holding the meeting. Please check the meeting materials for any special requirements for +meeting attendance. At the meeting, you will need to request a ballot to vote these shares. +Vote By Internet: To vote now by Internet, go to www.proxyvote.com. +Have the information that is printed in the box marked by +the arrow g XXXX XXXX XXXX available and follow the instructions. +Vote By Mail: You can vote by mail by requesting a paper copy of the +materials, which will include a proxy card. +0000118163_2 R1.0.0.11699 +Table of Contents +Voting items +The Board of Directors recommends you vote FOR the +following: +1. Election of Directors +Nominees +01 JAMES M. ANDERSON +02 JOHN A. KRAEUTLER +03 WILLIAM J. MOTTO +04 DAVID C. PHILLIPS +05 ROBERT J. READY +The Board of Directors recommends you vote FOR the following proposal: +2. Advisory vote on named executive officer compensation. +The Board of Directors recommends you vote 1 YEAR on the following proposal: +3. Advisory vote on the frequency of future advisory votes on named executive officer compensation. +The Board of Directors recommends you vote FOR proposals 4, 5 and 6. +4. To ratify the appointment of Grant Thornton LLP as Meridian’s independent registered public accountants for fiscal year +2012. +5. To reapprove the Meridian 2004 Equity Compensation Plan and its performance measurements. +6. To approve the Meridian 2012 Stock Incentive Plan. +NOTE: Such other business as may properly come before the meeting or any postponement or adjournment thereof. +0000118681_3 R1.0.0.11699 +Table of Contents +0000118163 _4 R1.0.0.11699 \ No newline at end of file diff --git a/raw/proxies/0000794172/0001193125-11-340406/proxy_rpt.txt b/raw/proxies/0000794172/0001193125-11-340406/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..d5e4bc7abadcf3af002c7409af9b52030a113c52 --- /dev/null +++ b/raw/proxies/0000794172/0001193125-11-340406/proxy_rpt.txt @@ -0,0 +1,13 @@ +TRANSACTIONS WITH RELATED PERSONS +During fiscal 2011, Todd Motto, the adult son of William J. Motto, served as Business Development Coordinator, receiving $125,048 in compensation for +fiscal 2011. This compensation consisted of $110,256 of base salary, $2,000 of auto and professional allowances, $8,992 of retirement plan contributions, and $3,800 for dividends on restricted stock granted under the 2004 Plan. Effective +October 1, 2011, Todd Motto provides business development services on a limited basis at a rate of $250 per hour, primarily to wrap up projects he previously had in process. +Nasdaq rules require the Company to conduct an appropriate review of related party transactions required to be disclosed by the Company pursuant to SEC Regulation S-K Item 404 for potential conflict +of interest situations on an ongoing basis and that all such transactions must be approved by the Audit Committee or another Committee comprised of independent Directors. As a result, the Audit Committee annually reviews all such related party +transactions and approves each related party transaction if it determines that it is in the best interests of the Company. Additionally, the Audit Committee’s Charter provides it the authority to review, approve and monitor transactions +involving the Company and “related persons” (Directors and Executive Officers or their immediate family members, or shareholders owning five percent or greater of the Company’s outstanding stock). This also covers any related person +transaction that meets the minimum threshold for disclosure in the proxy statement under the relevant SEC rules (generally, transactions involving amounts exceeding $120,000 in which a related person has a direct or indirect material interest). In +considering the transaction, the Audit Committee may consider all relevant factors, including, as applicable, (i) the Company’s business rationale for entering into the transaction; (ii) the alternatives to entering into a related +person transaction; (iii) whether the transaction is on terms comparable to those available to third parties, or in the case of employment relationships, to employees generally; (iv) the potential for the transaction to lead to an actual +or apparent conflict of interest and any safeguards imposed to prevent such actual or apparent conflicts; and (v) the overall fairness of the transaction to the Company. This policy is included in the Company’s Employee Handbook. The +approval of such related person transactions are evidenced by internal Company resolutions or memoranda. \ No newline at end of file diff --git a/raw/proxies/0000794172/0001193125-12-499535/proxy.txt b/raw/proxies/0000794172/0001193125-12-499535/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..dea4e1419cebeac2204d48d4e92a1795fd7ddf13 --- /dev/null +++ b/raw/proxies/0000794172/0001193125-12-499535/proxy.txt @@ -0,0 +1,2331 @@ +DEF 14A +1 +d434025ddef14a.htm +DEF 14A +DEF 14A +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +WASHINGTON, D.C. 20549 +SCHEDULE 14A +(Rule 14a-101) +INFORMATION REQUIRED IN PROXY STATEMENT +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of the +Securities Exchange Act of 1934 +(Amendment No. ) +Filed by the Registrant x Filed by a Party other than the +Registrant ¨ +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material Pursuant to Section 14a-12 +Meridian Bioscience, Inc. +(Name of Registrant as Specified in Its Charter) +(Name of Person(s) Filing Proxy +Statement if Other Than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and +state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total Fee Paid: +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. +Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +MERIDIAN BIOSCIENCE, INC. +3471 River Hills Drive +Cincinnati, Ohio 45244 +www.meridianbioscience.com +Notice of Annual Meeting +and Proxy Statement +Dear Shareholder: +Our Annual Meeting of Shareholders will be held at 2:00 p.m. on January 23, 2013 at the Holiday Inn Eastgate, 4501 Eastgate Boulevard, Cincinnati, +OH 45245. We hope you will attend. +At the meeting, you will hear a report on our operations and have a chance to meet your Directors and +Executive Officers. +This booklet includes the formal notice of the meeting and the proxy statement. The proxy statement tells you more about +the agenda and procedures for the meeting. It also describes how the Board operates and gives personal information about our Director candidates. +We are pleased to once again take advantage of the U.S. Securities and Exchange Commission rules that allow companies to furnish their proxy materials over the Internet. As a result, we are mailing to +most of our shareholders a Notice of Internet Availability of Proxy Materials (the “Notice”) instead of a paper copy of this proxy statement and our Annual Report. The Notice contains instructions on how to access and review those +documents over the Internet. We believe that this process allows us to provide our shareholders with the information they need in a more timely manner, while reducing the environmental impact and lowering the costs of printing and distributing our +proxy materials. If you received a Notice by mail and would like to receive a printed copy of our proxy materials, you should follow the instructions for requesting such materials included in the Notice. +Whether or not you plan to attend the meeting, please cast your proxy vote promptly, either on-line, over the phone or by returning your signed and dated +proxy card in the enclosed envelope. +Sincerely yours, +/s/ William J. Motto +William J. Motto +Executive Chairman of the Board +December 12, 2012 +NOTICE OF ANNUAL MEETING +OF +SHAREHOLDERS OF MERIDIAN BIOSCIENCE, INC. +Time: +2:00 p.m., Eastern Standard Time +Date: +January 23, +2013 +Place: +Holiday Inn Eastgate +4501 Eastgate Blvd. +Cincinnati, Ohio 45245 +Purpose: +• +Elect as Directors the five nominees named in the attached proxy materials +• +Conduct an advisory vote on our executive compensation (“Say-on-Pay”) +• +Ratify appointment of Grant Thornton LLP as Meridian’s independent registered public accountants for fiscal year 2013 +• +Conduct other business if properly raised +Only shareholders of record on November 26, 2012 may vote at the meeting. The approximate mailing date of this proxy statement and accompanying Proxy Card is December 12, 2012. +Your vote is important. Please cast your proxy vote promptly, either on-line, over the phone or by returning your signed and dated proxy card in the +enclosed envelope. +/s/ Melissa A. Lueke +Melissa A. Lueke +Secretary +December 12, 2012 +TABLE OF CONTENTS +Page +GENERAL INFORMATION +1 +ELECTION OF DIRECTORS +2 +SAY-ON-PAY +5 +RATIFICATION OF APPOINTMENT OF ACCOUNTANTS +6 +CORPORATE GOVERNANCE +7 +DIRECTORS AND EXECUTIVE OFFICERS +14 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS +16 +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +16 +TRANSACTIONS WITH RELATED PERSONS +17 +COMPENSATION DISCUSSION AND ANALYSIS +17 +SUMMARY COMPENSATION TABLE +26 +DIRECTOR COMPENSATION +33 +SHAREHOLDER PROPOSALS FOR NEXT YEAR +34 +QUESTIONS? +34 +Meridian makes available, free of charge on its website, all of its filings that are made electronically with the +Securities and Exchange Commission (“SEC”), including Forms 10-K, 10-Q and 8-K. These filings are also available on the SEC’s website (www.sec.gov). To access these filings, go to our website (www.meridianbioscience.com). Copies of +Meridian’s Annual Report on Form 10-K for the fiscal year ended September 30, 2012, including financial statements and schedules thereto, filed with the SEC, are also available without charge to shareholders upon written request addressed +to: +Melissa A. Lueke +Executive +Vice President, Chief Financial Officer and Secretary +Meridian Bioscience, Inc. +3471 River Hills Drive +Cincinnati, Ohio 45244 +GENERAL INFORMATION +Who may vote +Shareholders of +Meridian, as recorded in our stock register on November 26, 2012, may vote at the meeting. As of that date, Meridian had 41,311,268 shares of Common Stock outstanding. +How to vote +You may vote in person at the meeting or by proxy. We recommend you +vote by proxy even if you plan to attend the meeting. You can always change your vote at the meeting. +How proxies work +Meridian’s Board of Directors is asking for your proxy. Giving us your proxy means you authorize us to vote your shares at the +meeting in the manner you direct. You may vote for all, some or none of our Director candidates. You may also vote for or against the other proposals or abstain from voting. +If you complete your proxy on-line, over the phone or sign and return the enclosed proxy card but do not specify how to vote, we will vote your shares in favor of (i) our Director candidates; +(ii) our executive compensation; and (iii) the ratification of appointment of Grant Thornton LLP as Meridian’s independent registered public accountants for fiscal year 2013. If any other matters come before the meeting or any +postponement or adjournment thereof, each proxy will be voted in the discretion of the individuals named as proxies on the card. +You may +receive more than one proxy or voting card depending on how you hold your shares. Shares registered in your name are covered by one card. If you hold shares through someone else, such as a stockbroker, bank or nominee, you may get material from them +asking how you want to vote. +Stockbrokers, banks and nominees holding shares for beneficial owners must vote those shares as instructed. If +the stockbroker, bank or nominee has not received instructions from you, the beneficial owner, the stockbroker, bank or nominee generally has discretionary voting power only with respect to the ratification of appointment of the independent +registered public accountants. However, a stockbroker, bank or nominee does not have discretion to vote for or against the election of Directors and certain other matters subject to a vote if they have not received voting instructions. In order to +avoid a broker non-vote of your shares on the election of Directors and the other matters subject to a vote, you must send voting instructions to your stockbroker, bank or nominee. +Solicitation of proxies +Solicitation of proxies is being made by management at the +direction of Meridian’s Board of Directors, without additional compensation, through the mail, in person or by telephone. The cost of preparing and mailing the Notice and the proxy statement and any accompanying material will be borne by +Meridian. In addition, Meridian will request brokers and other custodians, nominees and fiduciaries to forward proxy soliciting material to the beneficial owners of shares held of record and Meridian will reimburse them for their expenses in so +doing. +1 +Revoking a proxy +You may revoke your proxy before it is voted by submitting a new proxy with a later date, by voting in person at the meeting or by notifying Meridian’s Secretary in writing at the address under +“Questions?” on page 34. +Quorum +In order to carry on the business of the meeting, we must have a quorum. This means at least a majority of the outstanding shares eligible to vote must be represented at the meeting, either by proxy or in +person. +Votes needed +The five Director candidates receiving the most votes will be elected to fill the seats on the Board. The approval on an advisory basis of our executive +compensation (Proposal No. 2) and the ratification of appointment of accountants (Proposal No. 3) require the favorable vote of a majority of the votes cast. Only votes for or against these proposals count, with abstentions not being +counted either for or against these proposals. +Abstentions and broker non-votes count for quorum purposes but, as indicated above, will not +count for voting purposes. Broker non-votes occur when a broker returns a proxy card but does not have authority to vote on a particular proposal. +Other matters +Any other matters considered at the meeting, including postponement +or adjournment, will require the affirmative vote of a majority of the votes cast. +ELECTION OF DIRECTORS +(Item 1 on the Proxy Card) +The Nominating and Corporate Governance Committee of the Board of Directors has nominated for re-election the following current Directors: James M. +Anderson, John A. Kraeutler, William J. Motto, David C. Phillips and Robert J. Ready. +Proxies solicited by the Board will be voted for the +election of these nominees. All Directors elected at the Annual Shareholders’ Meeting will be elected to hold office until the next annual meeting. In voting to elect Directors, shareholders are entitled to cumulate their votes and to give one +candidate a number of votes equal to the number of Directors to be elected multiplied by the number of shares held by the shareholder, or to distribute their votes on the same principle among as many candidates as the shareholder sees fit. In order +to invoke cumulative voting, notice of cumulative voting must be given in writing by a shareholder to the Chief Executive Officer, a Vice President or the Secretary of Meridian not less than 48 hours prior to the Annual Shareholders’ Meeting. +The proxies solicited include discretionary authority to cumulate votes. +All Meridian Directors are elected for one-year terms. Personal +information on each of our nominees is given below. +2 +If a Director nominee becomes unavailable before the election, your proxy card authorizes us to vote for a +replacement nominee if the Board names one. +The Board recommends that shareholders vote FOR each of the following candidates: +James M. Anderson +Director since 2009 +Age: 70 +James M. Anderson serves as Chairman of the Nominating and Corporate Governance Committee. He currently serves as Advisor to the President of Cincinnati Children’s Hospital Medical Center +(“CCHMC”), following his retiring as President and Chief Executive Officer of CCHMC on December 31, 2009. He has also served on the Board of the Cincinnati Branch of the Federal Reserve Bank of Cleveland, retiring in 2012. Prior to +joining the staff of CCHMC, Mr. Anderson was a partner in the general corporate law department at Taft, Stettinius & Hollister for 24 years (1968-1977; 1982-1996) and president of U.S. operations at Xomox Corporation, a publicly-traded +manufacturer of specialty process controls (1977-1982). Mr. Anderson has also served as director of Gateway Investment Advisors (1997-2008). The Board believes that Mr. Anderson’s corporate legal experience and his experience +as CEO of a large healthcare organization have given him a wealth of insight into various corporate governance and business management issues, which, along with his status as an independent Director, make him an integral member of the Board. +John A. Kraeutler +Director since 1997 +Age: 64 +John A. Kraeutler has more than 40 years of experience in the medical diagnostics industry and joined Meridian as Executive Vice President and Chief Operating Officer in January 1992. In July +1992, Mr. Kraeutler was named President of Meridian, and in January 2008, Mr. Kraeutler was named Chief Executive Officer of Meridian. Before joining Meridian, Mr. Kraeutler served as Vice President, General Manager for a division of +Carter-Wallace, Inc. Prior to that, he held key marketing and technical positions with Becton, Dickinson and Company and Organon, Inc. Mr. Kraeutler’s long-time service to Meridian, all in an executive capacity, has given him significant +insight into, and familiarity with, all aspects of Meridian’s business and the strategic vision for its continued success, and makes his service on the Board extremely beneficial. +3 +William J. Motto +Director since 1977 +Age: 71 +William J. Motto has more than 45 years of experience in the pharmaceutical and diagnostics products industries, is a founder of Meridian and has been Chairman of the Board since 1977. +Mr. Motto became Executive Chairman of the Board in January 2008. Before forming Meridian, Mr. Motto served in various capacities for Wampole Laboratories, Inc., Marion Laboratories, Inc. and Analytab Products, Inc., a division of American +Home Products Corp. Mr. Motto’s experience as Meridian’s founder, his breadth of experience within the pharmaceutical and diagnostics products industries, and his entrepreneurial approach to assessing Meridian’s growth +opportunities, give him unparalleled insights into all aspects of Meridian’s business and operations, which he, in turn, is able to contribute to the Board as its Executive Chairman. +David C. Phillips +Director since 2000 +Age: 74 +David C. Phillips serves as Chairman of the Audit Committee. Mr. Phillips spent 32 years with Arthur Andersen LLP. His service with this firm included several managing partner leadership +positions. After retiring from Arthur Andersen in 1994, Mr. Phillips became Chief Executive Officer of Downtown Cincinnati, Inc., which is responsible for economic revitalization of Downtown Cincinnati. Mr. Phillips retired from DCI in +1999 to devote full time to Cincinnati Works, Inc., an organization dedicated to reducing the number of people living below the poverty level by assisting them to strive towards self-sufficiency through work, and his financial consulting services. +Mr. Phillips has also served as a director of Cintas Corporation, retiring in 2012, and as a director of Summit Mutual Funds, a registered investment company, through 2009. The Board believes that Mr. Phillips’ years of service as a +certified public accountant and trusted advisor to his clients and business owners, which qualify him as an “audit committee financial expert” under SEC guidelines, give him significant experience in preparing, auditing, analyzing and +evaluating financial statements and dealing with complex accounting and business issues, all of which is valuable to Meridian. +4 +Robert J. Ready +Director since 1986 +Age: 72 +Robert J. Ready serves as Chairman of the Compensation Committee. Mr. Ready founded LSI Industries Inc., Cincinnati, Ohio in 1976, which engineers, manufactures and markets +commercial/industrial lighting and graphics products, and is currently its Chief Executive Officer and Chairman of its Board of Directors. Meridian’s Board believes that Mr. Ready’s years of experience as the chief executive of a +publicly-traded company and the myriad, wide-ranging business issues encountered in such capacity, as well as his status as an independent Director, render his service on the Board invaluable to Meridian. +ADVISORY VOTE ON COMPENSATION OF NAMED EXECUTIVE OFFICERS +(“SAY-ON-PAY” PROPOSAL) +(Item 2 on the Proxy Card) +The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd Act”), enacted in July 2010, requires that we provide our shareholders +with the opportunity to vote to approve, on a non-binding, advisory basis, the compensation of our named executives officers as disclosed in this proxy statement in accordance with the compensation disclosure rules of the Securities and Exchange +Commission (“SEC”). The Dodd Act also provides that, at least once every six years, shareholders must be given the opportunity to vote, on a non-binding, advisory basis, for their preference as to how frequently we should seek future +advisory votes on the compensation of our named executive officers. We provided this opportunity to our shareholders at our 2012 annual meeting where over 90% of our shareholders voted to hold the “say-on-pay” advisory vote annually, in +accordance with the recommendation of our Board of Directors. +As described in detail below under the heading “Compensation Discussion +and Analysis” beginning on page 17 of this proxy statement, we seek to closely align the interests of our named executive officers with the interests of our shareholders. We structure our programs to discourage excessive risk-taking through a +balanced use of compensation vehicles and metrics with an overall goal of delivering sustained long-term shareholder value while aligning our executives’ interests with those of our shareholders. Further, our programs require that a substantial +portion of each named executive officer’s compensation be contingent on delivering performance results that benefit our shareholders. Our compensation programs are designed to reward our named executive officers for the achievement of +short-term and long-term strategic and operational goals and the achievement of increased total shareholder return. +The vote on this matter +is not intended to address any specific element of compensation; rather, the vote relates to the compensation of our named executive officers, as described in this proxy statement in accordance with the compensation disclosure rules of the SEC. The +5 +vote is advisory, which means that the vote is not binding on the Company, our Board of Directors or the Compensation Committee. The Board and the Compensation Committee will review and consider +the voting results when making future decisions regarding our executive compensation program. +Accordingly, we ask our shareholders to +approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the this proxy statement pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis, the Summary +Compensation Table and the other related tables and disclosure. +The Board of Directors recommends that shareholders vote FOR the +approval of the compensation of our named executive officers as disclosed in this proxy statement. +RATIFICATION OF APPOINTMENT OF ACCOUNTANTS +(Item 3 on the Proxy Card) +Although not required, we are seeking shareholder ratification +of the Audit Committee’s selection of Grant Thornton LLP as Meridian’s independent registered public accountants for the 2013 fiscal year. The affirmative vote of a majority of shares voting at the meeting is required for ratification. If +ratification is not obtained, the Audit Committee intends to continue the employment of Grant Thornton at least through fiscal 2013. Representatives of Grant Thornton are expected to be present at the Annual Shareholders’ Meeting and will be +available to make a statement, if they so desire, and to respond to appropriate questions asked by shareholders. +Principal Accounting Firm +Fees +Aggregate fees billed to Meridian by Grant Thornton LLP for fiscal years 2012 and 2011 are listed below: +2012 +2011 +Audit Fees +$ +398,098 +$ +405,067 +Audit-Related Fees +21,095 +19,528 +Tax Fees +255,507 +209,684 +$ +674,700 +$ +634,279 +Audit Fees. Audit fees are the fees billed for professional services rendered by Meridian’s +independent registered public accounting firm for their (i) audit of Meridian’s consolidated annual financial statements for the fiscal years ended September 30, 2012 and 2011, respectively, (ii) reviews of the unaudited +quarterly consolidated financial statements contained in the reports on Form 10-Q filed by Meridian during those years, (iii) completion of audits of Bioline Group statutory accounts in the United Kingdom during those years, and +(v) reporting on Meridian’s internal controls during those years. +6 +Audit-Related Fees . Audit-related fees are the fees billed for assurance and related +services that are reasonably related to the performance of the audit or review of Meridian’s financial statements. +Tax +Fees. Tax fees are the fees billed for U.S. federal and state tax return preparation and compliance, as well as consultation and research on various matters such as state tax issues, international tax issues and transfer pricing. +The Board recommends that shareholders vote FOR the ratification of appointment of Grant Thornton LLP as Meridian’s independent registered +public accountants for the 2013 fiscal year. +CORPORATE GOVERNANCE +As an Ohio corporation, Meridian is governed by the corporate laws of Ohio. Since its common shares are publicly traded on the Nasdaq Global Select Market +and it files reports with the Securities and Exchange Commission, it is also subject to Nasdaq rules and federal securities laws. +Board +Leadership Structure +Governance of the corporation is placed in the hands of the Directors who, in turn, elect officers to manage the +business operations. The Board oversees the management of Meridian on your behalf. The Board reviews Meridian’s long-term strategic plans and exercises direct decision making authority in all major decisions, such as acquisitions, the +declaration of dividends, major capital expenditures and the establishment of company policies. +On November 7, 2012, the Board approved +our amended Corporate Governance Guidelines, which are available at our website www.meridianbioscience.com . These Guidelines define how the Board operates and evaluates its performance. +The Board of Directors is responsible for evaluating and determining Meridian’s leadership structure, and believes that separate individuals should +serve in the capacities of Chairman of the Board and Chief Executive Officer (CEO). It is the Board’s belief that such a two-person structure best provides the Company with the right foundation to pursue its strategic and operational +objectives, while maintaining effective oversight and objective evaluation of the Company’s performance. Currently, these key executive positions are held by Mr. William J. Motto, Executive Chairman of the Board, and +Mr. John A. Kraeutler, CEO. Mr. Motto has served as the Board’s Chairman since 1977 and in such capacity is responsible for general Board activities including presiding over all meetings of the Board and shareholders, setting +agendas for Board meetings and providing advice and counsel to Meridian’s management regarding the Company’s business and operations. As CEO, Mr. Kraeutler is responsible for the general management, oversight, supervision and control +of the business affairs of Meridian, and ensuring that all orders and resolutions of the Board are put into effect. With their many years of experience with the Company, Meridian believes that Mr. Motto and Mr. Kraeutler are uniquely +qualified to be Meridian’s Executive Chairman and CEO, respectively. +7 +On July 25, 2012, the Board approved the appointment of Mr. David C. Phillips as Lead +Director. The Board has determined that the Lead Director shall (i) in consultation with the non-management Directors, advise the Chairman as to an appropriate schedule of Board meetings and review and provide the Chairman with input regarding +the agendas for each Board meeting; (ii) preside at all meetings at which the Chairman is not present, including Executive Sessions of the non-management Directors and apprise the Chairman of the issues considered thereat; (iii) call +meetings of the non-management Directors when necessary and appropriate; and (iv) perform such other duties as the Board may from time to time designate. We believe that this leadership structure is currently the most appropriate for Meridian, +particularly in light of the requirement noted below that all Committees of the Board are comprised solely of independent Directors. +In +accordance with Nasdaq rules, our Board of Directors affirmatively determines the independence of each Director and nominee for election as a Director in accordance with the elements of independence set forth in the Nasdaq listing standards and +Exchange Act rules. Meridian’s Director Independence Standards are available at our website www.meridianbioscience.com . Based on these standards, the Board has determined that each of the following members of the Board is +independent: James M. Anderson, David C. Phillips and Robert J. Ready. +During fiscal 2012, the Board of Directors met on five occasions and +took two actions in writing. The independent Directors plan to meet at least two times during fiscal 2013 without the presence of management Directors. The independent members of the Board had one such meeting in fiscal 2012, with Mr. Ready +presiding. +Meridian expects all Directors to attend shareholders’ meetings and all were in attendance at the 2012 Annual +Shareholders’ Meeting, with the exception of Mr. Kreider, who declined his nomination and, therefore, did not stand for re-election to the Board of Directors at this meeting. +Shareholders may communicate with the full Board or individual Directors on matters concerning Meridian by mail or through our website, in each case to the attention of the Secretary, the address for whom +is set forth on page 34 of this proxy statement. +The Board’s Role in Risk Oversight +The Board of Directors, as a whole and also at the Committee level, plays a key role in operational risk oversight at Meridian and works with management +to understand the risks the Company faces, the steps that management is taking to manage that risk and the level of risk appropriate for the Company in light of its overall business strategy. The Board approves the high level strategies, financial +plans and policies of Meridian, setting the tone and direction for the appropriate levels of risk-taking within the organization. +While +overall responsibility for risk oversight rests with the Board, it is the Audit Committee that has been given the primary responsibility of monitoring and evaluating the adequacy of management’s risk assessment and risk management practices. +This role is carried out through its charter-mandated responsibilities related to Meridian’s (i) overall financial risks and exposures; (ii) financial statement risks and exposures; (iii) financial reporting processes; +8 +(iv) compliance with ethics policies, such as the Code of Ethics, Employee Complaint Policy, Security Trading Policies and the Foreign Corrupt Practices Act Policy; and (v) compliance with +governmental and legal regulations, including those contained within the Sarbanes-Oxley Act. The Audit Committee provides regular reports to the full Board and works closely with management to update the full Board, as necessary, on matters +identified through these Committee risk oversight roles. +Committees of the Board of Directors +The Board has adopted a Code of Ethics applicable to Meridian’s officers, Directors and employees. This Code of Ethics is posted on +www.meridianbioscience.com . To the extent permitted by Nasdaq Marketplace Rule 5610, any amendments to or waivers from the Code of Ethics will be posted on our website within four business days after the date of an amendment. +The Directors have organized themselves into the Committees described below. Each of these Committees has a charter posted on +www.meridianbioscience.com . Meridian does not have an Executive Committee of its Board of Directors. +The Audit Committee +is composed of David C. Phillips (Chairman), James M. Anderson and Robert J. Ready. The Committee met nine times during fiscal 2012 and took no actions in writing. Each member is able to read and understand fundamental financial statements. David C. +Phillips has been designated as an Audit Committee financial expert as that term is defined by the Securities and Exchange Commission. +The +Committee oversees the accounting and financial reporting processes of Meridian and the audits of its financial statements by its independent registered public accounting firm. The Committee is solely responsible for the appointment, compensation, +retention and oversight of Meridian’s independent registered public accounting firm. The Audit Committee also evaluates information received from Meridian’s independent registered public accounting firm and management to determine whether +the independent registered public accounting firm is independent of management. The independent registered public accounting firm reports directly to the Audit Committee. +In addition, the Audit Committee has established procedures for the receipt, retention and treatment of complaints received by Meridian concerning accounting, internal accounting controls or auditing +matters and has established procedures for the confidential and anonymous submission by employees of any concerns they may have regarding questionable accounting or auditing matters. +The Audit Committee, or its Chairman, approves all audit and non-audit services performed for Meridian by its independent registered public accounting firm before those services are commenced. The +Chairman reports to the full Committee at each of its meetings regarding pre-approvals he made since the prior meeting and the Committee approves what he has done between meetings. For these purposes, the Committee or its Chairman is provided with +information as to the nature, extent and purpose of each proposed service, as well as the approximate timeframe and proposed cost arrangements for that service. +9 +As previously noted, the Audit Committee also bears primary risk oversight responsibilities, including +responsibilities such as (i) overseeing the risks and exposures relating to the Company’s financial statements and financial reporting process, (ii) overseeing the Company’s policies and procedures for monitoring and mitigating +such risks and exposures, and (iii) reviewing management’s monitoring of the Company’s compliance with established ethics and legal policies and procedures. +The Committee has submitted the following report for inclusion in this proxy statement. +REPORT OF THE AUDIT COMMITTEE +On April 24, 2012, the Audit Committee met with +representatives of Grant Thornton and Meridian’s internal accountants and reviewed with them the proposed 2012 Audit Plan, areas warranting particular concentration on the audit and the effects of new accounting pronouncements. The Grant +Thornton representatives reviewed with the Committee required Audit Committee communications. +On July 24, 2012, the Committee met with +representatives of Grant Thornton and Meridian’s internal accountants and reviewed the status of the 2012 audit, including internal control matters, the Meridian Bioscience, Inc. Savings and Investment Plan audit, and new accounting +pronouncements. The Committee also had an extensive review of tax consulting engagements and independence requirements. The Committee also reviewed the status of the most recent Public Company Accounting Oversight Board (PCAOB) inspection results. +At its meeting on August 22, 2012, the Committee reviewed management’s strategic business plan and related risk assessment, +specifically discussing with management its risk management strategies related to key financial and business risks. The Committee concluded that this annual in-depth review and ongoing management updates of the integrated strategic and risk +management plan were appropriate in order to fulfill its risk oversight obligations. The Committee also reviewed the requirements of its Charter previously adopted, performed its annual self-assessment and reviewed the Code of Ethics, Employee +Complaint Policy, Security Trading Policies, Foreign Corrupt Practices Act Policy, and Travel and Entertainment Policy as it relates to officer expense accounts. +At its meeting on November 6, 2012, the Committee reviewed and discussed with management, Grant Thornton and Meridian’s accounting officers the results of the audit for fiscal 2012, including +the financial results. The Committee discussed with Grant Thornton the matters required to be discussed by PCAOB Interim Auditing Standard AU Section 380, Communication with Audit Committees . The Grant Thornton representatives reviewed +with the Committee written disclosures required by applicable requirements of the PCAOB regarding the independent accountants’ communications with the Audit Committee concerning independence, discussed with the Committee the independent +accountants’ independence, and presented a letter regarding that matter to the Committee. The Committee discussed with Grant Thornton its independence. In concluding that the auditors are independent, we determined, among other things, that the +non-audit services provided by the auditors were compatible with their independence. +10 +Based on the above mentioned review and review of the audited financial statements, on November 21, +2012, the Committee recommended to the Board of Directors that the audited financial statements of Meridian be included in its Annual Report on Form 10-K for the year ended September 30, 2012 for filing with the Securities and Exchange +Commission. +During its meetings throughout the year, the Committee reviewed and assessed the Company’s financial, financial control, +financial reporting, and certain legal and regulatory risk exposures, including reviewing procedures related to the receipt, retention and treatment of any complaints concerning accounting, internal accounting controls or auditing matters. Also +during its meetings throughout the year, the Chairman of the Audit Committee reported to the full Committee the independent accountants’ fees that had been pre-approved and the Committee approved such fees. Certain fees were pre-approved by the +full Committee. The Committee also reviewed the requirements of and Meridian’s ongoing compliance with Section 404 of the Sarbanes-Oxley Act. +Respectfully submitted, +Audit Committee +David C. Phillips (Chairman) +James M. Anderson +Robert J. Ready +The +Compensation Committee is composed of Robert J. Ready (Chairman), James M. Anderson, and David C. Phillips and is responsible for establishing compensation for Executive Officers and administering the Company’s compensation plans. This +includes establishing salary levels and bonus plans, making bonus and stock-based awards, and otherwise dealing in all matters concerning compensation of the Executive Officers. During fiscal 2012, the Compensation Committee met four times, and took +no actions in writing. +In general, the Compensation Committee annually reviews the Company’s compensation programs and its philosophy in +setting performance targets in November of each year. At that time, the Company provides the Compensation Committee with information on total compensation received for all Executive Officers, including the sources of such compensation, for the +immediately preceding fiscal year and recommendations for the current fiscal year. In discharging the responsibilities of the Board of Directors relating to compensation of the Company’s Chief Executive Officer and other Executive Officers, the +purposes of the Compensation Committee are, among others, (i) to review and approve the compensation of the Company’s Chief Executive Officer and other Executive Officers and (ii) to oversee the compensation policies and programs of +the Company, including stock and benefit plans. The Compensation Committee’s specific functions include adopting, administering and approving the Company’s incentive compensation and stock plans and awards, including amendments to the +plans or awards and performing such duties and responsibilities under the terms of any executive compensation plan, incentive-compensation plan or equity-based plan. The Compensation Committee has the authority to delegate any of its +responsibilities to subcommittees as the Compensation Committee may deem appropriate in its sole discretion. The Compensation Committee has the authority to engage consultants +11 +and advisors. The Compensation Committee did not engage a consultant this year. The Compensation Committee has an appropriate level of contact among its members and the Company’s Executive +Officers in connection with the analysis of this data. On an annual basis, the Committee reviews its Charter and performs a self-assessment. +The Compensation Committee determines the amount and mix of compensation components for the Executive Chairman, Mr. Motto. The Executive Chairman +provides input and recommendations to the Compensation Committee with respect to the compensation to be paid to the non-employee members of the Board, as well as Mr. Kraeutler. As Meridian’s Chief Executive Officer, Mr. Kraeutler +provides recommendations to the Compensation Committee with respect to compensation to be paid to the other corporate officers. +To achieve +compensation objectives, the Committee believes it is important to provide competitive levels of compensation to retain the most qualified employees, to recognize individuals who exceed expectations and to closely link executive compensation with +corporate performance. The Committee believes Meridian’s long-term objectives can be achieved through cash incentive compensation plans and equity incentive compensation plans. +The Compensation Committee’s processes and procedures for the consideration and determination of Executive and Director compensation are discussed in the section entitled “Compensation +Discussion and Analysis” in this proxy statement. +Compensation Committee Interlocks and Insider Participation +None of the members of the Compensation Committee has ever been an officer or employee of the Company. None of the members of the Compensation Committee +is or was a participant in any related person transaction in fiscal 2012 (see the section entitled “Transactions With Related Persons” in this proxy statement for a description of our policy on related person transactions). Lastly, none of +the members of the Compensation Committee is an Executive Officer of another entity at which one of our Executive Officers serves on the Board of Directors. No Named Executive Officer of Meridian serves as a Director or as a member of a committee of +any company of which any of the Company’s non-employee Directors are Executive Officers. +The Nominating and Corporate Governance +Committee consists of James M. Anderson (Chairman), David C. Phillips and Robert J. Ready. The Committee met two times during fiscal 2012 and took no actions in writing. On April 25, 2012, the Committee adopted a resolution to +recommend to the Board the appointment of Mr. David C. Phillips as Lead Director. This resolution was adopted by the Board at its July 25, 2012 meeting. On November 6, 2012, the Committee considered and nominated the current +Directors for re-election. The Committee identifies qualified nominees for the Board, determines who will be nominated by the Company for election to the Board and recommends to the full Board any changes in the size of the Board. The Committee also +reviewed its Charter, approved certain amendments and performed its annual self-assessment. +12 +In nominating Directors, the Committee takes into account, among other factors which it may deem +appropriate, the judgment, skill, diversity, and business experience of the potential nominee and the needs of the Board as its function relates to the business of the Company. The Committee considers candidates for nomination from a variety of +sources including recommendations of shareholders. Shareholders desiring to submit recommendations for nominations by the Committee should direct them to the Chairman of the Nominating and Corporate Governance Committee in care of the Company at its +address shown on the cover page of this proxy statement. +The Nominating and Corporate Governance Committee will assess the qualifications of +all candidates for the Board on an equal basis. In identifying and considering candidates for nomination to the Board, the Committee considers, among other factors, quality of experience, the needs of the Company and the range of talent and +experience currently represented on the Board. The Committee evaluates such factors, among others, and does not assign any particular weighting or priority to any of these factors, nor does the Committee have a formal policy with respect to +diversity. However, the Committee, working with the Board, considers the diversity of all of the Company’s stakeholders – including shareholders, employees and customers – when engaging in corporate governance discussions. +13 +DIRECTORS AND EXECUTIVE OFFICERS +This table lists the Executive Officers and Directors of Meridian and shows the number of shares beneficially owned, as determined under SEC rules, on +November 26, 2012. Beneficial ownership includes any shares as to which the individual has sole or shared voting or investment power and also any shares that the individual has the right to acquire as of January 25, 2013 (60 days after +November 26, 2012). +Common Stock +Beneficially +Owned +Name +Position +Amount 1 +Percentage +William J. Motto +Executive Chairman of the +Board of Directors +784,718 +1.9 +% +John A. Kraeutler +Chief Executive Officer and +Director +288,586 +* +Richard L. Eberly 2 +Executive Vice President, +President Meridian Life Science +49,996 +* +Lawrence J. Baldini 3 +Executive Vice President, +Operations and Information Systems +79,500 +* +Melissa A. Lueke 4 +Executive Vice President, +Chief Financial Officer and Secretary +138,765 +* +Vecheslav A. Elagin 5 +Executive Vice President, +Research & Development +21,018 +* +Susan A. Rolih 6 +Senior Vice President, +Regulatory Affairs & Quality +Assurance +132,350 +* +Marco G. Calzavara 7 +President and Managing +Director, Meridian +Bioscience Europe +2,400 +* +Marviette D. Johnson 8 +Vice President, +Human Resources +19,847 +* +James M. Anderson 9, 10, 11 +Director +41,000 +* +David C. Phillips 9, 10, 11 +Director +65,626 +* +Robert J. Ready 9, 10, 11 +Director +82,815 +* +All Executive Officers and Directors as a Group +1,706,621 +4.1 +% +1 +Includes options +exercisable within 60 days for Mr. Motto of 63,000 shares, Mr. Kraeutler of 97,250 shares, Mr. Eberly of 34,750 shares, Mr. Baldini of 32,000 shares, Ms. Lueke of 47,250 shares, Dr. Elagin of 8,500 shares, +Ms. Rolih of 63,600 shares, Ms. Johnson of 8,250 shares, Mr. Anderson of 30,000 shares, Mr. Phillips of 50,214 shares and Mr. Ready of 65,856 shares. +2 +Richard L. Eberly was appointed Vice President of Sales and Marketing in January 1997, Executive Vice President in May 2000, Executive Vice President, +General Manager of Meridian Life Science in February 2003, Executive Vice President and President Meridian Life Science in October 2005 and Chief Commercial Officer in February 2011. In October 2012, he was re-appointed President of Meridian Life +Science, and no longer serves as Chief Commercial Officer. He has over 20 years of experience in the medical diagnostics industry and joined Meridian in March 1995. Prior to his appointment to Vice President of Sales and Marketing, Mr. +14 +Eberly served as the Director of Sales for Meridian. Before joining Meridian, he held key sales and marketing positions at Abbott Diagnostics, Division of Abbott Laboratories. Age: 51 +3 +Lawrence J. Baldini was appointed Vice President of Operations in April 2001 and Executive Vice President, Operations and Information Systems in +October 2005. Before joining Meridian, Mr. Baldini held various operations management positions with Instrumentation Laboratories and Fisher Scientific. Age: 53 +4 +Melissa A. Lueke was appointed Vice President, Chief Financial Officer and Secretary in January 2001 and Executive Vice President, Chief Financial +Officer and Secretary in November 2009. Prior to her appointment, Ms. Lueke served as Meridian’s Controller since March 2000 and Acting Secretary from July 20, 2000 to January 23, 2001. Before joining Meridian, Ms. Lueke was +employed by Arthur Andersen LLP from June 1985 to January 1999, most recently as a Senior Audit Manager. Age: 49 +5 +Vecheslav A. Elagin joined Meridian in August 2009 as Vice President of Research and Development, was appointed Senior Vice President of Research and +Development in November 2011, and promoted to Executive Vice President of Research and Development in June 2012. Before joining Meridian, Dr. Elagin held various executive research and development positions, most recently with Madison Life +Science (August 2008 – August 2009), EraGen Biosciences (May 2006 – August 2008) and Third Wave Technologies (June 2003 – May 2006). Age: 45 +6 +Susan A. Rolih was appointed Vice President of Regulatory Affairs and Quality Assurance in May 2001 and Senior Vice President of Regulatory Affairs and +Quality Assurance in April 2008. Before joining Meridian, Ms. Rolih held various regulatory and quality positions with Immucor, Inc. Age: 63 +7 +Marco G. Calzavara, founder of the Bioline Group, which Meridian acquired July 20, 2010, was appointed President and Managing Director of Meridian +Bioscience Europe in April 2011. Prior to this appointment, Mr. Calzavara had served as President of the Bioline Group of Companies since 1992. Age: 58 +8 +Marviette D. Johnson served as Director of Human Resources from January 2006 to April 2008, as Senior Director of Human Resources from April 2008 to +November 2009 and was appointed to her current position of Vice President of Human Resources in November 2009. Before joining Meridian in 2003, Ms. Johnson held various human resources leadership positions within the hospitality industry, +including with Marriott International and Millennium Copthorne. Age: 44 +9 +Audit Committee +Member. +10 +Compensation +Committee Member. +11 +Nominating and +Corporate Governance Committee Member. +* +Less than one percent. +15 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS +The following table lists the persons known by the Company to be the beneficial owners of more than five percent of the Company’s Common Stock as of +November 26, 2012, unless otherwise noted. Beneficial ownership includes any shares as to which the individual has sole or shared voting or investment power. +Name and address of beneficial owner +Amount and nature of +beneficial ownership +Percent of class 1 +Neuberger Berman Group LLC +4,192,050 +10.16 +605 Third Avenue +New York, NY 10158 +Brown Capital Management, LLC +3,139,862 +7.61 +1201 N. Calvert Street +Baltimore, MD 21202 +BlackRock, Inc. +3,091,287 +7.50 +40 East 52 nd Street +New York, NY 10022 +T. Rowe Price Associates, Inc. +2,610,375 +6.30 +100 E. Pratt Street +Baltimore, MD 21202 +Invesco Ltd. +2,250,391 +5.50 +1555 Peachtree Street NE +Atlanta, GA 30309 +The Vanguard Group, Inc. +2,156,794 +5.23 +100 Vanguard Blvd. +Malvern, PA 19355 +1 +For the beneficial +owners listed in the table, the percentages listed reflect disclosures in the Schedule 13Gs filed by each beneficial owner with the SEC. +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Section 16 of the Securities Exchange Act of 1934 requires Meridian’s Executive Officers, Directors and persons who own more than ten percent of +a registered class of Meridian’s equity securities to file reports of ownership and changes in ownership with the SEC. Based on a review of the copies of such forms received by it, Meridian believes that during the last fiscal year, all of its +Executive Officers, Directors and ten percent stockholders complied with the Section 16 reporting requirements, with the exceptions that (i) one late ownership report was filed for Mr. William J. Motto with respect to an estate +planning transaction; (ii) one late ownership report was filed for Dr. Vecheslav A. Elagin with respect to the grant of options in connection with his promotion to Executive Vice President; and (iii) one late ownership report was +filed for independent Director Robert J. Ready with respect to the exercise of stock options. In making these statements, Meridian has relied upon examination of the copies of Forms 3, 4 and 5, and amendments thereto, and the written representation +of its Directors and Executive Officers. +16 +TRANSACTIONS WITH RELATED PERSONS +During fiscal 2012, the Company leased certain office space from an entity controlled by Marco G. Calzavara, President and Managing Director, Meridian +Bioscience Europe. Payments made under such arrangements during fiscal 2012 totaled approximately $190,000. +Nasdaq rules require the +Company to conduct an appropriate review of related party transactions required to be disclosed by the Company pursuant to SEC Regulation S-K Item 404 for potential conflict of interest situations on an ongoing basis and that all such +transactions must be approved by the Audit Committee or another Committee comprised of independent Directors. As a result, the Audit Committee annually reviews all such related party transactions and approves each related party transaction if it +determines that it is in the best interests of the Company. Additionally, the Audit Committee’s Charter provides it the authority to review, approve and monitor transactions involving the Company and “related persons” (Directors and +Executive Officers or their immediate family members, or shareholders owning five percent or greater of the Company’s outstanding stock). This also covers any related person transaction that meets the minimum threshold for disclosure in the +proxy statement under the relevant SEC rules (generally, transactions involving amounts exceeding $120,000 in which a related person has a direct or indirect material interest). In considering the transaction, the Audit Committee may consider all +relevant factors, including, as applicable, (i) the Company’s business rationale for entering into the transaction; (ii) the alternatives to entering into a related person transaction; (iii) whether the transaction is on terms +comparable to those available to third parties, or in the case of employment relationships, to employees generally; (iv) the potential for the transaction to lead to an actual or apparent conflict of interest and any safeguards imposed to +prevent such actual or apparent conflicts; and (v) the overall fairness of the transaction to the Company. This policy is included in the Company’s Employee Handbook. The approval of such related person transactions are evidenced by +internal Company resolutions or memoranda. +COMPENSATION DISCUSSION AND ANALYSIS +Throughout this proxy statement, the individuals who served as the Company’s Chief Executive Officer and Chief Financial Officer during fiscal 2012, +as well as the other individuals listed in the Summary Compensation Table below, are referred to as the “Named Executive Officers” or “NEOs.” +Compensation Philosophy and Objectives +Our policies regarding executive compensation +programs are intended to balance motivating, rewarding and retaining executives with a competitive compensation package, and maximizing long-term shareholder value by linking compensation earned to both individual and Company performance. +Compensation typically includes base salary, eligibility for annual cash bonuses and stock-based awards contingent on Company performance and/or future service, retirement plan contributions and other Company-sponsored benefits. A significant +portion of each Executive Officer’s cash bonus and stock-based awards are dependent upon achieving business and financial goals and realizing other performance objectives. Examples of Company performance metrics for which we measure achievement +are sales growth, net earnings growth and profit margins (gross profit, operating income and +17 +net earnings). Annual performance targets for these metrics are set at or above industry averages and historical results. Our compensation programs are intended to reward individual contributions +(for example, bringing a new product to market) and Company-wide achievement of performance metric targets (for example, overall sales and net earnings growth). +The Compensation Committee of the Board of Directors is responsible for ongoing oversight of compliance with this compensation philosophy. The Compensation Committee ensures that the total compensation +paid to the NEOs is fair, reasonable and competitive. +At our 2012 annual meeting, Meridian held an advisory vote on the compensation of its +NEOs, commonly referred to as a say-on-pay vote. Our shareholders overwhelmingly approved the compensation of our NEOs, with over 97% of votes cast in favor of our 2012 say-on-pay resolution. Based on the results of the 2012 say-on-pay vote, the +Compensation Committee concluded that the compensation paid to the NEOs and Meridian’s overall pay practices received strong shareholder support and do not require substantial revision to address shareholder concerns. +Establishing Compensation Levels +Compensation levels for the NEOs are driven by market pay levels, the NEO’s leadership performance and overall Company performance. The Compensation +Committee relies upon a combination of judgment (which is necessarily subjective) and guidelines (discussed herein), as well as market data, in determining the amount and mix of compensation components for the Executive Chairman. The compensation +levels for the Chief Executive Officer are recommended to the Compensation Committee by the Executive Chairman; the compensation levels for the other NEOs are recommended by the Chief Executive Officer. The Compensation Committee has discretion to +follow or modify such recommended levels of compensation. The Compensation Committee considers as crucial the input of our Executive Chairman and Chief Executive Officer in connection with its compensation processes and decisions relating to NEO +compensation. The Compensation Committee is not obligated to follow their recommendations. The Company does not engage in strict numerical benchmarking in determining the percentage modifications for the NEOs. +Market Pay Levels +Market pay levels for +the NEOs are determined annually in November for the upcoming calendar year. From time to time, at the request of the Compensation Committee, an outside financial advisor is used to gather and summarize for the Company disclosures of executive +compensation paid by other publicly traded companies in the diagnostic and life science industries, as well as those outside such industries in the Greater Cincinnati area. This information concerns base salary, bonus awards and long-term incentive +awards such as stock options and/or restricted stock for these peer companies, as well as their revenue, net earnings and market capitalization levels in order to take company size into consideration. The Compensation Committee considers this +competitive market compensation paid by such companies, but does not attempt to maintain a certain target percentile within a peer group or otherwise rely on that data to determine executive compensation. This means that the Compensation Committee +considers this information generally and as a reference point in determining the amounts and elements of our compensation program. For example, the +18 +Compensation Committee periodically reviews compensation information of our industry peers in order to understand compensation trends. In other words, although it does not utilize such +information for benchmarking purposes, the Compensation Committee considers such information as part of its decision-making process with respect to the Company’s executive compensation programs. +Company Performance +We believe that certain Company performance metrics drive shareholder value through stock price appreciation and dividends. We take +this belief into account in setting performance metric targets that are considered in establishing the performance-based component of our compensation programs. Performance metric targets that are taken into consideration in our compensation +programs include sales growth, earnings growth and profit margins. These targets are set at or above industry averages and historical results. In addition to these metrics, the ultimate success of the commercialization of our +illumi gene ® molecular platform will be driven by the number and rate of instrument +placements, and the build-out of the related product menu. We have recently implemented performance metric targets for instrument placement rates and product menu expansion in our compensation programs. +Our cash bonus and a portion of our stock-based award programs operate under the fundamental principle that minimum levels of net earnings be achieved +prior to any compensation being earned under these programs. Net earnings targets are determined based on what the Company believes to be meaningful growth rates relative to its industry peers and the Company’s performance objectives. +Stock-based awards granted under performance programs are generally forfeited if the Company does not meet its minimum earnings targets as specified in each grant. +Recovery of Prior Awards +Except as provided by applicable laws and regulations, we do not +have a policy with respect to adjustment or recovery of awards or payments if relevant Company performance measures upon which previous awards were based are restated or otherwise adjusted in a manner that would reduce the size of such award or +payment. Under those circumstances, we expect that the Compensation Committee and the Board would evaluate whether compensation adjustments were appropriate based upon the facts and circumstances surrounding the applicable restatement or adjustment. +Tally Sheets +In setting the +NEOs’ compensation, the Compensation Committee reviews all components of such compensation through the use of tally sheets. These tally sheets provide the amount of total compensation paid or earned by each NEO based on his or her base salary, +cash bonus, stock-based awards, retirement contributions and perquisites. The tally sheets reviewed provide all of the information that is reflected in the Summary Compensation Table. The review by the Compensation Committee analyzes how changes in +any element of compensation would impact other elements, particularly severance or change in control benefits, if applicable to the executive. Although this year such analysis did not result in the issuance of additional awards, other than a minor +increase in professional fee allowances for certain executives, such analysis has become an important component in the Compensation Committee’s review of executive compensation as the tally sheet allows the Compensation +19 +Committee to consider an executive’s overall compensation rather than only one or two specific components of an executive’s compensation. This allows the Compensation Committee to make +compensation decisions and evaluate management recommendations based on a complete analysis of an executive’s total compensation. +Components of Executive Compensation +Meridian’s executive compensation and benefits packages consist of: base salary, cash bonuses, long-term equity incentive awards, Company-sponsored +benefit and retirement plans, and change in control severance benefits. Each of these components has a certain risk profile. +Element +Form of Compensation +Purpose +Risk Profile +Base Salaries +Cash +Provides competitive, fixed +compensation to attract and retain +exceptional executive talent +Low to moderate +Annual Cash Incentives +Cash +Provides a direct financial incentive to +achieve corporate and individual +operating goals +Moderate to high +Long-Term Equity +Incentives +Non-qualified stock +options, restricted stock, +restricted +stock units and/or stock appreciation rights +Encourages Executive Officers to build +and maintain a long-term equity +ownership position in Meridian so that +their interests are aligned with our +shareholders +High +Health, Retirement and +Other Benefits +Eligibility to participate in benefit plans generally available to our employees, including Retirement Plan contributions, premiums paid on long-term disability and life +insurance policies, and certain perquisites +Benefit plans are part of a broad-based +employee benefits program; the +perquisites provide competitive benefits +to our Executive Officers +Low +Change in Control +Severance Benefits +Cash and continuation of certain benefits +Encourages Executive Officers to +maximize value for shareholders in the +event that the Company becomes subject +to a change in control transaction +Moderate to high +20 +The Compensation Committee has reviewed the risk profile of the components of the Company’s executive +compensation program, including the performance objectives and target levels used in connection with incentive awards, and has considered the risks an NEO might be incentivized to take with respect to such components. When establishing the mix among +these components, the Compensation Committee is careful not to encourage excessive risk taking. Specifically, the performance objectives contained in the Company’s executive compensation programs have been balanced between annual and long-term +incentive compensation to ensure that both components are aligned and consistent with our long-term business plan and that our overall mix of equity-based awards has been allocated to promote an appropriate combination of incentive and retention +objectives. +The Compensation Committee believes that the Company’s executive compensation program does not incentivize the NEOs to +engage in business activities or other behavior that would threaten the value of the Company or the investments of its shareholders. +The +Compensation Committee continues to monitor and evaluate on an on-going basis the mix of compensation, especially equity compensation, awarded to the Named Executive Officers, and the extent to which such compensation aligns the interests of the +NEOs with those of the Company’s shareholders. In connection with this practice, the Compensation Committee has, from time to time, reconsidered the structure of the Company’s executive compensation program and the relative weighting of +various compensation elements. During fiscal 2012, the Compensation Committee approved an equity incentive award (discussed below) that is intended to complement the historical mix of time-based and performance-based equity awards. +Interplay of Compensation Elements +We +believe that each element of our compensation program plays a substantial role in maximizing long-term value for our shareholders and employees because of the significant emphasis on pay-for-performance principles. In fiscal 2012, we did not reach +our minimum net earnings targets, and therefore, our NEOs did not earn cash bonuses pursuant to the Officers’ Performance Compensation Plan or performance-based equity awards. +We strive to achieve an appropriate mix between equity incentive awards and cash payments in order to meet our objectives. We use the Officers’ Performance Compensation Plan as another tool to assess +an executive’s total pay opportunities and whether we have provided the appropriate incentives to accomplish our compensation objectives. Our mix of compensation elements is designed to reward recent results and motivate long-term performance +through a combination of cash and stock-based awards. We also seek to balance compensation elements that are based on financial, operational and strategic metrics with others that are based on the performance of Meridian shares via application of +the personal multiplier component of cash bonuses for the Executive Chairman and the Chief Executive Officer. We believe the most important indicator of whether our compensation objectives are being met is our ability to motivate our NEOs to deliver +superior performance and retain them to continue their careers with Meridian on a cost-effective basis. +21 +Base Salary +The Company pays salaries that are designed to attract, motivate and retain experienced executives who will drive superior Company performance and maintain long-term shareholder value. The Compensation +Committee considers recommendations from the Executive Chairman and Chief Executive Officer and approves annual base salaries that are commensurate with each NEO’s responsibilities and performance, as well as Company performance in the prior +fiscal year, which are competitive with similar positions locally and in the industry. Salaries are set on a calendar year basis and therefore salaries paid in the first three months of each fiscal year beginning on the first day of October are set +in the prior fiscal year. +For 2013, the Chief Executive Officer, Mr. Kraeutler, provided a recommendation to the Compensation Committee +for 4% salary increases for the NEOs. The Compensation Committee duly considered and followed these recommendations. +Cash Bonuses +The Compensation Committee believes that employees should be rewarded based on Company results and individual performance. The +Compensation Committee awards cash bonuses pursuant to the Officers’ Performance Compensation Plan (the “Plan”), contingent upon Company performance. Cash bonuses, if earned, are paid in the first quarter of each fiscal year, for the +prior year’s performance. Cash bonuses are subject to the Company’s attainment of a specific net earnings target. Should the Company fail to reach such net earnings target, no cash bonuses are paid pursuant to the Plan. +Cash bonuses are also subject to the application of a personal achievement multiplier as recommended by management, except that no such recommendation is +made by management for the Executive Chairman, Mr. Motto, or the Chief Executive Officer, Mr. Kraeutler. In evaluating the personal achievement multipliers, the Compensation Committee takes into consideration the sales and net earnings +levels, sales and net earnings growth rates and achievement against plan, profit margins and improvements therein, and individual achievements and leadership of the NEOs. Instead of establishing specific quantifiable targets for each of these +factors, the Compensation Committee exercises its discretion in using the factors to determine each NEO’s personal achievement multiplier. Specifically, the Compensation Committee does not establish measurable objective targets in connection +with its deliberation of such factors. The adoption and application of such factors are intended to be discretionary and subjective so that the Compensation Committee can use its business judgment to provide an appropriate incentive and award for +performance that sustains and enhances long-term shareholder value. The Compensation Committee believes that such discretionary and subjective components allow it to respond appropriately as business and strategic environments change and are +appropriate for the size of the Company. The personal achievement multiplier choices are 0 (zero), 0.75, 1.0, 1.25, 1.5 or 2.0. For example, a personal achievement multiplier of 1.25 would result in a bonus payout percentage of 37.5% when applied to +a 30% base salary component. A personal achievement multiplier of 0 (zero) would result in no bonus payout and is intended for circumstances where the NEO’s performance is far less than satisfactory. +22 +Company Performance Component and 2012 Results +The 2012 Officers’ Performance Compensation Plan, which was similar in form to the plans utilized over the last several fiscal years, provided for +the granting of cash bonuses as a percentage of base salary if 2012 net earnings reached at least $35,400,000. For 2012, actual net earnings were below the minimum threshold, and therefore, there were no cash bonuses awarded to the NEOs for fiscal +2012 performance pursuant to the Plan. Our Executive Vice President, Research and Development, who is an NEO due to equity awards granted to him in connection with his promotions during 2012, was awarded a $25,000 cash bonus based on his +accomplishments for the year. +2013 +At its November 7, 2012 meeting, the Compensation Committee approved the Officers’ Performance Compensation Plan for fiscal 2013. The 2013 Plan will award cash bonuses if 2013 net earnings reach +$36,000,000, which the Committee believes is a meaningful increase from 2012 non-GAAP net earnings of $34,030,000, which excludes the costs related to consolidation of our Saco, Maine facility into our Memphis, Tennessee facility (see Non-GAAP +Information on pages 28 and 29 of the Company’s Annual Report on Form 10-K filed with the SEC on November 29, 2012). The 2013 net earnings target of $36,000,000 includes approximately $2,000,000 ($1,300,000 after tax) of expense related to +the Medical Device Tax, which becomes effective January 1, 2013. It also includes an investment in clinical trials related to two tests for sexually transmitted diseases on the illumi gene ® platform, which are significantly higher (approximately $2,000,000 incremental cost, or $1,300,000 after tax) +than previous trials, but represent a large new market opportunity. Consistent with 2012, the 2013 Plan also provides for increasing bonus awards tied to increasing net earnings beyond the initial minimum level. The 2013 Plan includes six net +earnings thresholds ranging from a low of $36,000,000 to a high of $38,000,000. These six net earnings thresholds represent growth over 2012 non-GAAP net earnings ranging from a low of approximately 6% to a high of approximately 12% (10% to 15% +excluding the new Medical Device Tax). The corresponding potential bonus payouts as a percent of base salary, before application of the personal multiplier, for the six net earnings thresholds range from a low of 10% to a high of 60%. Depending on +the level of net earnings achieved and the application of the personal multiplier, cash bonuses for the NEOs could range from 0% to 120% of base salary. +Management and the Compensation Committee have intended that the earnings thresholds should be set at meaningful rates so that management must be diligent, focused and effective in order to achieve these +goals. In other words, the Company and management believed at the time of the establishment of these thresholds that they would be challenging to achieve and would require substantial efforts from management. To this end, the Compensation Committee +tends to set the thresholds consistent with the earnings guidance range requiring that the low end of guidance is achieved before bonuses are paid. +Long-Term Incentive Awards +The Compensation Committee believes that equity-based +compensation encourages employees to commit to the long-term goals of the Company. This ensures that the Company’s NEOs have a stake in the long-term creation of shareholder value. A significant portion of the awards is performance-based, +meaning the NEOs’ ability to vest in that portion of awards is contingent upon the Company achieving a minimum level of net earnings. +23 +For fiscal 2013, at its meeting on November 7, 2012, the Compensation Committee approved two types of +restricted stock unit awards. The first type of restricted stock unit award is performance-based, where the NEOs’ ability to vest in such awards is contingent upon the Company reaching a minimum level of net earnings of $38,000,000 for fiscal +2013. This award would vest 25% per year over four years, if earned. The second type of restricted stock award is time-based and fully vests after four years. The Compensation Committee believes that this latter award is appropriate to +encourage retention of top management talent during what continues to be, in the Committee’s belief, one of the most challenging economic environments over the last 20+ years. +Although Meridian does not have a written policy regarding the timing or practices related to granting equity awards, neither Meridian nor the Compensation Committee engages in spring-loading, back-dating +or bullet-dodging practices. Equity awards are generally granted at a regularly scheduled meeting of the Compensation Committee in the first quarter of the fiscal year. Stock options are granted at the closing market price on the date of grant, +pursuant to the 2012 Stock Incentive Plan. Prior to the exercise of an option, the holder has no rights as a stockholder with respect to the shares subject to such option, including no rights to vote or to receive dividends. Prior to vesting of +restricted stock units, the holder will receive dividend equivalent payments. Restricted stock units do not have voting rights. +Company-Sponsored Benefit and Retirement Plans +Meridian provides Company-sponsored benefit and retirement plans to the NEOs. In general, executives participate in the Company’s benefit and retirement plans on the same basis as other Company +employees. The core benefit package includes health, dental, short and long-term disability, and group term life insurance. Meridian generally provides retirement benefits to executives through qualified (under the Internal Revenue Code) defined +contribution plans. +Change in Control Severance Benefits +The Compensation Committee believes that a reasonable level of salary and Company-sponsored benefit protection provides a means of retention and allows the NEOs to remain focused on achievement of Company +goals and objectives in the event that the Company becomes subject to a merger or acquisition transaction. This component of compensation would only be paid in the event of a change in control of the Company, under certain qualifying conditions. For +the NEOs other than the CEO and Executive Chairman, this component of compensation would include two years’ salary, performance bonus and core benefits. For the CEO, this component of compensation would include three years’ salary, +performance bonus and core benefits. This benefit is not available to the Executive Chairman. +Other Personal Benefits +Allowances for automobiles and professional, financial and tax planning are made available to Meridian’s NEOs and other corporate officers. The costs +to the Company are included in the All Other Compensation table on page 27. The Company believes these perquisites to be reasonable, comparable to peer companies and consistent with the Company’s overall executive compensation philosophy. +24 +CEO Employment Agreement and Supplemental Benefit Agreement +The Company and Mr. Kraeutler are parties to an employment agreement and a supplemental benefit agreement (collectively, the “CEO +agreements”). In addition to an established minimum annual salary and eligibility to participate in the Company’s bonus and stock incentive plans, the CEO agreements provide that Mr. Kraeutler is eligible to receive: +• +Post-retirement benefit payments totaling $1,200,000, payable in one hundred twenty (120) monthly payments of $10,000, in the event of a qualified +retirement from service (as defined in the supplemental benefit agreement), with the total payments reduced to $600,000, payable in one hundred twenty (120) monthly payments of $5,000, in the event of a non-qualified retirement from service (as +defined in the supplemental benefit agreement) +• +Lifetime insurance benefits including Medicare health insurance premiums and comprehensive long-term care insurance premiums +Internal Pay Equity +The Compensation Committee believes that the relative difference between the Chief Executive Officer’s compensation and the compensation of the Company’s other executives has not increased +significantly over the years. Further, the Compensation Committee believes that the Company’s internal pay equity structure is appropriate based upon the contributions to the success of the Company and as a means of motivation to other +executives and employees. +Tax Deductibility of Pay +Section 162(m) of the Internal Revenue Code contains compensation deduction limitations for certain highly compensated employees. One exception to this limitation is for performance-based +compensation that is approved by, among other things, a committee of “outside directors” (as defined under IRS treasury regulations). The Committee believes that all compensation paid to the NEOs for fiscal year 2012 is properly deductible +under Section 162(m), but no assurance can be made in this regard. +Actions of the Compensation Committee +In several meetings during the year, the Executive Chairman, Mr. Motto, the Chief Executive Officer, Mr. Kraeutler, and the Compensation +Committee Chairman discussed, among other things, Meridian’s compensation system and its effectiveness in attracting and retaining top notch employees. These individuals believe that the system, including the Officers’ Performance +Compensation Plan, is understood by employees and shareholders and has worked well in practice. They noted that the underlying principles in the plan have been followed for many years, even when following such principles resulted in no +Officers’ Performance Compensation Plan bonuses being awarded to the NEOs (2009, 2010, 2011 and 2012) and performance-based stock awards being forfeited (2008, 2009, 2011 and 2012). The Committee discussed on a number of occasions the +advisability of engaging a compensation consultant. The Compensation Committee concluded that it did not want to engage a compensation consultant this year, in part because of the relatively small number of Executive Officers and their frequent +interaction. +25 +At its November 7, 2012 meeting, the Compensation Committee discussed these matters, both with and +without the presence of management. The Compensation Committee discussed the recommendations of the Executive Chairman and the Chief Executive Officer for compensation levels for all officers and answered questions about individual recommendations +and the general pay increases to be paid throughout the Company. The Committee then made the compensation decisions, which are reflected in the figures presented in this proxy statement. +Compensation Committee Report +The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management. Based on these reviews and discussions, the +Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s proxy statement on Schedule 14A. +Members of the Compensation Committee +Robert J. Ready (Chairman) +James M. Anderson +David C. Phillips +SUMMARY COMPENSATION TABLE +The following table summarizes the aggregate compensation paid, or earned, by each of the NEOs for the fiscal years ended September 30, 2012, 2011 and 2010, respectively. +Name and Principal +Position +(a) +Year +(b) +Salary +(c) +Bonus 1 +(d) +Stock +Awards 2,4 +(e) +Option +Awards 3,4 +(f) +Non-Equity +Incentive +Plan +Compensation +(g) +Change in +Pension +Value +and +Nonqualified +Deferred +Compensation +Earnings +(h) +All Other +Compensation 5 +(i) +Total +John A. Kraeutler +Chief Executive Officer +2012 +2011 +2010 +$ +$ +$ +558,600 +546,000 +540,346 +— +— +— +$ +$ +$ +175,700 +228,300 +221,850 +— +— +— +— +— +— +— +— +— +$ +$ +$ +74,901 +69,111 +54,017 +$ +$ +$ +809,201 +843,411 +816,213 +Melissa A. Lueke +Executive Vice President, +Chief Financial Officer +and Secretary +2012 +2011 +2010 +$ +$ +$ +243,997 +238,493 +233,579 +— +— +— +$ +$ +$ +131,775 +171,225 +166,387 +— +— +— +— +— +— +— +— +— +$ +$ +$ +45,425 +40,640 +27,274 +$ +$ +$ +421,197 +450,358 +427,240 +William J. Motto +Executive Chairman of +the Board of Directors +2012 +2011 +2010 +$ +$ +$ +558,600 +546,000 +540,346 +— +— +— +$ +$ +$ +175,700 +228,300 +221,850 +— +— +— +— +— +— +— +— +— +$ +$ +$ +110,234 +110,825 +95,424 +$ +$ +$ +844,534 +885,125 +857,620 +Richard L. Eberly +Executive Vice President, +President Meridian Life +Science +2012 +2011 +2010 +$ +$ +$ +358,077 +326,466 +275,341 +— +— +— +$ +$ +$ +131,775 +171,225 +166,387 +$ +$ +— +48,355 +9,510 +— +— +— +— +— +— +$ +$ +$ +47,456 +44,910 +39,314 +$ +$ +$ +537,308 +590,956 +490,552 +Vecheslav A. Elagin 6 +Executive Vice President, +Research & +Development +2012 +2011 +2010 +$ +$ +$ +250,962 +219,397 +198,642 +$ +$ +25,000 +— +15,000 +$ +$ +$ +307,475 +171,225 +110,925 +$ +$ +25,103 +— +12,681 +— +— +— +— +— +— +$ +$ +$ +52,925 +37,784 +13,099 +$ +$ +$ +661,465 +428,406 +350,347 +1 +No payments were +made to the NEOs pursuant to the Officers’ Performance Compensation Plan for fiscal 2012, 2011 or 2010 as the corporate-wide targets were not reached for any of the respective fiscal years. Dr. Elagin’s fiscal 2012 bonus payment is in +recognition of his accomplishments for the year, and the fiscal 2010 payment represents a bonus in connection with joining the Company. +26 +2 +The amounts shown reflect the grant date fair value of the restricted stock issued during fiscal years 2012, 2011 and 2010 in accordance with ASC Topic +718. No compensation cost is included in this table related to the performance-based portion of the restricted stock granted November 11, 2010 or the performance-based portion of the restricted stock units granted November 9, 2011. Because +the required earnings target for Meridian was not reached for fiscal 2011 or fiscal 2012, the performance-based restricted shares and restricted stock units have been cancelled. Regarding the performance-based restricted stock issued +November 12, 2009, while the 2010 earnings target was not met, on September 30, 2010, the Compensation Committee of the Board of Directors chose to convert the performance-based restricted shares to time-vested restricted shares in +recognition of the achievement in 2010 of several strategic initiatives that positioned the Company for future growth. As a result, the grant date fair value of such shares is reflected during fiscal 2010 in the above table. A discussion of the +assumptions used in calculating these values may be found in Note 7(b) on page 67 to the Company’s Annual Report on Form 10-K filed with the SEC on November 29, 2012. +3 +The amounts shown reflect the grant date fair value of the stock options granted during fiscal years 2012, 2011 and 2010 in accordance with ASC Topic +718. A discussion of the assumptions used in calculating these values may be found in Note 7(b) on page 67 to the Company’s Annual Report on Form 10-K filed with the SEC on November 29, 2012. +4 +In addition, no +compensation cost is included in this table related to the additional performance-based equity awards granted November 9, 2011 to certain executive management employees, including the NEOs, to reward them for meeting Company revenue targets in +advance of planned expectations. These awards, which included both restricted stock units and options, can only be earned if specified cumulative revenue thresholds are met one fiscal quarter in advance of planned revenue expectations through fiscal +2015, with the three measurement dates for ratably earning one-third of the grant being (i) the 21-month period ending June 30, 2013, (ii) the 33-month period ending June 30, 2014 and (iii) the 45-month period ending +June 30, 2015. At the present time, achievement of the revenue thresholds within the required timeframes is not considered probable and, therefore, no compensation cost is included within the table. Based upon grant date fair value in +accordance with ASC Topic 718, the maximum compensation cost that could be recognized for each of the NEOs in connection with this award is as follows: Mr. Kraeutler—$656,565; Ms. Lueke—$489,804; Mr. Motto—$656,565; +Mr. Eberly—$656,565; and Dr. Elagin—$656,565. +5 +See the All Other +Compensation table below for amounts, which include certain Company contributions, perquisites and other personal benefits. +Fiscal 2012 +All Other Compensation +John A. +Kraeutler +Melissa A. +Lueke +William J. +Motto +Richard L. +Eberly +Vecheslav A. +Elagin +Retirement Contributions +$ +13,425 +$ +13,425 +$ +13,425 +$ +13,425 +$ +13,425 +Auto Lease / Auto Allowance +16,076 +8,000 +6,409 +10,731 +8,000 +Financial and Tax Planning +15,000 +1,200 +60,000 +500 +3,000 +Restricted Stock Dividends +30,400 +22,800 +30,400 +22,800 +28,500 +Totals +$ +74,901 +$ +45,425 +$ +110,234 +$ +47,456 +$ +52,925 +6 +During fiscal 2012, Dr. Elagin received equity awards in connection with his promotions to Senior Vice President in November 2011 and Executive +Vice President in June 2012. +27 +GRANTS OF PLAN-BASED AWARDS +The following table sets forth, for each of the NEOs, information related to grants made during fiscal 2012 under Meridian’s 2012 Stock Incentive Plan and 2004 Equity Compensation Plan. +Name +Grant +Date +Estimated Future Payouts Under +Non-Equity Incentive Plan +Awards +Estimated Future Payouts Under +Equity Incentive Plan Awards +All other +Stock +Awards: +Number of +Shares of +Stock or +Units (#) +All other +Option +Awards: +Number of +Securities +Underlying +Options (#) +Exercise +or Base +Price of +Option +Awards +($/Sh) +Grant Date +Fair Value +of Stock +and Option +Awards +Threshold +($) +Target +($) +Max +($) +Threshold +(#) +Target +(#) +Max +(#) +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +(i) +(j) +(k) +(l) +John A. Kraeutler +11/09/11 +11/09/11 +11/09/11 +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +10,000 +7,500 +— +1 +3 +— +— +112,500 +3 +$ +— +— +17.57 +$ +175,700 +— +— +Melissa A. Lueke +11/09/11 +11/09/11 +— +— +— +— +— +— +— +— +— +— +— +— +7,500 +— +1 +— +105,000 +3 +$ +— +17.57 +$ +131,775 +— +William J. Motto +11/09/11 +11/09/11 +11/09/11 +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +10,000 +7,500 +— +1 +3 +— +— +112,500 +3 +$ +— +— +17.57 +$ +175,700 +— +— +Richard L. Eberly +11/09/11 +11/09/11 +11/09/11 +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +7,500 +7,500 +— +1 +3 +— +— +112,500 +3 +$ +— +— +17.57 +$ +131,775 +— +— +Vecheslav A. Elagin +11/09/11 +11/09/11 +11/09/11 +06/01/12 +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +17,500 +7,500 +— +— +2 +3 +— +— +112,500 +5,000 +3 +4 +$ +$ +— +— +17.57 +18.91 +$ +$ +307,475 +— +— +25,103 +1 +At the time of the grant, half of each NEO’s restricted shares were time-based with 100% vesting after four years, and the remaining half were +performance-based, subject to attainment of a specified earnings target for fiscal 2012. As the 2012 earnings target was not met, the performance-based restricted shares have been cancelled and are not reflected in the table above. +2 +In addition to 7,500 time-based restricted stock units with the features described in Note 1 above, on November 9, 2011 Dr. Elagin was also +granted 10,000 restricted stock units in connection with his promotion to Senior Vice President, which are time-based with 100% vesting after four years. +28 +3 +These awards, which included both restricted stock units and options, were granted to certain executive management employees, including the NEOs, to +reward them for meeting Company revenue targets in advance of planned expectations. The awards can only be earned if specified cumulative revenue thresholds are met one fiscal quarter in advance of planned revenue expectations through fiscal 2015, +with the three measurement dates for ratably earning one-third of the grant being (i) the 21-month period ending June 30, 2013, (ii) the 33-month period ending June 30, 2014 and (iii) the 45-month period ending June 30, +2015. Once earned, the awards vest one year from the date the cumulative thresholds are met. At the present time, achievement of the revenue thresholds within the required timeframes is not considered probable and, therefore, no grant date fair +values are included within the table. Based upon grant date fair value in accordance with ASC Topic 718, the maximum compensation cost that could be recognized for each of the NEOs in connection with this award is as follows: +Mr. Kraeutler—$656,565; Ms. Lueke—$489,804; Mr. Motto—$656,565; Mr. Eberly—$656,565; and Dr. Elagin—$656,565. +4 +Stock option award +reflected was made in recognition of Dr. Elagin’s promotion to Executive Vice President, has a ten-year term and vests in four equal annual installments from the date of grant (i.e., vests 25% per year until fully vested on +June 1, 2016). +OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END +The following table provides information on the NEOs’ holdings of equity awards under Meridian’s 2012 Stock Incentive Plan, 2004 Equity +Compensation Plan and 1996 Stock Option Plan as of September 30, 2012. +Option Awards +Stock Awards +Name +Number +of +Securities +Underlying +Unexercised +Options (#) +Exercisable +Number +of +Securities +Underlying +Unexercised +Options (#) +Unexercisable +Equity +Incentive +Plan +Awards: +Number of +Securities +Underlying +Unexercised +Unearned +Options (#) +Option +Exercise +Price ($) +Option +Expiration +Date +Number of +Shares +or +Units of +Stock That +Have Not +Vested (#) +Market +Value +of +Shares or +Units of +Stock That +Have Not +Vested ($) +Equity +Incentive +Plan +Awards: +Number of +Unearned +Shares, +Units or +Other +Rights That +Have Not +Vested (#) +Equity +Incentive +Plan +Awards: +Market or +Payout +Value of +Unearned +Shares, +Units or +Other +Rights +That +Have +Not +Vested ($) +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +(i) +(j) +John A. Kraeutler +5,250 1 +10,500 1 +15,750 1 +15,750 1 +25,000 2 +— +— +— +— +— +25,000 3 +— +— +— +— +— +— +112,500 9 +$ +$ +$ +$ +$ +$ +$ +4.525 +7.280 +14.007 +16.554 +33.090 +33.090 +17.570 +12/02/13 +12/07/14 +11/10/15 +11/15/16 +01/28/18 +01/28/18 +11/09/21 +— +— +— +— +— +— +— +10,000 10 +10,000 11 +10,000 12 +$ +$ +$ +— +— +— +— +— +— +— +191,800 +191,800 +191,800 +— +— +— +— +— +— +— +— +— +— +7,500 9 +$ +— +— +— +— +— +— +— +— +— +— +143,850 +29 +Melissa A. Lueke +5,250 1 +10,500 1 +15,750 1 +15,750 1 +— +— +— +— +— +— +— +— +105,000 9 +$ +$ +$ +$ +$ +4.525 +7.280 +14.007 +16.554 +17.570 +12/02/13 +12/07/14 +11/10/15 +11/15/16 +11/09/21 +— +— +— +— +— +7,500 10 +7,500 11 +7,500 12 +$ +$ +$ +— +— +— +— +— +143,850 +143,850 +143,850 +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +William J. Motto +15,750 1 +15,750 1 +15,750 1 +15,750 1 +— +— +— +— +— +— +— +— +112,500 9 +$ +$ +$ +$ +$ +4.525 +7.280 +14.007 +16.554 +17.570 +12/02/13 +12/07/14 +11/10/15 +11/15/16 +11/09/21 +— +— +— +— +— +10,000 10 +10,000 11 +10,000 12 +$ +$ +$ +— +— +— +— +— +191,800 +191,800 +191,800 +— +— +— +— +— +— +— +— +7,500 9 +$ +— +— +— +— +— +— +— +— +143,850 +Richard L. Eberly +5,250 1 +10,500 1 +15,750 1 +750 4 +2,500 5 +— +— +— +750 4 +7,500 5 +— +— +— +— +— +112,500 9 +$ +$ +$ +$ +$ +$ +7.280 +14.007 +16.554 +19.710 +21.940 +17.570 +12/07/14 +11/10/15 +11/15/16 +08/04/20 +01/31/21 +11/09/21 +— +— +— +— +— +— +7,500 10 +7,500 11 +7,500 12 +$ +$ +$ +— +— +— +— +— +— +143,850 +143,850 +143,850 +— +— +— +— +— +— +— +— +— +7,500 9 +$ +— +— +— +— +— +— +— +— +— +143,850 +Vecheslav A. Elagin +7,500 6 +1,000 7 +2,500 6 +1,000 7 +5,000 8 +— +— +— +112,500 9 +$ +$ +$ +$ +22.290 +19.710 +18.910 +17.570 +08/03/19 +08/04/20 +06/01/22 +11/09/21 +— +— +— +— +5,000 10 +7,500 11 +17,500 12 +$ +$ +$ +— +— +— +— +95,900 +143,850 +335,650 +— +— +— +— +— +— +— +7,500 9 +$ +— +— +— +— +— +— +— +143,850 +1 +Options vested in three equal annual installments beginning one year from public earnings release date for the fiscal year ending immediately following +the grant date, indicating that performance targets were met, occurring approximately one year from date of grant. +2 +Options vested on January 22, 2011. +3 +Options vest on January 22, 2013. +4 +Options vest in four equal annual installments from the date of grant (i.e., vest 25% per year until fully vested on August 4, 2014). +5 +Options vest in four equal annual installments from the date of grant (i.e., vest 25% per year until fully vested on January 31, 2015). +6 +Options vest in four equal annual installments from the date of grant (i.e., vest 25% per year until fully vested on August 3, 2013). +7 +Options vest in four equal annual installments from the date of grant (i.e., vest 25% per year until fully vested on August 4, 2014). +8 +Options vest in four equal annual installments from the date of grant (i.e., vest 25% per year until fully vested on June 1, 2016). +30 +9 +These awards can only be earned if specified cumulative revenue thresholds are met one fiscal quarter in advance of planned revenue expectations +through fiscal 2015, with the three measurement dates for ratably earning one-third of the grant being (i) the 21-month period ending June 30, 2013, (ii) the 33-month period ending June 30, 2014 and (iii) the 45-month period +ending June 30, 2015. Once earned, the awards vest one year from the date the cumulative thresholds are met. +10 +Shares/units vest on November 12, 2013. +11 +Shares/units vest on November 11, 2014. +12 +Shares/units vest on November 9, 2015. +OPTION EXERCISES AND STOCK VESTED +The following table sets forth, for each of the NEOs, +information on options exercised and restricted stock vested during fiscal 2012. +Option Awards +Stock Awards +Name +Number of +Shares +Acquired on +Exercise (#) +Value Realized +on Exercise ($) +(1) +Number of +Shares +Acquired on +Vesting (#) +Value Realized +On Vesting ($) +(a) +(b) +(c) +(d) +(e) +John A. Kraeutler +— +$ +— +— +$ +— +Melissa A. Lueke +— +$ +— +— +$ +— +William J. Motto +7,988 +$ +124,095 +— +$ +— +Richard L. Eberly +— +$ +— +— +$ +— +Vecheslav A. Elagin +— +$ +— +— +$ +— +1 +Amounts reflect the difference between the exercise price of the option and the market price of Meridian common shares at the time of exercise. +NONQUALIFIED DEFERRED COMPENSATION +Our 401(k) Savings Plan (“401(k) Plan”) allows all U.S. employees of the Company as of the first day of their employment to set aside a portion of their compensation each year for their +retirement needs, up to the limits set by the Internal Revenue Code. The Company contributes a matching contribution of 100% of the first 3% of the employee’s contribution (i.e., up to 3% of an employee’s salary) subject to Internal +Revenue Code limitations. The Company may also contribute a profit-sharing contribution at its discretion. Employee contributions are 100% vested immediately, while Company contributions are subject to a graded vesting schedule of 20% per year +for the first 5 years of employment. Participants are entitled to direct the investment of their accounts among various mutual funds selected by the Company’s Fiduciary Committee. The Plan also provides that Company discretionary profit-sharing +contributions may be invested in Company stock. Participants who terminate employment are entitled to receive the vested portion of their accounts. +31 +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL +In the case of a disability, Meridian is obligated to pay Mr. William J. Motto 60% of his total annual salary and bonus for a period of up to 60 +months. In the case of death, Meridian is obligated to pay to Mr. Motto’s designated beneficiaries up to $1 million. These benefits are to be reduced by the gross amount of any life insurance payments or disability insurance payments made +to Mr. Motto, or his beneficiaries as the case may be, under any insurance policy or program maintained by Meridian, other than group term life insurance programs maintained for all employees. +As detailed on page 25 within the “Compensation Discussion and Analysis” section of this Proxy Statement, Mr. Kraeutler and Meridian are +parties to an employment agreement and a supplemental benefit agreement dated June 12, 2012, which sets forth compensation, non-competition, benefit and severance provisions and provides for a payment equal to three times +Mr. Kraeutler’s base salary (plus any salary earned but not paid) and three-year average annual performance bonus if Mr. Kraeutler is terminated by Meridian without cause, Mr. Kraeutler terminates his employment for good reason +or upon a change in control of Meridian. The employment agreement is effective through September 30, 2014, and may be extended annually for up to two additional one year periods ending September 30, 2015 and September 30, 2016, +respectively, upon mutual agreement by both parties. +Pursuant to Mr. Kraeutler’s supplemental benefit agreement, had his employment +with the Company terminated on September 30, 2012, Mr. Kraeutler would have been entitled to receive post-retirement benefit payments totaling $600,000, payable in one hundred twenty (120) monthly payments of $5,000. +Had a change in control occurred on September 30, 2012, Mr. Kraeutler would also have been entitled to the following under his employment +agreement: +Salary +$ +1,644,946 +Annual Performance Bonus +— +Total Payment +$ +1,644,946 +In addition, the Meridian Bioscience, Inc. Change in Control Severance Compensation Policy (the “Policy”) +applies to the Company’s NEOs (as defined in Item 402 of Regulation S-K) and other Executive Officers of the Company and its affiliates other than the Executive Chairman and Chief Executive Officer – with Mr. Kraeutler’s +benefits and provisions provided in the separate, individual agreements described above. Generally, subject to certain conditions surrounding post-change in control employment, in the event of a qualifying change in control, each Executive Officer +covered under the Policy will be entitled to: +• +Base salary, accrued bonus and certain other benefits through the later of the effective date of the change in control or termination of employment; +• +Lump sum payment equal to two (2) times the sum of (i) the base salary in effect immediately preceding the change in control, and +(ii) the average of the bonus +32 +amounts paid for each of the two fully-completed fiscal years immediately preceding the change in control; and +• +Continued participation in the Company’s medical and dental plans for a twenty-four (24) month period following the effective date of the +change in control. +Had a change in control occurred on September 30, 2012, the NEOs to which the Policy applied at +that date (Ms. Lueke, Mr. Eberly and Dr. Elagin) would have been entitled to the following lump sum payments under the Policy: +Melissa A. +Lueke +Richard L. +Eberly +Vecheslav A. +Elagin +Salary +$ +491,296 +$ +721,000 +$ +530,000 +Annual Performance Bonus +— +— +25,000 +Total Lump Sum Payment +$ +491,296 +$ +721,000 +$ +555,000 +DIRECTOR COMPENSATION +For fiscal 2012, non-employee Directors of Meridian received $30,000 per year for serving as Directors and as members of Committees of the Board. They also received $1,500 for each meeting of the Board +and $1,000 for each Committee meeting attended. They received $750 for each Board meeting and $500 for each Committee meeting held by telephone. The Audit Committee Chairman received an additional $8,000 annually and the Compensation Committee +Chairman received an additional $3,000 annually. In accordance with the terms and conditions set forth in the Company’s 2012 Stock Incentive Plan and 2004 Equity Compensation Plan, each non-employee Director was also granted a non-qualified +option to purchase 7,500 common shares at the time of election or re-election to the Board of Directors, with the exercise price being the closing sale price on Nasdaq reported on the date of grant. Directors who are employees of Meridian are not +separately compensated for serving as Directors. +The following table provides information on compensation related to fiscal 2012 for +non-employee Directors who served during fiscal 2012. +Name +Fees +Earned +or +Paid in +Cash +($) +Stock +Awards +($) 1 +Option +Awards +($) 1 +Non-Equity +Incentive Plan +Compensation +($) +Change in +Pension Value +and Nonqualified +Deferred +Compensation +Earnings +All Other +Compensation +($) +Total +($) +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +James M. Anderson +$ +47,250 +— +$ +36,917 +— +— +— +$ +84,167 +Gary P. Kreider 2 +$ +14,750 +— +— +— +— +— +$ +14,750 +David C. Phillips +$ +56,250 +— +$ +36,917 +— +— +— +$ +93,167 +Robert J. Ready +$ +51,750 +— +$ +36,917 +— +— +— +$ +88,667 +33 +1 +The amounts shown +reflect the grant date fair value of the awards made in fiscal year 2012 in accordance with ASC Topic 718. A discussion of the assumptions used in calculating these values may be found in Note 7(b) on page 67 to the Company’s Annual Report on +Form 10-K filed with the SEC on November 29, 2012. +2 +Mr. Kreider +declined his nomination as a director for 2012 and, therefore, ended his service as a director at the end of his term in January 2012. +SHAREHOLDER PROPOSALS FOR NEXT YEAR +The deadline for +shareholder proposals to be included in the proxy statement for next year’s meeting is August 14, 2013. +The form of Proxy for this +meeting grants authority to the designated proxies to vote in their discretion on any matters that come before the meeting except those set forth in Meridian’s proxy statement and except for matters as to which adequate notice is received. In +order for a notice to be deemed adequate for the 2014 Annual Shareholders’ Meeting, it must be received prior to October 29, 2013. If there is a change in the anticipated date of next year’s Annual Shareholders’ Meeting or these +deadlines by more than 30 days, we will notify you of this change through our Form 8-K and/or Form 10-Q filings. +Meridian’s Code of +Regulations provides that only persons nominated by an officer, Director or in writing by a shareholder not earlier than 150 days nor later than 90 days prior to the meeting at which Directors are to be selected shall be eligible for election +and that shareholder proposals be presented not earlier than 150 days nor later than 90 days prior to the meeting at which the proposals are to be presented. +QUESTIONS? +If you have questions or need more information about +the annual meeting, write to: +Melissa A. Lueke +Executive Vice President, Chief Financial Officer and Secretary +Meridian Bioscience, Inc. +3471 River Hills Drive +Cincinnati, +Ohio 45244 +or call us at (513) 271-3700 +For information about your record holdings call Computershare Shareholder Services at (888) 294-8217. +34 +*** Exercise Your Right to Vote *** +Important Notice Regarding the Availability of Proxy Materials for the +Shareholder Meeting to Be Held on January 23, 2013 +MERIDIAN BIOSCIENCE, INC. +MERIDIAN BIOSCIENCE, INC. +3471 RIVER HILLS DRIVE +CINCINNATI, OH +45244 +Meeting Information +Meeting Type: Annual Meeting +For holders as of: November 26, 2012 +Date: January 23, 2013 Time: 2:00 PM EST +Location: Holiday Inn +Eastgate +4501 Eastgate Boulevard +Cincinnati, OH 45245 +You are receiving this communication because you hold shares in the above +named company. +This is not a ballot. You cannot use this notice to vote these shares. This +communication presents only an overview of the more complete proxy materials that are available to you on the Internet. You may view the proxy materials online at www.proxyvote.com or easily request a paper copy (see reverse side). +We encourage you to access and review all of the important information contained in the proxy +materials before voting. +See the reverse side of this notice to obtain +proxy materials and voting instructions. +— Before You Vote — +How to Access the Proxy Materials +Proxy Materials Available to VIEW or RECEIVE: +1. Annual Report 2. Notice & Proxy Statement +How to View Online: +Have the information that is printed in the box marked by the arrow +g +(located on the following page) and visit: www.proxyvote.com . +How to Request and +Receive a PAPER or E-MAIL Copy: +If you want to receive a paper or e-mail copy of these documents, you must request +one. There is NO charge for requesting a copy. Please choose one of the following methods to make your request: +1) BY INTERNET : +www.proxyvote.com +2) BY TELEPHONE : 1-800-579-1639 +3) BY E-MAIL* : sendmaterial@proxyvote.com +* +If requesting materials by e-mail, please send a blank e-mail with the information that is printed in the box marked by the arrow g +(located on the following page) in the subject line. +Requests, instructions and other inquiries sent to this e-mail address will NOT be forwarded to your investment +advisor. Please make the request as instructed above on or before January 09, 2013 to facilitate timely delivery. +— How To Vote — +Please Choose One of the Following Voting Methods +Vote In Person: Many shareholder meetings have attendance requirements including, but not limited to, the possession of an attendance ticket issued by the +entity holding the meeting. Please check the meeting materials for any special requirements for meeting attendance. At the meeting, you will need to request a ballot to vote these shares. +Vote By Internet: To vote now by Internet, go to www.proxyvote.com. Have the +information that is printed in the box marked by the arrow g +available and follow the instructions. +Vote By +Mail: You can vote by mail by requesting a paper copy of the materials, which will include a proxy card. +Voting items +The Board of Directors recommends you vote FOR the +following: +1. Election of Directors +Nominees +01 JAMES M. ANDERSON +02 JOHN A. KRAEUTLER +03 WILLIAM J. MOTTO +04 DAVID C. PHILLIPS +05 ROBERT J. READY +The Board of Directors recommends you vote FOR the following proposals: +2. Advisory vote on named executive officer compensation. +3. To ratify the appointment of Grant Thornton LLP as Meridian’s independent registered public accountants for fiscal year +2013. +NOTE: Such other business as may properly come before the meeting or any postponement or adjournment thereof. +MERIDIAN BIOSCIENCE, +INC. +3471 RIVER HILLS DRIVE +CINCINNATI, OH 45244 +VOTE BY INTERNET - www.proxyvote.com +Use +the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the +instructions to obtain your records and to create an electronic voting instruction form. +ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS +If you would like to reduce the costs incurred by our company in +mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the +Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. +VOTE BY PHONE - 1-800-690-6903 +Use any touch-tone telephone to transmit your voting instructions up until 11:59 +P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. +VOTE BY MAIL +Mark, sign and date your proxy card and return +it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. +TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: +KEEP THIS PORTION FOR YOUR RECORDS +THIS PROXY CARD IS VALID ONLY WHEN SIGNED +AND DATED. DETACH AND RETURN THIS PORTION ONLY +The Board of Directors recommends you vote FOR the following: +For +All +Withhold +All +For All Except +To withhold authority to vote for any individual nominee(s), mark +“For All Except” and write the number(s) of the nominee(s) on the line below. +1. +Election of Directors +Nominees +¨ +¨ +¨ +01 JAMES M. +ANDERSON 02 JOHN A. KRAEUTLER 03 WILLIAM J. MOTTO 04 DAVID C. +PHILLIPS 05 ROBERT J. READY +The Board of Directors recommends you vote +FOR the following proposals: +For +Against +Abstain +2. +Advisory vote on named executive officer compensation. +¨ +¨ +¨ +3. +To ratify the appointment of Grant Thornton LLP as Meridian’s independent registered public accountants for fiscal year 2013. +¨ +¨ +¨ +NOTE: Such other business as may properly come before +the meeting or any postponement or adjournment thereof. +For address change/comments, mark here. +¨ +(see reverse for instructions) +Yes +No +Please indicate if you plan to attend this meeting +¨ +¨ +Please sign exactly as your name(s) appear(s) hereon, indicating, where proper, official position or representative +capacity. +All joint holders must sign. +Signature [PLEASE SIGN WITHIN BOX] +Date +Signature (Joint Owners) +Date +Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Annual Report, Notice & Proxy Statement is/are available at www.proxyvote.com . +--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- +Proxy - Meridian +Bioscience, Inc. +This Proxy is solicited on +behalf of the Board of Directors. +The undersigned +hereby appoints JOHN A. KRAEUTLER or MELISSA A. LUEKE, or either of them, proxies of the undersigned, each with the power of substitution, to vote cumulatively or otherwise all shares of Common Stock which the undersigned would be entitled to vote +on the matters specified on the reverse side and, in their discretion, with respect to such other business as may properly come before the Annual Meeting of Shareholders of Meridian Bioscience, Inc. to be held on January 23, 2013, at 2:00 p.m. +Eastern Time, at the Holiday Inn Eastgate, 4501 Eastgate Boulevard, Cincinnati, Ohio 45245 and any postponement or adjournment of such Annual Meeting. +This proxy, when properly executed, will be voted as directed by the shareholder(s). If no such directions are made, this proxy will be voted +FOR the election to the Board of Directors of the nominees listed on the reverse side and FOR each remaining proposal. +Please mark, sign, date, and return this proxy card promptly using the enclosed reply envelope. +Address Change/Comments: +__________________________________________________________________________________________ +__________________________________________________________________________________________ +__________________________________________________________________________________________ +(If you +noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.) +(This proxy is continued and is to be signed on the reverse side.) \ No newline at end of file diff --git a/raw/proxies/0000794172/0001193125-12-499535/proxy_rpt.txt b/raw/proxies/0000794172/0001193125-12-499535/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..f11debd3c8dcca7483f26e4bc3c699525e5b8fc9 --- /dev/null +++ b/raw/proxies/0000794172/0001193125-12-499535/proxy_rpt.txt @@ -0,0 +1,13 @@ +TRANSACTIONS WITH RELATED PERSONS +During fiscal 2012, the Company leased certain office space from an entity controlled by Marco G. Calzavara, President and Managing Director, Meridian +Bioscience Europe. Payments made under such arrangements during fiscal 2012 totaled approximately $190,000. +Nasdaq rules require the +Company to conduct an appropriate review of related party transactions required to be disclosed by the Company pursuant to SEC Regulation S-K Item 404 for potential conflict of interest situations on an ongoing basis and that all such +transactions must be approved by the Audit Committee or another Committee comprised of independent Directors. As a result, the Audit Committee annually reviews all such related party transactions and approves each related party transaction if it +determines that it is in the best interests of the Company. Additionally, the Audit Committee’s Charter provides it the authority to review, approve and monitor transactions involving the Company and “related persons” (Directors and +Executive Officers or their immediate family members, or shareholders owning five percent or greater of the Company’s outstanding stock). This also covers any related person transaction that meets the minimum threshold for disclosure in the +proxy statement under the relevant SEC rules (generally, transactions involving amounts exceeding $120,000 in which a related person has a direct or indirect material interest). In considering the transaction, the Audit Committee may consider all +relevant factors, including, as applicable, (i) the Company’s business rationale for entering into the transaction; (ii) the alternatives to entering into a related person transaction; (iii) whether the transaction is on terms +comparable to those available to third parties, or in the case of employment relationships, to employees generally; (iv) the potential for the transaction to lead to an actual or apparent conflict of interest and any safeguards imposed to +prevent such actual or apparent conflicts; and (v) the overall fairness of the transaction to the Company. This policy is included in the Company’s Employee Handbook. The approval of such related person transactions are evidenced by +internal Company resolutions or memoranda. \ No newline at end of file diff --git a/raw/proxies/0000794172/0001193125-13-470974/proxy.txt b/raw/proxies/0000794172/0001193125-13-470974/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..f04f723074d1b34f082452e886185d4098208ff2 --- /dev/null +++ b/raw/proxies/0000794172/0001193125-13-470974/proxy.txt @@ -0,0 +1,2201 @@ +DEF 14A +1 +d630729ddef14a.htm +DEFINITIVE PROXY STATEMENT +Definitive Proxy Statement +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +WASHINGTON, D.C. 20549 +SCHEDULE 14A +(Rule 14a-101) +INFORMATION REQUIRED IN PROXY STATEMENT +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of the +Securities Exchange Act of 1934 +(Amendment No. ) +Filed by the Registrant x Filed by a Party other than the +Registrant ¨ +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material Pursuant to Section 14a-12 +Meridian Bioscience, Inc. +(Name of Registrant as +Specified in Its Charter) +(Name of Person(s) Filing Proxy Statement if Other Than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on +which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total Fee Paid: +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the +offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +MERIDIAN BIOSCIENCE, INC. +3471 River Hills Drive +Cincinnati, Ohio 45244 +www.meridianbioscience.com +Notice of Annual Meeting +and Proxy Statement +Dear Shareholder: +Our Annual Meeting of Shareholders will be held at 2:00 p.m. on January 22, 2014 at the Holiday Inn Eastgate, 4501 Eastgate Boulevard, Cincinnati, +OH 45245. We hope you will attend. +At the meeting, you will hear a report on our operations and have a chance to meet your Directors and +Executive Officers. +This booklet includes the formal notice of the meeting and the proxy statement. The proxy statement tells you more about +the agenda and procedures for the meeting. It also describes how the Board operates and gives personal information about our Director candidates. +We are pleased to once again take advantage of the U.S. Securities and Exchange Commission rules that allow companies to furnish their proxy materials over the Internet. As a result, we are mailing to +most of our shareholders a Notice of Internet Availability of Proxy Materials (the “Notice”) instead of a paper copy of this proxy statement and our Annual Report. The Notice contains instructions on how to access and review those +documents over the Internet. We believe that this process allows us to provide our shareholders with the information they need in a more timely manner, while reducing the environmental impact and lowering the costs of printing and distributing our +proxy materials. If you received a Notice by mail and would like to receive a printed copy of our proxy materials, you should follow the instructions for requesting such materials included in the Notice. +Whether or not you plan to attend the meeting, please cast your proxy vote promptly, either on-line, over the phone or by returning your signed and dated +proxy card in the enclosed envelope. +Sincerely yours, +/s/ William J. Motto +William J. Motto +Executive Chairman of the Board +December 12, 2013 +Table of Contents +NOTICE OF ANNUAL MEETING +OF +SHAREHOLDERS OF MERIDIAN BIOSCIENCE, INC. +Time: +2:00 p.m., Eastern Standard Time +Date: +January 22, +2014 +Place: +Holiday Inn Eastgate +4501 Eastgate Blvd. +Cincinnati, Ohio 45245 +Purpose: +• +Elect as Directors the five nominees named in the attached proxy materials +• +Conduct an advisory vote on our executive compensation (“Say-on-Pay”) +• +Ratify appointment of Grant Thornton LLP as Meridian’s independent registered public accountants for fiscal year 2014 +• +Conduct other business if properly raised +Only shareholders of record on November 25, 2013 may vote at the meeting. The approximate mailing date of this proxy statement and accompanying Proxy Card is December 12, 2013. +Your vote is important. Please cast your proxy vote promptly, either on-line, over the phone or by returning your signed and dated proxy card in the +enclosed envelope. +/s/ Melissa A. Lueke +Melissa A. Lueke +Secretary +December 12, 2013 +Table of Contents +TABLE OF CONTENTS +Page +GENERAL INFORMATION +1 +ELECTION OF DIRECTORS +2 +SAY-ON-PAY +5 +RATIFICATION OF APPOINTMENT OF ACCOUNTANTS +6 +CORPORATE GOVERNANCE +7 +DIRECTORS AND EXECUTIVE OFFICERS +14 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS +16 +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +16 +TRANSACTIONS WITH RELATED PERSONS +17 +COMPENSATION DISCUSSION AND ANALYSIS +17 +SUMMARY COMPENSATION TABLE +26 +DIRECTOR COMPENSATION +33 +SHAREHOLDER PROPOSALS FOR NEXT YEAR +34 +QUESTIONS? +34 +Meridian makes available, free of charge on its website, all of its filings that are made electronically with the +Securities and Exchange Commission (“SEC”), including Forms 10-K, 10-Q and 8-K. These filings are also available on the SEC’s website (www.sec.gov). To access these filings, go to our website (www.meridianbioscience.com). Copies of +Meridian’s Annual Report on Form 10-K for the fiscal year ended September 30, 2013, including financial statements and schedules thereto, filed with the SEC, are also available without charge to shareholders upon written request addressed +to: +Melissa A. Lueke +Executive +Vice President, Chief Financial Officer and Secretary +Meridian Bioscience, Inc. +3471 River Hills Drive +Cincinnati, Ohio 45244 +Table of Contents +GENERAL INFORMATION +Who may vote +Shareholders of Meridian, as recorded in our stock register on +November 25, 2013, may vote at the meeting. As of that date, Meridian had 41,526,199 shares of Common Stock outstanding. +How to +vote +You may vote in person at the meeting or by proxy. We recommend you vote by proxy even if you plan to attend the meeting. You can +always change your vote at the meeting. +How proxies work +Meridian’s Board of Directors is asking for your proxy. Giving us your proxy means you authorize us to vote your shares at the meeting in the manner you direct. You may vote for all, some or none of +our Director candidates. You may also vote for or against the other proposals or abstain from voting. +If you complete your proxy on-line, +over the phone or sign and return the enclosed proxy card but do not specify how to vote, we will vote your shares in favor of (i) our Director candidates; (ii) our executive compensation; and (iii) the ratification of appointment of +Grant Thornton LLP as Meridian’s independent registered public accountants for fiscal year 2014. If any other matters come before the meeting or any postponement or adjournment thereof, each proxy will be voted in the discretion of the +individuals named as proxies on the card. +You may receive more than one proxy or voting card depending on how you hold your shares. Shares +registered in your name are covered by one card. If you hold shares through someone else, such as a stockbroker, bank or nominee, you may get material from them asking how you want to vote. +Stockbrokers, banks and nominees holding shares for beneficial owners must vote those shares as instructed. If the stockbroker, bank or nominee has not received instructions from you, the beneficial +owner, the stockbroker, bank or nominee generally has discretionary voting power only with respect to the ratification of appointment of the independent registered public accountants. However, a stockbroker, bank or nominee does not have discretion +to vote for or against the election of Directors and certain other matters subject to a vote if they have not received voting instructions. In order to avoid a broker non-vote of your shares on the election of Directors and the other matters subject +to a vote, you must send voting instructions to your stockbroker, bank or nominee. +Solicitation of proxies +Solicitation of proxies is being made by management at the direction of Meridian’s Board of Directors, without additional compensation, through the +mail, in person or by telephone. The cost of preparing and mailing the Notice and the proxy statement and any accompanying material will be borne by Meridian. In addition, Meridian will request brokers and other custodians, nominees and fiduciaries +to forward proxy soliciting material to the beneficial owners of shares held of record and Meridian will reimburse them for their expenses in so doing. +1 +Table of Contents +Revoking a proxy +You may revoke your proxy before it is voted by submitting a new proxy with a later date, by voting in person at the meeting or by notifying Meridian’s Secretary in writing at the address under +“Questions?” on page 34. +Quorum +In order to carry on the business of the meeting, we must have a quorum. This means at least a majority of the outstanding shares eligible to vote must be represented at the meeting, either by proxy or in +person. +Votes needed +The five Director candidates receiving the most votes will be elected to fill the seats on the Board. The approval on an advisory basis of our executive +compensation (Proposal No. 2) and the ratification of appointment of accountants (Proposal No. 3) require the favorable vote of a majority of the votes cast. Only votes for or against these proposals count, with abstentions not being +counted either for or against these proposals. +Abstentions and broker non-votes count for quorum purposes but, as indicated above, will not +count for voting purposes. Broker non-votes occur when a broker returns a proxy card but does not have authority to vote on a particular proposal. +Other matters +Any other matters considered at the meeting, including postponement +or adjournment, will require the affirmative vote of a majority of the votes cast. +ELECTION OF DIRECTORS +(Item 1 on the Proxy Card) +The Nominating and Corporate Governance Committee of the Board of Directors has nominated for re-election the following current Directors: James M. +Anderson, John A. Kraeutler, William J. Motto, David C. Phillips and Robert J. Ready. +Proxies solicited by the Board will be voted for the +election of these nominees. All Directors elected at the Annual Shareholders’ Meeting will be elected to hold office until the next annual meeting. In voting to elect Directors, shareholders are entitled to cumulate their votes and to give one +candidate a number of votes equal to the number of Directors to be elected multiplied by the number of shares held by the shareholder, or to distribute their votes on the same principle among as many candidates as the shareholder sees fit. In order +to invoke cumulative voting, notice of cumulative voting must be given in writing by a shareholder to the Chief Executive Officer, a Vice President or the Secretary of Meridian not less than 48 hours prior to the Annual Shareholders’ Meeting. +The proxies solicited include discretionary authority to cumulate votes. +All Meridian Directors are elected for one-year terms. Personal +information on each of our nominees is given below. +2 +Table of Contents +If a Director nominee becomes unavailable before the election, your proxy card authorizes us to vote for a +replacement nominee if the Board names one. +The Board recommends that shareholders vote FOR each of the following candidates: +James M. Anderson +Director since 2009 +Age: 71 +James M. Anderson serves as Chairman of the Nominating and Corporate Governance Committee. He currently serves as Advisor to the President of Cincinnati Children’s Hospital Medical Center +(“CCHMC”), following his retiring as President and Chief Executive Officer of CCHMC on December 31, 2009, and since 2006 has served as a director of Ameritas Mutual Holding Company. He has also served on the Board of the Cincinnati +Branch of the Federal Reserve Bank of Cleveland, retiring in 2012. Prior to joining the staff of CCHMC, Mr. Anderson was a partner in the general corporate law department at Taft, Stettinius & Hollister for 24 years (1968-1977; 1982-1996) and +president of U.S. operations at Xomox Corporation, a publicly-traded manufacturer of specialty process controls (1977-1982). Mr. Anderson has also served as director of Gateway Investment Advisors (1997-2008). The Board believes that Mr. +Anderson’s corporate legal experience and his experience as CEO of a large healthcare organization have given him a wealth of insight into various corporate governance and business management issues, which, along with his status as an +independent Director, make him an integral member of the Board. +John A. Kraeutler +Director since 1997 +Age: 65 +John A. Kraeutler has more than 40 years of experience in the medical diagnostics industry and joined Meridian as Executive Vice President and Chief Operating Officer in January 1992. In July +1992, Mr. Kraeutler was named President of Meridian, and in January 2008, Mr. Kraeutler was named Chief Executive Officer of Meridian. Before joining Meridian, Mr. Kraeutler served as Vice President, General Manager for a division of Carter-Wallace, +Inc. Prior to that, he held key marketing and technical positions with Becton, Dickinson and Company and Organon, Inc. Mr. Kraeutler’s long-time service to Meridian, all in an executive capacity, has given him significant insight into, and +familiarity with, all aspects of Meridian’s business and the strategic vision for its continued success, and makes his service on the Board extremely beneficial. +3 +Table of Contents +William J. Motto +Director since 1977 +Age: 72 +William J. Motto has more than 45 years of experience in the pharmaceutical and diagnostics products industries, is a founder of Meridian and has been Chairman of the Board since 1977. Mr. Motto +became Executive Chairman of the Board in January 2008. Before forming Meridian, Mr. Motto served in various capacities for Wampole Laboratories, Inc., Marion Laboratories, Inc. and Analytab Products, Inc., a division of American Home Products Corp. +Mr. Motto’s experience as Meridian’s founder, his breadth of experience within the pharmaceutical and diagnostics products industries, and his entrepreneurial approach to assessing Meridian’s growth opportunities, give him +unparalleled insights into all aspects of Meridian’s business and operations, which he, in turn, is able to contribute to the Board as its Executive Chairman. +David C. Phillips +Director since 2000 +Age: 75 +David C. Phillips serves as Chairman of the Audit Committee and Lead Director. Mr. Phillips spent 32 years with Arthur Andersen LLP. His service with this firm included several managing partner +leadership positions. After retiring from Arthur Andersen in 1994, Mr. Phillips became Chief Executive Officer of Downtown Cincinnati, Inc., which is responsible for economic revitalization of Downtown Cincinnati. Mr. Phillips retired from DCI in +1999 to devote full time to Cincinnati Works, Inc., an organization dedicated to reducing the number of people living below the poverty level by assisting them to strive towards self-sufficiency through work, and his financial consulting services. +Mr. Phillips has also served as a director of Cintas Corporation, retiring in 2012, and as a director of Summit Mutual Funds, a registered investment company, through 2009. The Board believes that Mr. Phillips’ years of service as a certified +public accountant and trusted advisor to his clients and business owners, which qualify him as an “audit committee financial expert” under SEC guidelines, give him significant experience in preparing, auditing, analyzing and evaluating +financial statements and dealing with complex accounting and business issues, all of which is valuable to Meridian. +4 +Table of Contents +Robert J. Ready +Director since 1986 +Age: 73 +Robert J. Ready serves as Chairman of the Compensation Committee. Mr. Ready founded LSI Industries Inc., Cincinnati, Ohio in 1976, which engineers, manufactures and markets commercial/industrial +lighting and graphics products, and is currently its Chief Executive Officer and Chairman of its Board of Directors. Meridian’s Board believes that Mr. Ready’s years of experience as the chief executive of a publicly-traded company and the +myriad, wide-ranging business issues encountered in such capacity, as well as his status as an independent Director, render his service on the Board valuable to Meridian. +ADVISORY VOTE ON COMPENSATION OF NAMED EXECUTIVE OFFICERS +(“SAY-ON-PAY” PROPOSAL) +(Item 2 on the Proxy Card) +The +Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd Act”), enacted in July 2010, requires that we provide our shareholders with the opportunity to vote to approve, on a non-binding, advisory basis, the compensation of our +named executives officers as disclosed in this proxy statement in accordance with the compensation disclosure rules of the Securities and Exchange Commission (“SEC”). The Dodd Act also provides that, at least once every six years, +shareholders must be given the opportunity to vote, on a non-binding, advisory basis, for their preference as to how frequently we should seek future advisory votes on the compensation of our named executive officers. We provided this opportunity to +our shareholders at our 2012 annual meeting where over 90% of our shareholders voted to hold the “say-on-pay” advisory vote annually, in accordance with the recommendation of our Board of Directors. As a result, we are again holding a +say-on-pay advisory vote at our 2014 annual meeting, with the next say-on-pay advisory vote to be held at our 2015 annual meeting. +As +described in detail below under the heading “Compensation Discussion and Analysis” beginning on page 17 of this proxy statement, we seek to closely align the interests of our named executive officers with the interests of our shareholders. +We structure our programs to discourage excessive risk-taking through a balanced use of compensation vehicles and metrics with an overall goal of delivering sustained long-term shareholder value while aligning our executives’ interests with +those of our shareholders. Further, our programs require that a substantial portion of each named executive officer’s compensation be contingent on delivering performance results that benefit our shareholders. Our compensation programs are +designed to reward our named executive officers for the achievement of short-term and long-term strategic and operational goals and the achievement of increased total shareholder return. +5 +Table of Contents +The vote on this matter is not intended to address any specific element of compensation; rather, the vote +relates to the compensation of our named executive officers, as described in this proxy statement in accordance with the compensation disclosure rules of the SEC. The vote is advisory, which means that the vote is not binding on the Company, our +Board of Directors or the Compensation Committee. The Board and the Compensation Committee will review and consider the voting results when making future decisions regarding our executive compensation program. +Accordingly, we ask our shareholders to approve, on an advisory basis, the compensation of the named executive officers, as disclosed in this proxy +statement pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis, the Summary Compensation Table and the other related tables and disclosure. +The Board of Directors recommends that shareholders vote FOR the approval of the compensation of our named executive officers as disclosed in +this proxy statement. +RATIFICATION OF APPOINTMENT OF ACCOUNTANTS +(Item 3 on the Proxy Card) +Although not +required, we are seeking shareholder ratification of the Audit Committee’s selection of Grant Thornton LLP as Meridian’s independent registered public accountants for the 2014 fiscal year. The affirmative vote of a majority of shares +voting at the meeting is required for ratification. If ratification is not obtained, the Audit Committee intends to continue the employment of Grant Thornton at least through fiscal 2014. Representatives of Grant Thornton are expected to be present +at the Annual Shareholders’ Meeting and will be available to make a statement, if they so desire, and to respond to appropriate questions asked by shareholders. +Principal Accounting Firm Fees +Aggregate fees billed to Meridian by Grant Thornton LLP for +fiscal years 2013 and 2012 are listed below: +2013 +2012 +Audit Fees +$ +453,406 +$ +398,098 +Audit-Related Fees +28,424 +21,095 +Tax Fees +220,226 +255,507 +$ +702,056 +$ +674,700 +Audit Fees. Audit fees are the fees billed for professional services rendered by Meridian’s +independent registered public accounting firm for their (i) audit of Meridian’s consolidated annual financial statements for the fiscal years ended September 30, 2013 and 2012, respectively; (ii) reviews of the unaudited +quarterly consolidated financial statements contained in the reports on Form 10-Q filed by Meridian during those years; (iii) completion of audits of Bioline Group statutory accounts in the United Kingdom during fiscal 2013 and +6 +Table of Contents +2012, and Australia during fiscal 2013; and (iv) reporting on Meridian’s internal controls during those years. +Audit-Related Fees . Audit-related fees are the fees billed for assurance and related services that are reasonably +related to the performance of the audit or review of Meridian’s financial statements. +Tax Fees. Tax fees are +the fees billed for U.S. federal and state tax return preparation and compliance, as well as consultation and research on various matters such as state tax issues, international tax issues and transfer pricing. +The Board recommends that shareholders vote FOR the ratification of appointment of Grant Thornton LLP as Meridian’s independent registered +public accountants for the 2014 fiscal year. +CORPORATE GOVERNANCE +As an Ohio corporation, Meridian is governed by the corporate laws of Ohio. Since its common shares are publicly traded on the Nasdaq Global Select Market +and it files reports with the Securities and Exchange Commission, it is also subject to Nasdaq rules and federal securities laws. +Board +Leadership Structure +Governance of the corporation is placed in the hands of the Directors who, in turn, elect officers to manage the +business operations. The Board oversees the management of Meridian on your behalf. The Board reviews Meridian’s long-term strategic plans and exercises direct decision making authority in all major decisions, such as acquisitions, the +declaration of dividends, major capital expenditures and the establishment of company policies. +The Board operates and evaluates its +performance in accordance with Corporate Governance Guidelines approved by the Board on November 7, 2012. These Guidelines are available at our website www.meridianbioscience.com . +The Board of Directors is responsible for evaluating and determining Meridian’s leadership structure, and believes that separate individuals should serve in the capacities of Chairman of the Board +and Chief Executive Officer (“CEO”). It is the Board’s belief that such a two-person structure best provides the Company with the right foundation to pursue its strategic and operational objectives, while maintaining effective +oversight and objective evaluation of the Company’s performance. Currently, these key executive positions are held by Mr. William J. Motto, Executive Chairman of the Board, and Mr. John A. Kraeutler, CEO. Mr. Motto has +served as the Board’s Chairman since 1977 and in such capacity is responsible for general Board activities including presiding over all meetings of the Board and shareholders, setting agendas for Board meetings and providing advice and counsel +to Meridian’s management regarding the Company’s business and operations. As CEO, Mr. Kraeutler is responsible for the general management, oversight, supervision and control of the business affairs of Meridian, and ensuring that all +orders and resolutions of the Board are put into effect. With their many years of experience with the Company, Meridian believes that Mr. +7 +Table of Contents +Motto and Mr. Kraeutler are uniquely qualified to be Meridian’s Executive Chairman and CEO, respectively. +Mr. David C. Phillips has been appointed by the Board to serve as Lead Director. The Board has determined that the Lead Director shall (i) in consultation with the non-management Directors, +advise the Chairman as to an appropriate schedule of Board meetings and review and provide the Chairman with input regarding the agendas for each Board meeting; (ii) preside at all meetings at which the Chairman is not present, including +Executive Sessions of the non-management Directors, and apprise the Chairman of the issues considered thereat; (iii) call meetings of the non-management Directors when necessary and appropriate; and (iv) perform such other duties as the +Board may from time to time designate. We believe that this leadership structure is currently the most appropriate for Meridian, particularly in light of the requirement noted below that all Committees of the Board are comprised solely of +independent Directors. +In accordance with Nasdaq rules, our Board of Directors affirmatively determines the independence of each Director and +nominee for election as a Director in accordance with the elements of independence set forth in the Nasdaq listing standards and Exchange Act rules. Meridian’s Director Independence Standards are available at our website +www.meridianbioscience.com . Based on these standards, the Board has determined that each of the following members of the Board is independent: James M. Anderson, David C. Phillips and Robert J. Ready. +During fiscal 2013, the Board of Directors met on five occasions and took no actions in writing. The independent Directors plan to meet at least two +times during fiscal 2014 without the presence of management Directors. While the independent Directors had no such meetings in fiscal 2013, they met in executive session without the presence of management directors following each of the regularly +scheduled Board meetings. One such meeting has been held to-date in fiscal 2014. +Meridian expects all Directors to attend shareholders’ +meetings and all were in attendance at the 2013 Annual Shareholders’ Meeting. +Shareholders may communicate with the full Board or +individual Directors on matters concerning Meridian by mail or through our website, in each case to the attention of the Secretary, the address for whom is set forth on page 34 of this proxy statement. +The Board’s Role in Risk Oversight +The Board of Directors, as a whole and also at the Committee level, plays a key role in operational risk oversight at Meridian and works with management +to understand the risks the Company faces, the steps that management is taking to manage those risks and the level of risk appropriate for the Company in light of its overall business strategy. The Board approves the high level strategies, financial +plans and policies of Meridian, setting the tone and direction for the appropriate levels of risk-taking within the organization. +8 +Table of Contents +While overall responsibility for risk oversight rests with the Board, it is the Audit Committee that has +been given the primary responsibility of monitoring and evaluating the adequacy of management’s risk assessment and risk management practices. This role is carried out through its charter-mandated responsibilities related to Meridian’s +(i) overall financial risks and exposures; (ii) financial statement risks and exposures; (iii) financial reporting processes; (iv) compliance with ethics policies, such as the Code of Ethics, Employee Complaint Policy, Security +Trading Policies and the Foreign Corrupt Practices Act Policy; and (v) compliance with governmental and legal regulations, including those contained within the Sarbanes-Oxley Act. The Audit Committee provides regular reports to the full Board +and works closely with management to update the full Board, as necessary, on matters identified through these Committee risk oversight roles. +Committees of the Board of Directors +The Board has adopted a Code of Ethics applicable to Meridian’s officers, Directors and employees. This Code of Ethics is posted on +www.meridianbioscience.com . To the extent permitted by Nasdaq Marketplace Rule 5610, any amendments to or waivers from the Code of Ethics will be posted on our website within four business days after the date of an amendment. +The Directors have organized themselves into the Committees described below. Each of these Committees has a charter posted on +www.meridianbioscience.com . Meridian does not have an Executive Committee of its Board of Directors. +The Audit Committee +is composed of David C. Phillips (Chairman), James M. Anderson and Robert J. Ready. The Committee met nine times during fiscal 2013 and took no actions in writing. Each member is able to read and understand fundamental financial statements. David C. +Phillips has been designated as an Audit Committee financial expert as that term is defined by the Securities and Exchange Commission. +The Committee oversees the accounting and financial reporting processes of Meridian and the audits of its financial statements by its independent registered public accounting firm. The Committee is solely +responsible for the appointment, compensation, retention and oversight of Meridian’s independent registered public accounting firm. The Audit Committee also evaluates information received from Meridian’s independent registered public +accounting firm and management to determine whether the independent registered public accounting firm is independent of management. The independent registered public accounting firm reports directly to the Audit Committee. +In addition, the Audit Committee has established procedures for the receipt, retention and treatment of complaints received by Meridian concerning +accounting, internal accounting controls or auditing matters and has established procedures for the confidential and anonymous submission by employees of any concerns they may have regarding questionable accounting or auditing matters. +The Audit Committee, or its Chairman, approves all audit and non-audit services performed for Meridian by its independent registered public accounting +firm before those services are commenced. The Chairman reports to the full Committee at each of its meetings regarding +9 +Table of Contents +pre-approvals he made since the prior meeting and the Committee approves what he has done between meetings. For these purposes, the Committee or its Chairman is provided with information as to +the nature, extent and purpose of each proposed service, as well as the approximate timeframe and proposed cost arrangements for that service. +As previously noted, the Audit Committee also bears primary risk oversight responsibilities, including responsibilities such as (i) overseeing the +risks and exposures relating to the Company’s financial statements and financial reporting process; (ii) overseeing the Company’s policies and procedures for monitoring and mitigating such risks and exposures; and (iii) reviewing +management’s monitoring of the Company’s compliance with established ethics and legal policies and procedures. +The Committee has +submitted the following report for inclusion in this proxy statement. +REPORT OF THE AUDIT COMMITTEE +On April 23, 2013, the Audit Committee met with representatives of Grant Thornton and Meridian’s internal accountants and reviewed with them +the proposed 2013 Audit Plan, areas warranting particular concentration on the audit and the effects of new accounting pronouncements. The Grant Thornton representatives reviewed with the Committee required Audit Committee communications. +On July 23, 2013, the Committee met with representatives of Grant Thornton and Meridian’s internal accountants and reviewed the +status of the 2013 audit, including internal control matters, the Meridian Bioscience, Inc. Savings and Investment Plan audit, and new accounting pronouncements. The Committee also had an extensive review of tax consulting engagements and +independence requirements. The Committee also reviewed with Grant Thornton representatives the “Employer Mandate” provisions of the Affordable Care Act. +At its meeting on August 21, 2013, the Committee reviewed management’s strategic business plan and related risk assessment, specifically discussing with management its risk management strategies +related to key financial and business risks. The Committee concluded that this annual in-depth review and ongoing management updates of the integrated strategic and risk management plan were appropriate in order to fulfill its risk oversight +obligations. The Committee also reviewed the requirements of its Charter previously adopted, performed its annual self-assessment, and discussed the Company’s ethical behavior policies and the training thereon for employees and Directors, +including the Company’s Code of Ethics, Employee Complaint Policy, Security Trading Policies, Foreign Corrupt Practices Act Policy, and Travel and Entertainment Policy as it relates to officer expense accounts. +At its meeting on November 5, 2013, the Committee reviewed and discussed with management, Grant Thornton and Meridian’s accounting officers the +results of the audit for fiscal 2013, including the financial results. The Committee discussed with Grant Thornton the matters required to be discussed by Auditing Standards No. 16, as amended (PCAOB Interim Auditing Standard AU +Section 380, Communication with Audit Committees ). The Grant Thornton representatives reviewed with the Committee written disclosures required by applicable requirements of the PCAOB regarding the independent accountants’ +10 +Table of Contents +communications with the Audit Committee concerning independence, discussed with the Committee the independent accountants’ independence, and presented a letter regarding that matter to the +Committee. The Committee discussed with Grant Thornton its independence. In concluding that the auditors are independent, we determined, among other things, that the non-audit services provided by the auditors were compatible with their +independence. In addition, the Committee reviewed proposed changes to the Audit Committee Charter and recommended that its charter be revised to reflect such changes, with the approval action taken at the November 6, 2013 Board of Directors +meeting. +Based on the above mentioned review and review of the audited financial statements, on November 20, 2013, the Committee +recommended to the Board of Directors that the audited financial statements of Meridian be included in its Annual Report on Form 10-K for the year ended September 30, 2013 for filing with the Securities and Exchange Commission. +During its meetings throughout the year, the Committee reviewed and assessed the Company’s financial, financial control, financial reporting, and +certain legal and regulatory risk exposures, including reviewing procedures related to the receipt, retention and treatment of any complaints concerning accounting, internal accounting controls or auditing matters. Also during its meetings +throughout the year, the Chairman of the Audit Committee reported to the full Committee the independent accountants’ fees that had been pre-approved and the Committee approved such fees. Certain fees were pre-approved by the full Committee. The +Committee also reviewed the requirements of and Meridian’s ongoing compliance with Section 404 of the Sarbanes-Oxley Act. +Respectfully submitted, +Audit Committee +David C. Phillips (Chairman) +James M. Anderson +Robert J. Ready +The Compensation Committee is composed of Robert J. Ready (Chairman), James M. Anderson, and David C. Phillips and is responsible for +establishing compensation for Executive Officers and administering the Company’s compensation plans. This includes establishing salary levels and bonus plans, making bonus and stock-based awards, and otherwise dealing in all matters concerning +compensation of the Executive Officers. During fiscal 2013, the Compensation Committee met two times, and took no actions in writing. +In general, the Compensation Committee annually reviews the Company’s compensation programs and its philosophy in setting performance targets in November of each year. At that time, the Company +provides the Compensation Committee with information on total compensation received for all Executive Officers, including the sources of such compensation, for the immediately preceding fiscal year and recommendations for the current fiscal year. In +discharging the responsibilities of the Board of Directors relating to compensation of the Company’s Chief Executive Officer and other Executive Officers, the purposes of the Compensation Committee are, among others, (i) to review and +approve the +11 +Table of Contents +compensation of the Company’s Chief Executive Officer and other Executive Officers and (ii) to oversee the compensation policies and programs of the Company, including stock and benefit +plans. The Compensation Committee’s specific functions include adopting, administering and approving the Company’s incentive compensation and stock plans and awards, including amendments to the plans or awards and performing such duties +and responsibilities under the terms of any executive compensation plan, incentive-compensation plan or equity-based plan. The Compensation Committee has the authority to delegate any of its responsibilities to subcommittees as the Compensation +Committee may deem appropriate in its sole discretion. The Compensation Committee has the authority to engage consultants and advisors. The Compensation Committee did not engage a consultant or advisor this year. The Compensation Committee has an +appropriate level of contact among its members and the Company’s Executive Officers in connection with the analysis of this data. On an annual basis, the Committee reviews its Charter and performs a self-assessment. +The Compensation Committee determines the amount and mix of compensation components for the Executive Chairman, Mr. Motto. The Executive Chairman +provides input and recommendations to the Compensation Committee with respect to the compensation to be paid to the non-employee members of the Board, as well as Mr. Kraeutler. As Meridian’s Chief Executive Officer, Mr. Kraeutler +provides recommendations to the Compensation Committee with respect to compensation to be paid to the other corporate officers. +To achieve +compensation objectives, the Committee believes it is important to provide competitive levels of compensation to retain the most qualified employees, to recognize individuals who exceed expectations and to closely link executive compensation with +corporate performance. The Committee believes Meridian’s long-term objectives can be achieved through cash incentive compensation plans and equity incentive compensation plans. +The Compensation Committee’s processes and procedures for the consideration and determination of Executive and Director compensation are discussed in the section entitled “Compensation +Discussion and Analysis” in this proxy statement. +Compensation Committee Interlocks and Insider Participation +None of the members of the Compensation Committee has ever been an officer or employee of the Company. None of the members of the Compensation Committee +is or was a participant in any related person transaction in fiscal 2013 (see the section entitled “Transactions With Related Persons” in this proxy statement for a description of our policy on related person transactions). Lastly, none of +the members of the Compensation Committee is an Executive Officer of another entity at which one of our Executive Officers serves on the Board of Directors. No Named Executive Officer of Meridian serves as a Director or as a member of a committee of +any company of which any of the Company’s non-employee Directors are Executive Officers. +12 +Table of Contents +The Nominating and Corporate Governance Committee consists of James M. Anderson (Chairman), +David C. Phillips and Robert J. Ready. The Committee met one time during fiscal 2013 and took no actions in writing. On November 6, 2013, the Committee considered and nominated the current Directors for re-election. The Committee identifies +qualified nominees for the Board, determines who will be nominated by the Company for election to the Board and recommends to the full Board any changes in the size of the Board. The Committee also reviewed its Charter and performed its annual +self-assessment. +In nominating Directors, the Committee takes into account, among other factors which it may deem appropriate, +the judgment, skill, diversity, and business experience of the potential nominee and the needs of the Board as its function relates to the business of the Company. The Committee considers candidates for nomination from a variety of sources including +recommendations of shareholders. Shareholders desiring to submit recommendations for nominations by the Committee should direct them to the Chairman of the Nominating and Corporate Governance Committee in care of the Company at its address shown on +the cover page of this proxy statement. +The Nominating and Corporate Governance Committee will assess the qualifications of all candidates +for the Board on an equal basis. In identifying and considering candidates for nomination to the Board, the Committee considers, among other factors, quality of experience, the needs of the Company and the range of talent and experience currently +represented on the Board. The Committee evaluates such factors, among others, and does not assign any particular weighting or priority to any of these factors, nor does the Committee have a formal policy with respect to diversity. However, the +Committee, working with the Board, considers the diversity of all of the Company’s stakeholders – including shareholders, employees and customers – when engaging in corporate governance discussions. +13 +Table of Contents +DIRECTORS AND EXECUTIVE OFFICERS +This table lists the Executive Officers and Directors of Meridian and shows the number of shares beneficially owned, as determined under SEC rules, on +November 25, 2013. Beneficial ownership includes any shares as to which the individual has sole or shared voting or investment power and also any shares that the individual has the right to acquire as of January 24, 2014 (60 days after +November 25, 2013). +Common Stock +Beneficially +Owned +Name +Position +Amount 1 +Percentage +William J. Motto +Executive Chairman of the +Board of Directors +424,161 +1.0 +% +John A. Kraeutler +Chief Executive Officer and +Director +284,882 +* +Richard L. Eberly 2 +Executive Vice President, +President Meridian Life Science +13,880 +* +Lawrence J. Baldini 3 +Executive Vice President, +Operations and Information Systems +42,750 +* +Melissa A. Lueke 4 +Executive Vice President, +Chief Financial Officer and Secretary +116,796 +* +Vecheslav A. Elagin 5 +Executive Vice President, +Research & Development +29,459 +* +Susan D. Rolih 6 +Executive Vice President, +Regulatory & Quality Systems +121,852 +* +Marco G. Calzavara 7 +President and Managing +Director, Meridian +Bioscience Europe +800 +* +Marviette D. Johnson 8 +Vice President, +Human Resources +20,997 +* +James M. Anderson 9, 10, 11 +Director +49,500 +* +David C. Phillips 9, 10, 11 +Director +74,126 +* +Robert J. Ready 9, 10, 11 +Director +80,315 +* +All Executive Officers and Directors as a Group +1,259,518 +3.0 +% +1 +Includes options +exercisable within 60 days for Mr. Motto of 47,250 shares, Mr. Kraeutler of 92,000 shares, Mr. Eberly of 6,125 shares, Mr. Baldini of 250 shares, Ms. Lueke of 26,250 shares, Dr. Elagin of 12,750 shares, Ms. Rolih +of 48,150 shares, Ms. Johnson of 10,750 shares, Mr. Anderson of 38,500 shares, Mr. Phillips of 58,714 shares and Mr. Ready of 69,142 shares. +2 +Richard L. Eberly was appointed Vice President of Sales and Marketing in January 1997, Executive Vice President in May 2000, Executive Vice President, +General Manager of Meridian Life Science in February 2003, Executive Vice President and President Meridian Life Science in October 2005 and Chief Commercial Officer in February 2011. In October 2012, he was re-appointed President of Meridian Life +Science, and no longer serves as Chief Commercial Officer. He has over 20 years of experience in the medical diagnostics industry and joined Meridian in March 1995. Prior to his appointment to Vice President of Sales and Marketing, Mr. +14 +Table of Contents +Eberly served as the Director of Sales for Meridian. Before joining Meridian, he held key sales and marketing positions at Abbott Diagnostics, Division of Abbott Laboratories. Age: 52 +3 +Lawrence J. Baldini was appointed Vice President of Operations in April 2001 and Executive Vice President, Operations and Information Systems in +October 2005. Before joining Meridian, Mr. Baldini held various operations management positions with Instrumentation Laboratories and Fisher Scientific. Age: 54 +4 +Melissa A. Lueke was appointed Vice President, Chief Financial Officer and Secretary in January 2001 and Executive Vice President, Chief Financial +Officer and Secretary in November 2009. Prior to her appointment, Ms. Lueke served as Meridian’s Controller since March 2000 and Acting Secretary from July 20, 2000 to January 23, 2001. Before joining Meridian, Ms. Lueke was +employed by Arthur Andersen LLP from June 1985 to January 1999, most recently as a Senior Audit Manager. Age: 50 +5 +Vecheslav A. Elagin joined Meridian in August 2009 as Vice President of Research and Development, was appointed Senior Vice President of Research and +Development in November 2011, and promoted to Executive Vice President of Research and Development in June 2012. Before joining Meridian, Dr. Elagin held various executive research and development positions, most recently with Madison Life +Science (August 2008 – August 2009), EraGen Biosciences (May 2006 – August 2008) and Third Wave Technologies (June 2003 – May 2006). Age: 46 +6 +Susan D. Rolih was appointed Vice President of Regulatory Affairs and Quality Assurance in May 2001, Senior Vice President of Regulatory Affairs and +Quality Assurance in April 2008, and Executive Vice President of Regulatory and Quality Systems in April 2013. Before joining Meridian, Ms. Rolih held various regulatory and quality positions with Immucor, Inc. Age: 64 +7 +Marco G. Calzavara, founder of the Bioline Group, which Meridian acquired July 20, 2010, was appointed President and Managing Director of Meridian +Bioscience Europe in April 2011. Prior to this appointment, Mr. Calzavara had served as President of the Bioline Group of Companies since 1992. Age: 59 +8 +Marviette D. Johnson served as Director of Human Resources from January 2006 to April 2008, as Senior Director of Human Resources from April 2008 to +November 2009 and was appointed to her current position of Vice President of Human Resources in November 2009. Before joining Meridian in 2003, Ms. Johnson held various human resources leadership positions within the hospitality industry, +including with Marriott International and Millennium Copthorne. Age: 45 +9 +Audit Committee +Member. +10 +Compensation +Committee Member. +11 +Nominating and +Corporate Governance Committee Member. +* +Less than one percent. +15 +Table of Contents +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS +The following table lists the persons known by the Company to be the beneficial owners of more than five percent of the Company’s Common Stock as of +November 25, 2013, unless otherwise noted. Beneficial ownership includes any shares as to which the individual has sole or shared voting or investment power. +Name and address of beneficial owner +Amount and nature of +beneficial ownership +Percent of +class 1 +Brown Capital Management, LLC +1201 N. Calvert Street +Baltimore, MD 21202 +4,574,989 +11.02 +Neuberger Berman Group LLC +605 Third Avenue +New York, NY 10158 +4,204,423 +10.18 +BlackRock, Inc. +40 East 52 nd Street +New York, NY 10022 +3,137,493 +7.60 +T. Rowe Price Associates, Inc. +100 E. Pratt Street +Baltimore, MD 21202 +2,998,675 +7.20 +The Vanguard Group, Inc. +100 Vanguard Blvd. +Malvern, PA 19355 +2,500,652 +6.05 +1 +For the beneficial +owners listed in the table, the percentages listed reflect disclosures in the Schedule 13Gs most recently filed by each beneficial owner with the SEC as of the date of this proxy statement. +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Section 16 of the Securities Exchange Act of 1934 requires Meridian’s Executive Officers, Directors and persons who own more than ten percent of a registered class of Meridian’s equity +securities to file reports of ownership and changes in ownership with the SEC. Based on a review of the copies of such forms received by it, Meridian believes that during the last fiscal year, all of its Executive Officers, Directors and ten percent +stockholders complied with the Section 16 reporting requirements, with the exceptions that (i) one late ownership report was filed for Mr. Marco G. Calzavara with respect to the sale of common shares; and (ii) one late +ownership report was filed for independent Director Robert J. Ready with respect to the exercise of stock options. In making these statements, Meridian has relied upon examination of the copies of Forms 3, 4 and 5, and amendments thereto, and the +written representation of its Directors and Executive Officers. +16 +Table of Contents +TRANSACTIONS WITH RELATED PERSONS +During fiscal 2013, the Company leased certain office space from an entity controlled by Marco G. Calzavara, President and Managing Director, Meridian +Bioscience Europe. Payments made under such arrangements during fiscal 2013 totaled approximately $190,000. +Nasdaq rules require the +Company to conduct an appropriate review of related party transactions required to be disclosed by the Company pursuant to SEC Regulation S-K Item 404 for potential conflict of interest situations on an ongoing basis and that all such +transactions must be approved by the Audit Committee or another Committee comprised of independent Directors. As a result, the Audit Committee annually reviews all such related party transactions and approves each related party transaction if it +determines that it is in the best interests of the Company. Additionally, the Audit Committee’s Charter provides it the authority to review, approve and monitor transactions involving the Company and “related persons” (Directors and +Executive Officers or their immediate family members, or shareholders owning five percent or greater of the Company’s outstanding stock). This also covers any related person transaction that meets the minimum threshold for disclosure in the +proxy statement under the relevant SEC rules (generally, transactions involving amounts exceeding $120,000 in which a related person has a direct or indirect material interest). In considering the transaction, the Audit Committee may consider all +relevant factors, including, as applicable, (i) the Company’s business rationale for entering into the transaction; (ii) the alternatives to entering into a related person transaction; (iii) whether the transaction is on terms +comparable to those available to third parties, or in the case of employment relationships, to employees generally; (iv) the potential for the transaction to lead to an actual or apparent conflict of interest and any safeguards imposed to +prevent such actual or apparent conflicts; and (v) the overall fairness of the transaction to the Company. This policy is included in the Company’s Employee Handbook. The approval of such related person transactions are evidenced by +internal Company resolutions or memoranda. +COMPENSATION DISCUSSION AND ANALYSIS +Throughout this proxy statement, the individuals who served as the Company’s Chief Executive Officer and Chief Financial Officer during fiscal 2013, +as well as the other individuals listed in the Summary Compensation Table below, are referred to as the “Named Executive Officers” or “NEOs.” +Compensation Philosophy and Objectives +Our policies regarding executive compensation +programs are intended to balance motivating, rewarding and retaining executives with a competitive compensation package, and maximizing long-term shareholder value by linking compensation earned to both individual and Company performance. +Compensation typically includes base salary, eligibility for annual cash bonuses and stock-based awards contingent on Company performance and/or future service, retirement plan contributions and other Company-sponsored benefits. A significant +portion of each Executive Officer’s cash bonus and stock-based awards are dependent upon achieving business and financial goals and realizing other performance objectives. Examples of Company performance metrics for which we measure achievement +are sales growth, net earnings growth and profit margins (gross profit, operating income and net earnings). Annual performance targets for these metrics are set at or above industry +17 +Table of Contents +averages and historical results. Our compensation programs are intended to reward individual contributions (for example, bringing a new product to market) and Company-wide achievement of +performance metric targets (for example, overall sales and net earnings growth). +The Compensation Committee of the Board of Directors is +responsible for ongoing oversight of compliance with this compensation philosophy. The Compensation Committee ensures that the total compensation paid to the NEOs is fair, reasonable and competitive. +At our 2013 annual meeting, Meridian once again held an advisory vote on the compensation of its NEOs, commonly referred to as a say-on-pay vote. Our +shareholders overwhelmingly approved the compensation of our NEOs, with approximately 83% of votes cast in favor of our 2013 say-on-pay resolution. Based on the results of the 2013 say-on-pay vote, the Compensation Committee concluded that the +compensation paid to the NEOs and Meridian’s overall pay practices received strong shareholder support and do not require substantial revision to address shareholder concerns. +Establishing Compensation Levels +Compensation levels for the NEOs are driven by market pay +levels, the NEO’s leadership performance and overall Company performance. The Compensation Committee relies upon a combination of judgment (which is necessarily subjective) and guidelines (discussed herein), as well as market data, in +determining the amount and mix of compensation components for the Executive Chairman. The compensation levels for the Chief Executive Officer are recommended to the Compensation Committee by the Executive Chairman; the compensation levels for the +other NEOs are recommended by the Chief Executive Officer. The Compensation Committee has discretion to follow or modify such recommended levels of compensation. The Compensation Committee considers as crucial the input of our Executive Chairman and +Chief Executive Officer in connection with its compensation processes and decisions relating to NEO compensation. The Compensation Committee is not obligated to follow their recommendations. The Company does not engage in strict numerical +benchmarking in determining the percentage modifications for the NEOs. +Market Pay Levels +Market pay levels for the NEOs are determined annually in November for the upcoming calendar year. From time to time, at the request of the Compensation +Committee, an outside financial advisor is used to gather and summarize for the Company disclosures of executive compensation paid by other publicly traded companies in the diagnostic and life science industries, as well as those outside such +industries in the Greater Cincinnati area. This information concerns base salary, bonus awards and long-term incentive awards such as stock options and/or restricted stock for these peer companies, as well as their revenue, net earnings and market +capitalization levels in order to take company size into consideration. The Compensation Committee considers this competitive market compensation paid by such companies, but does not attempt to maintain a certain target percentile within a peer +group or otherwise rely on that data to determine executive compensation. This means that the Compensation Committee considers this information generally and as a reference point in determining the amounts and elements of our compensation program. +For example, the Compensation Committee periodically reviews compensation information of our industry +18 +Table of Contents +peers in order to understand compensation trends. In other words, although it does not utilize such information for benchmarking purposes, the Compensation Committee considers such information as +part of its decision-making process with respect to the Company’s executive compensation programs. +Company Performance +We believe that certain Company performance metrics drive shareholder value through stock price appreciation and +dividends. We take this belief into account in setting performance metric targets that are considered in establishing the performance-based component of our compensation programs. Performance metric targets that are taken into consideration in our +compensation programs include sales growth, earnings growth and profit margins. These targets are set at or above industry averages and historical results. Also taken into consideration in evaluating Company performance in our compensation programs +is the market penetration of our illumi gene ® molecular platform and the build-out of the related product menu. +Our cash bonus and a portion of our stock-based award programs operate under the fundamental principle that minimum levels of net earnings be achieved +prior to any compensation being earned under these programs. Net earnings targets are determined based on what the Company believes to be meaningful growth rates relative to its industry peers and the Company’s performance objectives. +Stock-based awards granted under performance programs are generally forfeited if the Company does not meet its minimum earnings targets as specified in each grant. +Recovery of Prior Awards +Except as provided by applicable laws and regulations, we do not +have a policy with respect to adjustment or recovery of awards or payments if relevant Company performance measures upon which previous awards were based are restated or otherwise adjusted in a manner that would reduce the size of such award or +payment. Under those circumstances, we expect that the Compensation Committee and the Board would evaluate whether compensation adjustments were appropriate based upon the facts and circumstances surrounding the applicable restatement or adjustment. +Tally Sheets +In setting the +NEOs’ compensation, the Compensation Committee reviews all components of such compensation through the use of tally sheets. These tally sheets provide the amount of total compensation paid or earned by each NEO based on his or her base salary, +cash bonus, stock-based awards, retirement contributions and perquisites. The tally sheets reviewed provide all of the information that is reflected in the Summary Compensation Table. The review by the Compensation Committee analyzes how changes in +any element of compensation would impact other elements, particularly severance or change in control benefits, if applicable to the executive. The analysis of the tally sheets conducted in November 2013 resulted in increases in equity awards and +auto allowances for executives. Such analysis has become an important component in the Compensation Committee’s review of executive compensation as the tally sheet allows the Compensation Committee to consider an executive’s overall +compensation rather than only one or two specific components of an executive’s compensation. This allows the Compensation Committee to make compensation +19 +Table of Contents +decisions and evaluate management recommendations based on a complete analysis of an executive’s total compensation. +Components of Executive Compensation +Meridian’s executive compensation and benefits +packages consist of: base salary, cash bonuses, long-term equity incentive awards, Company-sponsored benefit and retirement plans, and change in control severance benefits. Each of these components has a certain risk profile. +Element +Form of Compensation +Purpose +Risk Profile +Base Salaries +Cash +Provides competitive, fixed +compensation to attract and retain +exceptional +executive talent +Low to moderate +Annual Cash Incentives +Cash +Provides a direct financial incentive to +achieve corporate and individual +operating goals +Moderate to high +Long-Term Equity +Incentives +Non-qualified stock +options, restricted stock, +restricted +stock units and/or stock appreciation rights +Encourages Executive Officers to build +and maintain a long-term equity +ownership position in Meridian so that +their interests are aligned with our +shareholders +High +Health, Retirement and +Other Benefits +Eligibility to participate in benefit plans generally available to our employees, including Retirement Plan contributions, premiums paid on long-term disability and life insurance +policies, and certain perquisites +Benefit plans are part of a broad-based +employee benefits program; the +perquisites provide competitive benefits +to our Executive Officers +Low +Change in Control +Severance Benefits +Cash and continuation of certain benefits +Encourages Executive Officers to +maximize value for shareholders in the +event +that the Company becomes subject +to a change in control transaction +Moderate to high +20 +Table of Contents +The Compensation Committee has reviewed the risk profile of the components of the Company’s executive +compensation program, including the performance objectives and target levels used in connection with incentive awards, and has considered the risks an NEO might be incentivized to take with respect to such components. When establishing the mix among +these components, the Compensation Committee is careful not to encourage excessive risk taking. Specifically, the performance objectives contained in the Company’s executive compensation programs have been balanced between annual and long-term +incentive compensation to ensure that both components are aligned and consistent with our long-term business plan and that our overall mix of equity-based awards has been allocated to promote an appropriate combination of incentive and retention +objectives. +The Compensation Committee believes that the Company’s executive compensation program does not incentivize the NEOs to +engage in business activities or other behavior that would threaten the value of the Company or the investments of its shareholders. +The +Compensation Committee continues to monitor and evaluate on an on-going basis the mix of compensation, especially equity compensation, awarded to the NEOs, and the extent to which such compensation aligns the interests of the NEOs with those of the +Company’s shareholders. In connection with this practice, the Compensation Committee has, from time to time, reconsidered the structure of the Company’s executive compensation program and the relative weighting of various compensation +elements. +Interplay of Compensation Elements +We believe that each element of our compensation program plays a substantial role in maximizing long-term value for our shareholders and employees because of the significant emphasis on +pay-for-performance principles. In fiscal 2013, we did not reach our minimum net earnings target required for vesting in performance-based equity awards, and therefore, our NEOs did not earn such awards granted in November 2012. +In addition, our NEOs did not earn the first tranche of the additional performance-based equity awards granted November 9, 2011. These additional +performance-based equity awards were granted to certain executive management employees, including the NEOs, to reward them for meeting Company revenue targets in advance of planned expectations. These awards, which included both restricted stock +units and options, can only be earned if specified cumulative revenue thresholds are met through fiscal 2015, with the three measurement dates for ratably earning one-third of the grant being (i) the 21-month period ending June 30, 2013; +(ii) the 33-month period ending June 30, 2014; and (iii) the 45-month period ending June 30, 2015. As a result of the cumulative threshold for the 21-month period ended June 30, 2013 not having been met, one-third of the +restricted stock units and options granted have been cancelled. +We strive to achieve an appropriate mix between equity incentive awards and +cash payments in order to meet our objectives. We use the Officers’ Performance Compensation Plan as another tool to assess an executive’s total pay opportunities and whether we have provided the appropriate incentives to accomplish our +compensation objectives. Our mix of compensation elements is designed to reward recent results and motivate long-term performance through a combination of cash and stock-based awards. We also seek to +21 +Table of Contents +balance compensation elements that are based on financial, operational and strategic metrics with others that are based on the performance of Meridian shares via application of the personal +multiplier component of cash bonuses for the Executive Chairman and the Chief Executive Officer. We believe the most important indicator of whether our compensation objectives are being met is our ability to motivate our NEOs to deliver superior +performance and retain them to continue their careers with Meridian on a cost-effective basis. +Base Salary +The Company pays salaries that are designed to attract, motivate and retain experienced executives who will drive superior Company performance and +maintain long-term shareholder value. The Compensation Committee considers recommendations from the Executive Chairman and Chief Executive Officer and approves annual base salaries that are commensurate with each NEO’s responsibilities and +performance, as well as Company performance in the prior fiscal year, which are competitive with similar positions locally and in the industry. Salaries are set on a calendar year basis and therefore salaries paid in the first three months of each +fiscal year beginning on the first day of October are set in the prior fiscal year. +For 2014, the Chief Executive Officer, +Mr. Kraeutler, provided a recommendation to the Compensation Committee for 4% salary increases for the NEOs. The Compensation Committee duly considered and followed these recommendations. +Cash Bonuses +The Compensation Committee +believes that employees should be rewarded based on Company results and individual performance. The Compensation Committee awards cash bonuses pursuant to the Officers’ Performance Compensation Plan (the “Plan”) contingent upon +Company performance. Cash bonuses, if earned, are paid in the first quarter of each fiscal year, for the prior year’s performance. Cash bonuses are subject to the Company’s attainment of a specific net earnings target. Should the Company +fail to reach such net earnings target, no cash bonuses are paid pursuant to the Plan. +Cash bonuses are also subject to the application of a +personal achievement multiplier as recommended by management, except that no such recommendation is made by management for the Executive Chairman, Mr. Motto, or the Chief Executive Officer, Mr. Kraeutler. In evaluating the personal +achievement multipliers, the Compensation Committee takes into consideration the sales and net earnings levels, sales and net earnings growth rates and achievement against plan, profit margins and improvements therein, and individual achievements +and leadership of the NEOs. Instead of establishing specific quantifiable targets for each of these factors, the Compensation Committee exercises its discretion in using the factors to determine each NEO’s personal achievement multiplier. +Specifically, the Compensation Committee does not establish measurable objective targets in connection with its deliberation of such factors. The adoption and application of such factors are intended to be discretionary and subjective so that the +Compensation Committee can use its business judgment to provide an appropriate incentive and award for performance that sustains and enhances long-term shareholder value. The Compensation Committee believes that such discretionary and subjective +components allow it to respond appropriately as business and strategic environments change and are appropriate for the size of the Company. The personal +22 +Table of Contents +achievement multiplier choices range from 0 (zero) to 2.0. For example, a personal achievement multiplier of 1.25 would result in a bonus payout percentage of 37.5% when applied to a 30% base +salary component. A personal achievement multiplier of 0 (zero) would result in no bonus payout and is intended for circumstances where the NEO’s performance is far less than satisfactory. +Company Performance Component and 2013 Results +The 2013 Officers’ Performance Compensation Plan, which was similar in form to the plans utilized over the last several fiscal years, provided for the granting of cash bonuses as a percentage of base +salary if 2013 net earnings reached at least $36,000,000. For 2013, actual net earnings exceeded this minimum threshold, and therefore, cash bonuses were awarded to the NEOs for fiscal 2013 performance pursuant to the Plan. +2014 +At its +November 6, 2013 meeting, the Compensation Committee approved the Officers’ Performance Compensation Plan for fiscal 2014. The 2014 Plan will award cash bonuses if 2014 net earnings reach $41,275,000, which the Compensation Committee +believes is a meaningful increase from 2013 net earnings of $38,032,000. Consistent with 2013, the 2014 Plan also provides for increasing bonus awards tied to increasing net earnings beyond the initial minimum level. The 2014 Plan includes six net +earnings thresholds ranging from a low of $41,275,000 to a high of $43,400,000. These six net earnings thresholds represent growth over 2013 net earnings ranging from a low of approximately 9% to a high of approximately 14%. The corresponding +potential bonus payouts as a percent of base salary, before application of the personal multiplier, for the six net earnings thresholds range from a low of 10% to a high of 60%. Depending on the level of net earnings achieved and the application of +the personal multiplier, cash bonuses for the NEOs could range from 0% to 120% of base salary. +Management and the Compensation Committee have +intended that the earnings thresholds should be set at meaningful rates so that management must be diligent, focused and effective in order to achieve these goals. In other words, the Company and management believed at the time of the establishment +of these thresholds that they would be challenging to achieve and would require substantial efforts from management. To this end, the Compensation Committee tends to set the thresholds consistent with the earnings guidance range requiring that the +low end of guidance is achieved before bonuses are paid. +Long-Term Incentive Awards +The Compensation Committee believes that equity-based compensation encourages employees to commit to the long-term goals of the Company. This ensures that +the Company’s NEOs have a stake in the long-term creation of shareholder value. A significant portion of the awards is performance-based, meaning the NEOs’ ability to vest in that portion of awards is contingent upon the Company achieving +a minimum level of net earnings. +For fiscal 2014, at its meeting on November 6, 2013, the Compensation Committee approved two types of +restricted stock unit awards. The first type of restricted stock unit award is performance-based, where the NEOs’ ability to vest in such awards is contingent upon the Company reaching a minimum level of net earnings of $43,400,000 for fiscal +2014. This +23 +Table of Contents +award would vest 25% per year over four years, if earned. The second type of restricted stock award is time-based and fully vests after four years. The Compensation Committee believes that +this latter award is appropriate to encourage retention of top management talent. +Although Meridian does not have a written policy regarding +the timing or practices related to granting equity awards, neither Meridian nor the Compensation Committee engages in spring-loading, back-dating or bullet-dodging practices. Equity awards are generally granted at a regularly scheduled meeting +of the Compensation Committee in the first quarter of the fiscal year. Stock options are granted at the closing market price on the date of grant, pursuant to the 2012 Stock Incentive Plan. Prior to the exercise of an option, the holder has no +rights as a stockholder with respect to the shares subject to such option, including no rights to vote or to receive dividends. Prior to vesting of restricted stock units, the holder will receive dividend equivalent payments. Restricted stock units +do not have voting rights. +Company-Sponsored Benefit and Retirement Plans +Meridian provides Company-sponsored benefit and retirement plans to the NEOs. In general, executives participate in the Company’s benefit and retirement plans on the same basis as other Company +employees. The core benefit package includes health, dental, short and long-term disability, and group term life insurance. Meridian generally provides retirement benefits to executives through qualified (under the Internal Revenue Code) defined +contribution plans. +Change in Control Severance Benefits +The Compensation Committee believes that a reasonable level of salary and Company-sponsored benefit protection provides a means of retention and allows the NEOs to remain focused on achievement of Company +goals and objectives in the event that the Company becomes subject to a merger or acquisition transaction. This component of compensation would only be paid in the event of a change in control of the Company, under certain qualifying conditions. For +the NEOs other than the CEO and Executive Chairman, this component of compensation would include two years’ salary, performance bonus and core benefits. For the CEO, this component of compensation would include three years’ salary, +performance bonus and core benefits. This benefit is not available to the Executive Chairman. +Other Personal Benefits +Allowances for automobiles and professional, financial and tax planning are made available to Meridian’s NEOs and other corporate officers. The costs +to the Company are included in the All Other Compensation table on page 27. The Company believes these perquisites to be reasonable, comparable to peer companies and consistent with the Company’s overall executive compensation philosophy. +CEO Employment Agreement and Supplemental Benefit Agreement +The Company and Mr. Kraeutler are parties to an employment agreement and a supplemental benefit agreement (collectively, the “CEO agreements”). In addition to an established minimum annual +salary and eligibility to participate in the Company’s bonus and stock incentive plans, the CEO agreements provide that Mr. Kraeutler is eligible to receive: +24 +Table of Contents +• +Post-retirement benefit payments totaling $1,200,000, payable in one hundred twenty (120) monthly payments of $10,000, in the event of a qualified +retirement from service (as defined in the supplemental benefit agreement), with the total payments reduced to $600,000, payable in one hundred twenty (120) monthly payments of $5,000, in the event of a non-qualified retirement from service (as +defined in the supplemental benefit agreement) +• +Lifetime insurance benefits including Medicare health insurance premiums and comprehensive long-term care insurance premiums +At its November 6, 2013 meeting, the Compensation Committee also approved the granting of 25,000 restricted stock +units to Mr. Kraeutler pursuant to the CEO agreements. These restricted stock units vest in full on September 30, 2014 subject to the attainment of a fiscal 2014 minimum earnings target of $41,275,000. +Internal Pay Equity +The Compensation +Committee believes that the relative difference between the Chief Executive Officer’s compensation and the compensation of the Company’s other executives has not increased significantly over the years. Further, the Compensation Committee +believes that the Company’s internal pay equity structure is appropriate based upon the contributions to the success of the Company and as a means of motivation to other executives and employees. +Tax Deductibility of Pay +Section 162(m) of the Internal Revenue Code contains compensation deduction limitations for certain highly compensated employees. One exception to +this limitation is for performance-based compensation that is approved by, among other things, a committee of “outside directors” (as defined under IRS treasury regulations). The Committee believes that all compensation paid to the NEOs +for fiscal year 2013 is properly deductible under Section 162(m), but no assurance can be made in this regard. +Actions of the +Compensation Committee +In several meetings during the year, the Executive Chairman, Mr. Motto, the Chief Executive Officer, +Mr. Kraeutler, and the Compensation Committee Chairman discussed, among other things, Meridian’s compensation system and its effectiveness in attracting and retaining talented employees. These individuals believe that the system, including +the Officers’ Performance Compensation Plan, is understood by employees and shareholders and has worked well in practice. They noted that the underlying principles in the plan have been followed for many years, even when following such +principles resulted in no Officers’ Performance Compensation Plan bonuses being awarded to the NEOs (2009, 2010, 2011 and 2012) and performance-based stock awards being forfeited (2008, 2009, 2011, 2012 and 2013). The Committee discussed on a +number of occasions the advisability of engaging a compensation consultant or advisor. The Compensation Committee concluded that it did not want to engage a compensation consultant or advisor this year, in part because of the relatively small number +of Executive Officers and their frequent interaction. +25 +Table of Contents +At its November 6, 2013 meeting, the Compensation Committee discussed these matters, both with and +without the presence of management. The Compensation Committee discussed the recommendations of the Executive Chairman and the Chief Executive Officer for compensation levels for all officers and answered questions about individual recommendations +and the general pay increases to be paid throughout the Company. The Committee then made the compensation decisions, which are reflected in the figures presented in this proxy statement. In addition, the Committee reviewed proposed changes to the +Compensation Committee Charter and recommended that its charter be revised to reflect such changes, with the approval action taken at the November 6, 2013 Board of Directors meeting. +Compensation Committee Report +The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management. Based on these reviews and discussions, the +Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s proxy statement on Schedule 14A. +Members of the Compensation Committee +Robert J. Ready (Chairman) +James M. Anderson +David C. Phillips +SUMMARY COMPENSATION TABLE +The following table summarizes the aggregate compensation paid, or earned, by each of the NEOs for the fiscal years ended September 30, 2013, 2012 and 2011, respectively. +Name and Principal +Position +(a) +Year +(b) +Salary +(c) +Bonus 1 +(d) +Stock +Awards 2,4 +(e) +Option +Awards 3,4 +(f) +Non-Equity +Incentive Plan +Compensation +(g) +Change in +Pension Value +and +Nonqualified +Deferred +Compensation +Earnings +(h) +All +Other +Compensation 5 +(i) +Total +John A. Kraeutler +Chief Executive Officer +2013 +2012 +2011 +$ +$ +$ +579,684 +558,600 +546,000 +$ +321,681 +— +— +$ +$ +$ +193,000 +175,700 +228,300 +— +— +— +— +— +— +— +— +— +$ +$ +$ +79,242 +74,901 +69,111 +$ +$ +$ +1,173,607 +809,201 +843,411 +Melissa A. Lueke +Executive Vice President, +Chief Financial Officer +and Secretary +2013 +2012 +2011 +$ +$ +$ +253,206 +243,997 +238,493 +$ +140,511 +— +— +$ +$ +$ +184,113 +131,775 +171,225 +— +— +— +— +— +— +— +— +— +$ +$ +$ +55,367 +45,425 +40,640 +$ +$ +$ +633,197 +421,197 +450,358 +William J. Motto +Executive Chairman of +the Board of Directors +2013 +2012 +2011 +$ +$ +$ +579,684 +558,600 +546,000 +$ +321,681 +— +— +$ +$ +$ +193,000 +175,700 +228,300 +— +— +— +— +— +— +— +— +— +$ +$ +$ +120,366 +110,234 +110,825 +$ +$ +$ +1,214,731 +844,534 +885,125 +Marco G. +Calzavara 6 +President and +Managing +Director, Meridian +Bioscience Europe +2013 +2012 +2011 +$ +$ +$ +328,694 +322,394 +270,406 +$ +$ +$ +200,954 +40,595 +96,003 +$ +$ +$ +144,750 +131,775 +193,945 +— +— +— +— +— +— +— +— +— +$ +$ +$ +30,573 +24,972 +20,474 +$ +$ +$ +704,971 +519,736 +580,828 +Lawrence J. Baldini +Executive Vice President, +Operations & Information +Systems +2013 +2012 +2011 +$ +$ +$ +262,945 +253,381 +247,666 +$ +145,915 +— +— +$ +$ +$ +203,783 +131,775 +171,225 +— +— +— +— +— +— +— +— +— +$ +$ +$ +53,729 +46,436 +42,078 +$ +$ +$ +666,372 +431,592 +460,969 +26 +Table of Contents +1 +Aside from payment to Bioline Group employees for fiscal 2012 and 2011, +which Mr. Calzavara was considered for fiscal 2012 and 2011 bonus purposes, no payments were made to the NEOs pursuant to the Officers’ Performance Compensation Plan for fiscal 2012 or 2011 as the corporate-wide targets were not reached +for either of the respective fiscal years. In addition to the payment made pursuant to the Officers’ Performance Compensation Plan, the amount reflected for Mr. Calzavara includes $18,845 awarded in connection with his 20 year anniversary +with the Bioline Group. +2 +The amounts shown reflect the grant date fair value of the restricted stock issued during fiscal years 2013, 2012 and 2011 in accordance with ASC Topic +718. No compensation cost is included in this table related to the performance-based portion of the restricted stock granted November 11, 2010 or the performance-based portion of the restricted stock units granted November 9, 2011 and +November 7, 2012. Because the required earnings target for Meridian was not reached for fiscal 2011, 2012 or 2013, the performance-based restricted shares and restricted stock units have been cancelled. A discussion of the assumptions used in +calculating these values may be found in Note 6(b) on page 64 to the Company’s Annual Report on Form 10-K filed with the SEC on November 29, 2013. +3 +The amounts shown reflect the grant date fair value of the stock options granted during fiscal years 2013, 2012 and 2011 in accordance with ASC Topic +718. A discussion of the assumptions used in calculating these values may be found in Note 6(b) on page 64 to the Company’s Annual Report on Form 10-K filed with the SEC on November 29, 2013. +4 +In addition, no compensation cost is included in this table related to the +additional performance-based equity awards granted November 9, 2011 to certain executive management employees, including the NEOs, to reward them for meeting Company revenue targets in advance of planned expectations. These awards, which +included both restricted stock units and options, can only be earned if specified cumulative revenue thresholds are met through fiscal 2015, with the three measurement dates for ratably earning one-third of the grant being (i) the 21-month +period ending June 30, 2013; (ii) the 33-month period ending June 30, 2014; and (iii) the 45-month period ending June 30, 2015. As a result of the cumulative threshold for the 21-month period ended June 30, 2013 not +having been met, one-third of the restricted stock units and options granted have been cancelled. Furthermore, at the present time, achievement of the remaining revenue thresholds within the required timeframes is not considered probable and, +therefore, no compensation is included within the table. Based upon grant date fair value in accordance with ASC Topic 718, the remaining maximum compensation cost that could be recognized for each of the NEOs in connection with this award is as +follows: Mr. Kraeutler—$437,710; Ms. Lueke—$326,536; Mr. Motto—$437,710; Mr. Calzavara—$409,943; and Mr. Baldini—$326,536. +5 +See the All Other Compensation table below for amounts, which include +certain Company contributions, perquisites and other personal benefits. +Fiscal 2013 +All Other Compensation +John A. +Kraeutler +Melissa A. +Lueke +William J. +Motto +Marco G. +Calzavara +Lawrence J. +Baldini +Retirement Contributions +$ +15,729 +$ +15,729 +$ +15,729 +$ +6,460 +$ +15,729 +Auto Lease / Auto Allowance +15,765 +8,000 +6,637 +6,086 +8,000 +Financial and Tax Planning +9,748 +3,138 +60,000 +— +1,500 +Restricted Stock Dividends +38,000 +28,500 +38,000 +18,027 +28,500 +Totals +$ +79,242 +$ +55,367 +$ +120,366 +$ +30,573 +$ +53,729 +6 +Mr. Calzavara’s salary and bonus were £210,634 and £128,775, respectively, in fiscal 2013; £204,500 and £25,750, +respectively, in fiscal 2012; and £169,000 and £60,000, respectively, in fiscal 2011. All conversions were made at the average exchange rates for the respective fiscal years. +27 +Table of Contents +GRANTS OF PLAN-BASED AWARDS +The following table sets forth, for each of the NEOs, information related to grants made during fiscal 2013 under Meridian’s 2012 Stock Incentive Plan. +Name +Grant +Date +Estimated Future Payouts Under +Non-Equity Incentive Plan +Awards +Estimated Future Payouts Under +Equity Incentive Plan Awards +All other +Stock +Awards: +Number of +Shares of +Stock or +Units (#) +All other +Option +Awards: +Number of +Securities +Underlying +Options (#) +Exercise +or Base +Price of +Option +Awards +($/Sh) +Grant Date +Fair Value +of Stock +and +Option +Awards +Threshold +($) +Target +($) +Max +($) +Threshold +(#) +Target +(#) +Max +(#) +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +(i) +(j) +(k) +(l) +John A. Kraeutler +11/07/12 +— +— +— +— +— +— +10,000 +1 +— +— +$ +193,000 +Melissa A. Lueke +09/27/13 +11/07/12 +— +— +— +— +— +— +— +— +— +— +— +— +1,667 +7,500 +2 +1 +— +— +— +— +$ +$ +39,363 +144,750 +William J. Motto +11/07/12 +— +— +— +— +— +— +10,000 +1 +— +— +$ +193,000 +Marco G. Calzavara +11/07/12 +— +— +— +— +— +— +7,500 +1 +— +— +$ +144,750 +Lawrence J. Baldini +09/27/13 +11/07/12 +— +— +— +— +— +— +— +— +— +— +— +— +2,500 +7,500 +2 +1 +— +— +— +— +$ +$ +59,033 +144,750 +1 +At the time of the grant, half of each NEO’s restricted shares were time-based with 100% vesting after four years, and the remaining half were +performance-based, subject to attainment of a specified earnings target for fiscal 2013. As the 2013 earnings target was not met, the performance-based restricted shares have been cancelled and are not reflected in the table above. +2 +These grants of unrestricted common shares were made to Ms. Lueke and Mr. Baldini in connection with their promotions to Executive Vice +President. +28 +Table of Contents +OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END +The following table provides information on the NEOs’ holdings of equity awards under Meridian’s 2012 Stock Incentive Plan, 2004 Equity Compensation Plan and 1996 Stock Option Plan as of +September 30, 2013. +Option Awards +Stock Awards +Name +Number of +Securities +Underlying +Unexercised +Options +(#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options +(#) +Unexercisable +Equity +Incentive Plan +Awards: +Number +of +Securities +Underlying +Unexercised +Unearned +Options (#) +Option +Exercise +Price ($) +Option +Expiration +Date +Number of +Shares or +Units of +Stock That +Have Not +Vested +(#) +Market +Value of +Shares or +Units of +Stock That +Have +Not +Vested ($) +Equity +Incentive +Plan +Awards: +Number of +Unearned +Shares, +Units +or +Other +Rights That +Have Not +Vested (#) +Equity +Incentive +Plan +Awards: +Market +or Payout +Value of +Unearned +Shares, +Units +or +Other +Rights +That +Have Not +Vested +($) +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +(i) +(j) +John A. Kraeutler +5,250 1 +10,500 1 +15,750 1 +15,750 1 +25,000 2 +25,000 3 +— +— +— +— +— +— +— +— +— +— +— +— +75,000 5 +$ +$ +$ +$ +$ +$ +$ +4.525 +7.280 +14.007 +16.554 +33.090 +33.090 +17.570 +12/02/13 +12/07/14 +11/10/15 +11/15/16 +01/28/18 +01/28/18 +11/09/21 +— +— +— +— +— +— +— +10,000 +10,000 +10,000 +10,000 +6 +7 +8 +9 +$ +$ +$ +$ +— +— +— +— +— +— +— +236,300 +236,300 +236,300 +236,300 +— +— +— +— +— +— +— +— +— +— +— +5,000 5 +$ +— +— +— +— +— +— +— +— +— +— +— +118,150 +Melissa A. Lueke +10,500 1 +15,750 1 +— +— +— +— +70,000 5 +$ +$ +$ +7.280 +14.007 +17.570 +12/07/14 +11/10/15 +11/09/21 +— +— +— +7,500 +7,500 +7,500 +7,500 +6 +7 +8 +9 +$ +$ +$ +$ +— +— +— +177,225 +177,225 +177,225 +177,225 +— +— +— +— +— +— +— +— +— +— +— +— +— +— +William J. Motto +15,750 1 +15,750 1 +15,750 1 +— +— +— +— +— +— +75,000 5 +$ +$ +$ +$ +7.280 +14.007 +16.554 +17.570 +12/07/14 +11/10/15 +11/15/16 +11/09/21 +— +— +— +— +10,000 +10,000 +10,000 +10,000 +6 +7 +8 +9 +$ +$ +$ +$ +— +— +— +— +236,300 +236,300 +236,300 +236,300 +— +— +— +— +— +— +— +— +5,000 5 +$ +— +— +— +— +— +— +— +— +118,150 +Marco G. Calzavara +800 +1,600 +1,500 +7,500 +7,500 +10 +11 +7 +8 +9 +$ +$ +$ +$ +$ +18,904 +37,808 +35,445 +177,225 +177,225 +— +— +— +— +— +23,332 5 +$ +— +— +— +— +— +551,335 +29 +Table of Contents +Lawrence J. Baldini +250 4 +250 4 +— +70,000 5 +$ +$ +19.710 +17.570 +08/04/20 +11/09/21 +— +— +7,500 6 +7,500 7 +7,500 8 +7,500 9 +$ +$ +$ +$ +— +— +177,225 +177,225 +177,225 +177,225 +— +— +— +— +— +— +— +— +— +— +— +— +1 +Options vested in three equal annual installments beginning one year from public earnings release date for the fiscal year ending immediately following +the grant date, indicating that performance targets were met, occurring approximately one year from date of grant. +2 +Options vested on January 22, 2011. +3 +Options vested on January 22, 2013. +4 +Options vest in four equal annual installments from the date of grant (i.e., vest 25% per year until fully vested on August 4, 2014). +5 +These awards can only be earned if specified cumulative revenue thresholds are met through fiscal 2015, with the remaining two of three original +measurement dates for ratably earning one-third of the grant being (i) the 33-month period ending June 30, 2014 and (ii) the 45-month period ending June 30, 2015. Once earned, the awards vest one year from the date the cumulative +thresholds are met. As a result of the cumulative revenue threshold required for the 21-month period ended June 30, 2013 not being achieved, the one-third portion of the original grant available to be earned as of this measurement period has +been cancelled and is not reflected in the above table. +6 +Shares/units vest on November 12, 2013. +7 +Shares/units vest on November 11, 2014. +8 +Shares/units vest on November 9, 2015. +9 +Shares/units vest on November 7, 2016. +10 +Units vest in four equal installments from the July 20, 2010 date of the Bioline Group acquisition (i.e., vest 25% per year until fully +vested on July 20, 2014). +11 +Units vest in four equal installments from January 31, 2011 (i.e., vest 25% per year until fully vested on January 31, 2015). +30 +Table of Contents +OPTION EXERCISES AND STOCK VESTED +The following table sets forth, for each of the NEOs, information on options exercised and restricted stock vested during fiscal 2013. +Option Awards +Stock Awards +Name +Number of +Shares +Acquired on +Exercise (#) +Value Realized +on Exercise ($) +(1) +Number of +Shares +Acquired on +Vesting (#) +Value Realized +On Vesting ($) +(2) +(a) +(b) +(c) +(d) +(e) +John A. Kraeutler +— +$ +— +— +$ +— +Melissa A. Lueke +21,000 +$ +133,486 +— +$ +— +William J. Motto +15,750 +$ +249,039 +— +$ +— +Marco G. Calzavara +— +$ +— +1,600 +$ +34,752 +Lawrence J. Baldini +32,000 +$ +316,500 +— +$ +— +1 +Amounts reflect the difference between the exercise price of the option and the market price of Meridian common shares at the time of exercise. +2 +Amounts reflect the market price of Meridian common shares at the time of restricted stock or units vesting. +NONQUALIFIED DEFERRED COMPENSATION +Our +401(k) Savings Plan (“401(k) Plan”) allows all U.S. employees of the Company as of the first day of their employment to set aside a portion of their compensation each year for their retirement needs, up to the limits set by the Internal +Revenue Code. The Company contributes a matching contribution of 100% of the first 3% of the employee’s contribution (i.e., up to 3% of an employee’s salary) subject to Internal Revenue Code limitations. The Company may also contribute a +profit-sharing contribution at its discretion. Employee contributions are 100% vested immediately, while Company contributions are subject to a graded vesting schedule of 20% per year for the first 5 years of employment. Participants are +entitled to direct the investment of their accounts among various mutual funds selected by the Company’s Fiduciary Committee. The Plan also provides that Company discretionary profit-sharing contributions may be invested in Company stock. +Participants who terminate employment are entitled to receive the vested portion of their accounts. +POTENTIAL PAYMENTS UPON TERMINATION OR +CHANGE IN CONTROL +In the case of a disability, Meridian is obligated to pay Mr. William J. Motto 60% of his total annual salary +and bonus for a period of up to 60 months. In the case of death, Meridian is obligated to pay to Mr. Motto’s designated beneficiaries up to $1 million. These benefits are to be reduced by the gross amount of any life insurance payments or +disability insurance payments made to Mr. Motto, or his beneficiaries as the case may be, under any insurance policy or program maintained by Meridian, other than group term life insurance programs maintained for all employees. +31 +Table of Contents +As detailed on page 24 within the “Compensation Discussion and Analysis” section of this Proxy +Statement, Mr. Kraeutler and Meridian are parties to an employment agreement and a supplemental benefit agreement dated June 12, 2012, which sets forth compensation, non-competition, benefit and severance provisions and provides for a +payment equal to three times Mr. Kraeutler’s base salary (plus any salary earned but not paid) and three-year average annual performance bonus if Mr. Kraeutler is terminated by Meridian without cause, Mr. Kraeutler terminates his +employment for good reason or upon a change in control of Meridian. The employment agreement is effective through September 30, 2014, and may be extended annually for up to two additional one year periods ending September 30, 2015 and +September 30, 2016, respectively, upon mutual agreement by both parties. +Pursuant to Mr. Kraeutler’s supplemental benefit +agreement, had his employment with the Company terminated on September 30, 2013, Mr. Kraeutler would have been entitled to receive post-retirement benefit payments totaling $600,000, payable in one hundred twenty (120) monthly +payments of $5,000. +Had a change in control occurred on September 30, 2013, Mr. Kraeutler would also have been entitled to the +following under his employment agreement: +Salary +$ +1,684,284 +Annual Performance Bonus +321,681 +Total Payment +$ +2,005,965 +In addition, the Meridian Bioscience, Inc. Change in Control Severance Compensation Policy (the “Policy”) +applies to the Company’s NEOs (as defined in Item 402 of Regulation S-K) and other Executive Officers of the Company and its affiliates other than the Executive Chairman and Chief Executive Officer – with Mr. Kraeutler’s +benefits and provisions provided in the separate, individual agreements described above. Generally, subject to certain conditions surrounding post-change in control employment, in the event of a qualifying change in control, each Executive Officer +covered under the Policy will be entitled to: +• +Base salary, accrued bonus and certain other benefits through the later of the effective date of the change in control or termination of employment; +• +Lump sum payment equal to two (2) times the sum of (i) the base salary in effect immediately preceding the change in control, and +(ii) the average of the bonus amounts paid for each of the two fully-completed fiscal years immediately preceding the change in control; and +• +Continued participation in the Company’s medical and dental plans for a twenty-four (24) month period following the effective date of the +change in control. +32 +Table of Contents +Had a change in control occurred on September 30, 2013, the NEOs to which the Policy applied at that +date (Ms. Lueke, Mr. Calzavara and Mr. Baldini) would have been entitled to the following lump sum payments under the Policy: +Melissa A. +Lueke +Marco G. +Calzavara +Lawrence J. +Baldini +Salary +$ +510,948 +$ +662,235 +$ +530,600 +Annual Performance Bonus +140,511 +222,704 +145,915 +Total Lump Sum Payment +$ +651,459 +$ +884,939 +$ +676,515 +DIRECTOR COMPENSATION +Effective during the second quarter of fiscal 2013, independent Directors of Meridian received compensation at a rate of $35,000 per year for serving as Directors and as members of Committees of the +Board. They also received $2,000 and $1,250, respectively, for each Board and Committee meeting attended. For meetings held by telephone, they received $1,000 and $750, respectively, for each Board and Committee meeting. The Audit Committee Chairman +received an additional $16,000 annually, and the Compensation Committee and Nominating & Corporate Governance Committee Chairmen each received an additional $5,000 annually. Through the first quarter of fiscal 2013 the rates of independent +Director compensation were as follows: service as Director and Committee member—$30,000 annually; Board meeting attendance—$1,500 per meeting ($750 if by telephone); Committee meeting attendance—$1,000 per meeting ($500 if by +telephone); Audit Committee Chairman—$8,000 annually; Compensation Committee Chairman—$3,000 annually; with no additional compensation paid for serving as Nominating & Corporate Governance Committee Chairman. In accordance with +the terms and conditions set forth in the Company’s 2012 Stock Incentive Plan, each independent Director was also granted a non-qualified option to purchase 8,500 common shares at the time of election or re-election to the Board of Directors, +with the exercise price being the closing sale price on Nasdaq reported on the date of grant. Directors who are employees of Meridian are not separately compensated for serving as Directors. +The following table provides information on compensation related to fiscal 2013 for independent Directors who served during fiscal 2013. +Name +Fees +Earned +or +Paid in +Cash +($) +Stock +Awards +($) 1 +Option +Awards +($) 1 +Non-Equity +Incentive +Plan +Compensation +($) +Change in +Pension +Value +and Nonqualified +Deferred +Compensation +Earnings +All Other +Compensation +($) +Total +($) +(a) +(b) +(c) +(d) +(e) +(f) +(g) +(h) +James M. Anderson +$ +57,250 +— +$ +37,467 +— +— +— +$ +94,717 +David C. Phillips +$ +69,000 +— +$ +37,467 +— +— +— +$ +106,467 +Robert J. Ready +$ +58,500 +— +$ +37,467 +— +— +— +$ +95,967 +33 +Table of Contents +1 +The amounts shown +reflect the grant date fair value of the awards made in fiscal year 2013 in accordance with ASC Topic 718. A discussion of the assumptions used in calculating these values may be found in Note 6(b) on page 64 to the Company’s Annual Report on +Form 10-K filed with the SEC on November 29, 2013. +SHAREHOLDER PROPOSALS FOR NEXT YEAR +The deadline for shareholder proposals to be included in the proxy statement for next year’s meeting is August 14, 2014. +The form of Proxy for this meeting grants authority to the designated proxies to vote in their discretion on any matters that come before the +meeting except those set forth in Meridian’s proxy statement and except for matters as to which adequate notice is received. In order for a notice to be deemed adequate for the 2015 Annual Shareholders’ Meeting, it must be received prior +to October 29, 2014. If there is a change in the anticipated date of next year’s Annual Shareholders’ Meeting or these deadlines by more than 30 days, we will notify you of this change through our Form 8-K and/or Form 10-Q filings. +Meridian’s Code of Regulations provides that only persons nominated by an officer, Director or in writing by a shareholder not earlier +than 150 days nor later than 90 days prior to the meeting at which Directors are to be selected shall be eligible for election and that shareholder proposals be presented not earlier than 150 days nor later than 90 days prior to the meeting at which +the proposals are to be presented. +QUESTIONS? +If you have questions or need more information about the annual meeting, write to: +Melissa A. +Lueke +Executive Vice President, Chief Financial Officer and Secretary +Meridian Bioscience, Inc. +3471 River Hills Drive +Cincinnati, Ohio 45244 +or call us at +(513) 271-3700 +For information about your record holdings call Computershare Shareholder Services at (888) 294-8217. +34 +Table of Contents +*** Exercise Your Right to Vote *** +Important Notice Regarding the Availability of Proxy Materials for the +Shareholder Meeting to Be Held on January 22, 2014 +MERIDIAN BIOSCIENCE, INC. +MERIDIAN BIOSCIENCE, INC. +3471 RIVER HILLS DRIVE +CINCINNATI, OH +45244 +Meeting Information +Meeting Type: Annual Meeting +For holders as of: November 25, 2013 +Date: January 22, 2014 Time: 2:00 PM EST +Location: Holiday Inn +Eastgate +4501 Eastgate Boulevard +Cincinnati, OH 45245 +You are receiving this communication because you hold shares in the above +named company. +This is not a ballot. You cannot use this notice to vote these shares. This +communication presents only an overview of the more complete proxy materials that are available to you on the Internet. You may view the proxy materials online at www.proxyvote.com or easily request a paper copy (see reverse side). +We encourage you to access and review all of the important information contained in the proxy +materials before voting. +See the reverse side of this notice to obtain proxy materials and voting instructions. +Table of Contents +— Before You Vote — +How to Access the Proxy Materials +Proxy Materials Available to VIEW or RECEIVE: +1. Annual Report 2. Notice & Proxy Statement +How to View Online: +Have the information that is printed in the box marked by the arrow +g +(located on the following page) and visit: www.proxyvote.com . +How to Request +and Receive a PAPER or E-MAIL Copy: +If you want to receive a paper or e-mail copy of these documents, you must request one. There is NO charge for requesting a copy. Please choose one of the following methods to make your request: +1) BY INTERNET : www.proxyvote.com +2) BY TELEPHONE : +1-800-579-1639 +3) BY E-MAIL* : +sendmaterial@proxyvote.com +* +If requesting materials by e-mail, please send a blank e-mail with the information that is printed +in the box marked by the arrow g +(located on the following page) in the subject line. +Requests, instructions and other inquiries sent to this e-mail address +will NOT be forwarded to your investment advisor. Please make the request as instructed above on or before January 08, 2014 to facilitate timely delivery. +— How To Vote — +Please Choose One of the Following +Voting Methods +Vote In Person: Many shareholder meetings have attendance requirements including, but not limited to, the possession of an attendance ticket issued by the +entity holding the meeting. Please check the meeting materials for any special requirements for meeting attendance. At the meeting, you will need to request a ballot to vote these shares. +Vote By Internet: To vote now by Internet, go to www.proxyvote.com. Have the +information that is printed in the box marked by the arrow g +available and follow the instructions. +Vote By +Mail: You can vote by mail by requesting a paper copy of the materials, which will include a proxy card. +Table of Contents +Voting items +The Board of Directors recommends you vote FOR the +following: +1. Election of Directors +Nominees +01 JAMES M. ANDERSON +02 JOHN A. KRAEUTLER +03 WILLIAM J. MOTTO +04 DAVID C. PHILLIPS +05 ROBERT J. READY +The Board of Directors recommends you vote FOR proposals 2 and 3: +2. Advisory vote on named executive officer compensation. +3. To ratify the appointment of Grant Thornton LLP as Meridian’s independent registered public accountants for fiscal year +2014. +NOTE: Such other business as may properly come before the meeting or any postponement or adjournment thereof. +Table of Contents +Table of Contents +MERIDIAN BIOSCIENCE, +INC. +3471 RIVER HILLS DRIVE +CINCINNATI, OH 45244 +VOTE BY INTERNET - www.proxyvote.com +Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when +you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. +ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS +If you would +like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, +please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. +VOTE BY PHONE - 1-800-690-6903 +Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the +instructions. +VOTE BY MAIL +Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, +Edgewood, NY 11717. +TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: +KEEP THIS PORTION FOR YOUR RECORDS +THIS PROXY CARD IS VALID ONLY WHEN SIGNED +AND DATED. DETACH AND RETURN THIS PORTION ONLY +The Board of Directors recommends you vote FOR the following: +For +All +Withhold +All +For All Except +To withhold authority to vote for any individual nominee(s), mark +“For All Except” and write the number(s) of the nominee(s) on the line below. +1. +Election of Directors +Nominees +¨ +¨ +¨ +01 JAMES M. +ANDERSON 02 JOHN A. KRAEUTLER 03 WILLIAM J. MOTTO 04 DAVID C. +PHILLIPS 05 ROBERT J. READY +The Board of Directors recommends you vote +FOR proposals 2 and 3: +For +Against +Abstain +2. +Advisory vote on named executive officer compensation. +¨ +¨ +¨ +3. +To ratify the appointment of Grant Thornton LLP as Meridian’s independent registered public accountants for fiscal year 2014. +¨ +¨ +¨ +NOTE: Such other business as may properly come before +the meeting or any postponement or adjournment thereof. +For address change/comments, mark here. +¨ +(see reverse for instructions) +Yes +No +Please indicate if you plan to attend this meeting +¨ +¨ +Please sign exactly as your name(s) appear(s) hereon, indicating, where proper, official position or representative +capacity. +All joint holders must sign. +Signature [PLEASE SIGN WITHIN BOX] +Date +Signature (Joint Owners) +Date +Table of Contents +Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Annual Report, Notice & Proxy Statement is/are available at www.proxyvote.com . +--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- +MERIDIAN +BIOSCIENCE, INC. +Annual Meeting of Shareholders +January 22, 2014 2:00 PM +This Proxy is solicited by the Board of Directors +The undersigned hereby appoints JOHN A. KRAEUTLER or MELISSA A. +LUEKE, or either of them, proxies of the undersigned, each with the power of substitution, to vote cumulatively or otherwise all shares of Common Stock which the undersigned would be entitled to vote on the matters specified on the reverse side and, +in their discretion, with respect to such other business as may properly come before the Annual Meeting of Shareholders of Meridian Bioscience, Inc. to be held on January 22, 2014, at 2:00 p.m. Eastern Time, at the Holiday Inn Eastgate, 4501 +Eastgate Boulevard, Cincinnati, Ohio 45245 and any postponement or adjournment of such Annual Meeting. +This proxy, when properly executed, will be voted as directed by the shareholder(s). If no such directions are made, this proxy will be voted +FOR the election to the Board of Directors of the nominees listed on the reverse side and FOR each remaining proposal. +Please mark, sign, date, and return this proxy card promptly using the enclosed reply envelope. +Address change/comments: +__________________________________________________________________________________________ +__________________________________________________________________________________________ +__________________________________________________________________________________________ +(If you +noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.) +Continued and to be signed on reverse side \ No newline at end of file diff --git a/raw/proxies/0000794172/0001193125-13-470974/proxy_rpt.txt b/raw/proxies/0000794172/0001193125-13-470974/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..00e44386312cd982b544d1d76f71cd95f90d5002 --- /dev/null +++ b/raw/proxies/0000794172/0001193125-13-470974/proxy_rpt.txt @@ -0,0 +1,13 @@ +TRANSACTIONS WITH RELATED PERSONS +During fiscal 2013, the Company leased certain office space from an entity controlled by Marco G. Calzavara, President and Managing Director, Meridian +Bioscience Europe. Payments made under such arrangements during fiscal 2013 totaled approximately $190,000. +Nasdaq rules require the +Company to conduct an appropriate review of related party transactions required to be disclosed by the Company pursuant to SEC Regulation S-K Item 404 for potential conflict of interest situations on an ongoing basis and that all such +transactions must be approved by the Audit Committee or another Committee comprised of independent Directors. As a result, the Audit Committee annually reviews all such related party transactions and approves each related party transaction if it +determines that it is in the best interests of the Company. Additionally, the Audit Committee’s Charter provides it the authority to review, approve and monitor transactions involving the Company and “related persons” (Directors and +Executive Officers or their immediate family members, or shareholders owning five percent or greater of the Company’s outstanding stock). This also covers any related person transaction that meets the minimum threshold for disclosure in the +proxy statement under the relevant SEC rules (generally, transactions involving amounts exceeding $120,000 in which a related person has a direct or indirect material interest). In considering the transaction, the Audit Committee may consider all +relevant factors, including, as applicable, (i) the Company’s business rationale for entering into the transaction; (ii) the alternatives to entering into a related person transaction; (iii) whether the transaction is on terms +comparable to those available to third parties, or in the case of employment relationships, to employees generally; (iv) the potential for the transaction to lead to an actual or apparent conflict of interest and any safeguards imposed to +prevent such actual or apparent conflicts; and (v) the overall fairness of the transaction to the Company. This policy is included in the Company’s Employee Handbook. The approval of such related person transactions are evidenced by +internal Company resolutions or memoranda. \ No newline at end of file diff --git a/raw/proxies/0000794172/0001206774-02-000033/proxy.txt b/raw/proxies/0000794172/0001206774-02-000033/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..0b9096c42fcf5ecb68fe8524889e0056b0b909f7 --- /dev/null +++ b/raw/proxies/0000794172/0001206774-02-000033/proxy.txt @@ -0,0 +1,735 @@ +DEF 14A +1 +d11640.txt +FORM OF NOTICE AND PROXY +SCHEDULE 14A +(Rule 14a-101) +INFORMATION REQUIRED IN THE PROXY STATEMENT +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) +of the Securities Exchange Act of 1934 +(Amendment No. ___ ) +Filed by the Registrant |X| +Filed by a Party other than the Registrant |_| +Check the appropriate box: +|_| Preliminary Proxy Statement +|_| Confidential, for Use of the Commission Only (as permitted by Rule +14a-6(e)(2)) +|X| Definitive Proxy Statement +|_| Definitive Additional Materials +|_| Soliciting Material Under Rule 14a-12 +Meridian Bioscience, Inc. +-------------------------------------------------------------------------------- +(Name of Registrant as Specified in Its Charter) +-------------------------------------------------------------------------------- +(Name of Person(s) Filing Proxy Statement if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +|X| No fee required. +|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) Title of each class of securities to which transaction applies: +(2) Aggregate number of securities to which transaction applies: +(3) Per unit price or other underlying value of transaction computed +pursuant to Exchange Act Rule 0-11 (set forth the amount on which +the filing fee is calculated and state how it was determined): +(4) Proposed maximum aggregate value of transaction: +(5) Total Fee Paid: +|_| Fee paid previously with preliminary materials. +|_| Check box if any part of the fee is offset as provided by Exchange Act +Rule 0-11(a)(2) and identify the filing for which the offsetting fee was +paid previously. Identify the previous filing by registration statement +number, or the Form or Schedule and the date of its filing. +(1) Amount Previously Paid: +(2) Form, Schedule or Registration Statement No.: +(3) Filing Party: +(4) Date Filed: +MERIDIAN BIOSCIENCE, INC. +3471 River Hills Drive +Cincinnati, Ohio 45244 +Notice of Annual Meeting +and Proxy Statement +Dear Shareholder: +Our Annual Meeting of Shareholders will be held at 2:00 p.m. on January 21, 2003 +at Ivy Hills Country Club, 7711 Ivy Hills Boulevard, Cincinnati, Ohio. We hope +you will attend. At the meeting, you will hear a report on our operations and +have a chance to meet your directors and executive officers. +This booklet includes the formal notice of the meeting and the proxy statement. +The proxy statement tells you more about the agenda and procedures for the +meeting. It also describes how the Board operates and gives personal information +about our director candidates. +Please complete, sign, date, and return your proxy card promptly in the enclosed +envelope. +Sincerely yours, +/s/ William J. Motto +William J. Motto +Chairman of the Board +December 23, 2002 +NOTICE OF ANNUAL MEETING +OF +SHAREHOLDERS OF MERIDIAN BIOSCIENCE, INC. +Time: +2:00 p.m., Eastern Time +Date: +January 21, 2003 +Place: +Ivy Hills Country Club +7711 Ivy Hills Boulevard +Cincinnati, Ohio 45244 +Purpose: +o Elect directors +o Ratify appointment of PricewaterhouseCoopers LLP as Meridian's +independent public accountants for fiscal year 2003 +o Conduct other business if properly raised +Only shareholders of record on December 2, 2002 may vote at the meeting. +The approximate mailing date of this Proxy Statement and accompanying Proxy Card +is December 23, 2002. +Your vote is important. Please complete, sign, date, and return your proxy +card promptly in the enclosed envelope. +/s/ Melissa Lueke +Melissa Lueke +Secretary +December 23, 2002 +TABLE OF CONTENTS +Page +GENERAL INFORMATION............................................................1 +ELECTION OF DIRECTORS..........................................................1 +RATIFICATION OF APPOINTMENT OF ACCOUNTANTS.....................................4 +DIRECTOR COMPENSATION..........................................................6 +BOARD COMMITTEES...............................................................6 +REPORT OF THE AUDIT COMMITTEE..................................................6 +COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION........................7 +PRINCIPAL SHAREHOLDERS.........................................................9 +DIRECTORS AND EXECUTIVE OFFICERS..............................................10 +SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE..........................11 +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION...................11 +SUMMARY COMPENSATION TABLE....................................................12 +OPTION GRANTS IN LAST FISCAL YEAR.............................................13 +FISCAL 2002 OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES...............13 +PERFORMANCE GRAPH.............................................................14 +SHAREHOLDER PROPOSALS FOR NEXT YEAR...........................................15 +QUESTIONS?....................................................................15 +GENERAL INFORMATION +Who may vote +Shareholders of Meridian, as recorded in our stock register on December 2, 2002, +may vote at the meeting. As of that date, Meridian had 14,633,733 shares of +Common Stock outstanding. +How to vote +You may vote in person at the meeting or by proxy. We recommend you vote by +proxy even if you plan to attend the meeting. You can always change your vote at +the meeting. +How proxies work +Meridian's Board of Directors is asking for your proxy. Giving us your proxy +means you authorize us to vote your shares at the meeting in the manner you +direct. You may vote for all, some or none of our director candidates. You may +also vote for or against the other proposals or abstain from voting. +If you sign and return the enclosed proxy card but do not specify how to vote, +we will vote your shares in favor of our director candidates and in favor of the +ratification of PricewaterhouseCoopers LLP as Meridian's independent public +accountants for fiscal year 2003. +If any other matters come before the meeting or any adjournment, each proxy will +be voted in the discretion of the individuals named as proxies on the card. +You may receive more than one proxy or voting card depending on how you hold +your shares. Shares registered in your name are covered by one card. If you hold +shares through someone else, such as a stockbroker, you may get material from +them asking how you want to vote. +Revoking a proxy +You may revoke your proxy before it is voted by submitting a new proxy with a +later date, by voting in person at the meeting, or by notifying Meridian's +Secretary in writing at the address under "Questions?" on page 15. +Quorum +In order to carry on the business of the meeting, we must have a quorum. This +means at least a majority of the outstanding shares eligible to vote must be +represented at the meeting, either by proxy or in person. +Votes needed +The six director candidates receiving the most votes will be elected to fill the +seats on the Board. Ratification of appointment of accountants requires the +favorable vote of a majority of the votes cast. Only votes for or against these +proposals count. Abstentions and broker non-votes count for quorum purposes but +not for voting purposes. Broker non-votes occur when a broker returns a proxy +card but does not have authority to vote on a particular proposal +Other Matters +Any other matters considered at the meeting, including adjournment, will require +the affirmative vote of a majority of the votes cast. +ELECTION OF DIRECTORS +(Item 1 on the Proxy Card) +The Board has nominated the director candidates named below. +The Board of Directors oversees the management of Meridian on your behalf. The +Board reviews Meridian's long-term strategic plans and exercises direct +decision-making authority in key areas, such as +- 1 - +choosing the Chief Executive Officer, setting the scope of his authority to +manage Meridian's business day to day and evaluating management's performance. +The Board is nominating for election all of the following current directors: +James A. Buzard, John A. Kraeutler, Gary P. Kreider, William J. Motto, David C. +Phillips and Robert J. Ready. +Proxies solicited by the Board will be voted for the election of these nominees. +All directors elected at the Annual Meeting will be elected to hold office until +the next annual meeting. In voting to elect directors, shareholders are entitled +to cumulate their votes and to give one candidate a number of votes equal to the +number of directors to be elected multiplied by the number of shares held by the +shareholder, or to distribute their votes on the same principle among as many +candidates as the shareholder sees fit. In order to invoke cumulative voting, +notice of cumulative voting must be given in writing by a shareholder to the +President, a Vice President or the Secretary of Meridian not less than 48 hours +prior to the Annual Meeting. The proxies solicited include discretionary +authority to cumulate votes. +Four of our six nominees are not Meridian employees. Only non-employee directors +serve on Meridian's Audit and Compensation committees. All Meridian directors +are elected for one-year terms. Personal information on each of our nominees is +given below. +Board meetings last year: 7 +Actions in writing last year: None +If a director nominee becomes unavailable before the election, your proxy card +authorizes us to vote for a replacement nominee if the Board names one. +The Board recommends you vote FOR each of the following candidates: +-------------------------------------------------------------------------------- +James A. Buzard, Ph.D. James A. Buzard, Ph.D. was Executive Vice +Director since 1990 President of Merrell Dow Pharmaceuticals Inc. from +Age:75 March 1981 until December 1989. From December 1989 +until his retirement in February 1990, he was Vice +President of Marion Merrell Dow, Inc. He has been +a business consultant since February 1990. +Dow, Inc. He has been a business +consultant since February 1990. +-------------------------------------------------------------------------------- +John A. Kraeutler John A. Kraeutler has more than 25 years of +Director since 1997 experience in the medical diagnostics industry and +Age:54 joined Meridian as Executive Vice President and +Chief Operating Officer in January 1992. In July +1992, Mr. Kraeutler was named President of +Meridian. Before joining Meridian, Mr. Kraeutler +served as Vice President, General Manager for a +division of Carter-Wallace, Inc. Prior to that, he +held key marketing and technical positions with +Becton, Dickinson and Company and Organon, Inc. +-------------------------------------------------------------------------------- +Gary P. Kreider, Esq. Gary P. Kreider serves as Chairman of the +Director since 1991 Compensation Committee. Mr. Kreider has been a +Age:64 Senior Partner of the Cincinnati law firm of +Keating, Muething & Klekamp, P.L.L., counsel to +Meridian, since 1975. He is also an Adjunct +Professor of Law in securities at the University +of Cincinnati College of Law and a director of LSI +Industries, Inc. +-------------------------------------------------------------------------------- +- 2 - +-------------------------------------------------------------------------------- +William J. Motto William J. Motto has more than 35 years of +Director since 1977 experience in the pharmaceutical and diagnostics +Age:61 products industries, is a founder of Meridian and +has been Chairman of the Board since 1977. Before +forming Meridian, Mr. Motto served in various +capacities for Wampole Laboratories, Inc., Marion +Laboratories, Inc. and Analytab Products, Inc., a +division of American Home Products Corp. +-------------------------------------------------------------------------------- +David C. Phillips David C. Phillips serves as Chairman of the Audit +Director since 2000 Committee. Mr. Phillips spent 32 years with Arthur +Age:64 Andersen LLP. His service with this firm included +several managing partner leadership positions. +After retiring from Arthur Andersen in 1994, Mr. +Phillips became Chief Executive Officer of +Downtown Cincinnati, Inc., which is responsible +for economic revitalization of Downtown +Cincinnati. Mr. Phillips retired from DCI in 1999 +to devote full time to Cincinnati Works, Inc., an +organization dedicated to reducing the number of +people living below the poverty level by assisting +them to strive towards self-sufficiency through +work, and his financial consulting services. +-------------------------------------------------------------------------------- +Robert J. Ready Robert J. Ready founded LSI Industries, Inc., +Director since 1986 Cincinnati, Ohio in 1976, which engineers, +Age:62 manufactures and markets commercial/industrial +lighting and graphics products, and has served as +its President and Chairman of its Board of +Directors since that time. +-------------------------------------------------------------------------------- +- 3 - +RATIFICATION OF +APPOINTMENT OF ACCOUNTANTS +(Item 2 on the Proxy Card) +Although not required, the Board is seeking shareholder ratification of the +Audit Committee's selection of PricewaterhouseCoopers LLP as Meridian's +independent public accountants for fiscal 2003. The affirmative vote of a +majority of shares voting at the meeting is required for ratification. If +ratification is not obtained, the Board intends to continue the employment of +PricewaterhouseCoopers LLP at least through fiscal 2003. Representatives of +PricewaterhouseCoopers LLP are expected to be present at the Shareholders' +Meeting and will be given an opportunity to make a statement, if they so desire, +and to respond to appropriate questions that may be asked by shareholders. +Changes in the Company's Certifying Accountant +On May 13, 2002, Meridian dismissed Arthur Andersen LLP as the independent +public accountant to audit Meridian's consolidated financial statements. +Following a review of Meridian's accounting services in recent years, the Board +of Directors initiated a process to solicit bids from Deloitte & Touche LLP, +Ernst & Young LLP, Grant Thornton LLP, and PricewaterhouseCoopers LLP. The Audit +Committee of the Board of Directors, after reviewing audit proposals from all +four firms selected PricewaterhouseCoopers as Meridian's independent accountants +to replace Arthur Andersen, effective May 13, 2002. The Company reported this +change of accountant in a Current Report on Form 8-K filed with the SEC on May +13, 2002. +Arthur Andersen's report on Meridian's financial statements for each of the last +two fiscal years did not contain an adverse opinion or a disclaimer of opinion, +nor was it qualified or modified as to uncertainty, audit scope, or accounting +principles. During Meridian's two most recent fiscal years and the subsequent +interim periods preceding the replacement of Arthur Andersen, there were no +disagreements with Arthur Andersen on any matter of accounting principles or +practices, financial statement disclosure, or auditing scope or procedure, which +disagreement(s), if not resolved to the satisfaction of Arthur Andersen, would +have caused them to make a reference to the subject matter of the +disagreement(s) in connection with its report. Meridian has authorized Arthur +Andersen to respond fully to any inquiries by PricewaterhouseCoopers. +Arthur Andersen did not advise Meridian either during its two most recent fiscal +years or during the subsequent interim periods preceding Arthur Andersen's +dismissal: +> that the internal controls necessary for Meridian to develop +reliable financial statements did not exist; +> that information had come to its attention that had led it to no +longer be able to rely on management's representations, or that had +made it unwilling to be associated with the financial statements +prepared by management; +> of the need to expand significantly the scope of its audit, or that +information had come to its attention during the two most recent +fiscal years or any subsequent interim periods that if further +investigated might materially have impacted the fairness or +reliability of either: (i) a previously issued audit report or the +underlying financial statements, or +- 4 - +(ii) the financial statements issued or to be issued covering the +fiscal period(s) subsequent to the date of the most recent financial +statements covered by an audit report, or have caused it to be +unwilling to rely on management's representations or be associated +with Meridian's financial statements; or +> that information had come to its attention that it had concluded +materially impacts the fairness or reliability of either (i) a +previously issued audit report or the underlying financial +statements, or (ii) the financial statements issued or to be issued +covering the fiscal period(s) subsequent to the date of the most +recent financial statements covered by an audit report, including +information that, unless resolved to the accountant's satisfaction, +would prevent it from rendering an unqualified audit report on those +financial statements. +During the two most recent fiscal years and during the interim period prior to +engaging PricewaterhouseCoopers, neither Meridian nor anyone on its behalf +consulted PricewaterhouseCoopers regarding either: (i) the application of +accounting principles to a specified transaction (either completed or proposed) +or the type of audit opinion that might be rendered on Meridian's financial +statements, and no written report or oral advice was provided to Meridian that +PricewaterhouseCoopers concluded was an important factor considered by Meridian +in reaching a decision as to an accounting, auditing or financial reporting +issue; or (ii) any matter that was the subject of either a disagreement or a +reportable event. +Meridian provided Arthur Andersen LLP with a copy of the foregoing disclosures +and received from Arthur Andersen LLP a letter addressed to the Securities and +Exchange Commission stating its agreement with such disclosures. A copy of the +letter from Arthur Andersen was filed with the SEC as Exhibit 16 to the Form +8-K. +Principal Accounting Firm Fees: +Aggregate fees billed to Meridian by Arthur Andersen LLP for fiscal 2002 were: +Audit Fees $ 12,000 +--------- +Financial Information System Design and +Implementation Fees +$ -- +All other Fees $ 101,034 +========= +(a) +$ 113,034 +========= +Aggregate fees billed to Meridian for fiscal 2002 by Meridian's principal +accounting firm, PricewaterhouseCoopers LLP, are as follows: +Audit Fees $ 164,000 +--------- +Financial Information +System Design and Implementation Fees $ -- +--------- +(b) +All other Fees $ 258,989 +--------- +(a)(b) +$ 422,989 +========= +(a) Includes fees for tax and other non- audit services, including Biotrin due +diligence fees of $247,089 for PricewaterhouseCoopers LLP. +(b) The Audit Committee has determined that the provision of these services is +compatible with +- 5 - +maintaining the principal accountant's independence. +DIRECTOR COMPENSATION +Non-employee directors of Meridian receive $12,000 per year for serving as a +director and as members of committees of the Board. They also receive $1,000 for +each director or committee meeting attended, except if a committee meeting +occurs on the same day as a directors' meeting the committee meeting fee is +$800. They receive $500 for each director or committee meeting held by +telephone. The Audit Committee Chairman and Compensation Committee Chairman +receive an additional $1,000 and $500, respectively, for each committee meeting +held. Each non-employee director is also granted a non-qualified option to +purchase 2,317 shares of Common Stock at the time of election or re-election to +the Board of Directors, with the exercise price being the closing sale price on +Nasdaq reported immediately prior to the date of grant. If a change in control +occurs, non-employee directors will receive lump-sum payments equal to ten times +their annual compensation received in the prior fiscal year. Directors who are +employees of Meridian are not separately compensated for serving as directors. +BOARD COMMITTEES +The Board appoints committees to help carry out its duties. In particular, Board +committees work on key issues in greater detail than would be possible at full +Board meetings. Each committee reviews the results of its meetings with the full +Board. The Board of Directors does not have a nominating committee or executive +committee. +The Audit Committee is responsible for reviewing Meridian's internal accounting +operations. It also recommends the employment of independent accountants and +reviews the relationship between Meridian and its outside accountants. +Meetings last year: 7 +Actions in writing last year: None +REPORT OF THE AUDIT COMMITTEE +Meridian's Audit Committee is composed of Messrs. Phillips (Chairman), Ready, +Buzard and Kreider. All of the members of the Committee met the NASD standards +for independence and financial literacy in fiscal 2002. +In April 2000, the Board adopted the Audit Committee Charter, which was attached +to the 2001 Proxy Statement as Appendix I. The Charter outlines the activities +and responsibilities of the Committee. +On May 6, 2002 the Committee selected the accounting firm of +PricewaterhouseCoopers as their new independent public accountants. The +selection was made after considering offers from Deloitte & Touche LLP, Ernst & +Young LLP, Grant Thornton LLP, and PricewaterhouseCoopers LLP. +On August 20, 2002, the Committee met with representatives of +PricewaterhouseCoopers and Meridian's internal accountants and reviewed with +them the proposed 2002 Audit Plan, areas warranting particular concentration on +the audit and the effects of new accounting pronouncements. The +PricewaterhouseCoopers representatives reviewed with the Committee written +disclosures required by the Independence Standards Board Standard No. 1 +regarding independence of the public accountants and presented a letter +regarding that matter to the Committee. +- 6 - +At its meeting on November 19, 2002, the Committee reviewed with management, +PricewaterhouseCoopers and Meridian's accounting officers the results of the +audit for fiscal 2002, including the audited financial statements. The Committee +reviewed the requirements of its Charter previously adopted and the reports that +were required to be disclosed to the Committee. The Committee discussed with +PricewaterhouseCoopers the matters required to be discussed by Statement on +Auditing Standards No. 61. +The Committee met on December 13, 2002 to review a draft of the Form 10-K. Based +on their review the Committee recommended to the Board of Directors that the +audited financial statements of Meridian be included in its Annual Report on +Form 10-K for the year ended September 30, 2002 for filing with the Securities +and Exchange Commission. +Respectfully submitted, +Audit Committee +David C. Phillips (Chairman) +Robert J. Ready +James A. Buzard +Gary P. Kreider +The Compensation Committee is responsible for establishing compensation for +management and administering Meridian's stock option plans. +Meetings last year: 4 +Actions in writing last year: None +COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION +Report of the Compensation Committee +Meridian's Compensation Committee is composed of Messrs. Kreider (Chairman), +Buzard, Phillips and Ready. The Compensation Committee is responsible for +establishing compensation for executive officers, establishing salary levels and +bonus plans, making bonus awards and otherwise dealing in all matters concerning +compensation of the executive officers and awarding stock options for all +employees. +At its meeting on November 14, 2001, the Committee maintained salary levels for +Messrs. Motto, Kraeutler, Eberly and Interno for fiscal 2002 at fiscal 2001 +levels, as shown in the Summary Compensation Table, granted increases to +operating officers and established a fiscal 2002 bonus award based on targeted +net earnings levels which the Company did not achieve. The Committee had +available to it in establishing executive salaries the recommendations of +management with respect to overall staff level compensation for the coming +fiscal year for Meridian. The Committee took into account these considerations +plus the financial performance of Meridian during fiscal 2001 in establishing +salary levels. It determined the compensation for the Chief Executive Officer in +the same manner it did for its other executive officers. The Committee met +without Meridian's management in making its decisions. At its meeting on +November 14, 2001 and at other meetings throughout the year, the Committee also +awarded stock options pursuant to Meridian's Stock Option Plan to various +employees including the stock options to executive officers listed elsewhere in +this Proxy Statement. +- 7 - +At its meeting on November 19, 2002, the Committee increased salary levels for +Messrs. Motto, Kraeutler, Eberly and Interno for fiscal 2003, granted increases +to operating officers and established a fiscal 2003 bonus award based on +targeted net earnings levels from $6,350,000 - $7,350,000. They also awarded +options to purchase 130,000 Common Shares which will vest immediately if +Meridian's net earnings for fiscal 2003 are at least $6,800,000. If this target +is not reached, the options will not vest until nine years after the date of +grant. +Respectfully submitted, +Compensation Committee +Gary P. Kreider (Chairman) +Robert J. Ready +James A. Buzard +David C. Phillips +- 8 - +PRINCIPAL SHAREHOLDERS +William J. Motto, Chairman of the Board, and Putnam Investment Management, LLC +are the only shareholders known by Meridian to own beneficially 5% or more of +its outstanding Common Stock as of December 2, 2002. Information has been +furnished by the persons listed and/or has been obtained from reports filed by +the persons listed with the Securities and Exchange Commission: +Amount and Nature of +Name of Beneficial Owner Beneficial Ownership Percent of Class +------------------------ -------------------- ---------------- +William J. Motto(1) 4,136,646 28.2% +Putnam Investments, LLC(2) 2,022,980 13.8% +(1) The business address of Mr. Motto is 3471 River Hills Drive, Cincinnati, +Ohio 45244. The shares of Common Stock reported as beneficially owned by Mr. +Motto include 25,000 shares subject to options exercisable within 60 days. +(2) The business address of Putnam Investment Management, LLC is One Post Office +Square, Boston, Massachusetts 02109. The shares of Common Stock reported as +beneficially owned by Putnam Investment Management, LLC are as of September 30, +2002, the latest date such information is available to Meridian. +- 9 - +DIRECTORS AND EXECUTIVE OFFICERS +This table lists the executive officers and directors of Meridian and shows how +much common stock each owned on December 2, 2002. +Common Stock +Beneficially Owned +Name Position Amount(1) Percentage(2) +---- -------- ------ ---------- +William J. Motto Chairman of the Board of 4,136,646(2) 28.2% +Directors, Chief Executive +Officer +John A. Kraeutler President, Chief Operating 279,703 1.9% +Officer and Director +Antonio A. Interno(3) Senior Vice President 370,626 2.5% +Richard L. Eberly(4) Executive Vice President 46,750 * +Kenneth J. Kozak(5) Vice President, Research and 16,009 * +Development +Melissa A. Lueke(6) Vice President, Chief Financial 18,600 * +Officer and Secretary +Susan A. Rolih(7) Vice President of Regulatory 2,500 * +Affairs & Quality Systems +Lawrence J. Baldini(8) Vice President of Operations 5,500 * +James A. Buzard, Ph.D.(9) Director 27,204 * +Gary P. Kreider(9) Director 46,177(10) * +Robert J. Ready(9) Director 28,909 * +David C. Phillips(9) Director 10,634 * +All Executive Officers and Directors 4,989,258 33.0% +as a Group +(1) Includes options exercisable within 60 days from Mr. Motto of 25,000 shares, +Mr. Kraeutler of 264,445 shares, Mr. Interno of 56,657 shares, Mr. Eberly of +46,650 shares, Mr. Kozak of 15,600 shares, Mr. Buzard of 22,446 shares, Mr. +Kreider of 21,855 shares, Ms. Lueke of 11,000 shares, Mr. Phillips of 4,634 +shares, Mr. Ready of 22,446 shares and Ms. Rolih of 2,500 shares. +(2) See description of Common Stock ownership contained under "Principal +Shareholder." +(3) Antonio A. Interno was appointed as a Vice President in August 1991 and +appointed a Senior Vice President in September 1997. He has been Managing +Director of Meridian's European subsidiary, Meridian Diagnostics Europe since +February 1990. +- 10 - +(4) Richard L. Eberly was appointed Vice President of Sales and Marketing on +January 10, 1997 and appointed an Executive Vice President in May 2000. He has +over 12 years of experience in the medical diagnostic industry and joined +Meridian in January 1995. Prior to his appointment to Vice President of Sales +and Marketing, Mr. Eberly served as the Director of Sales for Meridian. Before +joining Meridian, he held key sales and marketing positions at Abbott +Diagnostics. +(5) Kenneth J. Kozak joined Meridian in October 1987 and was appointed Vice +President, Research and Development, on May 17, 1999. Prior to this appointment, +Mr. Kozak served as Director of Product Development for Meridian. Before joining +Meridian, Mr. Kozak held a variety of positions at the University of Cincinnati +College of Medicine. +(6) Melissa A. Lueke was appointed Vice President, Chief Financial Officer and +Secretary on January 23, 2001. Prior to her appointment, Ms. Lueke served as +Meridian's Controller since March 2000 and Acting Secretary from July 20, 2000 +to January 23, 2001. Before joining Meridian, Ms. Lueke was employed by Arthur +Andersen LLP from June 1985 to January 1999, most recently as a Senior Audit +Manager. +(7) Susan A. Rolih was appointed Vice President of Regulatory Affairs and +Quality Systems on May 29, 2001. Before joining Meridian, Ms. Rolih held various +regulatory and quality positions with Immucor, Inc. +(8) Lawrence J. Baldini was appointed Vice President of Operations on April 3, +2001. Before joining Meridian, Mr. Baldini held various operations management +positions with Instrumentation Laboratories and Fisher Scientific. +(9) Audit Committee Member and Compensation Committee Member. +(10) Includes 145 shares held by his wife, 1,000 shares held as custodian for +his minor child and 9,621 shares held by trusts of which Mr. Kreider is trustee +and a beneficiary. Also includes Meridian debentures convertible into 1,625 +shares. +* Less than one percent. +SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Section 16 of the Securities Exchange Act of 1934 requires Meridian's +executive officers, directors and persons who own more than ten percent of a +registered class of Meridian's equity securities to file reports of ownership +and changes in ownership with the Securities and Exchange Commission. Based on a +review of the copies of such forms received by it, Meridian believes that during +the last fiscal year, all of its executive officers, directors and ten percent +stockholders complied with the Section 16 reporting requirements. +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +Gary P. Kreider, who is Chairman of the Compensation Committee, is a +senior partner of Keating, Muething & Klekamp, P.L.L., Cincinnati, Ohio, a law +firm that provided legal services to Meridian in fiscal 2002. +- 11 - +SUMMARY COMPENSATION TABLE +Annual Compensation +----------------------------------------------------------------------------- +Securities +Name and Principal Position Underlying All Other +Year Salary Bonus Options Compensation(1) +----------------------------------------------------------------------------- +William J. Motto(1) 2002 $387,700 $ -0- 55,000 $41,779 +Chairman of the Board of Directors, 2001 387,700 -0- 20,000 50,298 +Chief Executive Officer 2000 371,000 104,344 20,000 43,908 +John A. Kraeutler(2) 2002 $280,700 $ -0- 55,000 $23,687 +President, Chief Operating Officer 2001 280,700 -0- 50,000 32,165 +2000 268,600 75,544 50,000 31,401 +Antonio A. Interno(3) 2002 $198,200 $ -0- 10,000 $20,200 +Senior Vice President, Managing 2001 192,100 -0- 10,000 16,200 +Director MDE 2000 200,000 32,837 15,000 16,200 +Richard L. Eberly(4) 2002 $177,700 $ -0- 10,000 $27,480 +Executive Vice President, Sales, 2001 177,700 -0- 35,000 22,532 +Marketing and Operations 2000 170,000 43,594 10,000 35,813 +Melissa A. Lueke(5) 2002 $157,800 $ -0- 10,000 $13,686 +Vice President, Chief Financial 2001 145,900 -0- 30,000 13,759 +Officer and Secretary -- -- -- -- -- +(1) "All Other Compensation" for Mr. Motto includes (a) car allowances of +$16,579, $14,297, and $17,044 in 2002, 2001 and 2000, respectively, (b) +professional allowances of $15,200, $15,000 and $7,000 in 2002, 2001 and 2000, +respectively, (c) premiums paid under Meridian's Split-Dollar Life Insurance +Program of $-0-, $11,697 and $11,182 in 2002, 2001 and 2000, respectively and +(d) amounts accrued under Meridian's Savings and Investment Plan. Todd Motto, +the adult son of William J. Motto, is Director International Marketing MBE at +Meridian. Todd Motto received $81,200 in compensation for fiscal 2002 and +options to purchase 5,000 shares of Meridian common stock at an exercise price +of $4.70 per share. +(2) "All Other Compensation" for Mr. Kraeutler includes (a) car allowances of +$12,595, $10,280, and $14,608 in 2002, 2001 and 2000, respectively, (b) +professional allowances, (c) premiums paid under Meridian's Split-Dollar Life +Insurance Program of $-0-, $8,948 and $7,422 in 2002, 2001 and 2000, +respectively and (d) amounts accrued under Meridian's Savings and Investment +Plan of $9,986, $11,247 and $6,371 in 2002, 2001 and 2000, respectively. Mr. +Kraeutler and Meridian are parties to an employment agreement dated February 15, +2001 which sets forth compensation, non-competition, benefit and severance +provisions and provides for a payment equal to three times Mr. Kraeutler's base +salary (plus any salary earned but not paid) upon the occurrence of certain +events, including a change in control of Meridian. The agreement is effective +for a period of 36 months commencing February 15, 2001, automatically extending +until either party terminates the agreement. +(3) "All Other Compensation" for Mr. Interno includes (a) car allowances of +$16,200, $16,200, and $16,200 in 2002, 2001 and 2000, respectively and (b) +amounts accrued under Meridian's Savings and Investment Plan. The increase in +Mr. Interno's salary during fiscal 2002 reflects changes in exchange rates. +There was no change to the amount of salary in local currency during fiscal +2002. +(4) "All Other Compensation" for Mr. Eberly includes (a) car allowances of +$13,650, $6,966, and $6,394 in 2002, 2001 and 2000, respectively, (b) premiums +paid under Meridian's Split-Dollar Life Insurance Program of +- 12 - +$4,190, $-0- and $2,487 in 2002, 2001 and 2000, respectively, (c) amounts +accrued under Meridian's Savings and Investment Plan of $9,640, $9,706 and +$9,805 in 2002, 2001 and 2000, respectively and (d) reimbursement for education +related expenses of $-0-, $5,860 and $14,775 in 2002, 2001 and 2000, +respectively. +(5) "All Other Compensation" for Ms. Lueke includes (a) car allowances of $5,000 +and $3,000 in 2002 and 2001, respectively, (b) premiums paid under Meridian's +Split-Dollar Life Insurance Program and (c) amounts accrued under Meridian's +Savings and Investment Plan of $8,686 and $8,030 in 2002 and 2001, respectively. +OPTION GRANTS IN LAST FISCAL YEAR +Potential Realized Value +Number of % of Total Options at Assumed Annual Rates +Securities Granted to Exercise of Price Appreciation for +Underlying Employees in Price Option Term +Options Fiscal ($/Per Expiration +Names Granted 2002 Share) Date 5% 10% +----- ------- ---- ------ ---- --- --- +William J. Motto 50,250 21% 4.70 9/30/11 $384,704 $612,577 +4,750 1% 5.17 9/30/11 40,002 63,696 +John A. Kraeutler 55,000 22% 4.70 9/30/11 421,069 670,482 +Antonio A. Interno 10,000 4% 4.70 9/30/11 76,558 121,906 +Richard L. Eberly 10,000 4% 4.70 9/30/11 76,558 121,906 +Melissa A. Lueke 10,000 4% 4.70 9/30/11 76,558 121,906 +FISCAL 2002 OPTION EXERCISES +AND FISCAL YEAR-END OPTION VALUES +Number of Securities Value of Unexercised +Underlying Unexercised In-the-Money Options at +Shares Acquired Options at FY-End FY-End +Name on Exercise Value Realized Exercisable/Unexercisable Exercisable/Unexerciable +---- ----------- -------------- ------------------------- ------------------------ +William J. Motto -- -- 25,000/70,000 $ --/$59,368 +John A. Kraeutler 25,064 $38,348 264,445/92,500 38,640/61,600 +Antonio A. Interno -- -- 56,657/18,750 11,227/11,200 +Richard L. Eberly -- -- 46,650/36,875 16,600/61,000 +Melissa A. Lueke 5,000 25,000 11,000/32,000 --/61,000 +- 13 - +PERFORMANCE GRAPH +The following graph shows the yearly percentage change in Meridian's +cumulative total shareholder return on its Common Stock as measured by dividing +the sum of (A) the cumulative amount of dividends, assuming dividend +reinvestment during the periods presented and (B) the difference between +Meridian's share price at the end and the beginning of the periods presented; by +the share price at the beginning of the periods presented with the Wilshire 5000 +Equity Index and a Peer Group Index. The Peer Group consists of Apogent +Technologies, Inc., Biomerica, Inc., Biosite, Inc., Diagnostic Products Corp., +Hemagen Diagnostics, Inc., Hycor Biomedical, Inc., Idexx Laboratories Corp., +Neogen Corp., Quidel Corp. and Trinity Biotech Plc. +COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* +AMONG MERIDIAN BIOSCIENCE, INC., THE WILSHIRE 5000 INDEX +AND A PEER GROUP +[PERFORMANCE GRAPH DATA] +9/97 9/98 9/99 9/00 9/01 9/02 +-------------------------------------------------------------------- +MERIDIAN BIOSCIENCE, INC. 100.00 65.41 70.53 71.79 45.13 58.34 +WILSHIRE 5000 100.00 103.28 131.12 154.13 109.51 90.32 +PEER GROUP 100.00 94.77 112.37 137.26 139.33 134.69 +* $100 invested on 9/30/97 in stock or index-including reinvestment of +dividends. Fiscal year ending September 30. +- 14 - +SHAREHOLDER PROPOSALS FOR NEXT YEAR +The deadline for shareholder proposals to be included in the Proxy +Statement for next year's meeting is August 23, 2003. +The form of Proxy for this meeting grants authority to the designated +proxies to vote in their discretion on any matters that come before the meeting +except those set forth in Meridian's Proxy Statement and except for matters as +to which adequate notice is received. In order for a notice to be deemed +adequate for the 2003 Annual Shareholders' Meeting, it must be received prior to +November 5, 2003. If there is a change in the anticipated date of next year's +annual meeting or these deadlines by more than 30 days, we will notify you of +this change through our Form 10-Q filings. +Meridian's Code of Regulations provides that only persons nominated by an +officer, director or in writing by a shareholder at least five days prior to the +meeting at which directors are to be selected shall be eligible for election. +QUESTIONS? +If you have questions or need more information about the annual meeting, +write to: +Melissa Lueke, Vice President, Chief Financial Officer and Secretary +Meridian Bioscience, Inc. +3471 River Hills Drive +Cincinnati, Ohio 45244 +or call us at (513) 271-3700. +For information about your record holdings call the Fifth Third Bank Shareholder +Services at 1-800-837-2755. +- 15 - +MERIDIAN BIOSCIENCE, INC. +PROXY The undersigned hereby appoints WILLIAM J. MOTTO and MELISSA A. LUEKE, +FOR or either of them, proxies of the undersigned, each with the +ANNUAL substitution, to vote cumulatively or otherwise all shares of Common +MEETING Stock which the undersigned would be entitled to vote on the ma +specified below and in their discretion with respect to such other +business as may properly come before the Annual Meeting of Shareh of +Meridian Bioscience, Inc. to be held on January 21, 2003 at 2:00 P.M. +Eastern Time at Ivy Hills Country Club, 7711 Ivy Hills Boul +Cincinnati, Ohio and any adjournment of such Annual Meeting. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING PROPOSALS: +1. Authority to elect as directors the six nominees listed below. +FOR ____ WITHHOLD AUTHORITY ____ +JAMES A. BUZARD, JOHN A. KRAEUTLER, GARY P. KREIDER, WILLIAM J. MOTTO, +DAVID C. PHILLIPS AND ROBERT J. READY +WRITE THE NAME OF ANY NOMINEE(S) FOR WHOM AUTHORITY +TO VOTE IS WITHHELD ____________________________________________ +2. To ratify the appointment of PricewaterhouseCoopers LLP as independent +public accountants for fiscal 2003. +FOR ____ AGAINST ____ ABSTAIN ____ +THIS PROXY WILL BE VOTED AS RECOMMENDED BY THE BOARD OF DIRECTORS UNLESS A +CONTRARY CHOICE IS SPECIFIED. +(This proxy is continued and is to be signed on the reverse side) +Date __________________________, ______ +_______________________________________ +_______________________________________ +Important: Please sign exactly as name appears hereon indicating, where proper, +official position or representative capacity. In the case of joint holders, all +should sign. +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS \ No newline at end of file diff --git a/raw/proxies/0000794172/0001206774-02-000033/proxy_rpt.txt b/raw/proxies/0000794172/0001206774-02-000033/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000910521/0000910521-14-000004/proxy.txt b/raw/proxies/0000910521/0000910521-14-000004/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..fe7240414fbc4fe0de94622625df927b2855b2f5 --- /dev/null +++ b/raw/proxies/0000910521/0000910521-14-000004/proxy.txt @@ -0,0 +1,2647 @@ +DEF 14A +1 +deck-def14ax2014.htm +DEF 14A +DECK - DEF 14A - 2014 +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material under §240.14a-12 +DECKERS OUTDOOR CORPORATION +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1 +) +Title of each class of securities to which transaction applies: +(2 +) +Aggregate number of securities to which transaction applies: +(3 +) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4 +) +Proposed maximum aggregate value of transaction: +(5 +) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1 +) +Amount Previously Paid: +(2 +) +Form, Schedule or Registration Statement No.: +(3 +) +Filing Party: +(4 +) +Date Filed: +2014 PROXY STATEMENT SUMMARY +This summary highlights information contained elsewhere in this Proxy Statement. This summary does not contain all of the information that you should consider, and you should read the entire Proxy Statement carefully before voting. +SUMMARY INFORMATION +ANNUAL MEETING OF STOCKHOLDERS +• TIME AND DATE +3:00 p.m., June 18, 2014 +• LOCATION +Deckers Outdoor Corporation, Corporate Headquarters +250 Coromar Drive +Goleta, CA 93117 +• RECORD DATE +April 21, 2014 +• VOTING +Stockholders as of the record date are entitled to vote. +MEETING AGENDA +• +Election of eight directors +• +Ratification of KPMG LLP as independent registered public accounting firm for the fiscal period of January 1, 2014 through March 31, 2014 (transition period) and for the fiscal period of April 1, 2014 through March 31, 2015 (fiscal year 2015). +• +Advisory vote to approve Named Executive Officer compensation +• +Transact other business that may properly come before the Annual Meeting +PROPOSALS TO BE VOTED ON +PROPOSALS +MATTER +BOARD VOTE RECOMMENDATION +PAGE REFERENCE +1 +Election of eight directors +FOR EACH DIRECTOR NOMINEE +10 +2 +Ratification of KPMG LLP as independent registered public accounting firm for the transition period and fiscal year 2015 +FOR +69 +3 +Advisory vote to approve Named Executive Officer compensation +FOR +71 +PROPOSAL 1: DIRECTOR NOMINEES +• +The following table provides summary information about each director nominee. +NAME +AGE +DIRECTOR SINCE +OCCUPATION +INDEPENDENT +Angel R. Martinez +58 +2005 +Chair of the Board of Directors, Chief Executive Officer & President, Deckers Outdoor Corporation +James Quinn(3) +62 +2011 +Corporate Director +X +John M. Gibbons(1)(4) +65 +2000 +Corporate Director +X +John G. Perenchio(2)(3) +58 +2005 +Owner and Co-Manager, Fearless Records LLC and Fearmore Publishing, LLC +X +Karyn O. Barsa(1)(2) +52 +2008 +Corporate Director +X +Lauri Shanahan(2) +51 +2011 +Corporate Director, Independent Consultant +X +Maureen Conners(3) +67 +2006 +President, Conners Consulting +X +Michael F. Devine, III(1) +55 +2011 +Corporate Director +X +____________ +(1) +Member of Audit Committee +(2) +Member of Compensation Committee +(3) +Member of Corporate Governance Committee +(4) +Lead Director +• +No director nominee who is a current director attended fewer than 75% of the meetings of our Board of Directors and meetings of any Board committee on which he or she sits. +• +Each director nominee is elected annually by a majority of votes cast. +• +Our Board of Directors recommends that you vote FOR each of the director nominees named in Proposal No. 1. +PROPOSAL 2: INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +• +As a matter of good corporate governance, we are asking our stockholders to ratify the selection of KPMG LLP as our independent registered public accounting firm for the transition period and fiscal year 2015. +• +Approval of the proposal requires the vote of a majority of the shares present and entitled to vote at the Annual Meeting. +• +Our Board of Directors recommends that you vote FOR Proposal No. 2. +PROPOSAL 3: EXECUTIVE COMPENSATION ADVISORY VOTE +• +We are asking our stockholders to approve, on a non-binding advisory basis, the compensation of our Named Executive Officers as disclosed in the Compensation Discussion and Analysis section of this Proxy Statement. Below is a summary of the key elements and other features of our executive compensation program. +• +Approval of the proposal requires the vote of a majority of the shares present and entitled to vote at the Annual Meeting. +• +Our Board recommends a vote FOR Proposal No. 3 because it believes that our compensation policies and practices are effective in achieving our goals of paying for financial and operating performance, and aligning our executives' interests with those of our stockholders. +Main Executive Compensation Elements +FORM +TYPE +TERMS +Core Program +Base Salary +CASH +• Increases must be approved by Compensation Committee +Benefits +OTHER +• Generally, benefits provided to our US-based executives mirror those provided to all US-based employees +Annual Cash Incentive +CASH +• Based on annual Company quantitative goal(s) and annual individual quantitative and qualitative goals. +NSU Equity Incentive Plan Awards (Nonvested Stock Units, or "NSUs") +EQUITY +• Performance goals for NSUs are based on fiscal year 2013 EPS. Because 2013 EPS goals were achieved, NSUs will vest over a period of approximately three years. +Aspirational Program +2013 Long-Term Equity Incentive Plan ("LTIP") Awards (Restricted Stock Units, or "RSUs") +EQUITY +• Performance goals for RSUs are based on "aspirational" Company performance goals achieved through fiscal year 2016. RSUs are received, if earned according to plan metrics, 3.25 years after granted. +• Because the performance goals for these awards are set at such an aspirational level, the grant date fair value of these awards is only deemed probable at the threshold level. +Other Key Compensation Features +• +No tax gross-ups as a result of termination following a change of control +• +Prohibit hedging and speculative transactions with respect to our stock +• +Stock ownership guidelines for our Named Executive Officers and directors +• +"Double Trigger" event required for severance benefits upon a change in control +• +Annual equity awards granted in 2011, 2012 and 2013 are subject to a Clawback Policy provision subjecting these awards to a Clawback Policy. In December 2012, our Board of Directors adopted a Clawback Policy. +• +Compensation Committee designs program to ensure that it does not encourage unnecessary risk taking +Other Corporate Governance Changes +• +On February 26, 2014, our Board of Directors approved a change in our fiscal year end from December 31 to March 31. As a result of this change, we will file a transition report on Form 10-QT for the transition period. The timing of our Annual Meeting in future years will be adjusted accordingly. +• +On March 19, 2014, our Board of Directors approved a change in the securities exchange on which our Company's stock will be listed from the NASDAQ Global Select Market to the New York Stock Exchange. We anticipate that our shares will begin trading on the NYSE in May 2014. +2015 Annual Meeting +• +Deadline for Stockholder Proposals is March 24, 2015 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TIME/DATE: 3:00 P.M., JUNE 18, 2014 +Deckers Outdoor Corporation +250 Coromar Drive +Goleta, California 93117 +April 30, 2014 +TO THE STOCKHOLDERS OF DECKERS OUTDOOR CORPORATION: +Notice is hereby given that the Annual Meeting of Stockholders of Deckers Outdoor Corporation, a Delaware corporation, will be held at Deckers' corporate headquarters located at 250 Coromar Drive, Goleta, California, 93117, on Wednesday, June 18, 2014, beginning at 3:00 p.m., local time. The Annual Meeting will be held for the following purposes: +1. Election of Directors. To elect eight directors to serve until our Annual Meeting of Stockholders to be held in 2015, or until their successors are elected and duly qualified. +2. Ratification of Appointment of Independent Registered Public Accounting Firm. To ratify the selection of KPMG LLP as our independent registered public accounting firm for the fiscal period of January 1, 2014 through March 31, 2014 (transition period) and for the fiscal period of April 1, 2014 through March 31, 2015 (fiscal year 2015). +3. Advisory Vote to Approve Named Executive Officer Compensation. To approve, by a non-binding advisory vote, the compensation of our Named Executive Officers, as disclosed in the Compensation Discussion and Analysis section of the Proxy Statement. +4. Other Business. To consider and act upon such other business as may properly come before the Annual Meeting or any postponements or adjournments thereof. +Our Board of Directors recommends that you vote FOR each of the director nominees named in Proposal 1 and FOR Proposals 2 and 3. +Our Board of Directors has fixed the close of business on April 21, 2014 as the record date for determining stockholders entitled to notice of and to vote at the Annual Meeting and any postponements or adjournments thereof. Only stockholders of record at the close of business on the record date are entitled to such notice and to vote, in person or by proxy, at the Annual Meeting. +Your vote is very important. Whether or not you plan to attend the Annual Meeting, we encourage you to read this Proxy Statement and submit your proxy or voting instructions as soon as possible. For specific instructions on how to vote your shares, please refer to the instructions on the Notice of Internet Availability of Proxy Materials you received in the mail, the section entitled "How Can I Vote My Shares" in this Proxy Statement or, if you requested to receive printed proxy materials, your enclosed proxy card. +BY ORDER OF THE BOARD OF DIRECTORS +/s/ ANGEL R. MARTINEZ +Angel R. Martinez +Chairman of the Board of Directors, Chief Executive Officer and President +Approximate Date of Mailing of Notice of Internet Availability of Proxy Materials: April 30, 2014 +Table of Contents +TABLE OF CONTENTS +2014 Proxy Summary +i +Notice of Annual Meeting of Stockholders +iv +Proxy Statement +1 +Questions and Answers about the 2014 Annual Meeting and Voting +2 +Proposal 1 - Election of Directors +10 +2014 Nominees for Director +13 +Corporate Governance +20 +Executive Officers +25 +Compensation Discussion and Analysis +27 +Executive Summary +28 +Compensation Philosophy and Objectives +34 +Compensation Consultant and Market Comparisons +35 +2013 Executive Compensation Elements +37 +Other Compensation Considerations +47 +Report of the Compensation Committee +49 +Compensation Summary +50 +Grants of Plan Based Awards in 2013 +52 +Outstanding Equity Awards at 2013 Fiscal Year End +53 +2013 SAR Exercises and Stock Vested +55 +Nonqualified Deferred Compensation +56 +Potential Payments Upon Termination or Change of Control +57 +Director Compensation +61 +Equity Compensation Plan Information +63 +Security Ownership of Certain Beneficial Owners and Management +64 +Report of the Audit Committee +66 +Proposal 2 - Ratification of the Appointment of Independent Registered Public Accounting Firm +69 +Proposal 3 - Advisory Resolution to Approve Executive Compensation +71 +Other Annual Meeting Business +73 +Access to Annual Report +74 +Table of Contents +ANNUAL MEETING OF STOCKHOLDERS +Meeting Date: June 18, 2014 +PROXY STATEMENT +GENERAL INFORMATION +The enclosed Proxy Statement is solicited on behalf of the Board of Directors of Deckers Outdoor Corporation, which we refer to as "our Company," "we," "us," or "our," for use at our Company's Annual Meeting of Stockholders to be held on Wednesday, June 18, 2014 at 3:00 p.m., local time, or the Annual Meeting, or at any postponements or adjournments thereof. The Annual Meeting is being held for the purposes described in this Proxy Statement and in the accompanying Notice of Annual Meeting of Stockholders. +1 +Table of Contents +QUESTION AND ANSWERS ABOUT THE 2014 ANNUAL MEETING AND VOTING +The following questions and answers are intended to briefly address potential questions that our stockholders may have regarding this Proxy Statement and the Annual Meeting. They are also intended to provide our stockholders with certain information that is required to be provided under the rules and regulations of the Securities and Exchange Commission, or the SEC. These questions and answers may not address all of the questions that are important to you as a stockholder. If you have additional questions about the Proxy Statement or the Annual Meeting, please see "Whom shall I contact with other questions?". +Q: What is the purpose of the Annual Meeting? +A: At the Annual Meeting, our stockholders will be asked to consider and vote upon the matters described in this Proxy Statement and in the accompanying Notice of Annual Meeting of Stockholders, and any other matters that properly come before the Annual Meeting. +Q: When and where will the Annual Meeting be held? +A: You are invited to attend the Annual Meeting on Wednesday, June 18, 2014, beginning at 3:00 p.m., local time. The Annual Meeting will be held at our corporate headquarters, located at 250 Coromar Drive, Goleta, California 93117. +Q: What is our Company's fiscal year end? +A: On February 26, 2014, our Board of Directors approved a change in our fiscal year end from December 31 to March 31. As a result of this change, we will file a transition report on Form 10-QT for the three-month period ended March 31, 2014, which we expect to file on or about May 12, 2014. The timing of our Annual Meeting in future years will be adjusted accordingly. +Q: On what securities exchange are our Company's shares traded? +A: As of the date on which this Proxy Statement was made available to our stockholders, our shares were listed on the NASDAQ Global Select Market. On March 19, 2014, our Board of Directors approved a change in the securities exchange on which our Company's shares will be listed to the New York Stock Exchange. We anticipate that the our shares will begin trading on the NYSE in May 2014. +Q: Why did I receive these proxy materials? +A: We are providing these proxy materials in connection with the solicitation by our Board of Directors of proxies to be voted at the Annual Meeting, and at any adjournment or postponement thereof. This Proxy Statement contains important information for you to consider when deciding how to vote on the matters brought before the Annual Meeting. You are invited to attend the Annual Meeting in person to vote on the proposals described in this Proxy Statement. However, you do not need to attend the Annual Meeting to vote your shares. Instead, you may vote your shares using one of the other voting methods described in this Proxy Statement. Whether or not you expect to attend the Annual Meeting, please vote your shares as soon as possible in order to ensure your representation at the Annual Meeting and to minimize the cost to our Company of proxy solicitation. +2 +Table of Contents +Q: Why did I receive a notice in the mail regarding the Internet availability of proxy materials? +A: Instead of mailing printed copies to each of our stockholders, we have elected to provide access to our proxy materials over the Internet under the SEC's "notice and access" rules. These rules allow us to make our stockholders aware of the Annual Meeting and the availability of our proxy materials by sending a Notice of Internet Availability of Proxy Materials, or a Notice, which provides instructions for how to access the full set of proxy materials through the Internet or make a request to have printed proxy materials delivered by mail. Accordingly, on or about April 23, 2014, we mailed a Notice to each of our stockholders. The Notice contains instructions on how to access our proxy materials, including our Proxy Statement and our Annual Report, each of which are available at www.proxyvote.com. The Notice also provides instructions on how to vote your shares through the Internet. +Q: What is the purpose of complying with the SEC's "notice and access" rules? +A : We believe compliance with the SEC's "notice and access" rules will allow us to provide our stockholders with the materials they need to make informed decisions, while lowering the costs of printing and delivering those materials and reducing the environmental impact of our Annual Meeting. However, if you would prefer to receive printed proxy materials, please follow the instructions included in the Notice. If you have previously elected to receive our proxy materials electronically, you will continue to receive these materials electronically unless you elect otherwise. +Q: What am I being asked to vote upon at the Annual Meeting? +A: At the Annual Meeting, you will be asked to: +• +Vote on the election of eight director nominees to serve until the Annual Meeting of Stockholders to be held in 2015, or until their successors are elected and duly qualified (Proposal No. 1); +• +Ratify the selection of KPMG LLP as our independent registered public accounting firm for the transition period and for fiscal year 2015 (Proposal No. 2); +• +Vote upon a proposal to approve, on a non-binding advisory basis, the compensation of our Named Executive Officers, as disclosed in the Compensation Discussion and Analysis section of this Proxy Statement (Proposal No. 3); and +• +Act upon such other matters as may properly come before the Annual Meeting or any postponement or adjournment thereof. +Q: Does the Board of Directors recommend voting in favor of the proposals? +A: Yes. Our Board of Directors unanimously recommends that you vote your shares "FOR" each of the eight director nominees, "FOR" the ratification of the selection of KPMG LLP as our independent registered public accounting firm for the transition period and for fiscal year 2015, and "FOR" the approval, on a non-binding advisory basis, of the compensation of our Named Executive Officers. +Q: What are the voting requirements to approve the proposals? +A: The voting requirements to approve each of the proposals to be voted upon at the Annual Meeting are as follows: +• +Election of Directors (Proposal No. 1) —The Board of Directors has adopted a majority voting standard for uncontested director elections. This means that each director nominee in an uncontested election shall be elected by a “majority of the votes cast” by the shares entitled to vote on the election of directors (assuming that a quorum is present). An “uncontested election” is an election in which the number of nominees for director is not greater than the number of directors to be elected. A “contested election” is an election in which the number of nominees for director nominated by (i) the Board of Directors, (ii) any stockholder or (iii) a combination of the Board of Directors and any stockholder, exceeds the number of directors to be elected. A “majority of the votes cast” means that the number of votes “FOR” a nominee for director must exceed 50% of the total votes cast. Votes “AGAINST” a nominee for director will count as votes cast for purposes of this proposal, but a “WITHHOLD AUTHORITY” vote with respect to shares will not count as votes cast. In a contested election, directors shall be elected by a plurality of the votes cast by the shares entitled to vote on the election of directors. +3 +Table of Contents +Under the rules applicable to brokers, brokers no longer possess discretionary authority to vote shares with respect to the election of the directors. Accordingly, "broker non-votes" will result for this proposal if brokers do not receive instructions from beneficial owners of our shares. Broker non-votes will not count as votes cast for purposes of this proposal and will not be counted for any purpose in determining whether this proposal has been approved. Please see " What happens if I do not vote? " below for a discussion of the effect of “withhold authority” votes and "broker non-votes." +• +Ratification of Selection of Accounting Firm (Proposal No. 2) —Ratification of the selection of KPMG LLP as our independent registered public accounting firm for the transition period and for fiscal year 2015 will require the affirmative vote of a majority of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote on the matter (assuming that a quorum is present). Abstentions will have the same effect as votes against the proposal. Because the ratification of the independent registered public accounting firm is a matter on which brokers have the discretion to vote, "broker non-votes" will not result for this proposal. +• +Advisory Vote on Executive Compensation (Proposal No. 3) —Approval of the non-binding advisory resolution regarding the compensation of our Named Executive Officers will require the affirmative vote of a majority of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote on the matter (assuming that a quorum is present). Abstentions will have the same effect as votes against the proposal. "Broker non-votes" will not count as shares present and entitled to vote on the proposal and will not be counted for any purpose in determining whether this proposal has been approved. +Q: What happens if a director nominee fails to receive a majority vote in an uncontested election at the Annual Meeting? +A: Each incumbent director standing for reelection at the Annual Meeting has tendered an irrevocable letter of resignation, effective upon such incumbent director not receiving a majority vote at the Annual Meeting and acceptance of such resignation by the Board of Directors. The Board of Directors must accept or reject such resignation within 90 days following certification of the stockholder vote in accordance with the procedures established by our Bylaws. If a director’s resignation offer is not accepted by the Board of Directors, that director will continue to serve until our Annual Meeting of Stockholders to be held in 2015 and his or her successor is duly elected and qualified or until the director’s earlier death, resignation, or removal. +Any director nominee who is not an incumbent director and who fails to receive a majority vote in an uncontested election will not be elected as a director, and a vacancy will be left on the Board of Directors. The Board of Directors, in its sole discretion, may either fill a vacancy resulting from a director nominee not receiving a majority vote pursuant to our Bylaws or decrease the size of the Board of Directors to eliminate the vacancy. +Q: What happens if I do not vote? +A: The following is a brief explanation of the effect that a decision not to vote shares will have on the proposals to be voted upon at the Annual Meeting: +• +Abstentions: You may withhold authority to vote for one or more nominees for director and may abstain from voting on one or more of the other matters to be voted on at the Annual Meeting. Shares for which authority is withheld or that a stockholder abstains from voting will be counted for purposes of determining whether a quorum is present at the Annual Meeting. With respect to Proposal No. 1, shares for which a stockholder elects to withhold authority will not be included in the total number of votes cast, and thus will have no effect on the outcome of the vote on this proposal. With respect to Proposal No. 2 and Proposal No. 3, shares that a stockholder abstains from voting will be included in the total number of shares present and entitled to vote on proposals, and will have the same effect as a vote "AGAINST" these proposals. +• +Broker Non-Votes: "Broker non-votes" result from shares that are held by a bank, broker, dealer or other nominee that are represented at the Annual Meeting, but with respect to which the nominee holding those shares (i) has not received instructions from the beneficial owner of the shares to vote on the particular proposal, and (ii) does not have discretionary voting power with respect to the particular proposal. Please see " Who can vote at the Annual Meeting " below for a discussion of beneficial ownership. Whether a nominee has authority to vote shares that it holds is determined by stock exchange rules. Nominees holding shares of record for beneficial owners generally are entitled to exercise their discretion to vote on Proposal No. 2, but do not have the discretion to vote on Proposal No. 1 or Proposal No. 3 unless they receive other instructions from the beneficial owners of the shares. Accordingly, broker non-votes will +4 +Table of Contents +result for Proposal No. 1 and Proposal No. 3. Broker non-votes will not be counted for purposes of determining the number of votes cast or the number of shares present and entitled to vote with respect to these proposals, and will not be counted for any purpose in determining whether the proposals have been approved. Broker non-votes will be counted for purposes of determining the presence or absence of a quorum at the Annual Meeting. +Q: Who can vote at the Annual Meeting? +A: Only our stockholders of record at the close of business on April 21, 2014, the Record Date, will be entitled to vote at the Annual Meeting. On the Record Date, there were 34,624,470 shares of our Common Stock outstanding and entitled to vote. Each share of Common Stock issued and outstanding on the Record Date is entitled to one vote on any matter presented for consideration and action by our stockholders at the Annual Meeting. +Stockholders of Record +If, on the Record Date, your shares were registered directly in your name with our transfer agent, Computershare, then you are a "holder of record." As a holder of record, you may vote in person at the Annual Meeting or vote by proxy. Whether or not you plan to attend the Annual Meeting, we urge you to vote your shares using one of the voting methods described in this Proxy Statement and the Notice. +Beneficial Owners +If, on the Record Date, your shares were held in an account at a bank, broker, dealer, or other nominee, then you are the "beneficial owner" of shares held in "street name" and this Proxy Statement is being made available to you by that nominee. The nominee holding your account is considered the holder of record for purposes of voting at the Annual Meeting. As a beneficial owner, you have the right to direct your nominee on how to vote the shares in your account. You are also invited to attend the Annual Meeting. However, since you are not the holder of record, you may not vote your shares in person at the Annual Meeting unless you request and obtain a valid proxy from your nominee. Please contact your nominee directly for additional information. +Q: What is the quorum requirement for the Annual Meeting? +A: The presence at the Annual Meeting, in person or by proxy, of holders of a majority of the shares of our Common Stock outstanding as of the Record Date, will constitute a quorum at the Annual Meeting. We will treat shares of Common Stock represented by a properly voted proxy, including abstentions and broker non-votes, as present at the Annual Meeting for the purposes of determining the existence of a quorum. If a quorum is not present, the Annual Meeting will be adjourned until a quorum is obtained. +Q: How can I vote my shares? +A: +Stockholders of Record +Stockholders of record can vote by proxy or by attending the Annual Meeting and voting in person. If you vote by proxy, you can vote by Internet, telephone or by mail as described below. David E. Lafitte and Thomas A. George, the designated proxyholders, are members of our Company's management. Whether or not you plan to attend the Annual Meeting, we urge you to vote by proxy to ensure your vote is counted. You may still attend the Annual Meeting and vote in person if you have already voted by proxy. +• +Vote by Internet. You can vote by proxy over the Internet by following the instructions provided in the Notice, or to the extent you requested to receive printed proxy materials, by following the instructions provided on the proxy card. Internet voting is available 24 hours a day and will be accessible until 11:59 p.m. Eastern Time on June 17, 2014 by visiting www.proxyvote.com and following the instructions. Our Internet voting procedures are designed to authenticate stockholders by using individual control numbers, which are located on the Notice. +• +Vote by Telephone. If you requested to receive printed proxy materials, you can vote by telephone pursuant to the instructions provided on the proxy card. Telephone voting is available 24 hours a day and will be accessible until 11:59 p.m. Eastern Time on June 17, 2014. +5 +Table of Contents +• +Vote by Mail. If you requested to receive printed proxy materials, you can vote by mail pursuant to the instructions provided on the proxy card. If you choose to vote by mail, simply mark, sign and date your proxy card and return it promptly in the postage-paid envelope provided. In order to be effective, completed proxy cards must be received by 11:59 p.m. Eastern Time on June 17, 2014. +• +Vote at the Annual Meeting. The method you use to vote will not limit your right to vote at the Annual Meeting if you decide to attend in person. All shares that have been properly voted and not revoked will be voted at the Annual Meeting. If you sign and return your proxy card but do not give voting instructions, the shares represented by that proxy will be voted as recommended by the Board of Directors. +Beneficial Owner +If you are the beneficial owner of your shares, you should have received a Notice or a proxy card with these proxy materials from your broker, bank, trustee or nominee rather than from us. Simply follow the instructions received from your broker, bank, trustee or nominee to vote on the Internet or, if you received a proxy card, by utilizing the instructions set forth therein. To vote in person at the Annual Meeting, you must obtain a valid proxy from your broker, bank, trustee or nominee. Follow the instructions from your broker, bank, trustee or nominee or contact your broker, bank, trustee or nominee to request a proxy card. +Q: How may I attend the Annual Meeting? +A : You are entitled to attend the Annual Meeting only if you were a stockholder as of the Record Date or hold a valid proxy for the Annual Meeting. Since seating is limited, admission to the Annual Meeting will be on a first-come, first-served basis. You should be prepared to present government-issued photo identification for admittance, such as a passport or driver's license. If you are the beneficial owner of your shares, you also will need proof of ownership as of the Record Date to be admitted to the Annual Meeting, such as your most recent account statement prior to the Record Date, a copy of the voting instruction card provided by your bank, broker, dealer or other nominee, or similar evidence of ownership. Please note that for security reasons, you and your bags may be subject to search prior to your admittance to the Annual Meeting. If you do not comply with each of the foregoing requirements, you will not be admitted to the Annual Meeting. +Q: What can I do if I change my mind after I vote my shares? +A: You may change your vote at any time before your proxy is voted at the Annual Meeting. If you are a holder of record, you may change your vote by (i) providing written notice of revocation to the Secretary of our Company at our corporate headquarters located at 250 Coromar Drive, Goleta, California 93117, (ii) executing a subsequent proxy using any of the voting methods discussed above, or (iii) attending the Annual Meeting and voting in person. However, simply attending the Annual Meeting will not, by itself, revoke your proxy. If you are a beneficial owner of your shares, and you have instructed your bank, broker, dealer or other nominee to vote your shares, you must follow directions received from your nominee to change those instructions. Subject to any such revocation, all shares represented by properly executed proxies will be voted in accordance with the recommendations of the Board of Directors. +Q: Could other matters be decided at the Annual Meeting? +A : As of the date this Proxy Statement was made available to stockholders, we did not know of any matters to be raised at the Annual Meeting other than those referred to in this Proxy Statement. However, if any other matters are presented for consideration at the Annual Meeting including, among other things, consideration of a motion to adjourn the Annual Meeting to another time or place in order to solicit additional proxies in favor of one or more of the proposals, the persons named as proxyholders will have discretion to vote on these matters according to their best judgment to the same extent as the person delivering the proxy would be entitled to vote. +Q: Who is paying for the cost of this proxy solicitation? +A: The solicitation of proxies is made on behalf of our Company and all the expenses of soliciting proxies from stockholders will be borne by our Company. In addition to the solicitation of proxies by use of the mail, officers and regular employees may communicate with stockholders personally or by mail, telephone, or otherwise for the purpose of soliciting such proxies, but in such event no additional compensation will be paid to any such persons for such solicitation. We will reimburse +6 +Table of Contents +banks, brokers and other nominees for their reasonable out-of-pocket expenses in forwarding soliciting material to beneficial owners of shares held of record by such persons. The total estimated cost of the solicitation of proxies is approximately $80,000. +Q: What is the deadline to submit stockholder proposals for the 2015 Annual Meeting? +A: In light of the recent change in our fiscal year from December 31 to March 31, we expect that the timing of our future annual meetings of stockholders will be pushed back by approximately three months as compared to prior years. As a result, we currently anticipate holding our Annual Meeting of Stockholders for the fiscal year 2015 in September 2015. Accordingly, notice of any director nomination or other proposal that you intend to present for inclusion in the proxy materials to be distributed in connection with our Annual Meeting of Stockholders to be held in 2015 must be delivered to our corporate headquarters located at 250 Coromar Drive, Goleta, California 93117 no later than the close of business on March 24, 2015. In addition, your notice must satisfy the conditions for such proposals set forth in our Bylaws, which contain requirements with respect to advance notice of director nominations and other stockholder proposals. +Q: How can stockholders nominate a candidate for election as a director? +A: Our Company's Bylaws provide that a stockholder seeking to nominate a candidate for election as director at an annual meeting of stockholders must provide timely advance written notice. To be timely, a stockholder's notice generally must be received at our principal executive office on or before the date 90 days prior to the scheduled date of the annual meeting or, if it is a later date, on or before the date seven days after we first publish notice of the annual meeting. +Under our Bylaws, a stockholder's notice of a proposed nomination for director to be made at an annual meeting of stockholders must include the following information: +• +The name and address of the stockholder and any Stockholder Affiliate proposing to make the nomination and of the person or persons to be nominated; +• +The class and number of shares of our Company that are, directly or indirectly, beneficially owned by the stockholder or any Stockholder Affiliate and any derivative positions held or beneficially held by the stockholder or any Stockholder Affiliate and whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of, or any other agreement, arrangement or understanding (including, but not limited to, any derivative position, short position, or any borrowing or lending of shares) has been made, the effect or intent of which is to mitigate loss to or manage risk or benefit of share price changes for, or to increase or decrease the voting power of, such stockholder or any Stockholder Affiliate; +• +A representation that the holder is a stockholder entitled to vote his or her shares at the annual meeting and intends to vote his or her shares in person or by proxy for the person nominated in the notice; +• +A description of all arrangements or understandings between the stockholder(s) or Stockholder Affiliate supporting the nomination and each nominee; +• +Any other information concerning the proposed nominee(s) that our Company would be required to include in the Proxy Statement if the Board of Directors made the nomination; +• The consent and commitment of the nominee(s) to serve as a director; +• +For each nominee, a completed and signed questionnaire, in a form provided by our Company upon written request, with respect to the background and qualification of such person being nominated and the background of any other person or entity on whose behalf the nomination is being made; +• +For each nominee, a written representation and agreement, in the form provided by our Company upon written request, with regards to any voting commitments, compensatory arrangements with a third party and compliance requirements applicable to directors of our Company; +• +A description of all agreements, arrangements and understandings between the stockholder and Stockholder Affiliate and any other person, including their name, in connection with the nominee; and +• +Whether the stockholder or any Stockholder Affiliate intends to conduct a proxy solicitation. +For these purposes, "Stockholder Affiliate" means any person controlling, directly or indirectly, or acting in concert with, any stockholder making the nomination; any beneficial owner of shares of stock of our Company owned of record or beneficially by the stockholder making the nomination; and any person controlling, controlled by or under common control with the Stockholder Affiliate. The presiding officer of the annual meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. Stockholder nominations submitted in accordance with the requirements of our Company's Bylaws will be forwarded to the Corporate Governance and Nominating Committee. +7 +Table of Contents +Q: How can stockholders propose other actions for consideration at an annual meeting of stockholders? +A: Our Company's Bylaws provide that a stockholder seeking to propose actions at an annual meeting of stockholders (other than nomination of directors) must provide timely advance written notice to our Company. To be timely, a stockholder's notice generally must be received at our principal executive office on or before the date 90 days prior to the scheduled date of the meeting or, if it is a later date, on or before the date seven days after we first publishes notice of the meeting. +Under our Bylaws, a stockholder's notice of proposed action to be made at an annual meeting of stockholders must include the following information: +• +A brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the meeting; +• +The name and address of the stockholder and any Stockholder Affiliate proposing such business; +• +The class and number of shares of our Company that are, directly or indirectly, beneficially owned by the stockholder and any Stockholder Affiliate; +• +Any derivative positions held or beneficially held by the stockholder and any Stockholder Affiliate, and whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of, or any other agreement, arrangement or understanding (including, but not limited to, any derivative position, short position, or any borrowing or lending of shares) has been made, the effect or intent of which is to mitigate loss to or manage risk or benefit of share price changes for, or to increase or decrease the voting power of, such stockholder or any Stockholder Affiliate with respect to our Company's securities; +• +A description of all agreements, arrangements and understandings between such stockholder or any Stockholder Affiliate and any other person or persons (including their names) in connection with the proposal of such business by such stockholder; +• +Any material interest of the stockholder or any Stockholder Affiliate in such business; and +• +Whether the stockholder or any Stockholder Affiliate intends to conduct a proxy solicitation. +Any stockholder providing such notice shall promptly provide any other information that our Company may reasonably request. For these purposes, "Stockholder Affiliate" means any person controlling, directly or indirectly, or acting in concert with, any stockholder making the proposal for action at an annual meeting; any beneficial owner of shares of stock of our Company owned of record or beneficially by the stockholder making the proposal for action at an annual meeting; and any person controlling, controlled by or under common control with the Stockholder Affiliate. The presiding officer of the annual meeting may refuse to acknowledge any business not brought before the meeting in compliance with the foregoing procedure. +Q: I share an address with another stockholder, and we received only one paper copy of the proxy materials. How may I obtain an additional copy of the proxy materials? +A: We have adopted a procedure called "householding," which the SEC has approved. Under this procedure, we are delivering a single copy of the Notice and, if applicable, this Proxy Statement and the Annual Report to multiple stockholders who share the same address unless we have received contrary instructions from one or more of the stockholders. This procedure reduces our printing costs, mailing costs and fees. Stockholders who participate in householding will continue to be able to access and receive separate proxy cards. Upon written or oral request, we will promptly deliver a separate copy of the Notice and, if applicable, this Proxy Statement and the Annual Report to any stockholder at a shared address to which we delivered a single copy of any of these documents. To receive a separate copy of the Notice and, if applicable, this Proxy Statement or the Annual Report, please write or call us at the following address and telephone number: +Deckers Outdoor Corporation +Attn: Corporate Secretary +250 Coromar Drive +Goleta, California 93117 +(805) 967-7611 +In addition, if you are currently a stockholder sharing an address with another stockholder and wish to receive only one copy of future proxy materials for your household, please contact us using the contact information set forth above. Stockholders who hold shares in "street name" may contact their bank, broker, dealer or other nominee to request information about householding. This Proxy Statement and the Annual Report are available at http://www.deckers.com/investors . +8 +Table of Contents +Q: Where can I find voting results of the Annual Meeting? +A : We will announce preliminary voting results with respect to each proposal at the Annual Meeting. In accordance with SEC rules, final voting results will be published in a Current Report on Form 8-K within four business days following the Annual Meeting, unless final results are not known at that time in which case preliminary voting results will be published within four business days of the Annual Meeting and final voting results will be published once they are known by our Company. +Q: Whom should I contact with other questions? +A : If you have additional questions about this Proxy Statement or the Annual Meeting, or if you would like additional copies of this Proxy Statement, please contact: Deckers Outdoor Corporation, 250 Coromar Drive, Goleta, California 93117, Attention: Corporate Secretary, Telephone: (805) 967-7611. +9 +Table of Contents +ELECTION OF DIRECTORS +PROPOSAL NO. 1 +Overview +Our Company's Bylaws provide for the annual election of directors. Our Bylaws also provide that the directors will consist of not less than one or more than ten members. The specific number of Board members within this range is established by our Board of Directors and is currently set at nine, and will be reduced to eight immediately prior to the Annual Meeting to reflect our current slate of director-nominees. There are currently nine Board members. Mr. Rex A. Licklider, a director since 1993, is retiring from our Board and therefore will not be standing for re-election at the Annual Meeting. +At the Annual Meeting, stockholders will be asked to elect eight directors to serve until our Company's next Annual Meeting of Stockholders to be held in 2015 and until his or her successor is elected and duly qualified. Proxies cannot be voted for a greater number of persons than the number of nominees named. The names and certain information concerning the persons nominated by our Board of Directors to become directors at the Annual Meeting are set forth below. Each of the proposed nominees currently serves as a member of our Board of Directors. +If all nominees for director are elected, then following the Annual Meeting, our Board of Directors will consist of eight members, and a majority of our Board of Directors and all members of each of its standing committees will continue to be "independent directors" under applicable securities exchange listing rules as described below. +Voting Requirements +Our Board of Directors has adopted a majority voting standard for uncontested director elections. Each director will be elected by a vote of the majority of the votes cast by the shares entitled to vote on the election of directors. A majority of the votes cast means that the number of votes "FOR" a nominee for director must exceed 50% of the total votes cast. Votes "AGAINST" a nominee for director will count as votes cast for purposes of this proposal, but a "WITHHOLD AUTHORITY" vote with respect to shares and broker non-votes will not count as votes cast. Our Board of Directors recommends that you vote "FOR" each of the director nominees. Accordingly, the persons named as proxyholders in the attached proxy will vote to elect all eight director nominees named below unless contrary instructions are given in the proxy. Please see " What are the voting requirements to approve the proposals?" for additional information. +Although each of the persons named below has consented to serve as a director if elected, and our Board of Directors has no reason to believe that any of the nominees named below will be unable to serve as a director, if any nominee withdraws or otherwise becomes unavailable to serve, our Board of Directors may reduce the number of directors fixed by our Bylaws, or the proxies may be voted for the election of such other person to the office of director as our Board of Directors may recommend in place of the nominee. +Agreements with Directors +None of the directors or nominees for director was selected pursuant to any arrangement or understanding, other than with the directors of our Company acting within their capacity as such. There are no family relationships among directors, nominees for director or executive officers of our Company. +Director Nominations +The Corporate Governance Committee is responsible for identifying and evaluating nominees for election to our Board of Directors. In addition to the candidates proposed by our Board of Directors or identified by the Committee, the Committee considers candidates for director proposed by stockholders, provided such recommendations are made in accordance with the procedures set forth in our Bylaws and described above under " How can stockholders nominate a candidate for election as a director? " Stockholder nominations that meet the criteria outlined below will receive the same consideration that the Committee's nominees receive. +10 +Table of Contents +Director Qualifications +Directors are responsible for overseeing and monitoring our business consistent with their fiduciary duties to our stockholders. This significant responsibility requires highly-skilled individuals with various qualities, attributes, and professional experience. As detailed under " Nominating Procedures and Criteria " below, our Board of Directors believes that there are both general requirements for services as a member of our Board of Directors that are applicable to all directors and other specialized criteria that should be represented on the Board as a whole, but not necessarily by each director. +The names of the nominees for director and certain biographical information about them, including any public company directorships held by them over the last five years, are set forth below. In addition, information about the specific qualifications, attributes and skills of each nominee that led to our Board's conclusion that each nominee should serve as a director of our Company is set forth below. +Legal Proceedings with Directors +There are no legal proceedings related to any of the directors or director nominees which must be disclosed pursuant to Items 103 and 401(f) of Regulation S-K. +Qualifications for All Directors +Essential criteria for all candidates considered by the Corporate Governance Committee include the following: +• +Personal and professional integrity +• +Good business judgment +• +Relevant experience and skills +• +Ability to be an effective director in conjunction with the full Board of Directors in collectively serving the long-term interests of our Company's stockholders +• +Commitment to devoting sufficient time and energy to diligently performing their duties as a director +Factors Considered for all Director Nominees +The Committee considers many factors when identifying nominees for director, including diversity with respect to personal characteristics (including race and gender) as well as diversity in the experience and skills that contribute to our Board's performance of its responsibilities in the oversight of our Company's business. However, the Committee has not adopted a formal policy with respect to the consideration of diversity. +Specific Qualifications, Attributes, Skills and Experience to be Represented on the Board of Directors +The Corporate Governance Committee believes that the competencies we seek in our directors should support our Company's strategies for long-term success. Below we identify the key qualifications and skills our directors bring to our Board of Directors that we believe are important in light of our business and strategic direction. The particular qualifications and skills that our Board of Directors considered in nominating each individual director nominee are included in the directors' individual biographies below. +11 +Table of Contents +DIRECTOR KEY QUALIFICATIONS AND SKILLS +COMPANY STRATEGY +QUALIFICATIONS, ATTRIBUTES, SKILLS AND EXPERIENCE +Build niche brands into global lifestyle leaders +• Luxury/premium branding experience +• Entrepreneurial +Evolve and grow our multi-channel distribution +• Distribution/logistics expertise +• Retail experience +Pursue new, diverse and sophisticated marketing +• Sales and marketing experience +Grow our global business, involving complex financial transactions +• High level of financial literacy and experience +• International experience +• Public company management experience +Innovate based on our industry expertise +• Industry experience (footwear, apparel, accessories) +Manage risk appropriately in light of our long-term strategic goals +• Risk oversight experience +12 +Table of Contents +2014 NOMINEES FOR DIRECTOR +Name +Age +Director +Since +Occupation +Angel R. Martinez +58 +2005 +Chair of the Board of Directors, CEO & President, Deckers Outdoor Corporation +James Quinn(3) +62 +2011 +Corporate Director +John M. Gibbons(1)(4) +65 +2000 +Corporate Director +John G. Perenchio(2)(3) +58 +2005 +Owner and Co-Manager, Fearless Records LLC and Fearmore Publishing, LLC +Karyn O. Barsa(1)(2) +52 +2008 +Corporate Director +Lauri Shanahan(2) +51 +2011 +Corporate Director, Independent Consultant +Maureen Conners(3) +67 +2006 +President, Conners Consulting +Michael F. Devine, III(1) +55 +2011 +Corporate Director +(1) +Member of Audit Committee +(2) +Member of Compensation Committee +(3) +Member of Corporate Governance Committee +(4) +Lead Director +Our Board of Directors has nominated eight directors for election at the Annual Meeting: Angel R. Martinez, James Quinn, John M. Gibbons, John G. Perenchio, Karyn O. Barsa, Lauri Shanahan, Maureen Conners and Michael F. Devine. Each director nominee currently serves on our Board of Directors. Our Company is not aware of any nominee who will be unable to or will not serve as a director. +The biographies of the director nominees are listed below, along with the specific qualifications, attributes, skills and experience of each director that our Board of Directors considered in nominating the directors. Following the biographies is a chart that summarizes their skills and qualifications. +13 +Table of Contents +ANGEL R. MARTINEZ +Age: 58 +Director Since: 2005 +Chairman of the Board +Chief Executive Officer and President of Deckers Outdoor Corporation +Other Directorships: +Tupperware Brands Corporation +Mr. Martinez has been President and Chief Executive Officer of our Company since April 2005. In September 2005, Mr. Martinez became a director of our Company and in May 2008, he became Chair of our Board of Directors. Subject to his re-election as a director at the Annual Meeting, Mr. Martinez will remain Chair of the Board of Directors. Mr. Martinez has also served as a director of Tupperware Brands Corporation (NYSE:TUP) since 1998. +Specific Qualifications, Attributes, Skills and Experience +• +Industry Experience - Extensive experience in the footwear industry, including serving as Chief Executive Officer and Vice Chair of Keen, LLC, an outdoor footwear manufacturer. Also served in a variety of positions at Reebok International Ltd. and as Chief Executive Officer and President of The Rockport Company, a subsidiary of Reebok. +• +Entrepreneurial - During his tenure at Keen, LLC, successfully established this incipient brand for future growth. +• +Sales and Marketing Experience - Served as Executive Vice President and Chief Marketing Officer of Reebok International Ltd., a global athletic brand that creates and markets sports and lifestyle products. +• +International Experience - Held key management roles at Reebok International, Keen and the Company during periods of international expansion. +• +Luxury/Premium Branding Experience - Nine years of experience with the UGG Australia brand, a premier brand in luxurious comfort footwear, handbags, apparel, and cold weather accessories. Acquired the Ralph Lauren Footwear brand, managed as a subsidiary of The Rockport Co. +• +Retail Experience and Distribution/Logistics Experience - Owned and operated his own retail stores. While President of Rockport, oversaw retail evolution for the brand, including opening over 50 Rockport brand stores. Involved in management of supply chain and distribution channels during his many years of industry experience. +• +Public Company Management Experience - Has served as President and Chief Executive Officer of our Company for 9 years. +• +Risk Oversight Experience - 16 years of experience as a corporate director with risk oversight responsibilities. +JAMES QUINN +Age: 62 +Director Since: 2011 +Other Directorships: +Mutual of America Capital Management, Inc. +Prudential Investments +Board Committees: +Corporate Governance +Mr. Quinn retired as president of Tiffany & Co. [NYSE: TIF] effective January 31, 2012. He was named to Tiffany's board of directors in 1995 and served until 2008. Mr. Quinn also currently serves as a director of Mutual of America Capital Management, Inc. and as a director for Prudential Investments. +Specific Qualifications, Attributes, Skills and Experience +• +Public Company Management Experience - As the former president of Tiffany & Co., oversaw retail sales in Tiffany stores in more than 50 countries, with responsibility for the company's global expansion strategy, including the significant Tiffany presence established throughout Asia. Joined Tiffany in 1986 and held a series of significant positions including Vice Chairman prior to his appointment as president in 2003. +• +Luxury/Premium Branding Experience - Tiffany & Co. is a jeweler and specialty retailer whose principal merchandise offering is fine jewelry. +• +Distribution/Logistics Experience and Retail Experience - At Tiffany & Co., involved in supply chain and retail and other distribution channels. +• +International Experience - While at Tiffany & Co., involved in a global brand with worldwide operations. +14 +Table of Contents +• +Risk Oversight Experience - Over 16 years of experience as a corporate director with risk oversight responsibilities. +JOHN M. GIBBONS +Age: 65 +Director Since: 2000 +Other: +Independent Consultant +Other Directorships: +The Learning Network, Inc. +Board Committees: +Audit +Mr. Gibbons is an independent consultant. He is a director of The Learning Network, Inc. He also served as a director and Chair of the Audit Committee of National Technical Systems, Corp., a provider of integrated testing, certification, quality registration and systems evaluation services, from September 2003 until its acquisition in November 2013. +Specific Qualifications, Attributes, Skills and Experience +• +High Level of Financial Literacy and Experience - Currently serves as a member of our Company's Audit Committee and previously served as Chair of the Audit Committee until 2012. In addition to the positions listed above, from June 2000 to April 2004, Mr. Gibbons was Vice Chair of TMC Communications, Inc., a long distance, data and internet services provider, and was its Chief Executive Officer from June 2001 to April 2003. Mr. Gibbons was also Vice Chair of Assisted Living Corporation, a national provider of assisted living services, from March 2000 to December 2001. +• +Risk Oversight Experience - Extensive experience in risk oversight as a member and the former Chair of our Company's Audit Committee and former Chair of the Audit Committee of National Technical Systems, Corp. +• +Industry Experience - 14-year directorship at our Company. +• +Public Company Management Experience - Is on the board of The Learning Network, Inc. and is also Chief Executive Officer and Chief Operating Officer. Previously employed by The Sports Club Company, a developer and operator of health and fitness clubs which was previously listed on the American Stock Exchange, where he was Chief Executive Officer and a director from July 1999 to February 2000 and was President and Chief Operating Officer from January 1995 to July 1999. +• +Entrepreneurial - Has served in a variety of leadership positions for several companies during periods of expansion. +• +Luxury/Premium Branding Experience - Involved in several different capacities at The Sports Club Company, a company which markets clubs to affluent, health conscious individuals. +JOHN G. PERENCHIO +Age: 58 +Director Since: 2005 +Other: +Private Investor +Board Committees: +Compensation Corporate Governance +Mr. Perenchio is a private investor. Beginning in 1999, he has held controlling interests in and is the principal manager of various music industry companies. Currently he holds controlling interests in and co-manages Fearless Records, LLC, an independent rock music label distributed by Sony-BMG, and Fearmore Publishing, LLC, a music publishing company administered by Warner/Chappell Music, Inc. Since late 2009, Mr. Perenchio has been involved in Club Ride Apparel, LLC, a start-up sports apparel company in which he owns a controlling interest. +Specific Qualifications, Attributes, Skills and Experience +• +Entrepreneurial - Involved in the formation of a myriad of different successful business enterprises, from music to apparel. From 1990 to 2003, served as an executive with Chartwell Partners, LLC, a family owned boutique investment and holding company specializing in the entertainment, media and real estate industries. +• +Industry Experience - Experience in apparel and has been a director of our Company for 9 years. +• +Sales and Marketing Experience - Experience with designing and implementing marketing and sales plans in the music industry, internet retail, real estate industry and the sports apparel industry. +15 +Table of Contents +• +Risk Oversight Experience - In addition to the director and management experiences discussed above, from 1984 to 1990, served as in-house counsel at Triad Artists, Inc., one of the then premier talent agencies in the world, and prior to that, from 1982 to 1984, he practiced law as an attorney in California. +• +Public Company Management Experience - From 1992 to 2007, Mr. Perenchio was a director of Univision Communications Inc., the leading Spanish-language media company in the United States. +KARYN O. BARSA +Age: 52 +Director Since: 2008 +Other Directorships: +The Directors' Organization Ltd. +Board Committees: +Audit +Compensation +Ms. Barsa served as Chief Executive Officer of Coyuchi, Inc., a maker of organic cotton bedding, bath and baby products, from April 2009 to May 2013. From February 2008 to April 2009, she served as President and Chief Executive Officer of Investors' Circle, a network of individual and institutional investors focused on sustainable business practices. She serves on the board of The Directors' Organization Ltd., the advisory board of Embark Stores, Inc., and the advisory board of the Winter Sports School in Park City, UT. +Specific Qualifications, Attributes, Skills and Experience +• +High Level of Financial Literacy and Experience - In addition to the Chief Executive Officer and director positions discussed above, served as Chief Financial Officer of Patagonia, Inc., a specialty outdoor apparel and equipment manufacturer. Also holds a BA in Economics from Connecticut College and an MBA from the University of Southern California. +• +Risk Oversight Experience - Serves as a member of the Audit Committee and serves on the board of The Directors' Organization Ltd. +• +Luxury/Premium Branding Experience - In addition to serving as Chief Executive Officer of Coyuchi, Inc. served as Chief Executive Officer of Smith & Hawken, Ltd., a specialty gardening retailer between 1999 and 2001. +• +Industry Experience - Served as Chief Operating Officer and Chief Financial Officer of Patagonia, Inc. when footwear was introduced. +• +Distribution/Logistics Experience - As Chief Executive Officer of Coyuchi, Inc., Chief Executive Officer of Smith & Hawken, Ltd, and Chief Operating Officer of Patagonia, Inc., gained extensive experience in management of supply chain and distribution issues. +• +Sales and Marketing Expertise - Sales teams reported directly to Ms. Barsa in her roles at Patagonia, Smith & Hawken, and Coyuchi. Direct sales and marketing experience as CEO at Investors' Circle and founder at HeadStart Custom Helmets. +• +Retail Experience - Executive experience at Patagonia, Smith & Hawken and Coyuchi, all companies with an important retail component. +• +Entrepreneurial - Has served in a variety of leadership positions for several companies during periods of expansion, including serving as Chief Executive Officer of Embark Stores, Inc., a start-up pet supplies retailer between May 2007 and February 2008. +LAURI M. SHANAHAN +Age: 51 +Director Since: 2011 +Other Directorships: +Charlotte Russe Holdings, Inc., +Cedar Fair Entertainment Company +Board Committees: +Compensation +Ms. Shanahan is a seasoned retail executive with over 21 years of senior level experience across global, multi-channel, multi-brand enterprises and other specialty retail and consumer service companies. Ms. Shanahan is also on the board of directors and is Chair of the Compensation Committee of Charlotte Russe Holdings, Inc., a specialty retailer of apparel and accessories with over 500 stores, and Cedar Fair Entertainment Company, a publicly traded partnership that owns and operates amusement +16 +Table of Contents +parks and resorts in North America. In addition, Ms. Shanahan is a principal of Maroon Peak Advisors, which provides a broad range of advisory services in the retail and consumer products sector. +Specific Qualifications, Attributes, Skills and Experience +• +Public Company Management Experience - Joined The Gap Inc. [NYSE: GPS] in 1992 and served in numerous leadership roles including Chief Administrative Officer, Chief Legal Officer and corporate secretary. +• +Distribution/Logistics Experience and Retail Experience - Involved in retail and other distribution channels and supply chain while at The Gap Inc. and as a consultant. +• +International Experience— Involved with global brands with worldwide operations while at The Gap Inc. and as a consultant. +• +Industry Experience and Luxury/Premium Branding Experience - Gained experience in footwear, apparel and accessories at The Gap Inc., Charlotte Russe and through consulting business. Gap Inc. is a leading global specialty retailer offering clothing, footwear, accessories, and personal care products for men, women, children, and babies under the Gap, Banana Republic, Old Navy, Piperlime, and Athleta brands. +• +Risk Oversight Experience - In addition to her other leadership roles at The Gap Inc., Ms. Shanahan served as Chief Compliance Officer and Chief Legal Officer where she oversaw the global corporate risk committee as well as the global governance and compliance organization. +MAUREEN CONNERS +Age: 67 +Director Since: 2006 +Other: +President of Conners Consulting +Board Committees: +Corporate Governance +Ms. Conners is President of Conners Consulting, which she founded in 1992. Conners Consulting has worked with companies such as Johnson & Johnson, Ralph Lauren Footwear, Rockport, Hewlett Packard, Monster.com, Polaroid, Bausch and Lomb, Southcorp Wines, and Western Union Money Zap, providing a range of services including marketing and strategic planning, new product and new business development, and global brand building. +Specific Qualifications, Attributes, Skills and Experience +• +Sales and Marketing Experience - Prior to founding Conners Consulting, held senior level marketing positions with several leading consumer companies, including Senior Vice President of Marketing, Girls Division at Mattel. Prior to that, she served as Director of Marketing, Men's Jean's Division at Levi Strauss, and Group Marketing Manager at Gillette. Also has an MBA from the Wharton School of the University of Pennsylvania. +• +Industry and Luxury/Premium Branding Experience - Experience working with a myriad of footwear and apparel companies, including Ralph Lauren Footwear, Rockport and Levi Strauss. +• +International Experience - Worked for the following 3 multi-billion dollar global companies: Gillette, Levi Strauss and Mattel. +• +Entrepreneurial - Experience owning and running her own business as well as working with various startup companies. +• +Risk Oversight Experience - Significant profit and loss responsibility at a number of global companies. +MICHAEL F. DEVINE, III +Age: 55 +Director Since: 2011 +Other Directorships: +Express, Inc. +FIVE Below, Inc. +The Talbots Inc. +Sur La Table, Inc. +Board Committees: +Audit +Mr. Devine retired as Senior Vice President and Chief Financial Officer from Coach, Inc. (NYSE: COH) in 2011. He currently serves as a member of the Board of Directors and Chair of the Audit Committee of Express, Inc. (NYSE: EXPR) and FIVE +17 +Table of Contents +Below, Inc. (NYSE: FIVE). He also serves as a member of the Board of Directors of The Talbots Inc. and Sur La Table, Inc. From 2004 to 2007, Mr. Devine served as a member of the Board of Directors and Chair of the Audit Committee of Educate (formerly NASDAQ: EEEE), a leading K-12 education service company with solutions such as Sylvan Learning Center. Mr. Devine also previously served as a member of the Board of Directors and of the Audit Committee of NutriSystem, Inc. (NASDAQ: NTRI). +Specific Qualifications, Attributes, Skills and Experience +• +High Level of Financial Literacy and Experience - In addition to Mr. Devine's experiences at Coach, Inc. and as a director, prior to joining Coach, served as Chief Financial Officer and Vice President-Finance of Mothers Work, Inc. from February 2000 until November 2001. From 1997 to 2000, was Chief Financial Officer of Strategic Distribution, Inc., a Nasdaq-listed industrial store operator. Previously, was Chief Financial Officer at Industrial System Associates, Inc. from 1995 to 1997, and for the prior 6 years he was the Director of Finance and Distribution for McMaster-Carr Supply Co. Holds a Bachelor of Science degree in Finance and Marketing from Boston College and an MBA in Finance from the Wharton School of the University of Pennsylvania. +• +Public Company Management Experience - Experience at Coach, Inc. involved managing a public company during a period of high growth. +• +Risk Oversight Experience - 9 years of experience as a corporate director with risk oversight responsibilities. +• +Luxury/Premium Branding Experience - Coach, Inc. is a leading marketer of modern classic American accessories. +• +Industry Experience - In addition to experience at Coach, Inc., serves as a director of Express, Inc., a nationally recognized specialty apparel and accessory retailer offering both women's and men's merchandise. +• +Distribution/Logistics Experience and Retail Experience - Involved in supply chain and wholesale and retail distribution channels while at Coach, Inc. +• +International Experience - Involved in a global brand with worldwide operations while at Coach, Inc. +Summary of Qualifications of 2014 Nominees for Director +The table below summarizes the specific qualifications, attributes, skills and experience of each director that led our Board of Directors to conclude that the director is qualified to serve on our Board of Directors. While we look to each director to be knowledgeable in each of these areas, an "X" in the chart below indicates that the item is a specific qualification, attribute, skill or experience that the director brings to our Board of Directors. The lack of an "X" for a particular item does not mean that the director does not possess that qualification, attribute, skill or experience. +18 +Table of Contents +Summary of Director Skills and Qualifications +Angel R. +Martinez +John M. +Gibbons +Karyn O. +Barsa +Maureen +Conners +Michael F. +Devine +John G. +Perenchio +James +Quinn +Lauri M. +Shanahan +Luxury/Premium Branding Experience +X +X +X +X +X +X +X +Entrepreneurial +X +X +X +X +X +Distribution/Logistics Experience +X +X +X +X +X +Retail Experience +X +X +X +X +X +Sales and Marketing Experience +X +X +X +X +High Level of Financial Literacy and Experience +X +X +X +International Experience +X +X +X +X +X +Public Company Management Experience +X +X +X +X +X +X +Industry Experience (footwear, apparel, accessories) +X +X +X +X +X +X +X +Risk Oversight Experience +X +X +X +X +X +X +X +X +BOARD RECOMMENDATION +THE BOARD OF DIRECTORS RECOMMENDS A VOTE +"FOR" THE ELECTION OF EACH OF THE ABOVE NOMINEES FOR DIRECTOR NOMINEES. +19 +Table of Contents +CORPORATE GOVERNANCE +Corporate Governance Principles +Pursuant to Delaware law and our Company's Bylaws, our Company's business, property and affairs are managed under the direction of the Board of Directors. Thus, our Board of Directors is the ultimate decision-making body of our Company except with respect to those matters reserved to the stockholders. +Our Board of Directors selects the senior management team, which is charged with the day-to-day operations of our Company's business. Members of our Board of Directors are kept informed of our Company's business through discussions with our Chief Executive Officer and other senior management personnel, by reviewing materials requested by them or otherwise provided to them and by participating in meetings of the Board of Directors and its committees. Having selected the senior management team, our Board of Directors acts as an advisor and counselor to senior management, monitors its performance and proposes or makes changes to the senior management team when it deems necessary or appropriate. +Director Independence +Director independence is determined by the listing rules of the various securities exchanges as well as by the rules and regulations of the SEC. Historically, our shares have been listed for trading with the NASDAQ Stock Market LLC (Nasdaq) and we have complied with the director independence requirements set forth in the Nasdaq Listing Rules. On March 19, 2014, our Board of Directors approved a transfer of the listing of our shares to the New York Stock Exchange (NYSE), which we expect will be effective in May 2014. Accordingly, following the effective date of the transfer, the director independence requirements set forth in the NYSE Listed Company Manual will be applicable to our directors. We will also continue to be subject to certain director independence requirements set forth in the SEC rules and regulations. +The director independence requirements are set forth in our Corporate Governance Guidelines and are posted on our website at www.deckers.com/investors . These guidelines help ensure that our Board of Directors and its committees are independent from management, that the interests of our Board of Directors and management align with the interests of the stockholders, and that we are complying with applicable securities exchange rules and regulatory requirements. We expect that we will amend the Corporate Governance Guidelines in connection with the transfer of our listing to the NYSE, and any amendments will be posted on our website. +Based on the director independence requirements set forth in the Corporate Governance Guidelines, as well as in the applicable Nasdaq, NYSE and SEC rules, our Board of Directors has determined that each of our directors, other than Mr. Martinez, is an "independent director". +Board of Directors Meetings +For the fiscal year ended December 31, 2013, each of the directors attended at least 75% of the meetings of our Board of Directors and of the meetings of the committees of our Board on which he or she served. Time is scheduled for our independent directors to meet in an executive session at every Board meeting. As Lead Director, Mr. Gibbons presided at these executive sessions. +Our Company's Corporate Governance Guidelines states that directors are expected to attend our Company's annual meeting of stockholders. The majority of the members of the then Board of Directors attended the 2013 Annual Meeting of Stockholders held in 2013. +Committees of the Board of Directors +Our Board of Directors has three standing committees: +• Audit Committee +• Compensation Committee +• Corporate Governance Committee +20 +Table of Contents +At the date this Proxy Statement was made available to stockholders, membership of the committees was as listed below. +BOARD OF DIRECTORS +(5 Meetings) +John M. Gibbons (Lead Director) +Audit Committee +(10 Meetings) +Compensation Committee +(7 Meetings) +Corporate Governance Committee +(4 Meetings) +Michael F. Devine, III (Chair) +Lauri Shanahan (Chair) +James Quinn (Chair) +John M. Gibbons +John Perenchio +John G. Perenchio +Karyn O. Barsa +Karyn Barsa +Rex A. Licklider +Maureen Conners +Audit Committee +The Audit Committee oversees: +◦ +management's conduct of, and the integrity of, our Company's financial reporting to any governmental or regulatory body, stockholders, the public and any other uses of Company financial reports; +◦ +our Company's systems of internal controls and procedures over financial reporting and disclosure; +◦ +the qualifications, engagement, compensation, independence and performance of the independent registered public accounting firm that shall audit the annual financial statements of our Company and review the quarterly financial statements and any other registered public accounting firm engaged to prepare or issue an audit report or to perform other audit, review or attest services for our Company; +◦ +our Company's legal and regulatory compliance; +◦ +the application of our Company's related person transaction policy as established by our Board of Directors; and +◦ +the applications of our Company's Code of Ethics as established by management and our Board of Directors. +Our Board has determined that Mr. Devine qualifies as an "audit committee financial expert" as defined under the rules of the SEC. All of the members of the Audit Committee meet the independence and experience requirements of the Nasdaq Listing Rules, the NYSE Listed Company Manual and the independence requirements of the SEC. The Audit Committee operates under a formal charter adopted by our Board of Directors, a copy of which is available on our website at www.deckers.com/investors . +Compensation Committee +The Compensation Committee: +◦ +reviews and approves corporate goals and objectives relevant to compensation of our executive officers; +◦ +evaluates the performance of our executive officers in light of those goals and objectives; +◦ +determines and approves the compensation level of our executive officers based on this evaluation; +◦ +makes recommendations to our Board of Directors with respect to incentive-compensation plans including equity-based plans; +◦ +produces an annual report on executive compensation for inclusion in our Company's proxy statement for our annual meeting of stockholders; and +◦ +consults with and seeks advice from the Company’s senior management regarding appropriate employment planning and incentives for a higher-performing workforce. +The Compensation Committee also reviews and recommends to our Board of Directors any new compensation or retirement plans and administers our Company's 2006 Equity Incentive Plan (the "2006 Plan"). All of the members of the Compensation Committee meet the independence requirements of all applicable Nasdaq Listing Rules and the NYSE Listed +21 +Table of Contents +Company Manual. The Compensation Committee operates under a formal charter adopted by our Board of Directors, a copy of which is available on our website at www.deckers.com/investors . +Corporate Governance Committee +The Corporate Governance Committee: +◦ +develops and recommends to our Board of Directors a set of Corporate Governance Guidelines applicable to our Company; +◦ +recommends the director nominees to be selected by our Board of Directors for the next annual meeting of stockholders; +◦ +identifies individuals qualified to become directors, consistent with criteria specified in the Corporate Governance Guidelines; +◦ +recommends to the directors membership of the Committees of our Board of Directors; +◦ +ensures that our Company's Certificate of Incorporation and Bylaws are structured in a way that best serves our Company's practices and objectives and recommends to the Board, as conditions dictate, that it proposes amendments to our Company's Certificate of Incorporation and Bylaws; +◦ +oversees the evaluation of our Board of Directors and Committees of our Board of Directors; +◦ +oversees and approves the management continuity planning process; and +◦ +reviews and evaluates the development and succession plans relating to the CEO and our Company's other executive officers. +All of the members of the Corporate Governance Committee meet the independence requirements of all applicable Nasdaq Listing Rules and the NYSE Listed Company Manual. The Corporate Governance Committee operates under a formal charter adopted by our Board of Directors, a copy of which is available on our website at www.deckers.com/investors . +Nominating Procedures and Criteria +Among its functions, the Corporate Governance Committee considers and approves nominees for election to our Board of Directors. In addition to the candidates proposed by our Board of Directors or identified by the Committee, the Committee considers candidates for director proposed by our stockholders, provided such recommendations are made in accordance with the procedures set forth in our Bylaws and described above under " How can stockholders nominate a candidate for election as a director? ". Stockholder nominations that meet the criteria outlined below will receive the same consideration that the Committee's nominees receive. +Essential criteria for all candidates considered by the Corporate Governance Committee are discussed above under "Qualifications for All Directors." In evaluating candidates for certain Board positions, the Committee also evaluates additional criteria, as discussed above under "Specific Qualifications, Attributes, Skills and Experience to be Represented on the Board of Directors." +In selecting nominees for our Board of Directors, the Corporate Governance Committee evaluates the general and specialized criteria set forth above, identifying the relevant specialized criteria prior to commencement of the recruitment process, and considers the candidate's ability to contribute to the success of our Company. In evaluating an existing director for re-election, the Corporate Governance Committee considers Board and committee meeting attendance, previous performance, the length of service on our Board of Directors, experience, skills and contributions brought to our Board of Directors, and independence. +The Board of Directors' nominees for the Annual Meeting have been recommended by the Corporate Governance Committee, as well as the full Board of Directors. +As of the date this Proxy Statement was made available to our stockholders, had not proposed any candidates for election at the Annual Meeting. +Corporate Governance Guidelines +Our Board of Directors has adopted Corporate Governance Guidelines that set forth the primary framework of governance principles applicable to our Company. The Corporate Governance Guidelines outline the general principles +22 +Table of Contents +regarding the role and functions of the Board of Directors including: (i) director qualifications, (ii) director independence, (iii) Board meetings, (iv) Board committees, (v) the Chair and Lead Director of our Board of Directors, (vi) director access to officers, employees, and independent advisers, (vii) interaction with stockholders and other constituents, (viii) director compensation, (iv) director orientation and continuing education, (x) adoption of stockholder rights plans, (xi) establishment of evaluation of the Chief Executive Officer and management succession, (xii) annual Board self-evaluations, (xiii) ethical expectations, (xiv) and monitoring reports of irregularities. The complete copy of our Company's current Corporate Governance Guidelines is available on our website at www.deckers.com/investors . +Management Succession +Pursuant to our Corporate Governance Guidelines, the Corporate Governance Committee provides an annual report to our Board of Directors on emergency and expected Chief Executive Officer succession planning. Our Board of Directors works with the Corporate Governance Committee to nominate and evaluate potential successors to the Chief Executive Officer. The Chief Executive Officer provides the Corporate Governance Committee with his input as to potential successors. +Board Leadership Structure and Lead Director +We have employed a leadership structure utilizing a combined Chair and Chief Executive Officer for many years and our Board of Directors believes that this leadership structure has been effective. The combined Chair and Chief Executive Officer provides a single leader for us who is seen by our employees, customers, business partners and stockholders as providing clear direction and strong leadership. Furthermore, our Board of Directors believes this structure facilitates communication between our Board of Directors and our management. In light of this combined office, our Board of Directors has implemented various counterbalancing governance structures including a Lead Director, a seven-eighths independent board, committees of the Board of Directors comprised solely of independent directors, and the Corporate Governance Guidelines discussed above. +In 2008, our Board of Directors established the position of Lead Director. In 2012, our Board of Directors elected Mr. Gibbons as the Lead Director, for a two-year term and in March 2014, our Board of Directors re-elected Mr. Gibbons as the Lead Director, pending his re-election to our Board. Pursuant to our Corporate Governance Guidelines, the Lead Director is an independent director who is selected for a two-year term by the independent directors on our Board of Directors. The Lead Director's responsibilities include (i) coordinating the scheduling and preparation of agendas for the executive sessions of our Board and other meetings of our Board in the absence of the Chair of the Board, (ii) chairing executive sessions of our Board and other meetings of our Board in the absence of the Chair of the Board, (iii) approving information sent to our Board, (iv) serving as a liaison between the Chair of our Board and the other independent directors, (v) approving the meeting agendas for our Board and approving the meeting schedules of our Board to assure that there is sufficient time for discussion of all agenda items, and (vi) if requested by major stockholders, ensuring that he or she will be available for consultation and direct communication with such major stockholders. The Lead Director has the authority to call meetings of independent directors. +Board Role in Risk Oversight +While risk management is primarily the responsibility of our management, our Board of Directors is responsible for the overall supervision of our business, an important element of which is supervision of our risk management activities. Our Board of Directors delegates many of these functions to the Audit Committee. Under its charter, the Audit Committee is responsible for: (i) reviewing and discussing with management, the highest ranking manager of internal audit and the independent registered public accounting firm our Company's financial risk exposures and assessing the policies and processes management has implemented to monitor and control such exposure; (ii) assisting our Board in fulfilling its oversight responsibilities regarding our policies and processes with respect to risk assessment and risk management, including any significant non-financial risk exposures; and (iii) reviewing our annual disclosures concerning the role of our Board in the risk oversight of our Company, such as how our Board administers its oversight function. The Audit Committee also oversees our internal audit function. In addition to the Audit Committee's work in overseeing risk management, our full Board of Directors regularly engages in discussions of the most significant risks that we face and how these risks are being managed, and our Board receives reports on risk management from the Chair of the Audit Committee. +Our legal and internal audit executives report directly to the Audit Committee regarding material risks to our business, among other matters, and the Audit Committee meets in executive sessions with the internal audit executive and with representatives of our independent registered public accounting firm. The Chair of the Audit Committee reports to the full Board of Directors regarding material risks as deemed appropriate. Every Board meeting agenda also includes a time to discuss risk management updates. In addition to the responsibilities undertaken by the Audit Committee, the other Board committees have oversight of specific risk areas, consistent with the committees' charters and responsibilities. For example, the Compensation Committee oversees the design of our executive compensation program so as to mitigate compensation-related +23 +Table of Contents +risk and our Corporate Governance Committee develops our Corporate Governance Guidelines to establish appropriate governance practices. +Compensation Committee Interlocks and Insider Participation +As of the date on which this Proxy Statement was made available to our stockholders, no member of the Compensation Committee is serving, and during the past year no member of the Compensation Committee has served, as an officer or employee of our Company or any of its subsidiaries. None of these members had any relationship with our Company during 2013 requiring disclosure under Item 404 of Regulation S-K. None of our executive officers currently serves, or in the past year has served, as a member of our Board of Directors or compensation committee (or other committee serving a similar purpose) of any entity that has an executive officer serving on our Board of Directors or Compensation Committee. We have entered into an indemnification agreement with each of our directors, including each member of the Compensation Committee. +Communications with Directors +Stockholders may communicate with the Chair of the Audit Committee, Corporate Governance Committee, or Compensation Committee, or with our independent directors as a group, by writing to any such person or group. +Communications should be sent c/o the Corporate Secretary, at our Company's offices at: +250 Coromar Drive, Goleta, California 93117. +Communications are distributed to our Board of Directors, or to any individual director, depending on the facts and circumstances described in the communication. In that regard, our Board of Directors has requested that certain items that are unrelated to the duties and responsibilities of our Board of Directors should be excluded, including the following: junk mail and mass mailings; product complaints; product inquiries; new product suggestions; resumes and other forms of job inquiries; surveys; and business solicitations or advertisements. In addition, material that is unduly hostile, threatening, illegal or similarly unsuitable will not be distributed, with the provision that any communication that is not distributed will be made available to any independent director upon request. +Code of Ethics and Accounting and Finance Code of Ethics +Our Company has adopted a Code of Ethics to help its officers, directors and other employees comply with the law and maintain the highest standards of ethical conduct. The Code of Ethics contains general guidelines for conducting the business of our Company consistent with the highest standards of business ethics. All of our Company's officers, directors and employees must carry out their duties in accordance with the policies set forth in the Code of Ethics and with applicable laws and regulations. The Code of Ethics complies with the requirements set forth in the Nasdaq Listing Rules. We expect that we may amend the Code of Ethics in connection with the transfer of our listing to the NYSE. +Our Board has also adopted an Accounting and Finance Code of Ethics which focuses on the financial reporting process and applies to our Company's CEO, CFO and Corporate Controller (and other officers serving similar functions) and is intended to qualify as a "code of ethics" within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder. To the extent required by law, any amendments to, or waivers from, any provision of the Code of Ethics or the Accounting and Finance Code of Ethics will be promptly disclosed publicly on our corporate website. +Both our Code of Ethics and our Accounting and Finance Code of Ethics are available on our website at www.deckers.com/investors . +24 +Table of Contents +EXECUTIVE OFFICERS +Executive Officer +Age +Position +Angel R. Martinez +58 +Chair of the Board of Directors, Chief Executive Officer and President +Thomas A. George +58 +Chief Financial Officer +Zohar Ziv +62 +Chief Operating Officer +Constance X. Rishwain +56 +President of UGG and Fashion and Lifestyle Brands +Peter K. Worley +53 +President, Asia Pacific +Stephen M. Murray +54 +President, EMEA +David Powers +47 +President of OmniChannel +Each executive officer of our Company serves at the discretion of our Board of Directors. Biographical information for our executive officers as of the date this Proxy Statement was made available to stockholders, is set forth below. There are no family relationships between any executive officer and any other executive officer or director. None of our executive officers were selected pursuant to any arrangement or understanding, other than with the executive officers of our Company acting within their capacity as such. There are no legal proceedings related to any of the executive officers which must be disclosed pursuant to Item 401(f) of Regulation S-K. +ANGEL R. MARTINEZ +The biographical summary for Mr. Martinez is presented earlier under the heading "2014 Nominees for Director." +THOMAS A. GEORGE +Mr. George has been our Chief Financial Officer since September 2009. He has over 30 years of experience in corporate finance and accounting, having served in a number of senior level positions with both public and private companies. Most recently, from February 2005 to September 2009, Mr. George was Chief Financial Officer of Ophthonix, Inc., a private technology company. Prior to Ophthonix, from October 1997 through February 2005, Mr. George was the Chief Financial Officer of publicly held Oakley, Inc., now a division of Luxottica Group S.p.A. (NYSE:LUX), a global consumer products brand with wholesale and retail distribution of multiple product categories including sunglasses and prescription eyewear, apparel, footwear, watches and electronics. Prior to Oakley, from December 1987 through October 1997 Mr. George was the Senior Vice President and Chief Financial Officer of REMEC, Inc., a public technology company. Mr. George has also served as Corporate Controller and Manager of Financial Planning for other public technology firms. He began his career at Coopers & Lybrand where he became a Certified Public Accountant. He received a BS in Business Administration from the University of Southern California. +ZOHAR ZIV +Mr. Ziv has been our Chief Operating Officer since December 2007 after serving as Chief Financial Officer and Executive Vice President, Finance and Administration since March 2006. Mr. Ziv also served as interim Chief Financial Officer after his promotion to Chief Operating Officer from December 2007 to April 2008. Mr. Ziv is a director of Dash Brands Ltd. and a Vice Chairman of Outdoor Industry Association. From February 2004 to December 2005, Mr. Ziv was Chief Financial Officer with EMAK Worldwide, Inc. (NASDAQ: EMAK), a global marketing services firm. Prior to that, Mr. Ziv was Chief Financial Officer of Stravina Operating Company, LLC, a supplier of personalized novelty items in North America, from June 2002 to February 2004. +25 +Table of Contents +CONSTANCE X. RISHWAIN +Ms. Rishwain was promoted to President of UGG and Fashion and Lifestyle Brands in January 2014. She has been the President of UGG Australia since December 2002 and the President of Tsubo since 2013. She also served as President of Simple from December 2002 to December 2009. Prior to her promotion to President in December 2002, she served as the Vice President, Brand Manager of UGG since April 1999 and Vice President, Brand Manager of Simple since January 2001. Ms. Rishwain held the positions of Vice President of Domestic Sales for Teva, UGG and Simple from June 1999 to December 1999, Vice President of Sales - Western Division for Teva, UGG and Simple from December 1997 to June 1999 and Vice President Merchandising for Teva, UGG and Simple from January 1995 to December 1997. Before joining us in January 1995, Ms. Rishwain held the position of Vice President of Merchandising and Marketing for Impo International Shoe Company from 1988 to 1994 and worked for Nine West Group Inc. from 1984 to 1988 in several capacities, including Vice President Merchandising of Nine West retail division. +PETER K. WORLEY +Mr. Worley was made President of Deckers Asia Pacific effective as of January 1, 2012. From March 2006 to December 2011, Mr. Worley served as President of Teva. From October 2005 to March 2006, Mr. Worley served as Vice President of US Sales with K-Swiss, Inc. From May 1996 to October 2005, Mr. Worley was Vice President of Product Design and Development with K-Swiss. From 1991 to 1996, and from 1986 to 1989, Mr. Worley held various managerial positions with Reebok International Ltd. +STEPHEN M. MURRAY +Mr. Murray joined our Company as President of Europe, Middle East and Africa (EMEA) in May 2011. On February 27, 2014, our Company announced that Mr. Murray will be stepping down from his position effective December 31, 2014. He will remain employed with our Company through the end of 2014 to assist in our Company’s transition process. Prior to joining our Company, Mr. Murray served as Global President of Urban Outfitters Inc. (NASDAQ: URBN) from April 2010 to May 2011. Prior to Urban Outfitters Mr. Murray, was at VF Corporation, where he served as President, VF Action Sports Coalition since February 2009, overseeing the Vans and Reef brands. Prior to assuming that role, Mr. Murray was President of VF's Vans brand from 2004 to 2009. Mr. Murray had been the Chief Marketing Officer for Vans, Inc. from 2002 to 2004 and Senior Vice President, International from 1998 to 2002. Prior to joining Vans, Inc., Mr. Murray held various leadership roles, including Vice President of Global Apparel in the U.S. and abroad for Reebok International, Ltd. from 1991 to 1998. Mr. Murray holds a BA in Business Studies from Middlesex University, England. +DAVID POWERS +Mr. Powers was promoted to President of OmniChannel in January 2014. He joined our Company as President of Direct-to-Consumer in August 2012. Prior to joining our Company, Mr. Powers served as Vice President of Global Direct to Consumer and Licensed Retail for Converse, a division of Nike, Inc. (NYSE: NIKE), since 2008. Prior to Converse, Mr. Powers served as Worldwide General Merchandise Manager at Timberland. +26 +Table of Contents +COMPENSATION DISCUSSION AND ANALYSIS +The Compensation Committee, which we refer to as the Committee for purposes of this Compensation Discussion and Analysis, is responsible for the compensation of our Named Executive Officers (defined below). In this section we discuss and analyze the compensation of our principal executive and principal financial officers and our three other most highly compensated executive officers for the fiscal year ended December 31, 2013, which we refer to as the "Named Executive Officers." This section is divided into the following five parts: +• +Executive Summary +• +Compensation Philosophy and Objectives +• +Compensation Consultant and Market Comparisons +• +2013 Executive Compensation Elements +• +Other Compensation Considerations +Our Named Executive Officers for 2013 were the following: +• +Mr. Angel R. Martinez +Chair of the Board of Directors, Chief Executive Officer and President +• +Mr. Thomas A. George +Chief Financial Officer +• +Mr. Zohar Ziv +Chief Operating Officer +• +Ms. Constance X. Rishwain +President of UGG and Fashion and Lifestyle Brands +• +Mr. David Powers +President of OmniChannel +27 +Table of Contents +EXECUTIVE SUMMARY +The 2013 Fiscal Year in Review +Through the outstanding work of our employees and leadership team, we delivered record revenue of $1.557 billion and invested in our brands and distribution channels to build a more diversified global business that we believe is well positioned for growth in the years ahead. Highlights for the year include: +Evolving Our Product Lines +• Featured a robust and diverse 2013 UGG brand line +• Infused newness in Women's Heritage for UGG Brand, both Speciality Classics and Slippers. The newness provides a reason for the consumer to buy each season +• Our other brands developed compelling products that leverage their individual strengths and unique market positions +Investing in Our Brands and People +• Enhanced UGG brand marketing around "Feels Like Nothing Else" message +• Continued to invest in our employees to increase shareholder value +• Restructured our organization in early 2014, including the promotions of Dave Powers to newly created position of President of OmniChannel and Constance Rishwain to President of UGG and Fashion and Lifestyle Brands +Pursuing Our OmniChannel Strategy +• Realigned our resources to optimize the advantages of an OmniChannel approach to accelerate growth +• Expanded our global footprint in a strategic and measured manner +• Elevated the in-store and online experience to better serve the consumer +• Ended 2013 with 117 company owned retail stores after opening 40 in 2013 +• E-Commerce sales increased 29.8% +Financial Success +• Our net sales increased 10.1% to a record $1.557 billion, marking over a decade of year-over-year top line growth +• Our diluted earnings per share was $4.18 compared to $3.45 last year +• Our earnings before interest, taxes, depreciation and amortization (EBITDA) was $252 million compared to $230 million last year +• Our earnings per share grew at more than twice the rate of net sales as we were able to expand gross margins 260 basis points over 2012 levels +Our strong performance over the past five years is further illustrated by the financial metrics in the graphs below. +28 +Table of Contents +We Pay for Performance +Our executive compensation program is designed to pay for performance. Our program design consists of two categories: Core Program and Aspirational Program. Our Core Program is designed to reward the achievement of our goals for the year, which are set at a stretch, but also achievable performance levels. Our Aspirational Program is designed only to reward exceptional performance that is expected to be in the top quartile versus peers. +29 +Table of Contents +Program +Program Element +Core Program +Base Salary & Benefits +Annual Cash Incentive +NSU Equity Incentive +Aspirational Program +LTIP Equity Incentive +As illustrated below, during fiscal 2013, approximately 70% of our Chief Executive Officer's targeted total compensation was through our Core Program and approximately 30% was through our Aspirational Program. Targeted pay below consists of salary, benefits, annual cash incentive plan, NSU Equity Incentive awards, and LTIP Equity Incentive awards. The NSU Equity Incentive awards and the LTIP Equity Incentive awards at target are based on achievement of 100% of the relevant performance criteria. +While our Chief Executive Officer's LTIP Equity Incentive awards at target are illustrated below, because the performance goals for these awards are set at such an aspirational level, the grant date fair value of these awards expressed in the Summary Compensation Table is only deemed probable at the threshold level. At target our Chief Executive Officer's LTIP Equity Incentive awards expressed below are valued at $1,690,400 and the grant date fair value at threshold expressed in the Summary Compensation Table is $845,200. +30 +Table of Contents +Our fiscal 2013 financial and operating performance, along with the individual performance of our executive officers, served as key factors in determining compensation for 2013, including as follows: +Program Element +Performance Criteria +2013 Pay for Performance Results +Core Program +Annual Cash Incentive +•Combination of EBITDA targets and individual financial and non-financial performance goals +•Met EBITDA target. Individual financial and non-financial goals paid out according to plan metrics. +NSU Equity Incentive +•Fiscal year 2013 one-year diluted earnings per share targets +•Met 2013 EPS goals. NSUs therefore earned, and will begin to vest over period of 3 years. +Aspirational Program +LTIP Equity Incentive +•Aspirational Fiscal year revenue and EBITDA targets through 2016 +•These awards may be received, if earned based on Fiscal Year performance through 2016, 3.25 years after grant. +•Because the performance goals for these awards are set at such an aspirational level, the grant date fair value of these awards is only deemed probable at the threshold level. +We believe that these metrics provide for a balanced approach to incentivizing and measuring annual and long-term Company performance and are designed to align our executive compensation policies with our Company's strategic objectives, which may be quantitative or qualitative in nature. +Furthermore, our executive compensation mix is heavily weighted toward performance-based compensation, and limits guaranteed annual pay. At the same time, we review annually the mix between guaranteed pay and at-risk pay and establish appropriate performance targets so as to mitigate our compensation-related risk. +For example, as illustrated in the chart below, the targeted guaranteed pay (base salary and all other compensation) of our Chief Executive Officer is only approximately 21% of his potential 2013 compensation and approximately 79% is at-risk and dependent on Company or individual performance. This chart reflects the 2013 LTIP awards at target but not LTIP awards received in previous years. +31 +Table of Contents +Due to the strong pay-for-performance relationship that our compensation philosophy requires, the amount of pay realized by our Chief Executive Officer at payout is not necessarily equal to, and may be significantly less than, the pay opportunity targeted for our Chief Executive Officer. This is due to the high portion of his compensation that is at-risk and in particular due to the use of our LTIP Equity Incentive awards, which only pay out if "aspirational" company goals are achieved. +The charts below illustrate our CEO's targeted pay over the last 3 years versus his realized pay. Targeted and realized pay below consists of salary, benefits, annual cash incentive plan, NSU Equity Incentive awards, and LTIP Equity Incentive awards. For the targeted pay calculations below, the NSU Equity Incentive awards and the LTIP Equity Incentive awards are based on achievement of 100% of the relevant performance criteria. For the realized pay calculations below, the NSU Equity Incentive awards are based on actual achievement of the performance criteria and the LTIP Equity Incentive awards are based on actual achievement probability as of December 31 of the year such awards were granted. +32 +Table of Contents +We Have Adopted Other Compensation Practices that Benefit our Stockholders +• +No excise tax gross-ups as a result of termination following a change of control. +• +Stock ownership guidelines for our Named Executive Officers and directors . +• +Adopted a Clawback Policy related to our equity incentive awards granted after 2011. +• +Our insider trading policy prohibits our directors, Named Executive Officers, and other key executives from hedging the economic interest in the Company securities that they hold and from engaging in speculative transactions with respect to our stock, from holding Company securities in margin accounts, from short sales, and from using stock as collateral for a loan. +• +Generally, we do not provide our US-based executives benefits or perquisites that are not provided to all employees. Benefits or perquisites provided to our executives outside of the US are commensurate with local pay practices. +33 +Table of Contents +COMPENSATION PHILOSOPHY AND OBJECTIVES +At the direction of our Board of Directors, the Committee endeavors to ensure that the compensation programs for our executive officers are competitive and consistent with market conditions in order to attract and retain key executives critical to our Company's long-term success. When reviewing and approving our executive compensation program, the Committee is guided by the following four principles: +• +Attract key executives with the proper background and experience required for the future growth of our Company +• +Align the interests of our executives with our stockholders by tying a significant portion of total compensation to our overall financial performance and the creation of long-term stockholder value +• +Provide a significant proportion of potential total compensation through variable, performance-based components that are at-risk, which can increase or decrease to reflect achievement of pre-established Company and individual goals that the Committee believe are important to the Company's long-term success +• +Provide incentives for achieving both short-term and long-term Company goals +The Committee takes into account various qualitative and quantitative indicators of Company and individual performance in determining the level and structure of compensation for the Named Executive Officers, as well as other executive officers. The Committee considers such Company performance measures as net sales, operating expenses, diluted earnings per share, EBITDA, and other similar quantitative measures. The Committee also appreciates the importance of achievements that may be difficult to quantify, and accordingly recognizes qualitative factors. For 2013, the most important qualitative factors in determining incentive compensation awards to our Named Executive Officers were the Committee's assessment of their contributions to our Company's achievement of certain strategic goals. +The Committee also evaluates the total compensation of our Named Executive Officers and other executives in light of information regarding the compensation practices and corporate financial performance of similar companies in our Company's industry. As the starting point for its analysis, the Committee generally targets a specific percentile range of the peer company data in determining compensation for executive officers as discussed in more detail below. +34 +Table of Contents +COMPENSATION CONSULTANT AND MARKET COMPARISONS +Compensation Consultant +The Committee receives assessments and advice regarding our Company's compensation practices and philosophy from its independent compensation consultant, Frederic W. Cook & Co., Inc. (FWC). While our Company is not obligated to retain an independent compensation consultant, the Committee believes that the use of an independent consultant provides additional assurance that our executive compensation programs are competitive and consistent with market conditions, as well as consistent with our objectives. +In accordance with applicable SEC rules, the Committee took certain factors, which it believes may affect the independence of a compensation consultant, into consideration when selecting FWC. In particular, at a meeting of the Committee, the Committee discussed: (i) whether any other services had been or were being provided by FWC to the Company, (ii) the amount of fees paid by our Company to FWC as a percent of FWC's total revenues, (iii) FWC's policies and procedures designed to prevent conflicts, a copy of which was provided to the Committee prior to the meeting, (iv) FWC's ownership of Company stock, and (v) any business or personal relationships between FWC and any Committee members or our Company's executive officers. Following the consideration of these factors, and such additional factors as the Committee deemed appropriate under the circumstances, the Committee made an affirmative determination that FWC is independent and unanimously approved the engagement of FWC. +FWC was retained by and reports directly to the Committee. FWC provides information on competitive practices and trends in our industry and makes recommendations regarding the design of our compensation program. Our management did not engage FWC in any other capacity for 2013 and does not direct or oversee the retention or activities of FWC with respect to our executive compensation program. Furthermore, management did not recommend the engagement of FWC. +Market Comparisons +In making compensation decisions, the Committee compares each element of total compensation, as well as total direct compensation, against a peer group of publicly traded footwear and apparel companies that was recommended by FWC and approved by the Committee (collectively, the "Peer Group"). The Peer Group is comprised of companies against which the Committee believes our Company competes for executive talent and stockholder investment. Specifically, the Peer Group includes companies that are in related businesses and of similar size and market value. The Peer Group is reviewed and updated at least annually by the Committee. The Peer Group used for 2013 consisted of the following 12 companies: +s Columbia Sportwear Company +s Wolverine World Wide, Inc. +s Crocs, Inc. +s Fossil, Inc. +s Sketchers U.S.A., Inc. +s Lululemon Athletica, Inc. +s Steven Madden, Ltd. +s Guess, Inc. +s Oxford Industries, Inc. +s Quiksilver, Inc. +s Under Armour, Inc. +s Warnaco Group, Inc. +For comparison purposes, at the time 2013 target compensation was established, our Company's annual revenues were slightly below the median of the Peer Group, our Company's net income was above the median of the Peer Group, and our Company's market capitalization was below the median of the Peer Group. The Committee utilizes compensation data gathered from the Peer Group as an initial starting point in making compensation decisions for our Named Executive Officers. The table below illustrates the Peer Group compensation percentile that is targeted by the Committee with respect to the various elements of our compensation program, including the Core Program and the Aspirational Program. For purposes of this analysis, note that we assume achievement at the threshold amount for the LTIP awards. +35 +Table of Contents +Program Element +Peer Group Target +Core Program +Base Salary +Median to 75th Percentile +Annual Cash Incentive +NSU Equity Incentive +Aspirational Program +LTIP Equity Incentive +75th to 100th Percentile +We believe that targeting the median to 75th percentile of Peer Group compensation for the Core Program is appropriate because such levels provide the foundation for a competitive pay package that is necessary to attract, incent and retain executives with the experience required to drive our future growth. We believe that targeting the 75th to 100th percentile of Peer Group compensation for our overall compensation package, including the Core Program and the Aspirational Program, is appropriate because the performance goals that must be met in order to earn the LTIP awards are set at a level that we believe represents top quartile Company financial performance. We believe it also allows our Company to attract and retain the qualified executives necessary to attain top quartile performance. As demonstration of the top quartile performance required for our LTIP awards to be earned, we note that the grant date fair value of the 2013 LTIP awards as shown in the Summary Compensation Table reflects that the awards are only deemed probable at the threshold (and not the target or maximum) level. +While the Committee primarily relies on information provided with respect to the entire Peer Group when assessing compensation practices and setting targeted compensation levels, it also considers information provided from a more targeted group of six companies within the Peer Group that have a significant footwear component to their business. The Committee believes this further assessment is constructive in that it provides an additional point of comparison from a more specifically defined set of peer group companies, but ultimately the Committee’s compensation decisions are made by reference to the full Peer Group. +While the Committee relies on compensation information from the Peer Group (including the more targeted peer group discussed above) as a starting point in its executive compensation decision-making process, the Committee also continues to exercises its judgment and retains considerable discretion. In particular, the Committee considers a variety of additional factors when setting compensation levels, including recent and projected Company performance, recent individual performance, individual performance expectations, general industry practices and general economic conditions. +Following the end of each year, the Committee reviews where actual compensation falls relative to targeted levels to ensure actual compensation is aligned with Peer Group targets as well as our compensation philosophy and objectives. 2013 total cash compensation, consisting of base salary and annual cash incentive plan awards, was 5% above the 75th percentile for our Chief Executive Officer and between 4 and 43% less than the 75th percentile for our other Named Executive Officers. 2013 total compensation, consisting of base salary, annual cash incentive plan awards, NSU Equity Incentive awards and LTIP awards (at grant date fair value), was 7% less than the 75th percentile for our Chief Executive Officer, 12% less than the 75th percentile for our Chief Operating Officer and between 25% and 38% more than the 75th percentile for our other Named Executive Officers. +36 +Table of Contents +2013 EXECUTIVE COMPENSATION ELEMENTS +OVERVIEW OF KEY ELEMENTS OF +FISCAL YEAR 2013 COMPENSATION +PROGRAM ELEMENT +TYPE +WHAT IT DOES +PERFORMANCE CRITERIA +Core Program +Base Salary +Cash +•Fixed annual compensation to attract and retain key executives with necessary experience for our future growth +•Not performance-based +For US-based executives: 401(k) match; health and welfare benefits; long-term disability insurance; life insurance; product discounts; relocation +Benefits +•Provide competitive, broad-based employee benefits structure; benefits offered to Named Executive Officers are generally offered to all full time employees +•Not performance-based +Annual Cash Incentive Plan Award +Cash +•Incentive for executives to achieve annual pre-established goals +•Company and individual performance goals, both quantitative and qualitative, approved by the Committee annually. +NSU Equity Incentive Plan Awards (Nonvested Stock Units or "NSUs") +Equity +•Incentive to achieve annual Company financial goals; encouraging executive stock ownership; retention of key executives via a 3-year vest +•Diluted earnings per share target for FY 2013. Because 2013 EPS goals were achieved, NSUs will vest over a period of approximately three years. +Aspirational Program +LTIP Equity Incentive Plan Awards (Restricted Stock Unites or "RSUs") +Equity +•Incentive to achieve aspirational long-term Company financial goals; aligning executives' interest with stockholders; retention of key executives +•Based on FY 2016 performance goals. EBITDA funding qualifier for all roles. EBITDA and revenue targets for corporate roles and individual goals for divisional/regional roles. +•Because the performance goals for these awards are set at such an aspirational level, the grant date fair value of these 2013 awards is only deemed probable at the threshold level. +37 +Table of Contents +Base Salary +What this Compensation Element is Designed to Reward +We provide base salaries to attract and retain key executives with the necessary experience for our future growth. Base salaries reflect each Named Executive Officer's responsibility level, individual performance, and business experience. Base salaries also provide a guaranteed base amount of compensation. The Committee balances the levels of guaranteed pay through base salaries with at-risk pay, to properly maintain our Company's compensation-related risk and implement our Company's pay-for-performance philosophy. +How We Choose the Amount of this Compensation Element +The Committee establishes base salaries after review of the Peer Group compensation data and with the objective of emphasizing performance based compensation, while also attracting and retaining qualified executive candidates. Salaries are reviewed periodically and adjusted as warranted to reflect sustained individual performance, responsibility level, and comparable market salaries. In order to appropriately balance guaranteed pay with at-risk pay, the Committee generally targets base salary in the median to 75th percentile of the base salaries paid to executives with similar titles and levels of responsibility within the Peer Group as a starting point for its analysis. The Committee then considers individual performance, responsibility level and experience in adjusting the base salaries from the targeted amounts. The following table summarizes adjustments made to base salaries for the Named Executive Officers during 2013 compared to 2012: +NAMED EXECUTIVE OFFICER +BASE SALARY +BASE SALARY CHANGE +Angel R. Martinez +$1,200,000 +No Change +Thomas A. George +$510,000 +Increased by 7.4% +Zohar Ziv +$600,000 +No Change +Constance X. Rishwain +$500,000 +Increased by 5.3% +David Powers +$500,000 +No Change +Only two of our Named Executive Officers received a salary increase in 2013. These increases were made based on their performance and to align this compensation element with market comparables and to retain executives we believe have been instrumental to our financial success. +Annual Cash Incentive Plan Compensation +What this Compensation Element is Designed to Reward +The Committee believes in tying our executives' total incentive compensation to the short and long-term financial and strategic objectives of our Company to encourage the achievement of objectives the Committee believes are important to our long-term growth and success and to align our executives' interests with those of our stockholders. As a result, the Committee has designed our annual cash incentive plan to reward achievement of our financial and strategic goals. At the beginning of each year, the Committee reviews our financial and strategic plan for the next fiscal year and for the years ahead and then establishes specific annual Company financial goals, as well as specific strategic goals for each executive. By establishing annual goals, the Committee sets appropriate performance expectations for our executives and makes our executives accountable for our continued growth and success. Furthermore, our executives will only receive payment with respect to achievement of Company performance goals if our Company performs well for our stockholders, as defined by the performance criteria set by the Committee at the beginning of the year. +In addition, the Committee may exercise discretion and reduce award payments under the plan or, alternatively, may award additional amounts outside of the annual cash incentive plan. In 2013, the Committee did not reduce any awards under the plan or grant any discretionary amounts outside of the annual cash incentive plan. +How We Choose Amount of this Compensation Element +For 2013, each of our Named Executive Officers were eligible to receive annual cash incentive plan compensation based on the following formula: +38 +Table of Contents +For 2013, the components of the annual cash incentive plan compensation were: +• +Company Profit. Based on our Company's 2013 earnings before interest, taxes, depreciation and amortization (EBITDA). +• +Quantitative Management by Objectives (MBO). Based on quantitative Company financial goals that are applicable to each officer. +• +Qualitative MBO. Based on qualitative strategic goals that are applicable to each officer. +The Committee establishes an EBITDA goal, which is the same for each officer, and quantitative and qualitative MBO goals, which are unique to each officer, at the beginning of each year and our officers receive compensation for the subsequent attainment of these goals. Each component of the award for each officer is calculated separately by multiplying the full target bonus amount for each officer by the percentage of target earned for each component and then multiplying this amount by the weighting of each component in accordance with the terms of the cash incentive plan. +The target amount for the award for 2013 for each Named Executive Officer, except for Mr. Martinez and Mr. Powers whose targets were 100% and 50% of base salary, respectively, was 75% of base salary, with the potential to exceed the target and earn up to 250% for our Company's profit portion, up to 250% for the quantitative MBO portion and up to 150% for the qualitative MBO portion. The Committee believes that utilizing these multiples of base salary provides our Named Executive Officers with the opportunity to earn significant cash incentive payments for exceptional contributions to our financial and strategic successes, while also limiting the maximum potential awards and thereby mitigating compensation-related risk by discouraging the executives from taking unnecessary risk to achieve higher performance. +The target amounts and relative weight of our Company profit portion and MBO portions of each executive's annual cash incentive plan compensation may be varied by the Committee from year to year. In general, those executives that are responsible for brands and have influence over brand decisions are less heavily weighted on our Company profit portion than those executives whose efforts cannot be directly attributed to specific brands. For threshold performance, 50% of each component would be earned. For target performance, 100% of each component would be earned. +Amounts attributable to our Company profit portion and quantitative MBO portion are not affected by the calculation of the qualitative MBO portion and are intended to qualify as "performance based compensation" within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). +The Committee establishes the respective percentages for our Company profit portion, quantitative MBO portion and qualitative MBO portion principally based on the executives' respective roles at our Company. For those executives with Company-wide responsibilities, our Company profit portion was weighted more heavily than the quantitative MBO portion, and for those executives with more brand-specific responsibilities, the quantitative MBO portion was weighted more heavily than our Company profit portion. This enabled the Committee to more specifically tailor the performance targets to the achievement of goals that each executive had the greatest power to influence. The target bonus, the percentages applicable to each portion, and the allocation of the 2013 Annual Cash Incentive Plan to each executive is set forth in the table below: +EARNED ($) +Name +Target +Percentage +of Salary +Company +Profit +Portion +Quantitative +MBO +Portion +Qualitative +MBO +Portion +Company +Profit +Quantitative +MBO +Qualitative +MBO +Total +Angel R. Martinez +100% +50% +30% +20% +$714,000 +$242,000 +$300,000 +$1,256,000 +Thomas A. George +75% +50% +30% +20% +$228,000 +$154,000 +$76,000 +$458,000 +Zohar Ziv +75% +50% +30% +20% +$268,000 +$106,000 +$67,000 +$441,000 +Constance X. Rishwain +75% +25% +55% +20% +$111,000 +$182,000 +$94,000 +$387,000 +David Powers +50% +25% +55% +20% +$74,000 +$133,000 +$69,000 +$276,000 +39 +Table of Contents +Performance Targets under the Annual Cash Incentive Plan +The performance targets under the 2013 Annual Cash Incentive Plan, and each Named Executive Officer's performance in light of the targets, assessed separately for each Named Executive Officer and paid out according to plan metrics, are summarized below. The Committee selects these targets based on categories that the Committee believes will drive our Company's short-term and long-term success and therefore return value to our stockholders. When establishing these performance targets, the Committee determined to calculate the 2013 Annual Cash Incentive Plan objectives in accordance with our Company's 2013 audited financial statements. +Officer +Component +Threshold Performance +Target Performance +Maximum Performance +Results for Each Portion of the Annual Incentive +All NEOs +Company Profit +•Annual EBITDA of $228.8 million +•Annual EBITDA of $247.2 million +•Annual EBITDA of $297.0 million +Exceeded target EBITDA, resulting in 119% payout. +Angel R. Martinez +Quantitative MBO +•Global Sales (70%) +•Operating Cash Flow (15%) +•Non-UGG sales (15%) +•Sales of $1.534 billion +•Global operating cash flow of $225.5 million +•Non-UGG brand sales of $270.7 million +•Sales of $1.575 billion +•Global operating cash flow of $270.6 million +•Non-UGG brand sales of $277.9 million +•Sales of $1.775 billion +•Global operating cash flow of $425.4 million +•Non-UGG branch sales of $313.2 million +Taking into account the weighting and achievement of each performance metric, the quantitative MBO portion was achieved at 67% of target. +Qualitative MBO +•Business Evolution: Focus Company strategy on 5 highest growth initiatives +•Team and Personal Development: Evolve leadership team and reporting structure +The achievement of the qualitative MBOs exceeded target, resulting in 125% incentive payout due to his success focusing strategic direction on our 5 key growth initiatives and appointment of new leadership roles. +Thomas A. George +Quantitative MBO +•Global Sales (30%) +•Operating Cash Flow (30%) +•Operating Expenses (40%) +•Sales of $1.534 billion +•Global operating cash flow of $225.5 million +•Operating expenses not exceeding approximately 34.84% of net sales +•Sales of $1.575 billion +•Global operating cash flow of $270.6 million +•Operating expenses not exceeding approximately 34.68% of net sales +•Sales of $1.775 billion +•Global operating cash flow of $425.4 million +•Operating expenses not exceeding approximately 33.37% of net sales +Taking into account the weighting and achievement of each performance metric, the quantitative MBO portion was achieved at 135% of target. +Qualitative MBO +•Business Evolution and Team Development: Evolve and develop finance team +•Personal Development: Grow executive leadership +The achievement of the qualitative MBOs hit target, resulting in 100% payout due to development of plan for evolution of finance organization and success in developing finance team. +40 +Table of Contents +Zohar Ziv +Quantitative MBO +•Global Sales (30%) +•Operating Cash Flow (30%) +•Inventory Turn (40%) +•Sales of $1.534 billion +•Global operating cash flow of $225.5 million +•Inventory turnover rate of 2.40 +•Sales of $1.575 billion +•Global operating cash flow of $270.6 million +•Inventory turnover rate of 2.60 +•Sales of $1.775 billion +•Global operating cash flow of $425.4 million +•Inventory turnover rate of 4.25 +Taking into account the weighting and achievement of each performance metric, the quantitative MBO portion was achieved at 79% of target. +Qualitative MBO +•Business Evolution: Spearhead team to clear obstacles to growth +•Team Development: Develop direct reports +•Personal Development: Expand knowledge of technology to support OmniChannel growth +The achievement of the qualitative MBOs did not achieve target, resulting in 75% payout due to success leading teams reviewing growth obstacles and to reflect challenges in team development. +Constance X. Rishwain +Quantitative MBO +•UGG Domestic Wholesale sales(40%) +•UGG Domestic Wholesale Contribution (20%) +•US Inventory Turn (15%) +•Other UGG sales (20%) +•Domestic Wholesale Backlog (5%) +•UGG brand domestic wholesale sales of $556.3 million +•UGG brand domestic wholesale contribution of $204.8 million +•UGG brand domestic inventory turnover rate of 1.88 +•All other UGG brand sales of $723.2 million +•Domestic wholesale backlog of 150.7 +•UGG brand domestic wholesale sales of $571.0 million +•UGG brand domestic wholesale contribution of $214.8 million +•UGG brand domestic inventory turnover rate of 2.06 +•All other UGG brand sales of $742.4 million +•Domestic wholesale backlog of 157.8 +•UGG brand domestic wholesale sales of $643.5 million +•UGG brand domestic wholesale contribution of $246.2million +•UGG brand domestic inventory turnover rate of 2.94 +•All other UGG brand sales of $836.7 million +•Domestic wholesale backlog of 179.4 +Taking into account the weighting and achievement of each performance metric, the quantitative MBO portion was achieved at 88% of target. +Qualitative MBO +•Business Evolution: Lead global brand strategies; develop DTC and regional strategies +•Team and Personal Development: Develop direct reports +The achievement of the qualitative MBOs exceeded target, resulting in 125% payout due to success of strategic actions related to product and marketing initiatives and her initiatives to increase capability of direct reports. +41 +Table of Contents +David Powers +Quantitative MBO +•DTC Sales (50%) +•DTC Contribution (20%) +•Retail Comps (30%) +•DTC sales of $475.6 million +•DTC contribution of $128.0 million •Retail comps of 2.0% +•DTC sales of $488.2 million +•DTC contribution of $139.6 million +• Retail comps of 4.0% +•DTC sales of $550.2 million +•DTC contribution of $172.8 million +•Retail comps of 7.0% +Taking into account the weighting and achievement of each performance metric, the quantitative MBO portion was achieved at 97% of target. +Qualitative MBO +•Business Evolution: Develop OmniChannel capabilities +•Team Development: Develop and obtain talent for OmniChannel organization +•Personal Development: Grow executive leadership +The achievement of the qualitative MBOs exceeded target, resulting in 137.5% payout due to successful implementation of OmniChannel initiatives and key hires. +Performance-based Equity Incentive Plan Compensation +What this Compensation Element is Designed to Reward +Our equity incentive compensation program is designed to address many of our compensation objectives. First, by utilizing long-term vesting provisions, these equity awards are designed to retain our key executives. Second, because these awards will only be earned upon achievement of Company financial goals that we believe will drive value for our stockholders and the awards are equity-based, these awards serve to incentivize and align the interests of our executives with those of our stockholders. Furthermore, by requiring achievement of financial goals, these awards support our Company's pay-for-performance philosophy. Finally, our Non-vested (NSU) Equity Incentive awards reward achievement of our short-term goals (FY 2013 EPS) and our long-term (LTIP) Equity Incentive awards reward achievement of our long-term goals (company performance goals through FY 2016). Our NSU Equity Incentive awards are part of our Core Program and our LTIP Equity Incentive awards are part of our Aspirational Program, and will only payout for exceptional performance. +How We Choose Amount of this Compensation Element +Equity incentive awards are granted under the 2006 Plan, which authorizes the Committee to make grants and awards such as stock options, Stock Appreciation Rights (SARs), NSUs and Restricted Stock Units (RSUs). The compensation attributable to SARs, NSUs and RSUs is intended to qualify as "performance based compensation" under Section 162(m) of the Code. A summary of the equity awards used by our Company and their respective vesting provisions is set forth below: +OVERVIEW OF PERFORMANCE-BASED +EQUITY INCENTIVE AWARDS GRANTED IN 2013 +Compensation Element +Award +Type +Year Granted +Vesting Provisions +Core Program +NSU Equity Incentive Plan Awards +NSU +2013 +Once earned based on Fiscal year 2013 one-year performance, vest based on continued employment after approximately three years following achievement of the performance criteria according to the following schedule: 33% per year at the end of year two, three, and four. +Aspirational Program +LTIP Equity Incentive Plan Awards (2013 LTIP) +RSU +2013 +Vest subject to (1) the achievement of revenue and earnings goals through Fiscal year 2016, which goals are based on a high rate of growth for sales, and (2) satisfaction of long-term service conditions over a 3.25 year period. +In addition, the Committee evaluates aggregate equity awards based on an annual Stockholder Value Transfer (SVT) rate. SVT is the fair value of all equity awards granted during the year as a percentage of Company market capitalization value. The Committee believes this measure is valuable because it allows our Company to compare the annual cost of its equity program versus the Peer Group. The Committee set the SVT rate in 2013 so that it would be approximately 1%, which is in line with the Peer Group median. Other factors considered when making equity based award grants were the fair value of awards granted to +42 +Table of Contents +each individual, total outstanding equity awards for each executive, Company-wide annual equity grant usage, and total potential dilution under all employee stock plans. The Committee assessed where our Company and our Named Executive Officers ranked in these areas versus the Peer Group. +NSU Equity Incentive Awards +Our NSU Equity Incentive Awards are part of our Core Program for Named Executive Officers. For purposes of making annual equity grants, our Board of Directors and the Committee has determined to issue NSUs to officers and employees of our Company, which are restricted stock units payable in Common Stock of our Company upon satisfying: +(1) Company performance goals achieved during year of grant; and +(2) Service related vesting conditions over 3 years following the achievement of the performance criteria. +If earned, the NSUs would vest in equal installments over a three-year period. The vesting schedule for these awards was established to encourage officers and key employees to remain with our Company for the long-term. As discussed further under " Potential Payments Upon Termination or Change of Control " below, this vesting schedule may be accelerated if the executive's employment is terminated for various reasons or upon a change in control followed by a termination. +Officers and key employees are eligible to receive NSUs annually, or as circumstances warrant, in an amount to be determined by our Board of Directors or the Committee. The amount of NSUs granted is primarily determined by the employee's level within the organization, individual performance and the extent that their position is critical to the organization. In March 2013, NSUs were granted that were payable based on the achievement of a fiscal 2013 diluted EPS goal listed below. Because the actual 2013 diluted EPS exceeded the target amount, 100% of the NSUs granted in 2013 were earned, subject to time-based vesting over three years. +2013 Annual Equity Award Performance Goal as of December 31, 2013 +Threshold Performance +Target and Maximum Performance +Actual 2013 Results +Diluted EPS goal +$3.41 +$3.77 +$4.18 +LTIP Equity Incentive Awards +Our LTIP Equity Incentive Awards are part of our Aspirational Program for Named Executive Officers. They are designed to reward exceptional long-term Company financial goals and are granted in addition to the NSU and Time-Based awards described above. These LTIP Equity Incentive Awards are designed to result in a payout only if our Company achieves the highest levels of long-term performance. The Committee recommends the adoption of these awards annually as they deem necessary to incentivize long-term Company performance. +2007 LTIP Equity Incentive Awards +In May 2007, our Board of Directors, upon recommendation of the Committee, adopted two types of long-term incentive award agreements under the 2006 Plan for issuance to our Company's senior leadership team, including the Named Executive Officers. These awards were designed to motivate the executive team to achieve the highest levels of performance over a 10-year period and to encourage the retention of our executives. In approving these 2007 grants, the Committee considered industry comparisons and competitive data as well as the responsibility levels of the executives relative to one another. +The 2007 LTIP award types consist of SAR awards and RSU awards. The SAR and RSU awards are designed to vest based on the achievement of two objective Company financial performance measures. The Committee selected these performance measures to align the executive's interests with the long-term financial success of our Company. In establishing the performance measure criteria, the Committee sought to balance the metrics between earnings and revenue growth so that profitability would not be sacrificed at the expense of revenue and vice versa. A portion of the 2007 LTIP awards were fully vested as of December 31, 2011 and were settled on February 29, 2012. The 2007 LTIP awards still outstanding will vest only if our Company meets a revenue target of at least $1 billion and a diluted earnings per share target of at least $3.33. Provided that these performance conditions are met, the outstanding 2007 LTIP awards will vest 80% on December 31, 2015 and 20% on December 31, 2016. +2011 LTIP Equity Incentive Awards +In June 2011, our Board of Directors, upon recommendation of the Committee, adopted 2011 LTIP awards under the 2006 Plan for issuance to our Company's senior leadership team, including the Named Executive Officers. The 2011 LTIP +43 +Table of Contents +awards are RSUs. Our Board determined to grant these 2011 LTIP awards to provide another equity incentive grant which rewards even higher achievement of long-term Company financial goals than found in the 2007 LTIP grants, for which achievement had already been deemed probable at the time the 2011 LTIP awards were granted. The 2011 LTIP grants are designed to have a shorter performance period than the 2007 LTIP grants, thus enabling the Committee greater visibility to establish appropriate performance targets. +2011 LTIP awards are designed to vest based on the achievement of two objective Company financial performance measures four years in the future. The Committee selected these performance measures to further align the executive's interests with the long-term financial success of our Company. In establishing the performance measure criteria, the Committee sought to balance the metrics between earnings and revenue growth so that profitability would not be sacrificed at the expense of revenue and vice versa. The 2011 LTIP awards will vest only if our Company meets certain revenue targets ranging between $1.85 billion and $2.50 billion and certain diluted earnings per share targets ranging between $7.00 and $9.60 as of December 31, 2014. +2012 LTIP Equity Incentive Awards +In 2012, our Board of Directors, upon recommendation of the Committee, adopted 2012 LTIP awards under the 2006 Plan for issuance to our Company's senior leadership team, including the Named Executive Officers. The 2012 LTIP awards are RSUs and are similar in design to the 2011 LTIP awards. The 2012 LTIP awards, the awards will vest only if our Company meets certain revenue targets ranging between $2.20 billion and $2.90 billion and certain diluted earnings per share targets ranging between $7.00 and $10.50 as of December 31, 2015. +2013 LTIP Equity Incentive Awards +In 2013, our Board of Directors, upon recommendation of the Committee, adopted 2013 LTIP awards under the 2006 Plan for issuance to our Company's senior leadership team, including the Named Executive Officers. The 2013 LTIP awards are RSUs and are similar in design to the 2011 and 2012 LTIP awards. Due to the shift in fiscal year from December 31 to March 31, the 2013 award covers a timeframe of approximately 3.25 years. For the 2013 LTIP awards, the Committee adopted a methodology that incorporated a funding qualifier of $350 million EBITDA for the 12-month period ending March 31, 2016. So long as that qualifier is achieved then the following metrics apply to Mr. Martinez, Mr. Ziv and Mr. George. +2013 LTIP Performance Goals as of March 31, 2016 +Threshold Performance +Target Performance +Maximum Performance +Revenue goal +$2,290.0 million +$2,420.0 million +$2,558.4 million +EBITDA goal +372.0 million +394.0 million +415.4 million +Since Ms. Rishwain and Mr. Powers have divisional/regional revenue responsibility, their goals were set around individual revenue targets for their respective segments of the business. These awards will vest only if the Company meets certain revenue targets tailored for each brand, region and channel and ranging between $56.1 million and $2,118.9 million. Both Ms. Rishwain and Mr. Powers remain subject to the above mentioned EBITDA funding qualifier. +To the extent Company financial performance is achieved above the threshold level, the number of RSUs that will vest will increase up to the maximum number of units issued under the particular 2011, 2012 or 2013 LTIP award. In addition, the recipient of the 2011, 2012 or 2013 LTIP award must provide service to our Company through the end of the relevant period under the particular 2011, 2012 and 2013 LTIP award. Finally, because the performance goals for these awards are set at such an aspirational level, the grant date fair value of these awards is only deemed probable at the threshold level. +Time-based Equity Incentive Plan Compensation +What this Compensation Element is Designed to Reward +Our Time-based Equity Incentive Awards are special grants used on an as-needed basis. Our Board of Directors and the Committee has determined to issue from time to time RSUs to certain officers and employees of our Company. These Time-based Equity Incentive Plan awards have no Company performance targets and would vest in equal installments over an approximately three or four-year period. The vesting schedule for these awards was established to encourage officers and key employees to remain with our Company for the long-term. As discussed further under " Potential Payments Upon Termination or Change of Control " below, this vesting schedule may be accelerated if the executive's employment is terminated for various reasons or upon a change in control followed by a termination. +44 +Table of Contents +How We Choose Amount of this Compensation Element +Officers and key employees are eligible to receive Time-based Equity Incentive Plan Awards as circumstances warrant, in amounts to be determined by our Board of Directors or the Committee. The amount of awards granted is primarily determined by the employee's level within the organization and the extent that their position is critical to the organization. These awards are generally granted at time of initial hire or to meet retention needs for individual executives. Mr. Powers, who was initially hired in 2012, received 5,000 units of Time-based Equity Incentive Awards in 2013. No other Named Executive Officers received this type of award in 2013. +Benefits +What this Compensation Element is Designed to Reward +The Committee intends for the personal benefits provided to our US-based Named Executive Officers to establish a competitive benefits structure necessary to attract and retain key employees. Generally, these personal benefits provided to our Named Executive Officers reflect those provided to all of our employees. +How We Choose Amount of this Compensation Element +There is no specific policy with respect to the value or type of personal benefits awarded to the Named Executive Officers. Our Company provides a 401(k) defined contribution plan in which eligible employees may elect to participate through tax-deferred contributions. Our Company matches 50% of each eligible participant's tax-deferred contributions on up to 6% of eligible compensation on a per payroll period basis, with a true-up contribution if such eligible participant is employed by our Company on the last day of the calendar year. Our Company also pays the premiums for long-term disability insurance and life insurance for the Named Executive Officers both of which are generally available to all full-time employees. Furthermore, Named Executive Officers are eligible to participate in our health and welfare benefit plans and to receive product discounts generally available to all full-time employees. +Beginning on February 1, 2010, the Named Executive Officers and certain other senior executives were also eligible to make contributions to our Company's Nonqualified Deferred Compensation Plan, described in further detail below under the section entitled " Nonqualified Deferred Compensation ." This plan is not available to all employees. Our company does not provide any match on executive deferrals in the NQDC plan. +Severance Arrangements +What this Compensation Element is Designed to Reward +The Committee adopted Change of Control and Severance Agreements for each of the Named Executive Officers. The terms of employment for all Named Executive Officers with our Company is "at will," meaning that we can terminate them at any time and they can terminate their employment with us at any time. +Separation benefits described below are intended to ease a Named Executive Officer's transition due to an unexpected employment termination by our Company due to on-going changes in our Company's employment needs and also to encourage retention of key executives. Separation benefits include cash payments and other benefits in an amount our Company believes is appropriate, taking into account the time it is expected to take a separated executive to find a similarly situated job. Our Company considers it likely that it will take more time for higher level employees to find new employment commensurate with their prior experience, and therefore senior management generally are paid severance for a longer period. Our Company benefits by requiring a general release and non-solicitation provisions in connection with the individual separation agreements. +Furthermore, the provisions in the Change of Control and Severance Agreements providing for the payment of severance benefits upon a change-in-control of our Company followed by a subsequent termination of employment (a "double trigger" event) are intended to preserve morale and productivity and encourage retention in the face of the potential disruptive impact of a change-in-control of our Company. The change-in-control benefits are intended to retain and encourage the Named Executive Officers to remain focused on the business and interest of our stockholders when considering strategic alternatives that may be beneficial to our stockholders. +How We Choose Amount of this Compensation Element +The Change of Control and Severance Agreements for each US-based executive specifically details various provisions for benefits and cash payments in the event of a separation during the normal course of business and in the event a change in control is followed by a subsequent termination. Generally, these agreements specify conditions and benefits within the +45 +Table of Contents +following categories: death, disability, termination by our Company for cause; termination by executive without good reason; termination by the executive with good reason; and termination by our Company without cause. +Our Company's change in control provisions for the Named Executive Officers provide for severance benefits and the accelerated vesting of certain equity awards upon a "double trigger" event, meaning the termination of the executive's employment in connection with a change in control. There are no benefits triggered solely based on the occurrence of a change in control as long as the change in control is approved by a majority of the directors and the successor entity provides for the continuance of the award. However, upon a change in control, the performance conditions of the SARs and RSUs are deemed satisfied, but the awards remain subject to the service based vesting conditions. Based on a competitive analysis of the change in control arrangements maintained by the corporations in the Peer Group, the Committee believes that these benefits are customary among the Peer Group for executives with similar titles and levels of responsibility as the Named Executive Officers. +NSUs, RSUs and SARs cannot be sold, assigned, transferred or pledged other than by will or laws of descent. +Please refer to the discussion under " Potential Payments upon Termination or Change of Control " for a more detailed discussion of the severance and change in control arrangements. +46 +Table of Contents +OTHER COMPENSATION CONSIDERATIONS +Role of Executive Officers in Compensation Decisions +At the request of the Committee, our Chief Executive Officer, Chief Financial Officer and Chief Operating Officer may provide compensation and related data to the Committee to facilitate its compensation decisions. In addition, the Committee may consider our Chief Executive Officer's recommendations when making its compensation decisions. However, our Chief Executive Officer is not permitted to be present during deliberations and voting regarding his own compensation, as well as during other executive sessions of the Committee. The Committee uses the information provided by our Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and FWC to make compensation decisions for our Named Executive Officers as well as other management personnel. The Committee, which includes only independent members of our Board of Directors, approves all elements of compensation for our Named Executive Officers. The Committee also reviews and approves aggregate equity awards to all employees of the Company based on the recommendations of executive management. The Committee can exercise its discretion in modifying any recommended adjustments or awards to executives. +Risk Considerations +The Committee is responsible for reviewing the risks and rewards associated with our compensation programs for all employees, including our executive officers, to assess whether these programs encourage excessive or unnecessary risk-taking. In conducting this assessment, the Committee considered the following factors: +• +Our compensation program consists of both guaranteed pay (salary, benefits and perquisites) and at-risk pay (annual cash incentive plan awards and equity-based awards) and the Committee reviews this mix annually. +• +The performance goals relating to our annual cash incentive plan involve a mix of Company and individual performance goals, as well as financial and non-financial goals. +• +Amounts paid under our annual cash incentive plan are capped at 250% for the Company profit and quantitative MBO portion, and at 150% for the qualitative MBO portion. +• +Our compensation program encourages executive retention through the vesting provisions of our equity-based awards. +• +We have adopted stock ownership guidelines for our Named Executive Officers, which ensures that the interests of our executive officers are aligned with our stockholders. +• +Our annual equity awards granted in 2011, 2012 and 2013 are subject to clawback provisions. +• +Our insider trading policy prohibits our Named Executive Officers and other key executives from hedging the economic interest in the Company securities that they hold. +• +The Committee retains ultimate oversight over the compensation of our Named Executive Officers and retains the ability to use discretion where appropriate. +The Committee believes that, although the majority of the compensation provided to our executive officers is at-risk pay and based upon the achievement of specified Company and individual performance criteria, our executive compensation programs do not encourage excessive or unnecessary risk-taking. The Committee does not believe that our compensation programs are reasonably likely to have a material adverse effect on us. +Tax and Accounting Implications +Taxation and Deductibility of Executive Compensation +To the extent readily determinable, and as one of the factors in its consideration of compensation matters, the Committee considers the anticipated tax treatment to our Company and to our executives of various payments and benefits. Some types of compensation payments and their deductibility depend upon the timing of an executive's vesting of previously granted awards. +Under Section 162(m) of the Code, a public company generally will not be entitled to a deduction for non-performance based compensation paid to certain executive officers to the extent such compensation exceeds $1.0 million. Special rules apply for performance based compensation, including the approval of the performance goals by the stockholders of our Company. +47 +Table of Contents +Our Company has not adopted any formal policy with respect to Section 162(m) of the Code. However, the Committee generally structures compensation to be deductible and considers cost and value to the Company in making compensation decisions, which would result in non-deductibility. Our Board of Directors has on occasion made decisions resulting in non-deductible compensation. The qualitative MBO portion of the annual non-equity incentive plan compensation is not intended to qualify as "performance based compensation" under Section 162(m) of the Code. The Committee and our Board of Directors believe that these payments were appropriate and in the best interests of our Company and serve to retain key executives and reward past performance. +We believe that our Company profit portion and the quantitative MBO portion of our non-equity incentive plan and its grants of NSUs, RSUs and SARs meet the exception for performance based compensation described in the previous paragraph. +Accounting for Share-Based Compensation +Our Company accounts for share-based awards in accordance with the requirements of Financial Accounting Standards Board Accounting Standards Codification Topic 718, Stock Compensation . +48 +Table of Contents +REPORT OF THE COMPENSATION COMMITTEE +The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to our Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement. +THE COMPENSATION COMMITTEE +Lauri Shanahan, Chair +Karyn O. Barsa +John G. Perenchio +The Report of the Compensation Committee shall not be deemed incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, except to the extent that our Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts. +49 +Table of Contents +COMPENSATION SUMMARY +SUMMARY COMPENSATION TABLE +The following table sets forth, for the years ended December 31, 2013, 2012, and 2011, all compensation paid or awarded to our Named Executive Officers. +Name and Principal Position +Year +Salary +($) +Bonus +($) +Stock +Awards +($)(1) +Non-Equity +Incentive +Plan +Compensation +($)(2) +All Other +Compensation +($)(3) +Total +($) +Angel R. Martinez +2013 +1,200,000 +— +2,404,520 +1,256,000 +8,910 +4,869,430 +Chief Executive Officer and President +2012 +1,200,000 +— +3,715,372 +228,000 +8,760 +5,152,132 +2011 +1,000,000 +— +1,922,580 +1,735,000 +7,350 +4,664,930 +Thomas A. George +2013 +510,000 +— +1,130,185 +458,000 +8,910 +2,107,095 +Chief Financial Officer +2012 +475,000 +— +1,609,362 +67,688 +8,760 +2,160,810 +2011 +400,000 +— +873,900 +533,784 +7,350 +1,815,034 +Zohar Ziv +2013 +600,000 +— +1,130,185 +441,000 +8,910 +2,180,095 +Chief Operating Officer +2012 +600,000 +— +1,826,208 +76,500 +8,760 +2,511,468 +2011 +600,000 +— +1,310,850 +741,375 +24,640 (4) +2,652,225 +Constance X. Rishwain +2013 +500,000 +— +1,133,140 +387,000 +8,910 +2,029,050 +President of UGG and Fashion and Lifestyle Brands +2012 +475,000 +— +1,452,112 +71,250 +8,753 +2,007,115 +2011 +420,000 +— +873,900 +603,610 +7,350 +1,904,860 +David Powers (5) +2013 +500,000 +— +1,131,170 +276,000 +8,910 +1,916,080 +President of OmniChannel +__________ +(1) +The amounts in this column represent the aggregate grant date fair value of the respective awards computed in accordance with FASB ASC Topic 718. For information about the assumptions underlying these computations, please refer to Note 5 to our consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2013. In accordance with Instruction 3 to Item 402(c)(2)(v) of Regulation S-K, for those awards that are subject to the satisfaction of performance conditions, the amounts reported reflect the fair value at the grant date based upon the probable outcome of such conditions. +The value of the awards at the grant date, assuming the highest level of performance conditions is achieved, are as follows: +• +2011 LTIP Awards: $5,746,300 for Angel Martinez, $1,915,406 for Thomas George, $2,873,150 for Zohar Ziv, $1,915,406 for Constance Rishwain, and $0 for David Powers. The achievement of the performance conditions relating to the 2011 LTIP awards was not deemed probable at the date of grant in 2011, and therefore no amounts with respect to these awards have been included in the table above. +50 +Table of Contents +• +2012 LTIP Awards: $4,788,944 for Angel Martinez, $1,646,224 for Thomas George, $2,394,415 for Zohar Ziv, $1,646,224 for Constance Rishwain, and $0 for David Powers. The achievement of the performance conditions relating to the 2012 LTIP awards was deemed probable at the date of grant in 2012 and therefore amounts with respect to these awards are included in the table above at grant date fair value. +• +2012 NSU Awards: $1,320,900 for Angel Martinez, $786,250 for Thomas George, $629,000 for Zohar Ziv, $629,000 for Constance Rishwain, and $256,050 for David Powers. The achievement of the performance conditions relating to the 2012 NSU awards was deemed probable at the date of grant and therefore amounts with respect to these awards are included in the table above at grant date fair value. However, subsequent to the date of grant, it was determined that the performance conditions relating to the 2012 NSU awards were not met. +• +2013 LTIP Awards: $2,535,600 for Angel Martinez, $633,900 for Thomas George, $633,900 for Zohar Ziv, $1,394,580 for Constance Rishwain, and $887,460 for David Powers. 2013 LTIP awards were deemed probable at the date of grant and therefore amounts with respect to these awards are included in the table above at grant date fair value. +• +2013 NSU Awards: $1,559,320 for Angel Martinez, $918,885 for Thomas George, $918,885 for Zohar Ziv, $668,280 for Constance Rishwain, and $835,350 for David Powers. 2013 NSU awards were deemed probable at the date of grant and therefore amounts with respect to these awards are included in the table above at grant date fair value. +(2) +The amounts in this column reflect the amount of the cash bonuses paid to the Named Executive Officers under the 2013 Annual Incentive Plan, which is discussed in further detail under the heading "Annual Cash Incentive Plan Compensation." +(3) +The amounts in this column reflect our Company's 401(k) matching contributions and life insurance premiums paid for the benefit of the Named Executive Officers unless noted otherwise. +(4) +This amount includes $17,290 in total per diem paid to Mr. Ziv for international travel necessary to facilitate the transition to a wholesale subsidiary model. +(5) +Mr. Powers joined our Company in August 2012. He was appointed to his current position on January 28, 2014. +51 +Table of Contents +GRANTS OF PLAN BASED AWARDS IN 2013 +The following table sets forth all grants of plan-based awards made to our Named Executive Officers during the fiscal year ended December 31, 2013. For further discussion regarding the grants, refer to the heading "2013 Executive Compensation Elements." +Estimated Future Payouts Under +Non-Equity Incentive Plan Awards(2) +Estimated Future Payouts Under +Equity Incentive Plan Awards(3) +Grant Date +Fair Value +of Stock +Awards +($)(4) +Name +Grant Date(1) +Threshold +($) +Target +($) +Maximum +($) +Threshold +(#) +Target +(#) +Maximum +(#) +Angel R. Martinez +600,000 +1,200,000 +2,760,000 +3/29/2013 +14,000 +28,000 +28,000 +1,559,320 +12/13/2013 +10,000 +20,000 +30,000 +845,200 +Thomas A. George +191,250 +382,500 +879,750 +3/29/2013 +8,250 +16,500 +16,500 +918,885 +12/13/2013 +2,500 +5,000 +7,500 +211,300 +Zohar Ziv +225,000 +450,000 +1,035,000 +3/29/2013 +8,250 +16,500 +16,500 +918,885 +12/13/2013 +2,500 +5,000 +7,500 +211,300 +Constance X. Rishwain +187,500 +375,000 +862,500 +3/29/2013 +6,000 +12,000 +12,000 +668,280 +12/13/2013 +5,500 +11,000 +16,500 +464,860 +David Powers +125,000 +250,000 +575,000 +3/29/2013 +5,000 +10,000 +10,000 +556,900 +3/29/2013 +5,000 +5,000 +5,000 +278,450 +12/13/2013 +3,500 +7,000 +10,500 +295,820 +_____________ +(1) +All awards granted on March 29, 2013 were NSUs and Time-based Equity Incentive Awards. All awards granted on December 13, 2013 were LTIP awards. +(2) +Refer to "Annual Cash Incentive Plan Compensation" above for further discussion on actual amounts paid to Named Executive Officers pursuant to the 2013 Annual Cash Incentive Plan. +(3) +All grants are under the 2006 Plan. +(4) +Assuming the highest level of performance condition will be met, the maximum compensation cost to be recognized for awards granted on 12/13/2013 is: $2,535,600 for Angel Martinez, $633,900 for Thomas George, $633,900 for Zohar Ziv, $1,394,580 for Constance Rishwain, and $887,460 for David Powers. +52 +Table of Contents +OUTSTANDING EQUITY AWARDS AT 2013 FISCAL YEAR END +The following table sets forth equity awards of our Named Executive Officers outstanding as of December 31, 2013. For further discussion regarding the outstanding equity awards, refer to the heading "Performance-based Equity Incentive Compensation." +Stock Appreciation Rights (SAR) Awards(1) +Stock Awards +Name +Number of +securities +underlying +unexercised +SARs +exercisable +(#) +Number of +securities +underlying +unexercised +SARs +unexerciseable +(#) +Number of +securities +underlying +unexercised +unearned +SARs +(#) +SAR +exercise +price +($) +SAR +expiration +date +Number of +shares or +units of +stock that +have not +vested +(#) +Market +value of +shares or +units of +stock that +have not +vested +(3)($) +Number of +unearned +shares or +units that +have not +vested +(2)(#) +Market +value of +unearned +shares or +units that +have not +vested +(3)($) +Angel R. Martinez +160,000 +— +— +$26.73 +5/9/2017 +35,333 +(4) +$2,984,225 +222,834 +(9) +$18,820,560 +— +— +300,000 +26.73 +5/9/2022 +Thomas A. George +— +— +— +— +— +19,833 +(5) +1,675,095 +60,167 +(10) +5,081,684 +Zohar Ziv +30,000 +— +— +26.73 +5/9/2017 +21,500 +(6) +1,815,890 +95,666 +(11) +8,079,950 +— +— +75,000 +26.73 +5/9/2022 +Constance X. Rishwain +— +— +— +— +— +15,333 +(7) +1,295,025 +79,667 +(12) +6,728,654 +— +— +75,000 +26.73 +5/9/2022 +David Powers +— +— +— +— +— +13,333 +(8) +1,126,105 +10,500 +(13) +886,830 +(1) +All SARs were granted on May 9, 2007. 2007 LTIP SARs vest subject to long-term performance objectives and long-term service conditions. Provided the conditions are met, the 2007 LTIP SAR awards will vest 80% on December 31, 2015 and 20% on December 31, 2016. +(2) +This column includes 2007 LTIP, 2011 LTIP (at the 175% maximum amount), 2012 LTIP (at the 200% maximum amount) and 2013 LTIP (at the 150% maximum amount) RSUs granted on May 9, 2007, June 22, 2011, May 24, 2012, and December 13, 2013 respectively, which are subject to long-term performance objectives and service conditions. Provided the conditions are met, the 2011 LTIP awards will vest on December 31, 2014, the 2012 LTIP awards will vest on December 31, 2015, and the 2007 LTIP RSU awards will vest 80% on December 31, 2015 and 20% on December 31, 2016. (see "Grants of Plan Based Awards" table for more detail). +(3) +The closing price of our Company's Common Stock on December 31, 2013 was $84.46. +(4) +Consists of (i) 7,333 NSUs, which represents 33.3% of the NSUs granted on March 30, 2011, which shares vest on December 31, 2014 and (ii) 28,000 NSUs granted on March 29, 2013, which shares vest 33.3% on December 15 of 2014, 2015 and 2016. +(5) +Consists of (i) 3,333 NSUs, which represents 33.3% of the NSUs granted on March 30, 2011, which shares vest on December 31, 2014 and (ii) 16,500 NSUs granted on March 29, 2013, which shares vest 33.3% on December 15 of 2014, 2015 and 2016. +(6) +Consists of (i) 5,000 NSUs, which represents 33.3% of the NSUs granted on March 30, 2011, which shares vest on December 31, 2014 and (ii) 16,500 NSUs granted on March 29, 2013, which shares vest 33.3% on December 15 of 2014, 2015 and 2016. +(7) +Consists of (i) 3,333 NSUs, which represents 33.3% of the NSUs granted on March 30, 2011, which shares vest on December 31, 2014 and (ii) 12,000 NSUs granted on March 29, 2013, which shares vest 33.3% on December 15 of 2014, 2015 and 2016. +53 +Table of Contents +(8) +Consists of (i) 3,333 Time-based Equity Incentive awards, which represents 66.7% of the restricted stock units granted on March 29, 2013, which shares vest 33.3% on December 15 of 2014 and 2015 and (ii) 10,000 NSUs granted on March 29, 2013, which shares vest 33.3% on December 15 of 2014, 2015 and 2016. +(9) +Consists of (i) 37,500 2007 LTIP RSUs; (ii) 70,000 2011 LTIP RSUs at 175%; (iii) 85,334 2012 LTIP RSUs at 200%; and (iv) 30,000 2013 LTIP RSUs at 150%. +(10) +Consists of (i) 23,333 2011 LTIP RSUs at 175%; (ii) 29,334 2012 LTIP RSUs at 200%; and (iii) 7,500 2013 LTIP RSUs at 150%. +(11) +Consists of (i) 10,500 2007 LTIP RSUs; (ii) 35,000 2011 LTIP RSUs at 175%; (iii) 42,666 2012 LTIP RSUs at 200%; and (iv) 7,500 2013 LTIP RSUs at 150%. +(12) +Consists of (i) 10,500 2007 LTIP RSUs; (ii) 23,333 2011 LTIP RSUs at 175%; (iii) 29,334 2012 LTIP RSUs at 200%; and (iv) 16,500 2013 LTIP RSUs at 150%. +(13) +Consists of 10,500 2013 LTIP RSUs at 150%. +54 +Table of Contents +2013 SAR EXERCISES AND STOCK VESTED +The following table provides information, for our Named Executive Officers, regarding SAR exercises and stock award vesting during 2013, including the number of shares acquired upon exercise or vesting and the value realized, before payment of any applicable withholding tax and broker commissions. +SAR Awards +Stock Awards +Number of +Shares +Acquired on +Exercise +(#) (1) +Value Realized on +Exercise +($) +Number of +Shares +Acquired on +Vesting +(#)(2) +Value Realized +on Vesting +($)(3) +Angel R. Martinez +— +$— +47,834 +$3,217,302 +Thomas A. George +— +$— +23,584 +$1,555,675 +Zohar Ziv +— +$— +32,000 +$2,154,215 +Constance X. Rishwain +8,148 +$476,821 +30,334 +$2,013,505 +David Powers +— +$— +1,667 +$140,895 +____________ +(1) +Total shares received net of shares withheld for taxes were 4,277 by Constance Rishwain. +(2) +Total shares received net of shares withheld for taxes were 25,338 by Angel Martinez; 11,712 by Thomas George; 18,167 by Zohar Ziv; 16,904 by Constance Rishwain; and 1,041 by David Powers. +(3) +This column calculates the NSU values based on the closing price of the Company's Common Stock on the quarterly vesting dates. +55 +Table of Contents +NONQUALIFIED DEFERRED COMPENSATION +In 2008, our Board of Directors adopted a Deferred Stock Unit Compensation Plan, a Sub Plan under the 2006 Equity Incentive Plan. A director or employee of our Company who holds unvested restricted stock awards, including NSUs and RSUs, may elect to defer settlement of up to 100% of his or her awards. For each unit of stock held pursuant to a restricted stock award that is deferred, the participant will receive one Deferred Stock Unit. Amounts deferred will be distributed, as described in the plan, at the time elected by the participant. A participant's Deferred Stock Units will be settled in shares of Common Stock, as more specifically described in the plan. In 2011, 2012 and 2013 none of our Company's executive officers elected to participate in the plan. +In 2009, the Compensation Committee adopted and approved a Nonqualified Deferred Compensation Plan. The plan is an unfunded, nonqualified deferred compensation program sponsored by our Company to provide certain of its management or highly compensated employees designated by our Board of Directors (or a committee appointed by our Board of Directors to administer the plan) the opportunity to defer compensation into the plan. The effective date for the plan for the first year was February 1, 2010, and thereafter the plan year is from January 1 to December 31. Participants may defer up to 50% of their annual base salary and up to 95% of any performance bonus under the plan. At the discretion of our Board of Directors (or a committee appointed by our Board of Directors to administer the plan), our Company may make additional contributions to be credited to the account of any or all participants in the plan. No such contribution had been approved as of December 31, 2013. Under the terms of the plan, our Company established a rabbi trust as a reserve for the benefits payable under the plan. Distributions from the plan are governed by the Internal Revenue Code and the plan. Certain of our Named Executive Officers did elect to participate in this plan during 2010, 2011, 2012, and 2013 and, pursuant to such elections, amounts were contributed to this plan during 2013. +Name +Executive +contributions +in last FY(1) ($) +Registrant +contributions +in last FY ($) +Aggregate +earnings in +last FY ($) +Aggregate +withdrawals/ +distributions ($) +Aggregate +balance at +last FYE ($) +Angel R. Martinez +— +— +334,131 +— +2,471,984 +Zohar Ziv +— +— +98,066 +— +618,925 +Thomas A. George +55,212 +— +4,448 +— +59,660 +55,212 +— +436,645 +— +3,150,569 +_____________ +(1) +The amounts reported in this column reflect contributions made by our Named Executive Officer under the plan. Such amounts are separately reported in the "Summary Compensation Table" , but do not reflect amounts in addition to those amounts. +56 +Table of Contents +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL +Our Company entered into Change of Control and Severance Agreements (the "Severance Agreements") with each of the US-based Named Executive Officers effective as of January 1, 2010 to replace, in part, the expired employment agreements with such executives. These Severance Agreements eliminated gross ups for the Internal Revenue Code section 280G excise tax penalty on "excess golden parachute payments" paid as a result of termination following a change of control. The information below describes compensation and benefits that are payable or earned under the Severance Agreements with our Named Executive Officers. +For purposes of the Severance Agreements, "Cause" means (i) any willful breach of duty by the executive in the course of their employment or continued violation of written Company employment policies after written notice of such violation, (ii) violation of our Company's insider trading policies, (iii) conviction of a felony or any crime involving fraud, theft, embezzlement, dishonesty or moral turpitude, (iv) engaging in activities which materially defame our Company, engaging in conduct which is materially injurious to our Company or our affiliates, or any of our respective customer or supplier relationships, financially or otherwise, or (v) the executive's gross negligence or continued failure to perform duties or executive's continued incapacity to perform such duties. +"Good Reason" means without the consent of the Executive (a) the occurrence of material breach of this agreement by our Company, or (b) if within two years of a change of control, there is a material reduction of the Executive's total compensation, benefits, and perquisites, our Company's relocation is greater than 50 miles from the location where the Executive performs services, or a material change in the Executive's position or duties; provided, however, no such event shall constitute Good Reason hereunder unless the Executive shall have given written notice to our Company of Executive's intent to resign for "Good Reason" within 30 days after the Executive first becomes aware of the occurrence of any such event (specifying the nature and scope of the event) and such event or occurrence shall not have been cured within 30 days of our Company's receipt of such notice. +"Change of Control" means the occurrence of a merger, consolidation, sale of all or a major portion of the assets of our Company (or a successor organization) or similar transaction or circumstance where any person or group acquires, in one or more transactions, beneficial ownership of more than 50% of the outstanding shares of any class of voting stock of our Company (or a successor organization). +"Constructive Termination" means a termination following the occurrence of any one or more of the following events without the executive's written consent: (i) any material reduction in position, title, overall responsibilities, level of authority, level of reporting, base compensation, annual incentive compensation opportunity, aggregate employee benefits or (ii) a change of the executive's location of employment by more than 50 miles. +Termination by our Company for Cause, or by Executive other than for Good Reason +Pursuant to the Severance Agreements with each of the US-based Named Executive Officers, if the executive is terminated by our Company for Cause, or the executive terminates his or her employment, other than for Good Reason, then the Named Executive Officer will receive the following from our Company: +• +payment of his or her accrued base salary, accrued vacation, reimbursement for reimbursable expenses, accrued and vested benefits under our Company's plans or programs and other benefits required to be paid by law, accrued but unpaid non-equity incentive bonus for the prior fiscal year (excluding any non-equity incentive bonus for the year of termination); and +• +right to exercise all vested unexercised SARs and awards outstanding as of the termination date. +57 +Table of Contents +Termination due to Death or Total Disability +Pursuant to the Severance Agreements with each of the US-based Named Executive Officers, if the executive is terminated due to his or her Death or Total Disability, then in addition to those benefits provided upon a termination for Cause, the Named Executive Officer will receive: +• +pro-rated portion of his or her non-equity incentive bonus for the current fiscal year based on actual length of service during the year of termination. +Termination by our Company without Cause or by Executive for Good Reason +Pursuant to the Severance Agreements with each of the US-based Named Executive Officers, if the executive is terminated by our Company without Cause or by Executive for Good Reason, then in addition to those benefits provided upon a termination due to Death or Total Disability, the Named Executive Officer will receive: +• +payment of his or her then effective base salary for one year following his or her termination, subject to such executive signing a release; and +• +receipt of health benefits for a period of one year following his or her termination or his or her attainment of alternative employment that provides health benefits, whichever is earlier. +Termination without Cause or by Executive for Good Reason within Two Years of a Change of Control +Pursuant to the Severance Agreements with each of the US-based Named Executive Officers, if the executive is terminated by our Company without Cause or by Executive for Good Reason within two years of a Change of Control, then in addition to those benefits provided upon a termination due to Death or Total Disability, the Named Executive Officer will receive: +• +subject to such executive signing a release, payment of one and one-half times his or her then effective annual base salary plus the greater of (i) one and one-half times the targeted non-equity incentive bonus immediately prior to the termination or (ii) one and one-half times the average actual non-equity incentive bonus for the previous three years. Each of Mr. Martinez and Mr. Ziv will receive two times their respective annual base salary plus the greater of (i) two times the targeted incentive bonus immediately prior to termination or (ii) two times the average actual non-equity incentive bonus for the previous three years, subject to signing a release. +• +receipt of health benefits for a period of eighteen months following his or her termination or his or her attainment of alternative employment that provides health benefits, whichever is earlier. Mr. Martinez will receive these benefits for two years and Mr. Ziv will receive these benefits for one year. +Our Company determined to provide Mr. Martinez and Mr. Ziv with a slightly higher severance payment upon a termination following a Change of Control to reflect each of their key leadership roles and their importance to our Company's management. +No Named Executive Officers will be entitled to gross ups for the Internal Revenue Code section 280G excise tax penalty on "excess golden parachute payments" as a result of termination following a Change of Control. +Equity Awards Upon Termination or Change of Control +Pursuant to the terms of the equity awards under the 2006 Plan, the employees that receive such awards, including the Named Executive Officers, are entitled to certain benefits upon the occurrence of each of the following: (i) termination without cause or pursuant to a Constructive Termination (as such term is defined in the award agreements), (ii) a change of control and either it is not approved by a majority of the directors or the successor entity does not provide for the continuance of the award, and (iii) a change of control followed by termination. +For the NSU Equity Incentive Awards, if an awardee is terminated by our Company without cause or pursuant to a Constructive Termination, if the threshold performance criteria of the NSUs awarded to such executive have been satisfied, the awardee will be entitled to accelerated vesting for a pro rata portion of the NSU award based on a fraction, the numerator of which is the length of service beginning in January in the year of the NSU grant divided by 48 months, and will be settled in shares of our Company's Common Stock. If a change of control occurs and either it is not approved by a majority of the directors or the successor entity does not provide for the continuance of the NSUs, then the NSUs will fully vest if the threshold performance criteria has been satisfied. Finally, if an awardee is terminated without cause or pursuant to a Constructive +58 +Table of Contents +Termination within twelve months of a change of control, he or she will be entitled to full acceleration of any unvested NSUs awarded. +For the 2007 LTIP SARs and RSUs, upon a change of control the performance conditions of the SARs and RSUs will be deemed satisfied, but the awards will remain subject to service based vesting conditions. If a change of control occurs and either it is not approved by a majority of the directors or the successor entity does not provide for the continuance of the SARs and RSUs, then the SARs and RSUs will fully vest. Finally, if an awardee is terminated without cause or pursuant to a Constructive Termination within twelve months of a change of control, he or she will be entitled to full acceleration of any unvested SARs and RSUs. The RSUs will fully vest upon the awardee's death or disability. +For the 2011, 2012 and 2013 LTIP RSUs, upon a change of control the performance conditions of the RSUs will be deemed satisfied and the target number of RSUs shall vest effective approximately four years after grant, but the awards will remain subject to service-based vesting conditions. If a change of control occurs and either it is not approved by a majority of the directors or the successor entity does not provide for the continuance of the RSUs, then the target number of RSUs will fully vest immediately, regardless of the performance conditions. Finally, if an awardee is terminated without cause or pursuant to a Constructive Termination within twelve months of a change of control, he or she will be entitled to acceleration of the target number of RSUs, regardless of the performance conditions. Upon the awardee's death, disability or retirement, a pro-rata portion of the RSUs, based on a fraction the numerator of which is the length of service beginning in January the year of grant divided by 48 months, will fully vest effective approximately four years after grant, subject to the achievement of the performance conditions. +For the Time-Based Equity Incentive Awards, which have no Company performance targets, if an awardee is terminated by our Company without cause or pursuant to a Constructive Termination, the awardee will be entitled to accelerated vesting for a pro rata portion of the award. If a change of control occurs and either it is not approved by a majority of the directors or the successor entity does not provide for the continuance of the award, then the award shall immediately fully vest. Finally, if an awardee is terminated without cause or pursuant to a Constructive Termination within twelve months of a change of control, he or she will be entitled to full acceleration of any unvested Time-Based Equity Awards granted. +59 +Table of Contents +A summary of payments and benefits that would be provided by our Company in addition to amounts accrued for unpaid base salary, vacation pay, non-equity incentive bonus and reimbursable expenses, if the termination or change of control had occurred on December 31, 2013 (based on the closing price of our Company's Common Stock on December 31, 2013 of $84.46), given the Named Executive Officers' compensation and service levels per their respective Severance Agreements and equity awards is as follows: +Upon Termination +Name +Type of Compensation or Benefit +For Death or +Total Disability ($) +By the Company +Without Cause +or by Executive +for Good Reason ($) +Upon Change +of Control ($) +Angel R. Martinez +cash payments +— +1,200,000 +4,800,000 +value of health benefits +— +24,043 +48,087 +value of NSUs +— +1,055,729 +2,984,225 +value of RSUs +3,427,127 +— +11,838,505 +value of SARs +— +— +5,143,614 +3,427,127 +2,279,772 +24,814,431 +Thomas A. George +cash payments +— +510,000 +1,338,750 +value of health benefits +— +18,057 +27,086 +value of NSUs +— +559,526 +1,675,095 +value of RSUs +64,969 +— +2,787,180 +64,969 +1,087,583 +5,828,111 +Zohar Ziv +cash payments +— +600,000 +2,100,000 +value of health benefits +— +16,568 +16,568 +value of NSUs +— +665,123 +1,815,890 +value of RSUs +951,799 +— +4,800,115 +value of SARs +— +— +1,285,904 +951,799 +1,281,691 +10,018,477 +Constance X. Rishwain +cash payments +— +500,000 +1,312,500 +value of health benefits +— +21,963 +32,944 +value of NSUs +— +464,509 +1,295,025 +value of RSUs +1,029,762 +— +4,180,770 +value of SARs +— +— +1,285,904 +1,029,762 +986,472 +8,107,143 +David Powers +cash payments +— +500,000 +1,125,000 +value of health benefits +— +22,983 +34,474 +value of NSUs +— +323,752 +1,126,105 +value of RSUs +90,957 +— +591,220 +90,957 +846,735 +2,876,799 +No additional payments or benefits would be provided by our Company if the termination occurred by our Company for Cause or by the executive without Good Reason. +The value of RSU's for death or disability is based on the number of RSU's that are considered probable of being earned based on our Company's forecasted performance for the twelve months ended December 31, 2014, December 31, 2015 and March 31, 2016. +60 +Table of Contents +DIRECTOR COMPENSATION +For service during 2013, directors who are not employees of our Company or its subsidiaries, which we refer to as Nonemployee Directors, received an annual retainer of $50,000 in cash plus $15,000 for each committee assignment. Furthermore, the following positions were entitled to receive an additional annual retainer fee of $70,000 for Lead Director, $40,000 for Chair of the Audit Committee, $25,000 for the Chair for the Compensation Committee, and $20,000 for the Chair of the Corporate Governance Committee. All or any portion of the cash fees paid to a director may, at the election of the director, be paid in stock, pursuant to our Company's 2006 Equity Incentive Plan. Nonemployee Directors are also reimbursed for any reasonable board-related expenses. +Nonemployee Directors also receive Common Stock grants with a total value of approximately $125,000 annually, to be issued in quarterly installments with the number of shares to be determined using a rolling average of the closing price of our Company's Common Stock on the securities exchange on which the Common Stock is then listed for trading during the last ten trading days leading up to and including the 15 th day of the last month of each quarter. +Nonemployee Directors also receive product discounts, which are generally available to our Company's employees and from time to time may receive products without charge in order to help expand the directors' knowledge of our Company's products. +In 2013, our Board did not make any increases to the Board compensation package provided to the Nonemployee Directors in 2012. +In addition, in 2011, our Board of Directors adopted stock ownership guidelines for the Nonemployee Directors. Nonemployee Directors are also required to hold Company shares worth five times the annual retainer within five years of joining our Board and each director must hold Company shares within one year of joining our Board. Any stock held by our Nonemployee Directors in our Deferred Stock Unit Compensation Plan is counted as stock ownership under these guidelines. +The following table sets forth all compensation paid or awarded to our Board of Directors for the year ended December 31, 2013. +61 +Table of Contents +Name +Year +Fees +Earned in +2013 +($) +Stock +Awards +($) +Total +($) +John M. Gibbons +2013 +135,000 +125,289 +(1)(2) +260,289 +Director +Rex A. Licklider +2013 +65,000 +125,289 +(1) +190,289 +Director +John G. Perenchio +2013 +88,333 +125,289 +(1) +213,622 +Director +Maureen Conners +2013 +71,667 +125,289 +(1) +196,956 +Director +Karyn O. Barsa +2013 +80,000 +125,289 +(1) +205,289 +Director +Michael F. Devine +2013 +105,000 +125,289 +(1) +230,289 +Director +James E. Quinn +2013 +78,333 +125,289 +(1) +203,622 +Director +Lauri M. Shanahan +2013 +81,667 +125,289 +(1)(3) +206,956 +Director +Angel R. Martinez (4) +2013 +N/A +N/A +N/A +Chair of the Board +(1) +Represents grants of 640 shares of Common Stock at a per share price of $49.99 on March 15, 2013, 583 shares of Common Stock at a per share price of $54.52 on June 17, 2013, 515 shares of Common Stock at a per share price of $60.00 on September 17, 2013, and 368 shares of Common Stock at a per share price of $83.18 on December 16, 2013. +(2) +Entire amount of compensation was deferred until January 1, 2014 pursuant to the Deferred Stock Unit Compensation Plan. +(3) +Entire amount of compensation was deferred until January 1, 2030 pursuant to the Deferred Stock Unit Compensation Plan. +(4) +Mr. Martinez received compensation as President and Chief Executive Officer of our Company for 2013 as set forth in the Summary Compensation Table. He did not receive any compensation as a director in 2013. +62 +Table of Contents +EQUITY COMPENSATION PLAN INFORMATION +The following table sets forth information regarding shares of our Common Stock that may be issued under our equity compensation plans as of December 31, 2013. +Number of securities +to be issued +upon exercise of +outstanding options, +warrants and rights(1) +Weighted-average +exercise price of +outstanding options, +warrants and rights(2) +Number of securities +remaining available +for future issuance(3) +Equity compensation plans approved by security holders +1,864,948 +$26.73 +3,074,614 +Equity compensation plans not approved by security holders +— +— +— +Total +1,864,948 +$26.73 +3,074,614 +_____________________ +(1) +Includes unexercisable SARs and unvested NSUs and RSUs. The nature of the NSU and RSU grants are described in the Compensation Discussion and Analysis. +(2) +The stock price at the date of grant of the SARs was $26.73. The weighted average exercise price does not take into account the NSUs and RSUs. +(3) +Includes 6,000,000 authorized shares under the 2006 Plan less actual shares issued as well as shares reserved for outstanding SARs, NSUs and RSUs. +63 +Table of Contents +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth, as of February 28, 2014, certain information concerning the shares of Common Stock beneficially owned by (i) each person who is a Named Executive Officer, (ii) each director and director nominee, (iii) all executive officers and directors as a group (fifteen persons), and (iv) each person known by our Company to be the beneficial owner of more than 5% of our Common Stock. +Name and Address of Beneficial Owner(1) +Amount and +Nature of Beneficial +Ownership(2)(3) +Percent +of Class(3) +Named Executive Officers +Angel R. Martinez(4) +251,184 +* +Thomas A. George +11,712 +* +Zohar Ziv(4) +77,336 +* +Constance X. Rishwain +14,169 +* +David Powers +1,041 +* +Directors and Director Nominees +Angel R. Martinez +251,184 +* +Rex A. Licklider +635,765 +1.8 +% +John M. Gibbons(5) +23,543 +* +John G. Perenchio +61,577 +* +Maureen Conners +15,933 +* +Karyn O. Barsa +11,658 +* +Mike F. Devine III +5,824 +* +James E. Quinn +8,484 +* +Lauri M. Shanahan(6) +107 +* +All directors and executive officers as a group (sixteen persons) +1,156,239 +3.3 +% +5% Stockholders +The London Company(7) +2,960,929 +8.6 +% +BlackRock, Inc.(8) +2,341,720 +6.8 +% +Vanguard Group Inc.(9) +1,931,123 +5.6 +% +FMR LLC(10) +1,863,737 +5.4 +% +_______________ +* +Percentage of shares beneficially owned does not exceed 1% of the class so owned. +(1) +The address of each beneficial owner is 250 Coromar Drive, Goleta, California 93117, unless otherwise noted. +(2) +Unless otherwise noted, our Company believes that each individual or entity named has sole investment and voting power with respect to shares of Common Stock indicated as beneficially owned by them, subject to community property laws, where applicable. +64 +Table of Contents +(3) +Pursuant to Rule 13d-3(d)(1) of the Exchange Act, shares not outstanding which are subject to options, warrants, rights or conversion privileges exercisable on or before the date that is 60 days after February 28, 2014 are deemed outstanding for the purpose of calculating the number and percentage owned by such person, but not deemed outstanding for the purpose of calculating the percentage owned by any other person listed. +(4) +Includes exercisable SARs of 160,000 for Angel Martinez and 30,000 for Zohar Ziv. +(5) +Includes 23,543 shares held by the Gibbons Living Trust as to which Mr. Gibbons has joint voting and investment power. +(6) +Additional shares are deferred until future years pursuant to the Deferred Stock Unit Compensation Plan and are not reflected above. +(7) +This information is based solely on a Schedule 13G/A filed by the party on February 12, 2014 whose business address is 1801 Bayberry Court, Suite 301, Richmond, VA 23226. The London Company has sole voting and dispositive power for 2,730,999 shares and shared dispositive power for 229,930 shares. +(8) +This information is based solely on a Schedule 13G/A filed by the party on January 28, 2014, whose business address is 40 East 52nd Street, New York, NY 10022. Blackrock, Inc., which identifies itself as a parent holding company, has sole voting power for 2,203,223 shares and sole dispositive power for 2,341,720 shares. +(9) +This information is based solely on a Schedule 13G/A filed by the party on February 12, 2014 whose business address is 100 Vanuguard Blvd, Malvern, PA 19355. The Vanguard Group has sole voting power for 21,607 shares, sole dispositive power for 1,912,092 shares and shared dispositive power for 19,031 shares. +(10) +This information is based solely on a Schedule 13G/A filed by the party on February 14, 2014, whose business address is 245 Summer Street, Boston, MA 02210. Fidelity Management & Research Company (Fidelity), a wholly-owned subsidiary of FMR LLC and an investment advisor, is the beneficial owner of 1,811,020 shares. Edward C. Johnson 3d and FMR LLC, through its control of Fidelity, and the funds each has sole power to dispose of the 1,811,020 shares. Edward C. Johnson 3d, Chairman of FMR LLC, and members of his family, collectively own 49% of the voting power of FMR LLC and may constitute a controlling group with respect to FMR LLC. Neither Edward C. Johnson 3d nor FMR LLC has the sole power to vote or direct the voting of shares held by the Fidelity Funds, which power resides with the board of trustees of the Fidelity Funds. Pyramis Global Advisors Trust Company (PGATC), an indirect wholly-owned subsidiary of FMR LLC and bank, is the beneficial owner of 6,733 shares, as a result of its serving as investment manager of institutional accounts owning such shares. Edward C. Johnson 3d and FMR LLC, through its control of PGATC, each has sole voting and dispositve power over 6,733 shares. +65 +Table of Contents +REPORT OF THE AUDIT COMMITTEE +The Audit Committee of our Board of Directors is responsible for providing independent, objective oversight of our Company's financial reporting, our Company's independent registered public accounting firm, the highest ranking manager of internal audit, legal and regulatory compliance, related party transactions, code of conduct and system of internal controls. The Audit Committee is currently composed of three directors, each of whom meets the independence and experience requirements under the Nasdaq Listing Rules and the NYSE Listed Company Manual, as well as the independence requirements applicable to Audit Committee members under the relevant SEC rules. +Management is responsible for the preparation of our Company's financial statements and financial reporting process including its system of internal controls. KPMG LLP, our Company's independent registered public accounting firm is responsible for performing an independent audit of our Company's consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) (the "PCAOB") and expressing (i) an opinion on whether our Company's consolidated financial statements present fairly, in all material respects, our Company's financial position and results of operations and cash flows for the periods presented in conformity with US generally accepted accounting principles and (ii) an opinion on whether the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Audit Committee's responsibility is to monitor and oversee these processes. Our Board of Directors has determined that Michael F. Devine, the Chair of the Audit Committee, is independent and is an "audit committee financial expert" under applicable rules and regulations. +In connection with these responsibilities, the Audit Committee met with management and our Company's independent registered public accounting firm to review and discuss the December 31, 2013 consolidated financial statements and obtained from management their representation that our Company's financial statements have been prepared in accordance with US generally accepted accounting principles. Management determined that, as of December 31, 2013, our Company maintained effective internal control over financial reporting. +The Audit Committee also discussed with the independent registered public accounting firm the matters required by Auditing Standard No. 16, "Communication with Audit Committees" (which superseded Statement on Auditing Standards No. 61 for fiscal years beginning after December 15, 2012) of the Public Company Accounting Oversight Board, which includes, among other items, information regarding the conduct of the audit of our Company's consolidated financial statements. The Audit Committee also received written disclosures from KPMG LLP required by the PCAOB's Rule 3200T: Communication with Audit Committees Concerning Independence, and the Audit Committee discussed with KPMG LLP its independence from our Company and our Company's management. The Audit Committee has further considered the compatibility of the services provided by KPMG LLP with that firm's independence. +The Audit Committee operates under a written charter, which was adopted by our Board of Directors and is assessed annually for adequacy by the Audit Committee. The Audit Committee held ten meetings during fiscal 2013, including meetings with the independent registered public accounting firm and the highest ranking manager of internal audit, both with and without management present. In performing its functions, the Audit Committee acts only in an oversight capacity. It is not the responsibility of the Audit Committee to determine that our Company's financial statements are complete and accurate, are presented in accordance with U.S. generally accepted accounting principles or present fairly the results of operations of our Company for the periods presented or that our Company maintains appropriate internal controls. Furthermore, the Audit Committee's oversight responsibilities do not independently assure that the audit of our Company's financial statements has been carried out in accordance with the standards of the PCAOB or that our Company's registered public accounting firm is independent. +66 +Table of Contents +Based upon the Audit Committee's review and discussions with management and the independent registered public accounting firm, and subject to the limitations of the Audit Committee's role and responsibilities referred to above and in the Audit Committee charter, the Audit Committee recommended that our Board of Directors include the audited consolidated financial statements in our Company's Annual Report on Form 10-K for the year ended December 31, 2013, which was filed with the SEC on March 3, 2014. +THE AUDIT COMMITTEE +Michael F. Devine, III, Chair +Karyn O. Barsa +John M. Gibbons +The Report of the Audit Committee shall not be deemed incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, except to the extent that our Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts. +Certain Relationships and Related Person Transactions +Our Company's legal department is primarily responsible for identifying and reviewing relationships and transactions in which our Company and our directors, executive officers, certain of our stockholders or their immediate family members are participants to determine whether any of these related persons had or will have a direct or indirect material interest. In order to identify potential related person transactions, our Company's legal department annually prepares and distributes to all directors and executive officers a written questionnaire which includes questions intended to elicit information about any related person transactions. In addition, our Company's Code of Ethics addresses conflicts of interest where an individual's private interests interfere or conflict with the interests of our Company, including relationships with suppliers, customers or competitors. Conflicts of interest which might impair or appear to impair the exercise of judgment solely for the benefit of our Company are prohibited. In general, such conflicts must be approved by the legal department, the employee's supervisor or, in the case of directors, the Audit Committee. Information regarding potential conflicts of interests in violation of our Company's Code of Ethics may be reported to our Company's anonymous reporting hotline and may be subsequently obtained by the Chair of the Audit Committee, the Chair of our Board of Directors and the highest ranking manager of internal audit. +If a related person transaction is identified by the legal department as one which must be reported in our Company's Proxy Statement pursuant to applicable SEC regulations, the Audit Committee is responsible for reviewing and approving or ratifying any such related person transactions. In evaluating related person transactions, the Audit Committee members apply the same standards of good faith and fiduciary duty they apply to their general responsibilities as the Audit Committee and as individual directors. The Audit Committee may approve a related person transaction when, in its good faith judgment, the transaction is in the best interests of our Company. +There were no disclosable transactions with related persons under Item 404 of Regulation S-K during the fiscal year ended December 31, 2013 nor are any such transactions currently proposed. +Limitation of Liability and Indemnification of Directors and Officers +Our Certificate of Incorporation and Bylaws provide that we shall indemnify directors and executive officers to the fullest extent now or hereafter permitted by the Delaware General Corporation Law (DGCL). In addition, we have entered into indemnification agreements with our directors and executive officers in which we agree to indemnify such persons to the fullest extent now or hereafter permitted by the DGCL. +We have obtained a liability policy for our directors and officers as permitted by the DGCL which extends to, among other things, liability arising under the Securities Act of 1933, as amended. +We maintain an insurance policy pursuant to which our directors and officers are insured, within the limits and subject to the limitations of the policy, against specified expenses in connection with the defense of claims, actions, suits or proceedings, +67 +Table of Contents +and liabilities which might be imposed as a result of such claims, actions, suits or proceedings, that may be brought against them by reason of their being or having been directors or officers. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the directors, executive officers and persons who own more than 10% of our Common Stock (collectively "Section 16 Persons") to file initial reports of ownership (Forms 3) and reports of changes in ownership of Common Stock (Forms 4 and Forms 5) with the SEC as well as provide copies of the reports to our Company. +To our Company's knowledge, based solely on a review of the copies of such reports furnished to our Company and representations from each Section 16 Person known to our Company that no other reports were required, during the fiscal year ended December 31, 2013, all Section 16(a) filing requirements applicable to its Section 16 Persons were complied with. +68 +Table of Contents +RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +PROPOSAL NO. 2 +For the 2013 fiscal year, KPMG LLP provided audit services, which included examination of our Company's annual consolidated financial statements. A summary of the fees for these services provided by KPMG is below. The Audit Committee has selected KPMG LLP to provide audit services to our Company and our subsidiaries for the fiscal period of January 1, 2014 through March 31, 2014 (transition period) and for the fiscal period of April 1, 2014 through March 31, 2015 (fiscal year 2015). Our stockholders are being requested to ratify this selection at the Annual Meeting. A representative of KPMG LLP will attend the Annual Meeting to make any statements he or she may desire and to respond to appropriate stockholder questions. +Although this appointment is not required to be submitted to a vote of the stockholders, the Audit Committee believes it is appropriate as a matter of policy to request that the stockholders ratify the appointment. If the stockholders do not ratify the appointment, the Audit Committee will consider the selection of another independent registered public accounting firm, but is not required to select a different firm. +BOARD RECOMMENDATION: +THE BOARD OF DIRECTORS OF OUR COMPANY RECOMMENDS A VOTE +"FOR" PROPOSAL NO. 2 TO RATIFY THE APPOINTMENT OF KPMG LLP AS OUR +COMPANY'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +FOR THE TRANSITION PERIOD AND FOR FISCAL YEAR 2015. +_________________________________________________________________________________ +Audit Fees and All Other Fees +2013 +2012 +Audit Fees ($) +2,097,000 +1,848,000 +Audit Related Fees ($) +- +- +Tax Fees ($) +7,000 +5,000 +All Other Fees ($) +- +- +Total Fees ($) +2,104,000 +1,853,000 +Audit Fees +The 2013 audit fees include fees associated with the audit of our Company's consolidated balance sheets as of December 31, 2013 and 2012, the related consolidated statements of comprehensive income, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2013 and the audit of internal control over financial reporting as of December 31, 2013, as well as the reviews of our Company's quarterly reports on Form 10-Q, and certain statutory audits required internationally. +Audit Related Fees +Audit-Related fees generally consist of fees for assurance and related services that are reasonably related to the performance of the audit of our Company's annual reports on Form 10-K and review of our Company's quarterly reports on Form 10-Q. There were no audit-related fees incurred in 2013. +69 +Table of Contents +Tax Fees +Fees incurred for tax services, including tax compliance, tax advice and tax planning for income taxes and customs matters. +Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm +The Audit Committee administers our Company's engagement of KPMG LLP and pre-approves all their audit and permissible non-audit services on a case-by-case basis. In approving non-audit services, the Audit Committee considers whether the engagement could compromise the independence of KPMG LLP, and whether for reasons of efficiency or convenience it is in the best interest of our Company to engage its independent registered public accounting firm to perform the services. The Audit Committee has determined that performance by KPMG LLP of the non-audit services listed above did not affect their independence. +Prior to engagement, the Audit Committee pre-approves all independent registered public accounting firm services. During the year, circumstances may arise when it may become necessary to engage the independent registered public accounting firm for additional services not contemplated in the original pre-approval categories. In those instances, the Audit Committee requires that those services be submitted to the Audit Committee Chair for specific pre-approval before our Company can engage the independent registered public accounting firm to provide them. The Chair reports any pre-approval decisions to the Audit Committee at its next scheduled meeting for approval by the Committee. +70 +Table of Contents +ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION +PROPOSAL NO. 3 +We are asking our stockholders to approve a non-binding advisory resolution on the compensation paid to our Named Executive Officers as described in detail in the "Compensation Discussion and Analysis" section of this Proxy Statement. The Compensation Committee has structured our executive compensation program to: +• +Attract and retain key executives +• +Align executives' interests with those of our stockholders +• +Pay for performance +• +Reward achievement of short-term and long-term goals +Our results for fiscal year 2013 are a reflection of our strong brands, exceptional team of executives, and a compensation program that pays for performance. Highlights of the year include: +t +Our net sales increased 10.1% to a record $1.557 billion, marking over a decade of year-over-year top line growth +t +Our diluted earnings per share was $4.18 compared to $3.45 last year +t +Our gross margin was 47.3% compared to 44.7% last year +t +We continued our efforts to diversify our global presence, with 33.0% of our business conducted internationally +t +We continued to evolve and grow our OmniChannel distribution strategy to support our broader, more extensive product lines +t +Our retail sales increased 32.8% to $326.7 million compared to $246.0 million last year, driven by the opening of 40 new stores +t +Our E-Commerce sales increased 29.8% to $169.5 million compared to $130.6 million last year, driven by increased traffic on our existing websites, higher conversion, increased mobile sales and the addition of two new sites +t +We believe that our sales continued to demonstrate the desirability of the UGG brand amongst consumers and that we continued to elevate the brand's status via compelling new product introductions and more integrated marketing programs; and +t +We used targeted and highly integrated marketing campaigns to showcase our brands to consumers like never before +We believe that our executive compensation practices have fostered our success by: +• +Including reasonable vesting provisions for our equity awards +• +Providing both cash and equity awards and an appropriate mix of these awards +• +Establishing performance goals to reflect the individual contribution of each executive and Company-wide financial performance +• +Requiring achievement of long and short-term Company goals before payment of certain compensation elements +71 +Table of Contents +We urge stockholders to carefully read the " Compensation Discussion and Analysis " section of this Proxy Statement beginning on page 27, which describes in greater detail how our executive compensation policies and procedures operate, as well as the Summary Compensation Table and related compensation tables that follow it. Our Board of Directors and the Compensation Committee believe that the compensation policies and procedures described in this Proxy Statement are effective in achieving our compensation objectives. +Therefore, in accordance with Section 14A of the Securities Exchange Act of 1934, and as a matter of good corporate governance, we ask our stockholders to approve the following advisory resolution at the Annual Meeting: +"RESOLVED, that our Company's stockholders approve, on a non-binding advisory basis, the compensation of the Named Executive Officers, as described in the Compensation Discussion and Analysis, the Summary Compensation Table, and the related compensation tables, notes and narrative in the Proxy Statement for our Company's 2014 Annual Meeting of Stockholders." +Because this vote is advisory only, it will not be binding upon our Board of Directors or the Compensation and Committee. However, the Compensation Committee will take the outcome of the vote into account when considering future executive compensation arrangements. +BOARD RECOMMENDATION: +THE BOARD OF DIRECTORS RECOMMENDS A VOTE +"FOR" PROPOSAL NO. 3 TO APPROVE THE COMPENSATIN OF OUR NAMED +EXECUTIVE OFFICERS, AS DESCRIBED IN THIS PROXY STATEMENT. +72 +Table of Contents +OTHER BUSINESS OF THE ANNUAL MEETING +We do not know of any business other than that described in this Proxy Statement that will be presented for consideration or action by the stockholders at the Annual Meeting. If, however, any other business is properly brought before the Annual Meeting, shares represented by proxies will be voted in accordance with the best judgment of the persons named in the proxies or their substitutes. +73 +Table of Contents +ANNUAL REPORT ON FORM 10-K +A copy of our Company's Annual Report has been posted on the Internet, along with this Proxy Statement, each of which is accessible by following the instructions in the Notice. The Annual Report contains consolidated financial statements of our Company and its subsidiaries and the report thereon of KPMG LLP, our Company's independent registered public accounting firm. +Our Company will provide a copy of its Annual Report without charge (except exhibits) upon the written request of any beneficial owner of our shares as of the Record Date. Exhibits are available from our Company upon reimbursement of our Company's reasonable expenses. Such requests should be addressed to the Corporate Secretary at our corporate offices located at 250 Coromar Drive, Goleta, California 93117. +BY ORDER OF THE BOARD OF DIRECTORS +/s/ ANGEL R. MARTINEZ +Angel R. Martinez +Chairman of the Board of Directors, Chief Executive Officer and President +Goleta, California +April 30, 2014 +74 \ No newline at end of file diff --git a/raw/proxies/0000910521/0000910521-14-000004/proxy_rpt.txt b/raw/proxies/0000910521/0000910521-14-000004/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..13917be47b681a44b0ec0c80577f77fa3b361ef3 --- /dev/null +++ b/raw/proxies/0000910521/0000910521-14-000004/proxy_rpt.txt @@ -0,0 +1,11 @@ +Certain Relationships and Related Person Transactions +Our Company's legal department is primarily responsible for identifying and reviewing relationships and transactions in which our Company and our directors, executive officers, certain of our stockholders or their immediate family members are participants to determine whether any of these related persons had or will have a direct or indirect material interest. In order to identify potential related person transactions, our Company's legal department annually prepares and distributes to all directors and executive officers a written questionnaire which includes questions intended to elicit information about any related person transactions. In addition, our Company's Code of Ethics addresses conflicts of interest where an individual's private interests interfere or conflict with the interests of our Company, including relationships with suppliers, customers or competitors. Conflicts of interest which might impair or appear to impair the exercise of judgment solely for the benefit of our Company are prohibited. In general, such conflicts must be approved by the legal department, the employee's supervisor or, in the case of directors, the Audit Committee. Information regarding potential conflicts of interests in violation of our Company's Code of Ethics may be reported to our Company's anonymous reporting hotline and may be subsequently obtained by the Chair of the Audit Committee, the Chair of our Board of Directors and the highest ranking manager of internal audit. +If a related person transaction is identified by the legal department as one which must be reported in our Company's Proxy Statement pursuant to applicable SEC regulations, the Audit Committee is responsible for reviewing and approving or ratifying any such related person transactions. In evaluating related person transactions, the Audit Committee members apply the same standards of good faith and fiduciary duty they apply to their general responsibilities as the Audit Committee and as individual directors. The Audit Committee may approve a related person transaction when, in its good faith judgment, the transaction is in the best interests of our Company. +There were no disclosable transactions with related persons under Item 404 of Regulation S-K during the fiscal year ended December 31, 2013 nor are any such transactions currently proposed. +Limitation of Liability and Indemnification of Directors and Officers +Our Certificate of Incorporation and Bylaws provide that we shall indemnify directors and executive officers to the fullest extent now or hereafter permitted by the Delaware General Corporation Law (DGCL). In addition, we have entered into indemnification agreements with our directors and executive officers in which we agree to indemnify such persons to the fullest extent now or hereafter permitted by the DGCL. +We have obtained a liability policy for our directors and officers as permitted by the DGCL which extends to, among other things, liability arising under the Securities Act of 1933, as amended. +We maintain an insurance policy pursuant to which our directors and officers are insured, within the limits and subject to the limitations of the policy, against specified expenses in connection with the defense of claims, actions, suits or proceedings, +67 +Table of Contents +and liabilities which might be imposed as a result of such claims, actions, suits or proceedings, that may be brought against them by reason of their being or having been directors or officers. \ No newline at end of file diff --git a/raw/proxies/0000910521/0000950148-01-000557/proxy_rpt.txt b/raw/proxies/0000910521/0000950148-01-000557/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000910521/0001047469-10-004128/proxy.txt b/raw/proxies/0000910521/0001047469-10-004128/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..48867e17df104d49b0c2dcc65fd4364be18d47d0 --- /dev/null +++ b/raw/proxies/0000910521/0001047469-10-004128/proxy.txt @@ -0,0 +1,2624 @@ +DEF 14A +1 +a2198245zdef14a.htm +DEF 14A +QuickLinks +-- Click here to rapidly navigate through this document +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy +Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +Deckers Outdoor Corporation +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +April 23, 2010 +Dear +Stockholder: +We +cordially invite you to attend our 2010 Annual Meeting of Stockholders to be held at 3:00 p.m., local time, on Thursday, May 27, 2010 at the Canary Hotel, 31 West +Carrillo Street, Santa Barbara, California 93101. +Enclosed +are the Notice of Annual Meeting, Proxy Statement and a Proxy Card relating to the Annual Meeting which we urge you to read carefully. Also enclosed is the Company's 2009 Annual +Report. +Please +use this opportunity to take part in our affairs by voting on the business to come before the Annual Meeting. If you are a record holder of our Common Stock as of the close of +business on April 1, 2010, you are eligible to vote on these matters, either by attending the Annual Meeting in person or by Proxy. It is important that your shares be voted, whether or not you +plan to attend the Annual Meeting, to ensure the presence of a quorum. Therefore, please complete, date, sign, and return the accompanying Proxy Card in the enclosed +postage-paid envelope . Properly executed Proxy Cards received by the Company prior to the Annual Meeting will be voted in accordance with the instructions indicated +on such cards. Because mail delays occur frequently, it is important that the enclosed Proxy Card be returned well in advance of the Annual Meeting. Submitting the Proxy Card does NOT deprive you of +your right to attend the Annual Meeting and vote your shares in person for the matters acted on at the Annual Meeting. +Sincerely, +/s/ ANGEL R. MARTINEZ +Angel R. Martinez +Chair of the Board, President and Chief Executive Officer +DECKERS OUTDOOR CORPORATION +495-A South Fairview Avenue, Goleta, California 93117 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD MAY 27, 2010 +TO THE STOCKHOLDERS OF +DECKERS OUTDOOR CORPORATION: +Notice +is hereby given that the Annual Meeting of Stockholders (the "Annual Meeting") of Deckers Outdoor Corporation, a Delaware corporation (the "Company"), will be held at the Canary +Hotel, 31 West Carrillo Street, Santa Barbara, California 93101, on Thursday, May 27, 2010, beginning at 3:00 p.m., local time. The Annual Meeting will be held for the following +purposes: +1. Election of Directors. To elect eight (8) directors of the Company to serve +until the Annual Meeting of Stockholders to be held in 2011. +2. Ratification of Appointment of Independent Registered Public Accounting Firm. To +ratify the selection of KPMG LLP as the Company's independent registered public accounting firm for the year ending December 31, 2010. +3. Amendment of the Company's Certificate of Incorporation. To approve an amendment to +the Company's Amended and Restated Certificate of Incorporation, as amended, to increase the number of shares of Common Stock that the Company is authorized to issue from 50,000,000 shares to +125,000,000 shares. +4. Other Business. To consider and act upon such other business as may properly come +before the Annual Meeting or any postponements or adjournments thereof. +The +Board of Directors has fixed the close of business on April 1, 2010 as the record date (the "Record Date") for determining stockholders entitled to notice of and to vote at +the Annual Meeting and any continuations, postponements or adjournments thereof. Only stockholders of record at the close of business on the Record Date are entitled to such notice and to vote, in +person or by Proxy, at the Annual Meeting. +The +Proxy Statement that accompanies this Notice contains additional information regarding the proposals to be considered at the Annual Meeting, and stockholders are encouraged to read +it in its entirety. +Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be held May 27, 2010: The Notice of 2010 Annual Meeting of +Stockholders, Proxy Statement, and 2009 Annual Report to Stockholders of Deckers Outdoor Corporation are available online at: +http://www.deckers.com/investors/FinancialReports.asp?compid=91148 +The Board of Directors welcomes your personal attendance at the Annual Meeting. However, whether or not you plan to attend, please sign and return the enclosed +Proxy Card, which you may revoke at any time prior to its use. A self-addressed, postage prepaid envelope is enclosed for your convenience. Your Proxy Card will not be used if you attend +the Annual Meeting and choose to vote in person. +BY ORDER OF THE BOARD OF DIRECTORS +/s/ ANGEL R. MARTINEZ +Angel R. Martinez +Chair of the Board, President and +Chief Executive Officer +Goleta, California +April 23, 2010 +EVERY STOCKHOLDER'S VOTE IS IMPORTANT. +PLEASE COMPLETE, DATE, SIGN AND MAIL THE ACCOMPANYING PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE AS PROMPTLY AS POSSIBLE. IF A STOCKHOLDER RECEIVES MORE THAN +ONE PROXY CARD BECAUSE HE OR SHE OWNS SHARES REGISTERED IN DIFFERENT NAMES OR ADDRESSES, EACH PROXY CARD SHOULD BE COMPLETED AND RETURNED. +495-A South Fairview Avenue +Goleta, California 93117 +ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD MAY 27, 2010 +PROXY STATEMENT +GENERAL INFORMATION +This Proxy Statement is furnished in connection with the solicitation of Proxies by the Board of Directors of Deckers Outdoor Corporation, a Delaware corporation +(the "Company" or "Deckers"), for use at its Annual Meeting of Stockholders (the "Annual Meeting") to be held at 3:00 p.m., local time, on May 27, 2010, at the Canary Hotel, +31 West Carrillo Street, Santa Barbara, California 93101, and any continuations, postponements or adjournments thereof for the purposes set forth in the accompanying Notice of Annual Meeting. +This Proxy Statement and the accompanying Proxy Card (the "Proxy") were first mailed to stockholders on or about April 29, 2010. +Method of Voting and Voting Rights +Stockholders can vote by Proxy or by attending the Annual Meeting and voting in person. A Proxy is enclosed. If you vote by Proxy, the +Proxy Card included with this Proxy Statement must be completed, signed and dated by you or your authorized representative. The completed Proxy may be returned in the postage-paid envelope +provided, or you may vote via the internet or telephone as indicated on the Proxy Card instructions. Zohar Ziv and Thomas A. George, the designated proxyholders (the "Proxyholders"), are members of +the Company's management. If you hold Common Stock in "street name," you must either instruct your broker or nominee as to how to vote such shares or obtain a Proxy, executed in your favor by your +broker or nominee, to be able to vote at the Annual Meeting. +Meeting Quorum. In order to conduct business at the Annual Meeting, a quorum must be present. The presence at the Annual Meeting, in +person or +represented by Proxy, of holders of a majority of the outstanding shares of the Company's Common Stock outstanding as of the Record Date, will constitute a quorum at the Annual Meeting. We will treat +shares of Common Stock represented by a properly signed and returned Proxy, including abstentions and broker non-votes (as defined below), as present at the Annual Meeting for the purposes +of determining the existence of a quorum. +Vote Required. Each share of Common Stock issued and outstanding on the Record Date is entitled to one vote on any matter presented for +consideration +and action by the stockholders at the Annual Meeting. The eight directors to be elected at the Annual Meeting (Proposal No. 1) will be elected by a plurality of the votes cast by stockholders +present in person or represented by Proxy at the Annual Meeting and entitled to vote and voting. Approval of the proposal to amend the Company's Certificate of Incorporation to increase the authorized +shares of the Company's Common Stock from 50,000,000 to 125,000,000 (Proposal No. 3) will require the affirmative vote of holders of a majority of the shares of our Common Stock outstanding as +of the Record Date. Approval of each other matter to be voted on at the Annual Meeting, including Proposal No. 2 regarding the ratification of the selection +1 +of +KPMG LLP as the Company's independent registered public accounting firm, will require the affirmative vote of a majority of the shares present in person or represented by Proxy at the Annual +Meeting and entitled to vote (assuming that a quorum is present). +Abstentions. A stockholder may withhold authority to vote for one or more nominees for director and may abstain from one or more of the +other matters +to be voted on at the Annual Meeting. Shares for which authority is withheld or that a stockholder abstains from voting will be counted for purposes of determining whether a quorum is present at the +Annual Meeting. Shares for which authority is withheld will have no effect on the voting for the election of directors (which requires a plurality of the votes cast). Shares that a stockholder +abstains from voting will be included in the total of votes cast and have the same effect as a vote AGAINST Proposals No. 2 and No. 3. +Broker Non-Votes. If your shares are held by a broker, the broker will vote your shares for you if you provide instructions to your +broker on how to vote. You should follow the directions provided by your broker regarding how to instruct your broker to vote your shares. "Broker non-votes" are shares held by a broker or +other nominee that are represented at the Annual Meeting, but with respect to which the broker or nominee has not received instructions from the beneficial owner of the shares to vote on the +particular proposal and does not have discretionary voting power on the proposal. Whether a broker has authority to vote its shares on uninstructed matters is determined by stock exchange rules. +Brokers holding shares of record for beneficial owners generally are entitled to exercise their discretion to follow the recommendation of the Board of Directors and vote in favor of Proposal +No. 2, but do not have the discretion to vote on Proposals No. 1 and No. 3 included in this Proxy Statement unless they receive other instructions from their customers. Broker +non-votes will be counted for purposes of determining the presence or absence of a quorum at the Annual Meeting but will not be counted for purposes of determining the number of shares +represented and voting with respect to a proposal. Accordingly, broker non-votes will have no effect on voting on the election of directors or on the ratification of the independent +registered public accounting firm. However, broker non-votes will have the effect of a vote AGAINST Proposal No. 3 regarding amendment of the Company's Certificate of Incorporation. +Voting Shares in Person that are Held Through Brokers. If your shares are held of record by your broker, bank or another nominee and +you wish to vote +those shares in person at the Annual Meeting, you must obtain from the nominee holding your shares a properly executed legal Proxy identifying you as a Company stockholder, authorizing you to act on +behalf of the nominee at the Annual Meeting and identifying the number of shares with respect to which the authorization is granted. +Revocation of Proxy +A stockholder giving a Proxy has the power to revoke it at any time before it is exercised by giving written notice of revocation to +the Secretary of the Company, by executing a subsequent Proxy, or by attending the Annual Meeting and voting in person. If you have instructed your broker to vote your shares, you must follow +directions received from your broker to change those instructions. Subject to any such revocation, all shares represented by properly executed Proxies will be voted in accordance with the +specifications on the enclosed Proxy. +Record Date +In accordance with the Company's Bylaws, the Board of Directors has fixed April 1, 2010 as the Record Date for the determination +of stockholders entitled to notice of and to vote at the Annual Meeting and any postponements or adjournments thereof. As of the close of business on April 1, 2010, there were 12,896,420 shares +of the Company's Common Stock outstanding and each share of Common Stock is entitled to one vote. +2 +Procedures for Stockholder Nominations +The Company's Bylaws provide that a stockholder seeking to nominate a candidate for election as director at an annual meeting of +stockholders must provide timely advance written notice. To be timely, a stockholder's notice generally must be received at our principal executive office on or before the date 90 days prior to +the scheduled date of the annual meeting or, if it is a later date, on or before the date seven days after the Company first publishes notice of the annual meeting. +Under +our Bylaws, a stockholder's notice of a proposed nomination for director to be made at an annual meeting must include the following information: +• the name and address of the stockholder and any Stockholder Affiliate proposing to make the nomination and of the person +or persons to be nominated; +• the class and number of shares of the Company that are, directly or indirectly, beneficially owned by the stockholder or +any Stockholder Affiliate and any derivative positions held or beneficially held by the stockholder or any Stockholder Affiliate and whether and the extent to which any hedging or other transaction or +series of transactions has been entered into by or on behalf of, or any other agreement, arrangement or understanding (including, but not limited to, any derivative position, short position, or any +borrowing or lending of shares) has been made, the effect or intent of which is to mitigate loss to or manage risk or benefit of share price changes for, or to increase or decrease the voting power +of, such stockholder or any Stockholder Affiliate; +• a representation that the holder is a stockholder entitled to vote his or her shares at the annual meeting and intends to +vote his or her shares in person or by proxy for the person nominated in the notice; +• a description of all arrangements or understandings between the stockholder(s) or Stockholder Affiliate supporting the +nomination and each nominee; +• any other information concerning the proposed nominee(s) that the Company would be required to include in the Proxy +Statement if the Board of Directors made the nomination; +• the consent and commitment of the nominee(s) to serve as director; +• for each nominee, a completed and signed questionnaire, in a form provided by the Company upon written request, with +respect to the background and qualification of such person being nominated and the background of any other person or entity on whose behalf the nomination is being made; +• for each nominee, a written representation and agreement, in the form provided by the Company upon written request, with +regards to any voting commitments, compensatory arrangements with a third party and compliance requirements applicable to directors of the Company; +• a description of all agreements, arrangements and understandings between the stockholder and Stockholder Affiliate and any +other person, including their name, in connection with the nominee; and +• whether the stockholder or any Stockholder Affiliate intends to conduct a proxy solicitation. +For +these purposes, "Stockholder Affiliate" means any person controlling, directly or indirectly, or acting in concert with, any stockholder making the nomination; any beneficial owner +of shares of stock of the Company owned of record or beneficially by the stockholder making the nomination; and any person controlling, controlled by or under common control with the Stockholder +Affiliate. The presiding officer of the Annual Meeting may refuse to acknowledge the nomination of any person not +3 +made +in compliance with the foregoing procedure. Stockholder nominations submitted in accordance with the requirements of the Company's Bylaws will be forwarded to the Corporate Governance and +Nominating Committee. +Other Business +If any other matters are promptly presented for consideration at the Annual Meeting including, among other things, consideration of a +motion to adjourn the Annual Meeting to another time or place in order to solicit additional Proxies in favor of one or more of the proposals, the persons named as Proxyholders and acting thereunder +will have discretion to vote on these matters according to their best judgment to the same extent as the person delivering the Proxy would be entitled to vote. At the date this Proxy Statement went to +press, we did not anticipate that any other matter would be raised at the Annual Meeting. +PROPOSAL NO. 1 +ELECTION OF DIRECTORS +The Company's Bylaws state that the Board of Directors shall consist of not less than one or more than nine members. The specific +number of Board members within this range is established by the Board of Directors and is currently set at eight. There are currently eight Board members, and all directors are elected annually. +At +the Annual Meeting, stockholders will be asked to elect eight directors of the Company to serve until the Company's next annual meeting of stockholders to be held in 2011 and until +his or her successor is elected and qualified. Proxies cannot be voted for a greater number of persons than the number of nominees named. The names and certain information concerning the persons +nominated by +the Board of Directors to become directors at the Annual Meeting are set forth below. Each of the proposed nominees currently serves as a member of the Board of Directors. +Accordingly, +if all nominees for director are elected, then following the Annual Meeting, the Board of Directors will consist of eight members, and a majority of the Board of Directors +and all members of each of its standing committees will continue to be "independent" under applicable regulations as described below. +The +election of directors shall be by the affirmative vote of the holders of a plurality of the shares voting in person or by Proxy at the Annual Meeting. The persons named as +Proxyholders in the enclosed Proxy will vote to elect all eight proposed nominees named below unless contrary instructions are given in the Proxy. Broker non-votes and Proxies marked +"withheld" as to one or more of the nominees will result in the respective nominees receiving fewer votes. However, the number of votes otherwise received by the nominee will not be reduced by such +action. +Although +each of the persons named below has consented to serve as a director if elected, and the Board of Directors has no reason to believe that any of the nominees named below will be +unable to serve as a director, if any nominee withdraws or otherwise becomes unavailable to serve, the persons named as Proxyholders in the enclosed Proxy will vote for any substitute nominee +designated by the Board of Directors. +None +of the directors or nominees for director were selected pursuant to any arrangement or understanding, other than with the directors of the Company acting within their capacity as +such. There are no family relationships among directors, nominees for director or executive officers of the Company. +4 +Nominees for Director and Director Qualifications +The names of the nominees for director and certain biographical information about them, including public company directorships over the +last five years, are set forth below. In addition, information about the specific qualifications, attributes and skills of each nominee that led to the Board's conclusion that each nominee should +serve as a director of the Company is set forth below. As detailed under "Nominating Procedures and Criteria" below, the Board believes that +there are both general requirements for services on the Company's Board of Directors that are applicable to all Directors and that there are other specialized criteria that should be represented on +the Board. +Name +Age +Director Since +Principal Occupation +Angel R. Martinez +54 +2005 +Chair of the Board, President and Chief Executive Officer of the Company +Rex A. Licklider(3) +67 +1993 +Chief Executive Officer and Vice Chair of The Sports Club Company +John M. Gibbons(1)(2) +61 +2000 +Independent Consultant +John G. Perenchio(1) +54 +2005 +Owner and Co-Manager of Fearless Records LLC and Fearmore Publishing, LLC +Maureen Conners(1)(3) +63 +2006 +President of Conners Consulting +Tore Steen(2) +72 +2007 +President and Chief Executive Officer of World Intelligent Network LLC +Ruth M. Owades(3) +61 +2008 +Corporate Director +Karyn O. Barsa(2) +49 +2008 +Chief Executive Officer of Coyuchi, Inc. +(1) Member +of the Compensation and Management Development Committee +(2) Member +of the Audit Committee +(3) Member +of the Corporate Governance and Nominating Committee +Angel R. Martinez , age 54, joined Deckers in April 2005 as President and Chief Executive Officer. In September 2005, he became a director +of the Company and in May 2008, he became Chair of the Board. Subject to his re-election as a director at the Annual Meeting, Mr. Martinez will remain Chair of the Board. +Previously, Mr. Martinez was Chief Executive Officer and Vice Chair of Keen LLC, an outdoor footwear manufacturer, from January 2005 to March 2005, after serving as President and Chief +Executive Officer from April 2003 to December 2004, and as an independent consultant since June 2002. Prior thereto he served as Executive Vice President and Chief Marketing Officer of Reebok +International Ltd. and as Chief Executive Officer and President of The Rockport +Company, a subsidiary of Reebok. Mr. Martinez has been a member of the Board of Directors of Tupperware Brands Corporation (NYSE:TUP) since 1998. +The +experiences above highlight the qualifications and skills that were among the most important to the Board in concluding that Mr. Martinez should serve as a director of the +Company. These skills include, but are not limited to, the management of a public company; management in the footwear industry and in a consumer products company; and experience in sales and +marketing, the international marketplace, private investments, luxury branding, merchandising, retailing and acquisitions. +Rex A. Licklider , age 67, has served as a director since September 1993. Mr. Licklider has been director and Vice Chair of The +Sports Club Company (Pink Sheets:SCYL), a developer and operator of health and fitness clubs, since May 1994. Mr. Licklider has served as the Chief Executive Officer of The Sports Club Company +since March 2004 and as Co-Chief Executive Officer of The Sports Club Company from February 2002 to March 2004. From February 1992 to January 1993, Mr. Licklider was Chair of the +Board of Resurgens Communications Group, a long distance telecommunications +5 +company, +and from 1975 until February 1992, Mr. Licklider was Chair of the Board and Chief Executive Officer of Com Systems, Inc., a long distance telecommunications company that merged +with Resurgens Communications Group in February 1992. +The +experiences above highlight the qualifications and skills that were among the most important to the Board in concluding that Mr. Licklider should serve as a director of the +Company. These skills include, but are not limited to, management of a public company; and experience in sales and marketing, private investments, luxury branding and acquisitions. +John M. Gibbons , age 61, has served as a director since June 2000. Mr. Gibbons has been an independent consultant since April 2004. +From June 2000 to April 2004, Mr. Gibbons was Vice Chair of TMC Communications, Inc., a long distance, data and Internet services provider, and was its Chief Executive Officer from June +2001 to April 2003. From June 2000 to June 2001, he was President of TMC Communications, Inc. He has served as a director of National Technical Systems, Inc., a provider of integrated +testing, certification, quality registration and systems evaluation services, since September 2003. Mr. Gibbons was Vice Chair of Assisted Living Concepts, Inc., a national provider of +assisted living services, from March 2000 to December 2001. Previously, Mr. Gibbons was employed by The Sports Club Company (Pink Sheets:SCYL), a developer and operator of health and fitness +clubs, where he was Chief Executive Officer and a director from July 1999 to February 2000 and was President and Chief Operating Officer from January 1995 to July 1999. +The +experiences above highlight the qualifications and skills that were among the most important to the Board in concluding that Mr. Gibbons should serve as a director of the +Company. These skills include, but are not limited to, managing a public company; managing a services company; and experience in +financial matters, investment banking and commercial lending, private investments, luxury branding, retailing and acquisitions. +John G. Perenchio , age 54, has served as a director since December 2005. Beginning in 1999, Mr. Perenchio has held controlling +interests in and has been the principal manager of various music industry companies. He currently holds controlling interests in and co-manages Fearless Records LLC, an independent +rock music label distributed by the Warner Music Group, and Fearmore Publishing, LLC, a music publishing company administered by Warner/Chappell Music, Inc. Since late 2009, +Mr. Perenchio has been involved in the formation of Club Ride Apparel, LLC, a start-up sports apparel company in which he will hold a controlling interest. From 1990 to 2003, +Mr. Perenchio served as an executive with Chartwell Partners, LLC, a family owned boutique investment and holding company specializing in the entertainment, media and real estate +industries. From 1984 to 1990, Mr. Perenchio was a music executive and in-house counsel at Triad Artists, Inc., one of the then premier talent agencies in the world, and +prior to that, from 1982 to 1984, practiced law as an attorney in California. From 1992 to 2007, Mr. Perenchio was a director of Univision Communications Inc., the leading +Spanish-language media company in the United States. +The +experiences above highlight the qualifications and skills that were among the most important to the Board in concluding that Mr. Perenchio should serve as a director of the +Company. These skills include, but are not limited to, legal expertise and training, experience as a director of a public company; management of a consumer products company; and experience in sales +and marketing, the international marketplace, private investments, retailing and acquisitions. +Maureen Conners , age 63, has served as a director since September 2006. Ms. Conners is President of Conners Consulting, which she +founded in 1992. Conners Consulting has worked with companies such as Johnson & Johnson, Ralph Lauren Footwear, Rockport, Hewlett Packard, Monster.com, Polaroid, Bausch and Lomb, Southcorp +Wines, and Western Union Money Zap, providing a range of services including marketing and strategic planning, new product and new business development, and global brand building. Prior to founding +Conners Consulting, Ms. Conners held senior level marketing positions with several leading consumer companies, including Senior Vice President of Marketing, Girls +6 +Division +at Mattel. Prior to that, she served as Director of Marketing, Men's Jean's Division at Levi Strauss, and Group Marketing Manager at Gillette. Ms. Conners has an MBA from the Wharton +School of the University of Pennsylvania. +The +experiences above highlight the qualifications and skills that were among the most important to the Board in concluding that Ms. Conners should serve as a director of the +Company. These skills include, but are not limited to, management in the apparel industry; management in a consumer products company; and experience in sales and marketing, the international +marketplace, private investments, luxury branding, merchandising, retailing and acquisitions. +Tore Steen , age 72, has served as a director since May 2007. Mr. Steen has been the owner and President/CEO of World Intelligent +Network, LLC (formerly the Coventry Group, Inc.), and of management, consulting and holding companies, since 1995. He also served as President of the IOS Foundation from 2003 to 2004. +From March 1991 to March 1995, Mr. Steen served as President and CEO of H.C. Inc. and later as Chair and CEO of Cascade General, Inc., both major west coast ship repair companies. +Mr. Steen was the Executive Vice President, Finance for WTD Industries, Inc., a Nasdaq forest products company, from January 1989 to December 1990. Previously, Mr. Steen had been +involved at executive and board levels of NYSE, Nasdaq and London Stock Exchange companies. Early in his career, he was with Citibank and Chemical Bank (now JPMorgan Chase) and for seven years built a +major international financial services company with operations in sixteen countries globally. He holds an MBA in International Finance from the University of Oregon. Mr. Steen has served on +many corporate and not-for-profit boards, including the World Technology Group, ABSO Alarms Company, the Young Presidents' Organization, the World Presidents' Organization, the +Chief Executives Organization, Outward Bound, and the Regional Drug Initiative. +The +experiences above highlight the qualifications and skills that were among the most important to the Board in concluding that Mr. Steen should serve as a director of the +Company. These skills include, but are not limited to, managing a public company; managing a services company; and experience in financial matters, sales and marketing, distribution and logistics, the +international marketplace, investment banking and commercial lending, private investments, branding and acquisitions. +Ruth M. Owades , age 61, has served as a director since May 2008. Ms. Owades' principal occupation is as a Corporate Director for +various private companies, and she is a frequent lecturer and consultant on corporate governance. Since 2006, Ms. Owades has served as a director on the Western Advisory Board of Northern Trust +Corporation. From 2002 to 2006, Ms. Owades was a director of Armstrong World Industries, a manufacturer and wholesaler of flooring, ceiling and cabinetry products. From 1997 to 2006, she was a +director of the J. Jill Group, a women's apparel, accessory and footwear retailer, and between 1998 and 2005 she served as a director of Providian Financial Corporation. From 1988 until 2000, +Ms. Owades was the Founder, CEO and Chair of Calyx & Corolla, Inc., the first fresh flower catalog and online retailer. From 2000 to 2002, she served as a consultant to the +financial group that purchased Calyx & Corolla. Prior thereto, Ms. Owades was Founder and CEO of Gardener's Eden, Inc., a catalog and retailer of upscale gardening tools, +accessories and outdoor furniture. She sold the company to Williams-Sonoma, Inc., continuing to serve for five years as President. Ms. Owades is a graduate of Scripps College in +Claremont, California and earned an MBA from Harvard Business School. +The +experiences above highlight the qualifications and skills that were among the most important to the Board in concluding that Ms. Owades should serve as a director of the +Company. These skills include, but are not limited to, managing an apparel, accessories and footwear retailer; and experience in sales and marketing, private investments, luxury branding, +merchandising, retailing and acquisitions. +Karyn O. Barsa , age 49, has served as a director since May 2008. Since April 2009 she has served as Chief Executive Officer of +Coyuchi, Inc. a maker of organic cotton bedding, bath and baby products. +7 +From +February 2008 to April 2009, she was President and Chief Executive Officer of Investors' Circle, a network of individual and institutional investors focused on sustainable business practices. +Between May 2007 and February 2008, she was Chief Executive Officer of Embark Stores, Inc., a start-up pet supplies retailer where she remains on the advisory board, and prior to +this time she was an independent investor. Between 1999 and 2001, Ms. Barsa was Chief Executive Officer of Smith & Hawken, Ltd., a specialty gardening retailer, and prior to that +she was Chief Operating Officer and Chief Financial Officer of Patagonia, Inc., a specialty outdoor apparel and equipment manufacturer. She serves on the boards of Coyuchi, Inc. and +NESsT, and the advisory board of Embark Stores, Inc. Ms. Barsa holds a BA in Economics from Connecticut College and an MBA from the University of Southern California. +The +experiences above highlight the qualifications and skills that were among the most important to the Board in concluding that Ms. Barsa should serve as a director of the +Company. These skills include, but are not limited to, managing an apparel company; experience in sales and marketing, financial management, private investments, luxury branding, merchandising and +retailing. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE +"FOR" THE ELECTION OF EACH OF THE ABOVE NOMINEES FOR DIRECTOR. +8 +CORPORATE GOVERNANCE +Corporate Governance Principles +Pursuant to Delaware law and the Company's Bylaws, the Company's business, property and affairs are managed under the direction of the +Board of Directors. Thus, the Board of Directors is the ultimate decision-making body of the Company except with respect to those matters reserved to the stockholders. +The +Board of Directors selects the senior management team, which is charged with the day-to-day operations of the Company's business. Members of the Board of +Directors are kept informed of the Company's business through discussions with the Chief Executive Officer and other senior officers, by reviewing materials requested by them or otherwise provided to +them and by participating in meetings of the Board of Directors and its committees. Having selected the senior management team, the Board of Directors acts as an advisor and counselor to senior +management, monitors its performance and proposes or makes changes to the senior management team when it deems necessary or appropriate. +Director Independence +The Board affirmatively determines the independence of each director and nominee for election as a director in accordance with +guidelines it has adopted, which include all elements of independence set forth in Marketplace Rule 5605(a)(2) of the NASDAQ Stock Market LLC ("Nasdaq") and applicable rules of the +Securities and Exchange Commission ("SEC"). The guidelines for director independence are set forth in the Company's Corporate Governance Guidelines and are posted on our website at http://www.deckers.com . These guidelines help ensure that the Board and its committees are independent from management and that the interests of the +Board and management align with the interests of the stockholders. Based on these standards, the Board has determined that each of the Company's directors, other than Mr. Martinez, is +independent (including, with respect to audit committee members and compensation and management development committee members, the heightened independence criteria applicable to such committee members +under Nasdaq and SEC independence standards). +Board of Directors Meetings +The Board of Directors held 6 meetings during the year ended December 31, 2009. For the fiscal year ended December 31, +2009, each of the directors attended 100% of the aggregate number of meetings of both the Board of Directors and the committees on which he or she served, held during the period for which he or she +was a director or committee member, respectively. Our independent directors also meet in executive session following every Board meeting and some of our independent directors met two additional times +in executive session without management present. As lead director, Mr. Licklider presided at these executive sessions. +The +Company's Corporate Governance Guidelines states that directors are expected to attend the Company's annual meeting of stockholders. All members of the then Board of Directors +attended the Company's 2009 Annual Meeting of Stockholders. +Committees of the Board of Directors +The Board of Directors has three committees: an Audit Committee, a Compensation and Management Development Committee and a Corporate +Governance and Nominating Committee. The Board of Directors has determined that each of the directors serving on each of these three committees is "independent" as that term is defined under Nasdaq +Marketplace Rule 5605(a)(2) and applicable rules of the SEC, including the heightened independence criteria +applicable to audit committee members and compensation and management development committee members. +9 +Audit Committee +The Board has a standing Audit Committee that (i) monitors the integrity of the Company's financial reporting process and +systems of internal controls regarding finance, accounting and legal compliance; (ii) monitors the independence and performance of the Company's independent registered public accounting firm, +and internal audit department, (iii) provides an avenue of communications among the independent registered public accounting firm, the internal audit department and the Board of Directors, and +(iv) monitors the Company's enterprise risk management system. The committee held 8 meetings during 2009. At the date of this Proxy Statement, Mr. Gibbons was Chair of the Audit +Committee and the committee was comprised of Messrs. Gibbons and Steen and Ms. Barsa. The Board has determined that Mr. Gibbons qualifies as an "audit committee financial expert" +as defined under the rules of the SEC. All of the members of the Audit Committee meet the independence and experience requirements of the Nasdaq rules and the independence requirements of the SEC. The +Audit Committee operates under a formal charter adopted by the Board of Directors, a copy of which is available on the Company's website at http://www.deckers.com . +Compensation and Management Development Committee +The Board's Compensation and Management Development Committee (i) reviews and approves corporate goals and objectives relevant +to compensation of the executive officers, (ii) evaluates the performance of the executive officers in light of those goals and objectives, (iii) determines and approves the compensation +level of the executive officers based on this evaluation, (iv) makes recommendations to the Board with respect to incentive-compensation plans and equity-based plans, (v) oversees and +approves the management continuity planning process, and (vi) reviews and evaluates the succession plans relating to the executive officers. The Compensation and Management Development +Committee also reviews and recommends to the Board any new compensation or retirement plans and administers the Company's 1993 Employee Stock Incentive Plan (the "1993 Plan") and the Company's 2006 +Equity Incentive Plan (the "2006 Plan"). The committee held 9 meetings during 2009. At the date of this Proxy Statement, Mr. Perenchio was Chair of the Compensation and Management Development +Committee and the committee was comprised of Messrs. Perenchio and Gibbons and Ms. Conners. All of the members of the Compensation and Management Development Committee meet the +independence requirements of all applicable Nasdaq +and SEC rules and regulations. The Compensation and Management Development Committee operates under a formal charter adopted by the Board of Directors, a copy of which is available on the Company's +website at http://www.deckers.com . +Corporate Governance and Nominating Committee +The Board's Corporate Governance and Nominating Committee (i) develops and recommends to the Board a set of Corporate Governance +Guidelines applicable to the Company, (ii) recommends the director nominees to be selected by the Board for the next annual meeting of stockholders, (iii) identifies individuals +qualified to become Board members, consistent with criteria specified in the Corporate Governance Guidelines, (iv) recommends to the Board membership of the Board committees, and +(v) oversees the evaluation of the Board and Board Committees. The committee met 4 times during 2009. At the date of this Proxy Statement, Mr. Licklider was Chair of the Corporate +Governance and Nominating Committee and the committee was comprised of Mr. Licklider, Ms. Conners, and Ms. Owades. All of the members of the Corporate Governance and Nominating +Committee meet the independence requirements of all applicable Nasdaq and SEC rules and regulations. The Corporate Governance and Nominating Committee operates under a formal charter adopted by the +Board of Directors, a copy of which is available on the Company's website at http://www.deckers.com . +10 +Nominating Procedures and Criteria +Among its functions, the Corporate Governance and Nominating Committee consider and approve nominees for election to the Board of +Directors. In addition to the candidates proposed by the Board of Directors or identified by the committee, the committee considers candidates for director suggested by stockholders, provided such +recommendations are made in accordance with the procedures set forth in the Company's Bylaws and described above under "Procedures for Stockholder Nominations." Stockholder nominations that meet the +criteria outlined below will receive the same consideration that the committee's nominees receive. +Essential +criteria for all candidates considered by the Corporate Governance and Nominating Committee include the following: personal and professional integrity, good business judgment, +relevant experience and skills, ability to be an effective director in conjunction with the full Board in collectively +serving the long-term interests of the Company stockholders, and a commitment to devoting sufficient time and energy to diligently perform their duties as a director. +In +evaluating candidates for certain Board positions, the committee evaluates additional criteria, including the following: financial or accounting expertise; industry expertise; +accomplishment in designing, marketing, manufacturing, distribution of footwear, apparel and accessories; business and other experience relevant to public companies of a size comparable to the +Company; international experience; and experience in investment banking, commercial lending or other financing activities. While the committee does not have a policy with regard to the consideration +of diversity in identifying nominees for director, the committee does generally consider diversity among other factors in identifying nominees for director, including personal characteristics such as +race and gender, as well as diversity in the experience and skills that contribute to the Board's performance of its responsibilities in the oversight of the Company's business. +In +selecting nominees for the Board of Directors, the committee evaluates the general and specialized criteria set forth above, identifying the relevant specialized criteria prior to +commencement of the recruitment process, considers previous performance if the candidate is a candidate for re-election, and generally considers the candidate's ability to contribute to +the success of the Company. In evaluating an existing director for re-election to the Board, the committee considers the existing director's Board and committee meeting attendance and +performance, the length of Board service, experience, skills and contributions brought to the Board, and independence. +The +Board of Directors' nominees for the Annual Meeting have been recommended by the Corporate Governance and Nominating Committee, as well as the full Board of Directors. +Stockholders +did not propose any candidates for election at the Annual Meeting. +Corporate Governance Guidelines +The Board has adopted Corporate Governance Guidelines that set forth the primary framework of governance principles applicable to the +Company. The Corporate Governance Guidelines outline the general principles regarding the role and functions of the Board including director qualifications; director independence; Board meetings; +Board committees; the chair and lead director of the Board; director access to officers, employees, and independent advisers; director compensation; director orientation and continuing education; +shareholder rights plans; evaluation of the Chief Executive Officer and management succession; annual Board self-evaluations; and ethical expectations. The complete copy of the Company's +current Corporate Governance Guidelines are available on the Company's website at http://www.deckers.com . +11 +Board Leadership Structure, Lead Director, and Role in Risk Oversight +The Company has employed a leadership structure of having a combined Chairman and Chief Executive Officer for many years and the Board +believes that this leadership structure has been effective for the Company. The combined Chairman and Chief Executive Officer provides a single leader for the Company who is seen by our employees, +customers, business partners and stockholders as providing strong leadership for the Company. In light of this combined office, the Board has implemented various counterbalancing governance structures +including a lead director, a seven-eighths independent board, independent committees, and established governance guidelines. +In +March 2008, the Board of Directors established the position of Lead Director and elected Mr. Licklider to serve in that position, effective with the 2008 Annual Meeting, for a +two-year term, subject to his earlier replacement, retirement or resignation. The Lead Director is an independent director who is selected for a two-year term by the +independent directors on the Board. The Lead Director's responsibilities include (i) coordinating the scheduling and preparation of agenda for the executive sessions of the Board and other +meetings of the Board in the absence of the Chairman of the Board, (ii) chairing executive sessions of the Board and other meetings of the Board in the absence of the Chairman of the Board, +(iii) approving information sent to the Board, (iv) serving as a liaison between the Chairman of the Board and the other independent directors, (v) approving the meeting agendas +for the Board and approving the meeting schedules of the Board to assure that there is sufficient time for discussion of all agenda items, and (vi) if requested by major stockholders, ensuring +that he or she will be available for consultation and direct communication with such major stockholders. The Lead Director has the authority to call meetings of independent directors. +Our +Board is responsible for overseeing our risk management. The Board delegates many of these functions to the Audit Committee. Under its charter, the Audit Committee is responsible for +monitoring enterprise risk management. The Audit Committee also oversees our internal audit function. In addition to the Audit Committee's work in overseeing risk management, our full Board regularly +engages in discussions of the most significant risks that the Company is facing and how these risks are being managed, and the Board receives reports on risk management from the chair of the Audit +Committee. +The +Company's legal and internal audit executives report directly to the Audit Committee regarding material risks to our business, among other matters, and the Audit Committee meets in +executive sessions with the internal audit executive and with representatives of our independent registered public +accounting firm. The chair of the Audit Committee reports to the full Board regarding material risks as deemed appropriate. Every Board meeting agenda also includes a time to discuss risk management +updates. +Communications with Directors +Stockholders may communicate with the chair of our Audit Committee, Corporate Governance and Nominating Committee, or Compensation and +Management Development Committee or with our independent directors as a group, by writing to any such person or group c/o the Secretary of the Company, at the Company's offices at 495-A +South Fairview Avenue, Goleta, California 93117. +Communications +are distributed to the Board of Directors, or to any individual director, depending on the facts and circumstances described in the communication. In that regard, the +Board of Directors has requested that certain items that are unrelated to the duties and responsibilities of the Board of Directors should be excluded, including the following: junk mail and mass +mailings; product complaints; product inquiries; new product suggestions; resumes and other forms of job inquiries; surveys; and business solicitations or advertisements. In addition, material that is +unduly hostile, threatening, illegal or similarly unsuitable will not be distributed, with the provision that any communication that is not distributed will be made available to any independent +director upon request. +12 +Code of Ethics +The Company has adopted a Code of Business Conduct and Ethics to help its officers, directors and other employees comply with the law +and maintain the highest standards of ethical conduct. The Code of Business Conduct and Ethics contains general guidelines for conducting the business of the Company consistent with the highest +standards of business ethics, and is intended to qualify as a "code of ethics" within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder. All of +the Company's officers, directors and employees must carry out their duties in accordance with the policies set forth in the Code of Business Conduct and Ethics and with applicable laws and +regulations. To the extent required by law, any amendments to, or waivers from, any provision of the code will be promptly disclosed publicly either on a report on +Form 8-K or on our corporate website. A free copy of the code can also be obtained from our corporate website at http://www.deckers.com . +Compensation and Management Development Committee Interlocks and Insider Participation +As of the date of this Proxy Statement, the members of the Compensation and Management Development Committee consisted of +Messrs. Perenchio and Gibbons and Ms. Conners, none of whom was an officer or employee of the Company or any of its subsidiaries during fiscal year 2009 or is a former officer or +employee of the Company or any of its subsidiaries. None of these directors had any relationship with the Company during 2009 requiring disclosure under Item 404 of +Regulation S-K. None of our executive officers currently serves, or in the past year has served, as a member of the Board of Directors or compensation committee of any entity that +has an executive officer serving on our Board of Directors or Compensation and Management Development Committee. +EXECUTIVE OFFICERS +Each executive officer of the Company serves at the discretion of the Board of Directors. Biographical information for the executive +officers of the Company as of the date this proxy was filed who are not directors is set forth below. There are no family relationships between any executive officer and any other executive officer or +director. None of our executive officers were selected pursuant to any arrangement or understanding, other than with the executive officers of the Company acting within their capacity as such. +Executive Officer +Age +Position +Angel R. Martinez +54 +Chair of the Board, President and Chief Executive Officer +Thomas A. George +54 +Chief Financial Officer +Zohar Ziv +57 +Chief Operating Officer +Constance X. Rishwain +52 +President of the UGG Division +Colin G. Clark +47 +Senior Vice President, International +The +biographical summary for Mr. Martinez is presented earlier under the heading "Nominees for Director." +Thomas A. George , age 54, has been our Chief Financial Officer since September 2009. Mr. George has over thirty years of experience +in corporate finance and accounting, having served in a number of senior level positions with both public and private companies. Most recently, since February 2005 Mr. George was Chief +Financial Officer of Ophthonix, Inc., a private technology company. Prior to Ophthonix, from October 1997 through February 2005 Mr. George was the Chief Financial Officer of publicly +held Oakley, Inc., now a division of Luxottica Group S.p.A. (NYSE:LUX), a global consumer products brand with wholesale and retail distribution of multiple product categories including +sunglasses and prescription eyewear, apparel, footwear, watches and electronics. Prior to Oakley, from +13 +December +1987 through October 1997 Mr. George was the Senior Vice President and Chief Financial Officer of REMEC, Inc., a public technology company. Mr. George has also served as +Corporate +Controller, and Manager of Financial Planning for other public technology firms. He began his career at Coopers & Lybrand where he became a Certified Public Accountant. He received a Bachelor +of Science in Business Administration from the University of Southern California. +Zohar Ziv , age 57, has been our Chief Operating Officer since December 2007 after serving as Chief Financial Officer and Executive Vice +President, Finance and Administration since March 2006. Mr. Ziv also served as interim Chief Financial Officer after his promotion to Chief Operating Officer from December 2007 to April 2008. +He assumed the responsibilities of Principal Financial and Accounting Officer on an interim basis from March 2009 until September 2009. Previously, from February 2004 to December 2005, Mr. Ziv +was Chief Financial Officer with EMAK Worldwide, Inc. (NASDAQ: EMAK), a global marketing services firm. Prior to that, Mr. Ziv was Chief Financial Officer of Stravina Operating +Company, LLC, a supplier of personalized novelty items in North America, from June 2002 to February 2004. +Constance X. Rishwain , age 52, has been the President of UGG Australia since December 2002. She also served as President of Simple from +December 2002 to December 2009. Prior to her promotion to President in December 2002, she served as the Vice President, Brand Manager of UGG since April 1999 and Vice President, Brand Manager of +Simple since January 2001. Ms. Rishwain held the positions of Vice President of Domestic Sales for Teva, UGG and Simple from June 1999 to December 1999, Vice President of +Sales—Western Division for Teva, UGG and Simple from December 1997 to June 1999 and Vice President Merchandising for Teva, UGG and Simple from January 1995 to December 1997. Before joining +us in January 1995, Ms. Rishwain held the position of Vice President of Merchandising and Marketing for Impo International Shoe Company from 1988 to 1994 and worked for Nine West +Group Inc. from 1984 to 1988 in several capacities, including Vice President Merchandising of Nine West retail division. +Colin G. Clark , age 47, joined Deckers in September 2005 as Senior Vice President, International. Prior to joining Deckers, from October +1991 to June 2004, Mr. Clark spent nearly thirteen years at The Rockport Company, a subsidiary of Reebok International Ltd., most recently serving as Vice President and General +Manager—International. From 1991 to 2001, Mr. Clark held various senior positions at Rockport, including Vice President—Global Marketing, Vice +President—International, Director and General Manager—United Kingdom, and Sales Manager—United Kingdom. +COMPENSATION DISCUSSION AND ANALYSIS +The Compensation and Management Development Committee (for purposes of this analysis, the "Committee") of the Board of Directors (the +"Board") (i) reviews and approves corporate goals and objectives relevant to compensation of the executive officers, (ii) evaluates the performance of the executive officers in light of +those goals and objectives, (iii) determines and approves the compensation level of the executive officers based on this evaluation, and (iv) makes recommendations to the Board with +respect to cash incentive compensation plans and equity incentive +plans. The Committee also reviews and recommends to the Board any new compensation or retirement plans and administers the Company's 1993 Plan and 2006 Plan. The Committee met 9 times during 2009. At +the date of this Proxy Statement, Mr. Perenchio was Chair of the Compensation and Management Development Committee and the committee was comprised of Messrs. Perenchio and Gibbons and +Ms. Conners. The Committee consists entirely of directors who have never served as officers or employees of the Company or any of its subsidiaries and who meet the independence requirements +under all applicable Nasdaq and SEC rules and regulations. +Throughout +this Proxy Statement, the individuals who served during fiscal 2009 as the Company's Chief Executive Officer ("CEO"), Chief Financial Officer ("CFO"), and the other three most +highly +14 +compensated +executive officers of the Company who were executive officers of the Company as of December 31, 2009 and received compensation in excess of $100,000 in such year are referred to as +the "Named Executive Officers." Our Named Executive Officers for 2009 were the following: +• Mr. Angel R. Martinez—CEO and President +• Mr. Thomas R. Hillebrandt—Former Chief Financial Officer. Mr. Hillebrandt served as the +Company's CFO until March 2009 and information is provided as to all of his compensation for the full fiscal year. Mr. Hillebrandt resigned from the Company effective March 20, 2009. +• Mr. Thomas A. George—Chief Financial Officer. Mr. George was appointed as the Company's CFO in +September 2009 and information is provided as to all of his compensation for the full fiscal year. +• Mr. Zohar Ziv—Chief Operating Officer. Mr. Ziv is the Chief Operating Officer and served as the +Company's interim principal financial and accounting officer from March 2009 to September 2009 and he was also one of the three most highly compensated executive officers as of December 31, +2009. Information is provided as to all of his compensation for the full fiscal year. +• Ms. Constance X. Rishwain—President of the UGG Division +• Mr. Colin G. Clark—Senior Vice President, International +Executive Summary +The Company's goal for its executive compensation program is to attract and retain a talented, entrepreneurial and creative team of +executives who will provide leadership for the Company's success. The Company seeks to accomplish this goal in a way that is aligned with the long-term interests of the Company's +stockholders. The Compensation Committee oversees the executive compensation program and determines the compensation of the Company's executive officers. The Company believes the compensation program +for the executive officers was instrumental in helping the Company achieve strong financial performance in the challenging economic and retail environment in 2009. +2009 +included record financial results driven by the strength of the UGG brand and the continued expansion of the Company's domestic, international, and consumer direct businesses. +Despite the challenging economic environment, particularly in the retail sector, the Company grew sales 17.9% to $813.2 million, including domestic sales growth of 11.1% to +$646.0 million and international sales growth of 54.9% to $167.2 million. Furthermore, the Company improved gross margins 130 basis points to 45.6%, and increased GAAP diluted earnings +per share to a record $8.89. The strong performance generated $185.5 million in cash from operations, leaving the Company at year-end with $342.0 million in cash and cash +equivalents and short-term investments. +Compensation Philosophy and Objectives +At the direction of the Board, the Committee endeavors to ensure that the compensation programs for executive officers of the Company +and its subsidiaries are competitive and consistent with market conditions in order to attract and retain key executives critical to the Company's long-term success. The Committee also +must ensure that the compensation is attractive to key executives with the proper background and experience required for the future growth of the Company. The Committee believes that the Company's +overall financial performance and long-term stockholder value should be the most important factors in determining the total compensation of executive officers. At the executive officer +level, the Committee has a policy that a significant proportion of potential total compensation should consist of variable, performance-based components, such as share-based awards and annual +incentive plan compensation, which can increase or decrease to reflect changes in corporate and +15 +individual +performance. These incentive compensation programs are intended to reward performance that enhances profitability and long-term stockholder value. +The +Committee takes into account various qualitative and quantitative indicators of corporate and individual performance in determining the level and structure of compensation for the +Named Executive Officers, as well as other executive officers. The Committee considers such corporate performance measures as net sales, gross margins, operating expenses, diluted earnings per share +and other similar quantitative measures. The Committee also appreciates the importance of achievements that may be difficult to quantify, and accordingly recognizes qualitative factors, such as +successful supervision of major corporate projects, demonstrated leadership ability and contributions to industry and community development. For 2009, the most important qualitative factors in +determining incentive compensation awards to the Named Executive Officers were the Committee's assessments of their contributions to the Company's and stockholders' value by establishing and +implementing a strategy for long-term success. +The +Committee also evaluates the total compensation of the Named Executive Officers and other executives in light of information regarding the compensation practices and corporate +financial performance of similar companies in the Company's industry. The Committee targets a specific percentile range of the peer company data in determining compensation for executive officers as +discussed in more detail below. +Risk Considerations +The Committee believes that although the majority of compensation provided to our executive officers is performance-based, our +executive compensation programs do not encourage excessive and unnecessary risk-taking. The design of these compensation programs encourages our executive officers to remain focused on +both the short- and long-term operational and financial goals of the Company. For example, the long-term incentive award agreements under the 2006 Plan provide for two levels +of awards, Level 1 awards that will not begin to vest until December 31, 2010 and Level 2 awards that will not begin to vest until December 31, 2015. This encourages +officers to satisfy long-term performance objectives. Additionally, although the NSU grants, as defined below in the discussion of our "Performance Based Short-Term and +Long-Term Equity Incentive Compensation," are based upon a one-year performance cycle, the units do not begin to vest until approximately the third anniversary of the date of +grant at which time the units vest in quarterly installments over a one-year period, which encourages officers to satisfy short-term financial goals and long-term +shareholder value, while also encouraging executive retention. +Compensation Consultant +The Committee also receives assessments and advice regarding the Company's compensation practices from its independent compensation +consultant, Frederic W. Cook & Co., Inc. ("FWC"). The use of an independent consultant provides additional assurance that our executive compensation programs are reasonable and +consistent with our objectives. FWC did not provide any other services to the Company in 2009. The consultant reports directly to the Committee, and provides information on competitive practices and +trends in our industry and makes recommendations regarding the design of our compensation program. Our management did not engage FWC in any other capacity for 2009 and does not direct or oversee the +retention or activities of FWC with respect to our executive compensation program. Furthermore, management did not recommend the engagement of FWC. +Role of Executive Officers in Compensation Decisions +The CEO, CFO and COO provide compensation and related data to the Committee to facilitate its decisions and the Committee considers the +CEO's recommendations when making its +16 +determinations. +However, our CEO may not be present during deliberations and voting regarding his own compensation, as well as during other executive sessions of the Committee. The Committee uses the +information provided by the CEO, CFO, COO and FWC to make compensation decisions for the Named Executive Officers as well as other executive officers. The Committee, which includes only independent +members of the Board, approves all elements of compensation for the Named Executive Officers. The Committee also reviews and approves aggregate equity awards to all employees of the Company based on +the recommendations of executive management. The Committee can exercise its discretion in modifying any recommended adjustments or awards to executives. +Setting Executive Compensation +In making compensation decisions, the Committee compares each element of total compensation against a peer group of publicly-traded +footwear and apparel companies (collectively, the "Peer Group"). The Peer Group, which is reviewed and updated at least annually by the Committee, consists of companies against which the Committee +believes the Company competes for talent and for stockholder investment. The Peer Group is composed of companies in related businesses of similar size and market value and consisted of the following +11 companies: +• Quiksilver, Inc. +• Crocs, Inc. +• Skechers U.S.A., Inc. +• The Timberland Company +• Kenneth Cole Productions, Inc. +• Phoenix Footwear Group, Inc. +• Coach, Inc. +• Steven Madden, Ltd. +• Wolverine World Wide, Inc. +• Columbia Sportswear Company +• K-Swiss Inc. +For comparison purposes, at the time 2009 compensation was established, Deckers' annual revenues were below the median of the Peer Group and +Deckers' market capitalization was above the 75 th percentile. In developing the competitive compensation data, regression analysis is used to adjust the compensation data for +differences in company revenues. The adjusted value is used as the basis of comparison of compensation between Deckers and the companies in the Peer Group. The Committee generally sets the target for +total direct compensation (base salary plus annual incentive plan, plus long-term incentives, as described below) for the Named Executive Officers between the range of the +size-adjusted median-to-75 th percentile of compensation paid to similarly situated executives of the Peer Group. We believe this is necessary +for the Company to attract the appropriate executive personnel for future growth and that our performance goals are set at a level that represents commensurate company financial performance. By +setting the target total compensation in this range, we believe that we can attract and retain the qualified executives necessary to attain top quartile performance. However, while the Compensation +Committee uses the Peer Group for general guidance as to the targets for total direct compensation, the Committee continues to exercise its business judgment and considers a variety of factors when +setting compensation levels, including general economic conditions and individual performance expectations. +For +2010 compensation decisions, the Peer Group has changed from the companies listed above to eliminate Phoenix Footwear Group, Inc. and now includes Phillips-Van +Heusen Corporation and Under Armour, Inc. These changes reflect Deckers' continued growth and will provide the Committee with data that reflects the Company's current competitors so that the +Company can continue to set its compensation at levels which are competitive in the marketplace. +The +Committee also looks at proprietary survey information from FWC, which include non-industry specific data on pay levels and design practices for similarly-sized +companies. The data covers more than 300 companies across industries other than financial services, and are sized-adjusted based on the Company's revenues. The Committee reviews this data and the +Proxy data as a guideline to determine the appropriate level and mix of compensation. There is no pre-established policy or +17 +target +for the allocation between either cash and non-cash or short-term and long-term incentive compensation. +2009 Executive Compensation Elements +For the fiscal year ended December 31, 2009, the principal components of compensation for the Named Executive Officers +were: +• base salary, +• bonus and annual non-equity incentive plan compensation, +• performance-based short-term and long-term equity incentive compensation, and +• perquisites and other personal benefits. +Base Salary. Salaries are reviewed periodically and adjusted as warranted to reflect sustained individual performance and comparable +market salaries. +The Committee focuses on incentive pay in the form of +cash and equity in evaluation and rewarding executive officer performance and contribution. As a result, the Committee generally sets base salary at or moderately below the 50th percentile of +compensation paid to similarly situated executives of the companies in the Peer Group so that performance-based pay represents a larger portion of total compensation. The following table summarizes +adjustments made, if any, to base salaries for the Named Executive Officers during 2009 compared to 2008: +Named Executive Officer +Base Salary +Angel R. Martinez +No change to 2008 salary +Thomas A. George +Salary effective September 11, 2009 +Thomas R. Hillebrandt +No change to 2008 salary +Zohar Ziv +No change to 2008 salary +Constance X. Rishwain +Increased by 16.7%, effective January 1, 2009 +Colin G. Clark +No change to 2008 salary +Mr. Martinez's +salary was $750,000 at the end of 2008, and remained at $750,000 through the end of 2009. The Committee determined not to increase his salary over 2008 due to +concerns about the economic environment and its potential impact on the Company. +Mr. George's +salary was provided in his employment contract at $350,000, effective upon his hire date of September 11, 2009. The Committee established this base salary +after review of the Peer Group median +and in light of the Committee's goal to focus on performance-based compensation, while also attracting qualified executive candidates. +Mr. Hillebrandt's +salary was provided in his employment contract at $250,000, effective upon his hire date of April 28, 2008. Mr. Hillebrandt's salary was not +changed during 2009. +Mr. Ziv's +salary was $375,000 at the end of 2008, and remained at $375,000 through the end of 2009. The Committee determined not to increase his salary over 2008 due to concerns +about the economic environment and its potential impact on the Company. +Ms. Rishwain's +salary was $300,000 at the end of 2008 and was subsequently adjusted to $350,000, effective January 1, 2009. The Committee determined to increase her salary +over 2008 based on the UGG brand's performance and growth under her leadership. The UGG brand's performance consistently exceeded expectations throughout 2009. Ms. Rishwain successfully +expanded and diversified the UGG brand. +18 +Mr. Clark's salary was $250,000 at the end of 2008, and remained at $250,000 through the end of 2009. The Committee determined not to increase his salary over 2008 due to concerns +about the economic environment and its potential impact on the Company. +Effective +as of January 1, 2010, the Committee increased Mr. Martinez's salary to $950,000, Mr. Ziv's salary to $500,000, Ms. Rishwain's salary to $400,000, +and Mr. Clark's salary to $275,000. Subsequently, the Committee further determined to increase Mr. Clark's 2010 salary to $300,000. These salary increases were implemented following a +review of each named executive officer's performance, the Company's financial results and the competitive environment. Furthermore, effective as of January 1, 2010, the Company entered into +Change of Control and Severance Agreements with each of the named executive officers which eliminated the excise tax gross ups to which the executives were previously entitled. +Bonus and Annual Non-Equity Incentive Plan Compensation. Each of the Named Executive Officers may receive non-equity +incentive plan compensation comprised of three separate components: one based on the overall financial performance of the Company (the company profit portion) and the second and third based upon the +achievement of individualized goals that are established for each executive, which we refer to as Management by Objectives, or "MBO." The MBOs are further divided into a quantitative and a qualitative +component. The Committee believes in tying our executives' total incentive compensation with the short and long-term strategic objectives of the Company to align our executives' interests +with those of our stockholders. For 2009, the company profit portion of each Named Executive Officer's incentive compensation was based entirely on the Company's diluted earnings per share ("EPS"). +Under the terms of the non-equity incentive plan, the 2009 diluted EPS is calculated without taking into account any impairment charges related to any intangibles of Ahnu, Inc., any +new acquisition completed in fiscal 2009 and the Teva trademark, as well as any earnings or losses from operations of any new acquisition completed in fiscal 2009, because these expenses are outside +of the Company's normal business operations and therefore not reflective of underlying trends in the Company's ongoing operations. Under the terms of the non-equity incentive plan, +however, the 2009 diluted EPS should be calculated to include any charges related to impairments of +the TSUBO trademark, because such impairments reflect the underlying success of this brand which was acquired in May 2008. The Compensation and Management Development Committee establishes individual +quantitative and qualitative MBO goals for each officer at the beginning of each year and such officers receive compensation for the subsequent attainment of these goals in addition to the Company's +achievement of financial performance goals, which are established at the beginning of each year. +In +order to retain key executives and incentivize them to reach our growth goals, which we believe to be at the high end of our peers, the Committee generally sets the annual +non-equity incentive plan target compensation levels at or above comparable levels compared to the target bonus opportunities paid to similarly situated executives of the companies in the +Peer Group. The annual non-equity incentive plan target compensation is expressed as a percentage of each of the executive's annual salary, and is determined so that the total annual cash +compensation opportunity, at target, (base plus annual non-equity incentive plan compensation) is in the median-to-75th percentile range of the Peer Group. +One of the goals of the Company's compensation structure is to foster a team approach, and as a result, each Named Executive Officer employed for the full year has the same target percentage +opportunity. The target amount for the total award for 2009 for each executive, other than the Chief Financial Officer, was 100% of base salary, with the potential to exceed the target and earn up to +200% for the company profit portion and up to 200% for the quantitative and qualitative MBO portions. The target amount for the total award for the Chief Financial Officer is 50% of base salary, which +is pro-rated based on actual length of service during the year. The total awards are calculated by adding the amounts earned under the company profit portion, the quantitative MBO portion +and the qualitative MBO portion and multiplying this amount by the target amount. Each portion of the awards are calculated separately by multiplying the base salary by the percentage earned for each +component +19 +and +then multiplying this amount by the percentage allocated to each component in accordance with the terms of the non-equity incentive plan. Amounts attributable to the company profit +portion and quantitative MBO portion shall not be effected by the calculation of the qualitative MBO portion and are intended to qualify as "performance-based compensation" within the meaning of +Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). The Committee may exercise discretion and award amounts outside of the annual non-equity incentive plan +irrespective of the attainment of performance criteria under the plan, which are included in the Summary Compensation Table in the Bonus column. This allows the Committee to consider the executive's +and the Company's performance on a global level and to account for successes which were unforeseen at the beginning of the year. Based on the continued success of the Company, including the continued +growth in sales in a difficult economic and retail environment and achievement of strategic accomplishments such as diversification to the product lines and expansion of our selling season, the +Committee determined to award amounts outside of the non-equity incentive compensation plan this year as an additional bonus. In addition, a sign-on bonus was also awarded to +Mr. George in connection with his hiring. The allocation of the 2009 annual non-equity incentive plan compensation and respective percentages and amounts earned are as follows: +Earned (%) and Earned ($) +Name +Target +Percentage +of Salary +Company +Profit +Portion +Quantitative +MBO +Portion +Qualitative +MBO +Portion +Company +Quantitative +MBO +Qualitative +MBO +Bonus in Addition to +Non-Equity Incentive +Plan Compensation +Angel R. Martinez +100 +% +50 +% +30 +% +20 +% +200% +($750,000) +181% +($408,285) +200% +($300,000) +$ +441,715 +Thomas A. George +50 +% +50 +% +30 +% +20 +% +200% +($58,333) +200% +($35,000) +200% +($23,333) +$ +73,333 +(1) +Thomas R. Hillebrandt +50 +% +50 +% +30 +% +20 +% +200% +($31,250) +0% +($0) +0% +($0) +— +Zohar Ziv +100 +% +50 +% +30 +% +20 +% +200% +($375,000) +200% +($225,000) +200% +($150,000) +$ +150,000 +Constance X. Rishwain +100 +% +25 +% +55 +% +20 +% +200% +($175,000) +200% +($385,000) +200% +($140,000) +$ +200,000 +Colin G. Clark +100 +% +25 +% +55 +% +20 +% +200% +($125,000) +200% +($275,000) +200% +($100,000) +$ +150,000 +(1) The +amount in this column reflects a $40,000 sign-on bonus and $33,333 paid in addition to non-equity incentive plan compensation as +discussed above. +The target amounts and relative weight of the company profit portion and MBO portions of executive annual non-equity incentive plan +compensation may be varied by the Committee from year to year. +Company profit portion. Those executives that are responsible for brands and have influence over brand decisions are less heavily +weighted on the +company profit portion, as opposed to those executives that cannot be directly attributed to specific brands. In 2009, demand for our products increased substantially more than anticipated, and as a +result, the Company, taking into account the impairment related to the TSUBO brand, substantially exceeded the diluted EPS target, thus earning the maximum of the company profit portion. The 2009 +diluted EPS goals established at the beginning of the year were $6.54 for threshold performance, $7.28 for target performance, and $8.36 for maximum performance. The company profit portion of the +non-equity incentive plan compensation is intended to qualify as "performance-based compensation" under Section 162(m) of the Code. For threshold performance, 50% of the Company +profit portion would be earned. +MBO portion. For 2009, quantitative and qualitative MBOs were established at the beginning of the year as follows for each Named +Executive Officer. +The Committee uses its discretion when evaluating the qualitative MBO portion earned for each of the Named Executive Officers. However, the quantitative MBO portion earned for each of the Named +Executive Officers is determined based +20 +on +the percentage of the quantitative MBOs attained by each of the Named Executive Officers. The Committee assesses the attainment of the qualitative MBOs based on business or other factors that may +have affected the attainment of those objectives. The quantitative MBO portion of the non-equity incentive plan compensation is intended to qualify as "performance based +compensation" under Section 162(m) of the Code. For threshold performance under the quantitative MBO portion and qualitative MBO portion, 75% of each respective MBO portion would be earned. +Mr. Martinez's +quantitative MBOs were based on achieving sales of $775 million, an annual inventory turnover rate of 3.3, and a backlog increase of 10% over prior year. +Mr. Martinez's qualitative MBOs consisted of individual growth in business, team and personal development. For business development, Mr. Martinez's objectives were to maintain a +compelling vision and strategy for the Company and anticipate short and long-term trends that may affect key strategies. For team development, Mr. Martinez's objectives were to +drive the leadership team accountability to meet the Company's strategic plan while delivering bench strength at the executive management level. For personal development, Mr. Martinez was to +set the tone and pace for change, strong culture and performance. The sales target was substantially exceeded and the inventory turnover target was exceeded; however, because the backlog increase +target was not met, under the terms of the non-equity incentive plan, Mr. Martinez earned 181% of his quantitative MBO portion. Mr. Martinez's successful leadership of the +Company during a challenging economic environment exemplified Mr. Martinez's outstanding performance in each of the business, team and personal development MBO categories. Mr. Martinez +oversaw a number of strategic accomplishments this year, including diversification of our product lines, expansion of our selling seasons and an increase in our global footprint. Mr. Martinez's +leadership role established the strong culture for success at the Company and can be seen in the Company's continued sales growth. Based on these achievements, the Committee determined to award +Mr. Martinez 200% of his qualitative MBO portion. +Mr. George's +quantitative MBOs were based on timely SEC filings, favorable SOX opinions, an annual inventory turnover rate of 3.3, managing operating expenses to not exceed +approximately 25% of net sales, and achieving a return on capital of 22%. Mr. George's qualitative MBOs consisted of individual growth in business, team and personal development. +Mr. George achieved timely SEC filings and favorable SOX opinions. The annual targets for inventory turnover, operating expenses and return on capital were exceeded and therefore under the +terms of the non-equity incentive plan, Mr. George earned 200% of his quantitative MBO portion. Mr. George also demonstrated outstanding performance in business, team and +personal development through his successful integration into the finance department after his hiring and therefore the Committee determined to award Mr. George 200% of his qualitative MBO +portion. +Mr. Hillebrandt's +quantitative MBOs were based on timely SEC filings, favorable SOX opinions, an annual inventory turnover rate of 3.3, managing operating expenses to not exceed +approximately 25% of net sales, and achieving a return on capital of 22%. Mr. Hillebrandt's qualitative MBOs consisted of individual growth in business, team and personal development. Due to +his resignation from the Company in March 2009, Mr. Hillebrandt was not treated as satisfying his annual MBO goals which required service at the end of the fiscal year and therefore +Mr. Hillebrandt did not earn any amounts under the qualitative or quantitative MBO portions. However, he did receive amounts under the company profit portion, as described above. +Mr. Ziv's +quantitative MBOs were based on achieving sales of $775 million, an annual inventory turnover rate of 3.3, and managing operating expenses to not exceed +approximately 25% of net sales. Mr. Ziv's qualitative MBOs consisted of individual growth in business, team and personal development. For business development, Mr. Ziv's objectives were +to facilitate the vision and corporate performance through organizational change and operational enhancement. For team development, Mr. Ziv's objectives were to establish a common cause and a +shared mindset amongst the Company's operating organizations and executive team management. For personal development, Mr. Ziv was to cultivate a +21 +strong +leadership presence that can translate into high impact results for the Company. The annual sales target was substantially exceeded and the inventory turnover rate and operating expense targets +were exceeded and therefore under the terms of the non-equity incentive plan Mr. Ziv earned 200% of his quantitative MBO portion. Mr. Ziv's leadership as the Company's +interim principal financial and accounting officer and chief operating officer exemplified Mr. Ziv's strong performance in his business, team and personal development goals. This year +Mr. Ziv oversaw the expansion of our eCommerce platform, the addition of five new Company-owned retail stores and our new overseas distribution agreements while leading the executive team to +achieve common goals such as improving gross margins to 45.6%. Based on these achievements, the Committee determined to award Mr. Ziv 200% of his qualitative MBO portion. +Ms. Rishwain's +quantitative MBOs were based on achieving UGG and Simple brand sales of $672 million, an annual inventory turnover rate of 3.4 for the UGG and Simple brands, +contribution income growth of approximately 3%, and a backlog increase of 10% over prior year. Ms. Rishwain's qualitative MBOs consisted of individual growth in business, team and personal +development. For business development, Ms. Rishwain was to drive a compelling strategic vision for accelerated top-line growth and global expansion of the UGG brand and to deliver +revenue and earnings targets for the Simple brand. For team development, Ms. Rishwain was to facilitate the collaborative transfer of brand competencies to the international team while +continuing to stretch brand staff development toward leadership and innovation and to restructure the Simple brand. For personal development, Ms. Rishwain's objectives were to continue to +develop worldwide vision and leadership roles to expand the UGG and Simple brands. While the backlog target was missed by a small margin, Ms. Rishwain exceeded her inventory turnover target in +a challenging economic environment, and the sales targets and contribution income targets were substantially exceeded and therefore under the terms of the non-equity incentive plan, +Ms. Rishwain earned 200% of her quantitative MBO portion. Ms. Rishwain's continued success in the growth of the UGG brand and the strategic progress with the Simple brand illustrate +Ms. Rishwain's strong performance in her business, team and personal development goals. Ms. Rishwain led the UGG brand to a sales increase of 22.3%, including increased sales in Europe +and Asia and oversaw the progress of the Simple brand as a leader in sustainable footwear while emphasizing compelling designs to broaden the brand's consumer base. Based on these achievements, the +Committee determined to award Ms. Rishwain 200% of her qualitative MBO portion. +Mr. Clark's +quantitative MBOs were based on achieving international sales of $137 million, an annual inventory turnover rate of 3.1 for international sales, contribution +income growth of approximately 105%, a backlog increase of approximately 10% over prior year. Mr. Clark's qualitative MBOs consisted of individual growth in business, team and personal +development. For business development, Mr. Clark was to establish a vision to expand and grow our international business through a multi-channel distribution structure with integrated +strategies. For team development, Mr. Clark's objectives were to +facilitate accountability through a cross-functional U.S./non-U.S. matrix management structure. For personal development, Mr. Clark was to develop timely methods to transform +threats into opportunities. While the inventory turnover rate target and backlog target were not met, this was mostly due to fewer retail store openings compared to plan and the sales and contribution +income targets for international sales were substantially exceeded and therefore under the terms of the non-equity incentive plan Mr. Clark earned 200% of his quantitative MBO +portion. Mr. Clark's successful management of the early stages of our movement from a distribution model in Japan and Europe demonstrate Mr. Clark's strong individual performance as well +as his strong contribution toward business and team development. Mr. Clark led the international division to a sales increase of 54.9% and established plans to convert to a wholesale model for +the UGG, Teva and Simple brands in the United Kingdom as well as for the UGG and Simple brands in Benelux and France over the next few years. Based on these achievements, the Committee determined to +award Mr. Clark 200% of his qualitative MBO portion. +22 +Performance-based Short-Term and Long-Term Equity Incentive Compensation. Long-term incentives are granted under +the 2006 Plan, which authorizes the Committee to make grants and awards such as stock options, stock appreciation rights ("SARs"), nonvested stock units ("NSUs") and restricted stock units ("RSUs"). +The compensation attributable to SARs, NSUs and RSUs is intended to qualify as "performance-based compensation" under Section 162(m) of the Code. +Beginning +in December 2004, the Board and the Committee determined to cease issuing stock options to directors, officers and employees of the Company. Officers and employees are now +issued NSUs, which are stock units payable in shares upon satisfying specific performance and service-related vesting conditions. NSUs are considered to continue to align the interests of the +directors, officers and employees with those of the stockholders at a lower cost than the previous stock option grants. This policy is reviewed by the Board and the Committee periodically and may be +changed in the future. +Officers +and key employees are eligible to receive NSUs annually, or as circumstances warrant, in an amount to be determined by the Board or the Committee. The amount of NSUs granted is +primarily determined by the employee's level within the organization and the level of criticality of their positions to the organization. In March, 2009, NSUs were granted with respect to fiscal 2009 +performance. NSUs were also granted to the Chief Financial Officer upon his hiring in September 2009 for fiscal 2009 performance. The Committee sets these annual equity grants in the +median-to-75th percentile range of the Peer Group. +Specifically, +the NSUs granted in 2009 were earned based on the achievement of the 2009 diluted EPS goal. The 2009 diluted EPS goals established on the date of grant were a threshold of +$6.54 and a target of $7.28. Once earned, the NSUs vest based on continued employment over approximately three years according to the following schedule: 25% on March 31, June 30, +September 30, and December 31, 2012. This vesting schedule was determined to encourage officers and key employees to remain with the Company for the long-term. As discussed +further under "Potential Payments Upon Termination or Change of Control" below, this vesting schedule may be accelerated if the executive's employment is terminated for various reasons or upon a +change in control followed by a termination. +In +May 2007, the Company's Board of Directors, upon recommendation of the Committee, adopted four new types of long-term incentive award agreements under the 2006 Plan for +issuance to the Company's current and future senior executive officers. The new award types consist of SAR awards and RSU awards. These awards vest subject to (1) the achievement of revenue and +earnings goals, which goals are based on a high rate of growth for sales, and (2) satisfaction of long-term service conditions over approximately a five-year period +(Level 1 grants) or approximately a ten-year period (Level 2 grants). For Level 1 grants, sales must increase approximately 65% and diluted earnings per share must +increase approximately 110% over these levels at the time these awards were adopted by the Board. For Level 2 grants, sales must increase over 220% and diluted earnings per share must increase +approximately 320% over these levels at the time these awards were adopted by the Board. Provided that these conditions are met, the Level 1 SAR and RSU awards vest 80% on December 31, +2010 and 20% on December 31, 2011, and the Level 2 SAR and RSU awards vest 80% on December 31, 2015 and 20% on December 31, 2016. These awards were designed to motivate the +executive team to outperform the Company's Peer Group (otherwise the awards would not vest) as well as for retention purposes. In May 2007, the Committee granted SARs and RSUs to the Named Executive +Officers. In approving 2007 grants, the Committee considered industry comparisons and competitive data as well as the responsibility levels of the executives relative to one another. No grants of +these types of awards were made in 2008 and 2009. +In +addition, the Committee evaluates aggregate equity awards based on a Shareholder Value Transfer ("SVT") rate. SVT is the fair value of all equity awards granted during the year as a +percentage of company market capitalization value. The Committee believes this measure is valuable because it allows the Company to compare the annual cost of its equity program versus peer +23 +companies. +The Committee set the SVT rate in 2009 so that it would be approximately 1%, which is in line with the Peer Group median. Other factors considered in share-based award grants was the total +outstanding equity awards for each executive, total potential dilution under all employee stock plans, annual share usage, allocation of the annual equity pool, and the fair value of awards granted to +each individual. The Committee assessed where the Company's Named Executive Officers ranked in all these areas among the Peer Group. +Perquisites and Other Personal Benefits. There is no specific policy on perquisites and other personal benefits awarded to the Named +Executive +Officers. The Company administers a 401(k) defined +contribution plan that substantially all employees are eligible to participate in through tax-deferred contributions. The Company matches 50% of an employee's contribution up to the +greater of $2,400 or 6% of their eligible compensation per year. The Company also pays the premiums for long-term disability insurance for the Named Executive Officers. In order to attract +the appropriate candidates, the Committee may approve relocation benefits, as deemed appropriate. In 2009, the only perquisites and other personal benefits approved by the Committee for the Named +Executive Officers was the continuation of a housing differential to Mr. Clark for part of the year, which was agreed to at the time of his hiring in 2005. +Beginning +on February 1, 2010, the Named Executive Officers are also eligible to make contributions to the Company's Nonqualified Deferred Compensation Plan, described in further +detail below under the section titled "Nonqualified Deferred Compensation." +Employment Contracts and Severance Arrangements. During 2009, each of the Named Executive Officers was party to employment agreements +with the +Company. Those agreements establish the terms and conditions for the employment relationship each executive has with the Company and specifies compensation, executive benefits, severance provisions, +change in control provisions, and other conditions. The Committee periodically reviews the competitiveness of its severance and change-in-control arrangements when the +employment agreements with the Named Executive Officers near the end of their stated terms. All of the employment agreements with each of the Named Executive officers expired pursuant to their terms +on December 31, 2009. +In +December 2009, the Committee adopted Change of Control and Severance Agreements for each of the Named Executive Officers to replace the employment agreements which expired on +December 31, 2009. The purpose of the Change of Control and Severance Agreements is to ensure the continued services of the Named Executive Officers while reducing the overall cost to the +Company of their prior employment agreements by eliminating certain provisions contained in the prior employment agreements, including elimination of excise tax gross up. +Separation +benefits described below are intended to ease a Named Executive Officer's transition due to an unexpected employment termination by the Company due to on-going +changes in the Company's employment needs. Separation benefits include cash payments and other benefits in an amount the Company believes is appropriate, taking into account the time it is expected to +take a separated executive to find another job. The Company considers it likely that it will take more time for higher-level employees to find new employment commensurate with their prior experience, +and therefore senior management generally are paid severance for a longer period. The Company benefits by requiring a general release, and non-solicitation provisions in connection with +the individual separation agreements. Additional payments may be approved by the Committee in some circumstances as a result of negotiation with executives, especially where the Company desires +particular terms with regard to non-disparagement, cooperation with litigation, non-competition and non-solicitation. +The +employment agreement for each executive specifically details various provisions for benefits and cash payments in the event of a separation during the normal course of business and +in the event of a change in control followed by a subsequent termination. Generally, these agreements specify conditions and benefits within the following categories: death, disability, termination by +the Company +24 +for +cause; termination by executive without good reason; termination by the executive with good reason and termination by the Company without cause. +The +Company's change in control provisions for the Named Executive Officers provide for severance benefits and the accelerated vesting of certain equity awards upon a termination of the +executive's employment in connection with a change in control. There are no benefits triggered solely based on the occurrence of a change in control as long as the change in control is approved by a +majority of the directors and the successor entity provides for the continuance of the award. However, upon a change in control, the performance conditions of the SARs and RSUs are deemed satisfied, +but the awards remain subject to the service-based vesting conditions. These arrangements are intended to preserve morale and productivity and encourage retention in the face of the disruptive impact +of a change-in-control of the Company. In addition, change-in-control benefits encourage the Named Executive Officers to remain focused on the business +and interest of our stockholders when considering strategic alternatives. Based on a competitive analysis of the change in control arrangements maintained by the corporations in the Company's Peer +Group, the Committee believes that these benefits are customary among the Company's Peer Group for executives in similar positions as the Named Executive Officers. +NSUs, +RSUs and SARs cannot be sold, assigned, transferred or pledged other than by will or laws of descent. +Please +refer to the discussion under "Potential Payments upon Termination or Change of Control" for a more detailed discussion of the severance and change in control arrangements. +Tax and Accounting Implications +Taxation and Deductibility of Executive Compensation +To the extent readily determinable, and as one of the factors in its consideration of compensation matters, the Committee considers the +anticipated tax treatment to the Company and to the executives of various payments and benefits. Some types of compensation payments and their deductibility depend upon the timing of an executive's +vesting of previously granted awards. +Under +Section 162(m) of the Code, a public company generally will not be entitled to a deduction for non-performance-based compensation paid to certain executive +officers to the extent such compensation exceeds $1.0 million. Special rules apply for performance-based compensation, including the approval of the performance goals by the stockholders of the +Company. The Company has not adopted any formal policy with respect to Section 162(m) of the Code. However, the Committee generally structures compensation to be deductible and considers cost +and value to the Company in making compensation decisions, which would result in non-deductibility. The Board has on occasion made decisions resulting in non-deductible +compensation. The qualitative MBO portion of the annual non-equity incentive plan compensation and the additional bonuses awarded outside of the non-equity incentive +compensation plan are not intended to qualify as "performance-based compensation" under Section 162(m) of the Code. The Committee and the Board believe that these payments were appropriate and +in the best interests of the Company. +The +Company believes that the company profit portion and the quantitative MBO portion of its non-equity incentive plan and its grants of NSUs, RSUs and SARs meet the +exception for performance-based compensation described in the previous paragraph. +Accounting for Stock-Based Compensation +Beginning on January 1, 2006, the Company began accounting for share-based awards in accordance with the requirements of +Statement of Financial Accounting Standards No. 123 (revised +25 +2004), +Share-Based Payment ("SFAS 123R"), which has since been renamed and replaced with Financial Accounting Standards Board Accounting +Standards Codification Topic 718, Stock Compensation . +COMPENSATION COMMITTEE REPORT +The Compensation and Management Development Committee of the Company has reviewed and discussed the Compensation Discussion and +Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation and Management Development Committee +recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement. +THE COMPENSATION AND MANAGEMENT +DEVELOPMENT COMMITTEE +John G. Perenchio, Chair +John M. Gibbons +Maureen Conners +The +Report of the Compensation and Management Development Committee on Executive Compensation shall not be deemed incorporated by reference by any general statement incorporating by +reference this Proxy Statement into any filing under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, except to the extent that the Company +specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts. +26 +SUMMARY COMPENSATION TABLE +The following table sets forth, for the years ended December 31, 2009, 2008, and 2007 all compensation paid or awarded to the +Named Executive Officers. +Name and principal position +Year +Salary ($) +Bonus ($) +Stock +Awards +($) +Stock +Appreciation +Rights +Awards +($)(1) +Non-Equity +Incentive +Plan +Compensation +($)(2) +All +Other +Compensation +($)(3) +Total ($) +Angel R. Martinez +2009 +$ +750,000 +$ +441,715 +$ +706,725 +$ +— +$ +1,458,285 +$ +— +$ +3,356,725 +Chief Executive Officer +2008 +750,000 +300,000 +1,526,400 +— +1,500,000 +— +4,076,400 +and President +2007 +500,000 +— +1,002,500 +(9) +5,040,000 +(10) +1,400,000 +— +7,942,500 +Thomas A. George +2009 +95,577 +73,333 +(8) +105,315 +— +116,667 +— +390,892 +Chief Financial Officer +Thomas R. Hillebrandt(4) +2009 +62,500 +— +— +— +31,250 +201,997 +(5) +295,747 +Former Chief Financial Officer +2008 +166,667 +— +470,340 +— +116,667 +38,665 +(5) +792,339 +Zohar Ziv +2009 +375,000 +150,000 +471,150 +— +750,000 +— +1,746,150 +Chief Operating Officer +2008 +375,000 +75,000 +1,017,600 +— +750,000 +— +2,217,600 +2007 +300,000 +— +280,700 +(9) +1,260,000 +(10) +840,000 +20,338 +(6) +2,701,038 +Constance X. Rishwain +2009 +350,000 +200,000 +471,150 +— +700,000 +— +1,721,150 +President of the +2008 +300,000 +225,000 +954,000 +— +600,000 +— +2,079,000 +UGG Division +2007 +250,000 +— +280,700 +(9) +1,260,000 +(10) +656,250 +— +2,446,950 +Colin G. Clark +2009 +250,000 +150,000 +340,275 +— +500,000 +— +1,240,275 +Senior Vice President of +2008 +250,000 +93,750 +763,200 +— +500,000 +24,000 +(7) +1,630,950 +International +2007 +225,000 +— +280,700 +(9) +1,260,000 +(10) +464,063 +24,000 +(7) +2,253,763 +(1) The +amounts in these columns are calculated based on provisions of FASB ASC Topic 718. See note 7 of the consolidated financial statements of the +Company's Annual Report on Form 10-K for the year ended December 31, 2009 regarding assumptions underlying valuation of equity awards. In the Proxy Statement for previous +years, as required by regulations of the Securities and Exchange Commission, the amounts in these columns were calculated based on provisions of SFAS 123R. As now required by revised +regulations of the Securities and Exchange Commission, amounts included for prior years in the table above have been recalculated based on FASB ASC Topic 718. +(2) The +amounts in this column reflect the cash awards to the named individuals under the Annual Incentive Plan, which is discussed in further detail under the +heading "Annual Non-Equity Incentive Plan Compensation." +(3) The +amounts in this column reflect, for each respective executive, a housing allowance for relocation paid by the Company to, or on behalf of, the +executives, except as noted in footnotes (5) through (7) below. +(4) Mr. Hillebrandt +resigned from the Company effective March 20, 2009. +(5) In +addition to the item noted in footnote (3) above, the amount shown in the table above as "All Other Compensation" for Mr. Hillebrandt +includes $187,500 severance pay and $9,290 vacation pay for the year ended December 31, 2009, $25,000 for a sign-on bonus for the year ended December 31, 2008, $252 Long Term +Disability for the year ended December 31, 2009, $4,955 and $3,184 for the years ending December 31, 2009 and 2008, respectively, received as matching contributions paid by the Company +pursuant to the 401(k) defined contribution plan, which is more fully described under the heading "Perquisites and Other Personal Benefits." +(6) In +addition to the item noted in footnote (3) above, the amount shown in the table above as "All Other Compensation" for Mr. Ziv includes +$6,750 for the year ended December 31, 2007, received as matching contributions paid by the Company pursuant to the 401(k) defined contribution plan, which is more fully described under the +heading "Perquisites and Other Personal Benefits." +(7) The +amounts in this column reflect a housing differential paid by the Company to Mr. Clark. +(8) This +amount includes a $40,000 sign-on bonus paid by the Company to Mr. George. +(9) Amounts +reflect stock awards whose performance condition was considered probable in 2007. Assuming the highest level of performance condition will be met, +the award amounts are as follows: $2,005,000 for Angel Martinez and $561,400 for each of Zohar Ziv, Constance Rishwain and Colin Clark. +(10) Amounts +reflect stock appreciation rights whose performance condition was considered probable in 2007. Assuming the highest level of performance condition +will be met, the award amounts are as follows: $11,930,000 for Angel Martinez and $2,982,500 for each of Zohar Ziv, Constance Rishwain and Colin Clark. +27 +GRANTS OF PLAN BASED AWARDS IN 2009 +The following table sets forth all grants of plan-based awards made to the Named Executive Officers during the fiscal year +ended December 31, 2009. For further discussion regarding the grants, see above under "Compensation Discussion and Analysis." +Estimated Future Payouts Under +Non-Equity Incentive Plan Awards +Estimated Future Payouts Under +Equity Incentive Plan Awards(2) +Grant Date +Fair Value +of Stock +Awards ($) +Name +Grant Date +Threshold +($) +Target +($) +Maximum(1) +($) +Threshold +(#) +Target +(#) +Maximum +(#) +Angel R. Martinez +3/30/2009 +(3) +$ +468,750 +$ +750,000 +$ +1,500,000 +6,750 +13,500 +13,500 +$ +706,725 +Thomas A. George +9/11/2009 +(3) +36,458 +58,333 +116,666 +750 +1,500 +1,500 +105,315 +Thomas R. Hillebrandt(4) +N/A +78,125 +125,000 +250,000 +— +— +— +— +Zohar Ziv +3/30/2009 +(3) +234,375 +375,000 +750,000 +4,500 +9,000 +9,000 +471,150 +Constance X. Rishwain +3/30/2009 +(3) +240,625 +350,000 +700,000 +4,500 +9,000 +9,000 +471,150 +Colin G. Clark +3/30/2009 +(3) +171,875 +250,000 +500,000 +3,250 +6,500 +6,500 +340,275 +(1) The +amounts shown here are the designated maximum plan awards; however, in each of these cases (except for Thomas George), the actual amounts paid exceeded +the maximum amounts designated. Refer to "Annual Non-Equity Incentive Plan Compensation" above for further discussion on actual amounts paid to Named Executive Officers. +(2) All +grants are under the 2006 Plan. +(3) The +number of NSUs awarded in the 2009 annual grant was primarily based on the executive's respective level within the Company and the level of criticality +of his or her position. Mr. George's award was pro-rated based on his hire date. The amount of NSUs paid was based on achievement of Company performance objectives for fiscal 2009 +and long-term service conditions. +(4) Mr. Hillebrandt +resigned from the Company effective March 20, 2009 and consequently, did not have any NSUs granted during the fiscal year +ended December 31, 2009. +28 +OUTSTANDING EQUITY AWARDS AT 2009 FISCAL YEAR END +The following table sets forth equity awards of the Named Executive Officers outstanding as of December 31, 2009. +Stock Appreciation Rights (SAR) Awards +Stock Awards +Name +Number of +Securities +Underlying +Unexercised +SARs (#) +Exercisable +Number of +Securities +Underlying +Unexercised +SARs (#) +Unexercisable +Stock +Price at +Date of +Grant ($) +SAR +Expiration +Date(1) +Number +of Stock +Awards That +Have Not +Vested(2) (#) +Market +Value of +Units of +Stock that +Have Not +Vested(3) ($) +Angel R. Martinez +— +100,000 +$ +80.20 +5/9/2017 +62,500 +(4) +$ +6,357,500 +— +100,000 +80.20 +5/9/2022 +Thomas A. George +— +— +— +— +1,500 +(5) +152,580 +Thomas R. Hillebrandt +— +— +— +— +— +(6) +— +Zohar Ziv +— +25,000 +80.20 +5/9/2017 +30,000 +(7) +3,051,600 +— +25,000 +80.20 +5/9/2022 +Constance X. Rishwain +— +25,000 +80.20 +5/9/2017 +29,500 +(8) +3,000,740 +— +25,000 +80.20 +5/9/2022 +Colin G. Clark +— +25,000 +80.20 +5/9/2017 +25,500 +(9) +2,593,860 +— +25,000 +80.20 +5/9/2022 +(1) All +SARs were granted on May 9, 2007. SARs vest subject to long-term performance objectives and long-term service conditions. +Provided that these conditions are met, Level 1 SAR awards vest 80% on December 31, 2010 and 20% on December 31, 2011. Level 2 SAR awards vest 80% on December 31, +2015 and 20% on December 31, 2016. +(2) All +RSUs were granted on May 9, 2007. RSUs vest subject to long-term performance objectives and long-term service conditions. +Provided that these conditions are met, Level 1 RSU awards vest 80% on December 31, 2010 and 20% on December 31, 2011. Level 2 RSU awards vest 80% on December 31, +2015 and 20% on December 31, 2016. +(3) The +closing price of the Company's Common Stock on December 31, 2009 was $101.72. +(4) Consists +of: (i) 12,000 nonvested stock units granted on December 21, 2006, which shares vest in equal quarterly installments starting +March 31, 2010; (ii) 12,500 restricted stock units granted on May 9, 2007, which shares vest 80% on December 31, 2010 and 20% on December 31, 2011, subject to the +satisfaction of performance conditions; (iii) 12,500 restricted stock units granted on May 9, 2007, which shares vest 80% on December 31, 2015 and 20% on December 31, 2016, +subject to the satisfaction of performance conditions; (iv) 12,000 nonvested stock units granted on February 27, 2008, which shares vest in equal quarterly installments starting +March 31, 2011; and (v) 13,500 nonvested stock units granted on March 30, 2009, which shares vest in equal quarterly installments starting March 31, 2012. +(5) Consists +of 1,500 nonvested stock units granted on September 11, 2009, which shares vest in equal quarterly installments starting +September 30, 2012. +(6) Mr. Hillebrandt +resigned from the Company effective March 20, 2009, and consequently, 2,652 nonvested stock units were forfeited and 698 +nonvested stock units vested during the fiscal year ended December 31, 2009. +(7) Consists +of (i) 6,000 nonvested stock units granted on December 21, 2006, which shares vest in equal quarterly installments starting on +March 31, 2010; (ii) 3,500 restricted stock units granted on May 9, 2007, which shares vest 80% on December 31, 2010 and 20% on December 31, 2011, subject to the +satisfaction of performance conditions; (iii) 3,500 restricted stock units granted on May 9, 2007, which shares vest 80% on December 31, 2015 and 20% on December 31, 2016, +subject to the satisfaction of performance conditions; (iv) 8,000 nonvested stock units granted on February 27, 2008, which shares +29 +vest +in equal quarterly installments starting March 31, 2011; and (v) 9,000 nonvested stock units granted on March 30, 2009, which shares vest in equal quarterly installments +starting March 31, 2012. +(8) Consists +of (i) 6,000 nonvested stock units granted on December 21, 2006, which shares vest in equal quarterly installments starting on +March 31, 2010; (ii) 3,500 restricted stock units granted on May 9, 2007, which shares vest 80% on December 31, 2010 and 20% on December 31, 2011, subject to the +satisfaction of performance conditions, (iii) 3,500 restricted stock units granted on May 9, 2007, which shares vest 80% on December 31, 2015 and 20% on December 31, 2016, +subject to the satisfaction of performance conditions; (iv) 7,500 nonvested stock units granted on February 27, 2008, which shares vest in equal quarterly installments starting +March 31, 2011; and (v) 9,000 nonvested stock units granted on March 30, 2009, which shares vest in equal quarterly installments starting March 31, 2012. +(9) Consists +of (i) 6,000 nonvested stock units granted on December 21, 2006, which shares vest in equal quarterly installments starting on +March 31, 2010; (ii) 3,500 restricted stock units granted on May 9, 2007, which shares vest 80% on December 31, 2010 and 20% on December 31, 2011, subject to the +satisfaction of performance conditions; (iii) 3,500 restricted stock units granted on May 9, 2007, which shares vest 80% on December 31, 2015 and 20% on December 31, 2016, +subject to the satisfaction of performance conditions; (iv) 6,000 nonvested stock units granted on February 27, 2008, which shares vest in equal quarterly installments starting +March 31, 2011; and (v) 6,500 nonvested stock units granted on March 30, 2009, which shares vest in equal quarterly installments starting March 31, 2012. +2009 OPTION EXERCISES AND STOCK VESTED +The following table provides information, for the Named Executive Officers, regarding stock option exercises and stock award vesting +during 2009, including the number of shares acquired upon exercise or vesting and the value realized, before payment of any applicable withholding tax and broker commissions. +Option Awards +Stock Awards +Number of +Shares +Acquired on +Exercise (#) +Value +Realized on +Exercise ($) +Number of +Shares +Acquired on +Vesting (#) +Value +Realized on +Vesting ($) +Angel R. Martinez +— +$ +— +24,500 +$ +1,592,640 +Thomas A. George +— +— +— +— +Thomas R. Hillebrandt +— +— +698 +37,162 +Zohar Ziv +— +— +20,500 +1,588,135 +Constance X. Rishwain +— +— +6,000 +464,820 +Colin G. Clark +— +— +11,000 +852,170 +NONQUALIFIED DEFERRED COMPENSATION +In 2008, the Board adopted a Deferred Stock Unit Compensation Plan, a Sub Plan under the Deckers Outdoor Corporation 2006 Equity +Incentive Plan. A director or employee of the Company who holds unvested restricted stock awards, including NSUs and RSUs, may elect to defer settlement of up to 100% of his or her awards. For each +share of Common Stock held pursuant to a restricted stock award that is deferred, the participant will receive one Deferred Stock Unit. Amounts deferred will be distributed, as more specifically +described in the plan, at the time elected by the participant. A participant's Deferred Stock Units will be settled in shares of Common Stock, as more specifically described in the plan. In 2009, none +of the Company's executive officers elected to participate in the Company's Deferred Stock Unit Compensation Plan. +On +December 16, 2009, the Compensation Committee adopted and approved a Nonqualified Deferred Compensation Plan. The plan is an unfunded, nonqualified deferred compensation +program sponsored by the Company to provide certain of its management or highly compensated employees designated by the Company's Board of Directors (or a committee appointed by the Board to +administer +30 +the +plan) the opportunity to defer compensation into the plan. The effective date for the plan for the first year will be February 1, 2010, and thereafter the plan year will be from +January 1 to December 31. Participants may defer up to 50% of their annual base salary and up to 95% of any performance bonus to the plan. In the discretion of the Board of Directors (or +a committee appointed by the Board to administer the plan), the Company may make additional contributions to be credited to the account of +any or all participants in the plan. Such contributions by the Company will be determined annually in the fourth quarter of each fiscal year. All contributions by the Company and the participant are +immediately fully vested. Under the terms of the plan, the Company may establish a trust as a reserve for the benefits payable under the plan. Distributions from the plan are governed by the Internal +Revenue Code and the plan. As this plan was not effective in 2009, none of the Company's executive officers could elect to participate in this plan during 2009. +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL +The Company had entered into employment agreements with each of the Named Executive Officers, which expired pursuant to their terms on +December 31, 2009. The Company entered into Change of Control and Severance Agreements with each of the Named Executive Officers effective as of January 1, 2010 to replace the expired +employment agreements. The new Change of Control and Severance Agreements have eliminated gross ups for the Internal Revenue Code section 280G excise tax penalty on "excess golden parachute +payments" as a result of termination following a Change of Control. The information below describes (i) compensation and benefits that were payable or earned under the employment agreements in +effect as of December 31, 2009 and (ii) compensation and benefits that are payable or earned under the new Change of Control and Severance Agreements with the Named Executive Officers +which were effective as of January 1, 2010. +As +used in the following paragraphs, for purposes of the expired employment agreements and the new Change of Control and Severance Agreements, (1) Cause means (i) any +willful breach of duty by the executive in the course of their employment or continued violation of written Company employment policies after written notice of such violation, (ii) violation of +the Company's insider trading policies, (iii) conviction of a felony or any crime involving fraud, theft, embezzlement, dishonesty or moral turpitude, (iv) engaging in activities which +materially defame the Company, engaging in conduct which is material injurious to the Company or its affiliates, or any of their respective customer or supplier relationships, financially or +otherwise, or (v) the executive's gross negligence or incapacity to perform duties, excluding total disability. +As +used in the following paragraphs, for purposes of the expired employment agreements (1) Good Reason means the occurrence of a material breach of the employment agreement by the +Company, which breach is not cured within 15 calendar days after written notice thereof is received by the Company, or in the event of a Change of Control, a reduction of total compensation, benefits, +and perquisites, relocation greater than 50 miles, or a material change in position or duties, and (2) Change of Control means if there is a merger, consolidation, sale of all or a major +portion of the assets of the Company (or a successor organization) or similar transaction or circumstance where any person or group (other than Douglas B. Otto) acquires or obtains the right to +acquire, in one or more transactions, beneficial ownership of more than 50% of the outstanding shares of any class of voting stock of the Company (or a successor organization). +As +used in the following paragraphs, for purposes of the new Change of Control and Severance Agreements, (1) Good Reason means without the consent of the Executive (a) the +occurrence of material breach of this Agreement by the Company, or (b) if within two (2) years of a Change of Control, there is a material reduction of the Executive's total +compensation, benefits, and perquisites, the Company's relocation is greater than 50 miles from the location where the Executive performs services, or a material change in the Executive's position or +duties; provided, however, no such event shall constitute "Good Reason" hereunder unless the Executive shall have given written notice to the +31 +Company +of Executive's intent to resign for "Good Reason" within 30 days after the Executive first becomes aware of the occurrence of any such event (specifying the nature and scope of the +event) and such event or occurrence shall not have been cured within 30 days of the Company's receipt of such notice; and (2) Change of Control means if there is a merger, consolidation, +sale of all or a major portion of the assets of the Company (or a successor organization) or similar transaction or circumstance where any person or group acquires, in one or more transactions, +beneficial ownership of more than 50% of the outstanding shares of any class of voting stock of the Company (or a successor organization). +As +used in the following paragraphs, Constructive Termination shall mean a termination following the occurrence of any one or more of the following events without the executive's written +consent: (i) any material reduction in position, title, overall responsibilities, level of authority, level of reporting, base compensation, annual incentive compensation opportunity, aggregate +employee benefits or (ii) a change of the executive's location of employment by more than 50 miles. +Angel R. Martinez, Chair of the Board, President and Chief Executive Officer +Effective April 11, 2005, the Company entered into an employment agreement with Angel R. Martinez which was amended on +February 28, 2008 and August 6, 2008 and both amendments were effective as of January 1, 2008. Mr. Martinez's employment with the Company is "at will," but the term of his +employment agreement, as amended, ended December 31, 2009. Effective January 1, 2010, the Company entered into a Change of Control and Severance Agreement with Mr. Martinez. +Under +his expired employment agreement, if Mr. Martinez is terminated by the Company for Cause, or he terminates his own employment, other than for Good Reason, then +Mr. Martinez will be entitled to payment of his accrued base salary, payment for his accrued vacation, reimbursement for certain expenses, receipt of accrued and vested benefits under the +Company's plans or programs and other benefits required to be paid by law, payment of any accrued but unpaid incentive bonus for the prior fiscal year (excluding any incentive bonus for the year of +termination) and the right to exercise all +vested unexercised stock options and NSUs outstanding as of the termination date. If Mr. Martinez is terminated due to his death or total disability, then in addition to those rights described +in the first sentence of this paragraph, Mr. Martinez will be entitled to payment of a pro-rated portion of his incentive bonus for the current fiscal year based on actual length of +service during the year of termination. If Mr. Martinez is terminated by the Company without Cause or Mr. Martinez terminates his own employment for Good Reason, then in addition to +those rights described in the first two sentences of this paragraph, Mr. Martinez will be entitled to payment of his then effective base salary for one year following his termination, subject +to Mr. Martinez signing a release, and receipt of health benefits for a period of one year following his termination or his attainment of alternative employment that provides health benefits, +whichever is earlier. If Mr. Martinez is terminated without Cause or if he terminates his own employment for Good Reason, in either case within two years of a Change of Control of the Company, +then in addition to those rights described in the first two sentences of this paragraph and subject to his signing a release, Mr. Martinez will be entitled to payment of two times his then +effective annual base salary plus the greater of (i) two times the targeted incentive bonus immediately prior to the termination or (ii) two times the average actual incentive bonus for +the previous three years, receipt of health benefits for a period of two years following his termination or his attainment of alternative employment that provides health benefits, whichever is +earlier. All payments made to Mr. Martinez as a result of termination following a Change of Control will be grossed up for the Internal Revenue Code section 280G excise tax penalty on +"excess golden parachute payments." +Under +Mr. Martinez's new Change of Control and Severance Agreement, Mr. Martinez will be entitled to the payments detailed above except that he will not be entitled to +gross ups for the Internal +32 +Revenue +Code section 280G excise tax penalty on "excess golden parachute payments" as a result of termination following a Change of Control. +Thomas A. George, Chief Financial Officer +Effective September 11, 2009, the Company entered into an employment agreement with Thomas A. George. Mr. George's +employment with the Company is "at will," but the term of his employment agreement ended December 31, 2009. Effective January 1, 2010, the Company entered into a Change of Control and +Severance Agreement with Mr. George. +Under +his expired employment agreement, if Mr. George is terminated by the Company for Cause or if he terminates his own employment, other than for Good Reasons, then +Mr. George will be entitled to payment of his accrued base salary, payment for his accrued vacation, reimbursement for certain expenses, receipt of accrued and vested benefits under the +Company's plans or programs and other benefits required to be paid by law, payment of any accrued but unpaid incentive bonus for the prior fiscal year (excluding any incentive bonus for the year of +termination) and the right to exercise all +vested unexercised stock options and warrants outstanding as of the termination date. If Mr. George is terminated by the Company due to his death or total disability, then in addition to those +rights described in the first sentence of this paragraph, Mr. George shall be entitled to payment of the unpaid pro-rated portion of his incentive bonus for the current fiscal year +based on actual length of service during the year of termination. If Mr. George is terminated by the Company without Cause or if he terminates his own employment for Good Reason, then in +addition to those rights described in the first two sentences of this paragraph, Mr. George will be entitled to payment of his base salary for twelve months following his termination, subject +to Mr. George signing a release, and receipt of health benefits for a period of twelve months following his termination or his attainment of alternative employment that provides health +benefits, whichever is earlier. If within two years of a Change of Control of the Company Mr. George is terminated without Cause or if he terminates his own employment for Good Reason, then in +addition to those rights described in the first two sentences of this paragraph, and subject to him signing a release, Mr. George will be entitled to payment of one and one-half +times his annual base salary plus the greater of (i) one and one-half times the targeted incentive bonus immediately prior to the termination or (ii) one and +one-half times the average actual incentive bonus for the previous three years, and receipt of health benefits for a period of eighteen months following his termination or his attainment +of alternative employment that provides health benefits, whichever is earlier. +Under +Mr. George's new Change of Control and Severance Agreement, Mr. George will be entitled to the payments detailed above. +Thomas R. Hillebrandt, Former Chief Financial Officer +Effective April 24, 2008, the Company entered into an employment agreement with Thomas R. Hillebrandt, which was amended on +August 6, 2008. Mr. Hillebrandt resigned from the Company effective as of March 20, 2009. Pursuant to this resignation, we agreed to treat Mr. Hillebrandt's resignation as +a termination by Mr. Hillebrandt for Good Reason under his employment agreement. Upon Mr. Hillebrandt's departure from the Company and pursuant to his employment agreement, he received +his accrued base salary, vacation payments and reimbursable expenses. In addition, pursuant to his employment agreement, Mr. Hillebrandt will receive $250,000, payable in equal amounts during +the twelve month period following his resignation, a pro-rated portion of his 2009 incentive bonus based on actual length of service during 2009, health insurance benefits under our group +health plans for 12 months following his resignation, and he may exercise his vested stock options and warrants pursuant to the terms and conditions of his employment agreement. In accordance +with his Stock Unit Award Agreement, and because the Company attained the threshold performance criteria in 2008, a pro-rata portion of Mr. Hillebrandt's NSUs awarded under the 2006 +Plan vested effective upon his +33 +resignation, +thus, based on his length of service after the NSU grant, he received 698 shares of Common Stock and the remainder of his NSUs were forfeited after his resignation. Mr. Hillebrandt +provided a general release of claims against the Company, agreed to certain confidentiality obligations, +and agreed to certain non-solicitation obligations. The Board believes that the separation amount was appropriate and in the best interests of the Company in exchange for certain covenants +and the release provided by Mr. Hillebrandt. +Zohar Ziv, Chief Operating Officer +Effective March 6, 2006, the Company entered into an employment agreement with Zohar Ziv which was amended effective +December 19, 2007 and amended on August 6, 2008 and effective January 1, 2008. Mr. Ziv's employment with the Company is "at will," but the term of his employment agreement, +as amended, ended December 31, 2009. Effective January 1, 2010, the Company entered into a Change of Control and Severance Agreement with Mr. Ziv. +Under +his expired employment agreement, if Mr. Ziv is terminated by the Company for Cause, or if he terminates his own employment other than for Good Reason, Mr. Ziv or his +beneficiaries will be entitled to payment of his accrued base salary, payment for his accrued vacation, reimbursement for certain expenses, receipt of accrued and vested benefits under the Company's +plans or programs and other benefits required to be paid by law, payment of any accrued but unpaid incentive bonus for the prior fiscal year (excluding any incentive bonus for the year of termination) +and the right to exercise all vested unexercised stock options outstanding as of the termination date. If Mr. Ziv is terminated due to his death or total disability, then in addition to those +rights described in the first sentence of this paragraph, Mr. Ziv shall be entitled to exercise all vested unexercised stock options and RSUs outstanding as of his date of termination in +accordance with the terms of the plans and agreements pursuant to which options or RSUs were issued to him plus payment of a pro-rated portion of his incentive bonus for the current fiscal +year based on actual length of service during the year of termination. If Mr. Ziv is terminated by the Company without Cause or if he terminates his own employment for Good Reason, then in +addition to those rights described in the first two sentences of this paragraph, and subject to Mr. Ziv signing a release, Mr. Ziv will be entitled to payment of his then effective base +salary for one year following his termination, receipt of health benefits for a period of one year following his termination or his attainment of alternative employment that provides health benefits, +whichever is earlier. If Mr. Ziv is terminated by the Company without Cause or if he terminates his own employment for Good Reason, in either case within two years of a Change of Control of the +Company, then in addition to those rights described in the first two sentences of this paragraph and subject to Mr. Ziv signing a release, Mr. Ziv will be entitled to payment of two +times his then effective annual base salary plus the greater of (i) two times the targeted incentive bonus immediately prior to the termination or (ii) two times the average actual +incentive bonus for the previous three years, receipt of health benefits for a period of one year following his termination or his attainment of alternative employment that provides health benefits, +whichever is earlier. All payments made to Mr. Ziv as a result of termination following a Change of Control will be grossed up for the Internal Revenue Code section 280G excise tax +penalty on "excess golden parachute payments." +Under +Mr. Ziv's new Change of Control and Severance Agreement, Mr. Ziv will be entitled to the payments detailed above except that he will not be entitled to gross ups for +the Internal Revenue Code section 280G excise tax penalty on "excess golden parachute payments" as a result of termination following a Change of Control. +Constance X. Rishwain, President of the UGG and Simple Divisions +Effective January 1, 2006, the Company entered into an employment agreement with Constance X. Rishwain which was amended on +February 28, 2008 and August 6, 2008 and both amendments were effective as of January 1, 2008. Ms. Rishwain's employment with the Company is "at will," but the term +34 +of +her employment agreement as amended ended December 31, 2009. Effective January 1, 2010, the Company entered into a Change of Control and Severance Agreement with Ms. Rishwain. +Under +her expired employment agreement, if Ms. Rishwain is terminated by the Company for Cause or if she terminates her own employment, other than for Good Reason, then +Ms. Rishwain will be entitled to payment of her accrued base salary, payment for her accrued vacation, reimbursement for certain expenses, receipt of accrued and vested benefits under the +Company's plans or programs and other benefits required to be paid by law, payment of any accrued but unpaid incentive bonus for the prior fiscal year (excluding any incentive bonus for the year of +termination) and the right to exercise all vested unexercised stock options and warrants outstanding as of the termination date. If Ms. Rishwain is terminated by the Company due to her death or +total disability, then in addition to those rights described in the first sentence of this paragraph, Ms. Rishwain shall be entitled to payment of the unpaid pro-rated portion of +her incentive bonus for the current fiscal year based on actual length of service during the year of termination. If Ms. Rishwain is terminated by the Company without Cause or if she terminates +her own employment for Good Reason, then in addition to those rights described in the first two sentences of this paragraph, Ms. Rishwain will be entitled to payment of her base salary for +twelve months following her termination, subject to Ms. Rishwain signing a release, and receipt of health benefits for a period of twelve months following her termination or her attainment of +alternative employment that provides health benefits, whichever is earlier. If Ms. Rishwain, within two years of a Change of Control of the Company is terminated without Cause or if she +terminates her own employment for Good Reason, then in addition to those rights described in the first two sentences of this paragraph and subject to her signing a release, Ms. Rishwain will be +entitled to payment of one and one-half times her annual base salary plus the greater of (i) one and one-half times the targeted incentive bonus immediately prior to the +termination or (ii) one and one-half times the average actual incentive bonus for the previous three years, receipt of health benefits for a period of eighteen months following her +termination or her attainment of alternative employment that provides health benefits, whichever is earlier. All payments made to Ms. Rishwain as a result of termination following a Change of +Control will be grossed up for the Internal Revenue Code section 280G excise tax penalty on "excess golden parachute payments." +Under +Ms. Rishwain's new Change of Control and Severance Agreement, Ms. Rishwain will be entitled to the payments detailed above except that she will not be entitled to +gross ups for the Internal +Revenue Code section 280G excise tax penalty on "excess golden parachute payments" as a result of termination following a Change of Control. +Colin G. Clark, Senior Vice President, International +Effective January 1, 2006, the Company entered into an employment agreement with Colin G. Clark which was amended on +February 28, 2008 and August 6, 2008 and both amendments were effective as of January 1, 2008. Mr. Clark's employment with the Company is "at will," but the term of his +employment agreement as amended ended December 31, 2009. Effective January 1, 2010, the Company entered into a Change of Control and Severance Agreement with Mr. Clark. +Under +his expired employment agreement, if Mr. Clark is terminated by the Company for Cause or if he terminates his own employment, other than for Good Reasons, then +Mr. Clark will be entitled to payment of his accrued base salary, payment for his accrued vacation, reimbursement for certain expenses, receipt of accrued and vested benefits under the +Company's plans or programs and other benefits required to be paid by law, payment of any accrued but unpaid incentive bonus for the prior fiscal year (excluding any incentive bonus for the year of +termination) and the right to exercise all vested unexercised stock options and warrants outstanding as of the termination date. If Mr. Clark is terminated by the Company due to his death or +total disability, then in addition to those rights described in the first sentence of this paragraph, Mr. Clark shall be entitled to payment of the unpaid pro-rated portion of his +incentive bonus for the current fiscal year based on actual length of service +35 +during +the year of termination. If Mr. Clark is terminated by the Company without Cause or if he terminates his own employment for Good Reason, then in addition to those rights described in the +first two sentences of this paragraph, Mr. Clark will be entitled to payment of his base salary for twelve months following his termination, subject to Mr. Clark signing a release, and +receipt of health benefits for a period of twelve months following his termination or his attainment of alternative employment that provides health benefits, whichever is earlier. If within two years +of a Change of Control of the Company Mr. Clark is terminated without Cause or if he terminates his own employment for Good Reason, then in addition to those rights described in the first two +sentences of this paragraph, and subject to him signing a release, Mr. Clark will be entitled to payment of one and one-half times his annual base salary plus the greater of +(i) one and one-half times the targeted incentive bonus immediately prior to the termination or (ii) one and one-half times the average actual incentive bonus for +the previous three years, and receipt of health benefits for a period of eighteen months following his termination or his attainment of alternative employment that provides health benefits, whichever +is earlier. All payments made to Mr. Clark as a result of termination following a Change of Control will be grossed up for the Internal Revenue Code section 280G excise tax penalty on +"excess golden parachute payments." +Under +Mr. Clark's new Change of Control and Severance Agreement, Mr. Clark will be entitled to the payments detailed above except that he will not be entitled to gross ups +for the Internal Revenue Code section 280G excise tax penalty on "excess golden parachute payments" as a result of termination following a Change of Control. +Equity Awards Upon Termination or Change of Control +Pursuant to the terms of the equity awards under the 2006 Plan, the employees that receive such awards, including the Named Executive +Officers, are entitled to certain benefits upon (i) termination without cause or pursuant to a Constructive Termination, (ii) a change of control and either it is not approved by a +majority of the directors or the successor entity does not provide for the continuance of the award, and (iii) a change of control followed by termination. +For +the NSUs awarded annually as part of our performance-based short-term equity incentive compensation, if an awardee is terminated by the Company without cause or pursuant +to a Constructive Termination, if the threshold performance criteria of the NSUs awarded to such executive under the 2006 Plan have been satisfied, the awardee will be entitled to accelerated vesting +for a pro rata portion of the NSU award based on a fraction, the numerator of which is the length of service beginning in January in the year of the NSU grant divided by the total number of months in +the vesting period, and will be settled in shares of the Company's common stock. If a change of control occurs and either it is not approved by a majority of the directors or the successor entity does +not provide for the continuance of the NSUs, then the NSUs will fully vest if the threshold performance criteria has been satisfied. Finally, if an awardee is terminated without cause or pursuant to a +Constructive Termination within twelve months of a change of control, he will be entitled to full acceleration of any unvested NSUs awarded under the 2006 Plan. +For +the SARs and RSUs awarded as part of our performance-based long-term equity incentive compensation, upon a change of control the performance conditions of the SARs and +RSUs will be deemed satisfied, but the awards will remain subject to service-based vesting conditions. If a change of control occurs and either it is not approved by a majority of the directors or the +successor entity does not provide for the continuance of the SARs and RSUs, then the SARs and RSUs will fully vest. Finally, if an awardee is terminated without cause or pursuant to a Constructive +Termination within twelve months of a change of control, he will be entitled to full acceleration of any unvested SARs and RSUs awarded under the 2006 Plan. +36 +A summary of payments and benefits that would be provided by the Company in addition to amounts accrued for unpaid base salary, vacation pay, incentive bonus and reimbursable expenses, +if the termination or change of control had occurred on December 31, 2009 (based on the closing price of the Company's Common Stock on December 31, 2009 of $101.72), given the Named +Executive Officers' compensation and service levels per their respective amended employment agreements is as follows: +Name +Type of Compensation or Benefit +Upon Termination +By the Company +Without Cause or +by Executive for +Good Reason +Upon Change +of Control +Angel R. Martinez +cash payments +$ +750,000 +$ +4,900,000 +value of health benefits +19,780 +39,560 +value of NSUs +953,625 +2,593,860 +value of RSUs +— +2,543,000 +value of SARs +— +4,129,832 +value of excise tax gross-up(1) +— +5,748,219 +1,723,405 +19,954,471 +Thomas George +cash payments +350,000 +787,500 +value of health benefits +14,716 +22,075 +value of NSUs +38,145 +152,580 +402,861 +962,155 +Thomas Hillebrandt(2) +cash payments +250,000 +— +value of health benefits +18,852 +— +268,852 +— +Zohar Ziv +cash payments +375,000 +2,460,000 +value of health benefits +13,539 +13,539 +value of NSUs +635,750 +1,729,240 +value of RSUs +— +712,040 +value of SARs +— +1,032,458 +value of excise tax gross-up(1) +— +2,268,834 +1,024,289 +8,216,111 +Constance X. Rishwain +cash payments +350,000 +1,715,625 +value of health benefits +18,857 +28,286 +value of NSUs +610,320 +1,678,380 +value of RSUs +— +712,040 +value of SARs +— +1,032,458 +value of excise tax gross-up(1) +— +— +979,177 +5,166,789 +Colin G. Clark +cash payments +250,000 +1,228,906 +value of health benefits +13,101 +19,652 +value of NSUs +470,455 +1,271,500 +value of RSUs +— +712,040 +value of SARs +— +1,032,458 +value of excise tax gross-up(1) +— +1,616,434 +733,556 +5,880,990 +No additional payments or benefits would be provided by the Company if the termination occurred by the Company for Cause +or by the executive without Good Reason. +(1) As +discussed above, the gross ups for the Internal Revenue Code section 280G excise tax penalty on "excess golden parachute payments" have been +eliminated from the new Change of Control and Severance Agreements and therefore effective as of January 1, 2010, these executive officers will no longer be entitled to this potential payment. +(2) As +discussed above, Mr. Hillebrandt resigned from the Company effective March 20, 2009 and therefore this table only includes the amounts paid +upon his resignation. +37 +DIRECTOR COMPENSATION +In 2009, directors who are not employees of the Company or its subsidiaries ("Nonemployee Directors") received an annual retainer of +$45,000 in cash plus $5,000 for each committee assignment. In the event that more than 10 meetings were required by any committee, a meeting fee of $1,500 per meeting would be paid to all members plus +reimbursement of any expenses they may incur with respect to such meetings. In addition, the following positions were entitled to receive an additional annual retainer fee of $30,000 for the Lead +Director, $30,000 for the Audit Committee Chair, and $7,500 each for the Committee Chair for the Compensation and Management Development Committee and the Corporate Governance and Nominating +Committee. Nonemployee Directors also received equity compensation with a total value of approximately $100,000 of the Company's Common Stock, to be paid out in quarterly installments with the share +price to be determined using a rolling average of the share price during the last 10 days of the quarter. Directors who were employees of the Company or its subsidiaries served as directors +without compensation. +In +December, 2009, the Company entered into a Replacement Director Compensation Agreement and Mutual Release with Mr. Licklider. Under the terms of the Agreement, the Company +agreed to pay Mr. Licklider an aggregate of 3,911 shares of the Company's Common Stock from the Company's 2006 Plan as replacement for shares of Common Stock which Mr. Licklider was +previously entitled to receive as compensation for his prior services as a director of the Company, but for which he never received the requisite share certificate and which were subsequently +escheated to the California State Controller. This replacement director compensation is included in the director compensation table below. +Name +Year +Fees +Earned +($) +Stock +Awards(1) +($) +Total +($) +John M. Gibbons +2009 +$ +80,000 +$ +102,869 +(1)(2) +$ +182,869 +Director +Rex A. Licklider +2009 +82,500 +465,966 +(1)(3) +548,466 +Director +Ruth M. Owades +2009 +50,000 +102,869 +(1) +152,869 +Director +John G. Perenchio +2009 +52,500 +102,869 +(1) +155,369 +Director +Maureen Conners +2009 +55,000 +102,869 +(1) +157,869 +Director +Tore Steen +2009 +50,000 +102,869 +(1) +152,869 +Director +Karyn O. Barsa +2009 +50,000 +102,869 +(1) +152,869 +Director +Angel R. Martinez(4) +2009 +N/A +N/A +N/A +Chair of the Board +(1) Represents +grants of 483 shares of common stock at a per share price of $53.04 on March 31, 2009, 360 shares of common stock at a per share price of +$70.27 on June 30, 2009, 303 shares of common stock at a per share price of $84.85 on September 30, 2009, and 258 shares of common stock at a per share price of $101.72 on +December 31, 2009. +(2) Includes +$100,021 of compensation which was deferred until January 4, 2010. +38 +(3) Includes +grants of 3,911 shares of common stock at a per share price of $92.84 on December 16, 2009 for replacement director compensation pursuant to +the Replacement Director Compensation Agreement and Mutual Release described above, which was deferred until January 1, 2010. +(4) Mr. Martinez +received compensation as President and Chief Executive Officer of the Company for 2009 as discussed previously. He did not receive any +compensation as a director in 2009. +EQUITY COMPENSATION PLAN INFORMATION +The following table sets forth information regarding shares of the Company's Common Stock that may be issued under the Company's equity +compensation plans as of December 31, 2009. +Number of securities +to be issued +upon exercise of +outstanding options, +warrants and rights(1) +Weighted-average +exercise price of +outstanding options, +warrants and rights(2) +Number of securities +remaining available +for future issuance(3) +Equity compensation plans approved by security holders +710,200 +$ +77.27 +1,262,479 +Equity compensation plans not approved by security holders +— +— +— +Total +710,200 +$ +77.27 +1,262,479 +(1) Includes +outstanding options, unexercisable SARs, and unvested NSUs and RSUs. The nature of the NSU and RSU grants are described in the Compensation +Discussion and Analysis. +(2) The +weighted-average exercise price of the options was $11.99 and the stock price at the date of grant of the SARs was $80.20. The weighted-average exercise +price does not take into account the NSUs and RSUs. +(3) Includes +2,000,000 authorized shares under the 2006 Plan less actual shares issued as well as shares reserved for outstanding SARs, NSUs and RSUs. +Compensation Policies and Practices and their Relation to Risk Management +In addition to our compensation policies for executive officers, the Compensation Committee reviews the risks and rewards associated +with the Company's compensation programs for all employees generally. The Company's compensation programs for all employees include elements that mitigate risk while continuing to properly incentivize +our employees. We believe that our compensation policies reward prudent business judgment and appropriate risk taking for the long term performance of the Company. Specifically, the policies which +mitigate undue risk taking include: (i) independent Compensation Committee oversight and the ability of the Committee to exercise its discretion, (ii) the use of a balanced mix of cash +and equity, (iii) the use of multiple performance factors in our non-equity incentive compensation plan, so that employees do not focus on a single financial measure, +(iv) capping awards payable under our non-equity incentive plan, and (v) multiple-year vesting of our equity awards to support long-term shareholder +value creation, as described above. +Management +and the Compensation Committee evaluate the risk involved with the compensation policies for all of our employees and do not believe any of the Company's compensation programs +create risks that are reasonably likely to pose a material adverse impact to the Company. +39 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth, as of March 31, 2010, certain information concerning the shares of Common Stock beneficially +owned by (i) each person who is a Named Executive Officer in the Summary Compensation Table; (ii) each director and director nominee; (iii) all executive officers and directors as +a group (thirteen persons); and (iv) each person known by the Company to be the beneficial owner of more than 5% of our Common Stock (other than directors, executive officers and depositaries) +based upon the most recent SEC filings available. +Name and Address of Beneficial Owner(1) +Amount and +Nature of Beneficial +Ownership(2)(3) +Percent +of Class(3) +Named Executive Officers +Angel R. Martinez +33,330 +* +Thomas A. George +— +* +Thomas R. Hilebrandt(4) +698 +* +Zohar Ziv +13,320 +* +Constance X Rishwain +4,063 +* +Colin G. Clark +12,500 +* +Directors and Director Nominees +Angel R. Martinez +33,330 +* +Rex A. Licklider(5) +213,730 +1.7 +% +John M. Gibbons(6) +11,656 +* +John G. Perenchio +41,434 +* +Maureen Conners +4,786 +* +Tore Steen(7) +5,386 +* +Ruth M. Owades +2,786 +* +Karyn O. Barsa +2,786 +* +All directors and executive officers as a group (thirteen persons) +351,475 +2.7 +% +5% Stockholders +BlackRock, Inc.(8) +1,182,448 +9.2 +% +FMR, LLC(9) +1,104,323 +8.6 +% +* Percentage +of shares beneficially owned does not exceed 1% of the class so owned. +(1) The +address of each beneficial owner is 495-A South Fairview Avenue, Goleta, California 93117, unless otherwise noted. +(2) Unless +otherwise noted, the Company believes that each individual or entity named has sole investment and voting power with respect to shares of Common +Stock indicated as beneficially owned by them, subject to community property laws, where applicable. +(3) Pursuant +to Rule 13d-3(d) (1) of the Exchange Act, shares not outstanding which are subject to options, warrants, rights or +conversion privileges exercisable on or before the date that is 60 days after March 31, 2010 are deemed outstanding for the purpose of calculating the number and percentage owned by such +person, but not deemed outstanding for the purpose of calculating the percentage owned by any other person listed. +(4) Reflects +stock ownership as of date of resignation, March 20, 2009. +(5) Includes +213,730 shares held by the Licklider Living Trust as to which Mr. Licklider has joint voting and investment power. +40 +(6) Includes +11,656 shares held by the Gibbons Living Trust as to which Mr. Gibbons has joint voting and investment power. +(7) Includes +4,143 shares which are pledged as security. +(8) Includes +1,182,448 shares held by BlackRock, Inc., as to which the beneficial owners have sole voting power and 1,182,448 shares as to which the +beneficial owners have sole dispositive power. This information is based solely on a Schedule 13G filed by the party on January 29, 2010 whose business address is 40 East +52nd Street, New York, NY 10022. +(9) Includes +83,780 shares held by FMR LLC., as to which the beneficial owners have sole voting power and 1,104,323 shares as to which the beneficial +owners have sole dispositive power. This information is based solely on a Schedule 13G/A filed by the party on February 16, 2010 whose business address is 82 Devonshire Street, +Boston, MA 02109. +41 +REPORT OF THE AUDIT COMMITTEE +The Audit Committee of the Board is responsible for providing independent, objective oversight of the Company's accounting functions +and internal controls. The +Audit Committee is currently composed of three directors, each of whom meets the independence and experience requirements under the Nasdaq rules and the independence requirements of the SEC. +Management +is responsible for the preparation of the Company's financial statements and financial reporting process including its system of internal controls. The independent registered +public accounting firm is responsible for performing an independent audit of the Company's consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight +Board (United States) (the "PCAOB") and expressing (i) an opinion on whether the Company's consolidated financial statements present fairly, in all material respects, the Company's financial +position and results of operations and cash flows for the periods presented in conformity with U.S. generally accepted accounting principles and (ii) an opinion on whether the Company +maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated +Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Audit Committee's responsibility is to monitor and oversee these processes. The Board of Directors +has determined that John M. Gibbons, the Chair of the Audit Committee, is an audit committee financial expert and is independent. +In +connection with these responsibilities, the Audit Committee met with management and the independent registered public accounting firm to review and discuss the December 31, +2009 consolidated financial statements and obtained from management their representation that the Company's financial statements have been prepared in accordance with U.S. generally accepted +accounting principles. Management determined that, as of December 31, 2009, the Company maintained effective internal control over financial reporting. +The +Audit Committee also discussed with the independent registered public accounting firm the matters required by Statement on Auditing Standards No. 61 (Communication with Audit +Committees), which includes, among other items, information regarding the conduct of the audit of the Company's consolidated financial statements. The Audit Committee also received written disclosures +from KPMG LLP required by the PCAOB's Rule 3526: Communication with Audit Committees Concerning Independence, and the Audit Committee discussed with KPMG LLP its independence from +the Company and the Company's management. The Audit Committee has further considered the compatibility of the services provided by KPMG LLP with that firm's independence. +The +Audit Committee operates under a written charter, which was adopted by the Board and is assessed annually for adequacy by the Audit Committee. The Audit Committee held 8 meetings +during fiscal 2009, including meetings with the independent registered public accounting firm and Chief Audit Executive, both with and without management present. In performing its functions, the +Audit Committee acts only in an oversight capacity. It is not the responsibility of the Audit Committee to determine that the Company's financial statements are complete and accurate, are presented in +accordance with U.S. generally accepted accounting principles or present fairly the results of operations of the Company for the periods presented or that the Company maintains appropriate internal +controls. Nor is it the duty of the Audit Committee to determine that the audit of the Company's financial statements has been carried out in accordance with the standards of the PCAOB or that the +Company's registered public accounting firm is independent. +Based +upon the Audit Committee's review and discussions with management and the independent registered public accounting firm, the Audit Committee recommended that the Board of Directors +42 +include +the audited consolidated financial statements in the Company's Annual Report on Form 10-K as of and for the year ended December 31, 2009, filed with the SEC on +March 1, 2010. +THE AUDIT COMMITTEE +John M. Gibbons, Chair +Tore Steen +Karyn O. Barsa +The +Report of the Audit Committee shall not be deemed incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the +Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates this information by reference, and shall +not otherwise be deemed filed under such Acts. +Certain Relationships and Related Transactions +The legal department is primarily responsible for identifying and reviewing relationships and transactions in which the Company and our +directors, executive officers, certain of our stockholders or their immediate family members are participants to determine whether any of these related persons had or will have a direct or indirect +material interest. In order to identify potential related person transactions, the Company's legal department annually prepares and distributes to all directors and executive officers a written +questionnaire which includes questions intended to elicit information about any related person transactions. In addition, the Company's Code of Business Conduct and Ethics addresses conflicts of +interest where an individual's private interests interfere or conflict with the interests of the Company, including relationships with suppliers, customers or competitors. Conflicts of interest which +might impair or appear to impair the exercise of judgment solely for the benefit of the Company are prohibited. In general, such conflicts must be approved by the legal department, the employee's +supervisor or, in the case of directors, the Board. Information regarding potential conflicts of interests in violation of the Company's Code of Business Conduct and Ethics may be reported to the +Company's anonymous reporting hotline and may be subsequently obtained by the Audit Committee Chair, the Chair of the Board and the Chief Audit Executive. +If +a related person transaction is identified by the legal department as one which must be reported in the Company's Proxy Statement pursuant to applicable Securities and Exchange +Commission regulations, our Board is responsible for reviewing and approving or ratifying any such related person transactions. In evaluating related person transactions, our Board members apply the +same standards of good faith and fiduciary duty they apply to their general responsibilities as the Board and as individual directors. The Board may approve a related person transaction when, in its +good faith judgment, the transaction is in the best interests of the Company. +There +were no disclosable transactions with related persons under Item 404 of Regulation S-K during the fiscal year ended December 31, 2009 or currently +proposed. +Limitation of Liability and Indemnification of Directors and Officers +Our Certificate of Incorporation and Bylaws provide that we shall indemnify directors and executive officers to the fullest extent now +or hereafter permitted by the Delaware General Corporation Law (the "DGCL"). In addition, we have entered into Indemnification Agreements with our directors and executive officers in +which we agree to indemnify such persons to the fullest extent now or hereafter permitted by the DGCL. +We +have obtained a liability policy for our directors and officers as permitted by the DGCL which extends to, among other things, liability arising under the Securities Act of 1933, as +amended. +43 +We +maintain an insurance policy pursuant to which our directors and officers are insured, within the limits and subject to the limitations of the policy, against specified expenses in +connection with the defense of claims, actions, suits or proceedings, and liabilities which might be imposed as a result of such claims, actions, suits or proceedings, that may be brought against them +by reason of their being or having been directors or officers. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's directors, executive officers and +persons who own more than 10% of the Common Stock (collectively "Section 16 Persons") to file initial reports of ownership (Forms 3) and reports of changes in ownership of Common Stock +(Forms 4 and Forms 5) with the SEC as well as the Company. +To +the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company and representations from each Section 16 Person known to the Company +that no other reports were required, during the fiscal year ended December 31, 2009, all Section 16(a) filing requirements applicable to its Section 16 Persons were complied with +except that: +(i) Constance +X. Rishwain filed a Form 4 on June 18, 2009, which reported transactions that were due to be reported on April 11, 2009; +(ii) John M. +Gibbons filed a Form 4 on November 3, 2009, which reported transactions that were due to be reported on November 2, 2009; and +(iii) Maureen +Conners, Tore Steen, Ruth M. Owades, John M. Gibbons, John G. Perenchio, Rex A. Licklider and Karyn O. Barsa each filed a +Form 4 on October 7, 2009, which reported transactions that were due to be reported on October 2, 2009. +PROPOSAL NO. 2 +RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +For the 2009 fiscal year, KPMG LLP provided audit services, which included examination of the Company's annual consolidated +financial statements. The Audit Committee has selected KPMG LLP to provide audit services to the Company and its subsidiaries for the fiscal year ending December 31, 2010. The +stockholders are being requested to ratify such selection at the Annual Meeting. A representative of KPMG LLP will attend the Annual Meeting to make any statements he or she may desire and to +respond to appropriate stockholder questions. +Although +this appointment is not required to be submitted to a vote of the stockholders, the Audit Committee believes it is appropriate as a matter of policy to request that the +stockholders ratify the appointment. Ratification of the appointment of the independent registered public accounting firm requires the affirmative vote of holders of a majority of the outstanding +shares of our Common Stock, present in person or represented by Proxy of the Annual Meeting and entitled to vote. If the stockholders do not ratify the appointment, the Board of Directors and Audit +Committee will consider the selection of another independent registered public accounting firm. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE +"FOR" PROPOSAL NO. 2 TO RATIFY THE APPOINTMENT OF KPMG LLP AS THE +COMPANY'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +FOR THE FISCAL YEAR ENDING DECEMBER 31, 2010. +44 +Audit Fees and All Other Fees +Audit Fees +Fees approved for audit services totaled approximately $1,200,000 in 2009 and $1,164,000 in 2008. The 2009 audit fees include fees +associated with the audit of the Company's consolidated balance sheets as of December 31, 2009 and 2008, the related consolidated statements of operations, stockholders' equity and +comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2009 and the audit of internal control over financial reporting as of +December 31, 2009 (collectively referred to as the integrated audit), as well as the reviews of the Company's quarterly reports on Form 10-Q and statutory audits required +internationally. +Audit-Related Fees +The Company was not billed for any audit-related fees in 2009 or 2008. +Tax Fees +Fees incurred for tax services, including tax compliance, tax advice and tax planning for income taxes and customs matters, totaled +approximately $41,000 in 2009 and $228,000 in 2008. +All Other Fees +The Company was not billed for any other fees in 2009 or 2008. +Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm +The Audit Committee administers the Company's engagement of KPMG LLP and pre-approves all audit and permissible +non-audit services on a case-by-case basis. In approving non-audit services, the Audit Committee considers whether the engagement could compromise the +independence of KPMG LLP, and whether for reasons of efficiency or convenience it is in the best interest of the Company to engage its independent auditor to perform the services. The Audit +Committee has determined that performance by KPMG LLP of the non-audit services listed above did not affect their independence. +Prior +to engagement, the Audit Committee Chair pre-approves all independent auditor services. During the year, circumstances may arise when it may become necessary to engage +the independent auditor for additional services not contemplated in the original pre-approval categories. In those instances, the Audit Committee requires that those +services be submitted to the Audit Committee Chair for specific pre-approval before the Company can engage the independent auditor to provide them. On May 8, 2007, the Audit +Committee approved an Audit and Non-Audit Financial Service Approval Policy giving our Chief Audit Executive and Chief Financial Officer discretionary authority to engage financial +services firms for audit and permissible non-audit services to the Company of up to a dollar amount equal to 5% of the total fees paid to our independent auditors during each fiscal year. +The +Audit Committee Chair has been delegated pre-approval authority. The Chair reports any pre-approval decisions to the Audit Committee at its next scheduled +meeting for approval by the Committee. +45 +PROPOSAL NO. 3 +AMENDMENT OF CERTIFICATE OF INCORPORATION +TO INCREASE AUTHORIZED CAPITAL STOCK +At the Annual Meeting, stockholders will be asked to approve an amendment to the Company's Restated Certificate of Incorporation to +increase the authorized number of shares of Common Stock from 50,000,000 shares to 125,000,000 shares (the "Amendment"). On March 11, 2010, the Board of Directors adopted resolutions setting +forth the Amendment in the form of an amendment to Section 1 of Article IV of the Company's Restated Certificate of Incorporation which is attached hereto as Exhibit A, and has +determined the Amendment to be advisable and in Company's best interest and is hereby seeking approval of the Amendment by the Company's stockholders. +The +following is the relevant text of Section 1 of Article IV of the Company's Restated Certificate of Incorporation, as proposed to be amended, with additions indicated +with italicized text and deletions indicated by strike-through text: +SECTION +1. Authorized Shares. The Corporation shall be authorized to issue two classes of shares of stock to be +designated, respectively, "Preferred Stock" and "Common Stock;" the total number of shares that the Corporation shall have authority to issue is One Hundred Thirty +Million Fifty-Five Million ( 130,000,000 ) +( 55,000,000 ); the total number of shares of Preferred Stock shall be Five Million (5,000,000) and all such shares shall have a par value of one cent ($0.01); and +the total number of shares of Common Stock shall be One Hundred Twenty-Five Million Fifty Million +( 125,000,000 ) ( 50,000,000 ), and each such share shall have a par value of one cent ($0.01). +Purpose of the Amendment +The purpose of the Amendment is to increase the total authorized number of shares of Common Stock from 50,000,000 shares to 125,000,000 +shares in order to allow the Company to effect a three-for-one forward stock split, in the form of a stock dividend payable on all outstanding shares of Common Stock. The +proposed increase in the number of authorized shares of Common Stock will be necessary, as the current number of authorized shares of Common Stock that are not reserved or outstanding is not +sufficient to effect a three-for-one stock split and also maintain a sufficient number of shares authorized for use in other future business purposes as the Board may deem +necessary at a later date. Stockholder approval of a stock split effected in the form of a stock dividend is not required under Delaware law, is not being solicited by this Proxy Statement and will +not be solicited in the future in order to effect the stock split. +On +March 11, 2010, the Board of Directors adopted resolutions conditionally approving a three-for-one forward stock split to be effected in the form of a +stock dividend of two shares of Common Stock for each share of Common Stock outstanding on or about June 17, 2010, the proposed record date for the stock split. The stock split is conditioned +upon approval by the stockholders of the proposed amendment. +As of the close of business on the Record Date, there were 12,896,420 shares of Common Stock issued and outstanding. In addition, as of March 31, 2010, 786,183 shares were subject +to outstanding equity compensation awards such as stock options, stock appreciation rights (SARs), nonvested stock units (NSUs) and restricted stock units (RSUs). An additional 1,158,887 shares were +reserved for issuance in connection with future awards available for grant under the Company's stockholder-approved, 2006 Equity Incentive Plan. +The +objective of the three-for-one stock split would be to lower the per share market price of the Common Stock in inverse proportion to the stock split. Such +lower price would be expected to increase the liquidity and broaden the marketability of the Common Stock to a larger group of investors. +46 +Other +than consideration of a three-for-one stock split, as of the date of this Proxy Statement the Company has no immediate plans, understandings, agreements or +commitments to issue additional shares of Common Stock for any purposes. However, the Company also reviews and evaluates potential capital raising activities, strategic transactions and other +corporate actions on an ongoing basis to determine if such actions would be in the best interests of the Company and its stockholders and the additional shares authorized may be used for these +purposes as the Board may deem necessary. +Stock Split Implementation +If the proposed amendment is approved, holders of record of Common Stock as of the close of business on the stock split record date +will receive, as a stock dividend, two additional shares of Common Stock for each share of Common Stock owned as of that date. The stockholders of the Company as of the stock split record date will +not pay, and the Company will not receive, any payment or other consideration for the additional shares that will be issued or the adjustments that will be made pursuant to the stock split. A +stockholder's equity interest in the Company will not increase as a result of the stock split; however, any sale of the shares received as a result of the stock split by a stockholder will reduce such +stockholder's proportional equity in the Company. +Upon +the effectiveness of the stock split, appropriate adjustments will be made to the equity compensation awards awarded and to be awarded under the Company's equity incentive plans. +The +Company will apply to Nasdaq for listing of the additional shares of Common Stock to be issued if the proposed amendment is approved. If the proposed amendment is approved, all +holders of record of Common Stock on the proposed record date for the split will receive two additional shares for each share that they own of record on that date. +The +Company has chosen to implement the Direct Registration System ("DRS") for shares issued as a result of this proposed stock split. The DRS is a book-entry form of stock +ownership allowing shares to be owned, transferred or sold electronically without having a physical stock certificate issued. Under the DRS your traditional voting and other rights and benefits as a +stockholder remain the same. +The +Company's transfer agent, Mellon Investor Services LLC ("Mellon"), will manage the DRS. You will receive a statement showing your total number of shares registered with Mellon +following the stock split, including shares held in both certificate and book-entry form. It is important that you retain this statement for your records. Additionally, do not destroy any +Company stock certificates you currently hold. The certificates remain valid for the number of shares shown on them, and you should continue to carefully preserve them. +If +you would prefer to receive a certificate for your shares issued in the stock split, instead of holding them in book-entry form, you may request a certificate from Mellon +at any time. You may also transfer shares from certificate form to book-entry form at any time. +IMPORTANT NOTE: CERTIFICATES REPRESENTING SHARES OF COMMON STOCK ISSUED PRIOR TO THE STOCK SPLIT WILL CONTINUE TO REPRESENT THE SAME NUMBER OF SHARES OF COMMON +STOCK AFTER THE EFFECTIVE DATE. THEREFORE, PLEASE DO NOT DESTROY OR RETURN YOUR EXISTING CERTIFICATES. +Effects of the Amendment, if Adopted +Upon issuance, the additional shares of authorized Common Stock would have rights identical to the shares of Common Stock currently +outstanding. Approval of the Amendment would not have any immediate dilutive effect on the proportionate voting power or other rights of existing stockholders. The stock split will reduce the +Company's diluted earnings per share but would not affect voting rights of current stockholders, as each stockholder would continue to hold the same percentage interest in the Company. However, to the +extent that the additional authorized shares of Common Stock are issued in +47 +the +future in a corporate transaction, other than the stock split, they may decrease existing stockholders' percentage equity ownership and, depending on the price at which they were issued, could be +dilutive to the voting rights of existing stockholders and have a negative effect on the market price of the Company's Common Stock. Because the Company's Restated Certificate of Incorporation, as +amended does not confer to the Company's stockholders preemptive rights with respect to Common Stock, should the Board of Directors elect to issue additional shares of Common Stock, existing +stockholders would not have any preferential rights to purchase these shares. +The +Company has been advised that the proposed stock split will result in no gain or loss or realization of taxable income to owners of Common Stock under existing United States federal +income tax laws. The tax basis of each share of Common Stock held immediately before the stock split will be allocated pro rata between this original share and the new shares of Common Stock +distributed with respect to the original share. Each new share will be deemed to have been acquired at the same time as the original share with respect to which the new share was issued. The laws of +jurisdictions other than the United States may impose income taxes on the issuance of the additional shares, and stockholders are urged to consult their own tax advisers. +The +additional authorized shares after the stock split may be used by the Company for business and financial purposes, such as raising capital through the sale of Common Stock; acquiring +other companies, businesses, products or services in exchange for shares of Common Stock; attracting and retaining employees by the issuance of additional securities under the Company's various equity +compensation plans; and other transactions and corporate purposes, as determined by the Board of Directors from time to time to be necessary or desirable. The additional authorized shares would enable +the Company to act quickly in response to opportunities that may arise for these types of transactions, in most cases without the necessity of obtaining future stockholder approval and holding a +special stockholders' meeting before such issuance(s) could proceed, except as provided under Delaware law or under the marketplace rules of Nasdaq. Whether and how to undertake any of these types of +transactions, if at all, will depend in part on market conditions at the time and there can be no assurance that the Company will undertake any of these types of transactions even if the Amendment is +approved by the stockholders. +Although +the Board of Directors will authorize the further issuance of Common Stock after the stock split only when it considers such issuance to be in the best interests of the Company, +stockholders should recognize that any such issuance of additional stock will have the effect of diluting the earnings per share and book value per share of outstanding shares of Common Stock and the +equity and voting rights of holders of shares of Common Stock. +The +Amendment could, under certain circumstances, have an anti-takeover effect, although it is not the Company's intention with this proposal. For example, in the event of a +hostile attempt to take control of the Company, it may be possible for the Company to impede the attempt by issuing shares of Common Stock, which would dilute the voting power of the other outstanding +shares and increase the potential cost to acquire control of the Company. The Amendment therefore may have the effect of discouraging unsolicited takeover attempts, potentially limiting the +opportunity for the Company's stockholders to dispose of their shares at a premium, which is often offered in takeover attempts, or that may be available under a merger proposal. The Amendment may +have the effect of permitting the Company's current management, including the current Board of Directors, to retain its position, and place it in a better position to resist changes that stockholders +may wish to make if they are dissatisfied with the conduct of the Company's business. However, as of the date of this Proxy Statement, the Board of Directors is not aware of any attempt to take +control of the Company, and the Board of Directors has not presented this proposal with the intent that it be utilized as a type of anti-takeover device. +48 +The +affirmative vote of the holders of a majority of the outstanding shares of Common Stock of the Company is required to authorize the proposed increase in the authorized number of +shares of Common Stock. Both abstentions and broker non-votes are not affirmative votes and, therefore, will have the same effect as votes against this Proposal No. 3. +The +Board of Directors has reserved the right, in the exercise of its discretion, to abandon the Amendment regardless of whether the stockholders approve the Amendment. +If +the Amendment is approved by the stockholders and it is not abandoned by the Board of Directors, it will become effective upon filing of a Certificate of Amendment, in the form set +forth as Appendix A to this Proxy Statement, to the Company's Restated Certificate of Incorporation with the Secretary of State of the State of Delaware, which filing is expected to occur soon +after the Annual Meeting. +THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL NO. 3 TO APPROVE THE AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION. +STOCKHOLDER PROPOSALS FOR THE 2011 ANNUAL MEETING +Any stockholder desiring to submit a proposal for action at our 2011 Annual Meeting of Stockholders and include it in our Proxy +Statement with respect to such meeting should arrange for such proposal to be delivered to us at our principal executive offices no later than December 23, 2010, which is 120 calendar days +prior to the anniversary of the mailing date of this year's Proxy Statement, in order to be considered for possible inclusion in the Proxy Statement for that meeting. If the date of next year's annual +meeting is moved more than 30 days before or after the anniversary date of this year's annual meeting, the deadline for inclusion of proposals in our Proxy Statement for our 2011 Annual Meeting +of Stockholders is instead a reasonable time before we begin to print and mail the proxy materials for that meeting. Matters pertaining to such proposals, including the number and length thereof, +eligibility of persons entitled to have such proposals included, and other aspects, are regulated by the Securities Exchange Act of 1934, as amended, rules and regulations of the Securities and +Exchange Commission, other laws and regulations, and our Bylaws, to which interested persons should refer. You may obtain a complete copy of our Bylaws without charge by submitting a written request +to our Corporate Secretary at our principal executive office. Stockholders wishing to submit for consideration a possible Board candidate should follow the procedures set forth under "Procedures for +Stockholder Nominations." +If +a stockholder desires to bring business before the 2011 Annual Meeting of Stockholders which is not the subject of a proposal properly submitted for inclusion in the Company's Proxy +Statement, the stockholder must follow procedures outlined in the Company's Bylaws. The Bylaws provide that a stockholder entitled to vote at the meeting may make nominations for the election of +directors or may propose that other business be brought before the meeting only if (a) such nominations or proposals are included in the Company's Proxy Statement or otherwise properly brought +before the meeting by or at the direction of the Board of Directors, or (b) the stockholder has delivered written notice to the Company (containing certain information specified in the Bylaws) +not less than 90 days prior to the date of the meeting. However, if the Company has given less than 90 days advance notice or public disclosure of the date the meeting is to be held, +written notice of a nomination or proposal to be +submitted by a stockholder at the meeting will be timely if it has been received by the Company not later than the 7th day following the date on which notice of the meeting is mailed or the +meeting date is otherwise publicly disclosed. +49 +OTHER BUSINESS OF THE ANNUAL MEETING +Management is not aware of any matters to come before the Annual Meeting or any continuation, postponement or adjournment thereof other +than the election of directors, the ratification of the selection of the Company's independent registered public accounting firm and the approval of an amendment to the Company's Restated Certificate +of Incorporation. However, inasmuch as matters of which management is not now aware may come before the Annual Meeting or any continuation, postponement or adjournment thereof, the Proxies confer +discretionary authority with respect to acting thereon, and the persons named in such Proxies intend to vote, act and consent in accordance with their best judgment with respect thereto, provided +that, to the extent the Company becomes aware a reasonable time before the Annual Meeting of any matter to come before such meeting, the Company will provide an opportunity to vote by Proxy directly +on such matter. Upon receipt of such Proxies in time for voting, the shares represented thereby will be voted as indicated thereon and as described in this Proxy Statement. +COST OF SOLICITATION +The solicitation of Proxies is made on behalf of the Company and all the expenses of soliciting Proxies from stockholders will be borne +by the Company. In addition to the solicitation of Proxies by use of the mail, officers and regular employees may communicate with stockholders personally or by mail, telephone, or otherwise for the +purpose of soliciting such Proxies, but in such event no additional compensation will be paid to any such persons for such solicitation. The Company will reimburse banks, brokers and other nominees +for their reasonable out-of-pocket expenses in forwarding soliciting material to beneficial owners of shares held of record by such persons. The total estimated cost of the +solicitation of Proxies is approximately $72,000. +HOUSEHOLDING; ANNUAL REPORT ON FORM 10-K +A copy of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009 (excluding the +exhibits thereto) as filed with the SEC, accompanies this Proxy Statement, but it is not deemed to be a part of the Proxy soliciting material. The Form 10-K contains consolidated +financial statements of the Company and its subsidiaries and the report thereon of KPMG LLP, the Company's independent registered public accounting firm. +The +Company will provide a copy of the exhibits to its Form 10-K for the fiscal year ended December 31, 2009 upon the written request of any beneficial owner of +the Company's securities as of the Record Date and reimbursement of the Company's reasonable expenses. Such request should be addressed to the Secretary of the Company at the Company's corporate +offices at 495-A South Fairview Avenue, Goleta, California 93117. +If +you are the beneficial owner, but not the record holder, of shares of Company stock, your broker, bank or other nominee may only deliver one copy of this proxy statement and the +Company's Annual Report to multiple stockholders who share an address, unless that nominee has received contrary instructions from one or more of the stockholders. The company will deliver promptly, +upon written or oral request, a separate copy of this proxy statement and its Annual Report to a stockholder at a shared address to which a single copy of the documents was delivered. A stockholder +who wishes to receive a separate copy of the proxy statement and annual report, now or in the future, should submit this request by writing to the Secretary of the Company at the Company's corporate +offices at 495-A South Fairview Avenue, Goleta, California 93117or by telephone at (805) 967-7611. Beneficial owners sharing an address who are receiving multiple +copies of proxy materials and who wish to receive a single copy of such materials in the future should make a request directly to their broker, bank or other nominee. +50 +Deckers' +Proxy Statement for the 2010 Annual Meeting of Stockholders and the Annual Report to Stockholders for the fiscal year ended December 31, 2009, are available at http://www.deckers.com . +STOCKHOLDERS ARE URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AS SOON AS POSSIBLE AND RETURN IT IN THE ENVELOPE PROVIDED, TO WHICH NO POSTAGE NEED BE +AFFIXED IF MAILED IN THE UNITED STATES. +BY ORDER OF THE BOARD OF DIRECTORS +/s/ ANGEL R. MARTINEZ +Angel R. Martinez +Chair of the Board, President and +Chief Executive Officer +Goleta, California +April 23, 2010 +51 +Appendix A +CERTIFICATE OF AMENDMENT +OF +AMENDED AND RESTATED +CERTIFICATE OF INCORPORATION +OF +DECKERS OUTDOOR CORPORATION +DECKERS OUTDOOR CORPORATION, a Delaware corporation organized and existing under and by virtue of the Delaware General Corporation Law +(the " Corporation "), does hereby certify: +FIRST: +The Board of Directors of the Corporation duly adopted resolutions proposing and declaring advisable the following amendments to the Amended and Restated Certificate of +Incorporation of the Corporation, directing that said amendment be submitted to the stockholders of the Corporation for consideration thereof. The resolutions setting forth the proposed amendments are +as follows: +RESOLVED, +that the Section 1 of Article IV of the Corporation's Amended and Restated Certificate of Incorporation is hereby amended to read in its entirety as follows: +SECTION 1. Authorized Shares. The Corporation shall be authorized to issue two classes of shares of stock +to be designated, respectively, "Preferred Stock" and "Common Stock;" the total number of shares that the Corporation shall have authority to issue is One Hundred Thirty Million (130,000,000); the +total number of shares of Preferred Stock shall be Five Million (5,000,000) and all such shares shall have a par value of one cent ($0.01); and the total number of shares of Common Stock shall be One +Hundred Twenty-Five Million (125,000,000), and each such share shall have a par value of one cent ($0.01). +SECOND: +That thereafter, the holders of the necessary number of shares of capital stock of the Corporation voted in favor of the foregoing amendment at the Corporation's 2010 Annual +Meeting of Stockholders called and held on May 27, 2010 upon notice in accordance with the provisions of Section 222 of the Delaware General Corporation Law. +THIRD: +That said amendment was duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Law of the State of Delaware. +IN +WITNESS WHEREOF, I affirm, under penalties of perjury, that the matters set forth in this certificate, which is executed +on , 2010, are true and correct of my own +knowledge. +Angel R. Martinez +Chair of the Board, President and +Chief Executive Officer +A-1 +72401 FOLD AND +DETACH HERE YOUR VOTE IS IMPORTANT. PLEASE VOTE TODAY. We encourage you to +take advantage of Internet or telephone voting. Both are available 24 hours a +day, 7 days a week. Internet and telephone voting is available through 11:59 +PM Eastern Time the day prior to the annual meeting date. OR If you vote your +proxy by Internet or by telephone, you do NOT need to mail back your proxy +card. To vote by mail, mark, sign and date your proxy card and return it in +the enclosed postage-paid envelope. Your Internet or telephone vote +authorizes the named proxies to vote your shares in the same manner as if you +marked, signed and returned your proxy card. INTERNET +http://www.proxyvoting.com/deck Use the Internet to vote your proxy. Have +your proxy card in hand when you access the web site. TELEPHONE +1-866-540-5760 Use any touch-tone telephone to vote your proxy. Have your +proxy card in hand when you call. DECKERS OUTDOOR CORPORATION Mark Here for +Address Change or Comments SEE REVERSE Signature Signature Date NOTE: Please +sign as name appears hereon. Joint owners should each sign. When signing as +attorney, executor, administrator, trustee or guardian, please give full +title as such. Please mark your votes as indicated in this example X THIS +PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL BE +VOTED “FOR” THE PROPOSALS AND IN ACCORDANCE WITH THE RECOMMENDATIONS OF A +MAJORITY OF THE BOARD OF DIRECTORS. THIS PROXY IS SOLICITED ON BEHALF OF THE +BOARD OF DIRECTORS. FOR ALL Nominees: WITHHOLD FOR ALL *EXCEPTIONS FOR +AGAINST ABSTAIN 1. ELECTION OF DIRECTORS 01 Angel R. Martinez 02 Rex A. +Licklider 03 John M. Gibbons 04 John G. Perenchio 05 Maureen Conners 06 Tore +Steen 07 Ruth M. Owades 08 Karyn O. Barsa (INSTRUCTIONS: To withhold +authority to vote for any individual nominee, mark the “Exceptions” box above +and write that nominee’s name in the space provided below.) *Exceptions 2. TO +RATIFY THE SELECTION OF KPMG LLP AS THE COMPANY'S INDEPENDENT REGISTERED +PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, 2010. 3. TO APPROVE +THE AMENDMENT TO THE COMPANY’S RESTATED CERTIFICATE OF INCORPORATION TO +INCREASE THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK FROM 50,000,000 +SHARES TO 125,000,000 SHARES. 4. In their discretion, the Proxyholders are authorized +to transact such other business as may properly come before the Annual +Meeting or any continuations, postponements or adjournments thereof. Will +Attend Meeting YES The Board of Directors recommends a vote “FOR” the +election of each of the director nominees, “FOR” ratification of the +selection of KPMG LLP as the Company's independent registered public +accounting firm for fiscal 2010 and, “FOR” the approval to amend the +Company’s Certificate of Incorporation. All proposals to be acted upon are +proposals of the Board of Directors. If any other business is properly +presented at the Annual Meeting, including, among other things, consideration +of a motion to adjourn the meeting to another time or place in order to +solicit additional Proxies in favor of the recommendations of the Board of +Directors, this Proxy shall be voted by the Proxyholders in accordance with +the recommendations of a majority of the Board of Directors. At the date the +Proxy Statement went to press, we did not anticipate any other matters would +be raised at the Annual Meeting. PLEASE MARK, SIGN, DATE AND RETURN THE PROXY +CARD PROMPTLY USING THE ENCLOSED ENVELOPE. +72401 You can +now access your Deckers Outdoor Corporation account online. Access your +Deckers Outdoor Corporation account online via Investor ServiceDirect® (ISD). +BNY Mellon Shareowner Services, the transfer agent for Deckers Outdoor +Corporation, now makes it easy and convenient to get current information on +your shareholder account. • View account status • View payment history for +dividends • View certificate history • Make address changes • View book-entry +information • Obtain a duplicate 1099 tax form Visit us on the web at +http://www.bnymellon.com/shareowner/isd For Technical Assistance Call +1-877-978-7778 between 9am-7pm Monday-Friday Eastern Time Investor +ServiceDirect® Available 24 hours per day, 7 days per week TOLL FREE NUMBER: +1-800-370-1163 Important notice regarding the Internet availability of proxy +materials for the Annual Meeting of Stockholders. The Annual Report and the +Proxy Statement on the internet at: +http://www.deckers.com/investors/FinancialReports.asp?compid=91148 PROXY +DECKERS OUTDOOR CORPORATION 495-A South Fairview Avenue Goleta, California +93117 This Proxy is solicited on behalf of the Board of Directors of Deckers +Outdoor Corporation The undersigned hereby appoints Zohar Ziv and Thomas A. +George, and each of them, as Proxyholders, each with the power to appoint his +substitute, and hereby authorizes each of them to represent and to vote as +designated below, all the shares of Common Stock of Deckers Outdoor +Corporation held of record by the undersigned on April 1, 2010, at the 2010 +Annual Meeting of Stockholders to be held on May 27, 2010 and any +continuations, postponements or adjournments thereof. Address Change/Comments +(Mark the corresponding box on the reverse side) BNY MELLON SHAREOWNER +SERVICES P.O. BOX 3550 SOUTH HACKENSACK, NJ 07606-9250 Choose MLinkSM for +fast, easy and secure 24/7 online access to your future proxy materials, +investment plan statements, tax documents and more. Simply log on to Investor +ServiceDirect® at www.bnymellon.com/shareowner/isd where step-by-step +instructions will prompt you through enrollment. FOLD AND DETACH HERE +(Continued and to be marked, dated and signed, on the other side) +QuickLinks +EVERY STOCKHOLDER'S VOTE IS IMPORTANT. +PROPOSAL NO. 1 ELECTION OF DIRECTORS +CORPORATE GOVERNANCE +EXECUTIVE OFFICERS +COMPENSATION DISCUSSION AND ANALYSIS +COMPENSATION COMMITTEE REPORT +SUMMARY COMPENSATION TABLE +GRANTS OF PLAN BASED AWARDS IN 2009 +OUTSTANDING EQUITY AWARDS AT 2009 FISCAL YEAR END +2009 OPTION EXERCISES AND STOCK VESTED +NONQUALIFIED DEFERRED COMPENSATION +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL +DIRECTOR COMPENSATION +EQUITY COMPENSATION PLAN INFORMATION +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +REPORT OF THE AUDIT COMMITTEE +PROPOSAL NO. 2 RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +PROPOSAL NO. 3 AMENDMENT OF CERTIFICATE OF INCORPORATION TO INCREASE AUTHORIZED CAPITAL STOCK +STOCKHOLDER PROPOSALS FOR THE 2011 ANNUAL MEETING +OTHER BUSINESS OF THE ANNUAL MEETING +COST OF SOLICITATION +HOUSEHOLDING; ANNUAL REPORT ON FORM 10-K +Appendix A +CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF DECKERS OUTDOOR CORPORATION \ No newline at end of file diff --git a/raw/proxies/0000910521/0001047469-10-004128/proxy_rpt.txt b/raw/proxies/0000910521/0001047469-10-004128/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..c306432e542dfadeefdef8d9f816965e5714fd72 --- /dev/null +++ b/raw/proxies/0000910521/0001047469-10-004128/proxy_rpt.txt @@ -0,0 +1,29 @@ +Certain Relationships and Related Transactions +The legal department is primarily responsible for identifying and reviewing relationships and transactions in which the Company and our +directors, executive officers, certain of our stockholders or their immediate family members are participants to determine whether any of these related persons had or will have a direct or indirect +material interest. In order to identify potential related person transactions, the Company's legal department annually prepares and distributes to all directors and executive officers a written +questionnaire which includes questions intended to elicit information about any related person transactions. In addition, the Company's Code of Business Conduct and Ethics addresses conflicts of +interest where an individual's private interests interfere or conflict with the interests of the Company, including relationships with suppliers, customers or competitors. Conflicts of interest which +might impair or appear to impair the exercise of judgment solely for the benefit of the Company are prohibited. In general, such conflicts must be approved by the legal department, the employee's +supervisor or, in the case of directors, the Board. Information regarding potential conflicts of interests in violation of the Company's Code of Business Conduct and Ethics may be reported to the +Company's anonymous reporting hotline and may be subsequently obtained by the Audit Committee Chair, the Chair of the Board and the Chief Audit Executive. +If +a related person transaction is identified by the legal department as one which must be reported in the Company's Proxy Statement pursuant to applicable Securities and Exchange +Commission regulations, our Board is responsible for reviewing and approving or ratifying any such related person transactions. In evaluating related person transactions, our Board members apply the +same standards of good faith and fiduciary duty they apply to their general responsibilities as the Board and as individual directors. The Board may approve a related person transaction when, in its +good faith judgment, the transaction is in the best interests of the Company. +There +were no disclosable transactions with related persons under Item 404 of Regulation S-K during the fiscal year ended December 31, 2009 or currently +proposed. +Limitation of Liability and Indemnification of Directors and Officers +Our Certificate of Incorporation and Bylaws provide that we shall indemnify directors and executive officers to the fullest extent now +or hereafter permitted by the Delaware General Corporation Law (the "DGCL"). In addition, we have entered into Indemnification Agreements with our directors and executive officers in +which we agree to indemnify such persons to the fullest extent now or hereafter permitted by the DGCL. +We +have obtained a liability policy for our directors and officers as permitted by the DGCL which extends to, among other things, liability arising under the Securities Act of 1933, as +amended. +43 +We +maintain an insurance policy pursuant to which our directors and officers are insured, within the limits and subject to the limitations of the policy, against specified expenses in +connection with the defense of claims, actions, suits or proceedings, and liabilities which might be imposed as a result of such claims, actions, suits or proceedings, that may be brought against them +by reason of their being or having been directors or officers. \ No newline at end of file diff --git a/raw/proxies/0000910521/0001047469-11-003605/proxy.txt b/raw/proxies/0000910521/0001047469-11-003605/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..668ffbe50b5fe6febc8c2341935ade1015e237f3 --- /dev/null +++ b/raw/proxies/0000910521/0001047469-11-003605/proxy.txt @@ -0,0 +1,3073 @@ +DEF 14A +1 +a2203376zdef14a.htm +DEF 14A +QuickLinks +-- Click here to rapidly navigate through this document +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy +Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +Deckers Outdoor Corporation +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +April 13, +2011 +Dear +Stockholder: +We +cordially invite you to attend our 2011 Annual Meeting of Stockholders to be held at 3:00 p.m., local time, on Tuesday, May 31, 2011 at Deckers Outdoor Corporation's +headquarters, 495-A South Fairview Avenue, Goleta, California 93117. +You +may have noticed significant changes in the way we are providing proxy materials to our stockholders in connection with our Annual Meeting. This is because we have elected to provide +access to our proxy material over the Internet under the Securities and Exchange Commission's "notice and access" rules. These rules allow us to make our stockholders aware of the availability of our +proxy materials by sending a Notice of Internet Availability of Proxy Materials, which provides instructions for how to access the full set of proxy materials through the Internet or make a request to +have printed proxy materials delivered by mail. We believe compliance with these rules will allow us to provide our stockholders with the materials they need to make informed decisions, while lowering +the costs of printing and delivering those materials and significantly reducing the environmental impact of our Annual Meeting. +Your +vote is important. Whether or not you plan to attend the Annual Meeting, we hope you will vote as soon as possible using one of the voting methods we have provided to you. You may +vote over the Internet or, if you requested to receive printed proxy materials, by telephone or by mailing a proxy or +voting instruction card. Please review the instructions on each of your voting options described in this proxy statement as well as in the Notice you received in the mail. +Thank +you for your ongoing support of Deckers Outdoor Corporation. We look forward to seeing you at our Annual Meeting. +Sincerely, +/s/ ANGEL R. MARTINEZ +Angel R. Martinez +Chair of the Board, President and Chief Executive Officer +2011 Proxy Summary +This summary highlights information contained elsewhere in this proxy statement. This summary does not contain +all of the information that you should consider, and you should read the entire proxy statement carefully before voting. +Annual Meeting of Stockholders +• Time and Date +3:00 p.m., May 31, 2011 +• Place +Deckers Outdoor Corporation Corporate Headquarters +495-A South Fairview Avenue +Goleta, California 93117 +• Record Date +April 4, 2011 +• Voting +Stockholders as of the record date are entitled to vote. +Meeting Agenda +• Election of 8 directors +• Ratification of KPMG as independent registered public accounting firm for 2011 +• Re-approve the material terms of the performance goals under our 2006 Equity Incentive Plan +• Advisory vote on executive compensation +• Advisory vote on the frequency of future advisory votes on executive compensation +• Transact other business that may properly come before the meeting +Voting Matters +Proposal +No. +Matter +Board Vote Recommendation +Page Reference +(for more detail) +1 +Election of Directors +FOR EACH DIRECTOR NOMINEE +5 +2 +Ratification of KPMG LLP as Independent Registered Public Accounting Firm for 2011 +FOR +48 +3 +Reapprove Performance Goals under 2006 Equity Incentive Plan +FOR +50 +4 +Advisory Vote on Executive Compensation +FOR +58 +5 +Advisory Vote on the Frequency of Future Advisory Votes on Executive Compensation +FOR EVERY YEAR +59 +The +following is summary information with respect to each of the proposals to be voted on at the meeting. +Board Nominees +The following table provides summary information about each director nominee. Each director nominee is elected annually by a plurality +of votes cast. +Name +Age +Director +Since +Occupation +Experience/Qualification +Independent +Angel R. Martinez +55 +2005 +Chair, President & CEO, +• Leadership +Deckers Outdoor +• Industry +Corporation +• Marketing +Rex A. Licklider +67 +1993 +CEO & Vice Chair, The +• Leadership +Sports Club Company +• Marketing +X +John M. Gibbons(1)(2) +62 +2000 +Independent Consultant +• Leadership +• Finance +X +John G. Perenchio(1)(3) +55 +2005 +Private Investor and Chairman, +• Leadership +Fearless Records LLC +• Legal +• Marketing +X +Maureen Conners(1)(3) +64 +2006 +President, Conners +• Leadership +Consulting +• Industry +• Marketing +• International +X +Ruth M. Owades(3) +62 +2008 +Corporate Director +• Leadership +• Industry +• Marketing +X +Karyn O. Barsa(2) +49 +2008 +CEO, Coyuchi, Inc. +• Leadership +• Industry +• Finance +• Marketing +X +Michael F. Devine, III +52 +2011 +CFO, Coach, Inc. +• Leadership +• Industry +• Finance +X +(1) Member +of Compensation and Management Development Committee +(2) Member +of Audit Committee +(3) Member +of Corporate Governance and Nominating Committee +No +director nominee who is a current director attended fewer than 75% of the Board meetings and committee meetings on which he or she sits. +Auditors +As a matter of good corporate governance, we are asking our stockholders to ratify the selection of KPMG LLP as our independent +registered public accounting firm for 2011. Set forth below is summary information with respect to KPMG's fees for services provided in 2010 and 2009. +Type of Fees +2010 +2009 +Audit Fees +$ +1,235,000 +$ +1,200,000 +Audit-Related Fees +— +— +Tax Fees +$ +18,000 +$ +41,000 +All Other Fees +— +— +Total +$ +1,253,000 +$ +1,241,000 +Re-approve the material terms of the performance goals under our 2006 Equity Incentive Plan +We are asking our stockholders to re-approve the material terms of the performance goals under our 2006 Equity Incentive +Plan. This re-approval is required under Internal Revenue Service regulations in order to preserve the Company's federal income tax deduction when payments related to these awards are made +to certain executive officers. We are not seeking approval for any changes to the Plan and re-approval will not increase the number of shares available under the Plan or otherwise +represent an enhancement to executive compensation. +Executive Compensation Advisory Vote and Its Frequency +We are asking our stockholders to approve on an advisory basis our named executive officer compensation. The Board recommends a FOR +vote because it believes that our compensation policies and practices are effective in achieving our goals of paying for financial and operating performance, and aligning our executives' interests +with those of our stockholders. +The +Board recommends that our stockholders vote in favor of holding the advisory vote on executive compensation EVERY YEAR. +Executive Compensation Elements +Type +Form +Terms +Equity +• Annual Short-Term Equity Awards (Nonvested Stock Units or "NSUs") +• If performance goals are achieved, NSUs vest over a period of approximately 3 years +• Long-Term Incentive Equity Awards—Level 1 and Level 2 (includes Restricted Stock Units or "RSUs" and Stock Appreciation Rights or "SARs") +• RSUs and SARs have performance periods (approximately 5 years for Level 1 and approximately 10 years for Level 2) with 2 objective performance measures +Cash +• Salary +• Increases must be approved by compensation committee +• Annual Cash Incentive Plan Awards +• Based on quantitative and qualitative goals +• Discretionary Bonus +• Not guaranteed; Determined by compensation committee based on year-end results +Other +• Perquisites +• Generally benefits provided to executives mirror those provided to all employees +Other Key Compensation Features +• No tax gross-ups as a result of termination following a change of control +• Prohibit hedging and speculative transactions with respect to our stock +• Stock ownership guidelines for our named executive officers and directors +• "Double Trigger" event required for severance benefits upon a change in control +• Annual short-term equity awards granted in 2011 are subject to a Clawback Policy to be adopted by the Company +following adoption of the relevant rules under Section 954 of the Dodd-Frank Act +2010 Compensation Decisions +In every year since 2006, our annual revenue and diluted earnings per share have steadily increased. Throughout the past five years, +our executive team has provided both the leadership and strategic vision to achieve this success. +During +fiscal 2010, we achieved a record $1.001 billion in net sales, a 23.1% increase over the prior year. Furthermore, our executive team successfully implemented strategic +goals for our continued long-term success. These goals include broadening the Teva® brand's appeal through product innovation; completing various phases of our transition from +a distributor to an international wholesale model in Japan, Benelux, France and UK; and continuing our multi-channel expansion in retail and eCommerce. +Our +executive compensation philosophy continues to focus on at-risk pay and limits annual guaranteed pay. Therefore, compensation increases for our executive officers are +generally tied to the company's performance and each executive's contributions to that performance through their respective functions. At the same time, we balance our annual guaranteed pay with the +at-risk pay so as to mitigate excessive risk taking to the company. +2012 Annual Meeting +• Deadline for Stockholder Proposals December 17, 2011 +DECKERS OUTDOOR CORPORATION +495-A South Fairview Avenue, Goleta, California 93117 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD MAY 31, 2011 +TO THE STOCKHOLDERS OF +DECKERS OUTDOOR CORPORATION: +Notice +is hereby given that the Annual Meeting of Stockholders (the "Annual Meeting") of Deckers Outdoor Corporation, a Delaware corporation (the "Company"), will be held at the +Company's headquarters, 495-A South Fairview Avenue, Goleta, California, 93117, on Tuesday, May 31, 2011, beginning at 3:00 p.m., local time. The Annual Meeting will be held +for the following purposes: +1. Election of Directors. To elect eight (8) directors of the Company to serve +until the Annual Meeting of Stockholders to be held in 2012. +2. Ratification of Appointment of Independent Registered Public Accounting Firm. To +ratify the selection of KPMG LLP as the Company's independent registered public accounting firm for the year ending December 31, 2011. +3. Re-approve the material terms of the performance goals under our 2006 Equity Incentive +Plan. To re-approve the material terms of the performance goals under our 2006 Equity Incentive Plan in order to preserve the Company's federal income +tax deduction when payments related to these awards are made to certain executive officers. +4. Advisory Vote on Executive Compensation. To approve, by a non-binding +advisory vote, our executive compensation program. +5. Advisory Vote on the Frequency of Advisory Votes on Executive Compensation. To +recommend, by a non-binding advisory vote, the frequency of advisory votes on our executive compensation program. +6. Other Business. To consider and act upon such other business as may properly come +before the Annual Meeting or any postponements or adjournments thereof. +The +Board of Directors has fixed the close of business on April 4, 2011 as the record date (the "Record Date") for determining stockholders entitled to notice of and to vote at +the Annual Meeting and any continuations, postponements or adjournments thereof. Only stockholders of record at the close of business on the Record Date are entitled to such notice and to vote, in +person or by Proxy, at the Annual Meeting. +Your vote is very important. Whether or not you plan to attend the Annual Meeting, we encourage you to read this proxy statement and submit your proxy or voting +instructions as soon as possible. For specific instructions on how to vote your shares, please refer to the instructions on the Notice of Internet Availability of Proxy Materials you received in the +mail, the section entitled "How to Vote" in this proxy statement or, if you requested to receive printed proxy materials, your enclosed proxy card. +BY ORDER OF THE BOARD OF +DIRECTORS +/s/ ANGEL R. MARTINEZ +Angel R. Martinez +Chair of the Board, President and +Chief Executive Officer +Goleta, +California +April 13, 2011 +Approximate +Date of Mailing of Notice of Internet Availability of Proxy Materials: April 15, 2011 +495-A South Fairview Avenue +Goleta, California 93117 +ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD MAY 31, 2011 +PROXY STATEMENT +GENERAL INFORMATION +This Proxy Statement is furnished in connection with the solicitation of Proxies by the Board of Directors of Deckers Outdoor Corporation, a Delaware corporation +(the "Company" or "Deckers"), for use at its Annual Meeting of Stockholders (the "Annual Meeting") to be held at 3:00 p.m., local time, on May 31, 2011, at the Company's headquarters, +495-A South Fairview Avenue, Goleta, California 93117, and any continuations, postponements or adjournments thereof for the purposes set forth in the accompanying Notice of Annual Meeting. +This Proxy Statement and the accompanying Proxy Card (the "Proxy") were first mailed to stockholders on or about April 15, 2011. +Annual Meeting Admission +You are entitled to attend the Annual Meeting only if you were a stockholder as of the close of business on April 4, 2011 the +record date for the Annual Meeting, or hold a valid proxy for the Annual Meeting. Since seating is limited, admission to the meeting will be on a first-come, first-served basis. You should +be prepared to present photo identification for admittance. If you are not a stockholder of record but hold shares through a broker, bank, trustee or other nominee (i.e., in street name), you +should provide proof of beneficial ownership as of April 4, 2011, such as your most recent account statement prior to April 4, 2011, a copy of the voting instruction card provided by +your broker, bank, trustee or other nominee, or similar evidence of ownership. If you do not provide photo identification or comply with the other procedures outlined above, you will not be admitted +to the Annual Meeting. For security reasons, you and your bags may be subject to search prior to your admittance to the Annual Meeting. +Important Notice Regarding the Availability of Proxy Materials +Under rules issued by the U.S. Securities and Exchange Commission (the "SEC"), we are furnishing proxy materials to our stockholders +primarily via the Internet, instead of mailing printed copies of those materials to each stockholder. On April 15, 2011, we mailed to our stockholders (other than those who previously requested +electronic or paper delivery) a Notice of Internet Availability of Proxy Materials (the "Notice") containing instructions on how to access our proxy materials, including our proxy statement and our +Annual Report, each of which are available at www.proxyvote.com. The Notice also instructs our stockholders how to vote their shares through the Internet or by telephone. +This +new process is designed to expedite our stockholders' receipt of our proxy materials, lower the cost of our Annual Meeting, and help conserve natural resources. However, if you +would prefer to receive printed proxy materials, please follow the instructions included in the Notice. If you have previously elected to receive our proxy materials electronically, you will continue +to receive these materials via e-mail unless you elect otherwise. +1 +How to Vote +Stockholders of record can vote by Proxy or by attending the Annual Meeting and voting in person. If you vote by Proxy, you can vote by +telephone, by Internet or by mail as described below. Zohar Ziv and Thomas A. George, the designated proxyholders (the "Proxyholders"), are members of the Company's management. If you are a beneficial +owner (i.e., if you hold our shares in "street name"), please refer to your proxy card or the information forwarded by your bank, broker or other holder of record to see which voting options +are available to you. +Vote by Internet. You can vote by proxy over the Internet by following the instructions provided in the Notice. If you hold shares +beneficially in +"street name," you may vote by proxy over the Internet by following the instructions provided in the Notice or the proxy card. Internet voting is available 24 hours a day and will be accessible +until 11:59 p.m. Eastern Time on May 30, 2011 by visiting www.proxyvote.com and following the instructions. Our Internet voting procedures are designed to authenticate stockholders by +using individual control numbers, which are located on the Notice. If you vote by Internet, you do not need to return your proxy card. +Vote by Telephone. If you requested to receive printed proxy materials, you can vote by telephone pursuant to the instructions provided +on the proxy +card. If you hold shares beneficially in "street name" and requested to receive printed proxy materials, you can vote by telephone following the voting instruction card provided to you by your broker, +bank, trustee or nominee. Telephone voting is available 24 hours a day and will be accessible until 11:59 p.m. Eastern Time on May 30, 2011. If you vote by +telephone, you do not need to return your proxy card. +Vote by Mail. If you requested to receive printed proxy materials, you can vote by mail pursuant to the instructions provided on the +proxy card. If +you hold shares beneficially in "street name" and requested to receive printed proxy materials, you can vote by mail by following the voting instruction card provided to you by your broker, bank, +trustee or nominee. In order to be effective, completed proxy cards must be received by 12:00 p.m. Eastern Time on May 31, 2011. If you choose to vote by mail, simply mark your Proxy, +date and sign it, and return it in the business reply envelope provided with this Proxy Statement. +Vote at the Annual Meeting. The method you use to vote will not limit your right to vote at the Annual Meeting if you decide to attend +in person. If +you hold shares beneficially in "street name," you must obtain a Proxy, executed in your favor by your broker or nominee, to be able to vote at the Annual Meeting. All shares that have been properly +voted and not revoked will be voted at the Annual Meeting. If you sign and return your proxy card but do not give voting instructions, the shares represented by that Proxy will be voted as recommended +by the Board of Directors. +Voting Rights +Meeting Quorum. In order to conduct business at the Annual Meeting, a quorum must be present. The presence at the Annual Meeting, in +person or +represented by Proxy, of holders of a majority of the outstanding shares of the Common Stock outstanding as of the Record Date, will constitute a quorum at the Annual Meeting. We will treat shares of +Common Stock represented by a properly signed and returned Proxy, including abstentions and broker non-votes (each as defined below), as present at the Annual Meeting for the purposes of +determining the existence of a quorum. +Vote Required. Each share of Common Stock issued and outstanding on the Record Date is entitled to one vote on any matter presented for +consideration +and action by the stockholders at the Annual Meeting. The eight directors to be elected at the Annual Meeting (Proposal No. 1) will be elected by a plurality of the votes cast by stockholders +present in person or represented by Proxy at the Annual Meeting and entitled to vote and voting. Proposal No. 2 regarding the ratification of the selection of KPMG LLP as the Company's +independent registered public accounting firm, Proposal +2 +No. 3 +regarding the re-approval of the material terms of the performance goals under our 2006 Equity Incentive Plan, and Proposal No. 4 regarding the advisory vote on +executive compensation, will each require the affirmative vote of a majority of the shares present in person or represented by Proxy at the Annual Meeting and entitled to vote (assuming that a quorum +is present). With respect to Proposal No. 5 regarding the frequency of future advisory votes on executive compensation, stockholders may vote for "one year," "two years" or "three years," or +may abstain from voting. The option of one year, two years or three years that receives a majority of the shares present in person or represented by Proxy at the Annual Meeting and entitled to vote +will be the frequency for the advisory vote on executive compensation selected by our stockholders. In the absence of a majority of votes cast in support of any one frequency, the option of one year, +two years or three years that receives the greatest number of votes will be considered the frequency selected by our stockholders. With respect to the advisory vote on executive compensation and the +advisory vote on the frequency of future advisory votes on executive compensation, each of these votes is advisory (non-binding), and the Board will give consideration to the voting +results. +Abstentions. A stockholder may withhold authority to vote for one or more nominees for director and may abstain from one or more of the +other matters +to be voted on at the Annual Meeting. Shares for which authority is withheld or that a stockholder abstains from voting will be counted for purposes of determining whether a quorum is present at the +Annual Meeting. Shares for which authority is withheld will have no effect on the voting for the election of directors (which requires a plurality of the votes cast). Shares that a stockholder +abstains from voting will be included in the total of votes cast and have the same effect as a vote AGAINST Proposals No. 2, No. 3, No. 4 and No. 5. +Broker Non-Votes. If your shares are held by a broker, the broker will vote your shares for you if you provide instructions to your +broker on how to vote. You should follow the directions provided by your broker regarding how to instruct your broker to vote your shares. "Broker non-votes" are shares held by a broker or +other nominee that are represented at the Annual Meeting, but with respect to which the broker or nominee has not received instructions from the beneficial owner of the shares to vote on the +particular proposal and does not have discretionary voting power on the proposal. Whether a broker has authority to vote its shares on uninstructed matters is determined by stock exchange rules. +Brokers holding shares of record for beneficial owners generally are entitled to exercise their discretion to follow the recommendation of the Board of Directors and vote in favor of Proposal +No. 2, but do not have the discretion to vote on Proposals No. 1, +No. 3, No. 4 and No. 5 included in this Proxy Statement unless they receive other instructions from their customers. Broker non-votes will be counted for purposes of +determining the presence or absence of a quorum at the Annual Meeting but will not be counted for purposes of determining the number of shares represented and voting with respect to a proposal. +Accordingly, broker non-votes will have no effect on voting on the election of directors, on the ratification of the independent registered public accounting firm, on the +re-approval of the material terms of the performance goals under our 2006 Equity Incentive Plan, on the advisory vote on our executive compensation, or on the advisory vote on the +frequency of future advisory votes on executive compensation. +Revocation of Proxy +A stockholder giving a Proxy has the power to revoke it at any time before it is exercised by giving written notice of revocation to +the Secretary of the Company, by executing a subsequent Proxy, or by attending the Annual Meeting and voting in person. If you have instructed your broker to vote your shares, you must follow +directions received from your broker to change those instructions. Subject to any such revocation, all shares represented by properly executed Proxies will be voted in accordance with the +specifications on the enclosed Proxy. +3 +Record Date +In accordance with the Company's Bylaws, the Board of Directors has fixed April 4, 2011 as the Record Date for the determination +of stockholders entitled to notice of and to vote at the Annual Meeting and any postponements or adjournments thereof. As of the close of business on April 4, 2011, there were 38,677,632 shares +of the Company's Common Stock outstanding and each share of Common Stock is entitled to one vote. +Procedures for Stockholder Nominations +The Company's Bylaws provide that a stockholder seeking to nominate a candidate for election as director at an annual meeting of +stockholders must provide timely advance written notice. To be timely, a stockholder's notice generally must be received at our principal executive office on or before the date 90 days prior to +the scheduled date of the annual meeting or, if it is a later date, on or before the date seven days after the Company first publishes notice of the annual meeting. +Under +our Bylaws, a stockholder's notice of a proposed nomination for director to be made at an annual meeting must include the following information: +• the name and address of the stockholder and any Stockholder Affiliate proposing to make the nomination and of the person +or persons to be nominated; +• the class and number of shares of the Company that are, directly or indirectly, beneficially owned by the stockholder or +any Stockholder Affiliate and any derivative positions held or beneficially held by the stockholder or any Stockholder Affiliate and whether and the extent to which any hedging or other transaction or +series of transactions has been entered into by or on behalf of, or any other agreement, arrangement or understanding (including, but not limited to, any derivative position, short position, or any +borrowing or lending of shares) has been made, the effect or intent of which is to mitigate loss to or manage risk or benefit of share price changes for, or to increase or decrease the voting power +of, such stockholder or any Stockholder Affiliate; +• a representation that the holder is a stockholder entitled to vote his or her shares at the annual meeting and intends to +vote his or her shares in person or by proxy for the person nominated in the notice; +• a description of all arrangements or understandings between the stockholder(s) or Stockholder Affiliate supporting the +nomination and each nominee; +• any other information concerning the proposed nominee(s) that the Company would be required to include in the Proxy +Statement if the Board of Directors made the nomination; +• the consent and commitment of the nominee(s) to serve as director; +• for each nominee, a completed and signed questionnaire, in a form provided by the Company upon written request, with +respect to the background and qualification of such person being nominated and the background of any other person or entity on whose behalf the nomination is being made; +• for each nominee, a written representation and agreement, in the form provided by the Company upon written request, with +regards to any voting commitments, compensatory arrangements with a third party and compliance requirements applicable to directors of the Company; +4 +• a description of all agreements, arrangements and understandings between the stockholder and Stockholder Affiliate and any +other person, including their name, in connection with the nominee; and +• whether the stockholder or any Stockholder Affiliate intends to conduct a proxy solicitation. +For +these purposes, "Stockholder Affiliate" means any person controlling, directly or indirectly, or acting in concert with, any stockholder making the nomination; any beneficial owner +of shares of stock of the Company owned of record or beneficially by the stockholder making the nomination; and any person controlling, controlled by or under common control with the Stockholder +Affiliate. The +presiding officer of the Annual Meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. Stockholder nominations submitted in accordance with +the requirements of the Company's Bylaws will be forwarded to the Corporate Governance and Nominating Committee. +Other Business +If any other matters are promptly presented for consideration at the Annual Meeting including, among other things, consideration of a +motion to adjourn the Annual Meeting to another time or place in order to solicit additional Proxies in favor of one or more of the proposals, the persons named as Proxyholders and acting thereunder +will have discretion to vote on these matters according to their best judgment to the same extent as the person delivering the Proxy would be entitled to vote. At the date this Proxy Statement went to +press, we did not anticipate that any other matter would be raised at the Annual Meeting. +PROPOSAL NO. 1 +ELECTION OF DIRECTORS +The Company's Bylaws state that the Board of Directors shall consist of not less than one or more than nine members. The specific +number of Board members within this range is established by the Board of Directors and is currently set at nine and will be reduced to eight effective upon the conclusion of the Annual Meeting. There +are currently nine Board members, and all directors are elected annually. +At +the Annual Meeting, stockholders will be asked to elect eight directors of the Company to serve until the Company's next annual meeting of stockholders to be held in 2012 and until +his or her successor is elected and qualified. Proxies cannot be voted for a greater number of persons than the number of nominees named. The names and certain information concerning the persons +nominated by the Board of Directors to become directors at the Annual Meeting are set forth below. Each of the proposed nominees currently serves as a member of the Board of Directors. Tore Steen, one +of our current directors and a member of the Audit Committee of the Board, is not standing for re-election as director at the Annual Meeting, and his term of office on the Board of +Directors will end effective upon the conclusion of the Annual Meeting. +Accordingly, +if all nominees for director are elected, then following the Annual Meeting, the Board of Directors will consist of eight members, and a majority of the Board of Directors +and all members of each of its standing committees will continue to be "independent" under applicable regulations as +described below. In addition, effective upon the conclusion of the Annual Meeting, Michael F. Devine, III, a current director, will become a member of the Audit Committee of the Board. +The +election of directors shall be by the affirmative vote of the holders of a plurality of the shares voting in person or by Proxy at the Annual Meeting. The persons named as +Proxyholders in the enclosed Proxy will vote to elect all eight proposed nominees named below unless contrary instructions are given in the Proxy. Broker non-votes and Proxies marked +"withheld" as to one or more of the +5 +nominees +will result in the respective nominees receiving fewer votes. However, the number of votes otherwise received by the nominee will not be reduced by such action. +Although +each of the persons named below has consented to serve as a director if elected, and the Board of Directors has no reason to believe that any of the nominees named below will be +unable to serve as a director, if any nominee withdraws or otherwise becomes unavailable to serve, the persons named as Proxyholders in the enclosed Proxy will vote for any substitute nominee +designated by the Board of Directors. +None +of the directors or nominees for director was selected pursuant to any arrangement or understanding, other than with the directors of the Company acting within their capacity as +such. There are no family relationships among directors, nominees for director or executive officers of the Company. +Nominees for Director and Director Qualifications +The names of the nominees for director and certain biographical information about them, including public company directorships over the +last five years, are set forth below. In addition, information about the specific qualifications, attributes and skills of each nominee that led to the Board's conclusion that each nominee should +serve as a director of the Company is set forth below. As detailed under "Nominating Procedures and Criteria" below, the Board believes that there are both general requirements for services on the +Company's Board of Directors that are applicable to all directors and that there are other specialized criteria that should be represented on the Board. +Name +Age +Director Since +Principal Occupation +Angel R. Martinez +55 +2005 +Chair of the Board, President and Chief Executive Officer of the Company +Rex. A. Licklider +67 +1993 +Chief Executive Officer and Vice Chair of The Sports Club Company +John M. Gibbons(1)(2) +62 +2000 +Independent Consultant +John G. Perenchio(1)(3) +55 +2005 +Private Investor and Chairman of Fearless Records LLC +Maureen Conners(1)(3) +64 +2006 +President of Conners Consulting +Ruth M. Owades(3) +62 +2008 +Corporate Director +Karyn O. Barsa(2) +49 +2008 +Chief Executive Officer of Coyuchi, Inc. +Michael F. Devine, III +52 +2011 +Chief Financial Officer of Coach, Inc. +(1) Current +Member of the Compensation and Management Development Committee +(2) Current +Member of the Audit Committee +(3) Current +Member of the Corporate Governance and Nominating Committee +Angel R. Martinez , age 55, joined Deckers in April 2005 as President and Chief Executive Officer. In September 2005, he became a director +of the Company and in May 2008, he became Chair of the Board. Subject to his re-election as a director at the Annual Meeting, Mr. Martinez will remain Chair of the Board. +Previously, Mr. Martinez was Chief Executive Officer and Vice Chair of Keen LLC, an outdoor footwear manufacturer, from January 2005 to March 2005, after serving as President and Chief +Executive Officer from April 2003 to December 2004, and as an independent consultant since June 2002. Prior thereto he served as Executive Vice President and Chief Marketing Officer of Reebok +International Ltd. and as Chief Executive Officer and President of The Rockport Company, a subsidiary of Reebok. Mr. Martinez has been a member of the Board of Directors of Tupperware +Brands Corporation (NYSE:TUP) since 1998. +6 +The +experiences above highlight the qualifications and skills that were among the most important to the Board in concluding that Mr. Martinez should serve as a director of the +Company. These skills include, but are not limited to, the management of a public company; management in the footwear industry and in a consumer products company; and experience in sales and +marketing, the international marketplace, private investments, luxury branding, merchandising, retailing and acquisitions. +Rex A. Licklider , age 67, has served as a director since September 1993. Mr. Licklider has been director and Vice Chair of The +Sports Club Company (Pink Sheets: SCYL), a developer and operator of health and fitness clubs, since May 1994. Mr. Licklider has served as the Chief Executive Officer of The Sports Club Company +since March 2004 and as Co-Chief Executive Officer of The Sports Club Company from February 2002 to March 2004. From February 1992 to January 1993, Mr. Licklider was Chair of the +Board of Resurgens Communications Group, a long distance telecommunications company, and from 1975 until February 1992, Mr. Licklider was Chair of the Board and Chief Executive Officer of Com +Systems, Inc., a long distance telecommunications company that merged with Resurgens Communications Group in February 1992. +The +experiences above highlight the qualifications and skills that were among the most important to the Board in concluding that Mr. Licklider should serve as a director of the +Company. These skills include, but are not limited to, management of a public company; and experience in sales and marketing, private investments, luxury branding and acquisitions. +John M. Gibbons , age 62, has served as a director since June 2000. Mr. Gibbons has been an independent consultant since April 2004. +From June 2000 to April 2004, Mr. Gibbons was Vice Chair of TMC Communications, Inc., a long distance, data and internet services provider, and was its Chief Executive Officer from June +2001 to April 2003. From June 2000 to June 2001, he was President of TMC Communications, Inc. He has served as a director of National Technical Systems, Inc., a provider of integrated +testing, certification, quality registration and systems evaluation services, since September 2003. Mr. Gibbons was Vice Chair of Assisted Living Concepts, Inc., a national provider of +assisted living services, from March 2000 to December 2001. Previously, Mr. Gibbons was employed by The Sports Club Company (Pink Sheets: SCYL), a developer and operator of health and fitness +clubs, where he was Chief Executive Officer and a director from July 1999 to February 2000 and was President and Chief Operating Officer from January 1995 to July 1999. +The +experiences above highlight the qualifications and skills that were among the most important to the Board in concluding that Mr. Gibbons should serve as a director of the +Company. These skills include, but are not limited to, managing a public company; managing a services company; and experience in financial matters, investment banking and commercial lending, private +investments, luxury branding, retailing and acquisitions. +John G. Perenchio , age 55, has served as a director since December 2005. Mr. Perenchio is a private investor. Beginning in 1999, he +has held controlling interests in and has been the principal manager of various music industry companies. He currently is the Chairman and holds controlling interests in Fearless Records LLC, +an independent rock music label and Fearmore Publishing, LLC. Since late 2009, +Mr. Perenchio has been involved in the formation of Club Apparel, LLC, a start-up sports apparel company in which he holds a controlling interest. From 1990 to 2003, +Mr. Perenchio served as an executive with Chartwell Partners, LLC, a family owned boutique investment and holding company specializing in the entertainment, media and real estate +industries. From 1984 to 1990, Mr. Perenchio was a music executive and in-house counsel at Triad Artists, Inc., one of the then premier talent agencies in the world, and +prior to that, from 1982 to 1984, practiced law as an attorney in California. From 1992 to 2007, Mr. Perenchio was a director of Univision Communications Inc., the leading +Spanish-language media company in the United States. +The +experiences above highlight the qualifications and skills that were among the most important to the Board in concluding that Mr. Perenchio should serve as a director of the +Company. These skills +7 +include, +but are not limited to, legal expertise and training; experience as a director of a public company; management of a consumer products company; and experience in sales and marketing, the +international marketplace, private investments, retailing and acquisitions. +Maureen Conners , age 64, has served as a director since September 2006. Ms. Conners is President of Conners Consulting, which she +founded in 1992. Conners Consulting has worked with companies such as Johnson & Johnson, Ralph Lauren Footwear, Rockport, Hewlett Packard, Monster.com, Polaroid, Bausch and Lomb, Southcorp +Wines, and Western Union Money Zap, providing a range of services including marketing and strategic planning, new product and new business development, and global brand building. Prior to founding +Conners Consulting, Ms. Conners held senior level marketing positions with several leading consumer companies, including Senior Vice President of Marketing, Girls Division at Mattel. Prior to +that, she served as Director of Marketing, Men's Jean's Division at Levi Strauss, and Group Marketing Manager at Gillette. Ms. Conners has an MBA from the Wharton School of the University of +Pennsylvania. +The +experiences above highlight the qualifications and skills that were among the most important to the Board in concluding that Ms. Conners should serve as a director of the +Company. These skills include, but are not limited to, management in the apparel industry; management in a consumer products company; and experience in sales and marketing, the international +marketplace, private investments, luxury branding, merchandising, retailing and acquisitions. +Ruth M. Owades , age 62, has served as a director since May 2008. Ms. Owades' principal occupation is as a Corporate Director for +various private companies, and she is a frequent lecturer and consultant on corporate governance. Since 2006, Ms. Owades has served as a director on the Western Advisory Board of Northern Trust +Corporation. From 2002 to 2006, Ms. Owades was a director of Armstrong World Industries, a manufacturer and wholesaler of flooring, ceiling and cabinetry products. From 1997 to 2006, she was a +director of the J. Jill Group, a women's apparel, accessory and footwear retailer, and between 1998 and 2005 she served as a director of Providian Financial Corporation. From 1988 until 2000, +Ms. Owades was the Founder, CEO and Chair of Calyx & Corolla, Inc., the first fresh flower catalog and online retailer. From 2000 to 2002, she served as a consultant to the +financial group that +purchased Calyx & Corolla. Prior thereto, Ms. Owades was Founder and CEO of Gardener's Eden, Inc., a catalog and retailer of upscale gardening tools, accessories and outdoor +furniture. She sold the company to Williams-Sonoma, Inc., continuing to serve for five years as President. Ms. Owades is a graduate of Scripps College in Claremont, California and earned +an MBA from Harvard Business School. +The +experiences above highlight the qualifications and skills that were among the most important to the Board in concluding that Ms. Owades should serve as a director of the +Company. These skills include, but are not limited to, managing an apparel, accessories and footwear retailer; and experience in sales and marketing, private investments, luxury branding, +merchandising, retailing and acquisitions. +Karyn O. Barsa , age 49, has served as a director since May 2008. Since April 2009 she has served as Chief Executive Officer of +Coyuchi, Inc. a maker of organic cotton bedding, bath and baby products. From February 2008 to April 2009, she was President and Chief Executive Officer of Investors' Circle, a network of +individual and institutional investors focused on sustainable business practices. Between May 2007 and February 2008, she was Chief Executive Officer of Embark Stores, Inc., a +start-up pet supplies retailer where she remains on the advisory board, and prior to this time she was an independent investor. Between 1999 and 2001, Ms. Barsa was Chief Executive +Officer of Smith & Hawken, Ltd., a specialty gardening retailer, and prior to that she was Chief Operating Officer and Chief Financial Officer of Patagonia, Inc., a specialty +outdoor apparel and equipment manufacturer. She serves on the boards of Coyuchi, Inc. and The Directors' Organization Ltd., and the advisory board of Embark Stores, Inc. +Ms. Barsa holds a BA in Economics from Connecticut College and an MBA from the University of Southern California. +8 +The +experiences above highlight the qualifications and skills that were among the most important to the Board in concluding that Ms. Barsa should serve as a director of the +Company. These skills include, but are not limited to, general management, financial and risk assessment experience as a CFO, CEO and a director and experience with branded consumer products. +Michael F. Devine, III , age 52, has served as a director since March 2011. Mr. Devine was appointed Senior Vice President and Chief +Financial Officer of Coach, Inc. (NYSE: COH) in December 2001 and Executive Vice President in August 2007. Mr. Devine has recently announced his retirement from Coach, effective August +2011. Prior to joining Coach, Mr. Devine served as Chief Financial Officer and Vice President-Finance of Mothers Work, Inc. from February 2000 until November 2001. From 1997 to 2000, +Mr. Devine was Chief Financial Officer of Strategic Distribution, Inc., a Nasdaq-listed industrial store operator. Previously, Mr. Devine was Chief Financial Officer at Industrial +System Associates, Inc. from 1995 to 1997, and for the prior six years he was the Director of Finance and Distribution for McMaster-Carr Supply Co. He also serves as a member +of the Board of Directors of NutriSystem, Inc. (NASDAQ: NTRI) and Express, Inc. (NYSE: EXPR) , where he is also the Chair of +the Audit Committee. From 2004 to 2007, Mr. Devine served as a board member and Chair of the Audit Committee of Educate (formerly NASDAQ: EEEE), a leading K-12 education service +company with solutions such as Sylvan Learning Center. Mr. Devine holds a Bachelor of Science degree in Finance and Marketing from Boston College and an M.B.A. in Finance from the Wharton +School of the University of Pennsylvania. +The +experiences above highlight the qualifications and skills that were among the most important to the Board in concluding that Mr. Devine should serve as a director of the +Company. These skills include, but are not limited to, managing a public company; managing a company during periods of high growth; managing a multi-channel company and experience in financial +matters, the international marketplace, luxury branding, and retailing. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE +"FOR" THE ELECTION OF EACH OF THE ABOVE NOMINEES FOR DIRECTOR. +9 +CORPORATE GOVERNANCE +Corporate Governance Principles +Pursuant to Delaware law and the Company's Bylaws, the Company's business, property and affairs are managed under the direction of the +Board of Directors. Thus, the Board of Directors is the ultimate decision-making body of the Company except with respect to those matters reserved to the stockholders. +The +Board of Directors selects the senior management team, which is charged with the day-to-day operations of the Company's business. Members of the Board of +Directors are kept informed of the Company's business through discussions with the Chief Executive Officer and other senior officers, by reviewing materials requested by them or otherwise provided to +them and by participating in meetings of the Board of Directors and its committees. Having selected the senior management team, the Board of Directors acts as an advisor and counselor to senior +management, monitors its performance and proposes or makes changes to the senior management team when it deems necessary or appropriate. +Director Independence +The Board affirmatively determines the independence of each director and nominee for election as a director in accordance with +guidelines it has adopted, which include all elements of independence set forth in Listing Rule 5605(a)(2) of the NASDAQ Stock Market LLC ("Nasdaq") and applicable rules of the SEC. The +guidelines for director independence are set forth in the Company's Corporate Governance Guidelines and are posted on our website at http://www.deckers.com . These guidelines help ensure that the Board +and its committees are independent from management and that the interests of the +Board and management align with the interests of the stockholders. Based on these standards, the Board has determined that each of the Company's directors, other than Mr. Martinez, is +independent (including, with respect to Audit Committee members and Compensation and Management Development Committee members, the heightened independence criteria applicable to such committee members +under Nasdaq and SEC independence standards). +Board of Directors Meetings +The Board of Directors held 6 meetings during the year ended December 31, 2010. For the fiscal year ended December 31, +2010, each of the directors attended at least 75% of the aggregate number of meetings of the Board of Directors and 100% of the aggregate number of meetings of the committees on which he or she +served. Our independent directors also meet in executive session following every Board meeting. As lead director, Mr. Licklider presided at these executive sessions. +The +Company's Corporate Governance Guidelines states that directors are expected to attend the Company's annual meeting of stockholders. All members of the then Board of Directors +attended the Company's 2010 Annual Meeting of Stockholders. +Committees of the Board of Directors +The Board of Directors has three committees: an Audit Committee, a Compensation and Management Development Committee and a Corporate +Governance and Nominating Committee. The Board of Directors has determined that each of the directors serving on each of these three committees is "independent" as that term is defined under Nasdaq +Listing Rule 5605(a)(2) and applicable rules of the SEC, including the heightened independence criteria +applicable to Audit Committee members and Compensation and Management Development Committee members. +10 +Audit Committee +The Board has a standing Audit Committee that oversees (i) management's conduct of, and the integrity of, the Company's +financial reporting to any governmental or regulatory body, shareholders, public and any other uses of Company financial reports, (ii) the Company's systems of internal controls and procedures +over financial reporting and disclosure, (iii) the qualifications, engagement, compensation, independence and performance of the independent registered public accounting firm that shall audit +the annual financial statements of the Company and review the quarterly reporting and any other registered public accounting firm engaged to prepare or issue an audit report or to perform other audit, +review or attest services for the Company, (iv) the qualifications, engagement, compensation, independence and performance of the Chief Audit Executive, who is responsible for the enterprise +risk management process, internal and regulatory compliance audits, and misconduct investigations, (v) the Company's legal and regulatory compliance, (vi) the application of the +Company's related person transaction policy as established by the Board, and (vii) the applications of the Company's code of business conduct and ethics as established by management and the +Board. The committee held 8 meetings during 2010. At the date of this Proxy Statement, Mr. Gibbons was Chair of the Audit Committee and the committee was comprised of Messrs. Gibbons and +Steen and Ms. Barsa. In addition, effective upon the conclusion of the Annual Meeting and assuming Mr. Devine is elected at the Annual Meeting, he will replace Mr. Steen as a +member of the Audit Committee. The Board has determined that Mr. Gibbons qualifies as an "audit committee financial expert" as defined under the rules of the SEC. All of the members of the +Audit Committee and Mr. Devine meet the independence and experience requirements of the Nasdaq rules and the independence requirements of the SEC. The Audit Committee operates under a formal +charter adopted by the Board of Directors, a copy of which is available on the Company's website at http://www.deckers.com . +Compensation and Management Development Committee +The Board's Compensation and Management Development Committee (i) reviews and approves corporate goals and objectives relevant +to compensation of the executive officers, (ii) evaluates the performance of the executive officers in light of those goals and objectives, (iii) determines and approves the compensation +level of the executive officers based on this evaluation, +(iv) makes recommendations to the Board with respect to incentive-compensation plans including equity-based plans, and (v) oversees and approves succession plans relating to the +executive officer continuity planning process. The Compensation and Management Development Committee also reviews and recommends to the Board any new compensation or retirement plans and administers +the Company's 1993 Employee Stock Incentive Plan (the "1993 Plan") and the Company's 2006 Equity Incentive Plan (the "2006 Plan"). The committee held 13 meetings during 2010. At the date of this Proxy +Statement, Ms. Conners was Chair of the Compensation and Management Development Committee and the committee was comprised of Messrs. Perenchio and Gibbons and Ms. Conners. All of +the members of the Compensation and Management Development Committee meet the independence requirements of all applicable Nasdaq and SEC rules and regulations. The Compensation and Management +Development Committee operates under a formal charter adopted by the Board of Directors, a copy of which is available on the Company's website at http://www.deckers.com . +Corporate Governance and Nominating Committee +The Board's Corporate Governance and Nominating Committee (i) develops and recommends to the Board a set of Corporate Governance +Guidelines applicable to the Company, (ii) recommends the director nominees to be selected by the Board for the next annual meeting of stockholders, (iii) identifies individuals +qualified to become Board members, consistent with criteria specified in the Corporate Governance Guidelines, (iv) recommends to the Board membership of the Board committees, and +(v) oversees the evaluation of the Board and Board Committees. The committee held +11 +4 +meetings during 2010 and communicated frequently throughout the year as was necessary to fulfill its duties. At the date of this Proxy Statement, Mr. Perenchio was Chair of the Corporate +Governance and Nominating Committee and the committee was comprised of Mr. Perenchio, Ms. Conners, and Ms. Owades. All of the members of the Corporate Governance and Nominating +Committee meet the independence requirements of all applicable Nasdaq and SEC rules and regulations. The Corporate Governance and Nominating Committee operates under a formal charter adopted by the +Board of Directors, a copy of which is available on the Company's website at http://www.deckers.com . +Nominating Procedures and Criteria +Among its functions, the Corporate Governance and Nominating Committee considers and approves nominees for election to the Board of +Directors. In addition to the candidates proposed by the Board of Directors or identified by the committee, the committee considers candidates for director suggested by stockholders, provided such +recommendations are made in accordance with the procedures set forth in the Company's Bylaws and described above under +"Procedures for Stockholder Nominations." Stockholder nominations that meet the criteria outlined below will receive the same consideration that the committee's nominees receive. +Essential +criteria for all candidates considered by the Corporate Governance and Nominating Committee include the following: personal and professional integrity, good business judgment, +relevant experience and skills, ability to be an effective director in conjunction with the full Board in collectively serving the long-term interests of the Company stockholders, and a +commitment to devoting sufficient time and energy to diligently perform their duties as a director. +In +evaluating candidates for certain Board positions, the committee evaluates additional criteria, including the following: financial or accounting expertise; industry expertise; +accomplishment in designing, marketing, manufacturing, distribution of footwear, apparel and accessories; business and other experience relevant to public companies of a size comparable to the +Company; international experience; and experience in investment banking, commercial lending or other financing activities. While the committee does not have a policy with regard to the consideration +of diversity in identifying nominees for director, the committee does generally consider diversity among other factors in identifying nominees for director, including personal characteristics such as +race and gender, as well as diversity in the experience and skills that contribute to the Board's performance of its responsibilities in the oversight of the Company's business. +In +selecting nominees for the Board of Directors, the committee evaluates the general and specialized criteria set forth above, identifying the relevant specialized criteria prior to +commencement of the recruitment process, considers previous performance if the candidate is a candidate for re-election, and considers the candidate's ability to contribute to the success +of the Company. In evaluating an existing director for re-election to the Board, the committee considers the existing director's Board and committee meeting attendance and performance, the +length of Board service, experience, skills and contributions brought to the Board, and independence. +The +Board of Directors' nominees for the Annual Meeting have been recommended by the Corporate Governance and Nominating Committee, as well as the full Board of Directors. +As +of the date of this Proxy Statement, Stockholders did not propose any candidates for election at the Annual Meeting. +Corporate Governance Guidelines +The Board has adopted Corporate Governance Guidelines that set forth the primary framework of governance principles applicable to the +Company. The Corporate Governance Guidelines outline the general principles regarding the role and functions of the Board including director qualifications; +12 +director +independence; Board meetings; Board committees; the chair and lead director of the Board; director access to officers, employees, and independent advisers; director compensation; director +orientation and continuing education; shareholder rights plans; evaluation of the Chief Executive Officer and management succession; annual Board self-evaluations; and ethical +expectations. The complete copy of the Company's current Corporate Governance Guidelines are available on the Company's website at http://www.deckers.com . +Management Succession +Pursuant to our Corporate Governance Guidelines, the Compensation and Management Development Committee provides an annual report to the +Board on emergency and expected CEO succession planning. The Board works with the Compensation Committee to nominate and evaluate potential successors to the CEO. The CEO provides the Compensation +Committee with his input as to potential successors. +Board Leadership Structure and Lead Director +The Company has employed a leadership structure of having a combined Chairman and Chief Executive Officer for many years and the Board +believes that this leadership structure has been effective for the Company. The combined Chairman and Chief Executive Officer provides a single leader for the Company who is seen by our employees, +customers, business partners and stockholders as providing strong leadership for the Company. Furthermore, the Board believes this structure facilitates communication between the Board and our +management. In light of this combined office, the Board has implemented various counterbalancing governance structures including a lead director, a seven-eighths independent board, independent +committees, and established governance guidelines. +In +March 2008, the Board of Directors established the position of Lead Director and elected Mr. Licklider to serve in that position, effective with the 2008 Annual Meeting, for a +two-year term. In 2010, the Board of Directors again elected Mr. Licklider as Lead Director for an additional two-year term, subject to his earlier replacement, +retirement or resignation. Pursuant to our Corporate Governance Guidelines, the Lead Director is an independent director who is selected for a two-year term by the independent directors on +the Board. The Lead Director's responsibilities include (i) coordinating the scheduling and preparation of agenda for the executive sessions of the Board and other meetings of the Board in the +absence of the Chairman of the Board, (ii) chairing executive sessions of the Board and other meetings of the Board in the absence of the Chairman of the Board, (iii) approving +information sent to the Board, (iv) serving as a liaison between the Chairman of the Board and the other independent directors, (v) approving the meeting agendas for the Board and +approving the meeting schedules of the Board to assure that there is sufficient time for discussion of all agenda items, and (vi) if requested by major stockholders, ensuring that he or she +will be available for consultation and direct communication with such major stockholders. The Lead Director has the authority to call meetings of independent directors. +Board Role in Risk Oversight +Our Board is responsible for overseeing our risk management. The Board delegates many of these functions to the Audit Committee. Under +its charter, the Audit Committee is responsible for: (i) reviewing and discussing with management, the chief audit executive and the independent registered public accounting firm the Company's +financial risk exposures and assessing the policies and processes management has implemented to monitor and control such exposure; (ii) assisting the Board in fulfilling its oversight +responsibilities regarding the Company's policies and processes with respect to risk assessment and risk management, including any significant non-financial risk exposures; and +(iii) reviewing the Company's annual disclosures concerning the role of the Board in the risk oversight of the Company, such as how the Board administers its oversight function. The Audit +Committee also +13 +oversees +our internal audit function. In addition to the Audit Committee's work in overseeing risk management, our full Board regularly engages in discussions of the most significant risks that the +Company is facing and how these risks are being managed, and the Board receives reports on risk management from the chair of the Audit Committee. +The +Company's legal and internal audit executives report directly to the Audit Committee regarding material risks to our business, among other matters, and the Audit Committee meets in +executive sessions with the internal audit executive and with representatives of our independent registered public accounting firm. The chair of the Audit Committee reports to the full Board regarding +material risks as deemed appropriate. Every Board meeting agenda also includes a time to discuss risk management updates. +Communications with Directors +Stockholders may communicate with the chair of our Audit Committee, Corporate Governance and Nominating Committee, or Compensation and +Management Development Committee or with our independent directors as a group, by writing to any such person or group c/o the Secretary of the Company, at the Company's offices at 495-A +South Fairview Avenue, Goleta, California 93117. +Communications +are distributed to the Board of Directors, or to any individual director, depending on the facts and circumstances described in the communication. In that regard, the +Board of Directors has requested that certain items that are unrelated to the duties and responsibilities of the Board of Directors should be excluded, including the following: junk mail and mass +mailings; product complaints; product inquiries; new product suggestions; resumes and other forms of job inquiries; surveys; and business solicitations or advertisements. In addition, material that is +unduly hostile, threatening, illegal or similarly unsuitable will not be distributed, with the provision that any communication that is not distributed will be made available to any independent +director upon request. +Code of Ethics +The Company has adopted a Code of Business Conduct and Ethics to help its officers, directors and other employees comply with the law +and maintain the highest standards of ethical conduct. The Code of Business Conduct and Ethics contains general guidelines for conducting the business of the Company consistent with the highest +standards of business ethics, and is intended to qualify as a "code of ethics" within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder. All of +the Company's officers, directors and employees must carry out their duties in accordance with the policies set forth in the Code of Business Conduct and Ethics and with applicable laws and +regulations. To the extent required by law, any amendments to, or waivers from, any provision of the code will be promptly disclosed publicly on our corporate website. A free copy of the code can also +be obtained from our corporate website at http://www.deckers.com . +Compensation and Management Development Committee Interlocks and Insider Participation +As of the date of this Proxy Statement, the members of the Compensation and Management Development Committee consisted of +Messrs. Perenchio and Gibbons and +Ms. Conners, none of whom was an officer or employee of the Company or any of its subsidiaries during fiscal year 2010 or is a former officer or employee of the Company or any of its +subsidiaries. None of these directors had any relationship with the Company during 2010 requiring disclosure under Item 404 of Regulation S-K. None of our executive officers +currently serves, or in the past year has served, as a member of the Board of Directors or compensation committee of any entity that has an executive officer serving on our Board of Directors or +Compensation and Management Development Committee. +14 +EXECUTIVE OFFICERS +Each executive officer of the Company serves at the discretion of the Board of Directors. Biographical information for the executive +officers of the Company as of the date this proxy was filed who are not directors is set forth below. There are no family relationships between any executive officer and any other executive officer or +director. None of our executive officers were selected pursuant to any arrangement or understanding, other than with the executive officers of the Company acting within their capacity as such. +Executive Officer +Age +Position +Angel R. Martinez +55 +Chair of the Board, President and Chief Executive Officer +Thomas A. George +55 +Chief Financial Officer +Zohar Ziv +58 +Chief Operating Officer +Constance X. Rishwain +53 +President of the UGG® Division +Peter K. Worley +50 +President of the Teva® and Simple® Divisions +The +biographical summary for Mr. Martinez is presented earlier under the heading "Nominees for Director." +Thomas A. George , age 55, has been our Chief Financial Officer since September 2009. Mr. George has over thirty years of experience +in corporate finance and accounting, having served in a number of senior level positions with both public and private companies. Most recently, since February 2005 Mr. George was Chief +Financial Officer of Ophthonix, Inc., a private technology company. Prior to Ophthonix, from October 1997 through February 2005 Mr. George was the Chief Financial Officer of publicly +held Oakley, Inc., now a division of Luxottica Group S.p.A. (NYSE:LUX), a global consumer products brand with wholesale and retail distribution of multiple product categories including +sunglasses and prescription eyewear, apparel, footwear, watches and electronics. Prior to Oakley, from December 1987 through October 1997 Mr. George was the Senior Vice President and Chief +Financial Officer of REMEC, Inc., a public technology company. Mr. George has also served as Corporate Controller, and Manager of Financial Planning for other public technology firms. He +began his career at Coopers & Lybrand where he became a Certified Public Accountant. He received a Bachelor of Science in Business Administration from the University of Southern California. +Zohar Ziv , age 58, has been our Chief Operating Officer since December 2007 after serving as Chief Financial Officer and Executive Vice +President, Finance and Administration since March 2006. Mr. Ziv also served as interim Chief Financial Officer after his promotion to Chief Operating Officer from December 2007 to April 2008. +He assumed the responsibilities of Principal Financial and Accounting Officer on an interim basis from March 2009 until September 2009. Previously, from February 2004 to December 2005, Mr. Ziv +was Chief Financial Officer with EMAK Worldwide, Inc. (NASDAQ: EMAK), a global marketing services firm. Prior to that, Mr. Ziv was Chief Financial Officer of Stravina Operating +Company, LLC, a supplier of personalized novelty items in North America, from June 2002 to February 2004. +Constance X. Rishwain , age 53, has been the President of UGG Australia since December 2002. She also served as President of Simple from +December 2002 to December 2009. Prior to her promotion to President in December 2002, she served as the Vice President, Brand Manager of UGG since April 1999 and Vice President, Brand Manager of +Simple since January 2001. Ms. Rishwain held the positions of Vice President of Domestic Sales for Teva, UGG and Simple from June 1999 to December 1999, Vice President of +Sales—Western Division for Teva, UGG and Simple from December 1997 to June 1999 and Vice President Merchandising for Teva, UGG and Simple from January 1995 to December 1997. Before joining +us in January 1995, Ms. Rishwain held the position of Vice President of Merchandising and Marketing for Impo International Shoe Company from 1988 to 1994 and worked +15 +for +Nine West Group Inc. from 1984 to 1988 in several capacities, including Vice President Merchandising of Nine West retail division. +Peter K. Worley , age 50, joined Deckers in March 2006 as President of the Company's Teva brand. On January 1, 2010, +Mr. Worley assumed the position of President of the Teva and Simple Divisions. From October 2005 to March 2006, Mr. Worley served as Vice President of U.S. sales with +K-Swiss, Inc. From May 1996 to October 2005, Mr. Worley was Vice President of Product Design and Development with K-Swiss. From 1991 to 1996 and from 1986 to +1989, Mr. Worley held various managerial positions with Reebok International Ltd. +COMPENSATION DISCUSSION AND ANALYSIS +The Compensation and Management Development Committee (for purposes of this analysis, the "Committee") of the Board of Directors is +responsible for the compensation of our Named Executive Officers (defined below). In this section we discuss and analyze the compensation of our principal executive and financial officers and our +three other most highly compensated executive officers (the "Named Executive Officers") for the fiscal year ended December 31, 2010. This section is divided into the following five +parts: +• Executive Summary +• Compensation Philosophy and Objectives +• Compensation Consultant and Market Comparisons +• 2010 Executive Compensation Elements +• Other Compensation Considerations +Our +Named Executive Officers for 2010 were the following: +• Mr. Angel R. Martinez—CEO and President +• Mr. Thomas A. George—Chief Financial Officer +• Mr. Zohar Ziv—Chief Operating Officer +• Ms. Constance X. Rishwain—President of the UGG Division +• Mr. Colin G. Clark—Senior Vice President, Emerging Brands. During 2010, Mr. Clark served as +Senior Vice President, International. +All +share and related information presented herein reflects the increased number of shares resulting from the three-for-one stock split paid on July 2, +2010. +Executive Summary +The 2010 Fiscal Year in Review +Fiscal 2010 was another record year at Deckers, with strong financial performance and the successful implementation of several key +strategic efforts. Highlights of the year include: +• Our total return to stockholders was 135.2%; +• Our net sales increased 23.1% to a record $1.001 billion, including international sales growth of 41.7% to +$236.9 million; +• Our diluted earnings per share increased 36.1% and reached a record level of $4.03 per share; +• Our gross margin improved 460 basis points; +16 +• We ended the year with a strong cash balance of $445.2 million; +• Sales of our Teva® brand (including eCommerce and retail) increased 30.5% to surpass $100 million for +the first time; +• We effected a three-for-one stock split, in the form of a stock dividend, paid on July 2, +2010; +• We returned value to our stockholders through our repurchase of $10.1 million worth of our shares; +• We completed various phases of our transition from a distributor to an international wholesale model in Japan, Benelux, +France and UK; and +• We opened nine new retail stores, six in the U.S. and three in China through our joint venture. +As +demonstrated by the charts below, these achievements represent the continuation of a strong growth trend over the past five fiscal years. We have both steadily and significantly +increased our revenues and diluted earnings per share, which has resulted in annual average stockholder returns of 153.2% during the period. +Total Annual Revenue +Annual Diluted +Earnings Per Share +We Pay for Performance +Our executive compensation program is designed to pay for performance. Our fiscal 2010 financial performance along with the individual +performance of our executive officers, served as key factors in determining compensation for 2010, including as follows: +• Annual cash incentive plan awards are based on a combination of diluted earnings per share targets, and individual +financial and non-financial performance goals tailored to each executive's role. Examples of these individual performance targets include annual net sales, inventory turn, operating +expenses, return on capital, brand contribution and backlog. +• Annual short-term equity awards are based on diluted earnings per share targets. +• Long-term incentive equity awards are based on long-term annual revenue and diluted earnings per +share targets. +We +believe that these metrics provide for a balanced approach to measuring annual and long-term company performance and are designed to support the company's strategic +objectives. +Furthermore, +our executive compensation mix is heavily weighted toward performance-based compensation, and limits guaranteed annual pay. For example, as illustrated in the chart below, +the base salary of our CEO is only approximately 19% of his total compensation for 2010 and +17 +approximately +81% is at-risk and dependent on performance. At the same time, we review annually the guaranteed pay and establish appropriate performance targets so as to mitigate our +compensation-related risk. +CEO's 2010 Guaranteed Pay vs. At-Risk Pay +Recent Changes to our Compensation Practices +Recent changes to our compensation practices to further align the interests of our named executive officers with those of our +stockholders, include: +• Eliminating excise tax gross-ups as a result of termination following a change of control from the Change of +Control and Severance Agreements. +• Adopting stock ownership guidelines for our named executive officers in 2011 and for our directors in 2010. +• Subjecting annual short-term equity awards granted in 2011 to a Clawback Policy to be adopted by the Company +following adoption of the relevant rules under Section 954 of the Dodd-Frank Act. +We Maintain Other Compensation Practices that also Benefit our Stockholders +• Annual cash incentive awards are only earned if significant financial and non-financial performance levels are +achieved. +• Once earned, our annual short-term equity awards become fully vested after approximately 3 years, to +ensure retention of key executives. +• Our long-term equity incentive awards fully vest approximately 5 years (for our Level 1 awards) +and approximately 10 years (for our Level 2 awards) after initial grant. +• Our insider trading policy prohibits our directors, named executive officers, and other key executives from hedging the +economic interest in the Company securities that they hold and from engaging in speculative transaction with respect to our stock, from holding Company securities in margin accounts, and from short +sales. +• Generally, we do not provide benefits or material perquisites that are not provided to all employees. +Compensation Philosophy and Objectives +At the direction of the Board, the Committee endeavors to ensure that the compensation programs for executive officers of the Company +and its subsidiaries are competitive and consistent with market conditions in order to attract and retain key executives critical to the Company's long-term +18 +success. +When reviewing and approving our executive compensation program, the Committee is guided by the following four principles: +• To attract key executives with the proper background and experience required for the future growth of the Company +• To align the interests of our executives with our stockholders by tying total compensation to our overall financial +performance and the creation of long-term stockholder value +• To provide a significant proportion of potential total compensation through variable, performance-based components, which +can increase or decrease to reflect achievement of pre-established corporate and individual goals +• To provide incentives for achieving both short-term and long-term corporate goals +The +Committee takes into account various qualitative and quantitative indicators of corporate and individual performance in determining the level and structure of compensation for the +Named Executive Officers, as well as other executive officers. The Committee considers such corporate performance measures as net sales, gross margins, operating expenses, diluted earnings per share +and other similar quantitative measures. The Committee also appreciates the importance of achievements that may be difficult to quantify, and accordingly recognizes qualitative factors, such as +successful supervision of major corporate projects, demonstrated leadership ability and contributions to industry and community development. For 2010, the most important qualitative factor in +determining incentive compensation awards to the Named Executive Officers was the Committee's assessments of their contributions to increasing stockholders' value by establishing and implementing a +strategy for long-term success, including our expansion internationally, commencing our transition to an international wholesale model, and increasing our number of retail stores. +The +Committee also evaluates the total compensation of the Named Executive Officers and other executives in light of information regarding the compensation practices and corporate +financial performance of similar companies in the Company's industry. The Committee targets a specific percentile range of the peer company data in determining compensation for executive officers as +discussed in more detail below. +Compensation Consultant and Market Comparisons +Compensation Consultant +The Committee also receives assessments and advice regarding the Company's compensation practices from its independent compensation +consultant, Frederic W. Cook & Co., Inc. ("FWC"). The use of an independent consultant provides additional assurance that our executive compensation programs are reasonable and +consistent with our objectives. FWC did not provide any other services to the Company in 2010. The consultant reports directly to the Committee, and provides information on competitive practices and +trends in our industry and makes recommendations regarding the design of our compensation program. Our management did not engage FWC in any other capacity for 2010 and does not direct or oversee the +retention or activities of FWC with respect to our executive compensation program. Furthermore, management did not recommend the engagement of FWC. +Market Comparisons +In making compensation decisions, the Committee compares each element of total compensation against a peer group of publicly-traded +footwear and apparel companies (collectively, the "Peer Group"). The Peer Group, which is reviewed and updated at least annually by the Committee, consists of companies against which the Committee +believes the Company competes for talent and for +19 +stockholder +investment. The Peer Group used for 2010 compensation is composed of companies in related businesses of similar size and market value and consisted of the following 12 companies: +• Quiksilver, Inc. +• Crocs, Inc. +• Skechers U.S.A., Inc. +• The Timberland Company +• Kenneth Cole Productions, Inc. +• Phillips-Van Heusen Corporation +• Coach, Inc. +• Steven Madden, Ltd. +• Wolverine World Wide, Inc. +• Columbia Sportswear Company +• K-Swiss Inc. +• Under Armour, Inc. +For comparison purposes, at the time 2010 compensation was established, the Company's annual revenues were below the median of the Peer Group and +the Company's market capitalization was above the median. In developing the competitive compensation data, regression analysis is used to adjust the compensation data for differences in company +revenues. The adjusted value is used as the basis of comparison of compensation between the Company and the companies in the Peer Group. The Committee generally sets the target for total direct +compensation (base salary plus annual incentive plan, plus annualized long-term incentives) for the Named Executive Officers between the range of the size-adjusted +median-to-75 th percentile of compensation paid to similarly situated executives of the Peer Group. We believe this is necessary for the Company to attract +the appropriate executive personnel for future growth and that our performance goals are set at a level that represents commensurate Company financial performance. By setting the target total +compensation in this range, we believe that we can attract and retain the qualified executives necessary to attain top quartile performance. However, while the Compensation Committee uses the Peer +Group for general guidance as to the targets for total direct compensation, the Committee continues to exercise its business judgment and considers a variety of factors when setting compensation +levels, including general economic conditions and individual performance expectations. +The +Committee also reviews where actual total direct compensation (base salary plus annual incentive plan, plus annualized long-term incentives) and other benchmarked +compensation amounts fall relative to targeted levels to ensure actual compensation is aligned with actual performance. For all of the Named Executive Officers, the average 2010 actual total direct +compensation was approximately 20% above the targeted amounts. The average 2010 actual total direct compensation was approximately 20% higher than the target due to the value of the cash incentive +plan awards and discretionary bonuses. The annual cash award amounts, including both the annual cash incentive plan awards and discretionary bonuses, for all of the Named Executive Officers was +between approximately 79% and 186% higher than the target due to achievement of maximum payment under the plan and discretionary bonus amounts which the Committee granted based on superior performance +in 2010. +For +2011 compensation decisions, the Peer Group has changed from the companies listed above to eliminate Coach, Kenneth Cole, and K-Swiss and now includes Fossil, Lululemon, +and Warnaco Group. These changes reflect the Company's continued growth and will provide the Committee with data that reflects the Company's current business stage and competitors so that the Company +can continue to evaluate pay levels versus an appropriate peer set. +The +Committee also looks at proprietary survey information from FWC, which include non-industry specific data on pay levels and design practices for similarly-sized +companies. The data covers more than 300 companies across industries other than financial services, and are sized-adjusted based on the Company's revenues. The Committee reviews this data and the +Proxy data as a guideline to determine the appropriate level and mix of compensation. There is no pre-established policy or target for the allocation between either cash and +non-cash or short-term and long-term incentive compensation. +20 +2010 Executive Compensation Elements +Type +Form +Purpose +Performance Criteria +Cash +Base Salary +Fixed annual compensation to attract and retain key executives with necessary experience for our future growth +Not performance-based +Cash +Annual Cash Incentive Plan Award +Incentive for executives to achieve annual pre-established goals +Company and individual performance goals, both quantitative and qualitative, approved by the Committee annually +Cash +Discretionary Bonus +Only provided to recognize exceptional Company or individual achievement; reward past performance +At the discretion of the Committee, includes exceptional achievement of financial and strategic goals +Equity +Annual Short-Term Equity Awards (Nonvested Stock Units or "NSUs") +Incentive to achieve annual Company financial goals; encouraging executive stock ownership; retention of key +executives +Diluted earnings per share target during year of grant +Equity +Long-Term Equity Incentive Awards—Level 1 and Level 2 (includes Restricted Stock Units or "RSUs" and Stock +Appreciation Rights or "SARs") +Incentive to achieve long-term Company financial goals; aligning executives' interests with stockholders; retention of key +executives +Diluted earnings per share and revenue targets approximately 5 and 10 years from year of grant +Perquisites and Other Personal Benefits +401(k) match; health and welfare benefits; long-term disability insurance; life insurance; product and gym membership +discounts +Provide competitive, broad-based employee benefits structure +Not performance-based +Severance Arrangements +Change of Control and Severance Agreements; Provisions in Equity Awards +To recruit and retain key executives and maintain a stable and effective management team in the event of a change of +control +Not performance-based +21 +Base Salary . +What this Compensation Element is Designed to Reward +We provide base salaries to attract and retain key executives with the necessary experience for our future growth. Base salaries +reflect each Named Executive Officer's responsibility level, individual performance, and business experience. Base salaries also provide a guaranteed base amount of compensation. The Committee +balances the levels of guaranteed pay +through base salaries with at-risk pay, to properly maintain the Company's compensation-related risk. +How We Choose Amount of this Compensation Element +The Committee establishes base salaries after review of the Peer Group compensation data and in light of the Committee's goal to focus +on performance-based compensation, while also attracting and retaining qualified executive candidates. Salaries are reviewed periodically and adjusted as warranted to reflect sustained individual +performance, responsibility level, and comparable market salaries. As a result of the Committee's goal to focus on performance-based compensation, the Committee generally sets base salary at or +moderately below the 50th percentile of compensation paid to similarly situated executives of the companies in the Peer Group so that performance-based pay represents a larger portion of total +compensation. The following table summarizes adjustments made, if any, to base salaries for the Named Executive Officers during 2010 compared to 2009: +Named Executive Officer +Base Salary +Base Salary Change +Angel R. Martinez +$ +950,000 +Increased by 26.7% +Thomas A. George +$ +350,000 +No increase +Zohar Ziv +$ +500,000 +Increased by 33.3% +Constance X. Rishwain +$ +400,000 +Increased by 14.3% +Colin G. Clark +$ +300,000 +Increased by 20.0% +Consistent +with our salary review described above, each of the Named Executive Officers, except for Mr. George who was hired in September 2009, received base salary increases in +2010. These increases were made to align this compensation element with market comparables and to retain executives we believe have been instrumental to our financial success. Furthermore, the 2010 +base salary increase is the first base salary increase for Mr. Martinez, Mr. Ziv and Mr. Clark since 2008 due to concerns at the time about the economic environment and its +potential impact on the Company. +Effective +as of January 1, 2011, the Committee increased Mr. Martinez's salary to $1,000,000, Mr. George's salary to $400,000, Mr. Ziv's salary to $600,000, +and Ms. Rishwain's salary to $420,000. +These salary increases were implemented following a review of each named executive officer's performance, the Company's financial results and the competitive environment. +Bonus and Annual Cash Incentive Plan Compensation . +What this Compensation Element is Designed to Reward +The Committee believes in tying our executives' total incentive compensation with the short and long-term strategic +objectives of the Company to align our executives' interests with those of our stockholders and therefore has designed our annual cash incentive plan to reward achievement of our financial and +strategic goals. At the beginning of each year, the Committee reviews our financial and strategic plan for the next fiscal year and for the years ahead and then establishes specific annual goals for +each executive. This provides our executives with clearly defined goals, which they are then responsible for achieving. By establishing annual goals, the Committee sets appropriate performance +expectations for our executives and makes our executives accountable for our continued growth and +22 +success. +Furthermore, the executives will only receive payment under this plan if the Company performs well for our stockholders. +In +addition, the Committee may exercise discretion and award amounts outside of the annual cash incentive plan, which is included in the Summary Compensation Table below in the Bonus +column. This flexibility allows the Committee to consider the executive's and the Company's performance holistically and to reward successes with respect to circumstances which were unforeseen at the +beginning of the year. It also provides the Committee with the discretion to pay bonuses for exceptional performance or effort even where results with respect to our financial goals may be outside of +the control of the executives. +How We Choose Amount of this Compensation Element +Each of the Named Executive Officers may receive annual cash incentive plan compensation calculated as follows: +The +components of the annual cash incentive plan compensation are: +• Company Profit. Based on the Company's 2010 diluted +earnings per share ("EPS"). +• Quantitative Management by Objectives, or "MBO." Based on +individual strategic and financial goals for each officer. +• Qualitative MBO. Based on other individual goals for each +officer. +The +Committee establishes an EPS goal, which is the same for each officer, and quantitative and qualitative MBO goals, which are unique to each officer, at the beginning of each year and +the officers receive compensation for the subsequent attainment of these goals. Each component of the award for each officer is calculated separately by multiplying the full target bonus amount by the +percentage of target earned for each component and then multiplying this amount by the percentage allocated to each component in accordance with the terms of the cash incentive plan. +In +order to retain key executives and incentivize them to reach our growth goals, which we believe to be at the high end compared to those of our peers, the Committee generally sets the +annual cash +incentive plan target compensation levels at or above comparable levels compared to the target bonus opportunities paid to similarly situated executives of the companies in the Peer Group. The annual +cash incentive plan target compensation is expressed as a percentage of each of the executive's annual salary, and is determined so that the total annual cash compensation opportunity, at target, +(base plus annual cash incentive plan compensation) is in the median-to-75th percentile range of the Peer Group. +The +target amount for the total award for 2010 for each executive, other than the Chief Financial Officer, was 100% of base salary, with the potential to exceed the target and earn up to +200% for the company profit portion and up to 200% for the quantitative and qualitative MBO portions. The Committee believes that limiting the maximum potential awards mitigates compensation-related +risk by discouraging the executives from taking unnecessary risk to achieve higher performance. In addition, as discussed above, the Committee has discretion to pay discretionary cash bonuses for +exceptional performance. +The +target amounts and relative weight of the company profit portion and MBO portions of executive annual cash incentive plan compensation may be varied by the Committee from year to +year. Those executives that are responsible for brands and have influence over brand decisions are less heavily weighted on the company profit portion than those executives whose efforts cannot be +directly attributed to specific brands. For threshold performance, 50% of each component would be earned. +23 +Amounts attributable to the company profit portion and quantitative MBO portion shall not be effected by the calculation of the qualitative MBO portion and are intended to qualify as +"performance-based compensation" within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). Based on the continued success of the Company, including the +continued growth in sales and achievement of strategic accomplishments such as diversification to the product lines and expansion of our selling season, the Committee determined to award amounts +outside of the non-equity incentive compensation plan this year as an additional bonus. The allocation of the 2010 annual cash incentive plan compensation and respective percentages and +amounts earned are as follows: +Earned (%) and Earned ($) +Name +Target +Percentage +of Salary +Company +Profit +Portion +Quantitative +MBO +Portion +Qualitative +MBO +Portion +Company +Quantitative +MBO +Qualitative +MBO +Bonus in Addition to +Non-Equity Incentive +Plan Compensation +Angel R. Martinez +100 +% +50 +% +30 +% +20 +% +200% +$950,000 +200% +$570,000 +200% +$380,000 +$ +350,000 +Thomas A. George +50 +% +50 +% +30 +% +20 +% +200% +$175,000 +200% +$105,000 +200% +$70,000 +$ +150,000 +Zohar Ziv +100 +% +50 +% +30 +% +20 +% +200% +$500,000 +200% +$300,000 +200% +$200,000 +$ +229,000 +Constance X. Rishwain +100 +% +25 +% +55 +% +20 +% +200% +$200,000 +200% +$440,000 +200% +$160,000 +$ +200,000 +Colin G. Clark +100 +% +25 +% +55 +% +20 +% +200% +$150,000 +200% +$330,000 +95% +$57,000 +$ +— +Performance Targets under the Annual Cash Incentive Plan +The performance targets under the Annual Cash Incentive Plan are summarized below. The Committee selects these targets based on +categories that the Committee believes will drive the Company's short-term and long-term success and therefore return value to our stockholders. +Officer +Component +Target Performance +Results +All NEOs +Company Profit +Fully diluted annual EPS of $3.13 +þ Exceeded Target +Angel R. Martinez +Quantitative MBO +Sales of $914 million +Inventory turnover rate of 2.83 +Non-UGG brand sales of $131 million +þ Substantially exceeded sales and inventory turn targets and achieved between threshold and target in Non-UGG brand sales. Overachievement in the first two goals was well above +maximum levels, which offset below target performance in non-UGG brand sales in the bonus calculation, and resulted in a maximum quantitative MBO payout. +Qualitative MBO +• Business: Maintain a compelling vision and strategy for +the Company and anticipate short and long-term trends that may affect key strategies +• Team: Drive the leadership team accountability to meet the Company's strategic plan while delivering bench strength at the executive management level +• Personal: Set the tone and pace for change, strong culture and +performance +þ Excelled in all categories; oversaw a number of strategic accomplishments this year, +including diversification of our product lines, expansion of our selling seasons and an increase in our global footprint; leadership role established the strong culture for success at the Company and can be seen in the Company's continued sales and +earnings growth +Thomas A. George +Quantitative MBO +Timely SEC filings and favorable SOX opinions +Inventory turnover rate of 2.83 +Operating expenses not exceeding approximately 26% of net sales +Return on capital of 22% +þ Achieved timely SEC filings and favorable SOX opinions and substantially exceeded all other targets +24 +Officer +Component +Target Performance +Results +Qualitative MBO +• Business: Facilitate transition to wholesale model in UK +and Benelux and continue Company's positive investor relations program +• Team: Continue to establish finance department development while establishing best practices and fostering team growth +• Personal: Cultivate a strong leadership presence in the finance department +þ Excelled in all categories; successfully facilitated phases of our wholesale transitions while laying +groundwork for future growth; demonstrated leadership by hosting annual corporate finance summit; challenged people as partners in finance in order to implement best practices +Zohar Ziv +Quantitative MBO +Sales of $914 million +Inventory turnover rate of 2.83 +Operating expenses not exceeding approximately 26% of net sales +þ Substantially exceeded all targets +Qualitative MBO +• Business: Ensure the establishment of the appropriate +infrastructure to support transition to wholesale model in Europe +• Team: Continue to lead the executive management team to support long-term strategies for growth +• Personal: Cultivate network with executives of high-growth companies; attend continuing education events +þ Excelled in all categories; oversaw phases of transition to wholesale model in the UK and +Benelux; oversaw opening of 9 new retail stores; led executive team to achieve goals such as improving gross margins by 460 basis points; networked with executives in order to gain insight for Company's future growth +Constance X. Rishwain +Quantitative MBO +UGG brand sales of $782 million +UGG brand inventory turnover rate of 2.83 +Contribution income growth of 9% +Backlog increase of 10% over prior year +þ Substantially exceeded all targets +Qualitative MBO +• Business: Drive a compelling strategic vision for +accelerated top-line growth and global expansion of the UGG brand +• Team: Continue to stretch brand staff development toward leadership and innovation +• Personal: Continue to develop worldwide vision and leadership roles to expand the UGG brand +þ Excelled in all categories; led the UGG brand to a sales increase of 23%, including increased +sales in Europe and Asia +Colin G. Clark +Quantitative MBO +International sales of $197 million +International inventory turnover rate of 2.79 +Contribution income decline of approximately 8% +Backlog increase of approximately 11% over prior year +þ Exceeded sales, contribution income growth and backlog targets, while did not meet inventory turnover goal. Overachievement in the first three goals was well above maximum levels, +which offset falling short of inventory turnover goal in the bonus calculation, and resulted in a maximum quantitative MBO payout. +Qualitative MBO +• Business: Establish a vision to expand and grow our +international business through a multi-channel distribution structure with integrated strategies +• Team: Identify key team member development needs to ensure the effective management of dynamic future international growth +• Personal: Develop insights and strategies for effective leadership +þ Achieved near target performance in all categories; resulting in achievement of international +sales goals while continuing to evolve his leadership effectiveness +25 +Performance-based Short-Term and Long-Term Equity Incentive Compensation . +What this Compensation Element is Designed to Reward +Our equity incentive compensation program is designed to address many of our compensation objectives. First, by requiring +long-term vesting provisions, these equity awards serve to retain our key executives. Second, because these awards will only be earned upon achievement of Company financial goals that will +drive value for our stockholders and the awards are equity-based, these awards serve to align the interests of our executives with those of our stockholders. Furthermore, by requiring achievement of +financial goals, these awards support the Company's pay-for-performance philosophy. Finally, the annual short-term equity awards reward achievement of our +short-term goals and our long-term equity awards reward achievement of our long-term goals (approximately 5 and 10 years after the grant year). +How We Choose Amount of this Compensation Element +Long-term incentives are granted under the 2006 Plan, which authorizes the Committee to make grants and awards such as +stock options, stock appreciation rights ("SARs"), nonvested stock units ("NSUs") and restricted stock units ("RSUs"). The compensation attributable to SARs, NSUs and RSUs is intended to qualify as +"performance-based compensation" under Section 162(m) of the Code. A summary of the equity awards currently utilized by the Company and their respective vesting provisions are: +Compensation Element +Award +Type +Vesting Provisions +Annual Short-Term Equity +NSU +Once earned, vest based on continued employment after approximately three years according to the following schedule: 25% on March 31, June 30, September 30, and December 31 +Long-Term Equity +(Level 1) +RSU +SAR +Vest subject to (1) the achievement of revenue and earnings goals, which goals are based on a high rate of +growth for sales, and (2) satisfaction of long-term service conditions over approximately a five-year period +Long-Term Equity +(Level 2) +RSU +SAR +Vest subject to (1) the achievement of revenue and earnings goals, which goals are based on a high rate of +growth for sales, and (2) satisfaction of long-term service conditions over approximately a ten-year period +Annual Short-Term Equity +Beginning in December 2004, the Board and the Committee determined to cease issuing stock options to directors, officers and employees +of the Company. Officers and employees are now issued NSUs, which are stock units payable in shares upon satisfying specific performance and service-related vesting conditions. NSUs are considered to +continue to align the interests of the officers and employees with those of the stockholders at a lower cost than the previous +stock option grants. This policy is reviewed by the Board and the Committee periodically and may be changed in the future. +Officers +and key employees are eligible to receive NSUs annually, or as circumstances warrant, in an amount to be determined by the Board or the Committee. The amount of NSUs granted is +primarily determined by the employee's level within the organization and the extent that their position is critical to the organization. In March 2010, NSUs were granted with respect to fiscal 2010 +26 +performance. +The Committee sets these annual equity grants in the median-to-75th percentile range of the Peer Group. +Specifically, +the NSUs granted in 2010 were earned based on the achievement of the 2010 diluted EPS goal. The 2010 diluted EPS goals established on the date of grant were a threshold of +$2.98 and a target of $3.13. The vesting schedule for these awards was determined to encourage officers and key employees to remain with the Company for the long-term. As discussed further +under "Potential Payments Upon Termination or Change of Control" below, this vesting schedule may be accelerated if the executive's employment is terminated for various reasons or upon a change in +control followed by a termination. +Long-Term Equity +In May 2007, the Company's Board of Directors, upon recommendation of the Committee, adopted two types of long-term +incentive award agreements under the 2006 Plan for issuance to the Company's senior executive officers. These award types consist of SAR awards and RSU awards. The SAR and RSU awards are designed to +vest based on the achievement of two objective financial performance measures. The Committee selected these performance measures to align the executive's interests with the long-term +financial success of the Company. In establishing the performance measure criteria, the Committee sought to balance the metrics between earnings and revenue growth so that profitability would not be +sacrificed at the expense of revenue and vice versa. For Level 1 grants, sales must increase approximately 65% and diluted earnings per share must increase approximately 110% over these levels +at the time these awards were adopted by the Board. For Level 2 grants, sales must increase over 220% and diluted earnings per share must increase approximately 320% over these levels at the +time these awards were adopted by the Board. The 2010 targets of the Level 1 performance conditions were met as of December 31, 2010, and therefore 80% of the Level 1 SAR and RSU +awards vested on December 31, 2010. The SARs became exercisable and the RSUs were issued on March 1, 2011. If the Level 1 performance conditions continue to be met as of +December 31, 2011, the remaining 20% of the Level 1 awards will vest on December 31, 2011. Provided that the Level 2 performance conditions are met, the Level 2 SAR +and RSU awards will vest 80% on December 31, 2015 and 20% on December 31, 2016. These awards were designed to motivate the executive team to outperform the Company's Peer Group +(otherwise the awards would not vest) as well as for retention purposes. In May 2007, the Committee granted these SARs and RSUs to the Named Executive Officers at that time. In approving 2007 grants, +the Committee considered industry comparisons and competitive data as well as the responsibility levels of the executives relative to one another. No grants of these types of awards have been made +since 2007. +In +addition, the Committee evaluates aggregate equity awards based on a Shareholder Value Transfer ("SVT") rate. SVT is the fair value of all equity awards granted during the year as a +percentage of company market capitalization value. The Committee believes this measure is valuable because it allows the Company to compare the annual cost of its equity program versus the Peer Group. +The Committee set the SVT rate in 2010 so that it would be approximately 1%, which is in line with the Peer Group median. Other factors considered in share-based award grants were the fair value of +awards granted to each individual, total outstanding equity awards for each executive, company-wide annual share usage, and total potential dilution under all employee stock plans. The +Committee assessed where the Company and its Named Executive Officers ranked in these areas versus the Peer Group. +Stock Ownership Guidelines for Named Executive Officers +In March 2011, the Committee adopted stock ownership guidelines for the Named Executive Officers. +27 +The +stock ownership guidelines require that the Named Executive Officers maintain a minimum stock ownership level (including, 60% of earned and unvested RSUs and NSUs) to align further +the interests of these individuals with the stockholders. The CEO must hold stock equal to at least six (6) times his annual base salary and the other Named Executive Officers must hold stock +equal to at least three (3) times his or her annual base salary. Each Named Executive Officer must meet the ownership requirement within five (5) years of the later of the date the +guidelines were adopted or the date the person was initially designated a Named Executive Officer. +Perquisites and Other Personal Benefits . +What this Compensation Element is Designed to Reward +The personal benefits provided to our Named Executive Officers establish a competitive benefits structure necessary to attract and +retain key employees. Generally, these personal benefits reflect those provided to all of our employees. +How We Choose Amount of this Compensation Element +There is no specific policy on perquisites and other personal benefits awarded to the Named Executive Officers. The Company provides a +401(k) defined contribution plan that eligible employees may elect to participate through tax-deferred contributions. The Company matches 50% of each eligible participant's +tax-deferred contributions on up to 6% of eligible compensation on a per payroll period basis, with a true-up contribution if such eligible participant is employed by the +Company on the last day of the calendar year. The Company also pays the premiums for long-term disability insurance and group term life insurance for the Named Executive Officers both of +which are generally available to all employees. The Named Executive Officers are also eligible to participate in our health and welfare benefit plans, product discounts, and gym membership discounts +generally available to all employees. In 2010, no additional material perquisites and other personal benefits were approved by the Committee for the Named Executive Officers. +Beginning +on February 1, 2010, the Named Executive Officers are also eligible to make contributions to the Company's Nonqualified Deferred Compensation Plan, described in further +detail below under the section titled "Nonqualified Deferred Compensation." This plan is not available to all employees. +Severance Arrangements . +What this Compensation Element is Designed to Reward +In December 2009, the Committee adopted Change of Control and Severance Agreements for each of the Named Executive Officers to replace +the employment agreements which expired on December 31, 2009. The terms of employment for all Named Executive Officers with the Company is "at will." +Separation +benefits described below are intended to ease a Named Executive Officer's transition due to an unexpected employment termination by the Company due to on-going +changes in the Company's employment needs. Separation benefits include cash payments and other benefits in an amount the Company believes is appropriate, taking into account the time it is expected to +take a separated executive to find another job. The Company considers it likely that it will take more time for higher-level employees to find new employment commensurate with their prior experience, +and therefore senior management generally are paid severance for a longer period. The Company benefits by requiring a general release, and non-solicitation provisions in connection with +the individual separation agreements. +28 +Furthermore, +the change in control followed by a subsequent termination arrangements (or "double trigger" events) are intended to preserve morale and productivity and encourage retention +in the face of the disruptive impact of a change in control of the Company. The change-in-control benefits encourage the Named Executive Officers to remain focused on the +business and interest of our stockholders when considering strategic alternatives that are beneficial to our stockholders. +How We Choose Amount of this Compensation Element +The Change of Control and Severance Agreements for each executive specifically details various provisions for benefits and cash +payments in the event of a separation during the normal course of business and in the event of a change in control followed by a subsequent termination. Generally, these agreements specify conditions +and benefits within the following categories: death, disability, termination by the Company for cause; termination by the executive without good reason; termination by the executive with good reason +and termination by the Company without cause. +The +Company's change in control provisions for the Named Executive Officers provide for severance benefits and the accelerated vesting of certain equity awards upon a "double trigger" +event, meaning the termination of the executive's employment in connection with a change in control. There are no benefits triggered solely based on the occurrence of a change in control as long as +the change in control is approved by a majority of the directors and the successor entity provides for the continuance of the award. However, upon a change in control, the performance conditions of +the SARs and RSUs are deemed satisfied, but the awards remain subject to the service-based vesting conditions. Based on a competitive analysis of the change in control arrangements maintained by the +Company's Peer Group, the Committee believes that these benefits are customary among the Company's Peer Group for executives in similar positions as the Named Executive Officers. +NSUs, +RSUs and SARs cannot be sold, assigned, transferred or pledged other than by will or laws of descent. +Please +refer to the discussion under "Potential Payments upon Termination or Change of Control" for a more detailed discussion of the severance and change in control arrangements. +Other Compensation Considerations +Role of Executive Officers in Compensation Decisions +The CEO, CFO and COO provide compensation and related data to the Committee to facilitate its decisions and the Committee considers the +CEO's recommendations when making its determinations. However, our CEO may not be present during deliberations and voting regarding his own compensation, as well as during other executive sessions of +the Committee. The Committee uses the information provided by the CEO, CFO, COO and FWC to make compensation decisions for the Named Executive Officers as well as other executive officers. The +Committee, which includes only independent members of the Board, approves all elements of compensation for the Named Executive Officers. The Committee also reviews and approves aggregate equity awards +to all employees of the Company based on the recommendations of executive management. The Committee can exercise its discretion in modifying any recommended adjustments or awards to executives. +Risk Considerations +The Committee believes that although the majority of compensation provided to our executive officers is performance-based, our +executive compensation programs do not encourage excessive and unnecessary risk-taking. We believe that the design of our compensation programs encourages our executive officers to remain +focused on both the short- and long-term operational and financial goals of the Company. First, our program consists of guaranteed pay (salary) and at-risk pay (annual cash +29 +incentive +plan awards and annual and long-term equity awards) and the Committee reviews this balance annually. Second, our program establishes appropriate short-term and +long-term performance goals that are designed to encourage sustained growth and long-term success. Third, our program requires executive retention through our vesting +provisions. For example, our long-term incentive equity awards only become fully vested approximately 5 years (for our Level 1 awards) and approximately 10 years (for +our Level 2 awards) after their initial grant. Fourth, amounts to be paid under our annual cash incentive plan compensation are capped at 200%. Fifth, performance goals for our annual cash +incentive plan balance between corporate, business unit and individual performance and financial and non-financial goals. Finally, the Committee retains ultimate oversight over the +compensation of our named executive officers and retains the ability to use discretion where appropriate. +Tax Implications +Taxation and Deductibility of Executive Compensation +To the extent readily determinable, and as one of the factors in its consideration of compensation matters, the Committee considers the +anticipated tax treatment to the Company and to the executives of various payments and benefits. Some types of compensation payments and their deductibility depend upon the timing of an executive's +vesting of previously granted awards. +Under +Section 162(m) of the Code, a public company generally will not be entitled to a deduction for non-performance-based compensation paid to certain executive +officers to the extent such compensation exceeds $1.0 million. Special rules apply for performance-based compensation, including the approval of the performance goals by the stockholders of the +Company. The Company has not adopted any formal policy with respect to Section 162(m) of the Code. However, the Committee generally structures compensation to be deductible and considers cost +and value to the Company in making compensation decisions, which would result in non-deductibility. The Board has on occasion made decisions resulting in non-deductible +compensation. The qualitative MBO portion of the annual non-equity incentive plan compensation and the additional bonuses awarded outside of the non-equity incentive +compensation plan are not intended to qualify as "performance-based compensation" under Section 162(m) of the Code. The Committee and the Board believe that these payments were appropriate and +in the best interests of the Company and serve to retain key executives and reward past performance. +The +Company believes that the company profit portion and the quantitative MBO portion of its non-equity incentive plan and its grants of NSUs, RSUs and SARs meet the +exception for performance-based compensation described in the previous paragraph. +30 +COMPENSATION COMMITTEE REPORT +The Compensation and Management Development Committee of the Company has reviewed and discussed the Compensation Discussion and +Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation and Management Development Committee +recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement. +THE COMPENSATION AND MANAGEMENT +DEVELOPMENT COMMITTEE +Maureen Conners, Chair +John M. Gibbons +John G. Perenchio +The +Report of the Compensation and Management Development Committee on Executive Compensation shall not be deemed incorporated by reference by any general statement incorporating by +reference this Proxy Statement into any filing under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, except to the extent that the Company +specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts. +31 +SUMMARY COMPENSATION TABLE +The following table sets forth, for the years ended December 31, 2010, 2009, and 2008 all compensation paid or awarded to the +Named Executive Officers. +Name and principal position +Year +Salary ($) +Bonus ($) +Stock +Awards +($)(1) +Non-Equity +Incentive +Plan +Compensation +($)(2) +All Other +Compensation +($)(3) +Total ($) +Angel R. Martinez +2010 +$ +950,000 +$ +350,000 +$ +1,863,000 +$ +1,900,000 +7,350 +$ +5,070,350 +Chief Executive Officer +2009 +750,000 +441,715 +706,725 +1,458,285 +6,900 +$ +3,363,625 +and President +2008 +750,000 +300,000 +1,526,400 +1,500,000 +6,900 +$ +4,083,300 +Thomas A. George +2010 +350,000 +150,000 +828,000 +350,000 +7,350 +$ +1,685,350 +Chief Financial Officer +2009 +95,577 +73,333 +(4) +105,315 +116,667 +— +$ +390,892 +Zohar Ziv +2010 +500,000 +229,000 +1,242,000 +1,000,000 +7,350 +$ +2,978,350 +Chief Operating Officer +2009 +375,000 +150,000 +471,150 +750,000 +6,900 +$ +1,753,050 +2008 +375,000 +75,000 +1,017,600 +750,000 +6,900 +$ +2,224,500 +Constance X. Rishwain +2010 +400,000 +200,000 +1,242,000 +800,000 +7,350 +$ +2,649,350 +President of the +2009 +350,000 +200,000 +471,150 +700,000 +6,900 +$ +1,728,050 +UGG Division +2008 +300,000 +225,000 +954,000 +600,000 +6,900 +$ +2,085,900 +Colin G. Clark +2010 +300,000 +— +897,000 +537,000 +— +$ +1,734,000 +Senior Vice President of +2009 +250,000 +150,000 +340,275 +500,000 +6,462 +(5) +$ +1,246,737 +International +2008 +250,000 +93,750 +763,200 +500,000 +24,000 +(5) +$ +1,630,950 +(1) The +amounts in this column are the aggregate grant date fair value computed in accordance with ASC Topic 718 and exclude the impact of estimated forfeitures +related to service-based vesting conditions. +(2) The +amounts in this column reflect the value of cash awards to the named individuals under our annual cash incentive plan, which is discussed in further +detail under the heading "Bonus and Annual Cash Incentive Plan Compensation." +(3) The +amounts in this column reflect the Company's 401(k) matching contributions to the named executive officers unless noted otherwise. +(4) This +amount includes a $40,000 sign-on bonus paid by the Company to Mr. George. +(5) The +amounts in this column reflect a housing differential paid by the Company to Mr. Clark. +32 +GRANTS OF PLAN BASED AWARDS IN 2010 +The following table sets forth all grants of plan-based awards made to the Named Executive Officers during the fiscal year +ended December 31, 2010. For further discussion regarding the grants, see above under "Compensation Discussion and Analysis." +Estimated Future Payouts Under +Non-Equity Incentive Plan Awards(1) +Estimated Future Payouts Under +Equity Incentive Plan Awards(2) +Grant Date +Fair Value +of Stock +Awards ($) +Name +Grant Date +Threshold +($) +Target +($) +Maximum +($) +Threshold +(#) +Target +(#) +Maximum +(#) +Angel R. Martinez +3/30/2010 +(3) +$ +475,000 +$ +950,000 +$ +1,900,000 +20,250 +40,500 +40,500 +$ +1,863,000 +Thomas A. George +3/30/2010 +(3) +87,500 +175,000 +350,000 +9,000 +18,000 +18,000 +828,000 +Zohar Ziv +3/30/2010 +(3) +250,000 +500,000 +1,000,000 +13,500 +27,000 +27,000 +1,242,000 +Constance X. Rishwain +3/30/2010 +(3) +200,000 +400,000 +800,000 +13,500 +27,000 +27,000 +1,242,000 +Colin G. Clark +3/30/2010 +(3) +150,000 +300,000 +600,000 +9,750 +19,500 +19,500 +897,000 +(1) The +amounts set forth in the columns below represent the "threshold," "target" and "maximum" amounts of non-equity incentive plan compensation +that were payable to our Named Executive Officers pursuant to our annual cash incentive plan with respect to fiscal year 2010. Additional information regarding the annual cash incentive plan, +including the methodology for calculating the non-equity incentive plan awards and the determination of the actual non-equity incentive plan amounts actually paid to the Named +Executive Officers with respect to fiscal year 2010, is set forth under the heading "Bonus and Annual Cash Incentive Plan Compensation." +(2) The +amounts set forth in the columns represent the "threshold," "target" and "maximum" number of NSUs that could have been earned by our Named Executive +Officers based on the Company's performance in fiscal year 2010. Each of the NSUs were granted pursuant to the 2006 Plan. Additional information regarding the terms of the NSUs, including the +performance targets and vesting conditions associated with each, is set forth under the heading "Performance-based Short-Term and Long-Term Equity Incentive Compensation." +(3) The +number of NSUs awarded in the 2010 annual grant was primarily based on the executive's respective level within the Company and the level of criticality +of his or her position. +33 +OUTSTANDING EQUITY AWARDS AT 2010 FISCAL YEAR END +The following table sets forth equity awards of the Named Executive Officers outstanding as of December 31, 2010. +Stock Appreciation Rights (SAR) Awards (1) +Stock Awards +Name +Number of +securities +underlying +unexercised +SARs (#) +exercisable +Number of +securities +underlying +unexercised +SARs (#) +unexercisable +Number of +securities +underlying +unexercised +unearned +SARs (#) +SAR +exercise +price ($) +SAR +expiration +date +Number +of stock +awards that +have not +vested (#) +Market +value of +units of +stock that +have not +vested(3)($) +Number of +unearned +stock awards +that have not +vested(2)(#) +Market +value of +unearned +units that +have not +vested(3)($) +Angel R. Martinez +— +240,000 +60,000 +$ +26.73 +5/9/2017 +117,000 +(4) +$ +9,329,580 +45,000 +(9) +$ +3,588,300 +— +— +300,000 +26.73 +5/9/2022 +Thomas A. George +— +— +— +— +— +22,500 +(5) +1,794,150 +— +— +Zohar Ziv +— +60,000 +15,000 +26.73 +5/9/2017 +78,000 +(6) +6,219,720 +12,600 +(10) +1,004,724 +— +— +75,000 +26.73 +5/9/2022 +Constance X. Rishwain +— +60,000 +15,000 +26.73 +5/9/2017 +76,500 +(7) +6,100,110 +12,600 +(11) +1,004,724 +— +— +75,000 +26.73 +5/9/2022 +Colin G. Clark +— +60,000 +15,000 +26.73 +5/9/2017 +57,000 +(8) +4,545,180 +2,100 +(12) +167,454 +(1) All +SARs were granted on May 9, 2007. SARs vest subject to long-term performance objectives and long-term service conditions. +80% of Level 1 SAR awards vested on December 31, 2010 and became exercisable on March 1, 2011. Provided the conditions are met, 20% of Level 1 SAR awards will vest on +December 31, 2011 and Level 2 SAR awards will vest 80% on December 31, 2015 and 20% on December 31, 2016. +(2) This +column includes RSUs, all of which were granted on May 9, 2007. RSUs vest subject to long-term performance objectives and +long-term service conditions. Provided the conditions are met, 20% of Level 1 RSU awards will vest on December 31, 2011 and Level 2 RSU awards will vest 80% on +December 31, 2015 and 20% on December 31, 2016. +(3) The +closing price of the Company's Common Stock on December 31, 2010 was $79.74. +(4) Consists +of: (i) 36,000 nonvested stock units granted on February 27, 2008, which shares vest in equal quarterly installments starting +March 31, 2011; (ii) 40,500 nonvested stock units granted on March 30, 2009, which shares vest in equal quarterly installments starting March 31, 2012; and +(iii) 40,500 nonvested stock units granted on March 30, 2010, which shares vest in equal quarterly installments starting March 31, 2013. +(5) Consists +of (i) 4,500 nonvested stock units granted on September 11, 2009, which shares vest in equal quarterly installments starting +September 30, 2012; and (ii) 18,000 nonvested stock units granted on March 30, 2010, which shares vest in equal quarterly installments starting March 31, 2013. +(6) Consists +of (i) 24,000 nonvested stock units granted February 27, 2008, which shares vest in equal quarterly installments starting +March 31, 2011; (ii) 27,000 nonvested stock units granted on March 30, 2009, which shares vest in equal quarterly installments starting March 31, 2012; and +(iii) 27,000 nonvested stock units granted on March 30, 2010, which shares vest in equal quarterly installments starting March 31, 2013. +(7) Consists +of (i) 22,500 nonvested stock units granted on February 27, 2008, which shares vest in equal quarterly installments starting +March 31, 2011; (ii) 27,000 nonvested stock units granted on March 30, 2009, which shares vest in equal quarterly installments starting March 31, 2012; and +(iii) 27,000 nonvested stock units granted on March 30, 2010, which shares vest in equal quarterly installments starting March 31, 2013. +(8) Consists +of (i) 18,000 nonvested stock units granted on February 27, 2008, which shares vest in equal quarterly installments starting +March 31, 2011; (ii) 19,500 nonvested stock units granted on March 30, 2009, which shares vest in equal quarterly installments starting March 31, 2012; and +(iii) 19,500 nonvested stock units granted on March 30, 2010, which shares vest in equal quarterly installments starting March 31, 2013. +(9) Consists +of: (i) 7,500 restricted stock units granted on May 9, 2007, which shares vest on December 31, 2011, subject to the +satisfaction of performance conditions; (ii) 37,500 restricted stock units granted on May 9, 2007, which share vest 80% on December 31, 2015 and 20% on December 31, 2016, +subject to the satisfaction of performance conditions. +(10) Consists +of: (i) 2,100 restricted stock units granted on May 9, 2007, which shares vest on December 31, 2011, subject to the +satisfaction of performance conditions; (ii) 10,500 restricted stock units granted on May 9, 2007, which shares vest 80% on December 31, 2015 and 20% on December 31, 2016, +subject to the satisfaction of performance conditions. +(11) Consists +of: (i) 2,100 restricted stock units granted on May 9, 2007, which shares vest on December 31, 2011, subject to the +satisfaction of performance conditions; (ii) 10,500 restricted stock units granted on May 9, 2007, which shares vest 80% on December 31, 2015 and 20% on December 31, 2016, +subject to the satisfaction of performance conditions. +(12) Consists +of 2,100 restricted stock units granted on May 9, 2007, which shares vest December 31, 2011, subject to the satisfaction of +performance conditions. +34 +2010 OPTION EXERCISES AND STOCK VESTED +The following table provides information, for the Named Executive Officers, regarding stock option exercises and stock award vesting +during 2010, including the number of shares acquired upon exercise or vesting and the value realized, before payment of any applicable withholding tax and broker commissions. +SARs Awards +Stock Awards +Number of +Shares +Acquired on +Exercise (#) +Value +Realized on +Exercise ($) +Number of +Shares +Acquired on +Vesting (#)(1)(2) +Value +Realized on +Vesting ($)(3) +Angel R. Martinez +— +$ +— +66,000 +$ +4,519,710 +Thomas A. George +— +— +— +— +Zohar Ziv +— +— +26,400 +1,707,699 +Constance X. Rishwain +— +— +26,400 +1,707,699 +Colin G. Clark +— +— +26,400 +1,707,699 +(1) The +amounts in this column include NSUs and Restricted Stock Units (RSUs) that vested on December 31, 2010 and were issued on March 1, 2011. +These RSUs represent 80% of the Level 1 grants awarded as part of the long-term incentive plan and amounted to 30,000 shares acquired by Angel Martinez and 8,400 shares acquired by +each Zohar Ziv, Constance Rishwain and Colin Clark. +(2) Total +shares received net of shares withheld for taxes were 36,389 by Angel Martinez; 15,163 by Zohar Ziv; 19,351 by Constance Rishwain; and 21,189 by Colin +Clark. +(3) This +column includes NSUs and RSUs and calculates the RSU values based on the closing stock price on the March 1, 2011 issuance date. +NONQUALIFIED DEFERRED COMPENSATION +In 2008, the Board adopted a Deferred Stock Unit Compensation Plan, a Sub Plan under the Deckers Outdoor Corporation 2006 Equity +Incentive Plan. A director or employee of the Company who holds unvested restricted stock awards, including NSUs and RSUs, may elect to defer settlement of up to 100% of his or her awards. For each +share of Common Stock held pursuant to a restricted stock award that is deferred, the participant will receive one Deferred Stock Unit. Amounts deferred will be distributed, as more specifically +described in the plan, at the time elected by the participant. A participant's Deferred Stock Units will be settled in shares of Common Stock, as +more specifically described in the plan. In 2010, none of the Company's executive officers elected to participate in the Company's Deferred Stock Unit Compensation Plan. +On +December 16, 2009, the Compensation Committee adopted and approved a Nonqualified Deferred Compensation Plan. The plan is an unfunded, nonqualified deferred compensation +program sponsored by the Company to provide certain of its management or highly compensated employees designated by the Company's Board of Directors (or a committee appointed by the Board to +administer the plan) the opportunity to defer compensation into the plan. The effective date for the plan for the first year will be February 1, 2010, and thereafter the plan year will be from +January 1 to December 31. Participants may defer up to 50% of their annual base salary and up to 95% of any performance bonus to the plan. In the discretion of the Board of Directors (or +a committee appointed by the Board to administer the plan), the Company may make additional contributions to be credited to the account of any or all participants in the plan. No such contribution had +been approved as of December 31, 2010. Under the terms of the plan, the Company has established a trust as a reserve for the benefits payable under the plan. Distributions from the plan are +governed by the Internal Revenue Code and the plan. +35 +None +of the Company's named executive officers made contributions to this plan during 2010. Certain of the Named Executive Officers did elect to participate in this plan during 2010 and, pursuant to +such elections, amounts will be contributed to this plan during 2011. +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL +The Company entered into Change of Control and Severance Agreements (the "Severance Agreements") with each of the Named Executive +Officers effective as of January 1, 2010 to replace the expired employment agreements with such executives. The new Severance Agreements have eliminated gross ups for the Internal Revenue Code +section 280G excise tax penalty on "excess golden parachute payments" as a result of termination following a Change of Control. The information below describes compensation and benefits that +are payable or earned under the Change of Control and Severance Agreements with the Named Executive Officers which were effective as of January 1, 2010. +As +further described in the Compensation Discussion and Analysis above, the purpose of these agreements is to ensure the continued services of the Named Executive Officers while +eliminating the excise tax gross up contained in their prior employment agreements. Severance benefits serve to ease a Named Executive Officer's transition due to an unexpected employment termination +by the Company. In addition, upon a Change of Control, severance benefits serve to retain key executives in the face of uncertainty following a Change of Control event so that the Company can maintain +a stable and effective management team. +For +purposes of the Severance Agreements, Cause means (i) any willful breach of duty by the executive in the course of their employment or continued violation of written Company +employment policies after written notice of such violation, (ii) violation of the Company's insider trading policies, (iii) conviction of a felony or any crime involving fraud, theft, +embezzlement, dishonesty or moral turpitude, (iv) engaging in activities which materially defame the Company, engaging in conduct which is material injurious to the Company or its affiliates, +or any of their respective customer or supplier relationships, financially or otherwise, or (v) the executive's gross negligence or incapacity to perform duties, excluding total disability. +Good +Reason means without the consent of the Executive (a) the occurrence of material breach of this Agreement by the Company, or (b) if within two (2) years of a +Change of Control, there is a material reduction of the Executive's total compensation, benefits, and perquisites, the Company's relocation is greater than 50 miles from the location where the +Executive performs services, or a material change in the Executive's position or duties; provided, however, no such event shall constitute "Good Reason" hereunder unless the Executive shall have given +written notice to the Company of Executive's intent to resign for "Good Reason" within 30 days after the Executive first becomes aware of the occurrence of any such event (specifying the nature +and scope of the event) and such event or occurrence shall not have been cured within 30 days of the Company's receipt of such notice. +Change +of Control means if there is a merger, consolidation, sale of all or a major portion of the assets of the Company (or a successor organization) or similar transaction or +circumstance where any person or group acquires, in one or more transactions, beneficial ownership of more than 50% of the outstanding shares of any class of voting stock of the Company (or a +successor organization). +Constructive +Termination means a termination following the occurrence of any one or more of the following events without the executive's written consent: (i) any material +reduction in position, title, overall responsibilities, level of authority, level of reporting, base compensation, annual incentive compensation opportunity, aggregate employee benefits or +(ii) a change of the executive's location of employment by more than 50 miles. +36 +Termination by the Company for Cause, or by Executive other than for Good Reason +Pursuant to the Severance Agreements with each of the Named Executive Officers, if the executive is terminated by the Company for +Cause, or the executive terminates their employment, other than for Good Reason, then the Named Executive Officer will receive the following from the Company: +• payment of his or her accrued base salary, accrued vacation, reimbursement for certain expenses, accrued and vested +benefits under the Company's plans or programs and other benefits required to be paid by law, accrued but unpaid incentive bonus for the prior fiscal year (excluding any incentive bonus for the year +of termination); and +• right to exercise all vested unexercised stock options and NSUs outstanding as of the termination date. +Termination due to death or total disability +Pursuant to the Severance Agreements with each of the Named Executive Officers, if the executive is terminated due to his death or +total disability, then in addition to those benefits provided upon a termination for Cause, the Named Executive Officer will receive: +• pro-rated portion of his or her non-equity incentive bonus for the current fiscal year based on +actual length of service during the year of termination. +Termination by the Company without Cause or by Executive for Good Reason +Pursuant to the Severance Agreements with each of the Named Executive Officers, if the executive is terminated by the Company without +Cause or by Executive for Good Reason, then in addition to those benefits provided upon a termination due to death or total disability, the Named Executive Officer will +receive: +• payment of his or her then effective base salary for one year following his or her termination, subject to such executive +signing a release; and +• receipt of health benefits for a period of one year following his or her termination or his or her attainment of +alternative employment that provides health benefits, whichever is earlier. +Termination without Cause or by Executive for Good Reason within two years of a Change of Control +Pursuant to the Severance Agreements with each of the Named Executive Officers, if the executive is terminated by the Company without +Cause of by Executive for Good Reason within two years of a Change of Control, then in addition to those benefits provided upon a termination due to death or total disability, the Named Executive +Officer will receive: +• subject to such executive signing a release, payment of one and one-half times his or her then effective +annual base salary plus the greater of (i) one and one-half times the targeted non-equity incentive bonus immediately prior to the termination or (ii) one and +one-half times the average actual non-equity incentive bonus for the previous three years. Each of Mr. Martinez and Mr. Ziv will receive two times their +respective annual base salary plus the greater of (i) two times the targeted incentive bonus immediately prior to termination or (ii) two times the average actual incentive bonus for the +previous three years, subject to signing a release. +• receipt of health benefits for a period of eighteen months following his or her termination or his or her attainment of +alternative employment that provides health benefits, whichever is earlier. Mr. Martinez will receive these benefits for two years and Mr. Ziv will receive these benefits for one year. +37 +The +Company determined to provide Mr. Martinez and Mr. Ziv with a slightly higher severance payment upon a termination following a Change of Control to reflect each of +their key leadership roles and their importance to the Company's management. +No +Named Executive Officers will be entitled to gross ups for the Internal Revenue Code section 280G excise tax penalty on "excess golden parachute payments" as a result of +termination following a Change of Control. +Equity Awards Upon Termination or Change of Control +Pursuant to the terms of the equity awards under the 2006 Plan, the employees that receive such awards, including the Named Executive +Officers, are entitled to certain benefits upon the occurrence of each of the following: (i) termination without cause or pursuant to a Constructive Termination, (ii) a change of control +and either it is not approved by a majority of the directors or the successor entity does not provide for the continuance of the award, and (iii) a change of control followed by termination. +For +the NSUs awarded annually as part of our performance-based short-term equity incentive compensation, if an awardee is terminated by the Company without cause or pursuant +to a Constructive Termination, if the threshold performance criteria of the NSUs awarded to such executive under the 2006 Plan have been satisfied, the awardee will be entitled to accelerated vesting +for a pro rata portion of the NSU award based on a fraction, the numerator of which is the length of service beginning in January in the year of the NSU grant divided by the total number of months in +the vesting period, and will be settled in shares of the Company's common stock. If a change of control occurs and either it is not approved by a majority of the directors or the successor entity does +not provide for the continuance of the NSUs, then the NSUs will fully vest if the threshold performance criteria has been satisfied. Finally, if an awardee is terminated without cause or pursuant to a +Constructive Termination within twelve months of a change of control, he or she will be entitled to full acceleration of any unvested NSUs awarded under the 2006 Plan. +For +the SARs and RSUs awarded as part of our performance-based long-term equity incentive compensation, upon a change of control the performance conditions of the SARs and +RSUs will be deemed satisfied, but the awards will remain subject to service-based vesting conditions. If a change of control occurs and either it is not approved by a majority of the directors or the +successor entity does not provide for the continuance of the SARs and RSUs, then the SARs and RSUs will fully vest. Finally, if an awardee is terminated without cause or pursuant to a Constructive +Termination within twelve months of a change of control, he or she will be entitled to full acceleration of any unvested SARs and RSUs awarded under the 2006 Plan. The RSUs will fully vest upon the +awardee's death or disability. +38 +A summary of payments and benefits that would be provided by the Company in addition to amounts accrued for unpaid base salary, vacation pay, non-equity incentive bonus and +reimbursable expenses, if the termination or change of control had occurred on December 31, 2010 (based on the closing price of the Company's Common Stock on December 31, 2010 of +$79.74), given the Named Executive Officers' compensation and service levels per their respective Severance Agreements and equity awards is as follows: +Name +Type of Compensation or Benefit +Upon +Termination +by the Company +Without Cause or +by Executive for +Good Reason +For Death or +Disability +Upon Change +of Control +Angel R. Martinez +cash payments +$ +950,000 +$ +— +$ +5,866,667 +value of health benefits +19,459 +— +38,918 +value of NSUs +4,575,083 +— +9,329,580 +value of RSUs +— +3,588,300 +3,588,300 +value of SARs +— +— +5,827,399 +5,544,542 +3,588,300 +24,650,864 +Thomas A. George +cash payments +350,000 +— +1,012,500 +value of health benefits +15,648 +— +23,471 +value of NSUs +538,245 +— +1,794,150 +903,893 +— +2,830,121 +Zohar Ziv +cash payments +500,000 +— +2,969,333 +value of health benefits +12,608 +— +12,608 +value of NSUs +3,050,055 +— +6,219,720 +value of RSUs +— +1,004,724 +1,004,724 +value of SARs +— +— +1,456,850 +3,562,663 +1,004,724 +11,663,235 +Constance X. Rishwain +cash payments +400,000 +— +1,962,500 +value of health benefits +17,419 +— +26,128 +value of NSUs +2,960,348 +— +6,100,110 +value of RSUs +— +1,004,724 +1,004,724 +value of SARs +— +— +1,456,850 +3,377,767 +1,004,724 +10,550,312 +Colin G. Clark +cash payments +300,000 +— +1,340,375 +value of health benefits +12,078 +— +18,117 +value of NSUs +2,242,688 +— +4,545,180 +value of RSUs +— +1,004,724 +1,004,724 +value of SARs +— +— +1,456,850 +2,554,766 +1,004,724 +8,365,246 +No additional payments or benefits would be provided by the Company if the termination occurred by the Company for Cause or by the executive +without Good Reason. +39 +DIRECTOR COMPENSATION +For the first half of 2010, directors who are not employees of the Company or its subsidiaries ("Nonemployee Directors") received an +annual retainer of $45,000 in cash plus $5,000 for each committee assignment. For the second half of 2010, the annual retainer was increased to $50,000 in cash plus $15,000 for each committee +assignment. In the event that more than 10 meetings were required by any committee, a meeting fee of $1,500 per meeting would be paid to all members plus reimbursement of any expenses they may incur +with respect to such meetings. Beginning with the second half of 2010, the $1,500 meeting fee was eliminated. In addition, for the first half of 2010, the following positions were entitled to receive +an additional annual retainer fee of $30,000 for the Lead Director, $30,000 for the Audit Committee Chair, and $7,500 each for the Committee Chair for the Compensation and Management Development +Committee and the Corporate Governance and Nominating Committee. For the second half of 2010, these fees were increased to $70,000 for Lead Director, $40,000 for Audit Committee Chair, and $15,000 +each for the Committee Chair for the Compensation and Management Development Committee and the Corporate Governance and Nominating Committee. For the first half of 2010, Nonemployee Directors also +received equity compensation with a total value of approximately $100,000 annually of the Company's Common Stock, to be paid out in quarterly installments with the share price to be determined using a +rolling average of +the share price during the last 10 days of the quarter. For the second half of 2010, this equity compensation was increased to $125,000 annually, to be paid in quarterly installments of +$31,250. +The +Board elected to make the aforementioned changes to the Board compensation package in light of the recent rapid growth of the Company and the additional challenges and time +commitments that come with that change. +In +addition, in 2010, the Board adopted stock ownership guidelines for the Nonemployee Directors. Nonemployee Directors are also required to hold Company shares worth 5 times the annual +retainer within 5 years of joining the Board and each director must hold Company shares after 1 year of joining the Board. +40 +Directors +who were employees of the Company or its subsidiaries served as directors without compensation. +Name +Year +Fees +Earned +($) +Stock +Awards(1) +($) +Total +($) +John M. Gibbons +2010 +$ +100,000 +$ +110,035 +$ +210,035 +Director +Rex A. Licklider +2010 +101,250 +110,035 +211,285 +Director +Ruth M. Owades +2010 +57,500 +110,035 +167,535 +Director +John G. Perenchio +2010 +73,750 +110,035 +183,785 +Director +Maureen Conners +2010 +75,000 +110,035 +185,035 +Director +Tore Steen +2010 +57,500 +110,035 +167,535 +Director +Karyn O. Barsa +2010 +57,500 +110,035 +167,535 +Director +Angel R. Martinez(2) +2010 +N/A +N/A +N/A +Chair of the Board +(1) Represents +grants of 546 shares of common stock at a per share price of $46.00 on March 31, 2010, 483 shares of common stock at a per share price of +$47.62 on June 30, 2010, 644 shares of common stock at a per share price of $49.96 on September 30, 2010, and 373 shares of common stock at a per share price of $79.74 on +December 31, 2010. +(2) Mr. Martinez +received compensation as President and Chief Executive Officer of the Company for 2010 as discussed in the section entitled +"Compensation Discussion and Analysis". He did not receive any compensation as a director in 2010. +41 +EQUITY COMPENSATION PLAN INFORMATION +The following table sets forth information regarding shares of the Company's Common Stock that may be issued under the Company's equity +compensation plans as of December 31, 2010. +Number of securities +to be issued +upon exercise of +outstanding options, +warrants and rights(1) +Weighted-average +exercise price of +outstanding options, +warrants and rights(2) +Number of securities +remaining available +for future issuance(3) +Equity compensation plans approved by security holders +2,033,198 +$ +26.25 +3,695,459 +Equity compensation plans not approved by security holders +— +— +— +Total +2,033,198 +$ +26.25 +3,695,459 +(1) Includes +outstanding options, unexercisable SARs, and unvested NSUs and RSUs. The nature of the NSU and RSU grants are described in the Compensation +Discussion and Analysis. +(2) The +weighted-average exercise price of the options was $4.91 and the stock price at the date of grant of the SARs was $26.73. The weighted-average exercise +price does not take into account the NSUs and RSUs. +(3) Includes +6,000,000 authorized shares under the 2006 Plan less actual shares issued as well as shares reserved for outstanding SARs, NSUs and RSUs. +Compensation Policies and Practices and their Relation to Risk Management +In addition to our compensation policies for executive officers, the Compensation Committee reviews the risks and rewards associated +with the Company's compensation programs for all employees generally. The Company's compensation programs for all employees include elements that mitigate risk while continuing to properly incentivize +our employees. We believe that our compensation policies reward prudent business judgment and appropriate risk taking for the long term performance of the Company. Specifically, the policies which +mitigate undue risk taking include: (i) independent Compensation Committee oversight and the ability of the Committee to exercise its discretion, (ii) the use of a balanced mix of cash +and equity, (iii) the use of multiple performance factors in our cash incentive compensation plan, so that employees do not focus on a single financial measure, (iv) capping awards +payable under our cash incentive compensation plan, and (v) multiple-year vesting of our equity awards to support long-term shareholder value creation, as described +above. +Management +and the Compensation Committee evaluate the risk involved with the compensation policies for all of our employees and do not believe any of the Company's compensation programs +create risks that are reasonably likely to pose a material adverse impact to the Company. +42 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth, as of March 31, 2011, certain information concerning the shares of Common Stock beneficially +owned by (i) each person who is a Named Executive Officer; (ii) each director and director nominee; (iii) all executive officers and directors as a group (thirteen persons); and +(iv) each person known by the Company to be the beneficial owner of more than 5% of our Common Stock (other than directors, executive officers and depositaries) based upon the most recent SEC +filings available. +Name and Address of Beneficial Owner(1) +Amount and +Nature of Beneficial +Ownership(2)(3) +Percent +of Class(3) +Named Executive Officers +Angel R. Martinez +295,378 +* +Thomas A. George +— +* +Zohar Ziv +89,674 +* +Constance X. Rishwain +3,000 +* +Colin G. Clark +67,689 +* +Directors and Director Nominees +Angel R. Martinez +295,378 +* +Rex A. Licklider +628,067 +1.6 +% +John M. Gibbons(4) +27,468 +* +John G. Perenchio +126,179 +* +Maureen Conners +14,235 +* +Tore Steen(5) +18,035 +* +Ruth M. Owades +10,235 +* +Karyn O. Barsa +5,960 +* +Michael F. Devine, III +126 +* +All directors and executive officers as a group (fifteen persons) +1,373,520 +5% Stockholders +BlackRock, Inc.(6) +3,594,210 +9.3 +% +FMR LLC(7) +3,571,942 +9.2 +% +* Percentage +of shares beneficially owned does not exceed 1% of the class so owned. +(1) The +address of each beneficial owner is 495-A South Fairview Avenue, Goleta, California 93117, unless otherwise noted. +(2) Unless +otherwise noted, the Company believes that each individual or entity named has sole investment and voting power with respect to shares of Common +Stock indicated as beneficially owned by them, subject to community property laws, where applicable. +(3) Pursuant +to Rule 13d-3(d)(1) of the Exchange Act, shares not outstanding which are subject to options, warrants, rights or conversion +privileges exercisable on or before the date that is 60 days after March 31, 2011 are deemed outstanding for the purpose of calculating the number and percentage owned by such person, +but not deemed outstanding for the purpose of calculating the percentage owned by any other person listed. +(4) Includes +27,468 shares held by the Gibbons Living Trust as to which Mr. Gibbons has joint voting and investment power. +(5) Includes +12,429 shares which are pledged as security. +43 +(6) Includes +3,594,210 shares held by BlackRock, Inc., which identified itself as a parent holding company, with sole dispositive power and voting power +with respect to all of such shares. This information is based solely on a Schedule 13G/A filed by the party on February 4, 2011 whose business address is 40 East 52nd Street, New +York, NY 10022. +(7) Includes +3,571,942 shares held by FMR LLC, which identified itself as a parent holding company. Edward C. Johnson 3d, Chairman of FMR LLC, and +members of his family, collectively own 49% of the voting power of FMR LLC and may constitute a controlling group with respect to FMR LLC. The shares are held directly by the following +entities controlled by FMR LLC: Fidelity Management and Research Company, Pyramis Global Advisors Trust Company and FIL Limited, each of which owns such shares in their capacities as investment +advisor or investment manager. Edward C. Johnson 3d and FMR LLC each has sole dispositive power with respect to all of such shares and sole voting power with respect to 11,170 of such shares. +Neither Edward C. Johnson 3d nor FMR LLC has the sole power to vote or direct the voting of shares held by the Fidelity Funds, which power resides with the board of trustees of the Fidelity +Funds. This information is based solely on a 13G/A filed by the party on February 14, 2011 whose business address is 82 Devonshire Street, Boston, MA 02109. +44 +REPORT OF THE AUDIT COMMITTEE +The Audit Committee of the Board is responsible for providing independent, objective oversight of the Company's financial reporting, +public accounting firm, Chief Audit Executive, legal and regulatory compliance, related party transactions, code of conduct and system of internal controls. The Audit Committee is currently composed +of three directors, each of +whom meets the independence and experience requirements under the Nasdaq rules and the independence requirements of the SEC. +Management +is responsible for the preparation of the Company's financial statements and financial reporting process including its system of internal controls. The independent registered +public accounting firm is responsible for performing an independent audit of the Company's consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight +Board (United States) (the "PCAOB") and expressing (i) an opinion on whether the Company's consolidated financial statements present fairly, in all material respects, the Company's financial +position and results of operations and cash flows for the periods presented in conformity with U.S. generally accepted accounting principles and (ii) an opinion on whether the Company +maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control-Integrated Framework issued +by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Audit Committee's responsibility is to monitor and oversee these processes. The Board of Directors has determined +that John M. Gibbons, the Chair of the Audit Committee, is an audit committee financial expert and is independent. +In +connection with these responsibilities, the Audit Committee met with management and the independent registered public accounting firm to review and discuss the December 31, +2010 consolidated financial statements and obtained from management their representation that the Company's financial statements have been prepared in accordance with U.S. generally accepted +accounting principles. Management determined that, as of December 31, 2010, the Company maintained effective internal control over financial reporting. +The +Audit Committee also discussed with the independent registered public accounting firm the matters required by Statement on Auditing Standards No. 61 (Communication with Audit +Committees), which includes, among other items, information regarding the conduct of the audit of the Company's consolidated financial statements. The Audit Committee also received written disclosures +from KPMG LLP required by the PCAOB's Rule 3526: Communication with Audit Committees Concerning Independence, and the Audit Committee discussed with KPMG LLP its independence from +the Company and the Company's management. The Audit Committee has further considered the compatibility of the services provided by KPMG LLP with that firm's independence. +The +Audit Committee operates under a written charter, which was adopted by the Board and is assessed annually for adequacy by the Audit Committee. The Audit Committee held 8 meetings +during fiscal 2010, including meetings with the independent registered public accounting firm and Chief Audit Executive, both with and without management present. In performing its functions, the +Audit Committee acts only in an oversight capacity. It is not the responsibility of the Audit Committee to determine that the Company's financial statements are complete and accurate, are presented in +accordance with U.S. generally accepted accounting principles or present fairly the results of operations of the Company for the periods presented or that the Company maintains appropriate internal +controls. Nor is it the duty of the Audit Committee to determine that the audit of the Company's financial statements has been carried out in accordance with the standards of the PCAOB or that the +Company's registered public accounting firm is independent. +Based +upon the Audit Committee's review and discussions with management and the independent registered public accounting firm, the Audit Committee recommended that the Board of Directors +45 +include +the audited consolidated financial statements in the Company's Annual Report on Form 10-K as of and for the year ended December 31, 2010, filed with the SEC on +March 1, 2011. +THE AUDIT COMMITTEE +John M. Gibbons, Chair +Tore Steen +Karyn O. Barsa +The +Report of the Audit Committee shall not be deemed incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the +Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates this information by reference, and shall +not otherwise be deemed filed under such Acts. +Certain Relationships and Related Person Transactions +The legal department is primarily responsible for identifying and reviewing relationships and transactions in which the Company and our +directors, executive officers, certain of our stockholders or their immediate family members are participants to determine whether any of these related persons had or will have a direct or indirect +material interest. In order to identify potential related person transactions, the Company's legal department annually prepares and distributes to all directors and executive officers a written +questionnaire which includes questions intended to elicit information about any related person transactions. In addition, the Company's Code of Business Conduct and Ethics addresses conflicts of +interest where an individual's private interests interfere or conflict with the interests of the Company, including relationships with suppliers, customers or competitors. Conflicts of interest which +might impair or appear to impair the exercise of judgment solely for the benefit of the Company are prohibited. In general, such conflicts must be approved by the legal department, the employee's +supervisor or, in the case of directors, the Audit Committee. Information regarding potential conflicts of interests in violation of the Company's Code of Business Conduct and Ethics may be reported +to the Company's anonymous reporting hotline and may be +subsequently obtained by the Audit Committee Chair, the Chair of the Board and the Chief Audit Executive. +If +a related person transaction is identified by the legal department as one which must be reported in the Company's Proxy Statement pursuant to applicable Securities and Exchange +Commission regulations, our Audit Committee is responsible for reviewing and approving or ratifying any such related person transactions. In evaluating related person transactions, our Audit Committee +members apply the same standards of good faith and fiduciary duty they apply to their general responsibilities as the Audit Committee and as individual directors. The Audit Committee may approve a +related person transaction when, in its good faith judgment, the transaction is in the best interests of the Company. +There +were no disclosable transactions with related persons under Item 404 of Regulation S-K during the fiscal year ended December 31, 2010 nor are any +such transactions currently proposed. +Limitation of Liability and Indemnification of Directors and Officers +Our Certificate of Incorporation and Bylaws provide that we shall indemnify directors and executive officers to the fullest extent now +or hereafter permitted by the Delaware General Corporation Law (the "DGCL"). In addition, we have entered into Indemnification Agreements with our directors and executive officers in +which we agree to indemnify such persons to the fullest extent now or hereafter permitted by the DGCL. +We +have obtained a liability policy for our directors and officers as permitted by the DGCL which extends to, among other things, liability arising under the Securities Act of 1933, as +amended. +46 +We +maintain an insurance policy pursuant to which our directors and officers are insured, within the limits and subject to the limitations of the policy, against specified expenses in +connection with the defense of claims, actions, suits or proceedings, and liabilities which might be imposed as a result of such claims, actions, suits or proceedings, that may be brought against them +by reason of their being or having been directors or officers. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's directors, executive officers and +persons who own more than 10% of the Common Stock (collectively "Section 16 Persons") to file initial reports of ownership (Forms 3) and reports of changes in ownership of Common Stock +(Forms 4 and Forms 5) with the SEC as well as the Company. +To +the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company and representations from each Section 16 Person known to the Company +that no other reports were required, during the fiscal year ended December 31, 2010, all Section 16(a) filing requirements applicable to its Section 16 Persons were complied with +except that: +(i) Zohar +Ziv filed a Form 4 on October 12, 2010, which reported one transaction, related to a sale pursuant to a Rule 10b5-1 trading plan, +that was due to be reported on October 7, 2010; and +(ii) Colin +G. Clark filed a Form 4 on February 3, 2011, which reported one transaction, related to the forfeiture of his Level 2 RSU awards, that was +due to be reported on December 28, 2010. +47 +PROPOSAL NO. 2 +RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +For the 2010 fiscal year, KPMG LLP provided audit services, which included examination of the Company's annual consolidated +financial statements. The Audit Committee has selected KPMG LLP to provide audit services to the Company and its subsidiaries for the fiscal year ending December 31, 2011. The +stockholders are being requested to ratify such selection at the Annual +Meeting. A representative of KPMG LLP will attend the Annual Meeting to make any statements he or she may desire and to respond to appropriate stockholder questions. +Although +this appointment is not required to be submitted to a vote of the stockholders, the Audit Committee believes it is appropriate as a matter of policy to request that the +stockholders ratify the appointment. Ratification of the appointment of the independent registered public accounting firm requires the affirmative vote of holders of a majority of the outstanding +shares of our Common Stock, present in person or represented by Proxy at the Annual Meeting and entitled to vote. If the stockholders do not ratify the appointment, the Audit Committee will consider +the selection of another independent registered public accounting firm. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE +"FOR" PROPOSAL NO. 2 TO RATIFY THE APPOINTMENT OF KPMG LLP AS THE +COMPANY'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +FOR THE FISCAL YEAR ENDING DECEMBER 31, 2011. +Audit Fees and All Other Fees +Audit Fees +Fees approved for audit services totaled approximately $1,235,000 in 2010 and $1,200,000 in 2009. The 2010 audit fees include fees +associated with the audit of the Company's consolidated balance sheets as of December 31, 2010 and 2009, the related consolidated statements of operations, stockholders' equity and +comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2010 and the audit of internal control over financial reporting as of +December 31, 2010 (collectively referred to as the integrated audit), as well as the reviews of the Company's quarterly reports on Form 10-Q and certain statutory audits +required internationally. +Audit-Related Fees +The Company was not billed for any audit-related fees in 2010 or 2009. +Tax Fees +Fees incurred for tax services, including tax compliance, tax advice and tax planning for income taxes and customs matters, totaled +approximately $18,000 in 2010 and $41,000 in 2009. +All Other Fees +The Company was not billed for any other fees in 2010 or 2009. +Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm +The Audit Committee administers the Company's engagement of KPMG LLP and pre-approves all their audit and +permissible non-audit services on a case-by-case basis. In approving non-audit services, the Audit Committee considers whether the engagement could +compromise the independence of +48 +KPMG LLP, +and whether for reasons of efficiency or convenience it is in the best interest of the Company to engage its independent registered public accounting firm to perform the services. The +Audit Committee has determined that performance by KPMG LLP of the non-audit services listed above did not affect their independence. +Prior +to engagement, the Audit Committee Chair pre-approves all independent registered public accounting firm services. During the year, circumstances may arise when it may +become necessary to engage the independent registered public accounting firm for additional services not contemplated in the original pre-approval categories. In those instances, the Audit +Committee requires that those services be submitted to the Audit Committee Chair for specific pre-approval before the Company can engage the independent registered public accounting firm +to provide them. The Chair reports any pre-approval decisions to the Audit Committee at its next scheduled meeting for approval by the Committee. On May 8, 2007, the Audit Committee +approved an Audit and Non-Audit Financial Service Approval Policy giving our Chief Audit Executive and Chief Financial Officer discretionary authority to engage financial services firms +for audit and permissible non-audit services to the Company of up to a dollar amount equal to 5% of the total fees paid to our independent registered public accounting firm during each +fiscal year. +49 +PROPOSAL NO. 3 +PROPOSAL TO RE-APPROVE THE MATERIAL TERMS OF +THE PERFORMANCE GOALS UNDER THE DECKERS 2006 EQUITY INCENTIVE PLAN +We are asking our stockholders to re-approve the material terms of the performance goals under the Deckers 2006 Equity +Incentive Plan ("Plan" or "2006 Plan"). This re-approval is required under Internal Revenue Service regulations in order to preserve the Company's federal income tax deduction when +payments related to these awards are made to certain executive officers. In particular, Section 162(m) of the Code generally prevents a publicly-held corporation from claiming +federal income tax deductions for compensation in excess of $1 million paid to certain of its executive officers. Compensation, if it qualifies as "performance-based compensation," is exempt +from this limitation. In order to qualify as performance-based compensation, among other conditions, the stockholders must re-approve the material terms of the performance goals every five +years. The Plan was last approved by our stockholders in May 2006. We are not seeking approval for any changes to the Plan and re-approval of the Plan will not increase the number of +shares under the Plan or otherwise represent an enhancement to executive compensation. +The +Plan has been filed as Appendix A to the Company's Definitive Proxy Statement dated April 21, 2006 and the First Amendment to the Plan has been filed as +Appendix A to the Company's Definitive Proxy Statement dated April 9, 2007 and both are available on the SEC's Web site ( www.sec.gov ) or +by written request to the Company. +The +Board of Directors initially adopted the Plan on March 27, 2006 to replace the Deckers Outdoor Corporation 1993 Employee Stock Incentive Plan, and the Plan was subsequently +approved by the stockholders at the 2006 Annual Meeting of Stockholders. The Board of Directors adopted an amendment to the 2006 Plan (the "Amendment"), and the Amendment was subsequently approved by +the stockholders at the 2007 Annual Meeting of Stockholders. +The +Board of Directors believes that the continued growth of the Company depends, in large part, upon its ability to attract and motivate key employees and directors, and that stock +incentive awards are an important means of attracting, retaining and motivating talented personnel. The Board approved the Plan because it believes that the best means for aligning the interests of +employees and stockholders is through equity incentives and encouraging ownership in the Company by its employees and directors. +Description of the Plan +The following summary of the Plan is qualified by reference to the complete text of the 2006 Plan and the Amendment. +Background and Purpose. The primary purpose of the 2006 Plan is to encourage ownership in our Company by key personnel, whose long-term +service is considered essential to our continued progress, thereby linking these employees' interests directly to stockholder interests through increased stock ownership. +Eligible Participants. Awards may be granted under the 2006 Plan to any of our employees, directors, or consultants or those of our +affiliates, +except that an incentive stock option may only be granted to a person who, at the time of the grant, is an employee of us or a related corporation. As of the Record Date, all employees and +non-employee directors were eligible to participate. +Number of Shares of Common Stock Available. A total of 6,000,000 shares of our Common Stock are reserved for issuance under the 2006 +Plan. The +maximum aggregate number of shares that may be issued under the 2006 Plan through the exercise of incentive stock options is 4,500,000. If an award is cancelled, terminates, expires, or lapses for any +reason without having been fully exercised or vested, or +50 +is +settled for less than the full number of shares of Common Stock represented by such award actually being issued, the unvested, cancelled, or unissued shares of Common Stock generally are returned +to +the available pool of shares reserved for issuance under the 2006 Plan. Under the currently effective 2006 Plan, if we experience a stock dividend, reorganization, or other change in our capital +structure, the administrator shall adjust the number of shares available for issuance under the 2006 Plan and any outstanding awards as appropriate to reflect the stock dividend or other change. The +share number limitations included in the 2006 Plan are also adjusted appropriately upon such event. +Administration of the 2006 Plan. The 2006 Plan is administered by the Board or the Compensation and Management Development Committee of +the Board. In +the case of awards intended to qualify as "performance-based-compensation" excludable from the deduction limitation under Section 162(m) of the Code, the 2006 Plan requires that the committee +administering the 2006 Plan consist of two or more "outside directors" within the meaning of Section 162(m). The 2006 Plan further requires that any discretionary awards under the 2006 Plan to +the non-employee directors be administered by an independent committee of the Board. +The +administrator has the authority to, among other things, select the individuals to whom awards will be granted and to determine the type of award to grant; determine the terms of the +awards, including the exercise price, the number of shares subject to each award, the exercisability of the awards, and the form of consideration payable upon exercise; to provide for a right to +dividends or dividend equivalents (that are not conditioned on exercise); and to interpret the 2006 Plan and adopt rules and procedures relating to administration of the 2006 Plan. Except to the +extent prohibited by any applicable law, the administrator may delegate to one or more individuals the day-to-day administration of the 2006 Plan. +Award Types +Options. A stock option is the right to purchase shares of our Common Stock at a fixed exercise price for a fixed period. An option +under the 2006 +Plan may be an incentive stock option or a nonstatutory stock option. The exercise price of an option granted under the 2006 Plan must be at least equal to the fair market value of our Common Stock on +the date of grant. In addition, the exercise price for any incentive stock option granted to any employee owning more than 10% of our Common Stock may not be less than 110% of the fair market value of +our Common Stock on the date of grant. +Unless +the administrator determines to use another method, the fair market value of our Common Stock on the date of grant will be determined as the closing price for our Common Stock on +the date the option is granted (or if no sales are reported that day, the last preceding day on which a sale +occurred), using a reporting source selected by the administrator. The administrator determines the acceptable form of consideration for exercising an option, including the method of payment, either +through the terms of the option agreement or at the time of exercise of an option, provided that consideration must have a value of not less than the par value of the shares to be issued and must be +actually received before issuing any shares. The 2006 Plan permits payment in the form of cash, check or wire transfer, other shares of Common Stock of the Company, cashless exercises, any other form +of consideration and method of payment permitted by applicable laws, or any combination thereof. +An +option granted under the 2006 Plan generally cannot be exercised until it becomes vested. The administrator establishes the vesting schedule of each option at the time of grant and +the option will expire at the times established by the administrator. After termination of the optionee's service, he or she may exercise his or her option for the period stated in the option +agreement, to the extent the option is vested on the date of termination. If termination is due to death or disability, the option generally will remain exercisable for twelve months following such +termination. In all other cases, the option generally will remain exercisable for three months. However, an option may never be exercised later than the expiration of its term. Under the currently +effective 2006 Plan, the term of any stock +51 +option +may not exceed ten years, except that with respect to any participant who owns 10% or more of the voting power of all classes of our outstanding capital stock, the term for incentive stock +options must not exceed five years. The 2006 Plan authorizes the Compensation Committee to provide for awards or grants under the 2006 Plan, other than incentive stock options, with a term longer than +ten years, notwithstanding the earlier termination or expiration of the 2006 Plan. +Stock Awards. Stock awards are awards or issuances of shares of our Common Stock that vest in accordance with terms and conditions +established by the +administrator. Stock awards include stock units, which are bookkeeping entries representing an amount equivalent to the fair market value of a share of Common Stock, payable in cash, property, or +other shares of stock. The administrator may determine the number of shares to be granted, and impose whatever conditions to vesting it determines to be appropriate, including performance criteria and +level of achievement versus the criteria that the administrator determines. The criteria may be based on financial performance, personal performance evaluations, and completion of service by the +participant. Unless the administrator determines otherwise, shares that do not vest typically will be subject to forfeiture or to our right of repurchase of the unvested portion of such shares at the +original price paid by the participant, which we may exercise upon the voluntary or involuntary termination of the awardee's service with us for any reason, including death or disability. +For +stock awards intended to qualify as "performance-based compensation" within the meaning of Section 162(m) of the Code, the measures established by the administrator must be +qualifying performance criteria. Qualifying performance criteria under the 2006 Plan include any of the following performance criteria, individually or in combination and measured either annually or +cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous +years' results or to a designated comparison group, in each case as specified by the Committee in the Award: +(i) cash +flow, +(ii) earnings +(including gross margin, earnings before interest and taxes, earnings before taxes, and net earnings), +(iii) earnings +per share, +(iv) growth +in earnings or earnings per share, +(v) stock +price, +(vi) return +on equity or average stockholders' equity, +(vii) total +stockholder return, +(viii) return +on capital, +(ix) return +on assets or net assets, +(x) return +on investment, +(xi) revenue, +(xii) income +or net income, +(xiii) operating +income or net operating income, +(xiv) operating +profit or net operating profit, +(xv) operating +margin, +(xvi) return +on operating revenue, +(xvii) market +share, +52 +(xviii) contract +awards or backlog, +(xix) overhead +or other expense reduction, +(xx) growth +in stockholder value relative to the moving average of the S&P 500 Index or a peer group index, +(xxi) credit +rating, +(xxii) strategic +plan development and implementation, +(xxiii) improvement +in workforce diversity and +(xxiv) EBITDA +Qualifying +performance criteria may be applied either to the Company as a whole or to a business unit, affiliate, or business segment, individually or in any combination. Qualifying +performance criteria may be measured either annually or cumulatively over a period of years, and may be measured on an absolute basis or relative to a pre-established target, to previous +years' results, or to a designated comparison group, in each case as specified by the administrator in writing in the award. All performance awards made under the 2006 Plan have a minimum one year +restriction and that all tenure based awards have a minimum three year restriction. In addition, the administrator would not have discretion to waive this additional proposed restriction, except in +the case of death or disability of the person issued the award, or in the case of a change of control of the Company. +Stock Appreciation Rights. A stock appreciation right is the right to receive the appreciation in the fair market value of our Common +Stock in an +amount equal to the difference between (a) the fair market value of a share of our Common Stock on the date of exercise, and (b) the exercise price. This amount will be paid, as +determined by the administrator, in shares of our Common Stock with equivalent value, cash, or a combination of both. The exercise price must be at least equal to the fair market value of our Common +Stock on the date of grant. Subject to these limitations, the administrator determines the exercise price, term, vesting schedule, and other terms and conditions of stock appreciation rights; except +that stock appreciation rights terminate under the same rules that apply to stock options. +Cash Awards. Cash awards confer upon the participant the opportunity to earn future cash payments tied to the level of achievement with +respect to +one or more performance criteria established by the administrator for a performance period. The administrator will establish the performance criteria and level of achievement versus these criteria, +which will determine the target and the minimum and maximum amount payable under a cash award. The criteria may be based on financial performance or personal performance evaluations, or both. Each +portion of the award will be calculated separately and the amounts calculated with respect to a particular criteria will not be affected by the amounts calculated with respect to another criteria. For +cash awards intended to qualify as "performance-based compensation" within the meaning of Section 162(m) of the Code, the measures established by the administrator must be specified in writing +and the amount payable as cash under such cash award is limited to $2.0 million. +Other Provisions of the 2006 Plan +Transferability of Awards. Unless the administrator determines otherwise, the 2006 Plan does not permit +the transfer of awards other than by beneficiary designation, will, or by the laws of descent or distribution, and only the participant may exercise an award during his or her lifetime. +Preemptive Rights. The 2006 Plan provides that no shares will be issued thereunder in violation of any preemptive rights held by any +stockholder of +the Company. +53 +Adjustments upon Merger or Change in Control. The 2006 Plan provides that in the event of a merger with or into another corporation or +our "change in +control," including the sale of all or substantially all of our assets, and certain other events, our Board or the Committee may, in its discretion, provide for the assumption or substitution of, or +adjustment to, each outstanding award; accelerate the vesting of options and stock appreciation rights, and terminate any restrictions on stock awards or cash awards; provide for the cancellation of +awards in exchange for a cash payment to the participant; or provide for the cancellation of awards that have not been exercised or redeemed as of the relevant event. +Amendment and Termination of the 2006 Plan. The administrator has the authority to amend, alter, or discontinue the 2006 Plan, subject +to the +approval of the stockholders to the extent required by applicable laws. No amendment may impair the rights of any outstanding award without the agreement of the participant. +Certain Federal Income Tax Information +The following is a general summary as of this date of the federal income tax consequences to us and to U.S. participants for awards +granted under the 2006 Plan. The federal tax laws may change and the federal, state, and local tax consequences for any participant will depend upon his or her individual circumstances. For such +reasons, the Company recommends that each participant consult his or her personal tax advisor to determine the specific tax consequences applicable to him or her. We intend, and this summary assumes, +that all awards granted under the 2006 Plan either will be exempt from or will comply with the requirements of Section 409A of the Code regarding nonqualified deferred compensation such that +its income inclusion and tax penalty provisions will not +apply to the participants. The 2006 Plan and any awards made under the 2006 Plan will be administered consistently with this intent. In any case, a participant will be solely responsible and liable +for the satisfaction of all taxes and penalties that may be imposed on a participant in connection with awards (including any taxes and penalties under Section 409A) and we will have no +obligation to indemnify or otherwise hold a participant harmless from any such taxes or penalties. +Tax Effects for Participants +Incentive Stock Options. For federal income tax purposes, an optionee does not recognize taxable income when an incentive stock option +is granted or +upon its exercise. When an incentive stock option is exercised, however, the difference between the option exercise price and the fair market value of the shares on the exercise date is an adjustment +in computing the holder's alternative minimum taxable income and may be subject to an alternative minimum tax, which is paid if such tax exceeds the optionee's regular tax for the year. +An +optionee who disposes of shares acquired by exercise of an incentive stock option more than two years after the option is granted and one year after its exercise recognizes a +long-term capital gain or loss equal to the difference between the sale price and the exercise price. A disqualifying disposition involving a sale or exchange will result in ordinary +income to the participant in an amount equal to the lesser of (i) the fair market value of the stock on the date of exercise minus the exercise price or (ii) the amount realized on +disposition minus the exercise price. If the amount realized in a disqualifying disposition exceeds the fair market value of the stock on the date of exercise, the gain realized in excess of the +amount taxed as ordinary income as indicated above will be taxed as capital gain. Any loss realized upon a disqualifying disposition will be treated as a capital loss. Capital gains and losses +resulting from disqualifying dispositions will be treated as long-term or short-term depending upon whether the shares were held for more or less than the applicable statutory +holding period (which currently is more than one year for long-term capital gains). Any ordinary income recognized in connection with a disqualifying disposition by an employee of the +Company is subject to tax withholding by us. +54 +Nonstatutory Stock Options. A participant who receives a nonstatutory stock option with an exercise price equal to or greater than the +fair market +value of the stock on the grant date generally will not realize taxable income on the grant of such option, but will realize ordinary income when he or she exercises the option, equal to the excess of +the fair market value of the shares on the date of exercise over the option exercise price. Any additional gain or loss recognized upon any later disposition of shares would be capital gain or loss. +Any taxable income recognized in connection with an option exercise by an employee or former employee of the Company is subject to tax withholding by us. +Stock Awards. A participant who receives a stock award that is not subject to a "substantial risk of forfeiture" will recognize +ordinary income at +the time of grant equal to the difference between the fair market value of the stock on the date of grant less the amount paid for the stock, if any. A restricted stock award is subject to a +"substantial risk of forfeiture" within the meaning of Section 83 of the Code to the extent the award will be forfeited if the participant ceases to provide services to us. Because of this +substantial risk of forfeiture, a participant who receives a stock award that is subject to a "substantial risk of forfeiture" will not recognize ordinary income at the time of grant, but will +recognize ordinary income on the date or dates when the stock is no longer subject to a substantial risk of forfeiture, or when the stock becomes transferable, if earlier. The participant's ordinary +income is measured as the difference between the fair market value of the stock on the date the stock is no longer subject to a substantial risk of forfeiture less the amount paid for the stock, if +any. +The +participant may accelerate his or her recognition of ordinary income, if any, and begin his or her capital gains holding period by timely filing (i.e., within thirty days of +the award) an election pursuant to Section 83(b) of the Code. In such event, the ordinary income recognized, if any, is measured as the difference between the fair market value of the stock on +the date of award less the amount paid for the stock, if any, and the capital gain holding period commences on such date. The ordinary income recognized by an employee or former employee will be +subject to tax withholding by us. If the stock award consists of stock units, no taxable income is reportable when stock units are granted to a participant or upon vesting. Upon settlement, the +participant will recognize ordinary income in an amount equal to the value of the payment received pursuant to the stock units. +Stock Appreciation Rights. No taxable income is reportable when a stock appreciation right with an exercise price equal to or greater +than the fair +market value of the stock on the date of grant is granted to a participant or upon vesting. Upon exercise, the participant will recognize ordinary income in an amount equal to the fair market value of +any shares or cash received. The ordinary income recognized by an employee or former employee will be subject to tax withholding by us. If the participant receives shares upon exercise, any additional +gain or loss recognized upon any later disposition of the shares would be capital gain or loss. +Cash Awards. Upon receipt of cash, the recipient will have taxable ordinary income, in the year of +receipt, equal to the cash received. Any cash received by an employee or former employee will be subject to tax withholding by us. +Tax Effect for Us. Unless limited by Section 162(m) or Section 280G of the Code, we generally will be entitled to a tax +deduction in +connection with an award under the 2006 Plan in an amount equal to the ordinary income realized by a participant at the time the participant recognizes such income (for example, upon the exercise of a +nonstatutory stock option). +Section 162(m) Limits. Section 162(m) of the Code places a limit of $1 million on the amount of compensation that we may +deduct +in any one year with respect to the Chief Executive Officer and each of the four other most highly paid executive officers. Certain performance-based compensation is not subject to the deduction +limit. Awards under the 2006 Plan may constitute performance-based compensation not subject to Section 162(m) of the Code. One of the requirements for equity +55 +compensation +plans is that there must be a limit to the number of shares granted to any one individual under the plan. Accordingly, the 2006 Plan provides that the maximum number of shares for which +awards may be made to any employee, in any calendar year, is 3,000,000, except that in connection with his or her initial service, an awardee may be granted awards covering up to an additional +3,000,000 shares. The maximum amount payable pursuant to that portion of a cash award granted under the 2006 Plan for any fiscal year to any employee that is intended to satisfy the requirements for +"performance-based compensation" under Section 162(m) of the Code may not exceed $2,000,000. +Section 409A. The American Jobs Creation Act of 2004 contains deferred compensation provisions added as Section 409A of the +Code. These +provisions make compensation deferred under a nonqualified deferred compensation plan taxable on a current basis (or, if later, when vested) and subject to an additional 20% tax, unless certain +requirements are met. The 2006 Plan provides that it is the Company's intent that all awards granted under the 2006 Plan will not cause an imposition of additional taxes provided by +Section 409A of the Code, and that the 2006 Plan should be administered so that such taxes are not imposed. +Section 280G Limits. Section 280G of the Code limits the amount of certain compensation payable upon a change in control of +the +Company, so-called "parachute payments." If stock options or other awards vest upon a change in control, or if other payments contingent upon such a change in control are made, the vesting +or payment may in whole or in part result in a nondeductible parachute +payment. In addition, the recipient of the parachute payment would be subject to a 20% excise tax that we would be required to withhold in addition to federal income tax. The 2006 Plan provides +discretion to the Board to provide for the vesting of awards upon a change in control. +Amendment and Termination +The administrator may amend the 2006 Plan at any time or from time to time or may terminate it, but any such amendment shall be subject +to the approval of the stockholders in the manner and to the extent required by applicable law, rules, or regulations. Nevertheless, no action by the administrator or the stockholders may alter or +impair any option or other type of award under the 2006 Plan, unless mutually agreed otherwise between the holder of the award and the administrator. The 2006 Plan will continue in effect for a term +of ten years, unless terminated earlier in accordance with the provisions of the 2006 Plan. +New Plan Benefits +The future benefits or amounts that will be granted under the 2006 Plan are subject to the discretion of the Compensation Committee +and, therefore, are not determinable at this time. In addition, the benefits and amounts that would have been received by or allocated to directors, executive officers, directors and our other +employees for the last completed fiscal year if the Amendment to the 2006 Plan had been in effect cannot be determined. As disclosed above under the heading "Compensation Discussion and +Analysis—Director Compensation," each current Nonemployee Director of the Company presently receives as part of his or her annual retainer, a quarterly award under the 2006 Plan of $31,250 +worth of our Common Stock. +Vote Required +Approval of the material terms of the performance goals in the 2006 Plan pursuant to Section 162(m) of the Code requires the +affirmative vote of a majority of the shares present in person or represented by Proxy at the Annual Meeting and entitled to vote. +A +requirement of Section 162(m) of the Code is that the 2006 Plan's performance goals be approved at least once every five years to maintain tax deductibility of awards made under +the 2006 Plan. The Stock Plan was last approved at our 2006 Annual Meeting of Stockholders. This means that +56 +in +our view, if Proposal No. 3 is not approved with respect to the 2006 Plan, we risk losing the tax advantages of Section 162(m) of the Code with respect to the 2006 Plan. An +affirmative vote of a majority of the shares present in person or represented by Proxy at the Annual Meeting and entitled to vote for Proposal No. 3 is expected to extend compliance with +Section 162(m) of the Code until May 2016. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE +"FOR" PROPOSAL NO. 3 TO RE-APPROVE THE MATERIAL TERMS OF THE PERFORMANCE +GOALS UNDER THE DECKERS 2006 EQUITY INCENTIVE PLAN. +57 +PROPOSAL NO. 4 +ADVISORY VOTE ON EXECUTIVE COMPENSATION +We are asking our stockholders to approve an advisory resolution on the Company's executive compensation as reported in this proxy +statement. As described in detail in the "Compensation Discussion and Analysis" section of this proxy statement, the Compensation and Management Development Committee has structured our executive +compensation program to: +• Attract and retain key executives +• Align executives' interests with that of our stockholders +• Pay for performance +• Reward achievement of short-term and long-term goals +In +2010, we achieved a record level of over $1 billion in annual sales for the first time ever, continuing a trend of increases in revenue and diluted earnings per share every +year since 2006. We believe that our executive compensation practices have fostered such success by: +• Including reasonable vesting provisions for our equity awards +• Providing both cash and equity awards +• Establishing performance goals to reflect the individual contribution of each executive and Company-wide +performance +• Requiring achievement of long and short-term Company goals before payment of certain compensation elements +We +urge stockholders to carefully read the "Compensation Discussion and Analysis" beginning on page 16, which describes in greater detail how our executive compensation policies +and procedures operate, as well as the Summary Compensation Table and related compensation tables that follow it. The Board and the Compensation Committee believe that the compensation policies and +procedures described in this proxy statement are effective in achieving our compensation objectives. +Therefore, +in accordance with the recently adopted Section 14A of the Exchange Act, and as a matter of good corporate governance, we ask our stockholders to approve the following +advisory resolution at the 2011 Annual Meeting: +"RESOLVED, +that the Company's stockholders approve, on an advisory basis, the compensation of the Named Executive Officers, as described in the Compensation Discussion and Analysis, the +Summary Compensation Table, and the related compensation tables, notes and narrative in the Proxy Statement for the Company's 2011 Annual Meeting of Stockholders." +Because +this vote is advisory, it will not be binding upon the Board of Directors or the Compensation and Management Development Committee. However, the Compensation and Management +Development Committee will take the outcome of the vote into account when considering future executive compensation arrangements. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE +"FOR" PROPOSAL NO. 4 TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, AS DESCRIBED IN THIS PROXY STATEMENT. +58 +PROPOSAL NO. 5 +ADVISORY VOTE ON THE FREQUENCY OF FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION +Pursuant to Section 14A of the Exchange Act, we are asking our stockholders to vote on whether future advisory votes on our +Named Executive Officers' compensation program should occur every year, every two years, or every three years. +After +careful consideration, the Board of Directors believes that submitting the advisory vote on executive compensation on an annual basis is appropriate for the Company and its +stockholders at this time. We view the advisory vote on the compensation of our Named Executive Officers as an additional, but not the only, opportunity for our stockholders to communicate with us +regarding their views on our executive compensation programs. +Stockholders +may vote for "one year," "two years" or "three years," with respect to this proposal or may abstain from voting. The option of one year, two years or three years that +receives a majority of the shares present in person or represented by Proxy at the Annual Meeting and entitled to vote will +be the frequency for the advisory vote on executive compensation selected by our stockholders. In the absence of a majority of votes cast in support of any one frequency, the option of one year, two +years or three years that receives the greatest number of votes will be considered the frequency selected by our stockholders. +This +vote is advisory and not binding on the Company or our Board of Directors. The Board of Directors and Compensation Committee will take into account the outcome of the vote, however, +when considering the frequency of future advisory votes on executive compensation. Notwithstanding the Board's recommendation and the outcome of the stockholder vote, the Board may in the future +decide to conduct advisory votes on a more or less frequent basis and may vary its practice based on factors such as discussion with stockholders and the adoption of material changes to our +compensation programs. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT YOU VOTE TO CONDUCT FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION "EVERY YEAR." +STOCKHOLDER PROPOSALS FOR THE 2012 ANNUAL MEETING +Any stockholder desiring to submit a proposal for action at our 2012 Annual Meeting of Stockholders and include it in our Proxy +Statement with respect to such meeting should arrange for such proposal to be delivered to us at our principal executive offices no later than December 17, 2011, which is 120 calendar days +prior to the anniversary of the mailing date of this year's Proxy Statement, in order to be considered for possible inclusion in the Proxy Statement for that meeting. If the date of next year's Annual +Meeting is moved more than 30 days before or after the anniversary date of this year's Annual Meeting, the deadline for inclusion of proposals in our Proxy Statement for our 2012 Annual Meeting +of Stockholders is instead a reasonable time before we begin to print and mail the proxy materials for that meeting. Matters pertaining to such proposals, including the number and length thereof, +eligibility of persons entitled to have such proposals included, and other aspects, are regulated by the Securities Exchange Act of 1934, as amended, rules and regulations of the Securities and +Exchange Commission, other laws and regulations, and our Bylaws, to which interested persons should refer. You may obtain a complete copy of our Bylaws without charge by submitting a written request +to our Corporate Secretary at our principal executive office. Stockholders wishing to submit for consideration a possible Board candidate should follow the procedures set forth under "Procedures for +Stockholder Nominations." +If +a stockholder desires to bring business before the 2012 Annual Meeting of Stockholders which is not the subject of a proposal properly submitted for inclusion in the Company's Proxy +Statement, the +59 +stockholder +must follow procedures outlined in the Company's Bylaws. The Bylaws provide that a stockholder entitled to vote at the meeting may make nominations for the election of directors or may +propose that other business be brought before the meeting only if (a) such nominations or proposals are included in the Company's Proxy Statement or otherwise properly brought before the +meeting by or at the direction of the Board of Directors, or (b) the stockholder has delivered written notice to the Company (containing certain information specified in the Bylaws) not less +than 90 days prior to the date of the meeting. However, if the Company has given less than 90 days advance notice or public disclosure of the date the meeting is to be held, written +notice of a nomination or proposal to be submitted by a stockholder at the meeting will be timely if it has been received by the Company not later than the 7th day following the date on which +notice of the meeting is mailed or the meeting date is otherwise publicly disclosed. +OTHER BUSINESS OF THE ANNUAL MEETING +Management is not aware of any matters to come before the Annual Meeting or any continuation, postponement or adjournment thereof other +than the election of directors, the ratification of the selection of the Company's independent registered public accounting firm, re-approval of the material terms of the performance goals +under our 2006 Equity Incentive Plan, the advisory vote on executive compensation and the advisory vote on the frequency of future advisory votes on executive compensation. However, inasmuch as +matters of which management is not now aware may come before the Annual Meeting or any continuation, postponement or adjournment thereof, the Proxies confer discretionary authority with respect to +acting thereon, and the persons named in such Proxies intend to vote, act and consent in accordance with their best judgment with respect thereto, provided that, to the extent the Company becomes +aware a reasonable time before the Annual Meeting of any matter to come before such meeting, the Company will provide an opportunity to vote by Proxy directly on such matter. Upon receipt of such +Proxies in time for voting, the shares represented thereby will be voted as indicated thereon and as described in this Proxy Statement. +COST OF SOLICITATION +The solicitation of Proxies is made on behalf of the Company and all the expenses of soliciting Proxies from stockholders will be borne +by the Company. In addition to the solicitation of Proxies by use of the mail, officers and regular employees may communicate with stockholders personally or by mail, telephone, or otherwise for the +purpose of soliciting such Proxies, +but in such event no additional compensation will be paid to any such persons for such solicitation. The Company will reimburse banks, brokers and other nominees for their reasonable +out-of-pocket expenses in forwarding soliciting material to beneficial owners of shares held of record by such persons. The total estimated cost of the solicitation of Proxies +is approximately $72,000. +ANNUAL REPORT ON FORM 10-K +A copy of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2010 (excluding the +exhibits thereto) as filed with the SEC, accompanies this Proxy Statement, but it is not deemed to be a part of the Proxy soliciting material. The Form 10-K contains consolidated +financial statements of the Company and its subsidiaries and the report thereon of KPMG LLP, the Company's independent registered public accounting firm. +The +Company will provide a copy of the exhibits to its Form 10-K for the fiscal year ended December 31, 2010 upon the written request of any beneficial owner of +the Company's securities as of the Record Date and reimbursement of the Company's reasonable expenses. Such request should be addressed to the Secretary of the Company at the Company's corporate +offices at 495-A South Fairview Avenue, Goleta, California 93117. +60 +HOUSEHOLDING +If you are the beneficial owner, but not the record holder, of shares of Company stock, your broker, bank or other nominee may only +deliver one copy of this proxy statement and the Company's Annual Report to multiple stockholders who share an address, unless that nominee has received contrary instructions from one or more of the +stockholders. The company will deliver promptly, upon written or oral request, a separate copy of this proxy statement and its Annual Report to a stockholder at a shared address to which a single copy +of the documents was delivered. A stockholder who wishes to receive a separate copy of the proxy statement and annual report, now or in the future, should submit this request by writing to the +Secretary of the Company at the Company's corporate offices at 495-A South Fairview Avenue, Goleta, California 93117or by telephone at (805) 967-7611. Beneficial owners +sharing an address who are receiving +multiple copies of proxy materials and who wish to receive a single copy of such materials in the future should make a request directly to their broker, bank or other nominee. +Deckers' +Proxy Statement for the 2011 Annual Meeting of Stockholders and the Annual Report to Stockholders for the fiscal year ended December 31, 2010, are available at http://www.deckers.com . +BY ORDER OF THE BOARD OF DIRECTORS +/s/ ANGEL R. MARTINEZ +Angel R. Martinez +Chair of the Board, President and Chief Executive Officer +Goleta, +California +April 13, 2011 +61 +THIS PROXY CARD +IS VALID ONLY WHEN SIGNED AND DATED. KEEP THIS PORTION FOR YOUR RECORDS +DETACH AND RETURN THIS PORTION ONLY TO VOTE, MARK BLOCKS BELOW IN BLUE OR +BLACK INK AS FOLLOWS: Signature (Joint Owners) Signature [PLEASE SIGN WITHIN +BOX] Date Date To withhold authority to vote for any individual nominee(s), +mark “For All Except” and write the number(s) of the nominee(s) on the line +below. 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0000101878_1 R1.0.0.11699 For Withhold +For All All All Except The Board of Directors recommends you vote FOR the +following: 1. Election of Directors Nominees 01 Angel R. Martinez 02 Rex A. +Licklider 03 John M. Gibbons 04 John G. Perenchio 05 Maureen Conners 06 Ruth +M. Owades 07 Karyn O. Barsa 08 Michael F. Devine, III DECKERS OUTDOOR CORPORATION +495-A SOUTH FAIRVIEW AVE GOLETA, CA 93117 VOTE BY INTERNET - +www.proxyvote.com Use the Internet to transmit your voting instructions and +for electronic delivery of information up until 11:59 P.M. Eastern Time on +May 30, 2011. Have your proxy card in hand when you access the web site and +follow the instructions to obtain your records and to create an electronic +voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you +would like to reduce the costs incurred by our company in mailing proxy +materials, you can consent to receiving all future proxy statements, proxy +cards and annual reports electronically via e-mail or the Internet. To sign +up for electronic delivery, please follow the instructions above to vote +using the Internet and, when prompted, indicate that you agree to receive or +access proxy materials electronically in future years. VOTE BY PHONE - +1-800-690-6903 Use any touch-tone telephone to transmit your voting +instructions up until 11:59 P.M. Eastern Time on May 30, 2011. Have your +proxy card in hand when you call and then follow the instructions. VOTE BY +MAIL Mark, sign and date your proxy card and return it in the postage-paid +envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 +Mercedes Way, Edgewood, NY 11717. The Board of Directors recommends you vote +FOR proposals 2, 3 and 4. For Against Abstain 2. To ratify the appointment of +KPMG LLP as our independent registered public accounting firm for the year +ending December 31, 2011. 3. To re-approve the material terms of the +performance goals under our 2006 Equity Incentive Plan. 4. To approve, by +advisory vote, our executive compensation program. The Board of Directors +recommends you vote 1 YEAR on the following proposal: 1 year 2 years 3 years Abstain +5. To recommend, by advisory vote, the frequency of executive compensation +program votes. NOTE: In their discretion, the proxies are authorized to vote +upon such other business as may properly come before the meeting and any +continuations, postponements or adjournments thereof. Please sign exactly as +your name(s) appear(s) hereon. When signing as attorney, executor, +administrator, or other fiduciary, please give full title as such. Joint +owners should each sign personally. All holders must sign. If a corporation +or partnership, please sign in full corporate or partnership name, by +authorized officer. +0000101878_2 +R1.0.0.11699 Important Notice Regarding the Availability of Proxy Materials +for the Annual Meeting: The Notice & Proxy Statement, Annual Report is/ are available at www.proxyvote.com. +DECKERS OUTDOOR CORPORATION Annual Meeting of +Stockholders May 31, 2011 3:00 PM This proxy is solicited by the Board of +Directors of Deckers Outdoor Corporation The undersigned hereby appoints +Zohar Ziv and Thomas A. George, and each of them, with power to act without +the other and with power of substitution, as proxies and attorneys-in-fact +and hereby authorizes them to represent and vote, as provided on the other +side, all the shares of Common Stock of Deckers Outdoor Corporation which the +undersigned is entitled to vote and, in their discretion, to vote upon such +other business as may properly come before the 2011 Annual Meeting of +Stockholders to be held on May 31, 2011 and any continuations, postponements +or adjournments thereof, with all powers which the undersigned would possess +if present at the Meeting. This proxy card, when properly executed, will be +voted in the manner directed herein by the undersigned. If no direction is +made but the card is signed, this proxy card will be voted for the election +of all nominees under proposal 1, for proposal 2, for proposal 3, for +proposal 4, for "every year" for proposal 5, and in the discretion +of the proxies with respect to such other business as may properly come +before the meeting. At the date the Proxy Statement went to press, we did not +anticipate any other matters would be raised at the Annual Meeting. Continued +and to be signed on reverse side +QuickLinks +2011 Proxy Summary +PROPOSAL NO. 1 ELECTION OF DIRECTORS +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF THE ABOVE NOMINEES FOR DIRECTOR. +CORPORATE GOVERNANCE +EXECUTIVE OFFICERS +COMPENSATION DISCUSSION AND ANALYSIS +CEO's 2010 Guaranteed Pay vs. At-Risk Pay +COMPENSATION COMMITTEE REPORT +SUMMARY COMPENSATION TABLE +GRANTS OF PLAN BASED AWARDS IN 2010 +OUTSTANDING EQUITY AWARDS AT 2010 FISCAL YEAR END +2010 OPTION EXERCISES AND STOCK VESTED +NONQUALIFIED DEFERRED COMPENSATION +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL +DIRECTOR COMPENSATION +EQUITY COMPENSATION PLAN INFORMATION +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +REPORT OF THE AUDIT COMMITTEE +PROPOSAL NO. 2 RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +PROPOSAL NO. 3 PROPOSAL TO RE-APPROVE THE MATERIAL TERMS OF THE PERFORMANCE GOALS UNDER THE DECKERS 2006 EQUITY INCENTIVE PLAN +PROPOSAL NO. 4 ADVISORY VOTE ON EXECUTIVE COMPENSATION +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" PROPOSAL NO. 4 TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, AS DESCRIBED IN THIS PROXY STATEMENT. +PROPOSAL NO. 5 ADVISORY VOTE ON THE FREQUENCY OF FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT YOU VOTE TO CONDUCT FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION "EVERY YEAR." +STOCKHOLDER PROPOSALS FOR THE 2012 ANNUAL MEETING +OTHER BUSINESS OF THE ANNUAL MEETING +COST OF SOLICITATION +ANNUAL REPORT ON FORM 10-K +HOUSEHOLDING \ No newline at end of file diff --git a/raw/proxies/0000910521/0001047469-11-003605/proxy_rpt.txt b/raw/proxies/0000910521/0001047469-11-003605/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..b3eec52b50f39d47d9ae6bf15401e442338fd4aa --- /dev/null +++ b/raw/proxies/0000910521/0001047469-11-003605/proxy_rpt.txt @@ -0,0 +1,30 @@ +Certain Relationships and Related Person Transactions +The legal department is primarily responsible for identifying and reviewing relationships and transactions in which the Company and our +directors, executive officers, certain of our stockholders or their immediate family members are participants to determine whether any of these related persons had or will have a direct or indirect +material interest. In order to identify potential related person transactions, the Company's legal department annually prepares and distributes to all directors and executive officers a written +questionnaire which includes questions intended to elicit information about any related person transactions. In addition, the Company's Code of Business Conduct and Ethics addresses conflicts of +interest where an individual's private interests interfere or conflict with the interests of the Company, including relationships with suppliers, customers or competitors. Conflicts of interest which +might impair or appear to impair the exercise of judgment solely for the benefit of the Company are prohibited. In general, such conflicts must be approved by the legal department, the employee's +supervisor or, in the case of directors, the Audit Committee. Information regarding potential conflicts of interests in violation of the Company's Code of Business Conduct and Ethics may be reported +to the Company's anonymous reporting hotline and may be +subsequently obtained by the Audit Committee Chair, the Chair of the Board and the Chief Audit Executive. +If +a related person transaction is identified by the legal department as one which must be reported in the Company's Proxy Statement pursuant to applicable Securities and Exchange +Commission regulations, our Audit Committee is responsible for reviewing and approving or ratifying any such related person transactions. In evaluating related person transactions, our Audit Committee +members apply the same standards of good faith and fiduciary duty they apply to their general responsibilities as the Audit Committee and as individual directors. The Audit Committee may approve a +related person transaction when, in its good faith judgment, the transaction is in the best interests of the Company. +There +were no disclosable transactions with related persons under Item 404 of Regulation S-K during the fiscal year ended December 31, 2010 nor are any +such transactions currently proposed. +Limitation of Liability and Indemnification of Directors and Officers +Our Certificate of Incorporation and Bylaws provide that we shall indemnify directors and executive officers to the fullest extent now +or hereafter permitted by the Delaware General Corporation Law (the "DGCL"). In addition, we have entered into Indemnification Agreements with our directors and executive officers in +which we agree to indemnify such persons to the fullest extent now or hereafter permitted by the DGCL. +We +have obtained a liability policy for our directors and officers as permitted by the DGCL which extends to, among other things, liability arising under the Securities Act of 1933, as +amended. +46 +We +maintain an insurance policy pursuant to which our directors and officers are insured, within the limits and subject to the limitations of the policy, against specified expenses in +connection with the defense of claims, actions, suits or proceedings, and liabilities which might be imposed as a result of such claims, actions, suits or proceedings, that may be brought against them +by reason of their being or having been directors or officers. \ No newline at end of file diff --git a/raw/proxies/0000910521/0001047469-13-003524/proxy.txt b/raw/proxies/0000910521/0001047469-13-003524/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..35fd272ee977d86b365659e52582ad086be32fc5 --- /dev/null +++ b/raw/proxies/0000910521/0001047469-13-003524/proxy.txt @@ -0,0 +1,3644 @@ +DEF 14A +1 +a2213991zdef14a.htm +DEF 14A +QuickLinks +-- Click here to rapidly navigate through this document +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy +Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material under §240.14a-12 +Deckers Outdoor Corporation +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +March 28, +2013 +Dear +Stockholder: +We +cordially invite you to attend our 2013 Annual Meeting of Stockholders to be held at 3:00 p.m., local time, on Wednesday, May 8, 2013 at our corporate headquarters +located at 495-A South Fairview Avenue Goleta, California 93117. +We +have elected to provide access to our proxy materials over the Internet under the Securities and Exchange Commission's "notice and access" rules. These rules allow us to make our +stockholders aware of the availability of our proxy materials by sending a Notice of Internet Availability of Proxy Materials, which provides instructions for how to access the full set of proxy +materials through the Internet or make a request to have printed proxy materials delivered by mail. We believe compliance with these rules will allow us to provide our stockholders with the materials +they need to make informed decisions, while lowering the costs of printing and delivering those materials and reducing the environmental impact of our Annual Meeting. +Your +vote is important. Whether or not you plan to attend the Annual Meeting, we hope you will vote as soon as possible using one of the voting methods we have provided to you. You may +vote over the Internet or, if you requested to receive printed proxy materials, by telephone or by mailing a proxy or voting instruction card. Please review the instructions on each of your voting +options described in this Proxy Statement as well as in the Notice you received in the mail. +Also, +please let us know if you plan to attend our Annual Meeting when you vote by telephone or Internet by indicating your plans when prompted or, if you requested to receive printed +proxy materials, by marking the appropriate box on the enclosed proxy card. +Thank +you for your ongoing support of Deckers Outdoor Corporation. We look forward to seeing you at our Annual Meeting. +Sincerely, +/s/ ANGEL R. MARTINEZ +Angel R. Martinez +Chair of the Board of Directors, President and Chief Executive Officer +2013 Proxy Summary +This summary highlights information contained elsewhere in this Proxy Statement. This summary does not contain +all of the information that you should consider, and you should read the entire Proxy Statement carefully before voting. +Summary Information +• +Time and +Date +3:00 p.m., May 8, 2013 +• +Location +Deckers Outdoor Corporation Corporate Headquarters +495-A South Fairview Avenue +Goleta, California 93117 +• +Record +Date +March 12, 2013 +• +Voting +Stockholders as of the record date are entitled to vote. +Meeting Agenda +• Election of nine directors +• Ratification of KPMG LLP as independent registered public accounting firm for 2013 +• Advisory vote to approve Named Executive Officer compensation +• Transact other business that may properly come before the Annual Meeting +Proposals to be Voted Upon +Proposal No. +Matter +Board Vote Recommendation +Page Reference +1 +Election of nine directors +FOR EACH DIRECTOR NOMINEE +10 +2 +Ratification of KPMG LLP as independent registered public accounting firm for 2013 +FOR +64 +3 +Advisory vote to approve Named Executive Officer compensation +FOR +66 +The +following is summary information with respect to each of the proposals to be voted on at the Annual Meeting: +Board Nominees +The following table provides summary information about each director nominee. +Name +Age +Director +Since +Occupation +Independent +Angel R. Martinez +57 +2005 +Chair of the Board of Directors, President & CEO, Deckers Outdoor Corporation +Rex A. Licklider(3) +69 +1993 +Former CEO & Vice Chair, The Sports Club Company +X +John M. Gibbons(2) +64 +2000 +Corporate Director +X +John G. Perenchio(1)(3) +57 +2005 +Owner and Co-Manager, Fearless Records, LLC and Fearmore Publishing, LLC +X +Maureen Conners(3) +66 +2006 +President, Conners Consulting +X +Karyn O. Barsa(1)(2) +51 +2008 +CEO, Coyuchi, Inc. +X +Michael F. Devine, III(2) +54 +2011 +Corporate Director +X +Lauri Shanahan(3) +50 +2011 +Corporate Director, Independent Consultant +X +James Quinn(1) +61 +2011 +Corporate Director +X +(1) Member +of Compensation and Management Development Committee +(2) Member +of Audit Committee +(3) Member +of Corporate Governance and Nominating Committee +No +director nominee who is a current director attended fewer than 75% of the meetings of the Board of Directors and meetings of any Board committee on which he or she +sits. +Each +director nominee is elected annually by a plurality of votes cast. +The +Board of Directors recommends that you vote FOR each of the director nominees named in Proposal No. 1. +Independent Registered Public Accounting Firm +As a matter of good corporate governance, we are asking our stockholders to ratify the selection of KPMG LLP as our independent +registered public accounting firm for 2013. +Approval +of the proposal requires the vote of the majority of the shares present at the Annual Meeting. +The +Board of Directors recommends that you vote FOR Proposal No. 2. +Executive Compensation Advisory Vote +We are asking our stockholders to approve, on a non-binding advisory basis, the compensation of our Named Executive +Officers as disclosed in the Compensation Discussion and Analysis section of this Proxy Statement. The following is a summary of the key elements and other features of our executive compensation +program as well as our executive compensation philosophy. +Approval +of this proposal requires the vote of a majority of the shares present at the Annual Meeting. +The +Board recommends a vote FOR the compensation of our Named Executive Officers because it believes that our compensation policies and practices are effective in achieving our goals of +paying for financial and operating performance, and aligning our executives' interests with those of our stockholders. +Executive Compensation Elements +Type +Form +Terms +Equity +• +Annual Equity Awards (Nonvested Stock Units, or "NSUs") +• +If performance goals are achieved, NSUs vest over a period of approximately three years. Because the performance goals were not achieved in 2012, no NSUs were earned. +• +Long-Term Incentive Equity Awards—Level 1, Level 2, Level 3, and 2012 LTIP (includes Restricted Stock Units, or "RSUs" and Stock Appreciation Rights, or "SARs") +• +RSUs and SARs have performance periods (five years for Level 1, ten years for Level 2, four years for Level 3 and 2012 LTIP) with two objective Company performance measures +Cash +• +Salary +• +Increases must be approved by Compensation Committee +• +Annual Cash Incentive Plan Awards +• +Based on quantitative and qualitative goals. +• +Incentive plan awards not guaranteed; determined by Compensation Committee based on achievement of Company financial goals, and individual performance goals. +Other +• +Benefits +• +Generally, benefits provided to our US-based executives mirror those provided to all employees +Other Key Compensation Features +• Despite record revenue results, because certain financial goals were not achieved, we did not make payments under our 2012 +Annual Cash Incentive Plan with respect to Company performance goals. However, due to the achievement of important strategic goals, we made payments under our 2012 Annual Cash Incentive Plan for +achievement of individual goals. +• Because certain financial goals were not achieved, the 2012 Annual Equity Awards were not earned. +• No tax gross-ups as a result of termination following a change of control +• Prohibit hedging and speculative transactions with respect to our stock +• Stock ownership guidelines for our Named Executive Officers and directors +• "Double Trigger" event required for severance benefits upon a change in control +• Annual equity awards granted in 2011 and 2012 are subject to a Clawback Policy provision subjecting these awards to a +Clawback Policy. In December 2012, the Board of Directors adopted a Clawback Policy. +2012 Compensation Philosophy +The compensation for our Named Executive Officers is tied to Company performance. Each year for the past ten years, our annual revenue +has steadily increased and this year we experienced our first annual earnings per share decline after five years of earnings per share growth. Throughout this period of time, we believe that our +executive team has provided both leadership and strategic vision. +During +fiscal 2012, we experienced increased cost pressures from a dramatic spike in sheepskin prices, battled macroeconomic headwinds in Europe, and dealt with another year of record +warm temperatures. With all these challenges, we still achieved a record $1.414 billion in net sales, a 2.7% increase over the prior year. Furthermore, our executive team successfully +implemented strategic goals that we believe will contribute to our long-term success. These achievements include improving our product lines, refining our operational capabilities, +focusing on significant growth opportunities, and continuing to build our team of talented and passionate employees. +Despite +our record revenue results, because certain financial goals were not achieved, our Named Executive Officers did not receive payments under our 2012 Annual Cash Incentive Plan +with respect to the achievement of Company performance goals. However, due to significant achievements with +respect to our strategic goals, our Named Executive Officers did receive payments under our 2012 Annual Cash Incentive Plan for the achievement of individual goals. We believe that this outcome +provides a clear indication of our pay-for-performance philosophy. +2014 Annual Meeting +• Deadline for Stockholder Proposals is November 29, 2013. +495-A South Fairview Avenue, +Goleta, California 93117 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD MAY 8, 2013 +TO THE STOCKHOLDERS OF +DECKERS OUTDOOR CORPORATION: +Notice +is hereby given that the Annual Meeting of Stockholders of Deckers Outdoor Corporation, a Delaware corporation, will be held at Deckers' corporate headquarters located at +495-A South Fairview Avenue, Goleta, California 93117, on Wednesday, May 8, 2013, beginning at 3:00 p.m., local time. The Annual Meeting will be held for the following +purposes: +1. Election of Directors. To elect nine directors to serve until our Annual Meeting of +Stockholders to be held in 2014, or until their successors are elected and duly qualified. +2. Ratification of Appointment of Independent Registered Public Accounting Firm. To +ratify the selection of KPMG LLP as our independent registered public accounting firm for the year ending December 31, 2013. +3. Advisory Vote to Approve Named Executive Officer Compensation. To approve, by a +non-binding advisory vote, the compensation of our Named Executive Officers, as disclosed in the Compensation Discussion and Analysis section of the Proxy Statement. +4. Other Business. To consider and act upon such other business as may properly come +before the Annual Meeting or any postponements or adjournments thereof. +The +Board of Directors recommends that you vote FOR each of the director nominees named in Proposal 1 and FOR Proposals 2 and 3. +The +Board of Directors has fixed the close of business on March 12, 2013 as the record date for determining stockholders entitled to notice of and to vote at the Annual Meeting +and any postponements or adjournments thereof. Only stockholders of record at the close of business on the record date are entitled to such notice and to vote, in person or by proxy, at the Annual +Meeting. +Your vote is very important. Whether or not you plan to attend the Annual Meeting, we encourage you to read this Proxy Statement and submit your proxy or voting +instructions as soon as possible. For specific instructions on how to vote your shares, please refer to the instructions on the Notice of Internet Availability of Proxy Materials you received in the +mail, the section entitled "How Can I Vote +My Shares" in this Proxy Statement or, if you requested to receive printed proxy materials, your enclosed proxy card. +BY ORDER OF THE BOARD OF +DIRECTORS +/s/ ANGEL R. MARTINEZ +Angel R. Martinez +Chair of the Board of Directors, President and +Chief Executive Officer +Goleta, +California +March 28, 2013 +Approximate +Date of Mailing of Notice of Internet Availability of Proxy Materials: March 28, 2013 +495-A South Fairview Avenue +Goleta, California 93117 +ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD MAY 8, 2013 +PROXY STATEMENT +GENERAL INFORMATION +The enclosed Proxy Statement is solicited on behalf of the Board of Directors of Deckers Outdoor Corporation, which we refer to as "the Company," "we," "us," or +"our," for use at the Company's Annual Meeting of Stockholders to be held on May 8, 2013 at 3:00 p.m., local time, or the Annual Meeting, or at any postponements or adjournments thereof. +The Annual Meeting is being held for the purposes described in this Proxy Statement and in the accompanying Notice of Annual Meeting of Stockholders. +QUESTIONS AND ANSWERS ABOUT THE 2013 ANNUAL MEETING AND VOTING +The following questions and answers are intended to briefly address potential questions that our stockholders +may have regarding this Proxy Statement and the Annual Meeting. They are also intended to provide our stockholders with certain information that is required to be provided under the rules and +regulations of the Securities and Exchange Commission, or the SEC. These questions and answers may not address all of the questions that are important to you as a stockholder. If you have additional +questions about the Proxy Statement or the Annual Meeting, please see "Whom shall I contact with other questions?". +Q: What is the purpose of the Annual Meeting? +A: At the Annual Meeting, our stockholders will be asked to consider and vote upon the matters described in this +Proxy Statement and in the accompanying Notice of Annual Meeting of Stockholders, and any other matters that properly come before the Annual Meeting. +Q: When and where will the Annual Meeting be held? +A: You are invited to attend the Annual Meeting on May 8, 2013, beginning at 3:00 p.m., local +time. The Annual Meeting will be held at our corporate headquarters, located at 495-A South Fairview Avenue, Goleta, California 93117. +Q: Why did I receive these proxy materials? +A: We are providing these proxy materials in connection with the solicitation by the Board of Directors of the +Company of proxies to be voted at the Annual Meeting, and at any adjournment or postponement thereof. This Proxy Statement contains important information for you to consider when deciding how to vote +on the matters brought before the Annual Meeting. You are invited to attend the Annual Meeting in person to vote on the proposals described in this Proxy Statement. However, you do not need to attend +the Annual Meeting to vote your shares. Instead, you may vote your shares using one of the other voting methods described in this Proxy Statement. Whether or not you expect to attend the Annual +Meeting, please vote your shares as soon as possible in +1 +order +to ensure your representation at the Annual Meeting and to minimize the cost to the Company of proxy solicitation. +Q: Why did I receive a notice in the mail regarding the Internet availability of proxy +materials? +A: Instead of mailing printed copies to each of our stockholders, we have elected to provide access to our proxy +materials over the Internet under the SEC's "notice and access" rules. These rules allow us to make our stockholders aware of the Annual Meeting and the availability of our proxy materials by sending +a Notice of Internet Availability of Proxy Materials, or a Notice, which provides instructions for how to access the full set of proxy materials through the Internet or make a request to have printed +proxy materials delivered by mail. Accordingly, on or about March 28, 2013, we mailed a Notice to each of our stockholders. The Notice contains instructions on how to access our proxy +materials, including our Proxy Statement and our Annual Report, each of which are available at www.proxyvote.com . The Notice also provides instructions +on how to vote your shares through the Internet or by telephone. +Q: What is the purpose of complying with the SEC's "notice and access" +rules? +A: We believe compliance with the SEC's "notice and access" rules will allow us to provide our stockholders with +the materials they need to make informed decisions, while lowering the costs of printing and delivering those materials and reducing the environmental impact of our Annual Meeting. However, if you +would prefer to receive printed proxy materials, please follow the instructions included in the Notice. If you have previously elected to receive our proxy materials electronically, you will continue +to receive these materials via e-mail unless you elect otherwise. +Q: What am I being asked to vote upon at the Annual Meeting? +A: At the Annual Meeting, you will be asked to: +• Vote on the election of nine director nominees to serve until the Annual Meeting of Stockholders to be held in 2014, or +until their successors are elected and duly qualified (Proposal No. 1); +• Ratify the selection of KPMG LLP as our independent registered public accounting firm for the year ending +December 31, 2013 (Proposal No. 2); +• Vote upon a proposal to approve, on a non-binding advisory basis, the compensation of our Named Executive +Officers, as disclosed in the Compensation Discussion and Analysis section of this Proxy Statement (Proposal No. 3); and +• Act upon such other matters as may properly come before the Annual Meeting or any postponement or adjournment thereof. +Q: Does the Board of Directors recommend voting in favor of the +proposals? +A: Yes. The Board of Directors unanimously recommends that you vote your shares "FOR" each of the nine director +nominees, "FOR" the ratification of the selection of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2013, and "FOR" the approval, +on a non-binding advisory basis, of the compensation of our Named Executive Officers. +2 +Q: What are the voting requirements to approve the proposals? +A: The voting requirements to approve each of the proposals to be voted upon at the Annual Meeting are as +follows: +• Election of Directors (Proposal No. 1) —Directors will +be elected by a plurality of the votes cast, so the nine director nominees who receive the most votes will be elected. Abstentions and broker non-votes will not be taken into account in +determining the election of directors. Under the rules applicable to brokers, brokers no longer possess discretionary authority to vote shares with respect to the election of the directors. +Accordingly, "broker non-votes" will result for this proposal if brokers do not receive instructions from beneficial owners of our shares. Please see " What happens +if I do not vote? " below for a discussion of "broker non-votes." +• Ratification of Selection of Accounting Firm (Proposal +No. 2) —Ratification of the selection of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, +2013 will require the affirmative vote of a majority of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote on the matter (assuming that a quorum is +present). Abstentions will have the same effect as votes against the proposal. Because the ratification of the independent registered public accounting firm is a matter on which brokers have the +discretion to vote, "broker non-votes" will not result for this proposal. +• Advisory Vote on Executive Compensation (Proposal +No. 3) —Approval of the non-binding advisory resolution regarding the compensation of our Named Executive Officers will require the affirmative +vote of a majority of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote on the matter (assuming that a quorum is present). Abstentions will have the same +effect as votes against the proposal. "Broker non-votes" will not be counted for any purpose in determining whether this proposal has been approved. +Q: What happens if I do not vote? +A: The following is a brief explanation of the effect that a decision not to vote shares will have on the +proposals at the Annual Meeting: +• Abstentions: You may withhold authority to vote for one or +more nominees for director and may abstain from voting on one or more of the other matters to be voted on at the Annual Meeting. Shares for which authority is withheld or that a stockholder abstains +from voting will be counted for purposes of determining whether a quorum is present at the Annual Meeting. Shares for which authority is withheld will have no effect on the voting for the election of +directors (which requires a plurality of the votes cast). Shares that a stockholder abstains from voting will be included in the total number of votes cast on the particular matter, and will have the +same effect as a vote "AGAINST" Proposal No. 2 and Proposal No. 3 (each of which require the affirmative vote of a majority of the shares present in person or represented by proxy at the +Annual Meeting). +• Broker Non-Votes. "Broker +non-votes" are shares held by a bank, broker, dealer or other nominee that are represented at the Annual Meeting, but with respect to which the nominee holding those shares (i) has +not received instructions from the beneficial owner of the shares to vote on the particular proposal, and (ii) does not have discretionary voting power with respect to the particular proposal. +Whether a nominee has authority to vote shares that it holds is determined by stock exchange rules. Nominees holding shares of record for beneficial owners generally are entitled to exercise their +discretion to vote on Proposal No. 2, but do not have the discretion to vote on Proposal No. 1 or Proposal No. 3 unless they receive other instructions from the beneficial owners +of the shares. Please see " Who can vote at the Annual Meeting? " below for a discussion of beneficial ownership. +3 +Broker +non-votes will be counted for purposes of determining the presence or absence of a quorum at the Annual Meeting, but will not be counted for purposes of determining the number of +shares represented and voting with respect to a proposal. +Q: Who can vote at the Annual Meeting? +Only +our stockholders of record at the close of business on March 12, 2013, the Record Date, will be entitled to vote at the Annual Meeting. On the Record Date, there were 34,402,376 shares of +our common stock outstanding and entitled to vote. Each share of common stock issued and outstanding on the Record Date is entitled to one vote on any matter presented for consideration and action by +our stockholders at the Annual Meeting. +Holders of Record +If, +on the Record Date, your shares were registered directly in your name with our transfer agent, Computershare, then you are a "holder of record." As a "holder of record," you may vote in person at +the Annual Meeting or vote by proxy. Whether or not you plan to attend the Annual Meeting, we urge you to vote your shares using one of the voting methods described in this Proxy Statement and the +Notice. +Beneficial Owners +If, +on the Record Date, your shares were held in an account at a bank, broker, dealer, or other nominee, then you are the "beneficial owner" of shares held in "street name" and this Proxy Statement is +being forwarded to you by that nominee. The nominee holding your account is considered the "holder of record" for purposes of voting at the Annual Meeting. As a beneficial owner, you have the right to +direct your nominee on how to vote the shares in your account. You are also invited to attend the Annual Meeting. However, since you are not the "holder of record," you may not vote your shares in +person at the Annual Meeting unless you request and obtain a valid proxy from your nominee. Please contact your nominee directly for additional information. +Q: What is the quorum requirement for the Annual Meeting? +A: The presence at the Annual Meeting, in person or by proxy, of holders of a majority of the shares of our +common stock outstanding as of the Record Date, will constitute a quorum at the Annual Meeting. We will treat shares of common stock represented by a properly voted proxy, including abstentions and +broker non-votes, as present at the Annual Meeting for the purposes of determining the existence of a quorum. If a quorum is not present, the Annual Meeting will be adjourned until a +quorum is obtained. +Q: How can I vote my shares? +A: Stockholders of record can vote by proxy or by attending the Annual Meeting and voting in person. If you vote +by proxy, you can vote by telephone, by Internet or by mail as described below. Zohar Ziv and Thomas A. George, the designated proxyholders, are members of the Company's management. If you are the +beneficial owner of shares held in "street name," please refer to the information forwarded by your bank, broker, dealer or other nominee to see which voting options are available to you. +• Vote by Internet. You can vote by proxy over the Internet +by following the instructions provided in the Notice. If you hold shares beneficially in "street name," you may vote by proxy over the Internet by following the instructions provided in the Notice or +the voting instruction card provided to you by your broker, bank, trustee or nominee. Internet voting is available 24 hours a day and will be accessible until 11:59 p.m. Eastern Time on +May 7, 2013 by visiting www.proxyvote.com and following the instructions. Our Internet voting procedures are designed to authenticate +stockholders by using individual control numbers, which are located on the Notice. If you vote by Internet, you do not need to return your proxy card. +4 +• Vote by Telephone. If you requested to receive printed +proxy materials, you can vote by telephone pursuant to the instructions provided on the proxy card. If you hold shares beneficially in "street name" and requested to receive printed proxy materials, +you can vote by telephone following the voting instruction card provided to you by your broker, bank, trustee or nominee. Telephone voting is available 24 hours a day and will be accessible +until 11:59 p.m. Eastern Time on May 7, 2013. If you vote by telephone, you do not need to return your proxy +card. +• Vote by Mail. If you requested to receive printed proxy +materials, you can vote by mail pursuant to the instructions provided on the proxy card. If you hold shares beneficially in "street name" and requested to receive printed proxy materials, you can vote +by mail by following the voting instruction card provided to you by your broker, bank, trustee or nominee. In order to be effective, completed proxy cards must be received by 12:00 p.m. Eastern +Time on May 8, 2013. If you choose to vote by mail, simply mark your proxy, date and sign it, and return it in the business reply envelope provided with this Proxy Statement. +• Vote at the Annual Meeting. The method you use to vote +will not limit your right to vote at the Annual Meeting if you decide to attend in person. If you hold shares beneficially in "street name," you must obtain a proxy, executed in your favor by your +bank, broker, dealer or other nominee, to be able to vote at the Annual Meeting. All shares that have been properly voted and not revoked will be voted at the Annual Meeting. If you sign and return +your proxy card but do not give voting instructions, the shares represented by that proxy will be voted as recommended by the Board of Directors. +Q: How may I attend the Annual Meeting? +A: You are entitled to attend the Annual Meeting only if you were a stockholder as of the Record Date or hold a +valid proxy for the Annual Meeting. Since seating is limited, admission to the Annual Meeting will be on a first-come, first-served basis. You should be prepared to present +government-issued photo identification for admittance, such as a passport or driver's license. If your shares are held in "street name," you also will need proof of ownership as of the Record Date to +be admitted to the Annual Meeting, such as your most recent account statement prior to the Record Date, a copy of the voting instruction card provided by your bank, broker, dealer or other nominee, or +similar evidence of ownership. Please note that for security reasons, you and your bags may be subject to search prior to your admittance to the Annual Meeting. If you do not comply with each of the +foregoing requirements, you will not be admitted to the Annual Meeting. +Q: What can I do if I change my mind after I vote my shares? +A: You may change your vote at any time before your proxy is voted at the Annual Meeting. You may change your +vote by (i) providing written notice of revocation to the Secretary of the Company at our corporate headquarters located at 495-A South Fairview Avenue, Goleta, California 93117, +(ii) by executing a subsequent proxy using any of the voting methods discussed above, or (iii) by attending the Annual Meeting and voting in person. However, simply attending the Annual +Meeting will not, by itself, revoke your proxy. If you have instructed your bank, broker, dealer or other nominee to vote your shares, you must follow directions received from your nominee to change +those instructions. Subject to any such revocation, all shares represented by properly executed proxies will be voted in accordance with the specifications on the enclosed proxy. +Q: Could other matters be decided at the Annual Meeting? +A: As of the date this Proxy Statement went to press, we did not know of any matters to be raised at the Annual +Meeting other than those referred to in this Proxy Statement. However, if any other matters are presented for consideration at the Annual Meeting including, among other things, +5 +consideration +of a motion to adjourn the Annual Meeting to another time or place in order to solicit additional proxies in favor of one or more of the proposals, the persons named as proxyholders and +acting thereunder will have discretion to vote on these matters according to their best judgment to the same extent as the person delivering the proxy would be entitled to vote. +Q: Who is paying for the cost of this proxy solicitation? +A: The solicitation of proxies is made on behalf of the Company and all the expenses of soliciting proxies from +stockholders will be borne by the Company. In addition to the solicitation of proxies by use of the mail, officers and regular employees may communicate with stockholders personally or by mail, +telephone, or otherwise for the purpose of soliciting such proxies, but in such event no additional compensation will be paid to any such persons for such solicitation. The Company will reimburse +banks, brokers and other nominees for their reasonable out-of-pocket expenses in forwarding soliciting material to beneficial owners of shares held of record by such persons. +The total estimated cost of the solicitation of proxies is approximately $110,000. +Q: What is the deadline to submit stockholder proposals for the 2014 Annual +Meeting? +A: Notice of any director nomination or other proposal that you intend to present at our 2014 Annual Meeting of +Stockholders must be delivered to our corporate headquarters located at 495-A South Fairview Avenue, Goleta, California 93117 no earlier than October 1, 2013 and no later than the +close of business on November 29, 2013. In addition, your notice must satisfy the conditions for such proposals set forth in our Bylaws, which contain requirements with respect to advance +notice of director nominations and other stockholder proposals. +Q: How can stockholders nominate a candidate for election as a +director? +A: The Company's Bylaws provide that a stockholder seeking to nominate a candidate for election as director at +an annual meeting of stockholders must provide timely advance written notice. To be timely, a stockholder's notice generally must be received at our principal executive office on or before the date +90 days prior to the scheduled date of the annual meeting or, if it is a later date, on or before the date seven days after the Company first publishes notice of the annual meeting. +Under +our Bylaws, a stockholder's notice of a proposed nomination for director to be made at an annual meeting of stockholders must include the following +information: +• The name and address of the stockholder and any Stockholder Affiliate proposing to make the nomination and of the person +or persons to be nominated; +• The class and number of shares of the Company that are, directly or indirectly, beneficially owned by the stockholder or +any Stockholder Affiliate and any derivative positions held or beneficially held by the stockholder or any Stockholder Affiliate and whether and the extent to which any hedging or other transaction or +series of transactions has been entered into by or on behalf of, or any other agreement, arrangement or understanding (including, but not limited to, any derivative position, short position, or any +borrowing or lending of shares) has been made, the effect or intent of which is to mitigate loss to or manage risk or benefit of share price changes for, or to increase or decrease the voting power +of, such stockholder or any Stockholder Affiliate; +• A representation that the holder is a stockholder entitled to vote his or her shares at the annual meeting and intends to +vote his or her shares in person or by proxy for the person nominated in the notice; +• A description of all arrangements or understandings between the stockholder(s) or Stockholder Affiliate supporting the +nomination and each nominee; +6 +• Any other information concerning the proposed nominee(s) that the Company would be required to include in the Proxy +Statement if the Board of Directors made the nomination; +• The consent and commitment of the nominee(s) to serve as a director; +• For each nominee, a completed and signed questionnaire, in a form provided by the Company upon written request, with +respect to the background and qualification of such person being nominated and the background of any other person or entity on whose behalf the nomination is being made; +• For each nominee, a written representation and agreement, in the form provided by the Company upon written request, with +regards to any voting commitments, compensatory arrangements with a third party and compliance requirements applicable to directors of the Company; +• A description of all agreements, arrangements and understandings between the stockholder and Stockholder Affiliate and any +other person, including their name, in connection with the nominee; and +• Whether the stockholder or any Stockholder Affiliate intends to conduct a proxy solicitation. +For +these purposes, "Stockholder Affiliate" means any person controlling, directly or indirectly, or acting in concert with, any stockholder making the nomination; any beneficial owner of shares of +stock of the Company owned of record or beneficially by the stockholder making the nomination; and any person controlling, controlled by or under common control with the Stockholder Affiliate. The +presiding officer of the annual meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. Stockholder nominations submitted in accordance with +the requirements of the Company's Bylaws will be forwarded to the Corporate Governance and Nominating Committee. +Q: How can stockholders propose other actions for consideration at an annual meeting of +stockholders? +A: The Company's Bylaws provide that a stockholder seeking to propose actions at an annual meeting of +stockholders (other than nomination of directors) must provide timely advance written notice to the Company. To be timely, a stockholder's notice generally must be received at our principal executive +office on or before the date 90 days prior to the scheduled date of the meeting or, if it is a later date, on or before the date seven days after the Company first publishes notice of the +meeting. +Under +our Bylaws, a stockholder's notice of proposed action to be made at an annual meeting of stockholders must include the following information: +• A brief description of the business desired to be brought before the annual meeting and the reasons for conducting such +business at the meeting; +• The name and address of the stockholder proposing such business and any Stockholder Affiliate; +• The class and number of shares of the Company that are, directly or indirectly, beneficially owned by the stockholder and +any Stockholder Affiliate; +• Any derivative positions held or beneficially held by the stockholder and any Stockholder Affiliate, and whether and the +extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of, or any other agreement, arrangement or understanding (including, but not limited +to, any derivative position, short position, or any borrowing or lending of shares) has been made, the effect or intent of which is to mitigate loss to or manage risk or benefit of share price changes +for, or to increase or decrease the voting power of, such stockholder or any Stockholder Affiliate with respect to the Company's securities; +7 +• A description of all agreements, arrangements and understandings between such stockholder or any Stockholder Affiliate and +any other person or persons (including their names) in connection with the proposal of such business by such stockholder; +• Any material interest of the stockholder or any Stockholder Affiliate in such business; and +• Whether the stockholder or any Stockholder Affiliate intends to conduct a proxy solicitation. +Any +stockholder providing such notice shall promptly provide any other information that the Company may reasonably request. For these purposes, "Stockholder Affiliate" means any person controlling, +directly or indirectly, or acting in concert with, any stockholder making the proposal for action at an annual meeting; any beneficial owner of shares of stock of the Company owned of record or +beneficially by the stockholder making the proposal for action at an annual meeting; and any person controlling, controlled by or under common control with the Stockholder Affiliate. The presiding +officer of the annual meeting may refuse to acknowledge any business not brought before the meeting in compliance with the foregoing procedure. +Q: I share an address with another stockholder, and we received only one paper copy of the proxy materials. How +may I obtain an additional copy of the proxy materials? +A: We have adopted a procedure called "householding," which the SEC has approved. Under this procedure, we are +delivering a single copy of the Notice and, if applicable, this Proxy Statement and the Annual Report to multiple stockholders who share the same address unless we have received contrary instructions +from one or more of the stockholders. This procedure reduces our printing costs, mailing costs and fees. Stockholders who participate in householding will continue to be able to access and receive +separate proxy cards. Upon written or oral request, we will promptly deliver a separate copy of the Notice and, if applicable, this Proxy Statement and the Annual Report to any stockholder at a shared +address to which we delivered a single copy of any of these documents. To receive a separate copy of the Notice and, if applicable, this Proxy Statement or the Annual Report, please write or call us +at the following address and telephone number: +Deckers +Outdoor Corporation +Attn: Corporate Secretary +495-A South Fairview Avenue +Goleta, California 93117 +(805) 967-7611 +In +addition, if you are currently a stockholder sharing an address with another stockholder and wish to receive only one copy of future proxy materials for your household, please contact us using the +contact information set forth above. Stockholders who hold shares in "street name" may contact their bank, broker, dealer or other nominee to request information about householding. This Proxy +Statement and the Annual Report to Stockholders for the fiscal year ended December 31, 2012, are available at http://www.deckers.com . +8 +Q: Where can I find voting results of the Annual Meeting? +A: We will announce preliminary voting results with respect to each proposal at the Annual Meeting. In +accordance with SEC rules, final voting results will be published in a Current Report on Form 8-K within four business days following the Annual Meeting, unless final results are +not known at that time in which case preliminary voting results will be published within four business days of the Annual Meeting and final voting results will be published once they are known by the +Company. +Q: Whom should I contact with other questions? +A: If you have additional questions about this Proxy Statement or the Annual Meeting, or if you would like +additional copies of this Proxy Statement, please contact: Deckers Outdoor Corporation, 495-A South Fairview Avenue, Goleta, California 93117, Attention: Corporate Secretary, Telephone: +(805) 967-7611. +9 +ELECTION OF DIRECTORS +PROPOSAL NO. 1 +Overview +The Company's Bylaws provide for the annual election of directors. The Company's Bylaws also provide that the directors shall consist +of not less than one or more than ten members. The specific number of Board members within this range is established by the Board of Directors and is currently set at nine. There are currently nine +Board members. +At +the Annual Meeting, stockholders will be asked to elect nine directors of the Company to serve until the Company's next annual meeting of stockholders to be held in 2014 and until his +or her successor is elected and duly qualified. Proxies cannot be voted for a greater number of persons than the number of nominees named. The names and certain information concerning the persons +nominated by the Board of Directors to become directors at the Annual Meeting are set forth below. Each of the proposed nominees currently serves as a member of the Board of Directors. +Accordingly, +if all nominees for director are elected, then following the Annual Meeting, the Board of Directors will consist of nine members, and a majority of the Board of Directors +and all members of each of its standing committees will continue to be "independent" under applicable regulations as described below. +Voting Requirements +The election of directors shall be by the affirmative vote of the holders of a plurality of the shares voting in person or by proxy at +the Annual Meeting. The persons named as proxyholders in the attached proxy will vote to elect all nine director nominees named below unless contrary instructions are given in the proxy. Broker +non-votes and proxies marked "withheld" as to one or more of the nominees will result in the respective nominees receiving fewer votes. However, the number of votes otherwise received by +the nominee will not be reduced by such actions. +Although +each of the persons named below has consented to serve as a director if elected, and the Board of Directors has no reason to believe that any of the nominees named below will be +unable to serve as a director, if any nominee withdraws or otherwise becomes unavailable to serve, the Board of Directors may reduce the number of directors fixed by our Bylaws, or the proxies may be +voted for the election of such other person to the office of director as the Board of Directors may recommend in place of the nominee. +Agreements with Directors +None of the directors or nominees for director was selected pursuant to any arrangement or understanding, other than with the directors +of the Company acting within their capacity as such. There are no family relationships among directors, nominees for director or executive officers of the Company. +Director Nominations +The Corporate Governance and Nominating Committee is responsible for identifying and evaluating nominees for election to the Board of +Directors. In addition to the candidates proposed by the Board of Directors or identified by the Committee, the Committee considers candidates for director proposed by stockholders, provided such +recommendations are made in accordance with the procedures set forth in our Bylaws and described above under " How can stockholders nominate a candidate for election as a +director? ". Stockholder nominations that meet the criteria outlined below will receive the same consideration that the Committee's nominees receive. +10 +Director Qualifications +Directors are responsible for overseeing and monitoring our business consistent with their fiduciary duties to our stockholders. This +significant responsibility requires highly-skilled individuals with various qualities, attributes, and professional experience. As detailed under "Nominating Procedures and Criteria" below, the Board +of Directors believes that there are both general requirements for services as a member of the Board of Directors that are applicable to all directors and other specialized criteria that should be +represented on the Board as a whole, but not necessarily by each director. +The +names of the nominees for director and certain biographical information about them, including any public company directorships held by them over the last five years, are set forth +below. In addition, information about the specific qualifications, attributes and skills of each nominee that led to the Board's conclusion that each nominee should serve as a director of the Company +is set forth below. +Legal Proceedings with Directors +There are no legal proceedings related to any of the directors or director nominees which must be disclosed pursuant to +Item 401(f) of Regulation S-K. +Qualifications for All Directors +Essential criteria for all candidates considered by the Corporate Governance and Nominating Committee include the following: +All Director Nominees Exhibit: +• Personal and professional integrity +• Good business judgment +• Relevant experience and skills +• Ability to be an effective director in conjunction with the full Board of Directors in collectively serving the +long-term interests of the Company's stockholders +• Commitment to devoting sufficient time and energy to diligently performing their duties as a director +The +Committee considers many factors when identifying nominees for director, including diversity with respect to personal characteristics (including race and gender) as well as diversity +in the experience and skills that contribute to the Board's performance of its responsibilities in the oversight of the Company's business. However, the Committee has not adopted a formal policy with +respect to the consideration of diversity. +Specific Qualifications, Attributes, Skills and Experience to be Represented on the Board of Directors +The Nominating and Corporate Governance Committee believes that the competencies we seek in our directors should support our Company's +strategies for long-term success. Below we identify the key qualifications and skills our directors bring to the Board of Directors that we believe are important in light of our business +and strategic direction. The particular qualifications and skills that the Board of Directors considered in nominating each individual director nominee are included in the directors' individual +biographies below. +11 +Company Strategy +Qualifications, Attributes, Skills and Experience +Build niche brands into global lifestyle leaders +• +Luxury/premium +branding experience +• +Entrepreneurial +Evolve and grow our multi-channel distribution +• +Distribution/logistics expertise +• +Retail +experience +Pursue new, diverse and sophisticated marketing +• +Sales and +marketing experience +Grow our global business, involving complex financial transactions +• +High level of +financial literacy and experience +• +International +experience +• +Public company +management experience +Innovate based on our industry expertise +• +Industry +experience (footwear, apparel, accessories) +Manage risk appropriately in light of our long-term strategic goals +• +Risk oversight +experience +2013 Nominees for Director +Name +Age +Director +Since +Principal Occupation +Angel R. Martinez +57 +2005 +Chair of the Board, President and Chief Executive Officer of the Company +John M. Gibbons(2)(4) +64 +2000 +Corporate Director +Karyn O. Barsa(1)(2) +51 +2008 +Chief Executive Officer of Coyuchi, Inc. +Maureen Conners(3) +66 +2006 +President of Conners Consulting +Michael F. Devine, III(2) +54 +2011 +Corporate Director +Rex. A. Licklider(3) +69 +1993 +Former Chief Executive Officer and Vice Chair of The Sports Club Company +John G. Perenchio(1)(3) +57 +2005 +Owner, Club Ride Apparel, LLC +James Quinn(1) +61 +2011 +Corporate Director +Lauri Shanahan(3) +50 +2011 +Corporate Director, Independent Consultant +(1) Current +Member of the Compensation and Management Development Committee +(2) Current +Member of the Audit Committee +(3) Current +Member of the Corporate Governance and Nominating Committee +(4) Lead +Director +12 +Angel R. Martinez +Director Since 2005 +Age 57 +Mr. Martinez +has been President and Chief Executive Officer of the Company since April 2005. In September 2005, Mr. Martinez became a director of the Company and in May 2008, he became +Chair of the Board of Directors. Subject to his re-election as a director at the Annual Meeting, Mr. Martinez will remain Chair of the Board of Directors. Mr. Martinez has +also served as a director of Tupperware Brands Corporation (NYSE:TUP) since 1998. +Specific Qualifications, Attributes, Skills and Experience +• Industry Experience— Extensive experience in the footwear +industry, including serving as Chief Executive Officer and Vice Chair of Keen, LLC, an outdoor footwear manufacturer. Also served in a variety of positions at Reebok International Ltd. +and as Chief Executive Officer and President of The Rockport Company, a subsidiary of Reebok. +• Entrepreneurial— During his tenure at Keen, LLC, +successfully established this incipient brand for future growth. +• Sales and Marketing Experience —Served as Executive Vice +President and Chief Marketing Officer of Reebok International Ltd., a global athletic brand that creates and markets sports and lifestyle products. +• International Experience— Held key management roles at Reebok +International, Keen and the Company during periods of international expansion. +• Luxury/Premium Branding Experience —Eight years experience with +the UGG Australia brand, a premier brand in luxury and comfort footwear, handbags, apparel, and cold weather accessories. Acquired the Ralph Lauren Footwear brand, managed as a subsidiary of The +Rockport Co. +• Retail Experience and Distribution/Logistics +Experience— Owned and operated his own retail stores. While President of Rockport, oversaw retail evolution for the brand, including opening over 50 Rockport brand +stores. Involved in management of supply chain and distribution channels during his many years of industry experience. +• Public Company Management Experience— Has served as President +and Chief Executive Officer of the Company for eight years. +• Risk Oversight Experience —15 years experience as a +corporate director with risk oversight responsibilities. +John M. Gibbons +Director Since 2000 +Age 64 +Mr. Gibbons +is an independent consultant. He also serves as a director and Chair of the Audit Committee of National Technical Systems, Corp., a provider of integrated testing, certification, +quality registration and systems evaluation services, since September 2003. +Specific Qualifications, Attributes, Skills and Experience +• High Level of Financial Literacy and Experience— Currently +serves as a member of the Company's Audit Committee and previously served as Chair of the Audit Committee until 2012. In addition to the positions listed above, from June 2000 to April 2004, +Mr. Gibbons was Vice Chair of TMC Communications, Inc., a long distance, data and internet services provider, and was its +13 +Chief +Executive Officer from June 2001 to April 2003. Mr. Gibbons was also Vice Chair of Assisted Living Corporation, a national provider of assisted living services, from March 2000 to +December 2001. +• Risk Oversight Experience —Extensive experience in risk +oversight as a member and the former Chair of the Company's Audit Committee and Chair of the Audit Committee of National Technical Systems, Corp. +• Industry Experience —13-year directorship at the +Company. +• Public Company Management Experience —Previously employed by +The Sports Club Company, a developer and operator of health and fitness clubs which was previously listed on the American Stock Exchange, where he was Chief Executive Officer and a director from July +1999 to February 2000 and was President and Chief Operating Officer from January 1995 to July 1999. +• Entrepreneurial —Has served in a variety of leadership +positions for several companies during periods of expansion. +• Luxury/Premium Branding Experience —Involved in several +different capacities at The Sports Club Company, a company which markets clubs to affluent, health conscious individuals. +Karyn O. Barsa +Director Since 2008 +Age 51 +Ms. Barsa +has served as Chief Executive Officer of Coyuchi, Inc., a maker of organic cotton bedding, bath and baby products, since April 2009. From February 2008 to April 2009, she +served as President and Chief Executive Officer of Investors' Circle, a network of individual and institutional investors focused on sustainable business practices. She serves on the boards of +Coyuchi, Inc. and The Directors' Organization Ltd., and the advisory board of Embark Stores, Inc. +Specific Qualifications, Attributes, Skills and Experience +• High Level of Financial Literacy and Experience— In addition to +the Chief Executive Officer and director positions discussed above, served as Chief Financial Officer of Patagonia, Inc., a specialty outdoor apparel and equipment manufacturer. Also holds a BA +in Economics from Connecticut College and an MBA from the University of Southern California. +• Risk Oversight Experience— Serves as a member of the Audit +Committee and serves on the boards of Coyuchi, Inc. and The Directors' Organization Ltd. +• Luxury/Premium Branding Experience— In addition to serving as +Chief Executive Officer of Coyuchi, Inc., was Chief Executive Officer of Smith & Hawken, Ltd., a specialty gardening retailer between 1999 and 2001. +• Distribution/Logistics Experience— As Chief Executive Officer +of Coyuchi, Inc., gained extensive experience in management of supply chain and distribution issues. +• Entrepreneurial —Has served in a variety of leadership +positions for several companies during periods of expansion, including serving as Chief Executive Officer of Embark Stores, Inc., a start-up pet supplies retailer between May 2007 +and February 2008. +14 +Maureen Conners +Director Since 2006 +Age 66 +Ms. Conners +is President of Conners Consulting, which she founded in 1992. Conners Consulting has worked with companies such as Johnson & Johnson, Ralph Lauren Footwear, Rockport, +Hewlett Packard, Monster.com, Polaroid, Bausch and Lomb, Southcorp Wines, and Western Union Money Zap, providing a range of services including marketing and strategic planning, new product and new +business development, and global brand building. +Specific Qualifications, Attributes, Skills and Experience +• Sales and Marketing Experience —Prior to founding Conners +Consulting, held senior level marketing positions with several leading consumer companies, including Senior Vice President of Marketing, Girls Division at Mattel. Prior to that, she served as Director +of Marketing, Men's Jean's Division at Levi Strauss, and Group Marketing Manager at Gillette. Also has an MBA from the Wharton School of the University of Pennsylvania. +• Industry and Luxury/Premium Branding Experience— Experience +working with a myriad of footwear and apparel companies, including Ralph Lauren Footwear, Rockport and Levi Strauss. +• International Experience— Worked for three multi-billion dollar +global companies: Gillette, Levi Strauss and Mattel. +• Entrepreneurial— Experience owning and running her own business +as well as working with various startup companies. +• Risk Oversight Experience— Significant profit and loss +responsibility at a number of global companies. +Michael F. Devine, III +Director Since 2011 +Age 54 +Mr. Devine +retired as Senior Vice President and Chief Financial Officer from Coach, Inc. (NYSE: COH) in 2011. He currently serves as a member of the Board of Directors and Chair of the +Audit Committee of Express, Inc. (NYSE: EXPR) and FIVE Below, Inc. (NYSE: FIVE). He also serves as a member of the Board of Directors of The Talbots Inc. and Sur La +Table, Inc. From 2004 to 2007, Mr. Devine served as member of the Board of Directors and Chair of the Audit Committee of Educate (formerly NASDAQ: EEEE), a leading K-12 +education service company with solutions such as Sylvan Learning Center. Mr. Devine also previously served as a member of the Board of Directors and of the Audit Committee of +NutriSystem, Inc. (NASDAQ: NTRI). +Specific Qualifications, Attributes, Skills and Experience +• High Level of Financial Literacy and Experience— In addition to +Mr. Devine's experiences at Coach, Inc. and as a director, prior to joining Coach, served as Chief Financial Officer and Vice President-Finance of Mothers Work, Inc. from February +2000 until November 2001. From 1997 to 2000, was Chief Financial Officer of Strategic Distribution, Inc., a Nasdaq-listed industrial store operator. Previously, was Chief Financial Officer at +Industrial System Associates, Inc. from 1995 to 1997, and for the prior six years he was the Director of Finance and Distribution for McMaster-Carr Supply Co. Holds a +Bachelor of Science degree in Finance and Marketing from Boston College and an MBA in Finance from the Wharton School of the University of Pennsylvania. +15 +• Public Company Management Experience— Experience at +Coach, Inc. involved managing a public company during a period of high growth. +• Risk Oversight Experience —Eight years experience as a +corporate director with risk oversight responsibilities. +• Luxury/Premium Branding Experience— Coach, Inc. is a +leading marketer of modern classic American accessories. +• Industry Experience —In addition to experience at +Coach, Inc., has served as a director of Express, Inc., a nationally recognized specialty apparel and accessory retailer offering both women's and men's merchandise. +• Distribution/Logistics Experience and Retail +Experience— Involved in supply chain and wholesale and retail distribution channels while at Coach, Inc. +• International Experience— Involved in a global brand with +worldwide operations while at Coach, Inc. +Rex A. Licklider +Director Since 1993 +Age 69 +Mr. Licklider +served as a director, Vice Chair and Chief Executive Officer of The Sports Club Company (OTC Markets: SCYL), a developer and operator of health and fitness clubs, a company he was +involved with since 1994. Mr. Licklider served as the Chief Executive Officer of The Sports Club Company from March 2004 until October 2011 when it was acquired by Equinox, and as +Co-Chief Executive Officer of The Sports Club Company from February 2002 to March 2004. +Specific Qualifications, Attributes, Skills and Experience +• Industry Experience —20-year directorship at the +Company. +• Entrepreneurial —Has served in a variety of leadership +positions for several companies during periods of expansion. +• Luxury/Premium Branding Experience— Involved in several +different capacities at The Sports Club Company, a company which markets clubs to affluent, health conscious individuals. +• Public Company Management Experience —Served as Chief Executive +Officer for eight years of the Sports Club Company, which was previously listed on the American Stock Exchange. +• High Level of Financial Literacy and Experience— Extensive +experience as a Chief Executive Officer and director. In addition to the positions discussed above, from February 1992 to January 1993, Mr. Licklider was Chair of the Board of Directors of +Resurgens Communications Group, a long distance telecommunications company, and from 1975 until February 1992, Mr. Licklider was Chair of the Board of Directors and Chief Executive Officer of +Com Systems, Inc., a long distance telecommunications company that merged with Resurgens Communications Group in February 1992. +• Risk Oversight Experience— In addition to serving as a director +and executive officer for various companies, has served as the Company's Lead Director from 2008 to 2012. +16 +John G. Perenchio +Director Since 2005 +Age 57 +Mr. Perenchio +is a private investor. Beginning in 1999, he has held controlling interests in and is the principal manager of various music industry companies. Since late 2009, +Mr. Perenchio has been involved in Club Ride Apparel, LLC, a start-up sports apparel company in which he owns a controlling interest. Currently he holds controlling interests +in and co-manages Fearless Records, LLC, an independent rock music label distributed by Sony-BMG, and Fearmore Publishing, LLC, a music publishing company +administered by Warner/Chappell Music, Inc. +Specific Qualifications, Attributes, Skills and Experience +• Entrepreneurial— Involved in the formation of a myriad of +different successful business enterprises, from music to apparel. From 1990 to 2003, served as an executive with Chartwell Partners, LLC, a family owned boutique investment and holding company +specializing in the entertainment, media and real estate industries. +• Industry Experience— Experience in apparel and has been a +director of the Company for eight years. +• Sales and Marketing Experience— Experience with designing and +implementing marketing and sales plans in the music industry, internet retail, real estate industry and the sports apparel industry. +• Risk Oversight Experience— In addition to the director and +management experiences discussed above, from 1984 to 1990, served as in-house counsel at Triad Artists, Inc., one of the then premier talent agencies in the world, and prior to +that, from 1982 to 1984, he practiced law as an attorney in California. +• Public Company Management Experience— From 1992 to 2007, +Mr. Perenchio was a director of Univision Communications, Inc., the leading Spanish-language media company in the United States. +James Quinn +Director Since 2011 +Age 61 +Mr. Quinn +retired as president of Tiffany & Co. [NYSE: TIF] effective January 31, 2012. He was named to Tiffany's board of directors in 1995 and +served until 2008. Mr. Quinn also currently serves as a director of Mutual of America Capital Management, Inc. +Specific Qualifications, Attributes, Skills and Experience +• Public Company Management Experience— As the former president +of Tiffany & Co., oversaw retail sales in Tiffany stores in more than 50 countries, with responsibility for the company's global expansion strategy, including the significant Tiffany +presence established throughout Asia. Joined Tiffany in 1986 and held a series of significant positions including Vice Chairman prior to his appointment as president in 2003. +• Luxury/Premium Branding Experience— Tiffany & Co. +is a jeweler and specialty retailer whose principal merchandise offering is fine jewelry. +• Distribution/Logistics Experience and Retail Experience —At +Tiffany & Co., involved in supply chain and retail and other distribution channels. +17 +• International Experience— While at Tiffany & Co., +involved in a global brand with worldwide operations. +• Risk Oversight Experience —Over 15 years experience as a +corporate director with risk oversight responsibilities. +Lauri Shanahan +Director Since 2011 +Age 50 +Ms. Shanahan +is a seasoned retail executive with over 20 years of senior level experience across global, multi-channel, multi-brand enterprises and other specialty retail companies. +Ms. Shanahan is also on the board of directors of Charlotte Russe Holding, Inc., a specialty retailer of apparel and accessories with over 500 stores, and Cedar Fair Entertainment +Company, a publicly traded partnership that owns and operates multiple amusement parks. In addition, Ms. Shanahan is a principal of Maroon Peak Advisors, which provides a broad range of +advisory services in the retail and consumer products sector. +Specific Qualifications, Attributes, Skills and Experience +• Public Company Management Experience— Joined The +Gap Inc. [NYSE: GPS] in 1992 and served in numerous leadership roles including Chief Administrative Officer, Chief Legal Officer and Corporate Secretary. +• Distribution/Logistics Experience and Retail +Experience— Involved in retail and other distribution channels and supply chain while at The Gap Inc. and as a consultant. +• International Experience— Involved with global brands with +worldwide operations while at The Gap Inc. +• Industry Experience and Luxury/Premium Branding +Experience— Gained experience in footwear, apparel and accessories at The Gap Inc., Charlotte Russe and through consulting business. The Gap Inc. is a +leading global specialty retailer offering clothing, accessories, and personal care products for men, women, children, and babies under the Gap, Banana Republic, Old Navy, Piperlime, and Athleta +brands. +• Risk Oversight Experience— In addition to her other leadership +roles at The Gap Inc., Ms. Shanahan served as Chief Compliance Officer where she oversaw the global corporate risk committee as well as the governance and compliance organization. +18 +Summary of Qualifications of 2013 Nominees for Director +The table below includes the specific qualifications, attributes, skills and experience of each director that led the Board of +Directors to conclude that the director is qualified to serve on the Board of Directors. While we look to each director to be knowledgeable in each of these areas, an "X" in the chart below indicates +that the item is a specific qualification, attribute, skill or experience that the director brings to the Board of Directors. The lack of an "X" for a particular item does not +mean that the director does not possess that qualification, attribute, skill or experience. +Angel +Martinez +John +Gibbons +Karyn +Barsa +Maureen +Conners +Mike +Devine +Rex +Licklider +John +Perenchio +James +Quinn +Lauri +Shanahan +Luxury/Premium Branding Experience +X +X +X +X +X +X +X +X +Entrepreneurial +X +X +X +X +X +X +Distribution/Logistics Experience +X +X +X +X +X +Retail Experience +X +X +X +X +X +X +Sales and Marketing Experience +X +X +X +X +High Level of Financial Literacy and Experience +X +X +X +X +International Experience +X +X +X +X +X +X +Public Company Management Experience +X +X +X +X +X +X +X +X +Industry Experience (footwear, apparel, accessories) +X +X +X +X +X +X +X +X +Risk Oversight Experience +X +X +X +X +X +X +X +X +X +THE BOARD OF DIRECTORS RECOMMENDS A VOTE +"FOR" THE ELECTION OF EACH OF THE ABOVE NOMINEES FOR DIRECTOR. +19 +CORPORATE GOVERNANCE +Corporate Governance Principles +Pursuant to Delaware law and the Company's Bylaws, the Company's business, property and affairs are managed under the direction of the +Board of Directors. Thus, the Board of Directors is the ultimate decision-making body of the Company except with respect to those matters reserved to the stockholders. +The +Board of Directors selects the senior management team, which is charged with the day-to-day operations of the Company's business. Members of the Board of +Directors are kept informed of the Company's business through discussions with the Chief Executive +Officer and other senior management personnel, by reviewing materials requested by them or otherwise provided to them and by participating in meetings of the Board of Directors and its committees. +Having selected the senior management team, the Board of Directors acts as an advisor and counselor to senior management, monitors its performance and proposes or makes changes to the senior +management team when it deems necessary or appropriate. +Director Independence +The Board of Directors affirmatively determines the independence of each director and nominee for election as a director in accordance +with guidelines it has adopted, which include all elements of independence set forth in Nasdaq Listing Rule 5605(a)(2) of the NASDAQ Stock Market LLC ("Nasdaq") and applicable rules of +the SEC. The guidelines for director independence are set forth in our Corporate Governance Guidelines and are posted on our website at www.deckers.com . +These guidelines help ensure that the Board of Directors and its committees are independent from management and that the interests of the Board of Directors and management align with the interests of +the stockholders. Based on these standards, the Board of Directors has determined that each of our directors, other than Mr. Martinez, is independent (including, with respect to Audit Committee +members, the heightened independence criteria applicable to such committee members under Nasdaq and SEC independence standards). +Board of Directors Meetings +The Board of Directors held nine meetings during the year ended December 31, 2012. For the fiscal year ended December 31, +2012, each of the directors attended at least 75% of the aggregate number of meetings of the Board of Directors and meetings of the committees of the Board on which he or she served. Time is scheduled +for our independent directors to meet in an executive session at every Board meeting. As Lead Director, Mr. Gibbons presided at these executive sessions. +The +Company's Corporate Governance Guidelines states that directors are expected to attend the Company's annual meeting of stockholders. All members of the then Board of Directors +attended the Company's 2012 Annual Meeting of Stockholders. +Committees of the Board of Directors +The Board of Directors has three standing committees: an Audit Committee, a Compensation and Management Development Committee and a +Corporate Governance and Nominating Committee. The Board of Directors has determined that each of the directors serving on each of these three committees is "independent" as that term is defined under +Nasdaq Listing Rule 5605(a)(2) and applicable rules of the SEC, including the heightened independence criteria applicable to Audit Committee members. +20 +At +the date this Proxy Statement went to press, membership of the committees was as listed below. +Audit +Compensation and Management +Development +Corporate Governance and +Nominating +Michael F. Devine, III (Chair) +John G. Perenchio (Chair) +Maureen Conners (Chair) +John M. Gibbons +Karyn O. Barsa +John G. Perenchio +Karyn O. Barsa +James Quinn +Lauri Shanahan +Rex A. Licklider +Audit Committee +The Audit Committee oversees (i) management's conduct of, and the integrity of, the Company's financial reporting to any +governmental or regulatory body, stockholders, the public and any other uses of Company financial reports, (ii) the Company's systems of internal controls and procedures over financial +reporting and disclosure, (iii) the qualifications, engagement, compensation, independence and performance of the independent registered public accounting firm that shall audit the annual +financial statements of the Company, audit the effectiveness of the Company's internal controls over financial reporting, and review the quarterly financial statements, and any other registered public +accounting firm engaged to prepare or issue an audit report or to perform other audit, review or attest services for the Company, (iv) the Company's legal and regulatory compliance, +(v) the application of the Company's related person transaction policy as established by the Board of Directors, and (vi) the applications of the Company's Code of Ethics as established +by management and the Board of Directors. The Committee held eight meetings during 2012. At the date this Proxy Statement went to press, Mr. Devine was Chair of the Audit Committee, which was +comprised of Messrs. Devine and Gibbons and Ms. Barsa. The Board has determined that Mr. Devine qualifies as an "audit committee financial expert" as defined under the rules of +the SEC. All of the members of the Audit Committee meet the independence and experience requirements of the Nasdaq Listing Rules and the independence requirements of the SEC. The Audit Committee +operates under a formal charter adopted by the Board of Directors, a copy of which is available on our website at www.deckers.com . +Compensation and Management Development Committee +The Compensation and Management Development Committee (i) reviews and approves corporate goals and objectives relevant to +compensation of the executive officers, (ii) evaluates the performance of the executive officers in light of those goals and objectives, (iii) determines and approves the compensation +level of the executive officers based on this evaluation, (iv) makes recommendations to the Board of Directors with respect to incentive-compensation plans including equity-based plans, +(v) oversees and approves the management continuity planning process, (vi) reviews and evaluates the succession plans relating to the executive officers, and (vii) produces an +annual report on executive compensation for inclusion in the Company's proxy statement for the annual meeting of stockholders. The Compensation and Management Development Committee also reviews and +recommends to the Board of Directors any new compensation or retirement plans and administers the Company's 2006 Equity Incentive Plan (the "2006 Plan"). The Compensation and Management Development +Committee held nine meetings during 2012. At the date this Proxy Statement went to press, Mr. Perenchio was Chair of the Compensation and Management Development Committee, which was comprised +of Messrs. Perenchio and Quinn and Ms. Barsa. All of the members of the Compensation and Management Development Committee meet the independence requirements of all applicable Nasdaq +Listing Rules and SEC rules and regulations. The Compensation and Management Development Committee operates under a formal charter adopted by the Board of Directors, a copy of which is available on +our website at www.deckers.com . +21 +Corporate Governance and Nominating Committee +The Corporate Governance and Nominating Committee (i) develops and recommends to the Board of Directors a set of Corporate +Governance Guidelines applicable to the Company, (ii) recommends the director nominees to be selected by the Board of Directors for the next annual meeting of stockholders, +(iii) identifies individuals qualified to become directors, consistent with criteria specified in the Corporate Governance Guidelines, (iv) recommends to the directors membership of the +Committees of the Board of Directors, (v) ensures that the Company's Certificate of Incorporation and Bylaws are structured in a way that best serves the Company's practices and objectives and +recommends to the Board, as conditions dictate, that it proposes amendments to the Company's Certificate of Incorporation and Bylaws, and (vi) oversees the evaluation of the Board of Directors +and Committees of the Board of Directors. The Corporate Governance and Nominating Committee held four meetings during 2012 and communicated as frequently throughout the year as was necessary to +fulfill its duties. At the date this Proxy Statement went to press, Ms. Conners was Chair of the Corporate Governance and Nominating Committee, which was comprised of Ms. Conners, +Ms. Shanahan, Mr. Perenchio and Mr. Licklider. All of the members of the Corporate Governance and +Nominating Committee meet the independence requirements of all applicable Nasdaq Listing Rules and SEC rules and regulations. The Corporate Governance and Nominating Committee operates under a formal +charter adopted by the Board of Directors, a copy of which is available on our website at www.deckers.com . +Nominating Procedures and Criteria +Among its functions, the Corporate Governance and Nominating Committee considers and approves nominees for election to the Board of +Directors. In addition to the candidates proposed by the Board of Directors or identified by the Committee, the Committee considers candidates for director proposed by our stockholders, provided such +recommendations are made in accordance with the procedures set forth in our Bylaws and described above under " How can stockholders nominate a candidate for election as a +director? ". Stockholder nominations that meet the criteria outlined below will receive the same consideration that the committee's nominees receive. +Essential +criteria for all candidates considered by the Corporate Governance and Nominating Committee are discussed above under "Qualifications for All Directors." In evaluating +candidates for certain Board positions, the Committee also evaluates additional criteria, as discussed above under "Specific Qualifications, Attributes, Skills and Experience to be Represented on the +Board of Directors." +In +selecting nominees for the Board of Directors, the Corporate Governance and Nominating Committee evaluates the general and specialized criteria set forth above, identifying the +relevant specialized criteria prior to commencement of the recruitment process, considers previous performance if the candidate is a candidate for re-election, and considers the +candidate's ability to contribute to the success of the Company. In evaluating an existing director for re-election, the Corporate Governance and Nominating Committee considers the +existing director's Board and committee meeting attendance and performance, the length of service on the Board of Directors, experience, skills and contributions brought to the Board of Directors, and +independence. +The +Board of Directors' nominees for the Annual Meeting have been recommended by the Corporate Governance and Nominating Committee, as well as the full Board of Directors. +As +of the date this Proxy Statement went to press, our stockholders had not proposed any candidates for election at the Annual Meeting. +22 +Corporate Governance Guidelines +The Board of Directors has adopted Corporate Governance Guidelines that set forth the primary framework of governance principles +applicable to the Company. The Corporate Governance Guidelines outline the general principles regarding the role and functions of the Board of Directors including director qualifications; director +independence; Board meetings; Board committees; the Chair and Lead Director of the Board of Directors; director access to officers, employees, and independent advisers; interaction with stockholders +and other constituents; director compensation; director orientation and continuing education; adoption of stockholder rights plans; establishment of evaluation of the Chief Executive Officer and +management succession; annual Board self-evaluations; ethical expectations; and monitoring reports of irregularities. The complete copy of the Company's current Corporate Governance +Guidelines is available on our website at www.deckers.com . +Management Succession +Pursuant to our Corporate Governance Guidelines, the Compensation and Management Development Committee provides an annual report to the +Board of Directors on emergency and expected Chief Executive Officer succession planning. The Board of Directors works with the Compensation and Management Development Committee to nominate and +evaluate potential successors to the Chief Executive Officer. The Chief Executive Officer provides the Compensation and Management Development Committee with his input as to potential successors. +Board Leadership Structure and Lead Director +We have employed a leadership structure utilizing a combined Chair and Chief Executive Officer for many years and the Board of +Directors believes that this leadership structure has been effective. The combined Chair and Chief Executive Officer provides a single leader for us who is seen by our employees, customers, business +partners and stockholders as providing clear direction and strong leadership. Furthermore, the Board of Directors believes this structure facilitates +communication between the Board of Directors and our management. In light of this combined office, the Board of Directors has implemented various counterbalancing governance structures including a +Lead Director, an eight-ninths independent board, committees of the Board of Directors comprised solely of independent directors, and established governance guidelines. +In +March 2008, the Board of Directors established the position of Lead Director. In 2012, the Board of Directors elected Mr. Gibbons as the Lead Director, for a +two-year term. Pursuant to our Corporate Governance Guidelines, the Lead Director is an independent director who is selected for a two-year term by the independent directors on +the Board of Directors. The Lead Director's responsibilities include (i) coordinating the scheduling and preparation of agendas for the executive sessions of the Board and other meetings of the +Board in the absence of the Chair of the Board, (ii) chairing executive sessions of the Board and other meetings of the Board in the absence of the Chair of the Board, (iii) approving +information sent to the Board, (iv) serving as a liaison between the Chair of the Board and the other independent directors, (v) approving the meeting agendas for the Board and approving +the meeting schedules of the Board to assure that there is sufficient time for discussion of all agenda items, and (vi) if requested by major stockholders, ensuring that he or she will be +available for consultation and direct communication with such major stockholders. The Lead Director has the authority to call meetings of independent directors. +Board Role in Risk Oversight +While risk management is primarily the responsibility of our management, the Board of Directors is responsible for the overall +supervision of our risk management activities. The Board of Directors delegates many of these functions to the Audit Committee. Under its charter, the Audit Committee is +23 +responsible +for: (i) reviewing and discussing with management, the highest ranking manager of internal audit and the independent registered public accounting firm the Company's financial risk +exposures and assessing the policies and processes management has implemented to monitor and control such exposure, (ii) assisting the Board in fulfilling its oversight responsibilities +regarding our policies and processes with respect to risk assessment and risk management, including any significant non-financial risk exposures, and (iii) reviewing our annual +disclosures concerning the role of the Board in the risk oversight of the Company, such as how the Board administers its oversight function. The Audit Committee also oversees our internal audit +function. In addition to the Audit Committee's work in overseeing risk management, our full Board of Directors regularly engages in discussions of the most significant risks that we face and how these +risks are being managed, and the Board receives reports on risk management from the Chair of the Audit Committee. +Our +legal and internal audit executives report directly to the Audit Committee regarding material risks to our business, among other matters, and the Audit Committee meets in executive +sessions with the internal audit executive and with representatives of our independent registered public accounting firm. The Chair of the Audit Committee reports to the full Board of Directors +regarding material risks as deemed appropriate. Every Board meeting agenda also includes a time to discuss risk management updates. In addition to the responsibilities undertaken by the Audit +Committee, the other Board committees have oversight of specific risk areas, consistent with the committees' charters and responsibilities. For example, the Compensation and Management Development +Committee oversees the design of our executive compensation program so as to mitigate compensation-related risk and our Corporate Governance and Nominating Committee develops our Corporate Governance +Guidelines to establish appropriate governance practices. +Communications with Directors +Stockholders may communicate with the Chair of the Audit Committee, Corporate Governance and Nominating Committee, or Compensation and +Management Development Committee, or with our independent directors as a group, by writing to any such person or group c/o the Corporate Secretary, at the Company's offices at 495-A South +Fairview Avenue, Goleta, California 93117. +Communications +are distributed to the Board of Directors, or to any individual director, depending on the facts and circumstances described in the communication. In that regard, the +Board of Directors has requested that certain items that are unrelated to the duties and responsibilities of the Board of Directors should be excluded, including the following: junk mail and mass +mailings; product complaints; product inquiries; new product suggestions; resumes and other forms of job inquiries; surveys; and business solicitations or advertisements. +In +addition, material that is unduly hostile, threatening, illegal or similarly unsuitable will not be distributed, with the provision that any communication that is not distributed will +be made available to any independent director upon request. +Code of Ethics and Accounting and Finance Code of Ethics +The Company has adopted a Code of Ethics to help its officers, directors and other employees comply with the law and maintain the +highest standards of ethical conduct. The Code of Ethics contains general guidelines for conducting the business of the Company consistent with the highest standards of business ethics. All of the +Company's officers, directors and employees must +carry out their duties in accordance with the policies set forth in the Code of Ethics and with applicable laws and regulations. The Board has also adopted an Accounting and Finance Code of Ethics +which focuses on the financial reporting process and applies to the Company's CEO, CFO and Corporate Controller (and other officers serving similar functions) and is intended to qualify as a "code of +ethics" within the meaning of Section 406 of the Sarbanes-Oxey Act of 2002 and the rules promulgated thereunder. To +24 +the +extent required by law, any amendments to, or waivers from, any provision of the Code of Ethics or the Accounting and Finance Code of Ethics will be promptly disclosed publicly on our corporate +website. Both our Code of Ethics and our Accounting and Finance Code of Ethics are available on our website at www.deckers.com . +Compensation and Management Development Committee Interlocks and Insider Participation +As of the date of this Proxy Statement, the members of the Compensation and Management Development Committee consisted of +Messrs. Perenchio and Quinn and Ms. Barsa, none of whom was an officer or employee of the Company or any of its subsidiaries during fiscal year 2012 or is a former officer or employee of +the Company or any of its subsidiaries. None of these directors had any relationship with the Company during 2012 requiring disclosure under Item 404 of Regulation S-K. None +of our executive officers currently serves, or in the past year has served, as a member of the Board of Directors or compensation committee (or other committee serving a similar purpose) of any entity +that has an executive officer serving on the Board of Directors or Compensation and Management Development Committee. +25 +EXECUTIVE OFFICERS +Each executive officer of the Company serves at the discretion of the Board of Directors. Biographical information for the executive +officers of the Company as of the date this Proxy Statement went to press is set forth below. There are no family relationships between any executive officer and any other executive officer or +director. None of our executive officers were selected pursuant to any arrangement or understanding, other than with the executive officers of the Company acting within their capacity as such. There +are no legal proceedings related to any of the executive officers which must be disclosed pursuant to Item 401(f) of Regulation S-K. +Executive Officer +Age +Position +Angel R. Martinez +57 +Chair of the Board of Directors, President and Chief Executive Officer +Thomas A. George +57 +Chief Financial Officer +Zohar Ziv +60 +Chief Operating Officer +Constance X. Rishwain +54 +President of the UGG® brand +Peter K. Worley +52 +President, Asia Pacific +Stephen M. Murray +53 +President, EMEA +David Powers +46 +President, Direct to Consumer +Angel R. Martinez. The biographical summary for Mr. Martinez is presented earlier under the heading "2012 Nominees for +Director." +Thomas A. George , age 57, has been our Chief Financial Officer since September 2009. Mr. George has over 30 years of +experience in corporate finance and accounting, having served in a number of senior level positions with both public and private companies. Most recently, from February 2005 to September 2009, +Mr. George was Chief Financial Officer of Ophthonix, Inc., a private technology company. Prior to Ophthonix, from October 1997 through February 2005 Mr. George was the Chief +Financial Officer of publicly held Oakley, Inc., now a division of Luxottica Group S.p.A. (NYSE:LUX), a global consumer products brand with wholesale and retail distribution of multiple +product categories including sunglasses and prescription eyewear, apparel, footwear, watches and electronics. Prior to Oakley, from December 1987 through October 1997 Mr. George was the Senior +Vice President and Chief Financial Officer of REMEC, Inc., a public technology company. Mr. George has also served as Corporate Controller and Manager of Financial Planning for other +public technology firms. He began his career at Coopers & Lybrand where he became a Certified Public Accountant. He received a BS in Business Administration from the University of Southern +California. +Zohar Ziv , age 60, has been our Chief Operating Officer since December 2007 after serving as Chief Financial Officer and Executive Vice +President, Finance and Administration since March 2006. Mr. Ziv also served as interim Chief Financial Officer after his promotion to Chief Operating Officer from December 2007 to April 2008. +Previously, from February 2004 to December 2005, Mr. Ziv was Chief Financial Officer with EMAK Worldwide, Inc. (NASDAQ: EMAK), a global marketing services firm. Prior to that, +Mr. Ziv was Chief Financial Officer of Stravina Operating Company, LLC, a supplier of personalized novelty items in North America, from June 2002 to February 2004. +Constance X. Rishwain , age 54, has been the President of UGG Australia since December 2002. She also served as President of Simple from +December 2002 to December 2009. Prior to her promotion to President in December 2002, she served as the Vice President, Brand Manager of UGG since April 1999 and Vice President, Brand Manager of +Simple since January 2001. Ms. Rishwain held the positions of Vice President of Domestic Sales for Teva, UGG and Simple from June 1999 to December 1999, Vice President of +Sales—Western Division for Teva, UGG and Simple from December 1997 to June 1999 and Vice President Merchandising for Teva, UGG and Simple from January 1995 to December 1997. Before joining +us in January 1995, Ms. Rishwain held the position of Vice President of +26 +Merchandising +and Marketing for Impo International Shoe Company from 1988 to 1994 and worked for Nine West Group Inc. from 1984 to 1988 in several capacities, including Vice President +Merchandising of Nine West retail division. +Peter K. Worley , age 52, was made President of Deckers Asia Pacific effective as of January 1, 2012. From March 2006 to December +2011, Mr. Worley served as President of Teva. From October 2005 to March 2006, Mr. Worley served as Vice President of US Sales with K-Swiss, Inc. From May 1996 to +October 2005, Mr. Worley was Vice President of Product Design and Development with +K-Swiss. From 1991 to 1996, and from 1986 to 1989, Mr. Worley held various managerial positions with Reebok International Ltd. +Stephen M. Murray , age 53, joined the Company as President of Europe, Middle East and Africa (EMEA) in May 2011. Prior to joining the +Company, Mr. Murray served as Global President of Urban Outfitters Inc. (NASDAQ: URBN) from April 2010 to May 2011. Prior to Urban Outfitters Mr. Murray, was at VF Corporation, +where he served as President, VF Action Sports Coalition since February 2009, overseeing the Vans and Reef brands. Prior to assuming that role, Mr. Murray was President of VF's Vans brand from +2004 to 2009. Mr. Murray had been the Chief Marketing Officer for Vans, Inc. from 2002 to 2004 and Senior Vice President, International from 1998 to 2002. Prior to joining +Vans, Inc., Mr. Murray held various leadership roles, including Vice President of Global Apparel in the U.S. and abroad for Reebok International, Ltd. from 1991 to 1998. +Mr. Murray holds a BA in Business Studies from Middlesex University, England. +David Powers , age 46, joined the Company as President of Direct to Consumer in August 2012. Prior to joining the Company, +Mr. Powers served as Vice President of Global Direct to Consumer and Licensed Retail for Converse, a division of Nike, Inc. (NYSE: NIKE), since 2008. Prior to Converse, Mr. Powers +served as Worldwide General Merchandise Manager at Timberland from 2003 to 2008. Mr. Powers also served as a Global Divisional Merchandise Manager for The Gap Inc. [NYSE: +GPS] for ten years. +COMPENSATION DISCUSSION AND ANALYSIS +The Compensation and Management Development Committee, which we refer to as the Committee for purposes of this Compensation Discussion +and Analysis, is responsible for the compensation of our Named Executive Officers (defined below). In this section we discuss and analyze the compensation of our principal executive and principal +financial officers and our three other most highly compensated executive officers for the fiscal year ended December 31, 2012, which we refer to as the "Named Executive Officers." This section +is divided into the following five parts: +• Executive Summary +• Compensation Philosophy and Objectives +• Compensation Consultant and Market Comparisons +• 2012 Executive Compensation Elements +• Other Compensation Considerations +Our +Named Executive Officers for 2012 were the following: +• Mr. Angel R. Martinez—Chair of the Board of Directors, President and Chief Executive Officer +• Mr. Thomas A. George—Chief Financial Officer +• Mr. Zohar Ziv—Chief Operating Officer +• Ms. Constance X. Rishwain—President of the UGG brand +• Mr. Stephen M. Murray—President of Europe, Middle East and Africa (EMEA) +27 +Executive Summary +The 2012 Fiscal Year in Review +Our results for fiscal 2012 are a reflection of our strong brand presence in a challenging economic environment. Highlights of the year +include: +• Our net sales increased 2.7% to a record $1.414 billion, marking over a decade of +year-over-year top line growth; +• In the face of macroeconomic challenges, unfavorable weather and continued cost pressures, our diluted earnings per share +was $3.45 compared to $5.07 last year, which is the first annual earnings per share decline in over five years; +• Our gross margin was 44.7% compared to 49.3% last year, with the impact of increased sheepskin costs accounting for +approximately 450 basis points of gross margin pressure; +• We continued our efforts to diversify our global presence, with over 30% of our business conducted internationally; +• We continued to evolve and grow our multi-channel distribution strategy to support our broader, more extensive product +lines; +• Our retail sales increased 30.1% to $246.0 million compared to $189.0 million last year, driven by the +opening of 30 new stores; +• Our eCommerce sales increased 22.6% to $130.6 million compared to $106.5 million last year, driven by +increased traffic on our existing websites, higher conversion, increased mobile sales and the addition of two new sites; +• We believe that our sales continued to demonstrate the desirability of the UGG brand amongst consumers and that we +continued to elevate the brand's status via compelling new product introductions and more integrated marketing programs; and +• We used targeted and highly integrated marketing campaigns to showcase our brands to consumers like never before. +We Pay for Performance +Our executive compensation program is designed to pay for performance. Our fiscal 2012 financial performance, along with the individual +performance of our executive officers, served as key factors in determining compensation for 2012, including as follows: +• Annual cash incentive plan awards are based on achievement with respect to a combination of earnings before interest, +taxes, depreciation and amortization (EBITDA) targets, and individual financial and non-financial performance goals tailored to each executive's role. Examples of +28 +these +individual performance goals include targeted performance with respect to annual net sales, inventory turn, operating expenses, as well as achievement of qualitative strategic goals. +• Despite record revenue results, because certain financial goals were not achieved in 2012, we did not make payments under +our 2012 Annual Cash Incentive Plan with respect to Company performance goals. However, due to the achievement of important strategic goals, we made payments under our 2012 Annual Cash Incentive Plan +with respect to individual goals. +• Annual equity incentive plan awards are based on one-year diluted earnings per share targets. +• Because certain financial goals were not achieved in 2012, the 2012 Annual Equity Awards were not earned. +• Long-term equity awards are based on annual revenue and diluted earnings per share targets over a +four-year period and are designed to reward the achievement of exceptional performance. +We +believe that these metrics provide for a balanced approach to measuring annual and long-term Company performance and are designed to align our executive compensation +policies with the Company's strategic objectives, which may be quantitative or qualitative in nature. +Furthermore, +our executive compensation mix is heavily weighted toward performance-based compensation, and limits guaranteed annual pay. At the same time, we review annually the mix +between guaranteed pay and at-risk pay and establish appropriate performance targets so as to mitigate our compensation-related risk. +For +example, as illustrated in the chart below, the guaranteed pay (base salary and all other compensation) of our Chief Executive Officer is only approximately 20% of his potential 2012 +compensation and approximately 80% is at-risk and dependent on Company or individual performance. These percentages are based on the Summary Compensation Table amounts for base salary, +stock awards (including annual equity awards and 2012 LTIP awards) and all other compensation, and assumed achievement of the target level of performance under the 2012 Annual Cash Incentive Plan. +This chart reflects the 2012 LTIP awards but not Level 1, Level 2, or Level 3 awards. +CEO's 2012 Guaranteed Pay vs. At-Risk Pay +The +result of our emphasis on at-risk pay was evident in the 2012 pay actually earned by our Chief Executive Officer. Because +certain financial and operational goals for 2012 were not achieved, our Chief Executive Officer did not receive any payments under our 2012 Annual Cash Incentive Plan with respect to Company +performance goals, and only received payments under that plan for the +29 +achievement +of specified individual performance goals relating to our qualitative strategic objectives. In addition, because certain financial goals for 2012 were not achieved, our 2012 Annual Equity +Awards were not earned. Therefore, as illustrated below, our Chief Executive Officer did not earn approximately 49% of his potential 2012 "at-risk" compensation and only received approximately 4% of +his potential 2012 "at-risk" compensation for achievement of his individual performance goals under our 2012 Annual Cash Incentive Plan. The remaining 47% of his "at-risk" compensation is +in the form of long-term equity awards, which will only be earned if certain aspirational +long-term Company financial goals are met in 2015. +CEO's 2012 At-Risk Pay Not Earned +Recent Changes to our Compensation Practices +Recent changes to our compensation practices to further align the interests of our Named Executive Officers with those of our +stockholders, include: +• Eliminating excise tax gross-ups as a result of termination following a change of control from the Change of +Control and Severance Agreements. +• Adopting stock ownership guidelines for our Named Executive Officers in 2011 and for our directors in 2010. +• Adding a Clawback Policy provision to our annual equity awards granted in 2011 and 2012 subjecting these awards to a +Clawback Policy. In December 2012, the Board of Directors adopted a Clawback Policy. +We Have Adopted Other Compensation Practices that Benefit our Stockholders +• Annual cash incentive awards are only earned if significant financial and non-financial performance levels are +achieved. In 2012, no annual cash incentive awards were paid as a result of Company financial performance in 2012. Annual cash incentive awards were only paid with respect to achievement of individual +performance goals relating to our strategic objectives. +• If earned, our annual equity awards become fully vested after 3 years, to encourage retention of key executives. No +annual equity awards were earned with respect to our performance in 2012. +• If earned, based on aspirational long-term Company financial +goals, our long-term equity incentive awards fully vest over 5 years (for our Level 1 awards), 10 years (for our Level 2 awards) and 4 years (for our +Level 3 awards and 2012 LTIP awards) after initial grant, providing additional retentive qualities. +30 +• Our insider trading policy prohibits our directors, Named Executive Officers, and other key executives from hedging the +economic interest in the Company securities that they hold and from engaging in speculative transactions with respect to our stock, from holding Company securities in margin accounts, from short +sales, and from using stock as collateral for a loan. +• Generally, we do not provide our US-based executives benefits or perquisites that are not provided to all +employees. Benefits or perquisites provided to our executives outside of the US are commensurate with local pay practices. +Compensation Philosophy and Objectives +At the direction of the Board of Directors, the Committee endeavors to ensure that the compensation programs for our executive officers +are competitive and consistent with market conditions in order to attract and retain key executives critical to the Company's long-term success. When reviewing and approving our executive +compensation program, the Committee is guided by the following four principles: +• Attract key executives with the proper background and experience required for the future growth of the Company +• Align the interests of our executives with our stockholders by tying a significant portion of total compensation to our +overall financial performance and the creation of long-term stockholder value +• Provide a significant proportion of potential total compensation through variable, performance-based components, which can +increase or decrease to reflect achievement of pre-established Company and individual goals +• Provide incentives for achieving both short-term and long-term Company goals +The +Committee takes into account various qualitative and quantitative indicators of Company and individual performance in determining the level and structure of compensation for the +Named Executive Officers, as well as other executive officers. The Committee considers such Company performance measures as net sales, operating expenses, diluted earnings per share, EBITDA, and other +similar quantitative measures. The Committee also appreciates the importance of achievements that may be difficult to quantify, and accordingly recognizes qualitative factors, such as successful +supervision of major corporate projects, demonstrated leadership ability and contributions to industry and community development. For 2012, the most important qualitative factors in determining +incentive compensation awards to the Named Executive Officers were the Committee's assessment of their contributions to the Company's achievement of certain strategic goals and ability to achieve +substantial financial results in a challenging environment. +The +Committee also evaluates the total compensation of the Named Executive Officers and other executives in light of information regarding the compensation practices and corporate +financial performance of similar companies in the Company's industry. As the starting point for its analysis, the Committee generally targets a specific percentile range of the peer company data in +determining compensation for executive officers as discussed in more detail below. +Compensation Consultant and Market Comparisons +Compensation Consultant +The Committee receives assessments and advice regarding the Company's compensation practices and philosophy from its independent +compensation consultant, Frederic W. Cook & Co., Inc. (FWC). While the Company is not obligated to retain an independent compensation consultant, the Committee believes that the +use of an independent consultant provides additional assurance that our executive +31 +compensation +programs are competitive and consistent with market conditions, as well as consistent with our objectives. +In +accordance with applicable SEC rules, the Committee took certain factors, which it believes may affect the independence of a compensation consultant, into consideration when selecting +FWC. In particular, at a meeting of the Committee, the Committee discussed: (i) whether any other services had been or were being provided by FWC to the Company, (ii) the amount of fees +paid by the Company to FWC as a percent of FWC's total revenues, (iii) FWC's policies and procedures designed to prevent conflicts, a copy of which was provided to the Committee prior to the +meeting, (iv) FWC's ownership of Company stock, and (v) any business or personal relationships between FWC and any Committee members or the Company's executive officers. Following the +consideration of these factors, and such additional factors as the Committee deemed appropriate under the circumstances, the Committee made an affirmative determination that FWC is independent and +unanimously approved the engagement of FWC. +FWC +was retained by and reports directly to the Committee, and provides information on competitive practices and trends in our industry and makes recommendations regarding the design of +our compensation program. Our management did not engage FWC in any other capacity for 2012 and does not direct or oversee the retention or activities of FWC with respect to our executive compensation +program. +Market Comparisons +In making compensation decisions, the Committee compares each element of total compensation against a peer group of publicly-traded +footwear and apparel companies (collectively, the "Peer Group"). The Peer Group, which is reviewed and updated at least annually by the Committee, consists of companies against which the Committee +believes the Company competes for executive talent and for stockholder investment. The Peer Group used for 2012 compensation is composed of companies in related businesses of similar size and market +value and consisted of the following 12 companies: +• Columbia Sportswear Company +• The Timberland Company +• Lululemon Athletica, Inc. +• Crocs, Inc. +• Under Armour, Inc. +• Guess, Inc. +• Skechers U.S.A., Inc. +• Wolverine World Wide, Inc. +• Coach, Inc. +• Steven Madden, Ltd. +• Fossil, Inc. +• Warnaco Group, Inc. +For comparison purposes, at the time 2012 compensation was established, the Company's annual revenues were below the median of the Peer Group, the +Company's net income was above the median, and the Company's market capitalization was above the median. The Committee generally sets the target for annual total direct compensation (defined as base +salary, plus annual cash incentive plan compensation, plus annual equity incentive compensation) for the Named Executive Officers between median and 75th percentile of compensation paid to +executives with similar titles and levels of responsibility within the Peer Group. The Committee generally sets the target for overall total direct compensation (defined as annual total direct +compensation, plus long-term equity incentive compensation assuming achievement at a level above the threshold) for the Named Executive Officers between the 75th and the +100th percentile of compensation paid to executives with similar titles and levels of responsibility within the Peer Group. We believe the target percentile amounts are appropriate because the +performance goals in the long-term equity incentive plan are set at a level that we believe represents commensurate Company financial performance. We believe it also allows the Company to +attract and retain the qualified executives necessary to attain top quartile performance. However, while the Committee uses the Peer Group for general guidance as to the targets for annual and overall +total direct compensation, the Committee continues to exercise its judgment and considers a variety of +32 +factors +when setting compensation levels, including general economic conditions, actual recent individual performance and performance expectations. +The +Committee also reviews where actual overall total direct compensation and other benchmarked compensation amounts fall relative to targeted levels to ensure actual compensation is +aligned with actual performance. For all of the Named Executive Officers, 2012 actual overall total direct compensation, calculated in accordance with the definition above, was between approximately +16% to 50% below the target of the 75th percentile. The 2012 actual overall total direct compensation was less than the targeted amounts because our Named Executive Officers did not receive +payments under our 2012 Annual Cash Incentive Plan with respect to the achievement of Company performance goals and the 2012 Annual Equity Awards were not earned. +For +2013 compensation decisions, the Peer Group has changed from the companies listed above to eliminate The Timberland Company (which was acquired in 2011) and Coach, Inc., and +to add Quicksilver, Inc., and Oxford Industries, Inc. In selecting this Peer Group, the Committee considered a variety of factors including the following: the companies that constitute +peers-of-peers, footwear and apparel manufacturers with retail stores, companies that are similar in size based on revenue and market capitalization, companies with recent high +growth in revenue, earnings per share or other performance metrics, companies with significant brand recognition, companies with international scope, companies that have recently experienced material +changes in size or significant corporate transactions, companies in the Consumer Durables & Apparel industry classification, and peers considered by proxy advisors. The Committee believes the +new Peer Group will provide the Committee with data that reflects the Company's current business stage and competitors so that the Company can continue to evaluate its executive compensation program +versus an appropriate peer group. +33 +2012 Executive Compensation Elements +Type +Form +Purpose +Performance Criteria +Cash +Base Salary +Fixed annual compensation to attract and retain key executives with necessary experience for our future growth +Not performance-based +Cash +Annual Cash Incentive Plan Award +Incentive for executives to achieve annual pre-established goals +Company and individual performance goals, both quantitative and qualitative, approved by the Committee +annually +Equity +Annual Equity Awards (Nonvested Stock Units or "NSUs") +Incentive to achieve annual Company financial goals; encouraging executive stock ownership; retention of key +executives +Diluted earnings per share target for year of the grant +Equity +Long-Term Equity Incentive Awards—Level 1 and Level 2 (includes Restricted Stock Units or "RSUs" +and Stock Appreciation Rights or "SARs") +Incentive to achieve aspirational long-term Company +financial goals; aligning executives' interests with those of our stockholders; retention of key executives +Diluted earnings per share and revenue targets approximately five and ten years from year of +grant +Equity +Long-Term Equity Incentive Awards—Level 3 and 2012 LTIP (includes RSUs) +Incentive to achieve aspirational long-term Company +financial goals; aligning executives' interest with stockholders; retention of key executives +Diluted earnings per share and revenue targets approximately four years from year of grant +Benefits +For US-based executives: 401(k) match; health and welfare benefits; long-term disability insurance; life +insurance; product discounts. For international executives: also receive pension, car allowance and relocation +Provide competitive, broad-based employee benefits structure; benefits offered to US-based Named Executive +Officers are generally offered to all full time employees. For international executives, benefits reflect local market +Not performance-based +Severance Arrangements +Change of Control and Severance Agreements; Provisions in Equity Awards +To recruit and retain key executives and maintain a stable and effective management team in the event of a change +of control +Not performance-based +34 +Base Salary. +What this Compensation Element is Designed to Reward +We provide base salaries to attract and retain key executives with the necessary experience for our future growth. Base salaries +reflect each Named Executive Officer's responsibility level, individual performance, and business experience. Base salaries also provide a guaranteed base amount of compensation. The Committee +balances the levels of guaranteed pay through base salaries with at-risk pay, to properly maintain the Company's compensation-related risk and implement the Company's +pay-for-performance philosophy. +How We Choose the Amount of this Compensation Element +The Committee establishes base salaries after review of the Peer Group compensation data and with the objective of emphasizing +performance-based compensation, while also attracting and retaining qualified executive candidates. Salaries are reviewed periodically and adjusted as warranted to reflect sustained individual +performance, responsibility level, and comparable market salaries. In order to appropriately balance guaranteed pay with at-risk performance-based compensation, the Committee generally +sets base salary in the median to 75th percentile of the base salaries paid to executives with similar titles and levels of responsibility within the Peer Group and considering individual performance, +responsibility level and contribution, and experience. The following table summarizes adjustments made to base salaries for the Named Executive Officers during 2012 compared to 2011: +Named Executive Officer +Base Salary +Base Salary Change +Angel R. Martinez +$ +1,200,000 +Increased by 20.0% +Thomas A. George +$ +475,000 +Increased by 18.8% +Zohar Ziv +$ +600,000 +Increased by 0% +Constance X. Rishwain +$ +475,000 +Increased by 13.1% +Stephen M. Murray +$ +655,080 +Increased by 2.4% +Consistent +with our salary review described above, each of the Named Executive Officers other than Mr. Ziv received base salary increases in 2012. These increases were made based +on their performance and to align this compensation element with market comparables and to retain executives we believe have been instrumental to our financial success. +Annual Cash Incentive Plan Compensation. +What this Compensation Element is Designed to Reward +The Committee believes in tying our executives' total incentive compensation to the short and long-term financial and +strategic objectives of the Company to align our executives' interests with those of our stockholders. As a result, the Committee has designed our annual cash incentive plan to reward achievement of +our financial and strategic goals. At the beginning of each year, the Committee reviews our financial and strategic plan for the next fiscal year and for the years ahead and then establishes specific +annual Company financial goals, as well as specific strategic goals for each executive. By establishing annual goals, the Committee sets appropriate performance expectations for our executives and +makes our executives accountable for our continued growth and success. Furthermore, the executives will only receive payment with respect to achievement of Company performance goals if the Company +performs well for our stockholders, as defined by the performance criteria set by the Committee at the beginning of the year. +In +addition, the Committee may exercise discretion and award amounts outside of the annual cash incentive plan. In 2012, the Committee did not grant any discretionary amounts outside of +the 2012 Annual Cash Incentive Plan. +35 +How We Choose Amount of this Compensation Element +For 2012, each of the Named Executive Officers was eligible to receive annual cash incentive plan compensation based on the following +formula: +The +components of the annual cash incentive plan compensation are: +• Company Profit. Based on the Company's 2012 earnings +before interest, taxes, depreciation and amortization (EBITDA). No amounts were earned with respect to this component in 2012. +• Quantitative Management by Objectives (MBO). Based on +quantitative Company financial goals that are applicable to each officer. No amounts were earned with respect to this component in 2012. +• Qualitative MBO. Based on qualitative strategic goals that +are applicable to each officer. Each of our Named Executive Officers earned awards with respect to this component in 2012 as described below. +The +Committee establishes an EBITDA goal, which is the same for each officer, and quantitative and qualitative MBO goals, which are unique to each officer, at the beginning of each year +and the officers receive compensation for the subsequent attainment of these goals. Each component of the award for each officer is calculated separately by multiplying the full target bonus amount +for each officer by the percentage of target earned for each component and then multiplying this amount by the weighting of each component in accordance with the terms of the 2012 Annual Cash +Incentive Plan. +The +target amount for the award for 2012 for each executive, except for Mr. Martinez and Mr. Murray whose targets were 100% and 50% of base salary, respectively, was 75% of +base salary, with the potential to exceed the target and earn up to 250% for the Company profit portion, up to 250% for the quantitative MBO portion and up to 100% for the qualitative MBO portion. The +Committee believes that utilizing these multiples of base salary provides our Named Executive Officers with the opportunity to earn significant cash incentive payments for exceptional contributions to +our financial and strategic successes, while also limiting the maximum potential awards and thereby mitigating compensation-related risk by discouraging the executives from taking unnecessary risk to +achieve higher performance. +The +target amounts and relative weight of the Company profit portion and MBO portions of each executive's annual cash incentive plan compensation may be varied by the Committee from year +to year. In general, those executives that are responsible for brands and have influence over brand decisions are less heavily weighted on the Company profit portion than those executives whose +efforts cannot be directly attributed to specific brands. For threshold performance, 50% of each component would be earned. For target performance, 100% of each component would be earned. +Amounts +attributable to the Company profit portion and quantitative MBO portion are not affected by the calculation of the qualitative MBO portion and are intended to qualify as +"performance-based compensation" within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). +The +Committee establishes the respective percentages for the Company profit portion, quantitative MBO portion and qualitative MBO portion principally based on the executives' respective +roles at the +Company. For those executives with Company-wide responsibilities, the Company profit portion was weighted more heavily than the quantitative MBO portion and for those executives with more +brand- +36 +specific +responsibilities, the quantitative MBO portion was weighted more heavily than the Company profit portion. This enabled the Committee to more specifically tailor the performance targets to the +achievement of goals that each executive had the greatest power to influence. The allocation of the 2012 Annual Cash Incentive Plan compensation and respective percentages and amounts earned are as +follows: +Earned ($) +Name +Target +Percentage +of Salary +Company +Profit +Portion +Quantitative +MBO +Portion +Qualitative +MBO +Portion +Company +Profit +Quantitative +MBO +Qualitative +MBO +Total +Angel R. Martinez +100% +50% +30% +20% +$ +— +$ +— +$ +228,000 +$ +228,000 +Thomas A. George +75% +50% +30% +20% +$ +— +$ +— +$ +67,688 +$ +67,688 +Zohar Ziv +75% +50% +30% +20% +$ +— +$ +— +$ +76,500 +$ +76,500 +Constance X. Rishwain +75% +25% +55% +20% +$ +— +$ +— +$ +71,250 +$ +71,250 +Stephen Murray +50% +25% +55% +20% +$ +— +$ +— +$ +55,682 +$ +55,682 +Performance Targets under the Annual Cash Incentive Plan +The performance targets under the 2012 Annual Cash Incentive Plan, and each Named Executive Officer's performance in light of the +targets, are summarized below. The Committee selects these targets based on categories that the Committee believes will drive the Company's short-term and long-term success and +therefore return value to our stockholders. When establishing these performance targets, the Committee determined to calculate the 2012 Annual Cash Incentive Plan objectives in accordance with the +Company's 2012 audited financial statements. +Officer +Component +Threshold Performance +Target Performance +Maximum Performance +Results +All NEOs +Company Profit +• +Annual EBITDA of +$300.5 million +• +Annual EBITDA of +$329.4 million +• +Annual EBITDA of +$394.5 million +Did not achieve threshold +Angel R. Martinez +Quantitative MBO +• +Sales of +$1.544 billion +• +Sales of +$1.625 billion +• +Sales of +$1.821 billion +Did not achieve threshold +• +Global operating cash flow of +$226.8 million +• +Global operating cash flow of +$243.9 million +• +Global operating cash flow of +$287.7 million +• +Teva and Sanuk brand sales of +$228.8 million +• +Teva and Sanuk brand sales of +$240.8 million +• +Teva and Sanuk brand sales of +$269.7 million +Qualitative MBO +• +Business: Maintain a +compelling vision and strategy for the Company and anticipate short and long-term trends that may affect key strategies +• +Personal: Set the tone and pace for change, strong culture and performance +• +Team: Drive the leadership team +accountability to meet the Company's strategic plan while delivering bench strength at the executive management level +The Committee carefully considered the executive's contribution to our strategic objectives and determined that the Qualitative MBO component was achieved at 95% of the target level. As a result, the executive received +95% of the target bonus with respect to this portion. +37 +Officer +Component +Threshold Performance +Target Performance +Maximum Performance +Results +Thomas A. George +Quantitative MBO +• +Sales of +$1.544 billion +• +Sales of +$1.625 billion +• +Sales of +$1.821 billion +Did not achieve threshold +• +Global operating cash flow of +$226.8 million +• +Global operating cash flow of +$243.9 million +• +Global operating cash flow of +$287.7 million +• +Operating expenses not +exceeding approximately 30% of net sales +• +Operating expenses not +exceeding approximately 29% of net sales +• +Operating expenses not +exceeding approximately 28% of net sales +Qualitative MBO +• +Business: Evaluate long-term +financial planning issues; expand credit facility; address China expansion +• +Personal: Lead continuous improvement +efforts to improve finance department +• +Team: Integrate new hires into finance department and drive team development +The Committee carefully considered the executive's contribution to our strategic objectives and determined that the Qualitative MBO component was achieved at 95% of the target level. As a result, the executive received +95% of the target bonus with respect to this portion. +Zohar Ziv +Quantitative MBO +• +Sales of +$1.544 billion +• +Sales of +$1.625 billion +• +Sales of +$1.821 billion +Did not achieve threshold +• +Global operating cash flow of +$226.8 million +• +Global operating cash flow of +$243.9 million +• +Global operating cash flow of +$287.7 million +• +Inventory turnover rate of +2.9 +• +Inventory turnover rate of +3.0 +• +Inventory turnover rate of +3.15 +Qualitative MBO +• +Business: Oversee the +development and commercialization of innovative material for the UGG brand; provide infrastructures for emerging brands +• +Personal: Improving knowledge of +industry trends and developing a strategy with consideration of these trends; provide mentoring to direct reports +• +Team: Establish development plans for direct reports +The Committee carefully considered the executive's contribution to our strategic objectives and determined that the Qualitative MBO component was achieved at 85% of the target level. As a result, the executive received +85% of the target bonus with respect to this portion. +38 +Officer +Component +Threshold Performance +Target Performance +Maximum Performance +Results +Constance X. Rishwain +Quantitative MBO +• +UGG brand domestic wholesale +sales of $630.8 million +• +UGG brand domestic wholesale +sales of $664 million +• +UGG brand domestic wholesale +sales of $743.7 million +Did not achieve threshold +• +UGG brand domestic wholesale +contribution of $224.9 million +• +UGG brand domestic wholesale +contribution of $238.9 million +• +UGG brand domestic wholesale +contribution of $273.6 million +• +UGG brand domestic inventory +turnover rate of 2.47 +• +UGG brand domestic inventory +turnover rate of 2.59 +• +UGG brand domestic inventory +turnover rate of 2.84 +• +All other UGG brand sales of +$662.9 million +• +All other UGG brand sales of +$697.8 million +• +All other UGG brand sales of +$781.6 million +• +Backlog increase of 5% over +prior year +• +Backlog increase of 10% over +prior year +• +Backlog increase of 25% over +prior year +Qualitative MBO +• +Business: Develop product +strategies for long-term goals; develop global marketing strategies supporting key product strategies and growth opportunities +• +Personal: Improving knowledge of industry trends and developing a strategy with consideration of these trends; provide mentoring to direct +reports +• +Team: Drive team +development +The Committee carefully considered the executive's contribution to our strategic objectives and determined that the Qualitative MBO component was achieved at the target level. As a result, the executive received 100% of +the target bonus with respect to this portion. +Stephen Murray +Quantitative MBO +• +EMEA regional sales of +$311 million +• +EMEA regional sales of +$327.4 million +• +EMEA regional sales of +$366.7 million +Did not achieve threshold +• +Regional contribution of +$60 million +• +Regional contribution of +$66.1 million +• +Regional contribution of +$81 million +• +Regional inventory turnover +rate of 2.9 +• +Regional inventory turnover +rate of 3.05 +• +Regional inventory turnover +rate of 3.4 +• +Regional backlog increase of +approximately 5% over prior year +• +Regional backlog increase of +approximately 10% over prior year +• +Regional backlog increase of +approximately 25% over prior year +Qualitative MBO +• +Business: Develop innovative +solutions to challenges in region +• +Team: Drive team development +• +Personal: Improving knowledge of +industry trends and developing a strategy with consideration of these trends; provide mentoring to direct reports +The Committee carefully considered the executive's contribution to our strategic objectives and determined that the Qualitative MBO component was achieved at 85% of the target level. As a result, the executive received +85% of the target bonus with respect to this portion. +39 +Performance-based Equity Incentive Compensation . +What this Compensation Element is Designed to Reward +Our equity incentive compensation program is designed to address many of our compensation objectives. First, by utilizing +long-term vesting provisions, these equity awards are designed to retain our key executives. Second, because these awards will only be earned upon achievement of Company financial goals +that we believe will drive value for our stockholders and the awards are equity-based, these awards serve to align the interests of our executives with those of our stockholders. Furthermore, by +requiring achievement of financial goals, these awards support the Company's pay-for-performance philosophy. Finally, our annual equity awards reward achievement of our +short-term goals and our long-term equity awards reward achievement of our long-term goals (approximately four, five and ten years after the grant year). +How We Choose Amount of this Compensation Element +Short-term and long-term incentive awards are granted under the 2006 Plan, which authorizes the Committee to +make grants and awards such as stock options, SARs, NSUs and restricted stock units ("RSUs"). The compensation attributable to SARs, NSUs and RSUs is intended to qualify as "performance-based +compensation" under Section 162(m) of the Code. A summary of the equity awards used by the Company and their respective vesting provisions is set forth below: +Compensation Element +Award +Type +Vesting Provisions +Annual Equity +NSU +Once earned based on one-year performance, vest based on continued employment after approximately three years following achievement of the performance criteria according to the following schedule: 33% per +year at end of year two, three, and four +Long-Term Equity +(Level 1) +RSU +SAR +Vest subject to (1) the achievement of revenue and earnings goals, which goals are based on a high rate of +growth for sales, and (2) satisfaction of long-term service conditions over approximately a five-year period +Long-Term Equity +(Level 2) +RSU +SAR +Vest subject to (1) the achievement of revenue and earnings goals, which goals are based on a high rate of +growth for sales, and (2) satisfaction of long-term service conditions over approximately a ten-year period +Long-Term Equity +(Level 3 and 2012 LTIP) +RSU +Vest subject to (1) the achievement of revenue and earnings goals, which goals are based on a high rate of +growth for sales, and (2) satisfaction of long-term service conditions over approximately a four-year period +Annual Equity +For purposes of making annual equity grants, the Board of Directors and the Committee has determined to issue NSUs to officers and +employees of the Company, which are stock units payable in common stock of the Company upon satisfying specific performance and service-related vesting conditions. +40 +If +earned, the NSUs would vest in equal installments over a three-year period. The vesting schedule for these awards was established to encourage officers and key employees +to remain with the Company for the long-term. As discussed further under "Potential Payments Upon Termination or Change of Control" below, this vesting schedule may be accelerated if the +executive's employment is terminated for various reasons or upon a change in control followed by a termination. +Officers +and key employees are eligible to receive NSUs annually, or as circumstances warrant, in an amount to be determined by the Board of Directors or the Committee. The amount of +NSUs granted is primarily determined by the employee's level within the organization and the extent that their position is critical to the organization. In March 2012, NSUs were granted that were +payable based on the achievement of fiscal 2012 performance targets. The Committee sets these annual equity grants in the median-to-75th percentile range of the Peer +Group, which is in line with our compensation philosophy to provide a greater percentage of at-risk pay versus guaranteed pay. +Specifically, +the NSUs granted in 2012 were to be earned based on the achievement of the 2012 diluted EPS goal listed below. Because the actual 2012 diluted EPS was below the threshold +amount, none of the NSUs granted in 2012 were earned. +2012 Annual Equity +Award Performance Goal +as of December 31, 2012 +Threshold +Performance +Target and Maximum +Performance +Diluted EPS goal +$4.56 +$5.07 +Long-Term Equity +Our Long-Term Equity Awards are designed to reward aspirational +long-term Company financial goals and are granted in addition to the annual equity awards described above. These Long-Term Equity Awards are designed to result in a payout only +if the Company achieves the highest levels of long-term performance. The Committee recommends the adoption of these awards periodically as they deem necessary to incentivize +long-term Company performance. Beginning in 2011 with the Level 3 grants, discussed in detail below, the Committee began to shift a portion of the equity awards that had previously +been granted to the Company's senior management team in the form of annual equity awards, which were historically in the form of NSUs, to the Long-Term Equity Award program in order to +increase the reward for achieving the Company's aspirational long-term financial goals. +In +May 2007, the Board of Directors, upon recommendation of the Committee, adopted two types of long-term incentive award agreements under the 2006 Plan for issuance to the +Company's senior executive officers. These award types consist of SAR awards and RSU awards. The SAR and RSU awards are designed to vest based on the achievement of two objective Company financial +performance measures. The Committee selected these performance measures to align the executive's interests with the long-term financial success of the Company. In establishing the +performance measure criteria, the Committee sought to balance the metrics between earnings and revenue growth so that profitability would not be sacrificed at the expense of revenue and vice versa. +For Level 1 grants, sales were required to increase approximately 65% and diluted earnings per share were required to increase approximately 110% over the levels for these metrics at the time +these awards were adopted by the Board of Directors. For Level 2 grants, sales were required to increase over 220% and diluted earnings per share were required to increase approximately 320% +over the levels for +these metrics at the time these awards were adopted by the Board of Directors. All of the Level 1 awards were fully vested as of December 31, 2011 and were settled on February 29, +2012. Provided that the Level 2 performance conditions are met, the Level 2 SAR and RSU awards will vest 80% on December 31, 2015 and 20% on December 31, 2016. These awards +were designed to motivate the executive team to achieve the highest levels of performance and to encourage the retention of our executives. In May 2007, the Committee granted these SARs and RSUs to +the Named Executive Officers. In approving these 2007 +41 +grants, +the Committee considered industry comparisons and competitive data as well as the responsibility levels of the executives relative to one another. +In +June 2011, the Board of Directors, upon recommendation of the Committee, adopted a Level 3 long-term incentive award agreement under the 2006 Plan for issuance to +the Company's senior management team, including the Named Executive Officers. The new program consists of RSU awards. The Board determined to grant these Level 3 awards to provide another +equity incentive grant which rewards even higher achievement of long-term Company financial goals than found in the Level 1 and Level 2 grants, for which achievement had +already been deemed probable at the time the Level 3 awards were granted. The Level 3 grants are designed to have a shorter performance period than the Level 1 and 2 grants, thus +enabling the Committee greater visibility to establish appropriate performance targets. +In +2012, the Board of Directors, upon recommendation of the Committee, adopted a 2012 LTIP award agreement under the 2006 Plan for issuance to the Company's senior management team, +including the Named Executive Officers. The new program consists of RSU awards and is similar in design to the Level 3 awards. +Similar +to the Level 1 and Level 2 grants, Level 3 and 2012 LTIP awards are designed to vest based on the achievement of two objective Company financial performance +measures four years in the future. The Committee selected these performance measures to further align the executive's interests with the long-term financial success of the Company. In +establishing the performance measure criteria, the Committee sought to balance the metrics between earnings and revenue growth so that profitability would not be sacrificed at the expense of revenue +and vice versa. The Level 3 awards in 2011 will vest only if the Company meets certain revenue targets ranging between $1.85 billion and $2.50 billion and certain diluted earnings +per share targets ranging between $7.00 and $9.60 as of December 31, 2014. For 2012 LTIP awards, the awards will vest only if the Company meets certain revenue and diluted earnings per share +targets listed below as of December 31, 2015. +2012 LTIP +Performance Goals as +of December 31, 2015 +Threshold +Performance +Target +Performance +Target +Performance +Target +Performance +Maximum +Performance +Revenue goal +$2.2 billion +$2.65 billion +$2.45 billion +$2.35 billion +$2.9 billion +Diluted EPS goal +$7.00 +$7.00 +$8.00 +$9.00 +$10.50 +To +the extent Company financial performance is achieved above the threshold level, the number of RSUs that will vest will increase up to the maximum number of units issued under the +particular Level 3 or 2012 LTIP award. In addition, the recipient of the Level 3 or 2012 LTIP award must provide service to the Company through the end of the relevant period under the +particular Level 3 or 2012 LTIP award. The Committee anticipates granting annually Long-Term Equity Awards similar in terms to the Level 3 and 2012 LTIP awards as it +continues to shift a portion of the equity awards that had previously been granted to the Company's senior management team in the form of annual equity awards, or NSUs, to the Long-Term +Equity Award program. +In +addition, the Committee evaluates aggregate equity awards based on a Stockholder Value Transfer ("SVT") rate. SVT is the fair value of all equity awards granted during the year as a +percentage of Company market capitalization value. The Committee believes this measure is valuable because it allows the Company to compare the annual cost of its equity program versus the Peer Group. +The Committee set the SVT rate in 2012 so that it would be approximately 1%, which is in line with the Peer Group median. Other factors considered making equity based award grants were the fair value +of awards granted to each individual, total outstanding equity awards for each executive, Company-wide annual equity-grant usage, and total potential dilution under all employee stock +plans. The Committee assessed where the Company and its Named Executive Officers ranked in these areas versus the Peer Group. +42 +Benefits. +What this Compensation Element is Designed to Reward +The Committee intends for the personal benefits provided to our US-based Named Executive Officers establish a competitive +benefits structure necessary to attract and retain key employees. Generally, these personal benefits provided to our Named Executive Officers reflect those provided to all of our employees. For our +Named Executive Officers based outside of the US, benefits provided are commensurate with those of the local market. +How We Choose Amount of this Compensation Element +There is no specific policy with respect to the value or type of personal benefits awarded to the Named Executive Officers. The Company +provides a 401(k) defined contribution plan in which eligible employees may elect to participate through +tax-deferred contributions. The Company matches 50% of each eligible participant's tax-deferred contributions on up to 6% of eligible compensation on a per payroll period +basis, with a true-up contribution if such eligible participant is employed by the Company on the last day of the calendar year. The Company also pays the premiums for +long-term disability insurance and life insurance for the Named Executive Officers both of which are generally available to all full-time employees. Furthermore, Named +Executive Officers are eligible to participate in our health and welfare benefit plans and to receive product discounts generally available to all full-time employees. For our Named +Executive Officers based outside of the US, the Company also provides pension contributions as required by the local jurisdiction, relocation expenses, and car allowance, which we believe is necessary +to attract and retain our international executives. In 2012, there were no other additional perquisites or other personal benefits approved by the Committee for the Named Executive Officers. +Beginning +on February 1, 2010, the Named Executive Officers were also eligible to make contributions to the Company's Nonqualified Deferred Compensation Plan, described in further +detail below under the section entitled "Nonqualified Deferred Compensation." This plan is not available to all employees. +Severance Arrangements . +What this Compensation Element is Designed to Reward +The Committee adopted Change of Control and Severance Agreements for each of the Named Executive Officers, other than +Mr. Murray. Mr. Murray, who is based in the UK, has an employment agreement, which the Company believes is necessary in the local market. The terms of employment for all +US-based Named Executive Officers with the Company is "at will," meaning that we can terminate them at any time and they can terminate their employment with us at any time. +Separation +benefits described below are intended to ease a Named Executive Officer's transition due to an unexpected employment termination by the Company due to on-going +changes in the Company's employment needs and also to encourage retention of key executives. Separation benefits include cash payments and other benefits in an amount the Company believes is +appropriate, taking into account the time it is expected to take a separated executive to find a similarly situated job. The Company considers it likely that it will take more time for higher-level +employees to find new employment commensurate with their prior experience, and therefore senior management generally are paid severance for a longer period. The Company benefits by requiring a general +release and non-solicitation provisions in connection with the individual separation agreements. +Furthermore, +the provisions in the Change of Control and Severance Agreements providing for the payment of severance benefits upon a change-in-control of the +Company followed by a subsequent termination of employment (a "double trigger" event) are intended to preserve morale and productivity +43 +and +encourage retention in the face of the potential disruptive impact of a change-in-control of the Company. The change-in-control benefits are +intended to encourage the Named Executive Officers to remain focused on the business and interest of our stockholders when considering strategic alternatives that may be beneficial to our +stockholders. +How We Choose Amount of this Compensation Element +The Change of Control and Severance Agreements for each US-based executive specifically details various provisions for +benefits and cash payments in the event of a separation during the normal course of business and in the event a change in control is followed by a subsequent termination. Generally, these agreements +specify conditions and benefits within the following categories: death, disability, termination by the Company for cause; termination by executive without good reason; termination by the executive +with good reason; and termination by the Company without cause. +The +Company's change in control provisions for the Named Executive Officers provide for severance benefits and the accelerated vesting of certain equity awards upon a "double trigger" +event, meaning the termination of the executive's employment in connection with a change in control. There are no benefits triggered solely based on the occurrence of a change in control as long as +the change in control is approved by a majority of the directors and the successor entity provides for the continuance of the award. However, upon a change in control, the performance conditions of +the SARs and RSUs are deemed satisfied, but the awards remain subject to the service-based vesting conditions. Based on a competitive analysis of the change in control arrangements maintained by the +corporations in the Peer Group, the Committee believes that these benefits are customary among the Peer Group for executives with similar titles and levels of responsibility as the Named Executive +Officers. +NSUs, +RSUs and SARs cannot be sold, assigned, transferred or pledged other than by will or laws of descent. +Please +refer to the discussion under "Potential Payments upon Termination or Change of Control" for a more detailed discussion of the severance and change in control arrangements and +Mr. Murray's employment agreement. +Other Compensation Considerations +Role of Executive Officers in Compensation Decisions +At the request of the Committee, the Chief Executive Officer, Chief Financial Officer and Chief Operating Officer may provide +compensation and related data to the Committee to facilitate its compensation decisions. In addition, the Committee may consider the Chief Executive Officer's recommendations when making its +compensation decisions. However, our Chief Executive Officer is not permitted to be present during deliberations and voting regarding his own compensation, as well as during other executive sessions +of the Committee. The Committee uses the information provided by the Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and FWC to make compensation decisions for the Named +Executive Officers as well as other management personnel. The Committee, which includes only independent members of the Board of Directors, approves all elements of compensation for the Named +Executive Officers. The Committee also reviews and approves aggregate equity awards to all employees of the Company based on the recommendations of executive management. The Committee can exercise its +discretion in modifying any recommended adjustments or awards to executives. +Risk Considerations +The Committee believes that although the majority of compensation provided to our executive officers is performance-based, our +executive compensation programs do not encourage excessive and +44 +unnecessary +risk-taking. We believe that the design of our compensation programs encourages our executive officers to remain focused on both our short-term and long-term +financial and strategic goals. First, our program consists of guaranteed pay (salary) and at-risk pay (annual cash incentive plan awards, and annual and long-term equity +awards) and the Committee reviews this mix annually. Second, our program establishes appropriate short-term and long-term performance goals that are designed to encourage +sustained growth and long-term success. Third, our program encourages executive retention through the vesting provisions of our equity-based awards. For example, our long-term +incentive equity awards only become fully vested over five years (for our Level 1 awards), ten years (for our Level 2 awards) and four years (for our Level 3 +and 2012 LTIP awards) after their initial grant. Fourth, amounts paid under our 2012 annual cash incentive plan compensation were capped at 250% for the Company profit and quantitative MBO portion and +at 100% for the qualitative MBO portion. Fifth, performance goals for our annual cash incentive plan mix among corporate, business unit and individual performance and financial and +non-financial goals. Sixth, we have adopted share ownership guidelines for the Named Executive Officers, which ensures that the interests of our executive officers are aligned with our +stockholders. Seventh, our annual equity awards granted in 2011 and 2012 are subject to a Clawback Policy provision subjecting these awards to a Clawback Policy, which was adopted in December 2012. +Eighth, our insider trading policy prohibits our Named Executive Officers and other key executives from hedging the economic interest in the Company securities that they hold. Finally, the Committee +retains ultimate oversight over the compensation of our Named Executive Officers and retains the ability to use discretion where appropriate. +Tax and Accounting Implications +Taxation and Deductibility of Executive Compensation +To the extent readily determinable, and as one of the factors in its consideration of compensation matters, the Committee considers the +anticipated tax treatment to the Company and to the executives of various payments and benefits. Some types of compensation payments and their deductibility depend upon the timing of an executive's +vesting of previously granted awards. +Under +Section 162(m) of the Code, a public company generally will not be entitled to a deduction for non-performance-based compensation paid to certain executive +officers to the extent such compensation exceeds $1.0 million. Special rules apply for performance-based compensation, including the approval of the performance goals by the stockholders of the +Company. The Company has not adopted any formal policy with respect to Section 162(m) of the Code. However, the Committee generally structures compensation to be deductible and considers cost +and value to the Company in making compensation decisions, which would result in non-deductibility. The Board of Directors has on occasion made decisions resulting in +non-deductible compensation. The qualitative MBO portion of the annual non-equity incentive plan compensation is not intended to qualify as "performance-based compensation" +under Section 162(m) of the Code. The Committee and the Board of Directors believe that these payments were appropriate and in the best interests of the Company and serve to retain key +executives and reward past performance. +The +Company believes that the Company profit portion and the quantitative MBO portion of its non-equity incentive plan and its grants of NSUs, RSUs and SARs meet the +exception for performance-based compensation described in the previous paragraph. +Accounting for Share-Based Compensation +The Company accounts for share-based awards in accordance with the requirements of Financial Accounting Standards Board Accounting +Standards Codification Topic 718, Stock Compensation . +45 +REPORT OF THE COMPENSATION AND +MANAGEMENT DEVELOPMENT COMMITTEE +The Compensation and Management Development Committee of the Company has reviewed and discussed the Compensation Discussion and +Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation and Management Development Committee +recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement. +THE COMPENSATION AND MANAGEMENT +DEVELOPMENT COMMITTEE +John G. Perenchio, Chair +Karyn O. Barsa +James Quinn +The +Report of the Compensation and Management Development Committee on Executive Compensation shall not be deemed incorporated by reference by any general statement incorporating by +reference this Proxy Statement into any filing under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, except to the extent that the Company +specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts. +46 +SUMMARY COMPENSATION TABLE +The following table sets forth, for the years ended December 31, 2012, 2011, and 2010 all compensation paid or awarded to the +Named Executive Officers. +Name and Principal Position +Year +Salary ($) +Bonus ($) +Stock +Awards +($)(1) +Non-Equity +Incentive +Plan +Comp +($)(2) +All Other +Compensation +($)(3) +Total ($) +Angel R. Martinez +2012 +$ +1,200,000 +$ +— +$ +3,715,372 +$ +228,000 +$ +8,760 +$ +5,152,132 +Chief Executive Officer and +2011 +$ +1,000,000 +$ +— +$ +1,922,580 +$ +1,735,000 +$ +7,350 +$ +4,664,930 +President +2010 +$ +950,000 +$ +350,000 +$ +1,863,000 +$ +1,900,000 +$ +7,350 +$ +5,070,350 +Thomas A. George +2012 +$ +475,000 +$ +— +$ +1,609,362 +$ +67,688 +$ +8,760 +$ +2,160,810 +Chief Financial Officer +2011 +$ +400,000 +$ +— +$ +873,900 +$ +533,784 +$ +7,350 +$ +1,815,034 +2010 +$ +350,000 +$ +150,000 +$ +828,000 +$ +350,000 +$ +7,350 +$ +1,685,350 +Zohar Ziv +2012 +$ +600,000 +$ +— +$ +1,826,208 +$ +76,500 +$ +8,760 +$ +2,511,468 +Chief Operating Officer +2011 +$ +600,000 +$ +— +$ +1,310,850 +$ +741,375 +$ +24,640 +(4) +$ +2,676,865 +2010 +$ +500,000 +$ +229,000 +$ +1,242,000 +$ +1,000,000 +$ +7,350 +$ +2,978,350 +Constance X. Rishwain +2012 +$ +475,000 +$ +— +$ +1,452,112 +$ +71,250 +$ +8,753 +$ +2,007,115 +President of the UGG Brand +2011 +$ +420,000 +$ +— +$ +873,900 +$ +603,610 +$ +7,350 +$ +1,904,860 +2010 +$ +400,000 +$ +200,000 +$ +1,242,000 +$ +800,000 +$ +7,350 +$ +2,649,350 +Stephen M. Murray(5) +2012 +** +$ +655,080 +$ +— +$ +913,132 +$ +55,682 +$ +128,631 +(6) +$ +1,752,525 +President of EMEA +2011 +* +$ +414,749 +$ +— +$ +589,275 +$ +345,259 +(7) +$ +81,714 +(8) +$ +1,430,997 +(1) The +amounts in this column represent the aggregate grant date fair value of the respective awards computed in accordance with FASB ASC Topic 718. In +accordance with Instruction 3 to Item 402(c)(2)(v) of Regulation S-K, for awards that are subject to the satisfaction of performance conditions, the amounts reported +reflect the fair value based upon the probable outcome of the performance conditions at grant date. +The +grant date fair value of the awards, assuming the highest level of performance conditions will be achieved, are as follows: +• Level 3 LTIP Awards: $5,746,300 for Angel Martinez, $1,915,406 for Thomas George, $2,873,150 for Zohar Ziv, +$1,915,406 for Constance Rishwain, and $0 for Stephen Murray. The achievement of the performance conditions relating to the Level 3 RSU awards were not deemed probable at the date of grant in +2011, and therefore no amounts with respect to these awards have been included in the table above. +• 2012 LTIP Awards: $4,788,944 for Angel Martinez, $1,646,224 for Thomas George, $2,394,415 for Zohar Ziv, $1,646,224 for +Constance Rishwain, and $1,197,264 for Stephen Murray. The achievement of the performance conditions relating to the 2012 LTIP RSU awards were deemed probable at the date of grant and therefore are +included in the table above at grant date fair value. +• 2012 NSU Awards: $1,320,900 for Angel Martinez, $786,250 for Thomas George, $629,000 for Zohar Ziv, $629,000 for Constance +Rishwain, and $314,500 for Stephen Murray. The achievement of the performance conditions relating to the 2012 NSU awards were deemed probable at the date of grant and therefore are included in the +table above at grant date fair value. As of the date of this report it has been determined that the achievement of the performance conditions relating to the 2012 NSU awards were not achieved. +(2) The +amounts in this column reflect the cash awards paid to our Named Executive Officers under the annual cash incentive plan, which is discussed in further +detail under the heading "Annual Cash Incentive Plan Compensation." +(3) Unless +noted otherwise, the amounts in this column reflect the Company's 401(k) matching contributions made and life insurance premiums paid for the benefit +of our Named Executive Officers. +47 +(4) This +amount includes $17,290 in total Per Diem paid to Mr. Ziv for international travel necessary to facilitate the transition to a wholesale +subsidiary model. +(5) Mr. Murray +joined the Company in May 2011. +(6) This +amount includes $94,560 of employer contributions made to Mr. Murray's pension, $23,850 car allowance, $2,196 in life insurance premiums paid +and $8,025 in other expenses. +(7) This +amount includes a $64,000 sign-on bonus paid by the Company to Mr. Murray. +(8) This +amount includes $64,000 in relocation expenses, $15,569 car allowance and $2,145 in life insurance premiums paid. +* 2011 +FX Rate: 1.60 to convert GBP to USD (May - Dec average spot rates) +** 2012 +FX Rate: 1.59 to convert GBP to USD (Jan - Dec average spot rates) +48 +GRANTS OF PLAN BASED AWARDS IN 2012 +The following table sets forth all grants of plan-based awards made to the Named Executive Officers during the fiscal year +ended December 31, 2012. For further discussion regarding the grants, refer to the heading "2012 Executive Compensation Elements." +Estimated Future Payouts Under +Non-Equity Incentive Plan Awards(1) +Estimated Future Payouts Under +Equity Incentive Plan Awards(2) +Grant Date +Fair Value +of Stock +Awards(3) ($) +Name +Grant Date +Threshold +($) +Target +($) +Maximum +($) +Threshold +(#) +Target +(#) +Maximum +(#) +Angel R. Martinez +$ +600,000 +$ +1,200,000 +$ +2,640,000 +3/29/2012 +10,500 +21,000 +21,000 +$ +1,320,900 +5/24/2012 +21,334 +42,667 +85,334 +2,394,472 +Thomas A. George +178,125 +356,250 +783,750 +3/29/2012 +6,250 +12,500 +12,500 +786,250 +5/24/2012 +7,334 +14,667 +29,334 +823,112 +Zohar Ziv +225,000 +450,000 +990,000 +3/29/2012 +5,000 +10,000 +10,000 +629,000 +5/24/2012 +10,667 +21,333 +42,666 +1,197,208 +Constance X. Rishwain +178,125 +356,250 +783,750 +3/29/2012 +5,000 +10,000 +10,000 +629,000 +5/24/2012 +7,334 +14,667 +29,334 +823,112 +Stephen M. Murray +163,770 +327,540 +720,588 +3/29/2012 +2,500 +5,000 +5,000 +314,500 +5/24/2012 +5,334 +10,667 +21,334 +598,632 +(1) Refer +to "Annual Cash Incentive Plan Compensation" above for further discussion of actual amounts paid to our Named Executive Officers pursuant to the 2012 +Annual Cash Incentive Plan. +(2) All +grants are under the 2006 Plan. +(3) Amounts +reported reflect the fair value based upon the probable outcome of the performance conditions at grant date. Assuming the highest level of +performance condition will be met, the maximum compensation cost to be recognized for awards granted on 5/24/2012 is: $4,788,944 for Angel Martinez, $1,646,224 for Thomas George, $2,394,416 for Zohar +Ziv, $1,646,224 for Constance Rishwain, and $1,197,264 for Stephen Murray. +49 +OUTSTANDING EQUITY AWARDS AT 2012 FISCAL YEAR END +The following table sets forth equity awards of the Named Executive Officers outstanding as of December 31, 2012. For further +discussion regarding the outstanding equity awards, refer to the heading "Performance-based Equity Incentive Compensation." +Stock Appreciation Rights (SAR) Awards(1) +Stock Awards +Name +Number of +securities +underlying +unexercised +SARs (#) +exercisable +Number of +securities +underlying +unexercised +SARs (#) +unexerciseable +Number of +securities +underlying +unexercised +unearned +SARs (#) +SAR +exercise +price ($) +SAR +expiration +date +Number of +shares or +units of +stock that +have not +vested (#) +Market +value of +shares or +units of +stock that +have not +vested(3)($) +Number of +unearned +shares or +units that +have not +vested(2)(#) +Market +value of +unearned +shares or +units that +have not +vested(3)($) +Angel R. Martinez +160,000 +— +— +$ +26.73 +5/9/2017 +55,167 +(4) +$ +2,221,575 +192,834 +(9) +$ +7,765,425 +— +— +300,000 +26.73 +5/9/2022 +Thomas A. George +— +— +— +— +— +26,917 +(5) +1,083,948 +52,667 +(10) +2,120,890 +Zohar Ziv +30,000 +— +— +26.73 +5/9/2017 +37,000 +(6) +1,489,990 +88,166 +(11) +3,550,445 +— +— +75,000 +26.73 +5/9/2022 +Constance X. Rishwain +15,000 +— +— +26.73 +5/9/2017 +33,667 +(7) +1,355,770 +63,167 +(12) +2,543,725 +— +— +75,000 +26.73 +5/9/2022 +Stephen M. Murray +— +— +— +— +— +5,000 +(8) +201,350 +21,334 +(13) +859,120 +(1) All +SARs were granted on May 9, 2007. SARs vest subject to long-term performance objectives and long-term service conditions. +The remaining 20% of Level 1 SAR awards vested on December 31, 2011 and became exercisable on February 29, 2012. Provided the conditions are met, the Level 2 SAR awards +will vest 80% on December 31, 2015 and 20% on December 31, 2016. +(2) This +column includes Level 2, Level 3 (at the 175% maximum amount) and 2012 LTIP (at the 200% maximum amount) RSUs granted on May 9, +2007, June 22, 2011 and May 24, 2012, respectively, which are subject to long-term performance objectives and service conditions. Provided the conditions are met, the +Level 3 awards will vest on December 31, 2014, the 2012 LTIP awards will vest on December 31, 2015, and the Level 2 RSU awards will vest 80% on December 31, 2015 and +20% on December 31, 2016. (see "Grants of Plan Based Awards" table for more detail). +(3) The +closing price of the Company's Common Stock on December 31, 2012 was $40.27. +(4) Consists +of (i) 40,500 nonvested stock units granted on March 30, 2010, which shares vest in equal quarterly installments starting +March 31, 2013; and (ii) 14,667 which represents 66.7% of the nonvested stock units granted on March 30, 2011, which shares vest 33.3% on December 31 of 2013 and 2014. 100% +of the nonvested stock units granted on March 29, 2012 are excluded because the performance criteria was not met. +(5) Consists +of (i) 2,250 nonvested stock units granted on September 11, 2009, which shares began vesting in equal quarterly installments starting +September 30, 2012; (ii) 18,000 nonvested stock units granted on March 30, 2010, which shares vest in equal quarterly installments starting March 31, 2013; and +(iii) 6,667 which represents 66.7% of the nonvested stock units granted on March 30, 2011, which shares vest 33.3% on December 31 of 2013 and 2014. 100% of the nonvested stock +units granted on March 29, 2012 are excluded because the performance criteria was not met. +(6) Consists +of (i) 27,000 nonvested stock units granted on March 30, 2010, which shares vest in equal quarterly installments starting +March 31, 2013; and (iii) 10,000 which represents 66.7% of the nonvested stock units granted on March 30, 2011, which shares vest 33.3% on December 31 of 2013 and 2014. +100% of the nonvested stock units granted on March 29, 2012 are excluded because the performance criteria was not met. +(7) Consists +of (i) 27,000 nonvested stock units granted on March 30, 2010, which shares vest in equal quarterly installments starting +March 31, 2013; and (iii) 6,667 which represents 66.7% of the nonvested stock units granted on March 30, 2011, which shares vest 33.3% on December 31 of 2013 and 2014. 100% +of the nonvested stock units granted on March 29, 2012 are excluded because the performance criteria was not met. +(8) Consists +of 5,000 which represents 66.7% of the nonvested stock units granted on March 30, 2011, which shares vest 33.3% on December 31 of +2013 and 2014. 100% of the nonvested stock units granted on March 29, 2012 are excluded because the performance criteria was not met. +(9) Consists +of (i) 37,500 Level 2 RSUs; (ii) 70,000 Level 3 RSUs at 175%; and (iii) 85,334 2012 LTIP RSUs at 200%. +(10) Consists +of (i) 23,333 Level 3 RSUs at 175% and (ii) 29,334 2012 LTIP RSUs at 200%. +(11) Consists +of (i) 10,500 Level 2 RSUs; (ii) 35,000 Level 3 RSUs at 175%; and (iii) 42,666 2012 LTIP RSUs at 200%. +(12) Consists +of (i) 10,500 Level 2 RSUs; (ii) 23,333 Level 3 RSUs at 175%; and (iii) 29,334 2012 LTIP RSUs at 200%. +(13) Consists +of 21,334 2012 LTIP RSUs at 200%. +50 +2012 OPTION EXERCISES AND STOCK VESTED +The following table provides information, for the Named Executive Officers, regarding SAR exercises and stock award vesting during +2012, including the number of shares acquired upon exercise or vesting and the value realized, before payment of any applicable withholding tax and broker commissions. +SAR Awards +Stock Awards +Number of +Shares +Acquired on +Exercise +(#) +Value Realized on +Exercise +($) +Number of +Shares +Acquired on +Vesting +(#)(1) +Value Realized +on Vesting +($)(2) +Angel R. Martinez +— +$ +— +47,833 +$ +2,157,996 +Thomas A. George +— +$ +— +5,583 +$ +220,744 +Zohar Ziv +— +$ +— +32,000 +$ +1,443,148 +Constance X. Rishwain +— +$ +— +30,333 +$ +1,376,017 +Stephen M. Murray +— +$ +— +2,500 +$ +100,675 +(1) Total +shares received net of shares withheld for taxes were 26,488 by Angel Martinez; 3,235 by Thomas George; 18,315 by Zohar Ziv; 17,066 by Constance +Rishwain; and 1,200 by Stephen Murray. +(2) This +column calculates the NSU values based on the closing stock price on the quarterly vesting dates. +NONQUALIFIED DEFERRED COMPENSATION +In 2008, the Board of Directors adopted a Deferred Stock Unit Compensation Plan, a Sub Plan under the 2006 Equity Incentive Plan. A +director or employee of the Company who holds unvested restricted stock awards, including NSUs and RSUs, may elect to defer settlement of up to 100% of his or her awards. For each unit of stock held +pursuant to a restricted stock award that is deferred, the participant will receive one Deferred Stock Unit. Amounts deferred will be distributed, as described in the plan, at the time elected by the +participant. A participant's Deferred Stock Units will be settled in shares of Common Stock, as more specifically described in the plan. In 2011 and 2012, none of the Company's executive officers +elected to participate in the plan. +In +2009, the Compensation Committee adopted and approved a Nonqualified Deferred Compensation Plan. The plan is an unfunded, nonqualified deferred compensation program sponsored by the +Company to provide certain of its management or highly compensated employees designated by the Board of Directors (or a committee appointed by the Board of Directors to administer the plan) the +opportunity to defer compensation into the plan. The effective date for the plan for the first year was February 1, 2010, and thereafter the plan year is from January 1 to +December 31. Participants may defer up to 50% of their annual base salary and up to 95% of any performance bonus to the plan. At the discretion of the Board of Directors (or a committee +appointed by the Board of Directors to administer the plan), the Company may make additional contributions to be credited to the account of any or all participants in the plan. No such contribution +had been approved as of December 31, 2012. Under the terms of the plan, the Company established a rabbi trust as a reserve for the benefits payable under the plan. Distributions from the plan +are governed by the Internal Revenue Code and +51 +the +plan. Certain of the Named Executive Officers did elect to participate in this plan during 2010, 2011, and 2012 and, pursuant to such elections, amounts were contributed to this plan during 2012. +Name +Executive +contributions +in last FY(1) +Registrant +contributions +in last FY +Aggregate +earnings in +last FY +Aggregate +withdrawals/ +distributions +Aggregate +balance at +last FYE +Angel R. Martinez +$ +867,500 +$ +— +$ +153,191 +$ +— +$ +2,137,853 +Zohar Ziv +296,550 +— +31,982 +— +520,859 +$ +1,164,050 +$ +— +$ +185,173 +$ +— +$ +2,658,712 +(1) All +amounts reported in the contributions column are reported as compensation in the Summary Compensation Table +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL +The Company entered into Change of Control and Severance Agreements (the "Severance Agreements") with each of the US-based +Named Executive Officers effective as of January 1, 2010 to replace, in part, the expired employment agreements with such executives. These Severance Agreements eliminated gross ups for the +Internal Revenue Code section 280G excise tax penalty on "excess golden parachute payments" paid as a result of termination following a change of control. The information below describes +compensation and benefits that are payable or earned under the Severance Agreements with the Named Executive Officers, other than Stephen Murray, which were effective as of January 1, 2010. +Mr. Murray, who is based in the UK, has an employment agreement described in greater detail below. +For +purposes of the Severance Agreements, "Cause" means (i) any willful breach of duty by the executive in the course of their employment or continued violation of written Company +employment policies after written notice of such violation, (ii) violation of the Company's insider trading policies, (iii) conviction of a felony or any crime involving fraud, theft, +embezzlement, dishonesty or moral turpitude, (iv) engaging in activities which materially defame the Company, engaging in conduct which is materially injurious to the Company or its affiliates, +or any of their respective customer or supplier relationships, financially or otherwise, or (v) the executive's gross negligence or incapacity to perform duties, excluding total disability. +"Good +Reason" means without the consent of the Executive (a) the occurrence of material breach of this agreement by the Company, or (b) if within two years of a change of +control, there is a material reduction of the Executive's total compensation, benefits, and perquisites, the Company's relocation is greater than 50 miles from the location where the Executive +performs services, or a material change in the Executive's position or duties; provided, however, no such event shall constitute Good Reason hereunder unless the Executive shall have given written +notice to the Company of Executive's intent to +resign for "Good Reason" within 30 days after the Executive first becomes aware of the occurrence of any such event (specifying the nature and scope of the event) and such event or occurrence +shall not have been cured within 30 days of the Company's receipt of such notice. +"Change +of Control" means the occurrence of a merger, consolidation, sale of all or a major portion of the assets of the Company (or a successor organization) or similar transaction or +circumstance where any person or group acquires, in one or more transactions, beneficial ownership of more than 50% of the outstanding shares of any class of voting stock of the Company (or a +successor organization). +"Constructive +Termination" means a termination following the occurrence of any one or more of the following events without the executive's written consent: (i) any material +reduction in position, title, overall responsibilities, level of authority, level of reporting, base compensation, annual incentive +52 +compensation +opportunity, aggregate employee benefits or (ii) a change of the executive's location of employment by more than 50 miles. +Termination by the Company for Cause, or by Executive other than for Good Reason +Pursuant to the Severance Agreements with each of the US-based Named Executive Officers, if the executive is terminated by +the Company for Cause, or the executive terminates his or her employment, other than for Good Reason, then the Named Executive Officer will receive the following from the +Company: +• payment of his or her accrued base salary, accrued vacation, reimbursement for reimbursable expenses, accrued and vested +benefits under the Company's plans or programs and other benefits required to be paid by law, accrued but unpaid non-equity incentive bonus for the prior fiscal year (excluding any +non-equity incentive bonus for the year of termination); and +• right to exercise all vested unexercised SARs and awards outstanding as of the termination date. +Termination due to Death or Total Disability +Pursuant to the Severance Agreements with each of the US-based Named Executive Officers, if the executive is terminated due +to his or her Death or Total Disability, then in addition to those benefits provided upon a termination for Cause, the Named Executive Officer will +receive: +• pro-rated portion of his or her non-equity incentive bonus for the current fiscal year based on +actual length of service during the year of termination. +Termination by the Company without Cause or by Executive for Good Reason +Pursuant to the Severance Agreements with each of the US-based Named Executive Officers, if the executive is terminated by +the Company without Cause or by Executive for Good Reason, then in addition to those benefits provided upon a termination due to Death or Total Disability, the Named Executive Officer will +receive: +• payment of his or her then effective base salary for one year following his or her termination, subject to such executive +signing a release; and +• receipt of health benefits for a period of one year following his or her termination or his or her attainment of +alternative employment that provides health benefits, whichever is earlier. +Termination without Cause or by Executive for Good Reason within Two Years of a Change of Control +Pursuant to the Severance Agreements with each of the US-based Named Executive Officers, if the executive is terminated by +the Company without Cause or by Executive for Good Reason within two years of a Change of Control, then in addition to those benefits provided upon a termination due to Death or Total Disability, the +Named Executive Officer will receive: +• subject to such executive signing a release, payment of one and one-half times his or her then effective +annual base salary plus the greater of (i) one and one-half times the targeted non-equity incentive bonus immediately prior to the termination or (ii) one and +one-half times the average actual non-equity incentive bonus for the previous three years. Each of Mr. Martinez and Mr. Ziv will receive two times their +respective annual base salary plus the greater of (i) two times the targeted incentive bonus immediately prior to termination or (ii) two times the average actual non-equity +incentive bonus for the previous three years, subject to signing a release. +53 +• receipt of health benefits for a period of eighteen months following his or her termination or his or her attainment of +alternative employment that provides health benefits, whichever is earlier. Mr. Martinez will receive these benefits for two years and Mr. Ziv will receive these benefits for one year. +The +Company determined to provide Mr. Martinez and Mr. Ziv with a slightly higher severance payment upon a termination following a Change of Control to reflect each of +their key leadership roles and their importance to the Company's management. +No +Named Executive Officers will be entitled to gross ups for the Internal Revenue Code section 280G excise tax penalty on "excess golden parachute payments" as a result of +termination following a Change of Control. +Employment Agreement with Mr. Murray +Pursuant to Mr. Murray's employment agreement, if within six months following a Change of Control (as defined in the employment +agreement), there is any material diminution in Mr. Murray's title, duties, responsibilities, or status as they existed prior to the Change of Control, then he is entitled to immediately +require the Company to terminate his employment and pay him twelve months' salary and a bonus payment for the pro rated period of the fiscal year through the termination date. The rights under the +employment agreement shall only apply if, at the time of the Change of Control, Mr. Murray has not voluntarily left the Company, served notice on the Company, or notice of termination has not +already been given by the Company. +Equity Awards Upon Termination or Change of Control +Pursuant to the terms of the equity awards under the 2006 Plan, the employees that receive such awards, including the Named Executive +Officers, are entitled to certain benefits upon the occurrence of each of the following: (i) termination without cause or pursuant to a Constructive Termination (as such term is defined in the +2006 Plan), (ii) a change of control and either it is not approved by a majority of the directors or the successor entity does not provide for the continuance of the award, and (iii) a +change of control followed by termination. +For +the NSUs awarded annually as part of our performance-based short-term equity incentive compensation, if an awardee is terminated by the Company without cause or pursuant +to a Constructive Termination, if the threshold performance criteria of the NSUs awarded to such executive have been satisfied, the awardee will be entitled to accelerated vesting for a pro rata +portion of the NSU award based on a fraction, the numerator of which is the length of service beginning in January in the year of the NSU grant divided by 48 months, and will be settled in +shares of the Company's common stock. If a change of control occurs and either it is not approved by a majority of the directors or the successor entity does not provide for the continuance of the +NSUs, then the NSUs will fully vest if the threshold performance criteria has been satisfied. Finally, if an awardee is terminated without cause or pursuant to a Constructive Termination within twelve +months of a change of control, he or she will be entitled to full acceleration of any unvested NSUs awarded. +For +the Level 1 and Level 2 SARs and RSUs awarded as part of our performance-based long-term equity incentive compensation, upon a change of control the +performance +conditions of the SARs and RSUs will be deemed satisfied, but the awards will remain subject to service-based vesting conditions. If a change of control occurs and either it is not approved by a +majority of the directors or the successor entity does not provide for the continuance of the SARs and RSUs, then the SARs and RSUs will fully vest. Finally, if an awardee is terminated without cause +or pursuant to a Constructive Termination within twelve months of a change of control, he or she will be entitled to full acceleration of any unvested SARs and RSUs. The RSUs will fully vest upon the +awardee's death or disability. +54 +For +the Level 3 and 2012 LTIP RSUs awarded as part of our performance-based long-term equity incentive compensation, upon a change of control the performance +conditions of the RSUs will be deemed satisfied and the target number of RSUs shall vest effective approximately four years after grant, but the awards will remain subject to service-based vesting +conditions. If a change of control occurs and either it is not approved by a majority of the directors or the successor entity does not provide for the continuance of the RSUs, then the target number +of RSUs will fully vest immediately, regardless of the performance conditions. Finally, if an awardee is terminated without cause or pursuant to a Constructive Termination within twelve months of a +change of control, he or she will be entitled to acceleration of the target number of RSUs, regardless of the performance conditions. Upon the awardee's death, disability or retirement, a +pro-rata portion of the RSUs, based on a fraction the numerator of which is the length of service beginning in January the year of grant divided by 48 months, will fully vest +effective as of December 31 four years after the grant, subject to the achievement of the performance conditions. +A +summary of payments and benefits that would be provided by the Company in addition to amounts accrued for unpaid base salary, vacation pay, non-equity incentive bonus and +reimbursable expenses, if the termination or change of control had occurred on December 31, 2012 (based on the closing price of the Company's common stock on December 31, 2012 of +$40.27), given the Named Executive Officers' compensation and service levels per their respective Severance Agreements and equity awards is as follows: +Upon Termination +Name +Type of Compensation or Benefit +For Death or +Total Disability +By the Company +Without Cause +or by Executive +for Good Reason +Upon Change +of Control +Angel R. Martinez +cash payments +$ +— +$ +1,200,000 +$ +5,208,667 +value of health benefits +— +23,160 +46,321 +value of NSUs +— +1,518,521 +2,221,575 +value of RSUs +3,778,675 +— +4,839,125 +value of SARs +— +— +2,452,443 +3,778,675 +2,741,681 +14,768,131 +Thomas A. George +cash payments +— +475,000 +1,263,344 +value of health benefits +— +18,991 +28,486 +value of NSUs +— +677,885 +993,340 +value of RSUs +765,125 +— +1,127,560 +765,125 +1,171,876 +3,412,731 +Zohar Ziv +cash payments +— +600,000 +2,567,333 +value of health benefits +— +16,656 +16,656 +value of NSUs +— +1,016,818 +1,489,990 +value of RSUs +1,557,100 +— +2,087,315 +value of SARs +— +— +613,111 +1,557,100 +1,633,474 +6,774,405 +Constance X. Rishwain +cash payments +— +475,000 +1,550,125 +value of health benefits +— +21,121 +31,681 +value of NSUs +— +949,708 +1,355,770 +value of RSUs +1,187,960 +— +1,550,395 +value of SARs +— +— +613,111 +1,187,960 +1,445,829 +5,101,082 +Stephen M. Murray +cash payments +— +655,080 +682,921 +value of NSUs +— +79,701 +201,350 +value of RSUs +214,780 +— +429,560 +214,780 +734,781 +1,313,831 +No additional payments or benefits would be provided by the Company if the termination occurred by the Company for Cause or by the executive +without Good Reason. +55 +DIRECTOR COMPENSATION +For service during 2012, directors who are not employees of the Company or its subsidiaries, which we refer to as "Nonemployee +Directors," received an annual retainer of $50,000 in cash plus $15,000 for each committee assignment. Nonemployee Directors are also reimbursed for any expenses they may incur with respect to such +meetings. In addition, the following positions were entitled to receive an additional annual retainer fee of $70,000 for Lead Director, $40,000 for Audit Committee Chair, $25,000 for the Chair for the +Compensation and Management Development Committee, and $20,000 for the Chair of the Corporate Governance and Nominating Committee. All or any portion of the cash fees paid to a director may, at the +election of the director, be paid in stock, pursuant to the Company's 2006 Equity Incentive Plan. +Nonemployee +Directors also receive common stock grants with a total value of approximately $125,000 annually, to be issued in quarterly installments with the number of shares to be +determined using a rolling average of the closing price of the Company's common stock on Nasdaq during the last ten trading days leading up to and including the 15 th day of the +last month of each quarter. +Nonemployee +Directors also receive product discounts, which are generally available to the Company's employees and from time to time may receive products without charge in order to help +expand the directors' knowledge of the Company's products. Nonemployee Directors who did not serve as directors for the full year received a pro-rated portion of the amounts discussed +above. +In +2012, the Board of Directors increased the fees for the Chair of the Compensation and Management Development Committee and the Chair of the Corporate Governance and Nominating +Committee to reflect the increased duties of these positions. Other than these increases, the Board did not make any other changes to the Board compensation package provided to the Nonemployee +Directors in 2011. +56 +In +addition, in 2011, the Board of Directors adopted stock ownership guidelines for the Nonemployee Directors. Nonemployee Directors are also required to hold Company shares worth five +times the annual retainer within five years of joining the Board and each director must hold Company shares within one year of joining the Board. +Name +Year +Fees +Earned in +2012 +($) +Stock +Awards +($) +Total +($) +John M. Gibbons +2012 +$ +128,750 +$ +120,676 +(1)(2) +$ +249,426 +Director +Rex A. Licklider +2012 +87,917 +120,676 +(1) +208,593 +Director +Ruth M. Owades +2012 +27,083 +49,524 +(1)(3) +76,607 +Director +John G. Perenchio +2012 +100,333 +120,676 +(1) +221,009 +Director +Maureen Conners +2012 +89,167 +120,676 +(1) +209,843 +Director +Karyn O. Barsa +2012 +73,750 +120,676 +(1) +194,426 +Director +Michael F. Devine +2012 +88,333 +120,676 +(1) +209,009 +Director +James E. Quinn +2012 +65,000 +(5) +120,676 +(1) +185,676 +Director +Lauri M. Shanahan +2012 +65,000 +120,676 +(1)(4) +185,676 +Director +Angel R. Martinez(6) +2012 +N/A +N/A +N/A +Chair of the Board +(1) Represents +grants of 474 shares of common stock at a per share price of $63.05 on March 30, 2012, 606 shares of common stock at a per share price of +$48.61 on June 15, 2012, 670 shares of common stock at a per share price of $47.97 on September 17, 2012, and 789 shares of common stock at a per share price of $37.00 on +December 17, 2012. +(2) Entire +amount of compensation was deferred until January 2, 2013 pursuant to the Deferred Stock Unit Compensation Plan. +(3) Ruth +Owades did not stand for re-election and her term of office ended effective upon the conclusion of the annual meeting of stockholders held +on May 24, 2012. +(4) Entire +amount of compensation was deferred until January 1, 2017 pursuant to the Deferred Stock Unit Compensation Plan. +(5) Fees +earned in 2012 were paid in stock. +(6) Mr. Martinez +received compensation as President and Chief Executive Officer of the Company for 2012 as discussed previously. He did not receive any +compensation as a director in 2012. +57 +EQUITY COMPENSATION PLAN INFORMATION +The following table sets forth information regarding shares of our common stock that may be issued under our equity compensation plans +as of December 31, 2012. +Number of securities +to be issued +upon exercise of +outstanding options, +warrants and rights(1) +Weighted-average +exercise price of +outstanding options, +warrants and rights(2) +Number of securities +remaining available +for future issuance(3) +Equity compensation plans approved by security holders +1,796,019 +$ +26.46 +3,363,860 +Equity compensation plans not approved by security holders +— +— +— +Total +1,796,019 +$ +26.46 +3,363,860 +(1) Includes +outstanding options, unexercisable SARs and unvested NSUs and RSUs. The nature of the NSU and RSU grants are described in the Compensation +Discussion and Analysis. +(2) The +weighted-average exercise price of the options was $2.13 and the stock price at the date of grant of the SARs was $26.73. The weighted-average exercise +price does not take into account the NSUs and RSUs. +(3) Includes +6,000,000 authorized shares under the 2006 Plan less actual shares issued as well as shares reserved for outstanding SARs, NSUs and RSUs. +Compensation Policies and Practices and their Relation to Risk Management +In addition to our compensation policies for executive officers, the Compensation and Management Development Committee reviews the +risks and rewards associated with the Company's compensation programs for all employees generally. The Committee believes that our compensation programs for all employees include elements that +mitigate risk while continuing to properly incentivize our employees. The Committee also believes that our compensation policies reward prudent business judgment and appropriate risk taking for our +long term performance. Specifically, the policies which mitigate undue risk taking include: (i) independent Committee oversight and the ability of the Committee to exercise its discretion, +(ii) the use of a mix of cash and equity, (iii) the use of multiple performance factors in our cash incentive compensation plan, so that employees do not focus on a single financial +measure, (iv) capping awards payable under our cash incentive compensation plan, (v) multiple-year vesting of our equity awards to support long-term stockholder +value creation and employee retention, (vi) subjecting our annual equity awards granted in 2011 and 2012 to a Clawback Policy, which was adopted in December 2012, and (vii) prohibiting +in our insider trading policy our Named Executive Officers and other key executives from hedging the economic interest in the Company securities that they hold. +Management +and the Committee evaluate the risk involved with the compensation policies for all of our employees and do not believe any of the Company's compensation programs create risks +that are reasonably likely to pose a material adverse impact to the Company. +58 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth, as of February 28, 2013, certain information concerning the shares of common stock beneficially +owned by (i) each person who is a Named Executive Officer, (ii) each director and director nominee, (iii) all executive officers and directors as a group (fifteen persons), and +(iv) each person known by the Company to be the beneficial owner of more than 5% of our common stock (other than directors, executive officers and depositaries) based upon the most recent SEC +filings available. +Name and Address of Beneficial Owner(1) +Amount and +Nature of Beneficial +Ownership(2)(3) +Percent +of Class(3) +Named Executive Officers +Angel R. Martinez(10) +225,846 +* +Thomas A. George +3,235 +* +Zohar Ziv(10) +74,169 +* +Constance X Rishwain(10) +46,334 +* +Stephen Murray +1,200 +* +Directors and Director Nominees +Angel R. Martinez +225,846 +* +Rex A. Licklider +633,659 +1.8 +% +John M. Gibbons(4) +21,437 +* +John G. Perenchio +79,771 +* +Maureen Conners +16,827 +* +Karyn O. Barsa +9,552 +* +Mike F. Devine III +3,718 +* +James E. Quinn +6,378 +* +Lauri M. Shanahan +107 +* +All directors and executive officers as a group (fifteen persons) +1,159,013 +3.3 +% +5% Stockholders +Morgan Stanley(5) +1,944,409 +5.5 +% +Vanguard Group Inc.(6) +1,990,284 +5.6 +% +BlackRock, Inc.(7) +2,086,193 +5.9 +% +Goldman Sachs Asset Management(8) +1,881,309 +5.3 +% +Janus Capital Management LLC(9) +3,131,606 +8.9 +% +* Percentage +of shares beneficially owned does not exceed 1% of the class so owned. +(1) The +address of each beneficial owner is 495-A South Fairview Avenue, Goleta, California 93117, unless otherwise noted. +(2) Unless +otherwise noted, the Company believes that each individual or entity named has sole investment and voting power with respect to shares of Common +Stock indicated as beneficially owned by them, subject to community property laws, where applicable. +(3) Pursuant +to Rule 13d-3(d)(1) of the Exchange Act, shares not outstanding which are subject to options, warrants, rights or conversion +privileges exercisable on or before the date that is 60 days after February 28, 2013 are deemed outstanding for the purpose of calculating the number and percentage owned by such person, +but not deemed outstanding for the purpose of calculating the percentage owned by any other person listed. +59 +(4) Includes +21,437 shares held by the Gibbons Living Trust as to which Mr. Gibbons has joint voting and investment power. +(5) This +information is based solely on a Schedule 13G filed by the party on February 1, 2013 whose business address is 1585 Broadway, New York, +NY 10036. Morgan Stanley has sole voting power for 1,907,700 shares, shared voting power for 17,923 shares and sole dispositive power for 1,944,409 shares. +(6) This +information is based solely on a Schedule 13G filed by the party on February 12, 2013 whose business address is 100 Vanguard Blvd, +Malvern, PA 19355. The Vanguard Group has sole voting power for 26,695 shares , sole dispositive power for 1,965,165 shares and shared dispositive power for 25,119 shares. +(7) This +information is based solely on a Schedule 13G/A filed by the party on February 8, 2013 whose business address is 40 East +52nd Street, New York, NY 10022. Includes 2,086,193 shares held by BlackRock, Inc., which identified itself as a parent holding company, with sole dispositive power and voting power with +respect to all of such shares. +(8) This +information is based solely on a Schedule 13G filed by the party on February 14, 2013 whose business address is 200 West Street, New +York, NY 10282. Goldman Sachs Asset Management has shared voting power for 1,857,272 shares and shared dispositive power for 1,881,309 shares. +(9) This +information is based solely on a Schedule 13G/A filed by the party on February 14, 2013 whose business address is 151 Detroit Street, +Denver, CO 80206. Janus Capital Management LLC ("Janus Capital") has shared voting and dispositive power for 642,306 shares, and sole voting and dispositive power for 2,489,300 shares. +(10) Includes +exercisable SARs of 160,000 for Angel Martinez; 30,000 for Zohar Ziv; and 15,000 for Constance X. Rishwain. +60 +REPORT OF THE AUDIT COMMITTEE +The Audit Committee of the Board of Directors is responsible for providing independent, objective oversight of the Company's financial +reporting, the Company's independent registered public accounting firm, the highest ranking manager of internal audit, legal and regulatory compliance, related party transactions, code of conduct and +system of internal controls. The Audit Committee is currently composed of three directors, each of whom meets the independence and experience requirements under the Nasdaq Listing Rules and the +independence requirements of the SEC. +Management +is responsible for the preparation of the Company's financial statements and financial reporting process including its system of internal controls. KPMG LLP, the +Company's independent registered public accounting firm is responsible for performing an independent audit of the Company's consolidated financial statements in accordance with the standards of the +Public Company Accounting +Oversight Board (United States) (the "PCAOB") and expressing (i) an opinion on whether the Company's consolidated financial statements present fairly, in all material respects, the Company's +financial position and results of operations and cash flows for the periods presented in conformity with US generally accepted accounting principles and (ii) an opinion on whether the Company +maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control-Integrated Framework issued +by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Audit Committee's responsibility is to monitor and oversee these processes. The Board of Directors has determined +that Michael F. Devine, the Chair of the Audit Committee, is independent and is an "audit committee financial expert" under applicable rules and regulations. +In +connection with these responsibilities, the Audit Committee met with management and the Company's independent registered public accounting firm to review and discuss the +December 31, 2012 consolidated financial statements and obtained from management their representation that the Company's financial statements have been prepared in accordance with US generally +accepted accounting principles. Management determined that, as of December 31, 2012, the Company maintained effective internal control over financial reporting. +The +Audit Committee also discussed with the independent registered public accounting firm the matters required by Statement on Auditing Standards No. 61 (Communication with Audit +Committees), which includes, among other items, information regarding the conduct of the audit of the Company's consolidated financial statements. The Audit Committee also received written disclosures +from KPMG LLP required by the PCAOB's Rule 3200T: Communication with Audit Committees Concerning Independence, and the Audit Committee discussed with KPMG LLP its independence +from the Company and the Company's management. The Audit Committee has further considered the compatibility of the services provided by KPMG LLP with that firm's independence. +The +Audit Committee operates under a written charter, which was adopted by the Board of Directors and is assessed annually for adequacy by the Audit Committee. The Audit Committee held 8 +meetings during fiscal 2012, including meetings with the independent registered public accounting firm and the highest ranking manager of internal audit, both with and without management present. In +performing its functions, the Audit Committee acts only in an oversight capacity. It is not the responsibility of the Audit Committee to determine that the Company's financial statements are complete +and accurate, are presented in accordance with U.S. generally accepted accounting principles or present fairly the results of operations of the Company for the periods presented or that the Company +maintains appropriate internal controls. Furthermore, the Audit Committee's oversight responsibilities do not independently assure that the audit of the Company's financial statements has been carried +out in accordance with the standards of the PCAOB or that the Company's registered public accounting firm is independent. +61 +Based +upon the Audit Committee's review and discussions with management and the independent registered public accounting firm, and subject to the limitations of the Audit Committee's +role and responsibilities referred to above and in the Audit Committee charter, the Audit Committee recommended that the Board of Directors include the audited consolidated financial statements in the +Company's Annual Report on Form 10-K for the year ended December 31, 2012, which was filed with the SEC on March 1, 2013. +THE AUDIT COMMITTEE +Michael F. Devine, III, Chair +Karyn O. Barsa +John M. Gibbons +The +Report of the Audit Committee shall not be deemed incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the +Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates this information by reference, and shall +not otherwise be deemed filed under such Acts. +Certain Relationships and Related Person Transactions +The Company's legal department is primarily responsible for identifying and reviewing relationships and transactions in which the +Company and our directors, executive officers, certain of our stockholders or their immediate family members are participants to determine whether any of these related persons had or will have a +direct or indirect material interest. In order to identify potential related person transactions, the Company's legal department annually prepares and distributes to all directors and executive +officers a written questionnaire which includes questions intended to elicit information about any related person transactions. In addition, the Company's Code of Ethics addresses conflicts of +interest where an individual's private interests interfere or conflict with the interests of the Company, including relationships with suppliers, customers or competitors. Conflicts of interest which +might impair or appear to impair the exercise of judgment solely for the benefit of the Company are prohibited. In general, such conflicts must be approved by the legal department, the employee's +supervisor or, in the case of directors, the Audit Committee. Information regarding potential conflicts of interests in violation of the Company's Code of Ethics may be reported to the Company's +anonymous reporting hotline and may be subsequently obtained by the Chair of the Audit Committee, the Chair of the Board of Directors and the highest ranking manager of internal audit. +If +a related person transaction is identified by the legal department as one which must be reported in the Company's Proxy Statement pursuant to applicable SEC regulations, the Audit +Committee is responsible for reviewing and approving or ratifying any such related person transactions. In evaluating related person transactions, the Audit Committee members apply the same standards +of good faith and fiduciary duty they apply to their general responsibilities as the Audit Committee and as individual directors. The Audit Committee may approve a related person transaction when, in +its good faith judgment, the transaction is in the best interests of the Company. +There +were no disclosable transactions with related persons under Item 404 of Regulation S-K during the fiscal year ended December 31, 2012 nor are any +such transactions currently proposed. +Limitation of Liability and Indemnification of Directors and Officers +Our Certificate of Incorporation and Bylaws provide that we shall indemnify directors and executive officers to the fullest extent now +or hereafter permitted by the Delaware General Corporation Law (DGCL). In addition, we have entered into indemnification agreements with our +62 +directors +and executive officers in which we agree to indemnify such persons to the fullest extent now or hereafter permitted by the DGCL. +We +have obtained a liability policy for our directors and officers as permitted by the DGCL which extends to, among other things, liability arising under the Securities Act of 1933, as +amended. +We +maintain an insurance policy pursuant to which our directors and officers are insured, within the limits and subject to the limitations of the policy, against specified expenses in +connection with the defense of claims, actions, suits or proceedings, and liabilities which might be imposed as a result of such claims, actions, suits or proceedings, that may be brought against them +by reason of their being or having been directors or officers. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the directors, executive officers and persons who own +more than 10% of our common stock (collectively "Section 16 Persons") to file initial reports of ownership (Forms 3) and reports of changes in ownership of common stock (Forms 4 +and Forms 5) with the SEC as well as provide copies of the reports to the Company. +To +the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company and representations from each Section 16 Person known to the Company +that no other reports were required, during the fiscal year ended December 31, 2012, all Section 16(a) filing requirements applicable to its Section 16 Persons were complied with +except that: +(i) Rex +Licklider filed a Form 4 on May 11, 2012, which reported one transaction related to the purchase of Company stock, that was due to be reported on +May 7, 2012 and +(ii) each +of John Gibbons and Lauri Shanahan filed a Form 4 on January 2, 2013, which reported one transaction each related to the issuance by the Company of +quarterly shares for director compensation, that were due to be reported on December 19, 2012. +63 +RATIFICATION OF THE APPOINTMENT OF KMPG LLP AS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +PROPOSAL NO. 2 +For the 2012 fiscal year, KPMG LLP provided audit services, which included examination of the Company's annual consolidated +financial statements. A summary of the fees for these services provided by KPMG LLP is below. The Audit Committee has selected KPMG LLP to provide audit services to the Company and its +subsidiaries for the fiscal year ending December 31, 2013. Our stockholders are being requested to ratify this selection at the Annual Meeting. A representative of KPMG LLP will attend +the Annual Meeting to make any statements he or she may desire and to respond to appropriate stockholder questions. +Although +this appointment is not required to be submitted to a vote of the stockholders, the Audit Committee believes it is appropriate as a matter of policy to request that the +stockholders ratify the appointment. If the stockholders do not ratify the appointment, the Audit Committee will consider the selection of another independent registered public accounting firm, but is +not required to select a different firm. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE +"FOR" PROPOSAL NO. 2 TO RATIFY THE APPOINTMENT OF KPMG LLP AS THE +COMPANY'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +FOR THE FISCAL YEAR ENDING DECEMBER 31, 2013. +Audit Fees and All Other Fees +Audit Fees +Fees approved for audit services totaled approximately $1,848,000 in 2012 and $2,038,000 in 2011. The 2012 audit fees include fees +associated with the audit of the Company's consolidated balance sheets as of December 31, 2012 and 2011, the related consolidated statements of comprehensive income, stockholders' equity, and +cash flows for each of the years in the three-year period ended December 31, 2012 and the audit of internal control over financial reporting as of December 31, 2012, as well +as the reviews of the Company's quarterly reports on Form 10-Q, and certain statutory audits required internationally. +Audit-Related Fees +The Company did not incur audit-related fees in 2012 and was billed $228,000 for audit-related fees in 2011. +Tax Fees +Fees incurred for tax services, including tax compliance, tax advice and tax planning for income taxes and customs matters, totaled +approximately $5,000 in 2012 and $62,000 in 2011. +All Other Fees +The Company was not billed for any other fees in 2012 or 2011. +Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm +The Audit Committee administers the Company's engagement of KPMG LLP and pre-approves all their audit and +permissible non-audit services on a case-by-case basis. In approving non-audit services, the Audit Committee considers whether the engagement could +compromise the independence of +64 +KPMG LLP, +and whether for reasons of efficiency or convenience it is in the best interest of the Company to engage its independent registered public accounting firm to perform the services. The +Audit Committee has determined that performance by KPMG LLP of the non-audit services listed above did not affect their independence. +Prior +to engagement, the Audit Committee pre-approves all independent registered public accounting firm services. During the year, circumstances may arise when it may become +necessary to engage the independent registered public accounting firm for additional services not contemplated in the original pre-approval categories. In those instances, the Audit +Committee requires that those services be submitted to the Audit Committee Chair for specific pre-approval before the Company can engage the independent registered public accounting firm +to provide them. The Chair reports any pre-approval decisions to the Audit Committee at its next scheduled meeting for approval by the Committee. +65 +ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION +PROPOSAL NO. 3 +We are asking our stockholders to approve a non-binding advisory resolution on the compensation paid to our Named Executive +Officers as described in detail in the "Compensation Discussion and Analysis" section of this Proxy Statement. The Compensation and Management Development Committee has structured our executive +compensation program to: +• Attract and retain key executives +• Align executives' interests with those of our stockholders +• Pay for performance +• Reward achievement of short-term and long-term goals +In +2012, we achieved a record $1.414 billion in annual net sales, continuing a trend of year-over-year increases in net sales for over a decade. In the +face of a challenging economic environment, we experienced our first decline in earnings per share in the past five years. Despite record revenue results, because certain financial goals were not +achieved in 2012, we did not make payments under our 2012 Annual Cash Incentive Plan with respect to Company performance goals although we did make payments under the plan for individual achievement +of qualitative strategic goals. In addition, because certain financial goals were not achieved in 2012, the 2012 Annual Equity Awards were not earned. We believe that these compensation results +provide a clear indication of our pay-for-performance philosophy. At the same time, we believe that our Named Executive Officers continue to be incentivized to achieve +aspirational goals through our long term incentive plan awards. +We +believe that our executive compensation practices have fostered our success by: +• Including reasonable vesting provisions for our equity awards +• Providing both cash and equity awards and an appropriate mix of these awards +• Establishing performance goals to reflect the individual contribution of each executive and Company-wide +financial performance +• Requiring achievement of long and short-term Company goals before payment of certain compensation elements +We +urge stockholders to carefully read the "Compensation Discussion and Analysis" beginning on page 27, which describes in greater detail how our executive compensation policies +and procedures operate, as well as the Summary Compensation Table and related compensation tables that follow it. The Board and the Compensation and Management Development Committee believe that the +compensation policies and procedures described in this Proxy Statement are effective in achieving our compensation objectives. +Therefore, +in accordance with Section 14A of the Securities Exchange Act of 1934, and as a matter of good corporate governance, we ask our stockholders to approve the following +advisory resolution at the 2013 Annual Meeting: +"RESOLVED, +that the Company's stockholders approve, on a non-binding advisory basis, the compensation of the Named Executive Officers, as described in the Compensation Discussion and +Analysis, the Summary Compensation Table, and the related compensation tables, notes and narrative in the Proxy Statement for the Company's 2013 Annual Meeting of Stockholders." +Because +this vote is advisory only, it will not be binding upon the Board of Directors or the Compensation and Management Development Committee. However, the Compensation and +66 +Management +Development Committee will take the outcome of the vote into account when considering future executive compensation arrangements. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE +"FOR" PROPOSAL NO. 3 TO APPROVE THE COMPENSATIN OF OUR NAMED +EXECUTIVE OFFICERS, AS DESCRIBED IN THIS PROXY STATEMENT. +OTHER BUSINESS OF THE ANNUAL MEETING +Management is not aware of any matters to come before the Annual Meeting or any postponement or adjournment thereof other than the +election of directors, the ratification of the selection of the Company's independent registered public accounting firm, and the advisory vote on executive compensation. However, inasmuch as matters +of which management is not now aware may come before the Annual Meeting or any postponement or adjournment thereof, the proxies confer discretionary authority with respect to acting thereon, and the +persons named in such proxies intend to vote, act and consent in accordance with their best judgment with respect thereto, provided that, to the extent the Company becomes aware a reasonable time +before the Annual Meeting of any matter to come before such meeting, the Company will provide an opportunity to vote by proxy directly on such matter. Upon receipt of such proxies in time for voting, +the shares represented thereby will be voted as indicated thereon and as described in this Proxy Statement. +ANNUAL REPORT ON FORM 10-K +A copy of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2012 (excluding the +exhibits thereto) as filed with the SEC, accompanies this Proxy Statement, but it is not deemed to be a part of the proxy soliciting material. The Form 10-K contains consolidated +financial statements of the Company and its subsidiaries and the report thereon of KPMG LLP, the Company's independent registered public accounting firm. +The +Company will provide a copy of the exhibits to its Form 10-K for the fiscal year ended December 31, 2012 upon the written request of any beneficial owner of +our shares as of the Record Date and reimbursement of the Company's reasonable expenses. Such request should be addressed to the Corporate Secretary at the Company's corporate offices located at +495-A South Fairview Avenue, Goleta, California 93117. +BY ORDER OF THE BOARD OF DIRECTORS +/s/ ANGEL R. MARTINEZ +Angel R. Martinez +Chair of the Board of Directors, President and Chief Executive Officer +Goleta, +California +March 28, 2013 +67 +THIS PROXY CARD +IS VALID ONLY WHEN SIGNED AND DATED. KEEP THIS PORTION FOR YOUR RECORDS +DETACH AND RETURN THIS PORTION ONLY TO VOTE, MARK BLOCKS BELOW IN BLUE OR +BLACK INK AS FOLLOWS: Signature (Joint Owners) Signature [PLEASE SIGN WITHIN +BOX] Date Date To withhold authority to vote for any individual nominee(s), +mark “For All Except” and write the number(s) of the nominee(s) on the line +below. 0 0 0 0 0 0 0 0 0 0000163793_1 R1.0.0.51160 For Withhold For All All +All Except The Board of Directors recommends you vote FOR the following: 1. +Election of Directors Nominees 01 Angel R. Martinez 02 Rex A. Licklider 03 +John M. Gibbons 04 John G. Perenchio 05 Maureen Conners 06 Karyn O. Barsa 07 +Michael F. Devine, III 08 James Quinn 09 Lauri Shanahan 495-A SOUTH FAIRVIEW +AVE GOLETA, CA 93117 VOTE BY INTERNET - www.proxyvote.com Use the Internet to +transmit your voting instructions and for electronic delivery of information +up until 11:59 P.M. Eastern Time on May 7, 2013. Have your proxy card in hand +when you access the web site and follow the instructions to obtain your +records and to create an electronic voting instruction form. ELECTRONIC +DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs +incurred by our company in mailing proxy materials, you can consent to +receiving all future proxy statements, proxy cards and annual reports +electronically via e-mail or the Internet. To sign up for electronic +delivery, please follow the instructions above to vote using the Internet +and, when prompted, indicate that you agree to receive or access proxy +materials electronically in future years. VOTE BY PHONE - 1-800-690-6903 Use +any touch-tone telephone to transmit your voting instructions up until 11:59 +P.M. Eastern Time on May 7, 2013. Have your proxy card in hand when you call +and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy +card and return it in the postage-paid envelope we have provided or return it +to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. The +Board of Directors recommends you vote FOR proposals 2 and 3. For Against +Abstain 2. To ratify the appointment of KPMG LLP as our independent +registered public accounting firm for the year ending December 31, 2013. 3. +To approve, by a non-binding advisory vote, the compensation of our named +executive officers as disclosed in the Compensation Discussion and Analysis +section of the Proxy Statement. NOTE: In their discretion, the proxies are +authorized to vote upon such other business as may properly come before the +meeting and any continuations, postponements or adjournments thereof. Please +sign exactly as your name(s) appear(s) hereon. When signing as attorney, +executor, administrator, or other fiduciary, please give full title as such. +Joint owners should each sign personally. All holders must sign. If a +corporation or partnership, please sign in full corporate or partnership +name, by authorized officer. +0000163793_2 +R1.0.0.51160 Important Notice Regarding the Availability of Proxy Materials +for the Annual Meeting: The Notice & Proxy Statement, Annual Report is/ +are available at www.proxyvote.com . DECKERS OUTDOOR CORPORATION Annual +Meeting of Stockholders May 8, 2013 3:00 PM This proxy is solicited by the +Board of Directors of Deckers Outdoor Corporation The undersigned hereby +appoints Zohar Ziv and Thomas A. George, and each of them, with power to act +without the other and with power of substitution, as proxies and +attorneys-in-fact and hereby authorizes them to represent and vote, as +provided on the other side, all the shares of Common Stock of Deckers Outdoor +Corporation which the undersigned is entitled to vote and, in their +discretion, to vote upon such other business as may properly come before the +2013 Annual Meeting of Stockholders to be held on May 8, 2013 and any +continuations, postponements or adjournments thereof, with all powers which +the undersigned would possess if present at the Meeting. This proxy card, +when properly executed, will be voted in the manner directed herein by the +undersigned. If no direction is made but the card is signed, this proxy card +will be voted for the election of all nominees under proposal 1, for proposal +2, and for proposal 3, and in the discretion of the proxies with respect to +such other business as may properly come before the meeting. At the date the +Proxy Statement went to press, we did not anticipate any other matters would +be raised at the Annual Meeting. Continued and to be signed on reverse side +QuickLinks +2013 Proxy Summary +QUESTIONS AND ANSWERS ABOUT THE 2013 ANNUAL MEETING AND VOTING +ELECTION OF DIRECTORS PROPOSAL NO. 1 +THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF THE ABOVE NOMINEES FOR DIRECTOR. +CORPORATE GOVERNANCE +EXECUTIVE OFFICERS +COMPENSATION DISCUSSION AND ANALYSIS +CEO's 2012 Guaranteed Pay vs. At-Risk Pay +CEO's 2012 At-Risk Pay Not Earned +REPORT OF THE COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE +SUMMARY COMPENSATION TABLE +GRANTS OF PLAN BASED AWARDS IN 2012 +OUTSTANDING EQUITY AWARDS AT 2012 FISCAL YEAR END +2012 OPTION EXERCISES AND STOCK VESTED +NONQUALIFIED DEFERRED COMPENSATION +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL +DIRECTOR COMPENSATION +EQUITY COMPENSATION PLAN INFORMATION +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +REPORT OF THE AUDIT COMMITTEE +RATIFICATION OF THE APPOINTMENT OF KMPG LLP AS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +PROPOSAL NO. 2 +ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION +PROPOSAL NO. 3 +OTHER BUSINESS OF THE ANNUAL MEETING +ANNUAL REPORT ON FORM 10-K \ No newline at end of file diff --git a/raw/proxies/0000910521/0001047469-13-003524/proxy_rpt.txt b/raw/proxies/0000910521/0001047469-13-003524/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e253ab0e8719b9bd4c0738b67b898ddadb6b24b2 --- /dev/null +++ b/raw/proxies/0000910521/0001047469-13-003524/proxy_rpt.txt @@ -0,0 +1,30 @@ +Certain Relationships and Related Person Transactions +The Company's legal department is primarily responsible for identifying and reviewing relationships and transactions in which the +Company and our directors, executive officers, certain of our stockholders or their immediate family members are participants to determine whether any of these related persons had or will have a +direct or indirect material interest. In order to identify potential related person transactions, the Company's legal department annually prepares and distributes to all directors and executive +officers a written questionnaire which includes questions intended to elicit information about any related person transactions. In addition, the Company's Code of Ethics addresses conflicts of +interest where an individual's private interests interfere or conflict with the interests of the Company, including relationships with suppliers, customers or competitors. Conflicts of interest which +might impair or appear to impair the exercise of judgment solely for the benefit of the Company are prohibited. In general, such conflicts must be approved by the legal department, the employee's +supervisor or, in the case of directors, the Audit Committee. Information regarding potential conflicts of interests in violation of the Company's Code of Ethics may be reported to the Company's +anonymous reporting hotline and may be subsequently obtained by the Chair of the Audit Committee, the Chair of the Board of Directors and the highest ranking manager of internal audit. +If +a related person transaction is identified by the legal department as one which must be reported in the Company's Proxy Statement pursuant to applicable SEC regulations, the Audit +Committee is responsible for reviewing and approving or ratifying any such related person transactions. In evaluating related person transactions, the Audit Committee members apply the same standards +of good faith and fiduciary duty they apply to their general responsibilities as the Audit Committee and as individual directors. The Audit Committee may approve a related person transaction when, in +its good faith judgment, the transaction is in the best interests of the Company. +There +were no disclosable transactions with related persons under Item 404 of Regulation S-K during the fiscal year ended December 31, 2012 nor are any +such transactions currently proposed. +Limitation of Liability and Indemnification of Directors and Officers +Our Certificate of Incorporation and Bylaws provide that we shall indemnify directors and executive officers to the fullest extent now +or hereafter permitted by the Delaware General Corporation Law (DGCL). In addition, we have entered into indemnification agreements with our +62 +directors +and executive officers in which we agree to indemnify such persons to the fullest extent now or hereafter permitted by the DGCL. +We +have obtained a liability policy for our directors and officers as permitted by the DGCL which extends to, among other things, liability arising under the Securities Act of 1933, as +amended. +We +maintain an insurance policy pursuant to which our directors and officers are insured, within the limits and subject to the limitations of the policy, against specified expenses in +connection with the defense of claims, actions, suits or proceedings, and liabilities which might be imposed as a result of such claims, actions, suits or proceedings, that may be brought against them +by reason of their being or having been directors or officers. \ No newline at end of file diff --git a/raw/proxies/0001116463/0000927016-03-001784/proxy.txt b/raw/proxies/0001116463/0000927016-03-001784/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..f1e3d26eed4673343d160fe4631c0f2f2c1225e8 --- /dev/null +++ b/raw/proxies/0001116463/0000927016-03-001784/proxy.txt @@ -0,0 +1,1234 @@ +DEF 14A +1 +ddef14a.htm +DEFINITIVE PROXY STATEMENT +DEFINITIVE PROXY STATEMENT +------------------------------- +\ OMB APPROVAL \ +\-----------------------------\ +\ OMB Number: 3235-0059 \ +\ Expires: January 31, 2002 \ +\ Estimated average burden \ +\ hours per response...13.12 \ +------------------------------- +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +WASHINGTON, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the Securities +Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant [X] +Filed by a Party other than the Registrant [_] +Check the appropriate box: +[_] Preliminary Proxy Statement +[_] CONFIDENTIAL, FOR USE OF THE +COMMISSION ONLY (AS PERMITTED BY +RULE 14A-6(E)(2)) +[X] Definitive Proxy Statement +[_] Definitive Additional Materials +[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S) 240.14a-12 +OraSure Technologies, Inc. +-------------------------------------------------------------------------------- +(Name of Registrant as Specified In Its Charter) +-------------------------------------------------------------------------------- +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +[X] No fee required. +[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)(4) and 0-11. +(1) Title of each class of securities to which transaction applies: +------------------------------------------------------------------------- +(2) Aggregate number of securities to which transaction applies: +------------------------------------------------------------------------- +(3) Per unit price or other underlying value of transaction computed +pursuant to Exchange Act Rule 0-11 (set forth the amount on which +the filing fee is calculated and state how it was determined): +------------------------------------------------------------------------- +(4) Proposed maximum aggregate value of transaction: +------------------------------------------------------------------------- +(5) Total fee paid: +------------------------------------------------------------------------- +[_] Fee paid previously with preliminary materials. +[_] Check box if any part of the fee is offset as provided by Exchange +Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee +was paid previously. Identify the previous filing by registration statement +number, or the Form or Schedule and the date of its filing. +(1) Amount Previously Paid: +------------------------------------------------------------------------- +(2) Form, Schedule or Registration Statement No.: +------------------------------------------------------------------------- +(3) Filing Party: +------------------------------------------------------------------------- +(4) Date Filed: +------------------------------------------------------------------------- +ORASURE +TECHNOLOGIES, INC. +220 East First Street +Bethlehem, Pennsylvania 18015 +April 11, 2003 +Dear Stockholder: +You are cordially invited to attend the 2003 Annual Meeting of Stockholders to be held on Tuesday, May 20, 2003 , at the Radisson Hotel Bethlehem, 437 Main Street, Bethlehem, Pennsylvania, 18018, at 10:00 a.m. Eastern +Time. Your Board of Directors and Executive Management Team look forward to personally greeting those present. If you cannot attend in person, we are pleased to offer a live webcast of the Annual Meeting, which you can access by going to our +web site, www.orasure.com . +At the +meeting, you will be asked to (i) elect two Class III Directors to serve on the Board of Directors until the Annual Meeting of Stockholders in 2006, and (ii) transact such other business as may properly come before the meeting or any adjournments +thereof. Your Board of Directors has approved the nominees for Director and recommends that you vote FOR their election to the Board. +Your vote is very important, regardless of the number of shares you own. Whether or not you plan to attend the Annual Meeting in person, +we urge you to submit your vote as soon as possible. You will have the option to vote by telephone, via the Internet, or by marking, signing, dating, and mailing the enclosed Proxy Card in the accompanying postage prepaid envelope. Additional +details on these options can be found in the attached Proxy Statement and Proxy Card. You may, of course, attend the Annual Meeting and vote in person regardless of whether you have previously voted by phone, the Internet or mail. +We look forward to seeing you at the meeting. +Sincerely yours, +Michael J. Gausling +President and Chief Executive Officer +ORASURE +TECHNOLOGIES, INC. +220 East First Street +Bethlehem, Pennsylvania 18015 +Notice of Annual Meeting of Stockholders +to be held May 20, 2003 +To the +Stockholders of OraSure Technologies, Inc.: +The +Annual Meeting of Stockholders of OraSure Technologies, Inc., a Delaware corporation, will be held at the Radisson Hotel Bethlehem, 437 Main Street, Bethlehem, Pennsylvania 18018, on Tuesday, May 20, 2003 , at 10:00 a.m. Eastern Time for the +following purposes: +1. +To elect two Class III Directors; and +2. +To consider such other business as may properly come before the meeting or any adjournment thereof. +Additional information is included in the Proxy Statement +accompanying this Notice. Only holders of Common Stock of record at the close of business on March 28, 2003, will be entitled to vote at the Annual Meeting of Stockholders and any adjournments thereof. +By Order of the Board of Directors, +Jack E. Jerrett +Secretary +April 11, 2003 +Bethlehem, Pennsylvania +YOUR VOTE IS IMPORTANT. Whether or not you plan to +attend the Meeting, you are urged to vote your shares as promptly as possible by telephone, via the Internet, or by signing, dating and returning the enclosed Proxy Card, as described in the attached Proxy Statement. Voting by phone, the Internet or +mail does not deprive you of your right to attend the Meeting and to vote your shares in person. +ORASURE +TECHNOLOGIES, INC. +220 East First Street +Bethlehem, Pennsylvania 18015 +Proxy Statement +This Proxy Statement is being mailed on or about April 11, +2003, to stockholders of OraSure Technologies, Inc., a Delaware corporation (the “Company”), in connection with the Company’s solicitation of proxies (each, a “Proxy”) for use at the Annual Meeting of Stockholders to be held +on May 20, 2003, at 10:00 a.m. Eastern Time, at the Radisson Hotel Bethlehem, 437 Main Street, Bethlehem, Pennsylvania 18018, and at any adjournments thereof (the “Annual Meeting”). +Proxies +If represented by a properly executed Proxy, whether delivered +by phone, the Internet or mail, as described below, your shares will be voted in accordance with your instructions. If you do not provide a Proxy with instructions, your shares will be voted according to the recommendations of our Board of Directors +(the “Board”) as stated on the Proxy. You may revoke the authority granted by your Proxy at any time before the Annual Meeting by notice in writing delivered to the Secretary of the Company, by delivering a subsequently dated Proxy, or by +attending the Annual Meeting, withdrawing the Proxy, and voting in person. +At the Annual Meeting, action will be taken on the matters set forth in the accompanying Notice of Annual Meeting of Stockholders and described in this Proxy Statement. The Board knows of no other +matters to be presented for action at the Annual Meeting. If any other matters do properly come before the Annual Meeting, the persons named in the Proxy will have discretionary authority to vote on those matters in accordance with their best +judgment. +The cost of soliciting Proxies will be +borne by us. In addition to solicitations by mail, certain of our directors, officers, and regular employees may solicit Proxies personally or by telephone or other means without additional compensation. +Arrangements will also be made with brokerage firms and other +custodians, nominees, and fiduciaries to forward solicitation material to the beneficial owners of stock held of record by such persons, and we will, upon request, reimburse them for their reasonable expenses in so doing. +Voting Procedures +You will have a choice of voting over the phone, via the +Internet or by completing and mailing a traditional paper Proxy Card, as described below. Please check your Proxy Card or the information forwarded by your bank, broker or other holder of record to determine which options are available to you. +1 +Voting +by Mail . If you desire to vote by using the paper Proxy Card included with this Proxy Statement instead of by telephone or the Internet, you may do so by completing, signing, dating and returning the Proxy Card in +the enclosed, pre-addressed envelope. Postage need not be affixed to the envelope if mailed in the United States. +Voting by Phone or Internet . Instead of voting by use of the paper Proxy Card, you may be able to +vote by phone or the Internet. Whether you may do so will depend on how your shares are held. +If your shares are registered in your name with Mellon Investor Services LLC, our transfer agent, you may vote those shares by telephone by calling Mellon Investor Services LLC at 800-435-6710 (toll +free in the United States or Canada only) or via the Internet at the following web site: www.eproxy.com/osur. You may vote by telephone or the Internet by doing so by 11:00 pm Eastern Time (8:00 pm Pacific Time) on May 19, 2003. +Additional instructions can be found on the paper Proxy Card accompanying this Proxy Statement. +If your shares are registered in the name of a broker or bank, you may be able to vote by phone or the Internet if your broker, bank or other record holder participates in a program provided through +ADP Investor Communication Services that offers telephone and Internet voting options. This program is different from the program provided by Mellon Investor Services LLC for shares registered directly in your name. +If your shares are held in an account with a broker, bank or +other record holder participating in the ADP Investor Communication Services program, you may vote those shares telephonically by calling the telephone number shown on the voting form received from your broker or bank, or via the Internet at the ADP +Investor Communication Services voting web site ( www.proxyvote.com ). Votes submitted by telephone or the Internet through the ADP Investor Communication Services program must be received by 12:00 midnight Eastern Time (9:00 pm Pacific Time) +on May 19, 2003. +The telephone and Internet +voting procedures are designed to authenticate your identity, to allow you to give your voting instructions and to confirm that your instructions have been recorded properly. If you vote via the Internet, you should understand that there may be +costs associated with this method of voting, such as usage charges from Internet access providers and telephone companies and printing costs, that you must pay. +Submitting a proxy by mail, the phone or the Internet will not affect your right to vote in person at the +Annual Meeting. +Electronic Access to Proxy +Materials and Annual Report . The Notice of Annual Meeting, the Proxy Statement and the 2002 Annual Report are available on our web site at http:// www.orasure.com . If you are a stockholder of record and would +like to view future proxy statements and annual reports over the Internet instead of receiving copies in the mail, please follow the instructions on the paper Proxy Card if you vote by mail or follow the instructions provided when you vote by phone +or over the Internet. If you hold your shares through a bank, broker, or other holder, check the information provided by that entity for instructions on how to elect to view future proxy statements and annual reports over the Internet. Opting to +receive your proxy materials and annual report online will save us the cost of producing these materials and mailing them to you in the future. +Voting Securities +On March 28, 2003, the record date for determining stockholders entitled to vote at the Annual Meeting, we had outstanding and entitled to +vote at the meeting 38,363,618 shares of common stock, par value $.000001 per share (“Common Stock”). Each share of Common Stock is entitled to one vote on any matter brought before the Annual Meeting. A majority of the shares of Common +Stock outstanding as of the record date, represented in person or by Proxy at the Annual Meeting, will constitute a quorum for the transaction of business. +2 +Principal +Stockholders +The following table sets forth +information as of March 28, 2003, regarding the beneficial ownership of the Company’s Common Stock by (a) each person who is known by us to be the beneficial owner of more than five percent of the Common Stock outstanding, (b) each director and +nominee for election as director, (c) each of our executive officers and other persons named in the Summary Compensation Table under “Executive Compensation,” and (d) all of our directors and executive officers as a group. Unless otherwise +indicated, the address of each person identified below is c/o OraSure Technologies, Inc., 220 East First Street, Bethlehem, Pennsylvania 18015. +Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), shares of Common Stock which +a person has a right to acquire pursuant to the exercise of stock options and warrants held by that person that are exercisable within 60 days of March 28, 2003 are deemed to be outstanding for the purpose of computing the percentage ownership of +that person, but are not deemed outstanding for computing the percentage ownership of any other person. +Beneficial Owner +Amount and Nature of Beneficial Ownership (1)(2) +Percent of Class +HealthCare Ventures V, L.P.(3) +2,710,207 +7.1 +% +44 Nassau Street +Princeton, NJ 08542 +WM Advisors Inc.(4) +2,213,600 +5.8 +% +1201 Third Avenue, 22nd Floor +Seattle, WA 98101 +Strong Capital Management, Inc.(5) +2,157,568 +5.6 +% +100 Heritage Reserve +Menomonee Falls, WI 53051 +Alliance Capital Management L.P.(6) +2,001,400 +5.2 +% +1345 Avenue of the Americas +New York, NY 10105 +R. Sam Niedbala, Ph.D.(7) +1,820,041 +4.7 +% +Michael J. Gausling(8) +1,811,308 +4.7 +% +Roger L. Pringle(9) +207,177 +* +Frank G. Hausmann +95,000 +* +Ronald H. Spair +76,561 +* +Gregory B. Lawless +65,000 +* +P. Michael Formica +64,202 +* +Jack E. Jerrett +43,125 +* +Carter H. Eckert +30,000 +* +Douglas G. Watson +28,333 +* +Richard J. Lane +25,000 +* +Robert D. Thompson +— +— +All directors and executive officers as a group (13 people) +4,292,412 +11.0 +% +* +Less than 1% +(1) +Subject to community property laws where applicable, beneficial ownership consists of sole voting and dispositive power except as otherwise indicated. +3 +(2) +Includes shares subject to options exercisable within 60 days of March 28, 2002, as follows: Mr. Eckert, 30,000 shares; Mr. Formica, 64,202 shares; Mr. Gausling, +54,207 shares; Mr. Hausmann, 95,000 shares; Mr. Jerrett, 43,125 shares; Mr. Lane, 25,000 shares; Mr. Lawless, 65,000 shares; Dr. Niedbala, 54,207 shares; Mr. Pringle, 170,552 shares; Mr. Spair, 76,561 shares; Mr. Watson, 28,333 shares; and +all directors and executive officers as a group, 732,852 shares. +(3) +HealthCare Ventures V, L.P. shares voting and dispositive power with respect to 2,710,207 shares with HealthCare Partners V, L.P., Augustine Lawlor, Christopher +Mirabelli, Harold R. Werner, James H. Cavanaugh, Ph.D., John W. Littlechild, and William W. Crouse. Mr. Crouse is a general partner of HealthCare Partners V, L.P., the general partner of HealthCare Ventures V, L.P. Mr. Crouse retired from the +Company’s Board of Directors in March 2003. +(4) +Based on information contained in a Schedule 13G filed January 2, 2002, WM Advisors Inc. has sole voting and dispositive power with respect to 2,213,600 shares. +(5) +Based on information contained in a Schedule 13G filed February 6, 2003, Strong Capital Management, Inc. shares voting and dispositive power with respect to +2,157,568 shares with Richard S. Strong. +(6) +Based on information contained on a Schedule 13G filed February 12, 2003, Alliance Capital Management L.P. shares voting and dispositive power with certain +affiliates, including AXA Comseil Vie Assurance Mutuelle, AXA Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, AXA Courtage Assurance Mutuelle, AXA, AXA Financial, Inc., and The Equitable Life Assurance Society of the United States. +(7) +Includes 413,884 shares held by The Raymond S. Niedbala 2000 Grantor Retained Annuity Trust Dated April 28, 2000, of which Dr. Niedbala is the trustee, 67,366 shares +held by The Raymond S. Niedbala Family Trust Dated April 28, 2000, of which Dr. Niedbala’s wife, Linda-Lee Niedbala, is a trustee, and 52,800 shares held by the Niedbala Charitable Remainder Unit Trust, of which Dr. Niedbala and Linda-Lee +Niedbala are trustees. +(8) +Includes 413,884 shares held by The Michael J. Gausling Grantor Retained Annuity Trust, Dated April 28, 2000, of which Mr. Gausling is the trustee, and 34,424 shares +held by the Michael Gausling Irrevocable Education Trust Dated April 28, 2000, of which Mr. Gausling’s wife, Sharon M. Gausling, is a trustee. +(9) +Includes 1,500 shares owned by Mr. Pringle’s spouse. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Exchange Act requires that our executive officers and directors and persons who own more +than ten percent of our Common Stock (collectively, “Reporting Persons”) file reports of ownership and changes in ownership with the Securities and Exchange Commission (the “Commission”). Reporting Persons are required by the +Commission’s regulations to furnish us with copies of all Section 16(a) forms they file. +Based solely on our review of the copies of such forms, we believe that with respect to the year 2002, all Reporting Persons complied with all applicable filing requirements. +Election of Directors +At the Annual Meeting, you will vote on the election of two +Class III Directors. The Board has nominated Michael J. Gausling and Gregory B. Lawless for election as Class III Directors, for terms expiring at the Annual Meeting of Stockholders in 2006. The nominees for election as Directors are presently +members of our Board. +In the absence of +instructions to the contrary, shares of Common Stock represented by properly executed Proxies will be voted for the two nominees, each of whom has consented to be named and to serve if elected. If a quorum is present, each nominee will be elected if +he receives a plurality of the votes cast by shares present in person or by Proxy entitled to vote at the Annual Meeting. Abstentions and shares as to which a broker or other +4 +nominee has indicated on a duly executed and returned Proxy or otherwise advised us that it lacks voting authority will have no effect on the +required vote. Your Board recommends that you vote FOR the election of the Director nominees. +We do not know of anything that would preclude any nominee from serving. However, should any nominee for any reason become unable or +unwilling to serve as a Director, the persons named in the enclosed Proxy will vote the shares represented by each Proxy for such substitute nominee as the Board may approve. +Any vacancy that occurs on the Board that results from an increase in the number of Directors may be filled +by the affirmative vote of a majority of the Directors then in office, and any other vacancy on the Board may be filled by the affirmative vote of a majority of the Directors then in office, even though less than a quorum of the Board, or by a sole +remaining Director. +Certain information with +respect to each person nominated for election as a Director and each person whose term of office as a Director will continue after the Annual Meeting is set forth below. Messrs. Gausling, Hausmann and Pringle became Directors of the Company in +connection with the merger (the “Merger”) of STC Technologies, Inc. (“STC”) and Epitope, Inc. (“Epitope”) into the Company on September 29, 2000, and served on the board of either STC or Epitope prior to the +Merger. +On March 3, 2003, William W. Crouse +retired from the Board. Mr. Crouse had served as Chairman of the Board since the Merger, and prior to that time was a member of STC’s board of directors. The Board wishes to express its deepest appreciation to Mr. Crouse for his contributions +and insight in serving the Company and its predecessor, STC. +Upon Mr. Crouse’s retirement, the Board appointed Douglas G. Watson to serve as Chairman of the Board. The Board is currently seeking a qualified candidate to fill the vacancy created by Mr. Crouse’s retirement. However, +the Board has not nominated a candidate for election to such vacancy at the Annual Meeting. +Richard J. Lane, who is currently a Class III Director, has advised the Company that he does not intend to stand for reelection and will resign from the Board immediately following the Annual Meeting, +in order to reduce his outside commitments and focus on other business responsibilities. The Board wishes to thank Mr. Lane for his contributions since joining the Board in May 2002. +Name +Principal Occupation +Age +Director Since +Class I (Directors Whose Terms of Office Expire in 2004): +Douglas G. Watson +Chief Executive Officer of +Pittencrieff Glen Associates +58 +2002 +Frank G. Hausmann +President and Chief Executive Officer +of CenterSpan Communications Corporation +45 +2000 +Carter H. Eckert +Chairman and Chief Executive Officer of IMPATH Inc +60 +2001 +Class II (Directors Whose Terms of Office Expire in 2005): +Roger L. Pringle +President of The Pringle Company +62 +2000 +Class III (Nominees for Terms of Office Expiring in 2006): +Michael J. Gausling +President and Chief Executive Officer of +the Company +45 +2000 +Gregory B. Lawless +Managing Partner of Collins Mabry & Co. +63 +2001 +Douglas +G. Watson became a member of the Board in May 2002. Since July 1999, Mr. Watson has been Chief Executive Officer of Pittencrieff Glen Associates, a leadership and management consulting firm, which he +5 +founded. From 1997 to 1999, Mr. Watson served as President and Chief Executive Officer of Novartis Corporation, the U.S. subsidiary of +Novartis A.G. Prior to that, Mr. Watson was President and Chief Executive Officer of Ciba-Geigy Corporation, President of the Ciba Pharmaceuticals Division and Senior Vice President of Planning and Business Development of Ciba’s U.S. +Pharmaceuticals Division. From 1986 through 1996, Mr. Watson was on the Board of the Pharmaceutical Research & Manufacturers Association. Mr. Watson holds an M.A. degree in pure mathematics from Churchill College, Cambridge University, and +is a member of the Chartered Institute of Management Accountants. Mr. Watson also serves on the Boards of Engelhard Corporation, Dendreon Corporation and Genta Incorporated, as well as a number of privately-held biotech companies. +Frank G. Hausmann had been a member of the board of directors +of Epitope since December 1999. Mr. Hausmann has been employed by CenterSpan Communications Corporation since July 1998, serving as President and Chief Executive Officer since October 1998 and as Vice President, Finance and Administration and +Chief Financial Officer prior to that time. Mr. Hausmann is also a director of CenterSpan. CenterSpan is a provider of Internet voice and text messaging software designed primarily for use with interactive games. From August 1997 to May 1998, Mr. +Hausmann served as Vice President, Finance and Chief Financial Officer of Atlas Telecom, Inc., a developer of enhanced facsimile and voice-mail solutions. From September 1995 to July 1997, he served as Vice President, Corporate Development and +General Counsel of Diamond Multimedia Systems, Inc., a designer and marketer of computer video cards, modems and other peripherals. From June 1993 to September 1995, Mr. Hausmann was Executive Vice President and Chief Financial Officer of Supra +Corporation, a designer and marketer of computer modems that was acquired by Diamond Multimedia Systems, Inc. in September 1995. From 1983 to 1993, Mr. Hausmann was a consultant and attorney with such firms as Price Waterhouse and Stoel Rives. Mr. +Hausmann received B.S. degrees in Economics and Political Science from Willamette University and a J.D. degree from the University of Oregon. He is a member of the Oregon State Bar. +Carter H. Eckert became a member of the Board in December 2001. Since February 2003, Mr. Eckert has served as +Chairman of the Board and Chief Executive Officer of IMPATH Inc., a medical diagnostics company. From 1995 to 2001, Mr.Eckert served as President of Knoll Pharmaceutical Company and as President of the Americas for Knoll’s parent company, BASF +Pharma. During that period, Mr. Eckert also was a member of BASF Pharma’s Global Pharmaceutical Board, where he was responsible for global therapeutic franchises and corporate transactions. Prior to joining Knoll and BASF Pharma in 1995, Mr. +Eckert was President and Chief Executive Officer of Boots Pharmaceuticals, Inc., a pharmaceutical company, where he was responsible for North American operations. Mr. Eckert joined Boots Pharmaceuticals in 1985 as Executive Vice President and Chief +Operating Officer after more than a decade at Baxter Travenol Laboratories, where he served as President of the Pharmaceutical Products Division. Mr. Eckert currently serves as a director of Boron LePone, Inc. and Andrx Corporation, a trustee of +Caldwell College and an operating partner of the Athena Group. Mr. Eckert received his B.S. in Chemical Engineering from the Illinois Institute of Technology and his M.B.A. from Northwestern University. +Roger L. Pringle had been Chairman of the Board and a member +of the board of directors of Epitope, and was a director of Agritope, Inc., a plant genetics subsidiary of Epitope, since February 1989. Mr. Pringle is President and founder of The Pringle Company, a strategy and executive consulting firm in +Portland, Oregon. Mr. Pringle is a director of North Pacific Group, Bank of the Northwest, and H2F Media, Inc. He is also active in funding and advising start-up and emerging companies. +Michael J. Gausling has been the Company’s President and Chief Executive Officer since January 31, 2002. +Prior to that, Mr. Gausling was the Company’s President and Chief Operating Officer since September 2000. Mr. Gausling is a co-founder of STC and served as Chairman of STC’s board of directors since 1996, President and Chief Executive +Officer of STC since 1990, and a director of STC since 1987. Mr. Gausling was Executive Vice President, Finance and Operations of STC from 1987 to 1990. Prior to co-founding STC, Mr. Gausling had been employed in the area of corporate finance at +Procter and Gamble. Mr. Gausling received his B.S.M.E. from Rensselaer Polytechnic Institute and his M.B.A. in Finance from Miami University (Ohio). Mr. Gausling also serves on the boards of Keystone Savings Bank and DeSales University. +6 +Gregory B. +Lawless became a member of the Board in April 2001. Since 1998, Mr. Lawless has been the Managing Partner of Collins Mabry & Co., a strategic advisory firm for the life sciences industry, which he co-founded. From 1992 to 1998, Mr. Lawless +served as President and Chief Executive Officer of Cygnus, Inc., a medical diagnostics company, and from 1989 to 1992, was President and Chief Operating Officer of Chiron Corporation, also a medical diagnostics company. Mr. Lawless received his B.S. +in Pharmacy from Fordham University, his M.S. in Analytical Chemistry from St. John’s University, and his Ph.D. in Physical Organic Chemistry from Temple University. +Directors’ Meetings +The Board held six meetings during the year ended December 31, 2002. Each member of the Board attended more than 75 percent of the +combined total of meetings of the Board and of the committees of the Board on which the Director served during the period in the year in which he served as a Director, except for Mr. Lane. +Committees of the Board +The Board has four standing committees—the Executive +Committee, the Compensation Committee, the Audit Committee and the Strategic Planning Committee. The Compensation, Audit and Strategic Planning Committees are each composed entirely of non-employee Directors. +Executive Committee . The +Board has designated an Executive Committee to assist in the discharge of the Board’s responsibilities. The Executive Committee is composed of all seven current Directors, Douglas G. Watson, Chairman, Carter H. Eckert, Michael J. Gausling, +Frank G. Hausmann, Richard J. Lane, Gregory B. Lawless and Roger L. Pringle. The Executive Committee may exercise all the authority and powers of the Board in the management of the business and property of the Company, except those reserved to the +Board by the Delaware Business Corporation Law or our Certificate of Incorporation, as amended. The Executive Committee did not meet during the year ended December 31, 2002. +Compensation Committee. The Compensation Committee of the Board +determines and recommends for Board approval the compensation and benefits for our executive officers, administers our stock award plans and employee stock purchase plan, and performs other tasks as set forth in our Bylaws and the Compensation +Committee’s Charter, or as the Board may direct. Members of the Compensation Committee are Roger L. Pringle, Chairman, Richard J. Lane, and Gregory B. Lawless. The Compensation Committee met six times and acted by written consent on one +occasion during the year ended December 31, 2002. +Audit Committee . The Audit Committee oversees the Company’s accounting, financial reporting process, internal controls and audits, and consults with management and the independent auditors +on, among other items, matters related to the annual audit, the published financial statements and the accounting principles applied. As part of its duties, the Audit Committee appoints, evaluates and retains the Company’s independent auditors. +It also maintains direct responsibility for the compensation, termination and oversight of the Company’s independent auditors and evaluates the independent auditors’ qualifications, performance and independence. The Audit Committee +approves all services provided to the Company by the independent auditors. The Audit Committee has established procedures for the receipt, retention and treatment, on a confidential basis, of complaints received by the Company, regarding accounting, +internal accounting controls or auditing matters, and the confidential, anonymous submissions by employees of concerns regarding questionable accounting or auditing matters. The Audit Committee Charter is set forth in Appendix A to this Proxy +Statement. +Members of the Audit Committee are +Frank G. Hausmann, Chairman, Carter H. Eckert and Roger L. Pringle. Each member of the Audit Committee is “independent” as defined in the Exchange Act and applicable rules of The NASDAQ Stock Market. The Audit Committee met seven times and +acted by written consent on one occasion during the year ended December 31, 2002. +Strategic Planning Committee . The Strategic Planning Committee of the Board assists management in developing corporate and strategic goals and establishing business +and other strategic plans for the purpose of +7 +achieving those goals. Members of the Strategic Planning Committee are Carter H. Eckert, Chairman, Richard J. Lane and Douglas H. Watson. The +Strategic Planning Committee met two times during the year ended December 31, 2002. +Report of the Audit Committee +The following report of the Audit Committee of the Board shall not be deemed to be incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing by the Company under either the +Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except to the extent that the Company specifically incorporates this information by reference. The following report shall not otherwise be deemed filed under +such Acts. +The role of the Audit Committee +is to assist the Board of Directors in its oversight of the Company’s financial reporting process. The Committee operates pursuant to a Charter that was last amended and restated by the Board on February 4, 2003. Management of the Company is +responsible for the preparation, presentation and integrity of the Company’s financial statements, the Company’s accounting and financial reporting principles and internal controls and procedures designed to assure compliance with +accounting standards and applicable laws and regulations. The independent auditors are responsible for auditing the Company’s financial statements and expressing an opinion as to their conformity with generally accepted accounting principles. +In the performance of its oversight function, +the Committee has considered and discussed the audited financial statements with management and the independent auditors. The Committee has also discussed with the independent auditors the matters required to be discussed by Statement on Auditing +Standards No. 61, “Communication with Audit Committees,” as currently in effect. Finally, the Committee has received the written disclosures and the letter from the independent auditors required by Independence Standards Board Standard No. +1, “Independence Discussions with Audit Committees,” as currently in effect, has considered whether the provision of non-audit services by the independent auditors to the Company is compatible with maintaining the auditor’s +independence and has discussed with the auditors the auditors’ independence. +The members of the Audit Committee are not professionally engaged in the practice of auditing or accounting and are not experts in the fields of accounting or auditing, including in respect of auditor +independence. Members of the Committee rely without independent verification on the information provided to them and on the representations made by management and the independent auditors. Accordingly, the Audit Committee’s oversight does not +provide an independent basis to determine that management has maintained appropriate accounting and financial reporting principles or appropriate internal control and procedures designed to assure compliance with accounting standards and applicable +laws and regulations. Furthermore, the Audit Committee’s considerations and discussions referred to above do not assure that the audit of the Company’s financial statements has been carried out in accordance with generally accepted +auditing standards, that the financial statements are presented in accordance with generally accepted accounting principles or that the Company’s auditors are in fact “independent.” +Based upon the reports and discussions described in this +report, and subject to the limitations on the role and responsibilities of the Committee referred to above and in the Committee’s Charter, the Committee recommended to the Board that the audited financial statements be included in the +Company’s Annual Report on Form 10-K for the year ended December 31, 2002 to be filed with the Securities and Exchange Commission. +SUBMITTED BY THE AUDIT COMMITTEE +OF +THE COMPANY’S BOARD OF DIRECTORS +Frank G. Hausmann, Chairman +Carter H. Eckert +Roger L. Pringle +March 21, 2003 +8 +Nomination of Directors +Our Bylaws provide that nominations for election to the Board may be made by the Board or by any stockholder +entitled to vote for the election of Directors at the Annual Meeting. A stockholder’s notice of nomination must be made in writing to the Company’s Secretary and must be delivered to or received at our principal executive offices not less +than ninety (90) days nor more than one hundred twenty (120) days prior to the meeting. However, in the event that less than one hundred (100) days’ notice or prior public disclosure of the date of the meeting is given or made to stockholders, +notice by the stockholder to be timely must be received no later than the close of business on the tenth (10th) day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first +occurs. The notice to the Secretary must set forth, with respect to the nominee, the name, age, business address, residence address, and principal occupation or employment of the person, the class and number of shares of capital stock of the Company +which are beneficially owned by the person, and any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Regulation 14A under the Exchange Act. The notice must +also include the name and record address of the stockholder making the nomination and the class and number of shares of capital stock of the Company that are beneficially owned by the stockholder. We may require any proposed nominee to furnish such +other information as we may reasonably require to determine the eligibility of the proposed nominee to serve as a Director of the Company. +Executive Officers +The table below provides information about the executive officers of the Company as of March 28, 2003. Officers of the Company hold office +at the discretion of the Board. +Name +Age +Position +Michael J. Gausling +45 +President and Chief Executive Officer +Ronald H. Spair +47 +Executive Vice President and Chief Financial Officer +R. Sam Niedbala, Ph.D. +42 +Executive Vice President and Chief Science Officer +P. Michael Formica +52 +Executive Vice President, Operations +Joseph E. Zack +51 +Executive Vice President, Marketing and Sales +Jack E. Jerrett +44 +Senior Vice President, General Counsel and Secretary +Mark L. Kuna +39 +Vice President, Controller and Assistant Secretary +For +biographical information on Mr. Gausling, see the Section entitled, “Election of Directors,” in this Proxy Statement. +Ronald H. Spair joined the Company as Executive Vice President and Chief Financial Officer in November 2001. Prior to that time, Mr. Spair +was Vice President, Chief Financial Officer and Secretary of Delsys Pharmaceutical Corporation, a pharmaceutical manufacturing system development company, from January 2001 to September 2001. Prior to joining Delsys, he was Senior Vice President, +Chief Financial Officer and Secretary of SuperGen, Inc., a pharmaceutical company, from August 1999. Prior to joining SuperGen, Mr. Spair was Senior Vice President, Chief Financial Officer and Secretary of Sparta Pharmaceuticals, Inc., a development +stage pharmaceutical company, from March 1996 until August 1999. Mr. Spair received his B.S. in Accounting and M.B.A. from Rider College. He is also a licensed Certified Public Accountant and is a member of the New Jersey Society of Certified Public +Accountants and the American Institute of Certified Public Accountants. +R. Sam Niedbala, Ph.D. has been the Company’s Executive Vice President and Chief Science Officer since September 2000. Dr. Niedbala is a co-founder of STC and had served as Executive Vice President, Chief Science +Officer and a director of STC since 1987. Prior to co-founding STC, Dr. Niedbala had been employed by Hoffman-LaRoche, Inc. as a Senior Scientist. Dr. Niedbala received his B.S. in Chemistry from East Stroudsburg University, and his M.S. in Clinical +Chemistry and Ph.D. in Chemistry from Lehigh University. Dr. Niedbala is also a board certified forensic examiner. +9 +P. Michael +Formica has served as Executive Vice President, Operations for the Company since November 2002 and as Senior Vice President, Operations for the Company and STC since May 2000. Prior to that time, Mr. Formica was Division Manager, Mobil +Measurement Technologies for Dräger Sicherheitstechnik GmbH (now called Dräger Safety AG & Co. KGaA), in Luebeck, Germany, for eight years with worldwide responsibility, and Director Sales and Marketing, National Draeger, Inc. (USA) +for two years. Dräger is a world leader in chemical detection systems for the industrial safety market, and breath alcohol detection instrumentation. Mr. Formica received his B.S. in Electrical Engineering from West Virginia University and his +M.B.A. from the Graduate School of Industrial Administration, Carnegie Mellon University. +Joseph E. Zack has served as the Company’s Executive Vice President, Marketing and Sales since September 2002. Prior to that time, Mr. Zack served as Vice President, Marketing and Sales for +OraPharma, Inc., a specialty pharmaceutical company focused on oral healthcare, since 1998. Prior to joining OraPharma, Mr. Zack held executive level marketing and sales positions with Advanced Tissue Sciences, Inc. and the CIBA-GEIGY +Pharmaceutical Division. Mr. Zack received his B.A. in Biology from Colgate University and his M.B.A. from St. John’s University. +Jack E. Jerrett has served as the Company’s Senior Vice President and General Counsel since February 2003 and as Vice President and +General Counsel since November 2000. He has also served as the Company’s Secretary since February 2001. Prior to joining the Company, Mr. Jerrett served in the positions of Associate General Counsel and Senior Counsel at PPL Electric Utilities +Corporation, and acted as general counsel to PPL Gas Utilities Corporation, since July 1998. Prior to that, Mr. Jerrett was Senior Corporate Attorney of Union Pacific Corporation and an Associate with Morgan, Lewis & Bockius. Mr. Jerrett +received his B.S. in Accounting from Villanova University and his J.D. from the Villanova University School of Law. He is a member of the Pennsylvania Bar and the American Bar Association. +Mark L. Kuna has served as the Company’s Vice President and Controller since February 2003 and as +Controller since February 2001. He also provided accounting and financial analysis support since joining the Company in October 2000. Prior to that time, Mr. Kuna served as Director of Financial Planning and Analysis for the greater Philadelphia +region of XO Communications, Inc. since April 1989. Prior to joining XO Communications, Mr. Kuna served as Vice President and Principal Accounting Officer of Wedco Technology, Inc. since 1989. Prior to joining Wedco Technology, he was an accountant +with Deloitte and Touche. Mr. Kuna received his B.S. in Accounting from the University of Scranton, is a licensed Certified Public Accountant, and is a member of the Pennsylvania and American Institutes of Certified Public Accountants. +Certain Relationships and Related Transactions +We have entered into a commercial lease (the +“Lease”) with Tech III Partners, LLC (“Tech Partners”), which provided for the construction of a 48,000 square foot facility on land adjacent to our Bethlehem, Pennsylvania headquarters, and the lease of that facility to us. Tech +Partners is owned and controlled by Michael J. Gausling, the Company’s President and Chief Executive Officer, and Dr. R. Sam Niedbala, the Company’s Executive Vice President and Chief Science Officer. The facility is our new corporate +headquarters and will house manufacturing, research and development, and administrative operations required to support the expected growth of our business. Construction of the facility was completed in October 2002. +The Lease has an initial ten-year term ending in October 2012 +and a base rent starting at $780,000 and increasing to $858,240 per year over that term. The base rental rate may be increased after the fifth year of the initial term in order to reflect changes in the interest rate on debt incurred by Tech +Partners to finance construction of the leased facilities. We have not guaranteed any debt incurred by Tech Partners. We also have an option to renew the Lease for an additional five years at a rental rate of $975,360 per year, and to purchase the +facility at any time during the initial ten-year term based on a formula set forth in the Lease. +10 +Prior to +deciding to enter into the Lease and an amendment increasing the base rent to reflect certain tenant fit-out costs, our Board of Directors retained Imperial Realty Appraisal LLC, an independent commercial real estate appraisal firm, to evaluate the +proposed base rental rate. Imperial Realty issued opinions indicating that the annual base rent set forth in the Lease, as amended, is below the market rental rate we could otherwise expect to pay to lease a comparable commercial property in the +same general geographic market. The terms of the Lease are otherwise substantially similar to a commercial lease we entered into with a third party for our existing Bethlehem, Pennsylvania facilities. +Information regarding employment and severance agreements +between the named executive officers and the Company is set forth in the Section entitled, “Employment Agreements,” in this Proxy Statement. +Executive Compensation +Summary Compensation Table(1) +The following table summarizes the compensation of our Chief Executive Officer and the other executive officers and former executive +officer named below: +Annual Compensation +Long-Term Compensation Awards +Name and Principal Position +Year +Salary +Bonus +Restricted Stock Awards +Securities Underlying Options(2) +All Other Compensation(3) +Michael J. Gausling(4) +2002 +$ +243,000 +— +— +— +$ +18,612 +(7)(8) +President and +2001 +225,211 +— +— +— +15,742 +(7)(8) +Chief Executive Officer +2000 +197,596 +$ +107,000 +— +70,000 +6,120 +(8) +Robert D. Thompson(5) +2002 +43,016 +— +— +— +240,163 +(6)(7) +Former Chief Executive Officer +2001 +274,461 +— +— +— +142,561 +(6)(7) +2000 +249,683 +— +— +475,000 +136,510 +(6)(7) +Ronald H. Spair +2002 +205,903 +20,000 +— +65,000 +82,916 +(6)(7) +Executive Vice President and +2001 +26,336 +— +150,000 +750 +(7) +Chief Financial Officer +2000 +— +— +— +— +— +P. Michael Formica +2002 +179,644 +18,000 +— +45,000 +13,000 +(7) +Executive Vice President, Operations +2001 +157,134 +25,000 +— +— +9,969 +(7) +2000 +95,356 +20,000 +— +97,960 +23,070 +(6)(7) +R. Sam Niedbala, Ph.D. +2002 +201,665 +— +— +— +9,000 +(7) +Executive Vice President and +2001 +185,211 +— +— +— +10,257 +(7) +Chief Science Officer +2000 +170,385 +80,313 +— +70,000 +3,000 +Jack E. Jerrett +2002 +151,901 +15,000 +— +30,000 +4,000 +Senior Vice President, General +2001 +145,211 +10,000 +— +— +4,000 +Counsel and Secretary +2000 +11,154 +— +— +55,000 +— +(1) +Table includes compensation paid by Epitope and STC to the named executive officers prior to the Merger on September 29, 2000. +(2) +Represents the number of shares for which options were awarded in each year. The options shown for Mr. Thompson in 2000 include options for the purchase of +shares of Epitope common stock converted into options for the purchase of shares of the Company as a result of the Merger. +(3) +Except as otherwise noted in (6), (7) and (8) below, represents amounts contributed to 401(k) profit sharing plans as employer matching contributions in the form of +cash. +(4) +Mr. Gausling was appointed as Chief Executive Officer of the Company on January 31, 2002. +11 +(5) +Mr. Thompson resigned as Chief Executive Officer and Director of the Company on January 31, 2002. All options granted to Mr. Thompson expired on January 31, 2003. A +description of the severance paid by the Company to Mr. Thompson after his resignation is set forth in the Section entitled, “Employment Agreements,” in this Proxy Statement. +(6) +Includes $239,038 in severance expense for Mr. Thompson and $69,916 in relocation expenses for Mr. Spair in 2002, $128,048 in relocation expenses for Mr. +Thompson in 2001, and $135,385 and $21,945 in relocation expenses for Messrs. Thompson and Formica, respectively, in 2000. These relocation expenses were reimbursed by the Company and include moving costs, realtor fees, closing costs, furniture +storage costs, other miscellaneous expenses, and federal and state income taxes on amounts paid as expense reimbursement. Also includes $4,763 in imputed interest for 2001 on a $75,000 interest-free loan made by the Company to Mr. Thompson in +connection with his relocation to Bethlehem, Pennsylvania in 2000. +(7) +Includes automobile allowances in 2002 of $9,000 for Messrs. Gausling, Spair, Formica and Dr. Niedbala, and of $1,125 for Mr. Thompson. Includes automobile +allowances in 2001 of $9,750 for Mr. Thompson, $9,000 for Mr. Gausling and Dr. Niedbala, $9,350 for Mr. Formica, and $750 for Mr. Spair. Includes automobile allowances in 2000 of $1,125 for Messrs. Thompson and Formica. +(8) +Includes reimbursement of certain club membership dues and assessments for Mr. Gausling of $5,612 for 2002, $2,742 for 2001 and $3,120 for 2000. +Option Grants in the Last Fiscal Year(1) +The following table summarizes the number +of stock options awarded to the Chief Executive Officer and the other named executive officers during the year ended December 31, 2002: +Number of Securities Underlying Options Granted +Percent of +Total Options Granted to Employees in Fiscal Year +Exercise Price +Per Share +Expiration Date +Potential Realizable +Value at Assumed +Annual Rates of +Stock +Price Appreciation for Option Term(2) +Name +5% +10% +Michael J. Gausling(3) +— +— +— +— +— +— +Robert D. Thompson +— +— +— +— +— +— +Ronald H. Spair +65,000 +6.4 +$5.865 +01/31/12 +$239,750 +$607,574 +P. Michael Formica +45,000 +4.4 +5.865 +01/31/12 +165,981 +420,628 +R. Sam Niedbala, Ph.D.(3) +— +— +— +— +— +— +Jack E. Jerrett +30,000 +2.9 +5.865 +01/31/12 +110,654 +280,419 +(1) +Except as otherwise noted or as required by law, options are qualified as incentive stock options and vest as to one-fourth one year after the date of grant, with +the remaining three-fourths vesting in equal monthly installments over the following 36 months. Vesting ceases 90 days following termination of employment and is generally accelerated in case of a change in control of the Company. The holder’s +right to exercise the options will terminate immediately upon termination of employment for cause, will expire five years after retirement, and will expire one year after death, disability, or ceasing to be an active employee of the Company for any +other reason. Subject to certain conditions, the exercise price of the options may be paid by delivery of previously acquired shares of Common Stock. No stock appreciation rights were granted during the year ended December 31, 2002. +(2) +The amounts shown are hypothetical gains based on the indicated assumed rates of appreciation of Common Stock compounded annually for a ten-year period. There can be +no assurance that the Common Stock will appreciate in value at any particular rate or at all in future years. +(3) +Mr. Gausling and Dr. Niedbala elected not to participate in stock option awards during 2002 so that additional options could be available for grant later in that +year to all employees if the Company met certain financial objectives for the first two quarters of 2002. For a further description of stock options granted to the named executive officers during 2002, see the Section entitled, “Report on +Executive Compensation,” in this Proxy Statement. +12 +Option Exercises in Last +Fiscal Year and Fiscal Year-End Option Values +The following table shows 2002 option exercises and 2002 year-end amounts and value of shares of the Common Stock underlying outstanding options for the Chief Executive Officer and the other named executive officers: +Shares Acquired +on +Exercise +Value Realized(3) +Number of Securities +Underlying Unexercised +Options at Fiscal +Year-End +Value of Unexercised +In-the-Money Options at +Fiscal +Year-End(2) +Name(1) +Exercisable +Unexercisable +Exercisable +Unexercisable +Michael J. Gausling +— +— +46,916 +38,972 +$55,856 +$18,619 +Robert D. Thompson +377,800 +$ +921,376 +8,332 +— +— +— +Ronald H. Spair +— +— +40,625 +174,375 +— +— +P. Michael Formica +— +— +39,936 +91,774 +— +— +R. Sam Niedbala +— +— +46,916 +38,972 +55,856 +18,619 +Jack E. Jerrett +— +— +28,020 +56,980 +— +— +(1) +The named executive officers held no stock appreciation rights at December 31, 2002. +(2) +In-the-money stock options are options for which the exercise price is less than the fair market value of the underlying stock on a particular date. The values shown +in the table are based on the difference between $5.49, which was the average of the high and low sales prices of the Common Stock as quoted on The Nasdaq Stock Market on December 31, 2002, and the applicable exercise price. +(3) +Value realized represents the difference between the fair market value of Common Stock underlying the options at the exercise date and the exercise price of the +options. +Equity Compensation Plan Information +The following table provides information as +of December 31, 2002 about the shares of Common Stock that may be issued upon the exercise of options under all of our equity compensation plans. These plans include the OraSure Technologies, Inc. 2000 Stock Award Plan (the “2000 Award +Plan”), the Epitope, Inc. Amended and Restated 1991 Stock Award Plan (the “1991 Epitope Plan”), the Agritope, Inc. 1992 Stock Award Plan (the “Agritope Plan”), the OraSure Technologies, Inc. Employee Incentive and +Non-Qualified Stock Option Plan (the “Employee Incentive Plan”) and the Non-Qualified Stock Option Agreement for Discounted Non-Plan Options between Robert D. Thompson and Epitope, Inc. (the “Thompson Option”). +Plan Category +Number of securities to be issued upon exercise of outstanding +options +(a) +Weighted-average exercise price of outstanding options +(b) +Number of securities remaining available for future issuance under +equity compensation plans (excluding securities reflected in column (a)) +(c) +Equity compensation plans approved by security holders +— +— +1,800,000 +(1) +Equity compensation plans not approved by security holders +3,879,608 +(2) +$5.828 +(2) +418,019 +(1) +Total +3,879,608 +2,218,019 +(1) +Represents shares remaining available for future issuance as of December 31, 2002 under the 2000 Award Plan. +(2) +Includes 1,565,846 shares issuable as of December 31, 2002 under options at a weighted average exercise price of $3.954 per share under the 2000 Award Plan, the 1991 +Epitope Plan, the Agritope Plan, the Employee Incentive Plan and the Thompson Option, which were assumed by the Company as a result of the Merger of Epitope and STC into the Company on September 29, 2000. No additional equity compensation awards may +be made under any of these plans, except for the 2000 Award Plan. +13 +2000 +Award Plan +The 2000 Award Plan was +originally an Epitope equity compensation plan, which was assumed by the Company as a result of the Merger. The 2000 Award Plan was approved by the stockholders of Epitope on February 15, 2000. The 2000 Award Plan initially authorized the award of +2,500,000 shares, plus shares that were available for grant under the Epitope 1991 Plan as of February 15, 2000. On May 20, 2001, the Company’s stockholders approved an amendment to the 2000 Award Plan, which increased the number of shares +available for grant by 1,800,000 shares. The Company continues to grant equity compensation awards under the 2000 Award Plan. +The 2000 Award Plan permits the award of incentive stock options, non-qualified stock options and other types of equity compensation to +employees, nonemployee directors and outside advisors. The type, terms and recipients of equity awards are determined by the Compensation Committee of the Company’s Board of Directors. The exercise price for options awarded under the 2000 Award +Plan must be equal to at least 100% (in the case of incentive stock options) and 75% (in the case of non-qualified stock options) of the fair market value of a share on the date of grant. Employee options generally vest over four years, with 25% of +the grant vesting on the first anniversary of the grant date and the remaining 75% vesting ratably on a monthly basis over the next three years. +Options granted to nonemployee Directors generally vest ratably on a monthly basis over either a 12 or 24-month period, depending on the +type of grant. See the Section entitled, “Compensation of Directors,” for a further description of the terms of options granted to nonemployee Directors under the 2000 Award Plan. +Options granted under the 2000 Award Plan generally provide +for accelerated vesting upon a “change of control.” Therefore, all unvested options outstanding as of the date of the Merger under the 2000 Award Plan were vested in full on that date. +The 1991 Epitope Plan +The 1991 Epitope Plan was an Epitope equity compensation plan. +In connection with the Merger, the Company assumed Epitope’s obligation to issue shares upon exercise of then outstanding stock options granted under the 1991 Epitope Plan. Although not approved by the Company’s stockholders, the 1991 +Epitope Plan was approved by Epitope stockholders in 1991, and amendments to the 1991 Epitope Plan increasing the amount of shares available for grant were approved by Epitope stockholders in 1993, 1994, 1995 and 1997. Additional equity grants could +no longer be made under the 1991 Epitope Plan once the 2000 Award Plan was approved by Epitope stockholders. +The 1991 Epitope Plan authorized the issuance of incentive stock options, non-qualified stock options and other types of equity +compensation to employees, nonemployee directors and outside advisors. The exercise price for outstanding options awarded under the 1991 Epitope Plan had to equal at least 100% (in the case of incentive stock options) and 75% (in the case of +non-qualified stock options) of the fair market value of a share on the date of grant. Employee options generally vested over four years, with 25% of the grant vesting on the first anniversary of the grant date and the remaining 75% vesting ratably +on an annual or monthly basis over the next three years. +Under the 1991 Epitope Plan, nonemployee directors of Epitope were generally granted a stock option to purchase 50,000 shares of common stock at the time they were appointed to the board of directors. A newly-elected Chairman of the +Board received an option to purchase an additional 25,000 shares. Nonemployee director options were generally granted at an exercise price equal to the fair market value of a share on the date of grant minus the lesser of (a) $2.00 or (b) 25% of +fair market value. Such options vested in annual installments and were generally fully exercisable by the date of the fourth annual meeting of stockholders after the director’s +14 +election to the board of directors. Nonemployee directors were also granted stock options to purchase 15,000 shares on the December 15th +prior to the annual meeting of stockholders at which the options most recently granted to such nonemployee director fully vested. Such options vested in three equal annual installments beginning with the second annual meeting of shareholders +following the date of grant. +All options granted +under the 1991 Epitope Plan provided for accelerated vesting upon a “change of control.” Therefore, all unvested options outstanding under the 1991 Epitope Plan as of the date of the Merger were vested in full on that date. +The Agritope Plan +The Agritope Plan was initially established in 1992 by +Agritope, Inc., a wholly owned subsidiary of Epitope at the time. Although not approved by the Company’s stockholders, the Agritope Plan was approved by its sole stockholder, Epitope, in 1992. In 1997, Epitope spun off its ownership interest in +Agritope to its stockholders. In connection with this spin-off, Epitope agreed to issue common stock upon exercise of outstanding options under the Agritope Plan based on conversion rates established in the spin-off. The Company ultimately assumed +this obligation as a result of the Merger. Authority to grant new options under the Agritope Plan terminated at the time of the spin-off. +The Agritope Plan authorized the issuance of incentive stock options, non-qualified stock options and other types of equity compensation +to employees, nonemployee directors and outside advisors. The exercise price for options awarded under the Agritope Plan was generally equal to at least 100% (in the case of incentive stock options) and 75% (in the case of non-qualified stock +options) of the fair market value of a share on the date of grant, subject to certain exceptions in the case of grants to nonemployee directors. Grants to nonemployee directors had terms similar to those for grants to nonemployee directors of +Epitope under the 1991 Epitope Plan. +Options +granted under the Agritope Plan were generally denominated in shares of Agritope’s common stock, but provided for issuance of Epitope common stock upon exercise so long as Agritope remained a wholly-owned subsidiary of Epitope. Employee options +generally vested over four years, with 25% of the grant vesting on each anniversary of the grant date. All outstanding options under the Agritope Plan are fully vested. +The Employee Incentive Plan +The Employee Incentive Plan was an equity compensation plan of STC, which was assumed by the Company as a +result of the Merger. Although not approved by the Company’s stockholders, the Employee Incentive Plan was approved by the stockholders of STC in 1996. +The Employee Incentive Plan authorized the issuance of incentive and non-qualified stock options to employees, directors and consultants +or advisors. The exercise price for options awarded under the Employee Incentive Plan was generally equal to at least 100% of the fair market value of a share of stock on the date of grant in the case of incentive stock options, and not less than +110% of the fair market value with respect to an incentive stock option granted to any person holding 10% or more of the voting power of STC’s stock at the time of grant. The exercise price for non-qualified options could be less than fair +market value. Options granted under the Employee Incentive Plan generally vested in four equal annual installments, commencing on the first anniversary of the date of grant. The vesting for options awarded under the Employee Incentive Plan did not +accelerate as a result of the Merger. +The +Thompson Option +Upon joining Epitope in +January 2000 as its Chief Executive Officer, Robert D. Thompson received a non- plan, non-qualified stock option pursuant to the Thompson Option for 375,000 shares of stock at an exercise +15 +price equal to 75% of the market value of Epitope’s stock on the date of grant. The Thompson Option was not approved by the stockholders +of Epitope or the Company. The Company assumed the Thompson Option as a result of the Merger. Although originally intended to vest over a three-year period, the option granted under the Thompson Option provided for accelerated vesting upon a +“change in control” and, therefore, became fully vested as a result of the Merger. Mr. Thompson resigned from his position as Chief Executive Officer and Director of the Company on January 31, 2002. As a result, the unexercised portion of +the Thompson Option expired on January 31, 2003. +Employment +Agreements +We have entered into employment +agreements with certain of our executive officers. The agreements with such executive officers, other than Mr. Spair, were executed at the time of the Merger of Epitope and STC into the Company. +On January 31, 2002, Mr. Gausling was appointed to the +position of President and Chief Executive Officer of the Company. Pursuant to his employment agreement, which has an initial term of three years (i.e. through September 29, 2003) and is subject to automatic renewal for successive one-year periods +unless either party gives the other party notice that the term will not be extended, Mr. Gausling will receive a base salary of at least $225,000 per year. Mr. Gausling is also eligible to participate in the executive bonus plan established by the +Company, and to receive or participate in any long-term incentive plan or any other additional benefits that may be made available by the Company from time to time. Mr. Gausling will also be reimbursed for job-related expenses. +Mr. Gausling’s employment agreement will terminate upon +his death or upon 60 days’ written notice from Mr. Gausling to the Company. Mr. Gausling’s employment agreement may also be terminated by the Company for cause (as defined therein), or without cause. Upon the termination of Mr. +Gausling’s employment without cause, Mr. Gausling will continue to be paid his annual salary for the greater of (x) 12 months, (y) the remaining term of the employment agreement, or (z) 36 months if Mr. Gausling elects to treat one of the +following events as a termination without cause: (i) a material breach of the employment agreement by the Company; (ii) a reduction in Mr. Gausling’s salary or a change in his title or a substantial diminution of his duties; or (iii) a change +in control of the Company. +A “change in +control” generally is defined to take place when disclosure of such a change would be required by the proxy rules promulgated by the Commission or when either: +· +a person (other than the Company, any of its subsidiaries, any employee benefit plan of the Company, or any person with voting power arising from a revocable proxy) +acquires beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of 30% or more of the combined voting power of the Company’s voting securities; +· +less than a majority of the directors are persons who were either nominated or selected by the Board; +· +the consummation of any consolidation or merger in which the Company is not the surviving corporation or the sale, lease, exchange or other transfer of all or +substantially all of the assets of the Company; or +· +the approval by the stockholders of the Company of any plan or proposal for the liquidation or dissolution of the Company. +All of the other employment agreements are substantially +similar to Mr. Gausling’s agreement, with the following exceptions: +Mr. Thompson served as Chief Executive Officer of the Company at a base salary of $275,000 per year. Under his employment agreement, the Company agreed to pay Mr. Thompson a one-time relocation allowance of +16 +$30,000 upon relocation of his residence to Pennsylvania, and to purchase, or arrange for a third-party to purchase, Mr. Thompson’s +house in Portland, Oregon at a purchase price of $672,000. The Company agreed to pay all mortgage payments on the house that became due between the date of the relocation of the Company’s headquarters to Pennsylvania and the closing date of the +purchase of Mr. Thompson’s Portland, Oregon house, with any amounts so paid to be grossed up for any income tax owed by Mr. Thompson as a result of such payments. In lieu of the Company purchasing Mr. Thompson’s house in Portland, Oregon, +the Company made a loan to Mr. Thompson in the amount of $100,649 for relocation purposes, which would not accrue interest if repaid on or before the earlier of (i) the tenth day following the closing of the sale of Mr. Thompson’s house in +Portland, Oregon, or (ii) the first anniversary of the date of the loan. Interest would accrue at the rate of 9% per year from the due date until the loan was repaid. Mr. Thompson repaid that loan in April 2001. +Prior to the Merger, Mr. Thompson also received a loan of +$75,000 from Epitope to be used for the purchase of his home in the Portland, Oregon area. The loan did not accrue interest if repaid on or before April 17, 2002. Interest would accrue at the rate of 9% per year from the due date until the loan was +repaid. +On January 31, 2002, Mr. Thompson +resigned as Chief Executive Officer and as Director of the Company, and his employment agreement was terminated. The Company and Mr. Thompson have entered into a severance agreement pursuant to which Mr. Thompson will receive an aggregate of +$480,063, which represents the value of a laptop, home computer and cell phone transferred by the Company to Mr. Thompson, the payment of Mr. Thompson’s COBRA premiums for continuation of health coverage through January 31, 2003, and the +payment to Mr. Thompson of an amount equal to his base salary through September 29, 2003. Under the severance agreement, the $75,000 loan made to Mr. Thompson was repaid in full during 2002. +Dr. Niedbala serves as the Executive Vice President and Chief +Science Officer of the Company, and his agreement provides for a base salary of at least $185,000 per year. Dr. Niedbala’s employment agreement contains the same termination provisions as Mr. Gausling’s agreement, except that Dr. Niedbala +will be paid his salary for 24 months, rather than 36 months, if he elects to treat one of the events described above as a termination without cause. +Mr. Spair serves as Executive Vice President and Chief Financial Officer, and his agreement provides for a base salary of at least +$200,000 per year. The initial term of Mr. Spair’s employment agreement is two years, rather than three years. Mr. Spair is entitled to be reimbursed for the reasonable costs to relocate from his Hamilton, New Jersey home, up to a maximum +aggregate amount of $40,000, plus an additional amount to compensate Mr. Spair for income taxes payable on the relocation reimbursement. Mr. Spair was also granted an option to purchase 150,000 shares of the Company’s Common Stock on the date +he commenced employment with the Company. Mr. Spair’s employment agreement contains the same termination provisions as Mr. Gausling’s agreement. +Mr. Formica serves as the Executive Vice President, Operations, and his agreement provides for a base salary of at least $150,000 per +year. The initial term of Mr. Formica’s employment agreement is two years, rather than three years. Mr. Formica’s employment agreement contains the same termination provisions as Mr. Gausling’s agreement, except that Mr. Formica +will be paid his salary for 24 months, rather than 36 months, if he elects to treat one of the events described above as a termination without cause. +Compensation of Directors +The Chairman of our Board receives an annual fee of $25,000, the Chairman of the Audit Committee receives an annual fee of $17,000, the +Chairmen of the Compensation and Strategic Planning Committees each receive an annual fee of $16,000, and all other nonemployee Directors receive an annual fee of $12,000. Annual fees are payable quarterly in advance. +17 +In addition, +each nonemployee Director receives a $1,000 fee for each Board meeting attended, and each member of a Board Committee receives an additional $1,000 fee for each Committee meeting attended. A meeting fee will only be paid with respect to a meeting +for which minutes are prepared. Nonemployee Directors also receive reimbursement for their reasonable out-of-pocket costs of attending Board and Committee meetings. +Nonemployee Directors receive an initial grant of 40,000 stock options upon joining the Board (the +“Initial Grant”). An additional grant of 40,000 stock options is also made to any nonemployee Director who becomes Chairman of the Board (the “Chairman Grant”). Each nonemployee Director receives an annual grant of 20,000 stock +options (the “Annual Grant”) on the annual option grant date for officers and employees of the Company, except for the Chairman of the Board, who receives an Annual Grant of 30,000 stock options. +The options granted to nonemployee Directors are nonqualified +stock options and have an exercise price equal to the mean between the high and low sales prices of the Company’s Common Stock as quoted on The NASDAQ Stock Market on the grant date. Each Initial Grant and Chairman Grant generally vests on a +monthly basis over the 24 months immediately following the grant date, and each Annual Grant generally vests on a monthly basis over the 12 months immediately following the grant date. All vesting of the options will cease 90 days after the +nonemployee Director ceases to serve on the Board. Options become exercisable in full immediately upon the occurrence of a change in control of the Company. A change in control of the Company would occur on the happening of such events as the +beneficial ownership by a person or group of 30 percent or more of the outstanding Common Stock of the Company, certain changes in Board membership affecting a majority of positions, certain mergers or consolidations, a sale or other transfer of all +or substantially all the Company’s assets, or approval by the stockholders of a plan of liquidation or dissolution of the Company, as well as any change in control required to be reported by the proxy disclosure rules of the Securities and +Exchange Commission. Payment of the exercise price may be made in cash or by delivery of previously acquired shares of Common Stock having a fair market value equal to the aggregate exercise price. +Compensation Committee Interlocks and Insider Participation +Richard J. Lane, Gregory B. Lawless and +Roger L. Pringle served as members of the Compensation Committee of the Board during 2002. Neither Mr. Lane, Mr. Lawless nor Mr. Pringle currently serves as an officer of the Company. There are no compensation committee interlocks between the +Company and any other entity involving the Company’s or such entity’s executive officers or board members. +The following report of the Compensation Committee of the Board (the “Committee”) and the Stock Price Performance Graph shall +not be deemed to be incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing by the Company under either the Securities Act or the Exchange Act, except to the extent that the Company +specifically incorporates this information by reference. The following report and the Stock Price Performance Graph shall not otherwise be deemed filed under such Acts. +Report on Executive Compensation +General . The Committee, which is composed of independent, nonemployee +Directors, is responsible for establishing and administering the Company’s policies that govern executive compensation and benefit practices. For 2002, the Committee evaluated the performance of the Chief Executive Officer and reviewed the +performance evaluations of the other executive officers, and approved their salary, merit cash bonus and related benefits. Compensation approved by the Committee for the Chief Executive Officer and the other executive officers was then recommended +for approval by the Company’s Board of Directors. +18 +Compensation Philosophy . The Company’s executive compensation programs are designed to (i) reflect the financial performance of the Company and achievement of financial and other +performance objectives, (ii) align the interests of management with the long-term interests of the Company’s stockholders, and (iii) provide long-term incentives for management. The Company seeks to set compensation at levels +sufficiently competitive to attract, retain and motivate high quality executives to contribute to the Company’s successes. In assessing overall compensation for executive officers, the Compensation Committee considers the Company’s +performance and industry position, general industry data and recommendations of third party consultants. In furtherance of these goals, the components of executive compensation include base salary, merit cash bonuses, stock option grants and other +benefits, and are linked to both Company and individual performance. +During 2002, the Compensation Committee engaged an outside executive compensation consultant to review the Company’s executive compensation practices and make recommendations with respect to those practices. Based on +this review and the consultant’s recommendations, the Committee has: (i) established a program for cash compensation that will pay executives near the median amount paid by similarly situated companies, with the opportunity to achieve up to the +75th percentile of competitive compensation amounts based on performance; (ii) refined the Company’s process for establishing performance objectives for executives and evaluating individual performance against these objectives; and (iii) +adopted a practice to ensure that base salary, merit cash bonus and stock option award decisions for executives will follow a pay-for-performance model. +Base Salary . At least annually, the Committee sets the salary for all executive officers. The +Committee reviews the performance of the Chief Executive Officer and other executive officers, and receives and considers management recommendations concerning salary adjustments for executive officers, as well as compensation data regarding other +medical diagnostic and healthcare companies. +The +Committee’s compensation decisions for 2002 were heavily influenced by the Company’s financial performance. The Company did not meet the performance criteria for revenues and profitability established by the Board of Directors for 2002, as +2002 revenues were essentially flat when compared to 2001 levels. +Because the Company did not meet its stated financial objectives, the salary increases for executive officers approved during 2002 were limited. The Committee decided to increase Mr. Gausling’s salary from $225,000 to +$250,000 per year in April 2002, solely to reflect Mr. Gausling’s assumption of additional responsibilities as the Chief Executive Officer. Messrs. Spair, Jerrett and one other executive officer also received cost-of-living increases to their +salaries, and Dr. Niedbala received an increase in salary to better align his compensation with industry standards. +Based on the consultant’s review of the Company’s compensation practices and the Committee’s review of the performance +evaluations of certain executives, the Committee determined and recommended for Board approval certain executive promotions and salary increases. Mr. Formica was promoted in November 2002 and his salary was increased to reflect his additional +responsibilities consistent with industry standards. In addition, in February 2003, an increase in Mr. Gausling’s base salary to $275,000 was approved to better align his compensation with industry standards, Mr. Jerrett and another executive +officer were promoted, and salary increases were approved for Messrs. Spair, Formica, Jerrett and one other executive officer to better align their compensation levels with industry standards. +Finally, Robert D. Thompson resigned as the Chief Executive +Officer and Director of the Company in January 2002, and his employment agreement with the Company was terminated at that time. As a result, the Company entered into an agreement providing for the payment of certain severance to Mr. Thompson, +consistent with the terms of his employment agreement. For a description of the terms of Mr. Thompson’s severance, see the Section entitled, “Employment Agreements,” in this Proxy Statement. +19 +Merit +Cash Bonuses . In May 2002, the Committee and Board of Directors approved the 2002 Employee Cash Bonus Plan (the “2002 Bonus Plan”), which established target cash bonus awards for executive officers and other +managers for 2002. The terms of the 2002 Bonus Plan were designed to reward executive officers and management for outstanding performance with cash bonus awards. Awards for 2002 were to be based on each executive’s achievement of certain +individual performance targets and the Company’s attainment of certain sales and earnings per share targets for the year. Payment of awards would be from bonus pools funded at levels dependent upon the Company achieving certain financial +objectives. The Chief Executive Officer’s target payment was 50% of base salary. +Since the Company did not meet its stated financial objectives for 2002, the Committee did not award cash bonuses to the Chief Executive Officer. However, the Committee recognized that certain +executive officers made significant contributions to the Company during 2002 and determined that it would be appropriate to reward these officers for their performance in 2002. As a result, the Committee approved certain discretionary cash bonuses +to Messrs. Spair, Formica, Jerrett and one other executive officer. These bonuses were paid in February 2003. +Stock Options . As previously noted, an important goal of the Company’s compensation +program is to align the interests of the executive officers and other employees with the long-term interests of the Company’s stockholders. In furtherance of this goal, the Company maintains the 2000 Stock Award Plan (the “Award +Plan”) pursuant to which the Company may grant stock-based awards to directors, officers, and employees of, and consultants and advisers to, the Company. In January 2002, the Committee approved stock option awards for all executive officers, +except for Mr. Gausling and Dr. Niedbala, who elected not to participate in the awards so that additional options would be available for grant later in 2002 to all employees if the Company met certain financial objectives for the first two quarters +of 2002. These additional awards, however, were not granted by the Committee because the Company failed to meet these financial objectives. +Based on the consultant’s review of the Company’s compensation presentations, the Committee and the Board of Directors approved +Stock Option Award Guidelines for the Company’s executive management (the “Option Guidelines”). The purpose of the Option Guidelines is to provide a framework for determining annual stock option awards for executives that reflect the +executive’s duties and performance evaluation against individual objectives for the applicable year, and to align the size of option grants for executives with comparable positions at other medical diagnostic and healthcare companies. Utilizing +the Option Guidelines, in February 2003, the Committee awarded the Chief Executive Officer an option for 100,000 shares and approved smaller awards for the other executive officers. +Other Compensation . The Company provides the Chief Executive +Officer and each other officer at the level of Senior Vice President and above with a car allowance in an amount equal to $9,000 per year. The Company also reimburses the Chief Executive Officer for certain country club dues and assessments. +In addition, the Company maintains a 401(k) +profit sharing plan (the “401(k) Plan”) in which all employees of the Company, including executive officers, are eligible to participate. The Company makes matching contributions up to the lesser of $4,000 or 10% of the participant’s +salary. Payments of benefits accrued for 401(k) Plan participants will be made upon retirement or upon termination of employment prior to retirement provided certain conditions have been met by the participant prior to termination. +COMPENSATION COMMITTEE: +Roger L. Pringle, Chairman +Richard J. Lane +Gregory B. Lawless +March 31, 2003 +20 +Stock Price Performance Graph +The following graph compares the cumulative total returns to investors in the Company’s Common Stock, +the Russell 2000 Index and the Nasdaq Biotechnology Index for the period from December 31, 1997 through December 31, 2002. The graph assumes that $100 was invested on December 31, 1997 in the Company’s Common Stock and in each of the +above-mentioned indices, and that all dividends were reinvested. +The Russell 2000 index was chosen because it is an index of companies with market capitalizations similar to ours. The Nasdaq Biotechnology Index was chosen because it includes a number of our competitors. Stockholders are cautioned +that the graph shows the returns to investors only as of the dates noted and may not be representative of the returns for any other past or future period. +* +The stock performance data for the Company used to generate the graph reflects the cumulative total return on the common stock of Epitope for all periods prior to +the September 29, 2000 Merger of Epitope into the Company. +21 +Annual Report +Our Annual Report to Stockholders for the year ended December 31, 2002 accompanies this Proxy Statement. +On written request, we will provide, without charge, a copy of our Annual Report on Form 10-K for the year ended December 31, 2002, as filed with the Commission (including a list briefly describing the exhibits thereto), to any record holder or +beneficial owner of our Common Stock on March 28, 2003, the record date for the Annual Meeting, or to any person who subsequently becomes such a record holder or beneficial owner. Requests should be directed to the attention of the Secretary of +the Company at our address set forth in the Notice of Annual Meeting of Stockholders immediately preceding this Proxy Statement. +Independent Accountants +Change in Accountant . On May 21, 2002, we dismissed Arthur Andersen LLP (“Andersen”) as our +independent public accountants and engaged KPMG LLP (“KPMG”) to serve as our independent auditors for the year ending December 31, 2002. These actions were effective immediately and were approved by the Audit Committee. The reports of +Andersen on the Company’s financial statements for the years ended December 31, 2001 and 2000, did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting +principles. During its audits for the years ended December 31, 2001 and 2000, and through May 21, 2002, (i) there were no disagreements with Andersen on any matter of accounting principles or practices, financial statement disclosure or auditing +scope or procedure, which disagreements, if not resolved to Andersen’s satisfaction, would have caused Andersen to make reference to the subject matter of such disagreements in their reports on the Company’s financial statements for the +years ended December 31, 2001 and 2000, and (ii) there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K under the Exchange Act. +During the years ended December 31, 2001 and 2000, and through May 21, 2002, the Company did not consult with KPMG regarding any of the +items described in Item 304(a)(2) of Regulation S-K under the Exchange Act. +KPMG has audited the financial statements of the Company for the year ended December 31, 2002. We expect representatives of KPMG to be present at the Annual Meeting and to be available to respond to +appropriate questions from stockholders. The representatives of KPMG will have the opportunity to make a statement at the meeting if they desire to do so. +Audit Fees . The aggregate fees billed by KPMG related to the audit of +our annual financial statements for the year ended December 31, 2002, and the review of our financial statements included in the Company’s quarterly reports on Form 10-Q during 2002, totaled $104,750. +Financial Information Systems Design and Implementation +Fees . The Company did not engage KPMG to provide systems design and implementation services (as defined in paragraph (c)(4)(ii) of Rule 2-01 of Regulation S-X under the Exchange Act) during the year ended December +31, 2002. +All Other +Fees . The aggregate fees billed by KPMG to the Company for other services rendered to the Company for the year ended December 31, 2002 totaled $78,000. These services consisted of preparation of various federal and +state tax returns for the Company, tax analysis and planning assistance, the audit of our 401(k) plans, analysis of the appropriate accounting treatment for the lease of our new corporate headquarters and a review of our inventory cost system. +The Audit Committee has determined that the +provision of the services covered under the caption “All Other Fees” above are compatible with maintaining KPMG’s independence. +22 +Deadline For +Stockholder Proposals +You may submit +proposals for inclusion in the proxy materials for the Company’s 2004 Annual Meeting of Stockholders. Any such proposals must meet the stockholder eligibility and other requirements imposed by rules issued by the Securities and Exchange +Commission and must be received by the Company at 220 East First Street, Bethlehem, Pennsylvania 18105, Attention: Secretary, not later than December 12, 2003. +Our Bylaws provide that a stockholder proposal must meet certain predetermined requirements in order to be considered at the Annual +Meeting. In order to be considered, a stockholder’s proposal must be made in writing to the Company’s Secretary and must be delivered to or received at our principal executive offices not less than ninety (90) days nor more than one +hundred twenty (120) days prior to the meeting. However, if less than one hundred (100) days’ notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so +received no later than the close of business on the tenth (10th) day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. The notice to the Secretary must set forth, +with respect to each matter the stockholder proposes to bring before the meeting, a brief description of the matter and the reasons for considering that matter at the Annual Meeting. The notice must also include the name and record address of the +stockholder, the class and number of shares of capital stock of the Company, which are beneficially owned by the stockholder, and any material interest the stockholder has in the matter(s) proposed for consideration at the Annual Meeting. +BY ORDER OF THE BOARD OF +DIRECTORS +Jack E. Jerrett +Secretary +April 11, 2003 +23 +Exhibit A +ORASURE TECHNOLOGIES, INC. +BOARD OF DIRECTORS +Audit Committee Charter +Amended and Restated as of +February 4, 2003 +I. PURPOSE +The primary function of the Audit Committee is to assist the +Board of Directors (the “Board”) of OraSure Technologies, Inc. (the “Company”) in fulfilling its responsibility to oversee management’s conduct of the Company’s financial reporting process, including monitoring the +participation of management and the outside auditor in the financial reporting process, the Company’s systems of internal accounting and financial controls, and the annual independent audit of the Company’s financial statements. +In discharging its oversight role, the Audit +Committee is empowered to investigate any matter brought to its attention with full access to all books, records, facilities and personnel of the Company and the power to retain, at the Company’s expense, outside counsel, auditors or other +experts for this purpose. The outside auditor is ultimately accountable to, and the selection, evaluation and replacement of such auditor are the responsibility of, the Audit Committee. +Although the Audit Committee has the responsibilities and powers set forth in this Charter, the role of the +Audit Committee is oversight. The members of the Audit Committee are not full-time employees of the Company and may or may not be accountants or auditors by profession or experts in the fields of accounting and auditing and, in any event, do not +serve in such capacity. Consequently, it is not the duty of the Audit Committee to conduct audits or to determine that the Company’s financial statements and disclosures are complete and accurate and in accordance with generally accepted +accounting principles or applicable rules and regulations. These activities are the responsibility of management and the Company’s outside auditors. +II. COMPOSITION +The Audit Committee shall be comprised of two or more Directors as determined by the Board, each of whom shall (i) be free from any +relationship that, in the opinion of the Board, would interfere with the exercise of his or her independent judgment as a member of the Audit Committee, (ii) meet the independence requirements of Section 10A(m)(3) of the Securities and Exchange Act +of 1934 (the “Exchange Act”) and the rules and regulations of the Securities and Exchange Commission (“SEC”), and (iii) meet the independence and financial literacy requirements of The NASDAQ Stock Market and any other stock +exchange or trading market on which the Company’s securities may be listed or approved for quotation. At least one member of the Audit Committee shall be a financial expert as defined by applicable SEC rules and regulations. All members of the +Audit Committee shall have a working familiarity with basic finance and accounting practices. Audit Committee members should enhance their familiarity with finance and accounting by participating in educational programs conducted by the Company or a +third party. +Members of the Audit Committee +shall be elected by the Board at the Company’s annual organizational meeting or at any regular or special meeting of the Board, and such members shall serve until their successors shall be duly elected and qualified, or until removal from the +Audit Committee by the Board or until such member ceases to be a member of the Board or meet the independence or other membership requirements set forth in this Charter. Vacancies on the Audit Committee shall be filled by the Board, and any member +of the Audit Committee may be removed by the action of a majority of the whole Board. Unless a Chairman of the Audit Committee is elected by the Board, the members of the Audit Committee may designate a Chairman by majority vote of the full Audit +Committee membership. +24 +III. COMPENSATION +Unless otherwise approved by the Board, members of the Audit Committee shall not receive any compensation from the Company other than Director fees (including equity-based awards), which may include amounts paid to Directors for +service on committees and as chairs of committees of the Board. +IV. MEETINGS +The Audit Committee shall meet at the call of the Chairman of the Audit Committee or of any two members of the Audit Committee (or if there shall be only one other member, then at the call of that member). A majority of the Audit +Committee membership shall constitute a quorum for the transaction of business (or if there shall be only two members, then both must be present), and the act of a majority of those present at any meeting at which a quorum is present (or if there +shall be only two members, then they must act unanimously) shall be the act of the Audit Committee. If there shall be only one member, then that member shall constitute a quorum and may act for the Audit Committee. +The Audit Committee shall keep regular minutes of its +proceedings, which minutes shall be recorded in the Minute Book of the Company. The Secretary or Assistant Secretary of the Company may act as Secretary of the Audit Committee, if requested, or the Audit Committee may appoint one of its members to +act as Secretary of a meeting. The Audit Committee may also act by unanimous written consent without a meeting. +The Audit Committee may request members of management or others (including the Company’s investment bankers or financial analysts who +follow the Company) to attend meetings and to provide pertinent information as necessary. The Committee shall meet with Company management (including the Chief Financial Officer and Chief Accounting Officer) and the Company’s outside auditors +in separate private sessions periodically but not less than quarterly. +V. RESPONSIBILITY AND DUTIES +The following responsibilities and duties shall be the common recurring activities of the Audit Committee in carrying out its oversight function. These responsibilities and duties are set forth as a +guide with the understanding that the Audit Committee may diverge from this guide as appropriate given the circumstances. +1. The Audit Committee shall have the sole authority to select and replace the Company’s +outside auditors (subject to stockholder approval, if applicable), and shall be directly responsible for the compensation and oversight of the work of the outside auditors, including resolution of disagreements between the Company’s management +and the outside auditors regarding financial reporting, for the purpose of preparing its audit report or related work. The outside auditors shall report directly to the Audit Committee. +2. The Audit Committee shall review and determine the scope of +independent auditing services in advance of each annual audit. +3. The Audit Committee shall review in advance, and grant any appropriate pre-approvals on (i) all auditing services to be provided by the outside auditors and (ii) all non-audit +services to be provided by the outside auditors as permitted by Section 10A of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or other applicable law and (3) in connection with services approved under clauses (i) and +(ii), above, all fees and other terms of engagement, including the terms of any engagement letter or similar agreement with the outside auditors. The Chairman of the Audit Committee shall be authorized to execute any such engagement letter or +agreement with the outside auditors, for and on behalf of the Company. The foregoing pre-approval requirement shall be subject to the deminimis exceptions for non-audit services described in Section 10A(i)(1)(B) of the Exchange Act which are +approved by the Audit Committee prior to completion of the audit. The Audit Committee may delegate to one or more members of the Audit +25 +Committee who are independent the authority to grant preapprovals required by this Section 3, provided that any preapproval by such member or +members shall be presented to the full Audit Committee at its next scheduled meeting. +4. The Audit Committee shall review and approve disclosures required to be included in the +Company’s periodic reports filed under Section 13 of the Exchange Act with respect to approval of non-audit services. +5. The Audit Committee shall review, based upon the recommendation of the outside auditors and +Company management, the scope and plan of work to be done by the outside auditor each fiscal year, including, staffing, locations, reliance upon management, and internal audit and general audit approach. +6. The Audit Committee shall review and evaluate the performance of the Company’s outside +auditors on at least an annual basis. +7. The Audit Committee shall, at least annually, obtain and review a report from the outside auditors describing: (1) the outside auditors’ internal quality control procedures and (2) any material issues +raised by the most recent internal quality-control review, or peer review, of the outside auditors, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent +audits carried out by the outside auditors, and any steps taken to deal with any such issues. +8. The Audit Committee shall review with the auditors their independence from Company management, +including (1) requesting from the outside auditors annually, a formal written statement delineating all relationships between the auditor and the Company consistent with Independence Standards Board Standard Number 1 and rules of The NASDAQ Stock +Market, and (2) discussing with the outside auditors any such disclosed relationships and their impact on the outside auditor’s independence. The Audit Committee shall also review the resumes of key partners and managers of the outside auditors +in order to evaluate the experience and qualifications of those who perform services for the Company. +9. The Audit Committee shall confirm that the lead audit partner, or the lead audit partner +responsible for reviewing the audit, for the Company’s outside auditors complies with applicable partner rotation requirements. +10. The Audit Committee shall review all reports required to be submitted by the outside auditors +to the Audit Committee under Section 10A of the Exchange Act. +11. The Audit Committee shall review with management and the outside auditors the audited financial statements, including the Company’s disclosures under +“Management’s Discussion and Analysis of Financial Conditions and Results of Operations,” and recommend to the Board whether the audited financial statements should be included in the Company’s Annual Report on Form 10-K (or the +Annual Report to Stockholders if distributed prior to the filing of the Form 10-K filed with the SEC). +12. The Audit Committee shall review and consider with the outside auditors the matters required to +be discussed by Statement of Auditing Standards No. 61, including their judgment about the quality, not just acceptability, of accounting principles, the reasonableness of significant judgments, and the clarity of the disclosures in the financial +statements. +13. The Audit Committee shall review with management and the outside auditors the Company’s interim financial results to be included in the Company’s quarterly reports on Form 10-Q to be filed with +the SEC, including the Company’s disclosures under “Management’s Discussion and Analysis of Financial Conditions and Results of Operation,” prior to submission to stockholders, the SEC or any other governmental body, any stock +exchange or the public. +14. The Audit Committee shall prepare the report required by the SEC to be included in the Company’s annual proxy statement and any other SEC reports required by applicable securities laws or the rules of +The NASDAQ Stock Market or any other stock exchange or trading market on which the Company’s securities may be listed or approved for quotation. +26 +15. The Audit Committee shall review and discuss all reports required by law or regulation to be provided to the Audit Committee by the outside auditor of (1) all critical accounting policies and practices used +by the Company; (2) all alternative treatments of financial information within generally accepted accounting principles that have been discussed by the outside auditor with Company management, the ramifications of the use of such alternative +treatments, and the treatment preferred by the outside auditors; and (3) other material written communications between the outside auditors and Company management, such as any management letter or schedule of unadjusted differences. +16. The Audit +Committee shall review and discuss with Company management and the outside auditor such accounting policies (and changes therein) of the Company, including any financial reporting issues, which could have a material impact on the Company’s +financial statements (including but not limited to the use of alternative GAAP methods and off-balance sheet structures), as are deemed appropriate for review by the Audit Committee prior to any interim or year-end filing with the SEC or other +regulators. +17. The Audit Committee shall review and discuss with Company management the effect of accounting and regulatory initiatives on the financial statements of the Company. +18. The Audit +Committee shall discuss with Company management the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures, including the Company’s risk assessment and risk management policies. +19. The +Audit Committee shall review disclosures made by the Company’s Disclosure Committee or any member thereof or by the Company’s CEO or CFO during their certification process for the applicable Form 10-K and Form 10-Q about any significant +deficiencies in the design or operation of disclosure controls or internal financial controls or material weaknesses therein and any fraud involving management or other employees who have a significant role in the Company’s disclosure or +internal controls. +20. The Audit Committee shall periodically consult with the outside auditor, without the presence of management, about internal controls and the completeness and accuracy of the Company’s financial +statements. +21. The Audit Committee shall review and discuss with management and the outside auditor: (1) the management recommendation letter on accounting procedures and internal control and any other reports prepared by +the outside auditor, and management’s responses concerning such reports; (2) any material accounting issues identified by management, or the outside auditor; and (3) other matters required to be communicated by the outside auditor to the Audit +Committee under generally accepted auditing standards. +22. Prior to releasing the year-end earnings, the Audit Committee shall discuss the results of the audit with the outside auditors. The Audit Committee shall meet with the outside auditors, with and +without management present, to discuss the results of their examination. +23. The Audit Committee shall review and discuss with Company management earnings press releases, including the use of “pro-forma” or “adjusted” non-GAAP +information, as well as financial information and earnings guidance provided to analysts and rating agencies. +24. The Audit Committee shall review and approve in advance all of the Company’s related-party +transactions. +25. The Audit Committee shall discuss with management and the outside auditors the quality and adequacy of the Company’s internal controls. +26. The Audit Committee shall establish procedures for: (1) the +receipt, retention and treatment of complaints received by the Company regarding accounting, internal audit controls or auditing matters, and (2) confidential, anonymous submissions by employees of the Company of concerns regarding questionable +accounting or auditing matters. +27 +27. The Audit Committee shall as appropriate meet with the Company’s General Counsel and, if necessary, outside counsel, to review legal and regulatory matters, if any, that could have a material impact on +the Company’s financial statements. +28. The Audit Committee shall review and reassess the adequacy of this Charter at least annually, recommend any desired changes to the Charter to the Board for approval, and have the Charter published at least +every three years in accordance with applicable SEC regulations. +29. The Audit Committee shall perform such other activities as it deems necessary, consistent with the terms of this Charter, the Company’s Bylaws and applicable law, rules +and regulations, including rules of The NASDAQ Stock Market or any other stock exchange or trading market on which the Company’s securities may be listed or approved for quotation. +VI. REPORTING RESPONSIBILITY +The minutes of the Audit Committee reflecting, among other things, all actions taken by the Audit Committee, +shall be distributed to the Board at a Board meeting following the meeting of the Audit Committee that is the subject of such minutes. In addition, matters within the responsibility of the Audit Committee may be discussed by the full Board from time +to time during the course of the year. +28 \ No newline at end of file diff --git a/raw/proxies/0001116463/0000927016-03-001784/proxy_rpt.txt b/raw/proxies/0001116463/0000927016-03-001784/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..b7abae064e2b5454397724f455e82e18f3a264d4 --- /dev/null +++ b/raw/proxies/0001116463/0000927016-03-001784/proxy_rpt.txt @@ -0,0 +1,16 @@ +Certain Relationships and Related Transactions +We have entered into a commercial lease (the +“Lease”) with Tech III Partners, LLC (“Tech Partners”), which provided for the construction of a 48,000 square foot facility on land adjacent to our Bethlehem, Pennsylvania headquarters, and the lease of that facility to us. Tech +Partners is owned and controlled by Michael J. Gausling, the Company’s President and Chief Executive Officer, and Dr. R. Sam Niedbala, the Company’s Executive Vice President and Chief Science Officer. The facility is our new corporate +headquarters and will house manufacturing, research and development, and administrative operations required to support the expected growth of our business. Construction of the facility was completed in October 2002. +The Lease has an initial ten-year term ending in October 2012 +and a base rent starting at $780,000 and increasing to $858,240 per year over that term. The base rental rate may be increased after the fifth year of the initial term in order to reflect changes in the interest rate on debt incurred by Tech +Partners to finance construction of the leased facilities. We have not guaranteed any debt incurred by Tech Partners. We also have an option to renew the Lease for an additional five years at a rental rate of $975,360 per year, and to purchase the +facility at any time during the initial ten-year term based on a formula set forth in the Lease. +10 +Prior to +deciding to enter into the Lease and an amendment increasing the base rent to reflect certain tenant fit-out costs, our Board of Directors retained Imperial Realty Appraisal LLC, an independent commercial real estate appraisal firm, to evaluate the +proposed base rental rate. Imperial Realty issued opinions indicating that the annual base rent set forth in the Lease, as amended, is below the market rental rate we could otherwise expect to pay to lease a comparable commercial property in the +same general geographic market. The terms of the Lease are otherwise substantially similar to a commercial lease we entered into with a third party for our existing Bethlehem, Pennsylvania facilities. +Information regarding employment and severance agreements +between the named executive officers and the Company is set forth in the Section entitled, “Employment Agreements,” in this Proxy Statement. \ No newline at end of file diff --git a/raw/proxies/0001116463/0000950109-02-002030/proxy.txt b/raw/proxies/0001116463/0000950109-02-002030/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..676ed0ebc0a705e9b527cfbf5172b0ebffde2149 --- /dev/null +++ b/raw/proxies/0001116463/0000950109-02-002030/proxy.txt @@ -0,0 +1,1777 @@ +DEF 14A +1 +ddef14a.txt +DEFINITIVE NOTICE & PROXY STATEMENT +=============================================================================== +-------------------------------- +\ OMB APPROVAL \ +\------------------------------\ +\ OMB Number: 3235-0059 \ +\ Expires: January 31, 2002 \ +\ Estimated average burden \ +\ hours per response....13.12 \ +-------------------------------- +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +WASHINGTON, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the Securities +Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant [X] +Filed by a Party other than the Registrant [_] +Check the appropriate box: +[_] Preliminary Proxy Statement +[_] CONFIDENTIAL, FOR USE OF THE +COMMISSION ONLY (AS PERMITTED BY +RULE 14A-6(E)(2)) +[X] Definitive Proxy Statement +[_] Definitive Additional Materials +[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12 +OraSure Technologies, Inc. +-------------------------------------------------------------------------------- +(Name of Registrant as Specified In Its Charter) +-------------------------------------------------------------------------------- +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +[X] No fee required. +[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. +(1) Title of each class of securities to which transaction applies: +------------------------------------------------------------------------- +(2) Aggregate number of securities to which transaction applies: +------------------------------------------------------------------------- +(3) Per unit price or other underlying value of transaction computed +pursuant to Exchange Act Rule 0-11 (set forth the amount on which +the filing fee is calculated and state how it was determined): +------------------------------------------------------------------------- +(4) Proposed maximum aggregate value of transaction: +------------------------------------------------------------------------- +(5) Total fee paid: +------------------------------------------------------------------------- +[_] Fee paid previously with preliminary materials. +[_] Check box if any part of the fee is offset as provided by Exchange +Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee +was paid previously. Identify the previous filing by registration statement +number, or the Form or Schedule and the date of its filing. +(1) Amount Previously Paid: +------------------------------------------------------------------------- +(2) Form, Schedule or Registration Statement No.: +------------------------------------------------------------------------- +(3) Filing Party: +------------------------------------------------------------------------- +(4) Date Filed: +------------------------------------------------------------------------- +Notes: +[LOGO OF ORASURE TECHNOLOGIES, INC.] +ORASURE TECHNOLOGIES, INC. +150 Webster Street +Bethlehem, Pennsylvania 18015 +April 12, 2002 +Dear Stockholder: +You are cordially invited to attend the 2002 Annual Meeting of Stockholders +to be held on Monday, May 20, 2002, at the Radisson Hotel Bethlehem, 437 Main +Street, Bethlehem, Pennsylvania, 18018, at 10:00 a.m. local time. Your Board +of Directors and Management look forward to personally greeting those present. +At the meeting, you will be asked to (i) elect two Class II Directors to serve +on the Board of Directors until the Annual Meeting of Stockholders in 2005, +(ii) approve an amendment to the OraSure Technologies, Inc. 2000 Stock Award +Plan to increase the number of shares of Common Stock authorized for grant +under such Plan, and (iii) transact such other business as may properly come +before the meeting or any adjournments thereof. +Your Board of Directors has approved the nominees for director and +recommends that you vote FOR their election to the Board. In addition, your +Board of Directors recommends that you vote FOR the amendment to the Stock +Award Plan. +Your vote is very important, regardless of the number of shares you own. +Whether or not you plan to attend the Annual Meeting in person, we urge you to +submit your vote as soon as possible. We are pleased to announce that this +year you will have the option to vote by telephone, via the Internet, or by +marking, signing, dating, and mailing the enclosed proxy card in the +accompanying postage prepaid envelope. Additional details on these options can +be found in the attached Proxy Statement and proxy card. You may, of course, +attend the Annual Meeting and vote in person regardless of whether you have +previously voted by phone, the Internet or mail. +Sincerely yours, +/s/ Michael J. Gausling +Michael J. Gausling +President and Chief Executive Officer +[LOGO OF ORASURE TECHNOLOGIES, INC.] +ORASURE TECHNOLOGIES, INC. +150 Webster Street +Bethlehem, Pennsylvania 18015 +---------------- +Notice of Annual Meeting of Stockholders +to be held May 20, 2002 +---------------- +To the Stockholders of OraSure Technologies, Inc.: +The Annual Meeting of Stockholders of OraSure Technologies, Inc., a Delaware +corporation, will be held at the Radisson Hotel Bethlehem, 437 Main Street, +Bethlehem, Pennsylvania 18018, on Monday, May 20, 2002, at 10:00 a.m. local +time for the following purposes: +1. To elect two Class II Directors; +2. To approve an amendment increasing the number of shares of Common Stock +authorized for grant under the OraSure Technologies, Inc. 2000 Stock +Award Plan; and +3. To consider such other business as may properly come before the meeting +or any adjournment thereof. +Additional information is included in the Proxy Statement accompanying this +Notice. Only holders of Common Stock of record at the close of business on +March 28, 2002, will be entitled to vote at the Annual Meeting of Stockholders +and any adjournments thereof. +By Order of the Board of Directors, +Jack E. Jerrett +Secretary +April 12, 2002 +Bethlehem, Pennsylvania +------------------------------------------------------------------------------- +YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the meeting, you are +urged to vote your shares as promptly as possible by telephone, via the +Internet, or by signing, dating and returning the enclosed proxy card, as +described in the attached Proxy Statement. Voting by phone, the Internet or +mail does not deprive you of your right to attend the meeting and to vote your +shares in person. +------------------------------------------------------------------------------- +[LOGO OF ORASURE TECHNOLOGIES, INC.] +ORASURE TECHNOLOGIES, INC. +150 Webster Street +Bethlehem, Pennsylvania 18015 +---------------- +Proxy Statement +This Proxy Statement is being mailed on or about April 12, 2002, to +stockholders of OraSure Technologies, Inc., a Delaware corporation (the +"Company"), in connection with the Company's solicitation of proxies (each, a +"Proxy") for use at the Annual Meeting of Stockholders to be held on May 20, +2002, at 10:00 a.m. local time, at the Radisson Hotel Bethlehem, 437 Main +Street, Bethlehem, Pennsylvania 18018, and at any adjournments thereof (the +"Annual Meeting"). +Proxies +Shares represented by a properly executed Proxy, whether delivered by phone, +the Internet or mail, as described below, will be voted in accordance with the +stockholder's instructions. If no instructions are given in the Proxy, the +stockholder's shares will be voted according to the recommendations of the +Board of Directors (the "Board") as stated on the Proxy. Stockholders may +revoke the authority granted by their Proxies at any time before the Annual +Meeting by notice in writing delivered to the Secretary of the Company, by +delivering a subsequently dated Proxy, or by attending the Annual Meeting, +withdrawing the Proxy, and voting in person. +At the Annual Meeting, action will be taken on the matters set forth in the +accompanying Notice of Annual Meeting of Stockholders and described in this +Proxy Statement. The Board knows of no other matters to be presented for +action at the Annual Meeting. If any other matters do properly come before the +Annual Meeting, the persons named on the Proxy will have discretionary +authority to vote thereon in accordance with their best judgment. +The cost of soliciting Proxies will be borne by the Company. In addition to +solicitations by mail, certain of the Company's directors, officers, and +regular employees may solicit Proxies personally or by telephone or other +means without additional compensation. The Company has retained Mellon +Investor Services LLC to assist in such solicitation for an estimated fee of +$4,500 plus reimbursement for certain expenses. +Arrangements will also be made with brokerage firms and other custodians, +nominees, and fiduciaries to forward solicitation material to the beneficial +owners of stock held of record by such persons, and the Company will, upon +request, reimburse them for their reasonable expenses in so doing. +Voting Procedures +Most stockholders will have a choice of voting over the phone, via the +Internet or by completing and mailing a traditional paper proxy card, as +described below. Please check your proxy card or the information forwarded by +your bank, broker or other holder of record to determine which options are +available to you. +Voting by Mail. If stockholders desire to vote by using the paper proxy card +included with this Proxy Statement instead of by telephone or the Internet, +they may do so by completing, signing, dating and returning +1 +the proxy card in the enclosed, pre-addressed envelope. Postage need not be +affixed to the envelope if mailed in the United States. +Voting by Phone or Internet. Instead of voting by use of the paper proxy +card, stockholders may be able to vote by phone or the Internet. Whether +stockholders may do so will depend on how their shares of Common Stock are +held. +Stockholders with shares registered in their name with Mellon Investor +Services LLC, the Company's transfer agent, may vote those shares by telephone +by calling Mellon Investor Services LLC at 800-435-6710 (toll free in the +United States or Canada only) or via the Internet at the following web site: +www.eproxy.com/osur. Registered stockholders desiring to vote by telephone or +the Internet must do so by 4:00 pm Eastern Time on May 17, 2002. Additional +instructions can be found on the paper proxy card accompanying this Proxy +Statement. +Stockholders with shares registered in the name of a broker or bank may be +able to vote by phone or the Internet if their broker, bank or other record +holder participates in a program provided through ADP Investor Communication +Services that offers telephone and Internet voting options. This program is +different from the program provided by Mellon Investor Services for shares +registered directly in the name of the stockholder. If a stockholder's shares +are held in an account with a broker, bank or other record holder +participating in the ADP Investor Communication Services program, that +stockholder may vote those shares telephonically by calling the telephone +number shown on the voting form received from your broker or bank, or via the +Internet at the ADP Investor Communication Services voting web site +(www.proxyvote.com). Votes submitted by telephone or the Internet through the +ADP Investor Communication Services program must be received by 12:00 midnight +Eastern Time on May 19, 2002. +Submitting a proxy by phone or the Internet will not affect a stockholder's +right to vote in person at the Annual Meeting. The telephone and Internet +voting procedures are designed to authenticate stockholders' identities, to +allow stockholders to give their voting instructions and to confirm that +stockholders' instructions have been recorded properly. Stockholders voting +via the Internet should understand that there may be costs associated with +this method of voting, such as usage charges from Internet access providers +and telephone companies and printing costs, that must be borne by the +stockholder. +Electronic Access to Proxy Materials and Annual Report. The notice of Annual +Meeting, the Proxy Statement and the 2001 Annual Report are available on the +Company's web site at http://www.orasure.com. Any stockholder of record that +would like to view future proxy statements and annual reports over the +Internet instead of receiving copies in the mail should follow the +instructions on the paper proxy card if you vote by mail or follow the +instructions provided when you vote by phone or over the Internet. If you hold +your shares through a bank, broker, or other holder, check the information +provided by that entity for instructions on how to elect to view future proxy +statements and annual reports over the Internet. Opting to receive your proxy +materials and annual report online will save the Company the cost of producing +these materials and mailing them to you in the future. +Voting Securities +On March 28, 2002, the record date for determining stockholders entitled to +vote at the Annual Meeting, the Company had outstanding and entitled to vote +at the meeting 37,429,904 shares of common stock, par value $.000001 per share +("Common Stock"). Each share of Common Stock is entitled to one vote on any +matter brought before the meeting. A majority of the shares of Common Stock +outstanding as of the record date, represented in person or by Proxy at the +meeting, will constitute a quorum for the transaction of business. +2 +Principal Stockholders +The following table sets forth information as of March 28, 2002, regarding +the beneficial ownership of the Company's Common Stock by (a) each person who +is known to the Company to be the beneficial owner of more than five percent +of the Common Stock outstanding, (b) each director and nominee for election as +director, (c) each of the Company's executive officers and other persons named +in the Summary Compensation Table under "Executive Compensation," and (d) all +directors and executive officers of the Company as a group. Unless otherwise +indicated, the address of each person identified below is c/o OraSure +Technologies, Inc., 150 Webster Street, Bethlehem, Pennsylvania 18015. +Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended +(the "Exchange Act"), shares of the Company's Common Stock which a person has +a right to acquire pursuant to the exercise of stock options and warrants held +by that holder that are exercisable within 60 days of March 28, 2002 are +deemed to be outstanding for the purpose of computing the percentage ownership +of that person, but are not deemed outstanding for computing the percentage +ownership of any other person. +Amount and Nature of Percent +Beneficial Owner Beneficial Ownership(1)(2) of Class +---------------- -------------------------- -------- +William W. Crouse(3)...................... 3,172,402 8.5% +HealthCare Ventures V, L.P.(3)............ 3,115,292 8.3% +HealthCare Partners V, L.P. +Augustine Lawlor +Christopher Mirabelli +Harold R. Werner +James H. Cavanaugh, Ph.D. +John W. Littlechild +William W. Crouse +44 Nassau Street +Princeton, NJ 08542 +William M. Hinchey(4)..................... 2,172,397 5.8% +433 Dogwood Terrace +Easton, PA 18042 +WM Advisors Inc.(5)....................... 2,154,400 5.8% +1201 Third Avenue, 22nd Floor +Seattle, WA 98101 +R. Sam Niedbala, Ph.D.(6)................. 1,804,872 4.8% +Michael J. Gausling(7).................... 1,789,835 4.8% +Michael G. Bolton(8)...................... 567,536 1.5% +Robert D. Thompson........................ 388,215 1.0% +Roger L. Pringle(9)....................... 187,177 * +William D. Block.......................... 135,300 * +Frank G. Hausmann......................... 75,000 * +Gregory B. Lawless........................ 26,666 * +P. Michael Formica........................ 25,646 * +J. Richard George, Ph.D................... 15,935 * +Carter H. Eckert.......................... 5,000 * +All directors and executive officers as a 7,822,661 20.6% +group (12 people)(10).................... +-------- +* Less than 1% +(1) Subject to community property laws where applicable, beneficial +ownership consists of sole voting and dispositive power except as +otherwise indicated. +3 +(2) Includes shares subject to options exercisable within 60 days of March +28, 2002, as follows: Mr. Block, 127,435 shares; Mr. Bolton, 32,944 +shares; Mr. Crouse, 57,110 shares; Mr. Eckert, 5,000 shares; Mr. +Formica, 25,646 shares; Mr. Gausling, 32,734 shares; Dr. George, 15,935 +shares; Mr. Hausmann, 75,000 shares; Mr. Hinchey, 14,061 shares; Mr. +Lawless, 26,666 shares; Dr. Niedbala, 32,734 shares; Mr. Pringle, +150,552 shares; Mr. Thompson, 388,215 shares; and all directors and +executive officers as a group, 599,048 shares. +(3) Includes 3,115,292 shares held of record by HealthCare Ventures V, L.P. +Mr. Crouse is a general partner of HealthCare Partners V, L.P., the +general partner of HealthCare Ventures V, L.P. HealthCare Ventures V, +L.P., HealthCare Partners V, L.P., Dr. Cavanaugh and Messrs. Werner, +Littlechild, Crouse, Mirabelli and Lawlor share voting and dispositive +power with respect to 3,115,292 shares. +(4) Includes 500,713 shares held by The William M. Hinchey 2000 Grantor +Retained Annuity Trust Dated April 27, 2000, of which Mr. Hinchey is the +trustee, and 24,917 shares held by The William M. Hinchey Irrevocable +Education Trust Dated April 27, 2000, of which Mr. Hinchey's wife, +Maureen H. Hinchey, is a trustee. Mr. Hinchey retired from the Company +effective as of December 31, 2001. +(5) Based on information contained in the Schedule 13G filed January 2, +2002, WM Advisors Inc. has sole voting and dispositive power with +respect to 2,154,400 shares. +(6) Includes 500,713 shares held by The Raymond S. Niedbala 2000 Grantor +Retained Annuity Trust Dated April 28, 2000, of which Dr. Niedbala is +the trustee, 73,670 shares held by The Raymond S. Niedbala Family Trust +Dated April 28, 2000, of which Dr. Niedbala's wife, Linda-Lee Niedbala, +is a trustee, and 52,800 shares held by the Niedbala Charitable +Remainder Unit Trust, of which Dr. Niedbala and Linda-Lee Niedbala are +trustees. +(7) Includes 500,713 shares held by The Michael J. Gausling Grantor Retained +Annuity Trust, Dated April 28, 2000, of which Mr. Gausling is the +trustee, and 34,424 shares held by the Michael Gausling Irrevocable +Education Trust Dated April 28, 2000, of which Mr. Gausling's wife, +Sharon M. Gausling, is a trustee. +(8) Includes 534,590 shares held of record by Pennsylvania Early Stage +Partners L.P. Mr. Bolton is Chief Executive Officer and a Managing +Director of Pennsylvania Early Stage Partners GP, LLC, the general +partner of Pennsylvania Early Stage Partners L.P. +(9) Includes 1,500 shares owned by Mr. Pringle's spouse. +(10) Includes 3,115,292 shares held of record by HealthCare Ventures V, L.P. +and 534,590 shares held of record by Pennsylvania Early Stage Partners +L.P. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Exchange Act requires that the Company's officers and +directors and persons who own more than ten percent of the Common Stock +(collectively, "Reporting Persons") file reports of ownership and changes in +ownership with the Securities and Exchange Commission (the "Commission"). +Reporting Persons are required by the Commission's regulations to furnish the +Company with copies of all Section 16(a) forms they file. +Based solely on its review of the copies of such forms and representations +regarding the absence of a filing requirement received from Reporting Persons, +the Company believes that with respect to the year 2001, all Reporting Persons +complied with all applicable filing requirements, except that William M. +Hinchey, the Company's former Senior Vice President, Marketing, Drugs of +Abuse, inadvertently failed to file in a timely manner, one Form 4 with +respect to a single sale transaction occurring at the end of October 2001. +4 +Item 1. Election of Directors +At the Annual Meeting, stockholders will vote on the election of two Class +II Directors. The Board has nominated William W. Crouse and Roger L. Pringle +for election as Class II Directors, for terms expiring at the Annual Meeting +of Stockholders in 2005. The nominees for election as Directors are presently +members of the Board. +In the absence of instructions to the contrary, shares of Common Stock +represented by properly executed Proxies will be voted for the two nominees, +each of whom has consented to be named and to serve if elected. If a quorum is +present, each nominee will be elected if he receives a plurality of the votes +cast by shares present in person or by Proxy entitled to vote at the Annual +Meeting. Abstentions and shares as to which a broker or other nominee has +indicated on a duly executed and returned Proxy or otherwise advised the +Company that it lacks voting authority will have no effect on the required +vote. Your Board recommends that stockholders vote FOR the election of the +Director nominees. +The Company does not know of anything that would preclude any nominee from +serving. However, should any nominee for any reason become unable or unwilling +to serve as a Director, the persons named in the enclosed Proxy will vote the +shares represented by each Proxy for such substitute nominee as the Board may +approve. +Any vacancy that occurs on the Board that results from an increase in the +number of Directors may be filled by the affirmative vote of a majority of the +Directors then in office, and any other vacancy on the Board may be filled by +the affirmative vote of a majority of the Directors then in office, even +though less than a quorum of the Board, or by a sole remaining Director. +Certain information with respect to each person nominated for election as a +Director and each person whose term of office as a Director will continue +after the Annual Meeting is set forth below. Each person listed below (except +for Messrs. Eckert and Lawless) became a Director of the Company in connection +with the merger (the "Merger") of STC Technologies, Inc. ("STC") and Epitope, +Inc. ("Epitope") into the Company on September 29, 2000, and served on the +board of either STC or Epitope prior to the Merger. +Michael G. Bolton will resign from the Board following the 2002 Annual +Meeting, and his service as a Director of the Company will end at that time. +The Board wishes to express its deepest appreciation to Mike Bolton for his +contributions and insight in serving the Company and its predecessor, STC +Technologies. Mike's experience and business acumen will be missed, and the +Board wishes him every success and happiness in his future endeavors. +Director +Name Principal Occupation Age Since +---- -------------------- --- -------- +Class I (Directors Whose Terms of Office Expire in 2004): +Michael G. Bolton....... Chief Executive Officer and Managing Director 58 2000 +of Pennsylvania Early Stage Partners GP, LLC +Frank G. Hausmann....... President and Chief Executive Officer of 44 2000 +CenterSpan Communications Corporation +Carter H. Eckert........ Former President and Chief Executive Officer 59 2001 +of Knoll Pharmaceutical Company +Class II (Nominees For Terms of Office to Expire in 2005): +William W. Crouse....... Managing Director of HealthCare Ventures LLC 59 2000 +Roger L. Pringle........ President of The Pringle Company 61 2000 +Class III (Directors Whose Terms of Office Expire in 2003): +Michael J. Gausling..... President and Chief Executive Officer of the 44 2000 +Company +Gregory P. Lawless...... Managing Partner of Collins Mabry & Co. 62 2001 +5 +Michael G. Bolton had been a member of the board of directors of STC since +April 1999. In September 1997, Mr. Bolton became the founding Chief Executive +Officer and Managing Director of Pennsylvania Early Stage Partners GP, LLC +("PA Early Stage") in Wayne, Pennsylvania. Prior to joining PA Early Stage, +Mr. Bolton was a senior executive at Lehigh University, where he held various +leadership positions related to fund raising, technology transfer, +entrepreneurial assistance, and public and government relations. Mr. Bolton +was the founding Chief Executive of the Ben Franklin Technology Center at +Lehigh University and co-founder of the NEPA Venture Fund, and has been an +active participant in the venture capital community for approximately 20 +years. Mr. Bolton received his B.A. in Economics and his M.B.A. from Lehigh +University. Mr. Bolton currently serves on the boards of several PA Early +Stage portfolio companies, and is a member of the Advisory Board for the +Wharton School's Center for Entrepreneurship at the University of +Pennsylvania. +Frank G. Hausmann had been a member of the board of directors of Epitope +since December 1999. Mr. Hausmann has been employed by CenterSpan +Communications Corporation since July 1998, serving as President and Chief +Executive Officer since October 1998 and as Vice President, Finance and +Administration and Chief Financial Officer prior to that time. CenterSpan is a +provider of Internet voice and text messaging software designed primarily for +use with interactive games. From August 1997 to May 1998, Mr. Hausmann served +as Vice President, Finance and Chief Financial Officer of Atlas Telecom, Inc., +a developer of enhanced facsimile and voice-mail solutions. From September +1995 to July 1997, he served as Vice President, Corporate Development and +General Counsel of Diamond Multimedia Systems, Inc., a designer and marketer +of computer video cards, modems and other peripherals. From June 1993 to +September 1995, Mr. Hausmann was Executive Vice President and Chief Financial +Officer of Supra Corporation, a designer and marketer of computer modems that +was acquired by Diamond Multimedia Systems, Inc. in September 1995. From 1983 +to 1993, Mr. Hausmann was a consultant and attorney with such firms as Price +Waterhouse and Stoel Rives. Mr. Hausmann received B.S. degrees in Economics +and Political Science from Willamette University and a J.D. degree from the +University of Oregon. He is a member of the Oregon State Bar. Mr. Hausmann is +also a director of CenterSpan Communications Corporation. +Carter H. Eckert became a member of the Board in December 2001. From 1995 to +2001, Mr. Eckert served as President of Knoll Pharmaceutical Company and as +President of the Americas for Knoll's parent company, BASF Pharma. During that +period, Mr. Eckert also was a member of BASF Pharma's Global Pharmaceutical +Board, where he was responsible for global therapeutic franchises and +corporate transactions. Prior to joining Knoll and BASF Pharma in 1995, Mr. +Eckert was President and Chief Executive Officer of Boots Pharmaceuticals, +Inc., a pharmaceutical company, where he was responsible for North American +operations. Mr. Eckert joined Boots Pharmaceuticals in 1985 as Executive Vice +President and Chief Operating Officer after more than a decade at Baxter +Travenol Laboratories, where he served as President of the Pharmaceutical +Products Division. Mr. Eckert currently serves as a director of Boron LePone, +Inc., a trustee of Caldwell College and an operating partner of the Athena +Group. Mr. Eckert received his B.S. in Chemical Engineering from the Illinois +Institute of Technology and his M.B.A. from Northwestern University. +William W. Crouse had been a member of the board of directors of STC since +April 1999. Since 1994, Mr. Crouse has served as Managing Director of +HealthCare Ventures LLC, a venture capital firm. Prior to that time, Mr. +Crouse served as Worldwide President of Ortho Diagnostic Systems, and Vice +President of Johnson & Johnson International. Mr. Crouse has more than 30 +years experience in the pharmaceutical industry. He serves as a director of +Dendreon Corporation, The New York Blood Center and Lehigh University. Mr. +Crouse received his B.S. in Finance and Economics from Lehigh University and +his M.B.A. from Pace University. +Roger L. Pringle had been Chairman of the Board and a member of the board of +directors of Epitope, and was a director of Agritope, Inc., a plant genetics +subsidiary of Epitope, since February 1989. Mr. Pringle is President and +founder of The Pringle Company, a strategy and executive consulting firm in +Portland, Oregon. Mr. Pringle is a director of North Pacific Group, Bank of +the Northwest, and H2F Media, Inc. He is also active in funding and advising +start-up and emerging companies. +6 +Michael J. Gausling has been the Company's President and Chief Executive +Officer since January 31, 2002. Prior to that, Mr. Gausling was the Company's +President and Chief Operating Officer since September 2000. Mr. Gausling is a +co-founder of STC and served as Chairman of STC's board of directors since +1996, President and Chief Executive Officer since 1990, and a director of STC +since 1987. Mr. Gausling was Executive Vice President, Finance and Operations +at STC from 1987 to 1990. Prior to forming STC, Mr. Gausling had been employed +in the area of corporate finance at Procter and Gamble. Mr. Gausling received +his B.S.M.E. from Rensselaer Polytechnic Institute and his M.B.A. in Finance +from Miami University. Mr. Gausling is also a director of Keystone Savings +Bank. +Gregory B. Lawless became a member of the Board in April 2001. Since 1998, +Mr. Lawless has been the Managing Partner of Collins Mabry & Co., a strategic +advisory firm for the life sciences industry which he co-founded. From 1992 to +1998, Mr. Lawless served as President and Chief Executive Officer of Cygnus, +Inc., a medical diagnostics company, and from 1989 to 1992, was President and +Chief Operating Officer of Chiron Corporation, also a medical diagnostics +company. Mr. Lawless received his B.S. in Pharmacy from Fordham University, +his M.S. in Analytical Chemistry from St. John's University, and his Ph.D. in +Physical Organic Chemistry from Temple University. +Directors' Meetings +The Board held eight meetings and acted by written consent on two occasions +during the year ended December 31, 2001. Each of the Directors listed above +attended more than 75 percent of the combined total of meetings of the Board +and of the committees of the Board on which the Director served during the +period in the year in which he served as a Director. +Committees of the Board +The Board has three standing committees--the Executive Committee, the +Compensation Committee and the Audit Committee. The Compensation and Audit +Committees are each composed entirely of non-employee Directors. +Executive Committee. The Board has designated an Executive Committee to +assist in the discharge of the Board's responsibilities. The Executive +Committee is composed of six Directors, Michael G. Bolton, William W. Crouse, +Michael J. Gausling, Frank G. Hausmann, Gregory B. Lawless, and Roger L. +Pringle. The Executive Committee may exercise all the authority and powers of +the Board in the management of the business and property of the Company, +except those reserved to the Board by the Delaware Business Corporation Law or +the Company's Certificate of Incorporation, as amended. The Executive +Committee did not meet during the year ended December 31, 2001. +Compensation Committee. The Compensation Committee of the Board recommends +to the Board the compensation and benefits for the executive officers of the +Company, administers the Company's stock award plans and employee stock +purchase plan, and performs other tasks as set forth in the Company's Bylaws +or as the Board may direct. Members of the Compensation Committee are Roger L. +Pringle, Chairman, Michael G. Bolton, and Gregory B. Lawless. The Compensation +Committee met three times and acted by written consent on two occasions during +the year ended December 31, 2001. +Audit Committee. The Audit Committee of the Board reviews the Company's +internal audit, accounting and financial controls, and the performance and +independence of the Company's outside auditors. The Audit Committee also +performs those functions set forth in a written charter adopted by the Board, +a copy of which is attached as Exhibit A to this Proxy Statement. Members of +the Audit Committee are Frank G. Hausmann, Chairman, Michael G. Bolton and +Roger L. Pringle. Each member of the Audit Committee is "independent" as +defined in Rule 420D(a)(15) of the National Association of Securities Dealers' +listing standards. The Audit Committee met four times during the year ended +December 31, 2001. +7 +Report of the Audit Committee +The following report of the Audit Committee of the Board shall not be deemed +to be incorporated by reference by any general statement incorporating by +reference this Proxy Statement into any filing by the Company under either the +Securities Act of 1933, as amended (the "Securities Act"), or the Exchange +Act, except to the extent that the Company specifically incorporates this +information by reference. The following report shall not otherwise be deemed +filed under such Acts. +The role of the Audit Committee is to assist the Board of Directors in its +oversight of the Company's financial reporting process. The Board of +Directors, in its business judgment, has determined that all members of the +Committee are "independent," as required by applicable listing standards of +the Nasdaq Stock Market. The Committee operates pursuant to a Charter that was +last amended and restated by the Board on October 26, 2000. Management of the +Company is responsible for the preparation, presentation and integrity of the +Company's financial statements, the Company's accounting and financial +reporting principles and internal controls and procedures designed to assure +compliance with accounting standards and applicable laws and regulations. The +independent auditors are responsible for auditing the Company's financial +statements and expressing an opinion as to their conformity with generally +accepted accounting principles. +In the performance of its oversight function, the Committee has considered +and discussed the audited financial statements with management and the +independent auditors. The Committee has also discussed with the independent +auditors the matters required to be discussed by Statement on Auditing +Standards No. 61, "Communication with Audit Committees," as currently in +effect. Finally, the Committee has received the written disclosures and the +letter from the independent auditors required by Independence Standards Board +Standard No. 1, "Independence Discussions with Audit Committees," as currently +in effect, has considered whether the provision of non-audit services by the +independent auditors to the Company is compatible with maintaining the +auditor's independence and has discussed with the auditors the auditors' +independence. +The members of the Audit Committee are not professionally engaged in the +practice of auditing or accounting and are not experts in the fields of +accounting or auditing, including in respect of auditor independence. Members +of the Committee rely without independent verification on the information +provided to them and on the representations made by management and the +independent accountants. Accordingly, the Audit Committee's oversight does not +provide an independent basis to determine that management has maintained +appropriate accounting and financial reporting principles or appropriate +internal control and procedures designed to assure compliance with accounting +standards and applicable laws and regulations. Furthermore, the Audit +Committee's considerations and discussions referred to above do not assure +that the audit of the Company's financial statements has been carried out in +accordance with generally accepted auditing standards, that the financial +statements are presented in accordance with generally accepted accounting +principles or that the Company's auditors are in fact "independent." +Based upon the reports and discussions described in this report, and subject +to the limitations on the role and responsibilities of the Committee referred +to above and in the Committee's Charter, the Committee recommended to the +Board that the audited financial statements be included in the Company's +Annual Report on Form 10-K for the year ended December 31, 2001 to be filed +with the Securities and Exchange Commission. +SUBMITTED BY THE AUDIT COMMITTEE +OF THE COMPANY'S BOARD OF DIRECTORS +Frank G. Hausmann +Michael G. Bolton +Roger L. Pringle +March 26, 2002 +8 +Nomination of Directors +The Company's Bylaws provide that nominations for election to the Board may +be made by the Board or by any stockholder entitled to vote for the election +of Directors at the Annual Meeting. A stockholder's notice of nomination must +be made in writing to the Company's Secretary and must be delivered to or +received at the principal executive offices of the Company not less than +ninety (90) days nor more than one hundred twenty (120) days prior to the +meeting; provided, however, that in the event that less than one hundred (100) +days' notice or prior public disclosure of the date of the meeting is given or +made to stockholders, notice by the stockholder to be timely must be so +received no later than the close of business on the tenth (10th) day following +the day on which such notice of the date of the meeting was mailed or such +public disclosure was made, whichever first occurs. The notice to the +Secretary must set forth, with respect to the nominee, the name, age, business +address and residence address of the person, the principal occupation or +employment of the person, the class and number of shares of capital stock of +the Company which are beneficially owned by the person, and any other +information relating to the person that is required to be disclosed in +solicitations for proxies for election of directors pursuant to Regulation 14A +under the Exchange Act. The notice must also include the name and record +address of the stockholder and the class and number of shares of capital stock +of the Company which are beneficially owned by the stockholder. The Company +may require any proposed nominee to furnish such other information as may +reasonably be required by the Company to determine the eligibility of the +proposed nominee to serve as a Director of the Company. +Executive Officers +The table below provides information about the executive officers of the +Company as of March 28, 2002. Officers of the Company hold office at the +discretion of the Board. +Name Age Position +---- --- -------- +Michael J. Gausling.......... 44 President and Chief Executive Officer +Ronald H. Spair.............. 46 Executive Vice President and Chief Financial +Officer +R. Sam Niedbala, Ph.D........ 41 Executive Vice President and Chief Science +Officer +P. Michael Formica........... 51 Senior Vice President, Operations +William D. Block............. 40 Senior Vice President, Sales and Marketing +Jack E. Jerrett.............. 43 Vice President, General Counsel and Secretary +Mark L. Kuna................. 38 Controller, Assistant Treasurer and Assistant +Secretary +For biographical information on Mr. Gausling, see "Election of Directors." +Ronald H. Spair joined the Company as Executive Vice President and Chief +Financial Officer in November 2001. Prior to that time, Mr. Spair was Vice +President, Chief Financial Officer and Secretary of Delsys Pharmaceutical +Corporation, a pharmaceutical manufacturing system development company, from +January 2001 to September 2001. Prior to joining Delsys, he was Senior Vice +President, Chief Financial Officer and Secretary of SuperGen, Inc., a +pharmaceutical company, from August 1999. Prior to joining SuperGen, Mr. Spair +was Senior Vice President, Chief Financial Officer and Secretary of Sparta +Pharmaceuticals, Inc., a development stage pharmaceutical company, from March +1996 until August 1999. From October 1993 until March 1996, Mr. Spair served +as Vice President, Chief Financial Officer and Assistant Secretary of Lexin +Pharmaceutical Corporation, a development stage biopharmaceutical company. +Before joining Lexin, Mr. Spair served as Vice President, Chief Financial +Officer and Assistant Secretary of Envirogen, Inc., an environmental +biotechnology company, from May 1990 to August 1993. Mr. Spair received his +B.S. in Accounting and M.B.A. from Rider College. He is also a licensed +Certified Public Accountant and is a member of the New Jersey Society of +Certified Public Accountants and the American Institute of Certified Public +Accountants. +R. Sam Niedbala, Ph.D. has been the Company's Executive Vice President and +Chief Science Officer since September 2000. Dr. Niedbala is a co-founder of +STC and had served as Executive Vice President, Chief Science Officer and a +director of STC since 1987. Prior to forming STC, Dr. Niedbala had been +employed by Hoffman- +9 +LaRoche, Inc. as a Senior Scientist. Dr. Niedbala received his B.S. in +Chemistry from East Stroudsburg University, and his M.S. in Clinical Chemistry +and Ph.D. in Chemistry from Lehigh University. Dr. Niedbala is also a board +certified forensic examiner. +P. Michael Formica has served as Senior Vice President, Operations for the +Company and STC since May 2000. Prior to that time, Mr. Formica was Division +Manager, Mobil Measurement Technologies for Drager Sicherheitstechnik GmbH +(now called Drager Safety AG & Co. KGaA), in Luebeck, Germany, for eight years +with worldwide responsibility, and Director Sales and Marketing, National +Draeger, Inc. (USA) for two years. Drager is a world leader in chemical +detection systems for the industrial safety market, and breath alcohol +detection instrumentation. Before joining Drager, Mr. Formica held management +positions in marketing, finance, product development, and general management +of several companies. Mr. Formica received his B.S. in Electrical Engineering +from West Virginia University and his M.B.A. from the Graduate School of +Industrial Administration, Carnegie Mellon University. +William D. Block has served as the Company's Senior Vice President, Sales +and Marketing since September 2000. Prior to that time, Mr. Block served as +Epitope's Vice President of Sales and Marketing since May 1999. Before joining +Epitope, Mr. Block was Director of Institutional Sales for McKessonAPS, a +division of McKessonHBOC, since March 1997. Prior to joining McKessonAPS, Mr. +Block held various positions with Baxter International, Inc.'s subsidiary, +Allegiance Corporation, where he worked for six years. His last position with +Allegiance was as a Senior Account Manager/General Manager for the MidAmerica +region where he oversaw sales of medical products and supplies. Mr. Block is +an Army ROTC graduate from Wake Forest University where he received a B.A. +degree in Economics. +Jack E. Jerrett joined the Company as Vice President and General Counsel in +November 2000 and was elected as Secretary in February 2001. Prior to joining +the Company, Mr. Jerrett served in the positions of Associate General Counsel +and Senior Counsel at PPL Electric Utilities Corporation, and acted as general +counsel to PPL Gas Utilities Corporation. Prior to that, Mr. Jerrett was +Senior Corporate Attorney of Union Pacific Corporation and an Associate with +Morgan, Lewis & Bockius. Mr. Jerrett received his B.S. in Accounting from +Villanova University and his J.D. from the Villanova University School of Law. +He is a member of the Pennsylvania and American Bar Associations. +Mark L. Kuna was named as the Company's Controller in February 2001 and +provided accounting and financial analysis support since joining the Company +in October 2000. Prior to that time, Mr. Kuna served as Director of Financial +Planning and Analysis for the greater Philadelphia region of XO +Communications, Inc. since April 1989. Prior to joining XO Communications, Mr. +Kuna served as Vice President and Principal Accounting Officer of Wedco +Technology, Inc. since 1989. Prior to joining Wedco Technology, he was an +accountant with Deloitte and Touche. Mr. Kuna received his B.S. in Accounting +from the University of Scranton, is a licensed Certified Public Accountant, +and is a member of the Pennsylvania and American Institutes of Certified +Public Accountants. +Certain Relationships and Related Transactions +The Company has entered into a Commercial Lease (the "Lease") with Tech III +Partners, LLC ("Tech Partners"), which provides for the construction of a +48,000 square foot facility on land adjacent to the Company's Bethlehem, +Pennsylvania headquarters, and the lease of that facility to the Company. Tech +Partners is owned and controlled by Michael J. Gausling, the Company's +President and Chief Executive Officer, and Dr. R. Sam Niedbala, the Company's +Executive Vice President and Chief Science Officer. The facility is expected +to house manufacturing, research and development, and administrative +operations required to support the expected growth of the Company's business. +Construction of the facility is expected to be completed during the summer of +2002. +The Lease has an initial ten-year term commencing after completion of +construction and a base rent starting at $480,000 and increasing to $528,000 +per year over that term. The base rental rate may be increased after the +10 +fifth year of the initial term in order to reflect changes in the interest +rate on debt incurred by Tech Partners to finance construction of the leased +facilities. The Company has not guaranteed any debt incurred by Tech Partners. +The Lease also provides the Company with options to renew the Lease for an +additional five years at a rental rate of $600,000 per year, and to purchase +the facility at any time during the initial ten-year term. Prior to deciding +to enter into the Lease, the Board retained Imperial Realty Appraisal LLC, an +independent commercial real estate appraisal firm, to evaluate the proposed +base rental rate under the Lease. Imperial Realty issued an opinion indicating +that the annual base rent set forth in the Lease is below the market rental +rate the Company could otherwise expect to pay to lease a comparable +commercial property in the same general geographic market. The terms of the +Lease are otherwise substantially similar to the commercial lease entered into +by the Company with a third party for its existing Bethlehem, Pennsylvania +headquarters. +Information regarding employment and severance agreements between the named +executive officers and the Company is set forth in the Section entitled +"Employment Agreements" in this Proxy Statement. +Executive Compensation +Summary Compensation Table(1) +The following table summarizes the compensation of the Company's Chief +Executive Officer and certain other executive officers named in this Proxy +Statement. +Annual Long-Term +Compensation Compensation Awards +----------------- --------------------- +Restricted Securities +Name and Principal Stock Underlying All Other +Position Year Salary Bonus Awards Options(2) Compensation(3) +------------------ ---- -------- -------- ---------- ---------- --------------- +Michael J. Gausling(4).. 2001 $225,211 -- -- -- $ 13,000(10) +President and 2000 197,596 $107,000 -- 70,000 3,000 +Chief Executive Officer 1999 175,000 70,000 -- 15,888 3,000 +Robert D. Thompson(5)... 2001 274,461 -- -- -- 142,561(9)(10) +Former Chief Executive 2000 249,683 -- -- 475,000 136,510(9)(10) +Officer 1999 -- -- -- -- -- +R. Sam Niedbala, Ph.D... 2001 185,211 -- -- -- 10,257(10) +Executive Vice 2000 170,385 80,313 -- 70,000 3,000 +President and 1999 160,000 48,000 -- 15,888 3,000 +Chief Science Officer +P. Michael Formica(6)... 2001 157,134 -- -- -- 9,969(10) +Senior Vice President, 2000 95,356 20,000 -- -- 23,070(9)(10) +Operations 1999 -- -- -- -- -- +William D. Block(7)..... 2001 150,211 25,000 -- -- 46,243(9)(10) +Senior Vice President, 2000 150,000 -- -- 45,000 62,287(9)(10) +Sales and Marketing 1999 89,423 -- $29,996 112,500 58,725(9) +William M. Hinchey...... 2001 150,211 -- -- -- 13,000(10) +Former Senior Vice 2000 137,856 54,250 -- 45,000 4,125(10) +President, 1999 135,000 33,750 -- 15,888 3,000 +Marketing, Drugs of +Abuse +J. Richard George, +Ph.D.(8)................ 2001 150,236 -- -- -- 13,350(10) +Former Senior Vice 2000 150,000 -- -- 45,000 3,712(10) +President, 1999 150,000 -- -- 25,000 3,384 +Research and +Development +-------- +(1) Table includes compensation paid by Epitope and STC to the named +executive officers prior to the Merger on September 29, 2000. +(2) Represents the number of shares for which options were awarded. The +options shown for Mr. Thompson in 2000 and all other officers in 1999 +include options for the purchase of shares of Epitope and STC common +stock converted into options for the purchase of shares of the Company +as a result of the Merger. +11 +(3) Except as otherwise noted in (9) and (10) below, represents amounts +contributed to 401(k) profit sharing plans as employer matching +contributions in the form of common stock or cash. +(4) Mr. Gausling was appointed as Chief Executive Officer of the Company on +January 31, 2002. +(5) Mr. Thompson resigned as Chief Executive Officer and Director of the +Company on January 31, 2002. +(6) Mr. Formica received a $25,000 discretionary cash bonus in March 2002 in +recognition of his performance during 2001. +(7) Mr. Block joined the Company in May 1999, at which time he received +6,233 shares of restricted Common Stock with a dollar value of $29,996 +at the time of grant. The restricted shares vested in full on the first +anniversary of Mr. Block's employment date. +(8) Dr. George resigned from his full-time position as Senior Vice +President, Research and Development effective February 28, 2002, and +beginning March 1, 2002, became a Scientific Advisor to the Company +working on a part-time basis. +(9) Includes $128,048 and $33,243 in relocation expenses for Messrs. +Thompson and Block, respectively, in 2001, $135,385, $21,945 and $57,283 +in relocation expenses for Messrs. Thompson, Formica and Block, +respectively, in 2000, and $57,307 in relocation expenses for Mr. Block +in 1999, which expenses were reimbursed by the Company. Such expenses +include moving costs, realtor fees, closing costs, furniture storage +costs, other miscellaneous expenses, and federal and state income taxes +on amounts paid as expense reimbursement. Also includes, in 2001, $4,763 +in imputed interest on a $75,000 interest-free loan made by the Company +to Mr. Thompson in connection with his relocation to Bethlehem, +Pennsylvania. +(10) Includes automobile allowances in 2001 of $9,750 for Mr. Thompson, +$9,000 for Messrs. Gausling, Block and Hinchey and Dr. Niedbala, $9,350 +for Dr. George and $8,625 for Mr. Formica. Includes automobile +allowances in 2000 of $1,125 for Messrs. Thompson, Formica and Hinchey, +$1,100 for Mr. Block and $1,450 for Dr. George. +Fiscal Year-End Option Values(1) +The following table shows 2001 year-end amounts and value of shares of the +Common Stock underlying outstanding options for the named executive officers. +There were no stock options awarded to the named executive officers during +2001. +Number of Securities +Underlying Unexercised Value of Unexercised +Options at Fiscal Year- In-the-Money Options +Shares End at Fiscal Year-End(2) +Acquired Value ------------------------- ------------------------- +Name on Exercise Realized(3) Exercisable Unexercisable Exercisable Unexercisable +---- ----------- ----------- ----------- ------------- ----------- ------------- +Michael J. Gausling..... -- -- 25,444 60,444 $ 183,205 $366,465 +Robert D. Thompson...... 22,200 $172,126 377,800 75,000 2,860,514 392,700 +R. Sam Niedbala......... -- -- 25,444 60,444 183,205 366,465 +P. Michael Formica...... -- -- 15,446 71,264 25,007 237,450 +William D. Block........ 1,000 8,187 122,750 33,750 871,715 176,715 +William M. Hinchey...... -- -- 19,194 33,750 150,480 176,715 +J. Richard George....... 65,500 528,511 11,250 33,750 58,905 176,715 +-------- +(1) The named executive officers held no stock appreciation rights at +December 31, 2001. +(2) In-the-money stock options are options for which the exercise price is +less than the fair market value of the underlying stock on a particular +date. The values shown in the table are based on the difference between +$12.33, which was the average of the high and low sales prices of the +Common Stock as quoted on The Nasdaq Stock Market on December 31, 2001, +and the applicable exercise price. +(3) Value realized represents the difference between the fair market value of +Common Stock underlying the options at the exercise date and the exercise +price of the options. +12 +Employment Agreements +The Company has entered into employment agreements with certain of its +executive officers. The agreements with such executive officers, other than +Mr. Spair, were executed at the time of the Merger of Epitope and STC into the +Company. +On January 31, 2002, Mr. Gausling was appointed to the position of President +and Chief Executive Officer of the Company. Pursuant to his employment +agreement, which has an initial term of three years (i.e. through September +29, 2003) and is subject to automatic renewal for successive one-year periods +unless either party gives the other party notice that the term will not be +extended, Mr. Gausling will receive a regular salary of at least $225,000 per +year. Mr. Gausling is also eligible to participate in the executive bonus plan +established by the Company, and to receive or participate in any long-term +incentive plan or any other additional benefits which may be made available by +the Company from time to time. Mr. Gausling will also be reimbursed for job- +related expenses. +Mr. Gausling's employment agreement will terminate upon his death or upon 60 +days' written notice from Mr. Gausling to the Company. Mr. Gausling's +employment agreement may also be terminated by the Company for cause (as +defined therein), or without cause. Upon the termination of Mr. Gausling's +employment without cause, Mr. Gausling will continue to be paid his annual +salary for the greater of (x) 12 months, (y) the remaining term of the +employment agreement, or (z) 36 months if Mr. Gausling elects to treat one of +the following events as a termination without cause: (i) a material breach of +the employment agreement by the Company; (ii) a reduction in Mr. Gausling's +salary or a change in his title or a substantial diminution of his duties; or +(iii) a change in control of the Company. +A "change in control" generally is defined to take place when disclosure of +such a change would be required by the proxy rules promulgated by the +Commission or when either: +. a person (other than the Company, any of its subsidiaries, any employee +benefit plan of the Company, or any person with voting power arising +from a revocable proxy) acquires beneficial ownership (as defined in +Rule 13d-3 under the Exchange Act) of 30% or more of the combined voting +power of the Company's voting securities; +. less than a majority of the directors are persons who were either +nominated or selected by the Board; +. the consummation of any consolidation or merger in which the Company is +not the surviving corporation or the sale, lease, exchange or other +transfer of all or substantially all of the assets of the Company; or +. the approval by the stockholders of the Company of any plan or proposal +for the liquidation or dissolution of the Company. +All of the other employment agreements are substantially similar to Mr. +Gausling's, with the following exceptions: +Mr. Thompson served as Chief Executive Officer of the Company at a regular +salary of $275,000 per year. Under his employment agreement, the Company +agreed to pay Mr. Thompson a one-time relocation allowance of $30,000 upon +relocation of his residence to Pennsylvania, and to purchase, or arrange for a +third-party to purchase, Mr. Thompson's house in Portland, Oregon at a +purchase price of $672,000. The Company agreed to pay all mortgage payments on +the house that became due between the date of the relocation of the Company's +headquarters to Pennsylvania and the closing date of the purchase of Mr. +Thompson's Portland, Oregon house, with any amounts so paid to be grossed up +for any income tax owed by Mr. Thompson as a result of such payments. In lieu +of the Company purchasing Mr. Thompson's house in Portland, Oregon, the +Company made a loan to Mr. Thompson in the amount of $100,649 for relocation +purposes, which would not accrue interest if repaid on or before the earlier +of (i) the tenth day following the closing of the sale of Mr. Thompson's house +in Portland, Oregon, or (ii) the first anniversary of the date of the loan. +Interest would accrue at the rate of 9% per year from the due date until the +loan is repaid. Mr. Thompson repaid that loan in April 2001. +13 +Prior to the Merger, Mr. Thompson also received a loan of $75,000 from +Epitope to be used for the purchase of his home in the Portland, Oregon area. +The loan did not accrue interest if repaid on or before April 17, 2002. +Interest would accrue at the rate of 9% per year from the due date until the +loan is repaid. +On January 31, 2002, Mr. Thompson resigned as Chief Executive Officer and as +Director of the Company, and his employment agreement was terminated. The +Company and Mr. Thompson have entered into a severance agreement pursuant to +which Mr. Thompson will receive an aggregate of $480,063, which represents the +value of a laptop, home computer and cell phone transferred by the Company to +Mr. Thompson, the payment of Mr. Thompson's COBRA premiums for continuation of +health coverage through January 31, 2003, and the payment to Mr. Thompson of +an amount equal to his regular salary through September 29, 2003. The +severance agreement provides that the $75,000 loan made to Mr. Thompson will +be repaid by application of the net amounts equal to his salary commencing +with payments occurring on or after April 17, 2002. +Dr. Niedbala serves as the Executive Vice President and Chief Science +Officer of the Company at a regular salary of at least $185,000 per year. Dr. +Niedbala's employment agreement contains the same termination provisions as +Mr. Gausling's, except that Dr. Niedbala will be paid his salary for 24 +months, rather than 36 months, if he elects to treat one of the events +described above as a termination without cause. +Mr. Spair serves as Executive Vice President and Chief Financial Officer at +a regular salary of at least $200,000 per year. The initial term of Mr. +Spair's employment agreement is two years, rather than three years. Mr. Spair +is entitled to be reimbursed for the reasonable costs to relocate from his +Hamilton, New Jersey home, up to a maximum aggregate amount of $40,000, plus +an additional amount to compensate Mr. Spair for income taxes payable on the +relocation reimbursement. Mr. Spair was also granted an option to purchase +150,000 shares of the Company's Common Stock on the date he commenced +employment with the Company. Mr. Spair's employment agreement contains the +same termination provisions as Mr. Gausling's. +Mr. Formica serves as the Senior Vice President, Operations at a regular +salary of at least $150,000 per year. The initial term of Mr. Formica's +employment agreement is two years, rather than three years. Mr. Formica's +employment agreement contains the same termination provisions as Mr. +Gausling's, except that Mr. Formica will be paid his salary for 24 months, +rather than 36 months, if he elects to treat one of the events described above +as a termination without cause. +Mr. Block serves as the Senior Vice President, Sales and Marketing of the +Company at a regular salary of at least $150,000 per year. The initial term of +Mr. Block's employment agreement is two years, rather than three years. The +Company agreed to purchase Mr. Block's Portland, Oregon home at a purchase +price equal to the average of three independent appraisals or such other price +as agreed to by the Company and Mr. Block, and to pay Mr. Block's mortgage +from the date of his relocation to Pennsylvania through the closing date on +the sale of his Oregon home. The Company also agreed to pay Mr. Block a +$30,000 relocation allowance. Mr. Block's employment agreement contains the +same termination provisions as Mr. Gausling's, except that Mr. Block will be +paid his salary for 24 months, rather than 36 months, if he elects to treat +one of the events above as a termination without cause. +Mr. Hinchey served as the Senior Vice President, Marketing, Drugs of Abuse, +until December 31, 2001, when he retired from the Company and his employment +agreement was terminated. He was paid a regular salary of $150,000 per year. +Mr. Hinchey's employment agreement was for a term of two, rather than three, +years, and contained the same termination provisions as Mr. Gausling's, except +that Mr. Hinchey would have been paid his salary for 24 months, rather than 36 +months, if he elected to treat one of the events described above as a +termination without cause. +Dr. George served as the Senior Vice President, Research and Development of +the Company, at a regular salary of $150,000 per year. Dr. George's employment +agreement was for a term of two, rather than three, years. Dr. George's +employment agreement contained the same termination provisions as Mr. +Gausling's, except that Dr. George would have been paid his salary for 24 +months, rather than 36 months, if he elected to treat one of +14 +the events described above as a termination without cause. Effective February +28, 2002, Dr. George resigned his position as Senior Vice President, Research +and Development and terminated his employment agreement. Effective March 1, +2002, he entered into a new employment agreement with the Company for a one +(1) year term pursuant to which Dr. George will remain employed by the Company +in the position of Scientific Advisor and work on a part-time basis at a +salary of $2,000 per month. +Compensation of Directors +Nonemployee Directors of the Company receive an annual fee of $12,000 for +service on the Board, payable quarterly in advance. No additional fee is paid +for service on a committee of the Board. Nonemployee Directors also receive a +grant of 40,000 stock options upon joining the Board (the "Initial Grant") and +an annual grant of 20,000 stock options each year thereafter (the "Annual +Grant") on the annual option grant date for officers and employees of the +Company. Any nonemployee Director who becomes Chairman of the Board shall +receive an additional grant of 40,000 stock options (the "Chairman Grant") and +that individual's Annual Grant will be increased to 30,000 stock options. +The options granted to nonemployee Directors are nonqualified stock options +and the exercise price of the options is the mean between the high and low +sale prices of the Company's Common Stock as quoted on The Nasdaq Stock Market +on the grant date. Each Initial Grant and Chairman Grant generally vests on a +monthly basis over the 24 months immediately following the grant date, and +each Annual Grant generally vests on a monthly basis over the 12 months +immediately following the grant date. All vesting of the options will cease 90 +days after the nonemployee Director ceases to serve on the Board. Options +become exercisable in full immediately upon the occurrence of a change in +control of the Company. A change in control of the Company would occur on the +happening of such events as the beneficial ownership by a person or group of +30 percent or more of the outstanding Common Stock, certain changes in Board +membership affecting a majority of positions, certain mergers or +consolidations, a sale or other transfer of all or substantially all the +Company's assets, or approval by the stockholders of a plan of liquidation or +dissolution of the Company, as well as any change in control required to be +reported by the proxy disclosure rules of the Commission. Payment of the +exercise price may be made in cash or by delivery of previously acquired +shares of Common Stock having a fair market value equal to the aggregate +exercise price. +Compensation Committee Interlocks and Insider Participation +Michael G. Bolton, Gregory B. Lawless and Roger L. Pringle served as members +of the Compensation Committee of the Board during 2001. Neither Mr. Bolton, +Mr. Lawless nor Mr. Pringle currently serves as an officer of the Company. +There are no compensation committee interlocks between the Company and any +other entity involving the Company's or such entity's executive officers or +board members. +15 +The following report of the Compensation Committee of the Board (the +"Committee") and the Stock Price Performance Graph shall not be deemed to be +incorporated by reference by any general statement incorporating by reference +this Proxy Statement into any filing by the Company under either the +Securities Act or the Exchange Act, except to the extent that the Company +specifically incorporates this information by reference. The following report +and the Stock Price Performance Graph shall not otherwise be deemed filed +under such Acts. +Report of the Compensation Committee +General. The Committee, which is composed of independent, nonemployee +Directors, is responsible for establishing and administering the Company's +policies that govern executive compensation and benefit practices. The +Committee evaluates the performance of the Chief Executive Officer and reviews +the performance evaluations of the other executive officers, and approves +their salary, merit cash bonus and related benefits. Compensation approved by +the Committee for the Chief Executive Officer and the other executive officers +is then recommended for approval by the Company's Board of Directors. The +Committee also grants certain awards under the Company's stock award plans. +Compensation Philosophy. The Company's executive compensation programs are +designed to (i) align the interests of executive management with the long-term +interests of the Company's stockholders, (ii) motivate executives to achieve +the strategic business goals of the Company and recognize their individual +contributions, and (iii) provide compensation opportunities which are +competitive with those offered by other medical diagnostic companies. In +furtherance of these goals, the components of executive compensation include +base salary, merit cash bonuses, stock option grants and other benefits, and +are linked to both Company and individual performance. +Base Salary. At least annually, the Committee sets the salary for all +executive officers, subject to approval by the Board of Directors. The +Committee receives and considers management recommendations concerning salary +adjustments for executive officers, as well as compensation data regarding +other medical diagnostic companies. The Company generally tries to maintain +executive salaries near the median level paid by similarly situated companies. +The Committee's compensation decisions for 2001 were heavily influenced by +the Company's financial performance. While total revenues for 2001 grew +approximately 20% from the prior year (exclusive of revenues from discontinued +products), the Company did not meet the performance criteria for revenues and +profitability established by the Board of Directors and which formed the basis +for the 2001 Management Incentive Plan (described below). In addition, on +January 31, 2002, Mr. Thompson resigned from the Company, his employment +agreement with the Company was terminated, and he was replaced by Mr. Gausling +as the Company's Chief Executive Officer. +Since the Company failed to meet its stated financial objectives, the +Committee decided not to increase the salaries of the Chief Executive Officer +or the executive officers of the Company during 2001, except for Mr. Formica +who received a mid-year salary increase in July 2001. +Merit Cash Bonuses. In February 2001, the Committee and Board of Directors +approved the 2001 Management Incentive Plan (the "2001 MIP") which established +target cash bonus awards for executive officers and certain other managers for +2001. The terms of the 2001 MIP were designed to provide executive officers +and management with the opportunity to receive cash bonus awards comparable to +bonus opportunities provided in the marketplace. Awards for 2001 were to be +based on each executive's achievement of certain individual performance +targets and the Company's attainment of certain sales and earnings per share +targets for the year. The payment level could have reached 200% of the target +level if the sales and earnings per share targets were exceeded. The Chief +Executive Officer's target payment was 50% of base salary. +In light of the Company's failure to meet its stated financial objectives, +the Committee decided not to award cash bonuses to the Chief Executive Officer +or the other executive officers of the Company during 2001, except for Mr. +Block, who received a discretionary cash bonus in June 2001. Following the end +of 2001, the Committee +16 +recognized that certain executive officers made significant contributions to +the Company during 2001 and determined that it would be appropriate to reward +these officers despite the Company's financial performance in 2001. As a +result, the Committee approved certain discretionary cash bonuses to Mr. +Formica and two other executive officers (other than the Chief Executive +Officer) in March 2002. +Stock Options. As previously noted, an important goal of the Company's +compensation program is to align the interests of the executive officers and +other employees with the long-term interests of the Company's stockholders. In +furtherance of this goal, the Board of Directors adopted the 2000 Stock Award +Plan (the "Award Plan") pursuant to which the Company may grant stock-based +awards to directors, officers, and employees of, and consultants and advisers +to, the Company. In general, the size of individual option grants is +determined by the Committee based on the executive's duties and the levels of +option grants for executives with comparable positions at other medical +diagnostic companies. In light of the Company's financial performance for +2001, the Committee elected to defer the annual grant of options to Company +employees and, as a result, did not grant any stock options to the Chief +Executive Officer or any other executive officer of the Company during 2001 +other than Ronald H. Spair, the Company's Executive Vice President and Chief +Financial Officer, who received a stock option grant upon joining the Company +in November 2001. +Other Compensation. The Company also maintains a 401(k) profit sharing plan +(the "401(k) Plan") in which all employees of the Company, including executive +officers, are eligible to participate. In addition to amounts which +participants may elect to contribute to the 401(k) Plan, the Company makes +matching contributions up to the lesser of $4,000 or 10% of the participant's +salary. Payments of benefits accrued for 401(k) Plan participants will be made +upon retirement or upon termination of employment prior to retirement provided +certain conditions have been met by the participant prior to termination. +COMPENSATION COMMITTEE: +Roger L. Pringle, Chairman +Michael G. Bolton +Gregory B. Lawless +March 27, 2002 +17 +Stock Price Performance Graph +The following graph compares the cumulative total returns to investors in +the Company's Common Stock, the Russell 2000 Index and the Nasdaq +Biotechnology Index for the period from December 31, 1996 through December 31, +2001. The graph assumes that $100 was invested on December 31, 1996, in the +Company's Common Stock and in each of the above-mentioned indices, and that +all dividends were reinvested. The Russell 2000 index was chosen because it is +an index of companies with market capitalizations similar to the Company. The +Nasdaq Biotechnology Index was chosen because it includes a number of the +Company's competitors. Indices have been selected because the Company has been +unable to identify a peer group of companies for comparison. No single public +or private company has a comparable mix of technologies under development or +products which serve the same markets as the Company. Stockholders are +cautioned that the graph shows the returns to investors only as of the dates +noted and may not be representative of the returns for any other past or +future period. +COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN* AMONG +ORASURE TECHNOLOGIES, INC., THE RUSSELL 2000 INDEX AND +THE NASDAQ BIOTECHNOLOGY INDEX +[GRAPHIC MATERIAL OMITTED IN WHICH THE FOLLOWING DATA IS DEPICTED:] +TOTAL CUMULATIVE RETURN +----------------------------------------------------- +DATE 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01 +ORASURE TECHNOLOGIES, INC. $100.00 $ 43.48 $ 51.09 $ 56.52 $ 71.74 $105.65 +RUSSELL 2000 100.00 122.36 119.25 144.60 140.23 143.71 +NASDAQ BIOTECHNOLOGY 100.00 99.93 144.18 290.72 357.52 299.62 +-------- +* The stock performance data for the Company used to generate the graph +reflects the cumulative total return on the common stock of Epitope for all +periods prior to the September 29, 2000 Merger of Epitope into the Company. +However, the data does not include any adjustment for the spin-off of +Epitope's former subsidiary, Agritope, Inc., which was effected as a +special stock dividend to Epitope's stockholders. In the spin-off, each +stockholder of record of Epitope on December 26, 1997, received one share +of Agritope, Inc., common stock for each five shares of Epitope's common +stock. +18 +Item 2. Amendment of the OraSure Technologies, Inc. 2000 Stock Award Plan +General +On November 16, 1999, the Board of Directors of Epitope adopted, subject to +stockholder approval, the Epitope, Inc. 2000 Stock Award Plan (the "Plan"). +The Plan was approved by Epitope's stockholders on February 15, 2000. The Plan +initially authorized for award a maximum of 2,500,000 shares of Common Stock, +plus the number of shares that were available for grant under the Epitope, +Inc. 1991 Stock Award Plan (the "1991 Plan") on February 15, 2000 (the "1991 +Plan Shares"), and such additional shares that become available under the +terms of the Plan thereafter. +Effective September 29, 2000, in connection with the Merger of Epitope and +STC into the Company, the name of the Plan was changed to the OraSure +Technologies, Inc. 2000 Stock Award Plan and the Plan was adopted as a stock +option plan of the Company. All options granted prior to the Merger were +assumed by and became obligations of the Company. The shares subject to grant +under the Plan had a market value (determined as the average high and low +sales price on the NASDAQ Stock Market) of $6.075 per share on March 28, 2002. +On March 27, 2002, the Board approved and recommended for submission to +stockholders an amendment to increase the number of shares of Common Stock +authorized for grant under the Plan. Assuming that a quorum is present, the +affirmative vote of the holders of a majority of the shares of Common Stock +present, in person or by Proxy at the Annual Meeting, is required for approval +of the amendment to the Plan. Shares represented by a Proxy which are not +voted for approval of the amendment (by voting no or abstaining) will have the +effect of voting against the amendment. Your Board recommends that +stockholders vote FOR approval of the amendment to the Plan. +Amendment of the Plan +As of March 28, 2002, there were 300,145 shares of Common Stock remaining +available for grant as stock options or other equity awards under the Plan. In +order to enable the Company to continue to attract qualified directors, +officers, employees and outside advisors and to compensate its directors, +officers, employees and advisors in a manner that is competitive with +compensation provided by other medical diagnostic companies, the Board of +Directors determined that additional shares of Common Stock would need to be +authorized for grants under the Plan. Accordingly, the Board approved +amendment of the Plan to increase the number of shares authorized by 1,800,000 +shares from 2,500,000 shares to 4,300,000 shares, plus the 1991 Plan Shares +and other shares that become available under the terms of the Plan. The Board +determined that this increase in authorized shares will meet the Company's +needs under the Plan for the foreseeable future. A copy of the proposed Plan +amendment is attached to this Proxy Statement as Exhibit B. +Summary of the Plan as Amended +A summary description of certain terms and provisions of the Plan as +proposed to be amended follows. +Purpose +The purpose of the Plan is to promote and advance the interests of the +Company and its stockholders by enabling the Company to attract, retain, and +reward employees, outside advisors, and directors of the Company and any +subsidiaries. The Plan is intended to strengthen the mutuality of interests +between employees, advisors, and directors and the Company's stockholders by +offering equity-based incentives to promote the long-term growth, +profitability and financial success of the Company. +Eligibility +The Plan provides for stock-based awards to (i) employees of the Company and +any subsidiaries, (ii) members of advisory committees or other consultants to +the Company or its subsidiaries ("Advisors"), and (iii) nonemployee directors +of the Company. Persons who help the Company raise money by selling securities +or who +19 +promote or maintain a market for the Company's securities are not eligible to +participate in the Plan as Advisors. In addition, only Advisors who, in the +judgment of the Compensation Committee of the Board (the "Committee"), are or +will be contributors to the long-term success of the Company will be eligible +to receive Awards (as defined below). As of March 28, 2002, the Company had +204 employees, nine persons serving as Advisors, and six nonemployee +directors, all of whom are eligible to receive Awards under the Plan. +Administration of the Plan +The Committee administers the Plan and determines the persons who are to +receive Awards and the types, amounts, and terms of Awards. For example, the +Committee may determine the exercise price, the form of payment of the +exercise price, the number of shares subject to an Award, and the date or +dates on which an Award becomes exercisable. The Committee may delegate to one +or more officers of the Company the authority to determine the recipients of +and the types, amounts and terms of Awards granted to participants who are not +Reporting Persons. +The Plan will continue in effect until Awards have been granted covering all +available shares under the Plan or the Plan is otherwise terminated by the +Board. Termination of the Plan will not affect outstanding Awards. +The Plan permits the Board to amend the Plan, subject to stockholder +approval if required by law or the rules of a stock exchange or over-the- +counter trading system. In order to retain favorable treatment of Awards under +applicable tax laws, the Board cannot increase the number of shares covered by +the Plan without further stockholder approval. +Awards +Awards that may be granted under the Plan include stock options, stock +appreciation rights, restricted awards, performance awards, and other stock- +based awards (collectively, "Awards"). The following is a brief summary of the +various types of Awards that may be granted under the Plan. +Stock Options. Options granted under the Plan may be either incentive stock +options ("ISOs"), a tax-favored form of Award meeting the requirements of +Section 422 of the Internal Revenue Code, as amended, or nonqualified options +("NQOs"), which are not entitled to special tax treatment. ISOs must expire no +more than ten years from the date of grant. The Plan does not limit the +maximum term of NQOs. The exercise price of any ISO granted under the Plan may +not be less than the fair market value of the Common Stock on the date of +grant. The exercise price of any NQO generally may not be less than 75 percent +of the fair market value of the Common Stock on the date of grant. The Plan +authorizes the Committee to issue deferred compensation options with an option +price substantially less than the fair market value (but not less than $1 per +share) for the purpose of deferring a specified amount of income for a +recipient. +The agreement evidencing the grant of a stock option (the "Option +Agreement") will specify, as determined by the Committee, the time or times +when the option is exercisable, in whole or in part, and the extent to which +the option remains exercisable after the option holder ceases to be an +employee, Advisor or nonemployee director of the Company. The Option Agreement +may, in the discretion of the Committee, provide whether the option will +become fully exercisable upon the death, disability or retirement of the +option holder or upon a change of control of the Company. An option may be +exercised by payment of the exercise price in cash or, at the discretion of +the Committee, in any combination of cash, previously held shares of Common +Stock or share equivalents, or with proceeds from the sale of shares subject +to the option. +The Committee, in its discretion, may provide in the Option Agreement that, +to the extent that the option is exercised using previously acquired shares of +Common Stock, the option holder shall automatically be granted a replacement +("reload") option for a number of shares of Common Stock equal to the number +of shares surrendered upon exercise with an option price equal to the fair +market value of Common Stock on the date of exercise and subject to such other +terms as the Committee determines. +20 +In no event may options for more than 500,000 shares of Common Stock be +granted to any individual under the Plan during any fiscal year period. +Stock Appreciation Rights. A recipient of stock appreciation rights ("SARs") +will receive, upon exercise, a payment (in cash or in shares of Common Stock) +based on the increase in the price of a share of Common Stock between the date +of grant and the date of exercise. SARs may be granted in connection with +options or other Awards granted under the Plan or may be granted as +independent Awards. In no event may SARs for more than 500,000 shares of +Common Stock be granted to any individual under the Plan during any fiscal +year period. +Restricted Awards. Restricted Awards may take the form of restricted shares +or restricted units. Restricted shares are shares of Common Stock that may be +subject to forfeiture if the recipient terminates employment or service as an +Advisor or nonemployee director during a specified period (the "Restriction +Period"). Stock certificates representing restricted shares are issued in the +name of the recipient, but are held by the Company until the expiration of the +Restriction Period. From the date of issuance of restricted shares, the +recipient is entitled to the rights of a stockholder with respect to the +shares, including voting and dividend rights. Restricted units are Awards of +units equivalent in value to a share of Common Stock, which similarly may be +subject to forfeiture if the recipient terminates employment or service as an +Advisor or nonemployee director during the applicable Restriction Period. At +the expiration of the Restriction Period, payment with respect to restricted +units is made in an amount equal to the value of the number of shares of +Common Stock covered by the restricted units. Payment may be in cash, +unrestricted shares of Common Stock, or any other form approved by the +Committee. +Performance Awards. Performance Awards are designated in units equivalent in +value to a share of Common Stock. A Performance Award is subject to forfeiture +if or to the extent that the Company, a subsidiary, an operating group, or the +recipient, as specified by the Committee in the Award, fails to meet +performance goals established for a designated performance period. Performance +Awards earned by attaining performance goals are paid at the end of a +performance period in cash, shares of Common Stock, or any other form approved +by the Committee. The number of shares of Common Stock issuable with respect +to Performance Awards granted to any individual executive officer may not +exceed 150,000 shares for any calendar year. +Other Stock-Based Awards. The Committee may grant other Awards that involve +payments or grants of shares of Common Stock or are measured by or in relation +to shares of Common Stock. +Shares Subject to the Plan +The maximum number of shares of Common Stock for which Awards may be granted +under the Plan (as amended) is 4,300,000 shares, plus the 1991 Plan Shares. In +addition, if an Award under the Plan, the 1991 Plan or the Incentive Stock +Option Plan for Key Employees of Epitope, Inc. (the "Epitope ISOP") is +cancelled or expires for any reason prior to becoming fully vested or +exercised or is settled in cash in lieu of shares, or is exchanged for other +Awards under the Plan, all shares covered by such Awards will be made +available for future Awards under the Plan. Any shares used as full or partial +payment to the Company of the option, purchase or other exercise price of an +Award, and any shares covered by a stock appreciation right which are not +issued upon exercise, will also become available for future Awards. As of +March 28, 2002, there were options outstanding to purchase 3,936,543 shares of +Common Stock which had been granted under the Plan, the 1991 Plan or the +Epitope ISOP. +In the event of a change in the Company's capitalization affecting the +Common Stock, including a stock dividend, stock split, recapitalization, +merger, consolidation, split-up, combination or exchange of shares or other +form of reorganization, the Committee shall make such proportionate +adjustments as it may determine, in its sole discretion to be appropriate as a +result of such change, to the aggregate number of shares for which Awards may +be granted under the Plan, the maximum number of shares which may be sold or +awarded to any participant, the number of shares covered by each outstanding +Award, and the price per share in respect of outstanding Awards. +21 +Federal Income Tax Consequences +The following discussion summarizes the principal anticipated federal income +tax consequences of Awards granted under the Plan, to participants and to the +Company. +Incentive Stock Options. A recipient of an option does not realize taxable +income upon the grant or exercise of an ISO. If no disposition of shares +occurs within two years from the date of grant or within one year from the +date of exercise, then (a) upon the sale of the shares, any amount realized in +excess of the exercise price is taxed to the option recipient as long-term +capital gain and any loss sustained will be a long-term capital loss, and (b) +no deduction is allowed to the Company for federal income tax purposes. For +purposes of computing alternative minimum taxable income, an ISO is treated as +an NQO. +If shares of Common Stock acquired upon the exercise of an ISO are disposed +of prior to the expiration of the two-year and one-year holding periods +described above, then (a) the recipient will realize ordinary income in the +year of disposition in an amount equal to the excess (if any) of the fair +market value of the shares at exercise (or, if less, the amount realized on a +sale of the shares) over the exercise price thereof and (b) the Company would +be entitled to deduct such amount. Any further gain realized is taxed as a +short-term or long-term capital gain, as applicable, and does not result in +any deduction for the Company. Any disqualifying disposition as described +above will generally avoid the alternative minimum tax consequences of the +exercise of an ISO. +Nonqualified Options. No income is realized by an option recipient at the +time an NQO is granted. Upon exercise, (a) ordinary income is realized by the +option recipient in an amount equal to the difference between the exercise +price and the fair market value of the shares on the date of exercise and (b) +the Company receives a tax deduction for the same amount. Upon disposition of +the shares, appreciation or depreciation after the date of exercise is treated +as a short-term or long-term capital gain or loss, as applicable, and will not +result in any deduction to the Company. +Payment of Exercise Price in Shares. The Committee may permit participants +to pay all or a portion of the exercise price for an option using previously +acquired shares of Common Stock. If an option is exercised and payment is made +in previously held shares, there is no taxable gain or loss to the participant +other than any gain recognized as a result of exercise of the option, as +described above. +Stock Appreciation Rights. The grant of an SAR to a participant will not +cause the recognition of income by the participant. Upon exercise of an SAR, +the participant will realize ordinary income equal to the amount of cash +payable to the participant plus the fair market value of any shares of Common +Stock delivered to the participant. The Company will be entitled to a +deduction equal to the amount of ordinary income realized by the participant +in connection with the exercise of an SAR. +Restricted Awards and Performance Awards. Generally, a participant will not +recognize any income upon issuance of a Restricted Award or Performance Award +that is subject to forfeiture. Generally, a participant will recognize +ordinary income upon the vesting of Restricted Awards or Performance Awards in +an amount equal to the amount of cash payable to the participant plus the fair +market value of shares of Common Stock delivered to the participant. Dividends +paid with respect to Awards during the period such Awards are subject to +forfeiture will be taxable as ordinary income to the participant. However, a +participant may elect to recognize compensation income upon the grant of +restricted shares, based on the fair market value of the shares of Common +Stock subject to the Award at the date of grant. If a participant makes such +an election, dividends paid with respect to the restricted shares will not be +treated as ordinary income, but rather as dividend income, and the participant +will not recognize additional income when the restricted shares vest. The +Company will be entitled to a deduction equal to the amount of ordinary income +recognized by the participant. If a participant who receives an Award of +restricted shares makes the special election described above, the Company will +not be entitled to deduct dividends paid with respect to the restricted +shares. +Limitation on Deductibility of Certain Compensation. Section 162(m) of the +Internal Revenue Code generally makes nondeductible to the Company taxable +compensation paid to a single individual in excess of +22 +$1 million in any calendar year if the individual is the Chief Executive +Officer or one of the next four highest-paid executive officers, unless the +excess compensation is considered to be "performance based." Among other +requirements contained in Section 162(m), the material terms of a compensation +plan in which such officers participate must be approved by stockholders for +awards or compensation provided under the plan to be considered "performance +based." The Company may in the future consider structuring Awards to attempt +to meet the requirements of Section 162(m) if it determines the action to be +advisable. +Annual Report +The Company's Annual Report to Stockholders for the year ended December 31, +2001, accompanies this Proxy Statement. On written request, the Company will +provide, without charge, a copy of its Annual Report on Form 10-K for the year +ended December 31, 2001, filed with the Commission (including a list briefly +describing the exhibits thereto), to any record holder or beneficial owner of +the Company's Common Stock on March 28, 2002, the record date for the Annual +Meeting, or to any person who subsequently becomes such a record holder or +beneficial owner. Requests should be directed to the attention of the +Secretary of the Company at the address of the Company set forth in the Notice +of Annual Meeting of Stockholders immediately preceding this Proxy Statement. +Independent Accountants +Change in Accountant. On December 18, 2000, the Company informed its +independent accountants, PricewaterhouseCoopers LLP ("PWC"), that they would +be dismissed upon completion of their audit of the Company's financial +statements for the three-month transition period ended December 31, 1999. PWC +previously audited the financial statements of the Company's predecessor, +Epitope, for the years ended September 30, 1998 and September 30, 1999. +On September 29, 2000, the Company changed its fiscal year to a calendar +year, and therefore no report of PWC was issued on the Company's financial +statements for the fiscal year ended September 30, 2000. PWC has issued a +report on the Company's interim financial statements for the transition period +October 1, 1999 through December 31, 1999. The reports of PWC on Epitope's +financial statements for the years ended September 30, 1998 and September 30, +1999, and for the three months ended December 31, 1999, did not contain an +adverse opinion or a disclaimer of opinion and were not qualified or modified +as to uncertainty, audit scope or accounting principles. In addition, during +its audits for the fiscal years ended September 30, 1998 and September 30, +1999, and for the three months ended December 31, 1999, (i) there were no +disagreements with PWC on any matter of accounting principles or practices, +financial statement disclosure or auditing scope or procedure, which +disagreements, if not resolved to PWC's satisfaction, would have caused PWC to +make reference to the subject matter of such disagreements in their reports, +and (ii) there were no reportable events as defined in Item 304(a)(1)(v) of +Regulation S-K under the Exchange Act. +Because the Company's headquarters, including its Financial Department, were +relocated to the former headquarters of STC in Bethlehem, Pennsylvania, it was +determined that it would be appropriate to retain Arthur Andersen LLP +("Andersen"), the independent accountants of STC, as the Company's independent +accountants. The Company's Audit Committee and Board authorized the dismissal +of PWC and retention of Andersen. The Company retained Andersen as its +independent accountants effective December 18, 2000. +Andersen has examined the financial statements of the Company for the year +ended December 31, 2001. The Company expects representatives of Andersen to be +present at the Annual Meeting and to be available to respond to appropriate +questions from stockholders. The representatives of Andersen will have the +opportunity to make a statement at the meeting if they desire to do so. +In light of recent events involving Andersen, the Company is reevaluating +whether to engage Andersen as the Company's independent accountants for 2002 +or to engage another firm to act in that capacity. A decision on +23 +this matter has not yet been made. If a decision is made to change independent +accountants, the Company will promptly provide the disclosure required by the +regulations of the Commission. +Audit Fees. The aggregate audit fees billed by Andersen related to the +Company's annual financial statements for the year ended December 31, 2001 and +those financial statements included in the Company's quarterly reports on Form +10-Q during 2001, totaled $98,500. +Financial Information Systems Design and Implementation Fees. The Company +did not engage Andersen to provide systems design and implementation services +(as defined in paragraph (c)(4)(ii) of Rule 2-01 of Regulation S-X under the +Exchange Act) during the year ended December 31, 2001. +All Other Fees. The aggregate fees billed by Andersen to the Company for +non-audit services rendered to the Company for the year ended December 31, +2001 totaled $75,200. These services consisted of preparation of various +federal and state tax returns for the Company, certain tax planning +assistance, and review of certain registration statements filed by the Company +and the issuance of consents in connection therewith. +The Audit Committee of the Company's Board of Directors has determined that +the provision of the services covered under the captions "Financial +Information Systems Design and Implementation Fees" and "All Other Fees" above +are compatible with maintaining Andersen's independence. +Deadline For Stockholder Proposals +Stockholders of the Company may submit proposals for inclusion in the proxy +materials for the Company's 2003 Annual Meeting of Stockholders. Any such +proposals must meet the stockholder eligibility and other requirements imposed +by rules issued by the Securities and Exchange Commission and must be received +by the Company at 150 Webster Street, Bethlehem, Pennsylvania 18105, +Attention: Secretary, not later than December 13, 2002. +The Company's Bylaws provide that a stockholder proposal must meet certain +predetermined requirements in order to be considered at the Annual Meeting. In +order to be considered, a stockholder's proposal must be made in writing to +the Company's Secretary and must be delivered to or received at the principal +executive offices of the Company not less than ninety (90) days nor more than +one hundred twenty (120) days prior to the meeting; provided, however, that in +the event that less than one hundred (100) days' notice or prior public +disclosure of the date of the meeting is given or made to stockholders, notice +by the stockholder to be timely must be so received no later than the close of +business on the tenth (10th) day following the day on which such notice of the +date of the meeting was mailed or such public disclosure was made, whichever +first occurs. The notice to the Secretary must set forth, with respect to each +matter the stockholder proposes to bring before the meeting, a brief +description of the matter and the reasons for considering that matter at the +Annual Meeting. The notice must also include the name and record address of +the stockholder, the class and number of shares of capital stock of the +Company which are beneficially owned by the stockholder, and any material +interest the stockholder has in this matter(s) to be considered at the Annual +Meeting. +BY ORDER OF THE BOARD OF DIRECTORS +Jack E. Jerrett +Secretary +April 12, 2002 +24 +Exhibit A +OraSure Technologies, Inc. +Audit Committee of the Board of Directors +Charter of Responsibility +Article I +Mission Statement +The audit committee will assist the board of directors in fulfilling its +oversight responsibilities. The audit committee will review the financial +reporting process, the system of internal control, the audit process and the +company's process for monitoring compliance with laws and regulations. In +performing its duties, the committee will maintain effective working +relationships with the board of directors, management, and the external +auditors. +Article II +Membership +Section 1. Term: Members of the committee are appointed by the board of +directors and shall serve for a term of one year. Each committee member may be +re-appointed for additional terms at the discretion of the board of directors. +Section 2. Independence: The audit committee shall consist only of +independent directors. A director will not be considered "independent" if he +or she has: +--been employed by the company or its affiliates in the current or past +three years; +--accepted any compensation from the company or its affiliates in excess of +$60,000 during the previous fiscal year (except for board service, +retirement plan benefits, or non-discretionary compensation); +--an immediate family member who is, or has been in the past three years, +employed by the company or its affiliates as an executive officer; +--been a partner, controlling shareholder or an executive officer of any +for-profit business to which the company made, or from which it received, +payments (other than those which arise solely from investments in the +company's securities) that exceed five percent of the company's or +business's consolidated gross revenues for that year, or $200,000, +whichever is more, in any of the past three years, or; +--been employed as an executive of another entity where any of the +company's executives serve on that entity's compensation committee. +Section 3. Background and Experience: Audit committee members shall possess +financial literacy which is the ability to read and understand fundamental +financial statements, including the company's balance sheet, income statement, +and cash flow statement. At least one committee member shall possess +accounting or related financial management expertise, which would include past +employment experience in finance or accounting, requisite professional +certification in accounting, or any other comparable experience or background +which results in the individual's financial sophistication, including being or +having been a chief executive officer (CEO) or other senior officer with +financial oversight responsibilities. +Article III +Organization +Section 1. Number: The audit committee shall consist of not less than three +members of the board of directors. +Section 2. Chairperson: The board of directors shall appoint one member of +the audit committee to act as the committee chairperson. +25 +Section 3. Meetings: The audit committee shall meet as often as necessary, +as determined by the committee chairperson. Meetings will usually be scheduled +in conjunction with board meetings. Members shall be given at least 5 days +notice of each meeting, but may waive notice in writing. Meetings will follow +an agenda and approved minutes of the meeting shall be maintained. In addition +to the committee, other participants may include the external auditors, the +CEO, chief financial officer (CFO) and controller, or others as determined by +the committee. The audit committee shall meet privately at least once per year +with management and at least once per year with the external auditors. +Article IV +Roles and Responsibilities +Section 1: Internal Controls: The audit committee shall determine whether +internal control recommendations made by external auditors have been +implemented by management and ensure that external auditors have kept the +audit committee informed about fraud, illegal acts, and deficiencies in +internal controls. +Section 2: Financial Reporting--General: The audit committee shall: a) +review significant accounting and reporting issues, including recent +professional and regulatory pronouncements, and understand their impact on the +financial statements; and b) discuss significant risks and exposures and plans +to minimize such risks with management and external auditors. +Section 3: Annual Financial Statements: The audit committee shall, prior to +filing of the Company's annual financial statements with the Securities and +Exchange Commission (SEC) on Form 10-K: a) review the annual financial +statements and determine whether they are complete and consistent with the +information known to committee members; b) determine the presence of complex +and/or unusual transactions and the appropriateness of their accounting and +disclosure treatment; c) determine that accounting for, and disclosure of, +judgmental areas such as valuation of assets and liabilities, loss reserves, +and other commitments and contingencies are adequate; d) review management's +handling of proposed audit adjustments identified by the external auditors; e) +review the Management's Discussion and Analysis (MD&A) section of the annual +report on Form 10-K and consider whether the information is adequate and +consistent with the committee members' knowledge about the company and its +operations; f) ensure that the external auditors communicate required matters +to the committee, including the written disclosures and letter from the +external auditors required by Independence Standards Board Standard No. 1 +(Independence Discussions with Audit Committees), as may be modified or +supplemented; g) discuss with the external auditors their independence; h) +discuss the audited financial statements with management; i) discuss with the +external auditors the matters required to be discussed by SAS 61 (Codification +of Statements on Accounting Standards, AU (S) 380), as may be modified or +supplemented; and j) recommend to the board of directors whether the audited +financial statements be included in the annual report on Form 10-K. +Section 4: Interim Financial Statements: Prior to release of the Company's +quarterly financial statements to the SEC on Form 10-Q, the audit committee or +the committee chairperson shall require the external auditors to inform the +committee of any significant: disagreements with management, new accounting +policies, adjustments to the financial statements or unusual events or +transactions. +Section 5: Compliance with Securities Laws and Regulations: The audit +committee shall review the effectiveness of the system for monitoring +compliance with laws and regulations and management's investigation and +follow-up on any fraudulent acts or accounting irregularities. Periodic +updates shall be obtained from management and general counsel regarding +compliance. The audit committee shall review the findings of examinations by +regulatory agencies such as the SEC, and be satisfied that regulatory +compliance matters have been considered in the preparation of the financial +statements. +Section 6: External Auditors: The audit committee shall meet with the +external auditors to review the proposed audit scope and approach, review the +independence of the external auditors by reviewing the non-audit services they +perform for the company and the assertion of their independence in accordance +with professional +26 +standards. At least once annually, the audit committee shall review the +performance of the external auditors with the full board of directors and +determine the reappointment or discharge of the external auditors, who are +ultimately accountable to the board of directors and the audit committee. +Section 7: Other Responsibilities: The audit committee shall: +--establish periodic meetings with the external auditors, internal +auditors, and management in separate executive sessions to discuss any +matters that the committee or these groups believe should be discussed +privately; +--ensure that significant findings or recommendations made by the external +auditors are received and discussed on a timely basis; +--review, with the company's general counsel, any legal matters that could +have a significant impact on the company's financial statements; +--review the policies and procedures in effect for considering officers' +expenses and perquisites; +--if necessary, institute special investigations, and if appropriate, hire +special counsel or experts to assist; +--perform oversight functions as required by the full board; +--review and update the audit committee charter annually and receive full +board approval of any changes; +--regularly update the board of directors about committee activities and +make appropriate recommendations. +27 +Exhibit B +Proposed Amendment of OraSure Technologies, Inc. +2000 Stock Award Plan (the "Plan") +On March 27, 2002, the Company's Board of Directors approved, and +recommended for approval by stockholders, a 1,800,000-share increase in the +number of authorized shares under the Plan. In order to reflect this increase +in authorized shares, Section 4.2.2 of the Plan was amended, subject to +stockholder approval, as follows: +"4.2.2 Number of Shares. The maximum number of Shares for which +Awards may be granted under the Plan is 4,300,000 Shares, plus the +number of Shares that are available for grant under the Epitope, Inc., +1991 Stock Award Plan (the "1991 Plan"), on February 15, 2000, subject +to adjustment pursuant to Article 14 of the Plan." +28 +================================================================================ +[LOGO] OraSure Technologies, Inc. +diagnostic solutions for the new millennium +P R O X Y +2002 Annual Meeting of Stockholders +PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned hereby appoints Jack E. Jerrett and Ronald H. Spair, and +each of them, proxies with full power of substitution, to vote all of the shares +which the undersigned is entitled to vote at the 2002 Annual Meeting of +Stockholders of OraSure Technologies, Inc. (the "Company"), to be held on +Monday, May 20, 2002, and at any adjournment or adjournments thereof, with all +the powers the undersigned would possess if personally present, with respect to +the matters listed on the reverse side. +The shares represented by this Proxy, if properly executed, will be voted +as specified on the reverse side or, if no specification is made, will be voted +FOR the election of the nominees listed on the reverse side as directors and FOR +the amendment of the OraSure Technologies, Inc. 2000 Stock Award Plan. If any +other business properly comes before the meeting, the proxies named above will +have discretionary authority to vote thereon in accordance with their best +judgment. +PLEASE MARK, DATE, SIGN, AND RETURN THE PROXY CARD PROMPTLY. +(Continued and to be signed on reverse side.) +-------------------------------------------------------------------------------- +[FOLD AND DETACH HERE] +[LOGO] OraSure Technologies, Inc. +diagnostic solutions for the new millennium +2002 Annual Meeting of Stockholders +Monday, May 20, 2002 +================================================================================ +Please mark +your vote as +indicated in +this example +================================================================================ +[x] +FOR WITHHOLD +1. Election of Directors [ ] [ ] +Class II (Term expiring 2005) +01 William W. Crouse +02 Roger L. Pringle +(Instruction: To withhold authority to vote for any individual nominee, mark FOR +and strike a line through the nominee's name in the list above. To withhold +authority to vote for all nominees, mark WITHHOLD.) +FOR AGAINST ABSTAIN +2. Amendment of OraSure Technologies, Inc. [ ] [ ] [ ] +2000 Stock Award Plan +By checking the box to the right, I consent to future delivery of annual [ ] +reports, proxy statements, prospectuses and other materials and stockholder +communications electronically via the Internet at a webpage which will be +disclosed to me. I understand that the Company may no longer distribute printed +materials to me for any future stockholder meeting until such consent is +revoked. I understand that I may revoke my consent at any time by contacting the +Company's transfer agent, Mellon Investor Services LLC, Ridgefield Park, NJ and +that costs normally associated with electronic delivery, such as usage and +telephone charges as well as any costs I may incur in printing documents, will +be my responsibility. +Signature(s) Dated 2002. +------------------------------ ------------ +NOTE: Please sign as name appears hereon. Joint owners should each sign. When +signing as attorney, executor, administrator, trustee, guardian or other +representative, please give full title as such. +-------------------------------------------------------------------------------- +[FOLD AND DETACH HERE] +Vote by Internet or Telephone or Mail +24 Hours a Day, 7 Days a Week +Internet and telephone voting is available through 4PM Eastern Time +on May 17, 2002 +Your telephone or Internet vote authorizes the named proxies to vote your shares +in the same manner as if you marked, signed and returned your proxy card. +-------------------------- --------------------- --------------------- +Internet Telephone Mail +http://www.eproxy.com/osur 1-800-435-6710 +Mark, sign and date +Use the Internet to vote Use any touch-tone your proxy card +your proxy. Have your telephone to vote and return it in +proxy card in hand when your proxy. Have your the enclosed +you access the web site. OR proxy card in hand OR postage-paid +You will be prompted to when you call. You envelope. +enter your control number, will be prompted to +located in the box below, enter your control +to create and submit an number, located in +electronic ballot. the box below, and +then follow the +directions given. +-------------------------- --------------------- --------------------- +If you vote your proxy by Internet or by telephone, +you do NOT need to mail back your proxy card. +You can view the Annual Report and Proxy Statement +on the internet at: http://www.orasure.com +================================================================================ \ No newline at end of file diff --git a/raw/proxies/0001116463/0000950109-02-002030/proxy_rpt.txt b/raw/proxies/0001116463/0000950109-02-002030/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..004ec745555112ac20250d0b182a4254a8ab1d81 --- /dev/null +++ b/raw/proxies/0001116463/0000950109-02-002030/proxy_rpt.txt @@ -0,0 +1,32 @@ +Certain Relationships and Related Transactions +The Company has entered into a Commercial Lease (the "Lease") with Tech III +Partners, LLC ("Tech Partners"), which provides for the construction of a +48,000 square foot facility on land adjacent to the Company's Bethlehem, +Pennsylvania headquarters, and the lease of that facility to the Company. Tech +Partners is owned and controlled by Michael J. Gausling, the Company's +President and Chief Executive Officer, and Dr. R. Sam Niedbala, the Company's +Executive Vice President and Chief Science Officer. The facility is expected +to house manufacturing, research and development, and administrative +operations required to support the expected growth of the Company's business. +Construction of the facility is expected to be completed during the summer of +2002. +The Lease has an initial ten-year term commencing after completion of +construction and a base rent starting at $480,000 and increasing to $528,000 +per year over that term. The base rental rate may be increased after the +10 +fifth year of the initial term in order to reflect changes in the interest +rate on debt incurred by Tech Partners to finance construction of the leased +facilities. The Company has not guaranteed any debt incurred by Tech Partners. +The Lease also provides the Company with options to renew the Lease for an +additional five years at a rental rate of $600,000 per year, and to purchase +the facility at any time during the initial ten-year term. Prior to deciding +to enter into the Lease, the Board retained Imperial Realty Appraisal LLC, an +independent commercial real estate appraisal firm, to evaluate the proposed +base rental rate under the Lease. Imperial Realty issued an opinion indicating +that the annual base rent set forth in the Lease is below the market rental +rate the Company could otherwise expect to pay to lease a comparable +commercial property in the same general geographic market. The terms of the +Lease are otherwise substantially similar to the commercial lease entered into +by the Company with a third party for its existing Bethlehem, Pennsylvania +headquarters. +Information regarding employment and severance agreements between the named \ No newline at end of file diff --git a/raw/proxies/0001116463/0001104659-06-023056/proxy.txt b/raw/proxies/0001116463/0001104659-06-023056/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..65d68e882c882119483815f0fe64da408ed52b8e --- /dev/null +++ b/raw/proxies/0001116463/0001104659-06-023056/proxy.txt @@ -0,0 +1,3277 @@ +DEF 14A +1 +a06-7867_1def14a.htm +DEFINITIVE PROXY STATEMENT +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement +Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant x +Filed by a Party other +than the Registrant o +Check the appropriate +box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as +permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +OraSure +Technologies, Inc. +(Name of +Registrant as Specified In Its Charter) +(Name of Person(s) Filing +Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which +transaction applies: +(2) +Aggregate number of securities to which transaction +applies: +(3) +Per unit price or other underlying value of +transaction computed pursuant to Exchange Act Rule 0-11 (set forth the +amount on which the filing fee is calculated and state how it was +determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as +provided by Exchange Act Rule 0-11(a)(2) and identify the filing +for which the offsetting fee was paid previously. Identify the previous +filing by registration statement number, or the Form or Schedule and the +date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Persons who are to respond to the collection of +information contained in this form are not required to respond unless the +form displays a currently valid OMB control number. +ORASURE TECHNOLOGIES, INC. +220 East First Street +Bethlehem, Pennsylvania 18015 +April 6, 2006 +Dear Stockholder: +You are cordially invited to attend the 2006 Annual Meeting +of Stockholders to be held on Tuesday, May 16, 2006 , +at the Historic Hotel Bethlehem, 437 Main Street, Bethlehem, Pennsylvania +18018, at 10:00 a.m. Eastern Time. Your Board of Directors and Executive +Management Team look forward to personally greeting those present. If you +cannot attend in person, we are pleased to offer a live webcast of the Annual +Meeting, which you can access by going to our website, www.orasure.com . +At the meeting, you will be asked to (i) elect two Class +III Directors to serve on the Board of Directors until the Annual Meeting of +Stockholders in 2009; (ii) approve the amendment and restatement of the OraSure +Technologies, Inc. 2000 Stock Award Plan, including an amendment to increase +the number of shares authorized for grant under such Award Plan; (iii) ratify +the appointment of KPMG LLP as our independent registered public accounting +firm for 2006; and (iv) transact such other business as may properly come +before the meeting or any adjournments thereof. +Your Board of Directors has approved the nominees for +Director and recommends that you vote FOR +their election to the Board. In addition, your Board of Directors recommends +that you vote FOR the amendment +and restatement of the Company’s 2000 Stock Award Plan and FOR +the ratification of KPMG’s appointment. +Your vote is very important, regardless of the number +of shares you own. Whether or not you plan to attend the Annual Meeting in +person, we urge you to submit your vote as soon as possible. You will have the +option to vote by telephone, via the Internet, or by completing, signing, +dating, and mailing the enclosed Proxy Card in the accompanying postage prepaid +envelope. Additional details on these options can be found in the attached +Proxy Statement and Proxy Card. You may, of course, attend the Annual Meeting +and vote in person regardless of whether you have previously voted by phone, +the Internet or mail. +We look forward to seeing you at the meeting. +Sincerely yours, +Douglas A. Michels +President and Chief Executive Officer +ORASURE +TECHNOLOGIES, INC. +220 +East First Street +Bethlehem, Pennsylvania 18015 +Notice of Annual +Meeting of Stockholders +to be held May 16, 2006 +To the Stockholders of OraSure Technologies, Inc.: +The Annual Meeting +of Stockholders of OraSure Technologies, Inc., a Delaware corporation, will be +held at the Historic Hotel Bethlehem, 437 Main Street, Bethlehem, Pennsylvania +18018, on Tuesday, May 16, 2006 , at 10:00 a.m. +Eastern Time for the following purposes: +1. To elect +two Class III Directors; +2. To approve +the amendment and restatement of the Company’s 2000 Stock Award Plan, including +an amendment to increase the number of shares of Common Stock authorized for +grant under the Award Plan; +3. To ratify +the appointment of KPMG LLP, as our independent registered public accounting +firm for 2006; and +4. To +consider such other business as may properly come before the meeting or any +adjournments thereof. +Additional information is included in the Proxy +Statement accompanying this Notice. Only holders of Common Stock of record at +the close of business on March 27, 2006, will be entitled to vote at the Annual +Meeting of Stockholders and any adjournments thereof. +By Order of the Board of +Directors, +Jack E. Jerrett +Secretary +April 6, 2006 +Bethlehem, Pennsylvania +YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the +Annual Meeting, you are urged to vote your shares as promptly as possible by +telephone, via the Internet, or by completing, signing, dating and returning +the enclosed Proxy Card, as described in the attached Proxy Statement. Voting +by phone, the Internet or mail does not deprive you of your right to attend the +Meeting and to vote your shares in person. +ORASURE +TECHNOLOGIES, INC. +220 +East First Street +Bethlehem, Pennsylvania 18015 +Proxy Statement +This Proxy Statement is +being mailed on or about April 6, 2006, to stockholders of OraSure Technologies, +Inc., a Delaware corporation (the “Company”), in connection with the Company’s +solicitation of proxies (each, a “Proxy”) for use at the Annual Meeting of +Stockholders to be held on May 16, 2006, at 10:00 a.m. Eastern Time, at +the Historic Hotel Bethlehem, 437 Main Street, Bethlehem, Pennsylvania 18018, +and at any adjournments thereof (the “Annual Meeting”). +Proxies +If represented by a properly executed Proxy, whether +delivered by phone, the Internet or mail, as described below, your shares will +be voted in accordance with your instructions. If you do not provide a Proxy +with instructions, your shares will be voted according to the recommendations +of our Board of Directors (the “Board”) as stated on the Proxy. You may revoke +the authority granted by your Proxy at any time before the Annual Meeting by +notice in writing delivered to the Secretary of the Company, by delivering a +subsequently dated Proxy, or by attending the Annual Meeting, withdrawing the +Proxy, and voting in person. +At the Annual Meeting, action will be taken on the +matters set forth in the accompanying Notice of Annual Meeting of Stockholders +and described in this Proxy Statement. The Board knows of no other matters to +be presented for action at the Annual Meeting. If any other matters do properly +come before the Annual Meeting, the persons named in the Proxy Card will have +discretionary authority to vote on those matters in accordance with their best +judgment. +The cost of soliciting Proxies will be borne by us. In +addition to solicitations by mail, certain of our directors, officers and +regular employees may solicit Proxies personally or by telephone or other means +without additional compensation. +Arrangements will also be +made with brokerage firms and other custodians, nominees, and fiduciaries to +forward solicitation material to the beneficial owners of stock held of record +by such persons, and we will, upon request, reimburse them for their reasonable +expenses in so doing. +Voting Procedures +You will have a choice of voting over the phone, via +the Internet or by completing and mailing a traditional paper Proxy Card, as +described below. Please check your Proxy Card or the information forwarded by +your bank, broker or other holder of record to determine which options are +available to you. +Voting +by Mail . If you desire to vote by using the +paper Proxy Card included with this Proxy Statement instead of by telephone or +the Internet, you may do so by completing, signing, dating and returning the +Proxy Card in the enclosed, pre-addressed envelope. Postage need not be affixed +to the envelope if mailed in the United States. +Voting +by Phone or Internet . Instead of voting by +use of the paper Proxy Card, you may be able to vote by phone or the Internet. Whether +you may do so will depend on how your shares are held. +If your shares are registered in your name with Mellon +Investor Services LLC, our transfer agent, you may vote those shares by +telephone by calling Mellon Investor Services LLC at 1-866-540-5760 +(toll free in the United States or Canada only) or via the Internet at the +following website: www.proxyvoting.com/osur . You may vote by telephone +or the Internet by doing so by 11:59 pm Eastern Time (8:59 pm Pacific Time) on May +15, 2006. Additional instructions can be found on the paper Proxy Card +accompanying this Proxy Statement. +If your shares are registered in the name of a broker, +bank or other registered holder, you may be able to vote by phone or the +Internet if the broker, bank or other record holder has procedures for +telephone or Internet voting. If you desire to use either of these voting +options, please follow the procedures provided to you by your broker, bank or +other record holder. +The telephone and Internet voting procedures are +designed to authenticate your identity, to allow you to give your voting +instructions and to confirm that your instructions have been recorded properly. +If you vote via the Internet, you should understand that there may be costs +associated with this method of voting, such as usage charges from Internet +access providers and telephone companies, that you must pay. +Submitting a Proxy by mail, the phone or the Internet +will not affect your right to vote in person at the Annual Meeting. +Electronic Access +to Proxy Materials and Annual Report . The +Notice of Annual Meeting, the Proxy Statement and our 2005 Annual Report are +available on our website at http://www.orasure.com . If you are a +stockholder of record and would like to view future proxy statements and annual +reports over the Internet instead of receiving copies in the mail, please +follow the instructions on the paper Proxy Card if you vote by mail or follow +the instructions provided when you vote by phone or over the Internet. If you +hold your shares through a bank, broker or other holder, check the information +provided by that entity for instructions on how to elect to view future proxy +statements and annual reports over the Internet. Opting to receive your proxy +materials and annual report online will save us the cost of producing these materials +and mailing them to you in the future. +Voting Securities +On March 27, 2006, the +record date for determining stockholders entitled to vote at the Annual +Meeting, we had outstanding and entitled to vote at the meeting 46,700,463 +shares of common stock, par value $.000001 per share (“Common Stock”). Each +share of Common Stock is entitled to one vote on any matter brought before the +Annual Meeting. A majority of the shares of Common Stock outstanding as of the +record date, represented in person or by Proxy at the Annual Meeting, will +constitute a quorum for the transaction of business. +Principal Stockholders +The following table sets forth information, as of March +27, 2006, regarding the beneficial ownership of the Company’s Common Stock by (a) +each person who is known by us to be the beneficial owner of more than five +percent of the Common Stock outstanding, (b) each Director and nominee for +election as Director, (c) each of our executive officers named in the Summary +Compensation Table in this Proxy Statement under “Executive Compensation,” and (d) +all of our directors and executive officers as a group. Unless otherwise +indicated, the address of each person identified below is c/o OraSure +Technologies, Inc., 220 East First Street, Bethlehem, Pennsylvania 18015. +Pursuant to Rule 13d-3 +under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), +shares of Common Stock which a person has a right to acquire pursuant to the +exercise of stock options and warrants held by that person that are exercisable +within 60 days of March 27, 2006 are deemed to be +2 +outstanding +for the purpose of computing the percentage ownership of that person, but are +not deemed outstanding for computing the percentage ownership of any other +person. +Name and Address of +Amount and Nature of +Percent +Beneficial Owner +Beneficial Ownership (1) (2) +of Class +Wells Fargo & +Company(3) +420 Montgomery Street +San Francisco, CA 94104 +3,939,424 +8.6 +% +AXA Financial, Inc.(4) +1290 Avenue of the Americas +New York, NY 10104 +2,887,680 +6.3 +% +Merrill Lynch & Co., Inc.(5) +World Financial Center, North Tower +250 Vesey Street +New York, NY 10381 +2,752,628 +6.0 +% +Barclay’s Global Investors, NA(6) +45 Fremont Street +San Francisco, CA 94105 +2,718,202 +5.9 +% +Douglas A. Michels +663,286 +1.4 +% +Ronald H. Spair +466,062 +1.0 +% +P. Michael Formica +342,181 +* +Roger L. Pringle(7) +268,843 +* +Joseph E. Zack +252,734 +* +Jack E. Jerrett +182,547 +* +Douglas G. Watson +170,000 +* +Frank G. Hausmann +156,666 +* +Ronny B. Lancaster +86,666 +* +Charles W. Patrick +6,666 +* +All directors and +executive officers as a group (12 people) +2,770,057 +5.8 +% +* Less than 1% +(1) Subject to community +property laws where applicable, beneficial ownership consists of sole voting +and investment power except as otherwise indicated. +(2) Includes shares subject +to options exercisable within 60 days of March 27, 2006, as follows: Mr. Michels, +214,165 shares; Mr. Spair, 355,458 shares; Mr. Formica, 258,480 shares; Mr. Pringle, +232,218 shares; Mr. Zack, 190,207 shares; Mr. Jerrett, 145,832 shares; Mr. Watson, +170,000 shares; Mr. Hausmann, 156,666 shares; Mr. Lancaster, 86,666 +shares; Mr. Patrick, 6,666 shares; and all directors and executive officers as +a group, 1,905,003 shares. Also includes 351,570, 67,500, 58,750, 32,666 and +51,250 restricted shares held by Mr. Michels, Mr. Spair, Mr. Formica, Mr. Jerrett +and Mr. Zack, respectively. +(3) Based on information +contained in a Schedule 13G filed February 15, 2006 by Wells Fargo & +Company (“Wells Fargo”), on behalf of its subsidiaries, Wells Capital +Management Incorporated and Wells Fargo Funds Management, LLC. Wells Fargo has +sole voting power with respect to 3,903,467 +3 +shares, sole dispositive +power with respect to 3,936,924 shares and shared dispositive power with +respect to 2,500 shares. +(4) Based on information +contained on a Schedule 13G/A filed February 14, 2006 by AXA Financial, Inc. (“AXF”) +on behalf of its subsidiaries, Alliance Capital Management L.P. (“Alliance”), +AXA Equitable Life Insurance Company (“Equitable”) and AXA Rosenberg Investment +Management LLC (“AXA Rosenberg”). The Form 13G/A was jointly filed by AXF with +AXA Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle and AXA Courtage +Assurance Mutuelle (collectively, “Mutuelles AXA”) and AXA. AXF is a +wholly-owned subsidiary of AXA, a French holding company, which is controlled +by the Mutuelles AXA, as a group. Alliance has sole voting power with respect +to 2,411,080 shares, and sole dispositive power with respect to 2,582,480 +shares. Alliance’s shares are held by unaffiliated third-party client accounts +and managed by Alliance, as investment advisor. Equitable has sole voting and +dispositive power with respect to 304,000 shares, and AXA Rosenberg has sole +voting and dispositive power with respect to 1,200 shares. +(5) Based on information +contained in a Schedule 13G filed February 7, 2006 by Merrill Lynch & Co., Inc. +(“Merrill Lynch”), on behalf of Merrill Lynch Investment Managers. Merrill +Lynch has shared voting and dispositive power with respect to the indicated +shares. +(6) Based on information +contained in a Schedule 13G filed January 26, 2006 by Barclay’s Global +Investors, NA (“BGI”), and Barclay’s Global Fund Advisors (“BGFA”), Barclay’s +Global Investors, Ltd., and Barclay’s Global Investors Japan Trust and Banking +Company Limited. BGI has sole voting power with respect to 2,011,681 shares and +sole dispositive power with respect to 2,244,261 shares, and BGFA has sole +voting and dispositive power with respect to 473,941 shares. +(7) Includes +1,500 shares owned by Mr. Pringle’s spouse. +Section 16(a) Beneficial Ownership Reporting +Compliance +Section 16(a) of the Exchange Act requires +that our executive officers and Directors and persons who own more than ten +percent of our Common Stock (collectively, “Reporting Persons”) file reports of +ownership and changes in ownership with the Securities and Exchange Commission +(the “Commission”). Reporting Persons are required by the Commission’s +regulations to furnish us with copies of all Section 16(a) forms they +file. +As a matter of practice, +our administrative staff assists each of the Reporting Persons who are +employees and Directors of the Company in preparing initial reports of +ownership and reports of changes in beneficial ownership and filing such +reports with the Commission and the NASDAQ Stock Market. Based solely on a +review of the copies of forms filed by or on behalf of the Reporting Persons +and on written representations (if any) from each of the Reporting Persons, we +believe that all Reporting Persons complied with all applicable filing +requirements with respect to the year 2005. +Item 1. Election +of Directors +At the Annual Meeting, you will be asked to vote on +the election of two Class III Directors. A majority of the independent +members of the Board have nominated Douglas A. Michels and Charles W. Patrick +for election as Class III Directors, for terms expiring at the Annual +Meeting of Stockholders in 2009. The nominees for election as Directors are +presently members of our Board. Mr. Michels has served as a member of the +Board and as the Company’s President and Chief Executive Officer since +June 2004, and Mr. Patrick has served on the Board and as a member of +the Compensation Committee of the Board since January 2006. +4 +In the absence of instructions to the contrary, shares +of Common Stock represented by properly executed Proxies will be voted for the +two nominees, each of whom has consented to be named and to serve if elected. If +a quorum is present, each nominee will be elected if he receives a plurality of +the votes cast by shares present in person or by Proxy and entitled to vote at +the Annual Meeting. Abstentions and shares as to which a broker or other +nominee has indicated on a duly executed and returned Proxy or otherwise +advised us that it lacks voting authority will have no effect on the required +vote. Your Board recommends that you vote FOR +the election of the Director nominees. +We do not know of anything that would preclude any +nominee from serving. However, should any nominee for any reason become unable +or unwilling to serve as a Director, the persons named in the enclosed Proxy +Card will vote the shares represented by each Proxy for such substitute nominee +as the Board may approve. +Any vacancy that occurs on the Board that results from +an increase in the number of Directors may be filled by the affirmative vote of +a majority of the Directors then in office, and any other vacancy on the Board +may be filled by the affirmative vote of a majority of the Directors then in +office, even though less than a quorum of the Board, or by a sole remaining +Director. +Certain +information with respect to each person nominated for election as a Director +and each person whose term of office as a Director will continue after the Annual +Meeting is set forth below. Messrs. Hausmann and Pringle became Directors +of the Company in connection with the merger (the “Merger”) of STC Technologies, +Inc. (“STC”) and Epitope, Inc. (“Epitope”) into the Company on September 29, +2000, and served on the board of Epitope prior to the Merger. +Name +Principal Occupation +Age +Director +Since +Class I (Directors Whose +Terms of Office Expire in 2007): +Douglas G. Watson +Chief Executive Officer of +Pittencrieff Glen Associates +61 +2002 +Frank G. Hausmann +President of Capricorn Advisors +48 +2000 +Class II (Directors Whose +Terms of Office Expire in 2008): +Ronny B. Lancaster +Senior Vice President for Federal +Government Relations of Assurant, Inc. +54 +2003 +Roger L. Pringle +President of The Pringle Company +65 +2000 +Class III (Nominees for +Terms of Office Expiring in 2009): +Douglas A. Michels +President and Chief Executive Officer of +the Company +49 +2004 +Charles W. +Patrick +Principal, +Patrick Consulting +51 +2006 +Douglas G. Watson became a member of the Board in May 2002 +and became Chairman of the Board in March 2003. Since July 1999, Mr. Watson has +been Chief Executive Officer of Pittencrieff Glen Associates, a leadership and +management consulting firm, which he founded. Prior to that, Mr. Watson served +as President and Chief Executive Officer of Novartis Corporation, the U.S. +subsidiary of Novartis A.G., President and Chief Executive Officer of +Ciba-Geigy Corporation, President of the Ciba Pharmaceuticals Division and +Senior Vice President of Planning and Business Development of Ciba’s U.S. +Pharmaceuticals Division. Mr. Watson holds an M.A. degree in pure mathematics +from Churchill College, Cambridge University, and is a member of the Chartered +Institute of Management Accountants. Mr. Watson also serves on the Boards +of Engelhard Corporation, Dendreon Corporation, Genta Inc., InforMedix Inc., +Javelin Pharmaceuticals Inc. and BioElectronics Inc. +5 +Frank G. Hausmann had been a member of the Board of +Directors of Epitope since December 1999. Since October 2003, Mr. Hausmann has +been President of Capricorn Advisors, a strategic and financial consulting firm +which he founded. From October 1999 until October 2003, Mr. Hausmann served as +President and Chief Executive Officer and Chairman of the Board of CenterSpan +Communications Corporation, an early stage developer of Internet connection, +collaboration, securities and content delivery network solutions and services. +Prior to that, Mr. Hausmann served as Vice President, Finance and +Administration and Chief Financial Officer of ThrustMaster, Inc., a developer +of PC games, Vice President, Finance and Chief Financial Officer of Atlas +Telecom, Inc., a developer of enhanced facsimile and voice-mail solutions, and +Vice President, Corporate Development and General Counsel of Diamond Multimedia +Systems, Inc., a designer and marketer of computer video cards, modems and +other peripherals. Mr. Hausmann received B.S. degrees in Economics and +Political Science from Willamette University and a J.D. degree from the +University of Oregon. He is a member of the Oregon State Bar. +Ronny B. Lancaster became a member of the Board in May +2003. Mr. Lancaster has served as Senior Vice President, Federal Government +Relations of Assurant, Inc., a provider of specialty insurance and +insurance-related products and services since September 2005. From 2003 until September +2005, Mr. Lancaster served as Chief Operating Officer of the Morehouse +School of Medicine in Atlanta, Georgia, as Senior Vice President for Management +Policy from 1996 to 2003 and as Vice President for Health and Social Policy +from 1993 to 1996. Prior to that, Mr. Lancaster was Executive Assistant to the +Secretary and Principal Deputy Assistant Secretary for Planning and Evaluation +at the U.S. Department of Health and Human Services (“HHS”), where his +responsibilities included a wide range of policy, program and management +matters. Prior to serving at HHS, Mr. Lancaster was General Counsel of Hamilton +Enterprises, Inc., Senior Washington Representative for Blue Cross/Blue Shield +Association, Chief of the Division of Fee-For-Service Plans at the U.S. Office +of Personnel Management, and Executive Assistant to the Chairman at the +National Institute for Advanced Studies. Mr. Lancaster received his B.A. in +Economics from the Catholic University of America, his M.B.A. from the Wharton +School of the University of Pennsylvania, and his J.D. degree from The +Georgetown University Law Center. He is also admitted to the Bars of Pennsylvania +and the District of Columbia and serves as President for the Minority Health +Professions Foundation. +Roger L. Pringle had been Chairman of the Board and a +member of the Board of Directors of Epitope, and was a director of Agritope, Inc., +a plant genetics subsidiary of Epitope, since 1990. Mr. Pringle is the +President of The Pringle Company, a strategy and executive consulting firm in +Portland, Oregon. Mr. Pringle currently serves on the boards of directors of +The ODS Companies, North Pacific Group, Prolifiq Software, Inc., and the Oregon +Dental Foundation. He is also an active angel investor in the Pacific +Northwest. +Douglas A. Michels has been the Company’s President +and Chief Executive Officer since June 2004. Prior to that, Mr. Michels served +as Group Vice President, Global Marketing of Ortho-Clinical Diagnostics from January +2004 to June 2004, President of Ortho-Clinical Diagnostics International from January +2002 to December 2003, President of Johnson & Johnson Healthcare Systems, Inc. +from January 2000 to December 2001, and Vice President Sales & Marketing of +Johnson & Johnson Healthcare Systems, Inc. from June 1997 to December 1999. +Earlier in his career, Mr. Michels held various positions of increasing +responsibility within the Johnson & Johnson family of companies, including +Vice President, Sales & Marketing, Vice President/General Manager – Immunocytometry +Business, Executive Director Sales & Marketing, Director of Marketing, +Director of Sales, and Regional Sales Manager for Ortho Diagnostic Systems, Inc. +Prior to joining Johnson & Johnson, Mr. Michels worked for the Diagnostics +Division of Abbott Laboratories in various sales and product management +positions. Mr. Michels received a B.S. degree in Public Health Administration +from the University of Illinois and an M.B.A. from Rutgers University. +6 +Charles W. Patrick became +a member of the Board in January 2006. Since 2000, Mr. Patrick has served as +Principal of Patrick Consulting, a management consulting firm that helps +diagnostic and technology companies develop sales, marketing and distribution +strategies. During the period September 2000 through April 2001, he served as +the acting President and Chief Executive Officer of Call Nexus, Inc., a +provider of virtual call center services. From 1990 to 2000, Mr. Patrick served +as Vice President of Sales and Marketing for Biosite Diagnostics, a medical +diagnostics company, and had primary responsibility for developing and +achieving Biosite’s strategic sales and marketing objectives. Prior to his time +at Biosite, Mr. Patrick served as World Wide Group Marketing Manager and +held several other sales and marketing positions for the Diagnostics Division +of Abbott Laboratories. Mr. Patrick received a B.A. in +Communications/Journalism from the University of Central Florida. +Board of Directors +The Board of Directors is comprised of a majority of +independent Directors. The Board has determined that each member of the Board, +except for Mr. Michels, is “independent,” as that term is defined in the +applicable rules of The NASDAQ Stock Market, Inc. +The Board held eight meetings and acted by written +consent on three occasions during the year ended December 31, 2005. Each member +of the Board attended more than 75 percent of the combined total of meetings of +the Board and of the committees of the Board on which such member served during +the period in the year in which he served as a Director. +The Board has approved a +process for security holders to send communications to members of the Board and +a policy concerning Board members’ attendance at our annual meetings of +stockholders. All members of the Board attended our 2005 Annual Meeting of +Stockholders held on May 17, 2005, except for Carter H. Eckert and Gregory B. +Lawless, who retired from the Board prior to the Meeting. Descriptions of the +process for security holders to send communications to the Board and the Board’s +policy on annual meeting attendance are provided on our website, at www.orasure.com . +Committees of the Board +The Board currently has three standing committees – the +Audit Committee, the Compensation Committee and the Nominating and Corporate +Governance Committee. Each Committee is composed entirely of independent +Directors. +Audit +Committee . The +Audit Committee oversees the Company’s accounting and financial reporting +process, internal controls and audits, and consults with management and the +Company’s independent registered public accounting firm on, among other items, +matters related to the annual audits, the published financial statements and +the accounting principles applied. As part of its duties, the Audit Committee +appoints, evaluates and retains the Company’s independent registered public +accounting firm. It also maintains direct responsibility for the compensation, +termination and oversight of the Company’s independent registered public +accounting firm and evaluates the independent registered public accounting firm’s +qualifications, performance and independence. The Audit Committee approves all +services provided to the Company by the independent registered public +accounting firm. The Audit Committee has established procedures for the +receipt, retention and treatment, on a confidential basis, of complaints +received by the Company, regarding accounting, internal accounting controls or +auditing matters, and the confidential, anonymous submissions by employees of +concerns regarding questionable accounting or auditing matters. The Audit +Committee operates pursuant to a written Charter, a copy of which is available +on our website at www.orasure.com . +Members of the Audit Committee are Frank G. Hausmann, +Chairman, Ronny B. Lancaster and Roger L. Pringle. Each member of the Audit +Committee is “independent,” as defined in the Exchange Act and applicable rules +of The NASDAQ Stock Market, Inc. The Board has determined that Mr. Hausmann +7 +is an “audit committee +financial expert,” as that term is defined by applicable rules of the +Commission. The Audit Committee met seven times during the year ended December 31, +2005. +Compensation +Committee . The Compensation Committee of the Board determines and, in the +case of the Chief Executive Officer recommends for Board approval, the +compensation and benefits for our executive officers, and administers our stock +award plan. The Compensation Committee operates pursuant to a written charter, +a copy of which is available on our website at www.orasure.com . Members +of the Compensation Committee are Roger L. Pringle, Chairman, Charles W. +Patrick and Douglas G. Watson. Each member of the Compensation Committee is “independent,” +as defined in the applicable rules of The NASDAQ Stock Market, Inc. The +Compensation Committee met three times and acted by written consent on two +occasions during the year ended December 31, 2005. +Nominating +and Corporate Governance Committee . The +Nominating and Corporate Governance Committee of the Board identifies, +evaluates and recommends to the Board candidates for election or re-election to +the Board. In addition, this Committee is responsible for developing, +recommending for Board approval and administering a set of corporate governance +guidelines. The Nominating and Corporate Governance Committee operates pursuant +to a written charter. Copies of the Committee’s charter and the Company’s +corporate governance guidelines are available on our website at www.orasure.com . +Members of the Nominating and Corporate Governance Committee are Ronny B. +Lancaster, Chairman, Roger L. Pringle and Douglas G. Watson. Each member of the +Nominating and Corporate Governance Committee is “independent,” as defined in +the Exchange Act and applicable rules of The NASDAQ Stock Market, Inc. The +Nominating and Corporate Governance Committee meet three times during the year +ended December 31, 2005. +In evaluating and recommending candidates for the +Board, the Nominating and Corporate Governance Committee will consider +candidates recommended by members of the Committee or the Board of Directors, +officers or employees of the Company, the Company’s security holders and other +business contacts. Candidates recommended by security holders will be considered +by the Nominating and Corporate Governance Committee in the same manner as +candidates recommended by other sources, but only if the security holder makes +its recommendation in accordance with the advance notification provisions set +forth in the Company’s By-laws. For a description of these provisions, see the Section +entitled, “Nomination of Directors.” +In evaluating new candidates for Board nomination, the +Nominating and Corporate Governance Committee shall consider one or more of the +following factors, as well as any other factors determined by the Committee: +independence, integrity, knowledge, judgment, character, leadership skills, +education, experience, financial literacy, technical background, and standing +in the community. In evaluating incumbent directors for re-election, the +Nominating and Corporate Governance Committee shall consider that director’s +overall service to the Company, including the number of meetings attended, +level of participation, quality of performance and other factors deemed relevant +by the Committee. +The following report of the Audit Committee of the +Board shall not be deemed to be “soliciting material” or to be incorporated by +reference by any general statement incorporating by reference this Proxy +Statement into any filing by the Company under either the Securities Act of +1933, as amended (the “Securities Act”), or the Exchange Act, except to the +extent that the Company specifically incorporates this information by reference. +The following report shall not otherwise be deemed filed under such Acts. +Report of the Audit Committee +The role of the Audit Committee is to assist the Board +of Directors in fulfilling its responsibilities to oversee management’s conduct +of the Company’s financial reporting process, including monitoring (1) the +participation of management and the outside independent registered public +accounting firm in the financial reporting process, (2) the Company’s systems +of internal accounting and financial controls, +8 +(3) the annual +independent audit of the Company’s financial statements and (4) the +qualifications, independence and performance of the outside independent +registered public accounting firm. The Committee selects the Company’s outside +independent registered public accounting firm, and once selected, the outside +independent registered public accounting firm reports directly to the Committee. +The Committee is responsible for approving both audit and non-audit services to +be provided by the outside independent registered public accounting firm. The +Committee operates pursuant to a Charter that was last amended and restated by +the Board on May 18, 2004. +Management of the Company is responsible for the +preparation, presentation and integrity of the Company’s financial statements, +the Company’s accounting and financial reporting principles and internal +controls and procedures designed to assure compliance with accounting standards +and applicable laws and regulations. The independent registered public +accounting firm is responsible for auditing the Company’s financial statements +and expressing an opinion as to their conformity with U.S. generally accepted +accounting principles. The Committee’s responsibility is to monitor and review +these processes. It is not the Committee’s duty or responsibility to conduct +auditing or accounting reviews. +In the performance of its oversight function, the +Committee has considered and discussed the audited financial statements with +management, which included a discussion of the quality, and not just the +acceptability, of the accounting principles, the reasonableness of significant +judgments and the clarity of disclosures in the financial statements. The +Committee met with the independent registered public accounting firm, with and +without management, to discuss the results of their examination and their +judgments regarding the Company’s accounting policies. The Committee has also +discussed with the independent registered public accounting firm the matters +required to be discussed by Statement on Auditing Standards No. 61, “Communication +with Audit Committees,” as currently in effect. Finally, the Committee has +received the written disclosures and the letter from the independent registered +public accounting firm required by Independence Standards Board Standard No. 1, +“Independence Discussions with Audit Committees,” as currently in effect, has +considered whether the provision of non-audit services by the independent +registered public accounting firm to the Company is compatible with maintaining +the firm’s independence and has discussed with the independent registered +public accounting firm the firm’s independence. +Based upon the reports and +discussions described in this report, and subject to the limitations on the +role and responsibilities of the Committee referred to above and in the +Committee’s Charter, the Committee recommended to the Board that the audited +financial statements be included in the Company’s Annual Report on Form 10-K +for the year ended December 31, 2005 for filing with the Securities and +Exchange Commission and selected KPMG LLP as the independent registered public +accounting firm for fiscal year 2006. The Board is recommending that +stockholders ratify that selection at the Annual Meeting. +SUBMITTED +BY THE AUDIT COMMITTEE +OF THE COMPANY’S BOARD OF DIRECTORS +Frank G. Hausmann, Chairman +Ronny B. Lancaster +Roger L. Pringle +March 1, 2006 +9 +Nomination of Directors +Our Bylaws provide that +nominations for election to the Board may be made by the Board or by any +stockholder entitled to vote for the election of Directors at the Annual +Meeting. A stockholder’s notice of nomination must be made in writing to the +Company’s Secretary and must be delivered to or received at our principal +executive offices not less than ninety (90) days nor more than one hundred +twenty (120) days prior to the meeting. However, in the event that less than +one hundred (100) days’ notice or prior public disclosure of the date of the +meeting is given or made to stockholders, notice by the stockholder to be +timely must be received no later than the close of business on the tenth (10 th ) day following the day on +which such notice of the date of the meeting was mailed or such public +disclosure was made, whichever first occurs. The notice to the Secretary must +set forth, with respect to the nominee, the name, age, business address, +residence address, and principal occupation or employment of the person, the +class and number of shares of capital stock of the Company which are +beneficially owned by the person, and any other information relating to the +person that is required to be disclosed in solicitations for proxies for +election of Directors pursuant to Regulation 14A under the Exchange Act. The +notice must also include the name and record address of the stockholder making +the nomination and the class and number of shares of capital stock of the +Company that are beneficially owned by the stockholder. We may require any +proposed nominee to furnish such other information as we may reasonably require +to determine the eligibility of the proposed nominee to serve as a Director of +the Company. +Executive Officers +The +table below provides information about the executive officers of the Company as +of March 27, 2006. Officers of the Company hold office at the discretion of the +Board. +Name +Age +Position +Douglas A. Michels +49 +President and Chief +Executive Officer +Ronald H. Spair +50 +Executive Vice President +and Chief Financial Officer +Stephen R. Lee, Ph.D. +46 +Executive Vice President +and Chief Science Officer +P. Michael Formica +55 +Executive Vice President, +Operations +Joseph E. Zack +54 +Executive Vice +President, Marketing and Sales +Jack E. Jerrett +47 +Senior Vice President, +General Counsel and Secretary +Mark L. Kuna +42 +Vice President, Controller and Assistant Secretary +For biographical information on Mr. Michels, see the +Section entitled, “Election of Directors,” in this Proxy Statement. +Ronald H. Spair joined the Company as Executive Vice +President and Chief Financial Officer in November 2001. Prior to that time, Mr. +Spair was Vice President, Chief Financial Officer and Secretary of Delsys +Pharmaceutical Corporation, a pharmaceutical manufacturing system development +company, from January 2001 to September 2001. Prior to joining Delsys, he was +Senior Vice President, Chief Financial Officer and Secretary of SuperGen, Inc., +a pharmaceutical company, from August 1999 to January 2001. Prior to joining +SuperGen, Mr. Spair was Senior Vice President, Chief Financial Officer and +Secretary of Sparta Pharmaceuticals, Inc., a development stage pharmaceutical +company. Mr. Spair received his B.S. in Accounting and M.B.A. from Rider College. +He is also a licensed Certified Public Accountant and is a member of the New +Jersey Society of Certified Public Accountants and the American Institute of +Certified Public Accountants. +Stephen R. Lee, Ph.D. joined the Company as Executive +Vice President and Chief Science Officer in September 2005. Prior to that time, +Dr. Lee worked at Ortho-Clinical Diagnostics, a Johnson & Johnson company +since 1990, serving as Vice President, Assay Research & Development from +2002 to 2005, Executive Director, Worldwide Immunodiagnostic Product +Development from 2000 to 2002, and Director, +10 +Infectious Disease Assay +Development from 1996 to 2000. Dr. Lee has had responsibility for or direct +involvement in the development of over 40 major diagnostic assays, in such areas +as infectious disease, cardiology, oncology and other conditions. In 1997, Dr. Lee +was awarded the Johnson Medal, Johnson & Johnson’s highest award for +Research and Development. Prior to joining Ortho, Dr. Lee worked as a scientist +for both Wampole Labs and Immunicon Corporation. Dr. Lee received a Ph.D. +degree in Biochemistry from Cardiff University (U.K.) in 1985 and a BSc. in +Biochemistry from Sheffield University (U.K.) in 1981. +P. Michael Formica has served as Executive Vice +President, Operations for the Company since November 2002 and as Senior Vice +President, Operations for the Company and STC since May 2000. Prior to that +time, Mr. Formica was Division Manager, Mobil Measurement Technologies for +Dräger Sicherheitstechnik GmbH (now called Dräger Safety AG & Co. KGaA), in +Lüebeck, Germany, for eight years with worldwide responsibility, and Director +Sales and Marketing, National Draeger, Inc. (USA) for two years. Dräger is a +world leader in chemical detection systems for the industrial safety market, and +breath alcohol detection instrumentation. Mr. Formica received his B.S. in +Electrical Engineering from West Virginia University and his M.B.A. from the +Graduate School of Industrial Administration, Carnegie Mellon University. +Joseph E. Zack has served as the Company’s Executive +Vice President, Marketing and Sales since September 2002. Prior to that time, Mr. +Zack served as Vice President, Marketing and Sales for OraPharma, Inc., a +specialty pharmaceutical company focused on oral healthcare, since 1998. Prior +to joining OraPharma, Mr. Zack held executive level marketing and sales +positions with Advanced Tissue Sciences, Inc. and the CIBA-GEIGY Pharmaceutical +Division. Mr. Zack received his B.A. in Biology from Colgate University and his +M.B.A. from St. John’s University. +Jack E. Jerrett has served as the Company’s Senior +Vice President and General Counsel since February 2003 and as Vice President +and General Counsel since November 2000. He has also served as the Company’s +Secretary since February 2001. Prior to joining the Company, Mr. Jerrett served +in the positions of Associate General Counsel and Senior Counsel at PPL +Electric Utilities Corporation, and acted as general counsel to PPL Gas +Utilities Corporation, since July 1998. Prior to that, Mr. Jerrett was Senior +Corporate Attorney of Union Pacific Corporation and an Associate with Morgan, +Lewis & Bockius. Mr. Jerrett received his B.S. in Accounting from Villanova +University and his J.D. from the Villanova University School of Law. He is a +member of the Pennsylvania Bar and the American and Pennsylvania Bar +Associations. +Mark L. Kuna has served as +the Company’s Vice President and Controller since February 2003 and as +Controller since February 2001. Mr. Kuna has also served as the Company’s +Assistant Secretary since May 2002 and provided accounting and financial +analysis support since joining the Company in October 2000. Prior to that time, +Mr. Kuna served as Director of Financial Planning and Analysis for the greater +Philadelphia region of XO Communications, Inc., and Vice President and +Principal Accounting Officer of Wedco Technology, Inc. Prior to joining Wedco +Technology, he was an accountant with Deloitte and Touche. Mr. Kuna received +his B.S. in Accounting from the University of Scranton, is a licensed Certified +Public Accountant, and is a member of the Pennsylvania and American Institutes +of Certified Public Accountants. +Certain Relationships and Related Transactions +Information regarding +employment and severance agreements between the named executive officers and +the Company is set forth in the Section entitled, “Employment Agreements,” in +this Proxy Statement. +11 +Executive Compensation +Summary Compensation Table +The +following table summarizes the compensation of our Chief Executive Officer and +the four other most highly compensated executive officers of the Company +(collectively, including the Chief Executive Officer, the “Named Executive +Officers”), for the year ended December 31, 2005: +Annual Compensation +Long-Term +Compensation Awards +Name and Principal Position +Year +Salary +Bonus +Other +Annual +Compen- +sation +Restricted +Stock +Awards +Securities +Underlying +Options (1) +All Other +Compen- +sation (2) +Douglas A. Michels +2005 +$ +409,808 +$ +359,000 +— +$ +744,975 +(3) +67,500 +$ +4,000 +President and +2004 +206,154 +200,000 +— +3,144,225 +(4)(6) +467,500 +4,000 +Chief Executive Officer +2003 +— +— +— +— +— +— +Ronald H. Spair +2005 +295,000 +207,000 +— +297,990 +(3) +27,000 +4,000 +Executive Vice President and +2004 +281,758 +157,336 +$ +5,250 +(8) +395,490 +(5)(6) +27,000 +4,000 +Chief Financial Officer +2003 +224,264 +60,000 +9,000 +(8) +267,000 +(7) +100,000 +4,000 +P. Michael Formica +2005 +249,546 +150,000 +— +248,325 +(3) +22,500 +4,000 +Executive Vice President, +2004 +245,242 +125,404 +5,250 +(8) +220,975 +(5)(6) +22,500 +4,000 +Operations +2003 +210,264 +50,000 +9,000 +(8) +267,000 +(7) +100,000 +4,000 +Joseph E. Zack +2005 +229,593 +138,000 +— +248,325 +(3) +22,500 +4,000 +Executive Vice President, +2004 +224,735 +114,831 +5,250 +(8) +148,575 +(6) +22,500 +4,000 +Marketing and Sales +2003 +202,187 +50,000 +9,000 +(8) +133,500 +(7) +75,000 +4,000 +Jack E. Jerrett +2005 +213,591 +113,000 +— +198,660 +(3) +18,000 +4,000 +Senior Vice President, +2004 +194,555 +74,761 +5,250 +(8) +99,050 +(6) +15,000 +4,000 +General Counsel and Secretary +2003 +176,132 +31,750 +9,000 +(8) +— +40,000 +4,000 +(1) Except as noted below, +the amounts represent the number of shares of Common Stock underlying options +granted for performance rendered during each specified year, although the award +occurred early in the subsequent year. The number of shares indicated for Mr. Michels +for 2004 also includes an option for 400,000 shares granted to Mr. Michels when +he joined the Company in June 2004. +(2) The amounts represent +cash contributed to a 401(k) profit sharing plan as employer matching +contributions. Employee contributions are included in the Salary column. +(3) On January 23, 2006, the +Named Executive Officers received the following grants of restricted shares +based on their performance during 2005: 78,750 shares for Mr. Michels; 31,500 +shares for Mr. Spair; 26,250 shares for Mr. Formica; 26,250 shares for Mr. Zack +and 21,000 shares for Mr. Jerrett. The value of these shares was calculated by +multiplying the number of shares in each grant by $9.46, the closing price for +the Company’s Common Stock as reported in The NASDAQ Stock Market on the date +of grant. One-third of each such grant vests on the first, second and third +anniversaries, respectively, of the date of grant. The aggregate number of +restricted shares held as of December 30, 2005, and the value of these shares +at the $8.82 closing price of the Company’s Common Stock as reported on The +NASDAQ Stock Market as of that date, for each of the Named Executive Officers, +were as follows: 299,070 shares valued at $2,637,797 for Mr. Michels; 61,500 +shares valued at $542,430 for Mr. Spair; 46,250 shares valued at $407,925 for Mr. +Formica; 33,750 shares valued at $297,675 for Mr. Zack; and 17,500 shares +valued at $154,350 for Mr. Jerrett. The foregoing amounts exclude the +restricted shares granted on January 23, 2006. If the Company were to declare a +dividend on its Common Stock, such a dividend would be payable to the holders +of any restricted shares. +12 +(4) On June 21, 2004, Mr. Michels +received a grant of 350,000 restricted shares pursuant to the terms of his +Employment Agreement with the Company. The value of these shares was calculated +by multiplying the number of shares in the grant by $7.71, the closing price +for the Company’s Common Stock as reported on The NASDAQ Stock Market on the +date of grant. The first 116,720 shares of Mr. Michels’ grant vested on the +first anniversary of the grant and the remaining 233,280 restricted shares vest +on a quarterly basis thereafter in equal amounts of 6,480 shares on each +September 30, December 31, March 31 and June 30, commencing September 30, 2005 +and ending June 30, 2014. +(5) On March 15, 2004, +Messrs. Spair and Formica received grants of 30,000 and 10,000 restricted +shares, respectively. The value of these shares was calculated by multiplying +the number of shares in each grant by $7.24, the closing price for the +Company’s Common Stock as reported on The NASDAQ Stock Market on the date of +grant. One-half of the shares in each grant vested on the first anniversary of +the grant, and the remaining half vests on the second anniversary. +(6) On January 26, 2005, the +Named Executive Officers received the following grants of restricted shares +based on their performance during 2004: 78,750 shares for Mr. Michels; 31,500 +shares for Mr. Spair; 26,250 shares for Mr. Formica; 26,250 shares for Mr. Zack; +and 17,500 shares for Mr. Jerrett. The value of these shares was calculated by +multiplying the number of shares in each grant by $5.66, the closing price for +the Company’s Common Stock as reported on The NASDAQ Stock Market on the date +of grant. One-third of each such grant vests on the first, second and third +anniversaries, respectively, of the grant. +(7) On November 5, 2003, Messrs. +Spair and Formica each received grants of 30,000 restricted shares, and Mr. Zack +received a grant of 15,000 restricted shares. The indicated amounts were +calculated by multiplying the number of shares in each grant by $8.90, the +closing price for the Company’s Common Stock as reported on the NASDAQ Stock +Market on the date of grant. One-half of the shares in each grant vested on the +second anniversary of the grant and the remaining half vests on the third +anniversary. +(8) The +indicated amounts represent automobile allowances for Messrs. Spair, Formica, +Zack and Jerrett in 2004 and 2003. +Option +Grants in the Last Fiscal Year(1) +The +following table summarizes the number of stock options awarded to the Named +Executive Officers during the year ended December 31, 2005: +Number of +Securities +Underlying +Options +Percent of +Total +Options +Granted to +Employees in +Exercise +Price +Per +Expiration +Potential Realizable +Value at Assumed +Annual Rates of Stock +Price Appreciation for +Option Term(3) +Name +Granted (2) +Fiscal Year +Share +Date +5% +10% +Douglas A. +Michels +67,500 +10.4 +% +$ +5.598 +1/26/2015 +$ +237,637 +$ +602,219 +Ronald H. Spair +27,000 +4.2 +5.598 +1/26/2015 +95,055 +240,888 +P. Michael +Formica +22,500 +3.5 +5.598 +1/26/2015 +79,212 +200,740 +Joseph E. Zack +22,500 +3.5 +5.598 +1/26/2015 +79,212 +200,740 +Jack E. Jerrett +15,000 +2.3 +5.598 +1/26/2015 +52,808 +133,827 +(1) Except as required by +law, options are qualified as incentive stock options and vest as to one-fourth +one year after the date of grant, with the remaining three-fourths vesting in +equal monthly installments over the following 36 months. Vesting ceases 90 days +following termination of employment and is generally accelerated in case of a +change in control of the Company. The holder’s right to exercise the options +will terminate immediately upon termination of employment for cause, +13 +will expire five years +after retirement, and will expire one year after death, disability, or ceasing +to be an active employee of the Company for any other reason. Subject to +certain conditions, the exercise price of the options may be paid by delivery +of previously acquired shares of Common Stock. No stock appreciation rights +were granted during the year ended December 31, 2005. +(2) The indicated options +were granted on January 26, 2005 in respect of performance rendered during the +year ended December 31, 2004. +(3) The +amounts shown are hypothetical gains based on the indicated assumed rates of +appreciation of Common Stock compounded annually for the period running from +the date of grant through the expiration date. There can be no assurance that +the Common Stock will appreciate in value at any particular rate or at all in +future years. +Fiscal Year-End Option Values +The following +table shows 2005 year-end amounts and value of shares of the Common Stock +underlying outstanding options for the Named Executive Officers: +Shares +Acquired +on +Value +Number of Securities +Underlying Unexercised +Options at Fiscal Year-End +Value of Unexercised +In-the-Money Options at +Fiscal Year-End(2) +Name (1) +Exercise +Realized +Exercisable +Unexercisable +Exercisable +Unexercisable +Douglas A. +Michels +— +— +150,000 +317,500 +$ +156,000 +$ +476,473 +Ronald H. Spair +— +— +327,188 +104,812 +337,515 +167,174 +P. Michael +Formica +— +— +233,378 +95,832 +317,454 +144,000 +Joseph E. Zack +— +— +159,376 +93,124 +544,128 +222,030 +Jack E. Jerrett +— +— +132,709 +47,291 +222,591 +82,588 +(1) The Named Executive +Officers exercised no stock options during 2005 and held no stock appreciation +rights at December 31, 2005. +(2) In-the-money +stock options are options for which the exercise price is less than the fair +market value of the underlying stock on a particular date. The values shown in +the table are based on the difference between $8.805, which was the average of +the high and low sales prices of the Common Stock as quoted on The NASDAQ Stock +Market on December 30, 2005, and the applicable exercise price. +Employment Agreements +In June 2004, when Mr. Michels joined the Company as +President and Chief Executive Officer, he and the Company entered into an +employment agreement that has an initial term of three years (i.e., through +June 22, 2007) and is subject to automatic renewal for successive three-year +periods unless the Company gives Mr. Michels at least 90 days written notice +that the agreement would not be renewed or Mr. Michels’ employment was +otherwise terminated pursuant to the agreement. Under his agreement, Mr. Michels +is entitled to a base salary of at least $400,000 per year, is eligible to +participate in the bonus plan established by the Company (with a target bonus +at least equal to 50% of his annual salary) and is eligible to receive or +participate in any long-term incentive plan or any other additional benefits +that may be made available by the Company from time to time. For the calendar +year 2004, the agreement provided that Mr. Michels’ cash bonus would not be +less than $160,000. Mr. Michels is also entitled to reimbursement for +job-related expenses. The Company +reimbursed Mr. Michels for $15,336 of legal expenses he incurred in connection +with the negotiation of the terms of his employment agreement. +14 +Mr. Michels’ employment agreement provides that he is +entitled to participate in the Company’s stock award plan and shall have a +target amount of stock options that is at least equal to the target amount for +the Company’s Chief Executive Officer as set forth in the Company’s stock +option guidelines for senior managers as in effect on the date Mr. Michels’ +employment agreement was executed. All stock awards granted to Mr. Michels are +required to immediately vest (i) in the event of a “change of control” (as defined +below) or (ii) if Mr. Michels’ employment is terminated for “good reason” (as +defined below) by Mr. Michels or without “cause” (as defined below) by the +Company or its successor during the period which begins three months prior to +the occurrence of a change of control and ends 18 months after the occurrence +of a change of control (a “change of control period”), and 50% of such stock +awards shall vest in the event Mr. Michels’ employment is terminated for good +reason or without cause during any period other than a change of control +period. +Under the agreement, Mr. Michels received an option to +purchase 400,000 shares of the Company’s Common Stock, with the option for the +first 100,000 shares vesting one year from the date of grant and the option for +the remaining 300,000 shares vesting incrementally in equal monthly +installments over the next three succeeding years. The agreement also provided +for the grant to Mr. Michels of 350,000 restricted shares, with the first +116,720 of such restricted shares vesting one year from the date of grant and +the remaining 233,280 shares vesting in equal amounts of 6,480 shares on each +subsequent September 30, December 31, March 31 and June 30, commencing September +30, 2005 and ending June 30, 2014. +Mr. Michels’ employment agreement will terminate upon +his death or disability, or Mr. Michels may terminate the agreement at any time +upon 90 days written notice to the Company, by providing written notice within +90 days of an event constituting good reason, or upon 90 days written notice +delivered to the Company within 180 days following a change of control. Mr. Michels’ +employment agreement can also be terminated by the Company for cause or without +cause. As used in the agreement, the term “good reason” means (i) a material breach +of the agreement by the Company that is not cured within 30 days of written +notice, (ii) any diminution in Mr. Michels’ position, duties or +responsibilities or requirement that Mr. Michels report to any person +other than the Board of Directors, (iii) any relocation of Mr. Michels’ primary +place of work to a location that is more than 25 miles from the Company’s +Bethlehem, Pennsylvania facilities, or (iv) a reduction in Mr. Michels’ salary. +The agreement further provides that any of the following events shall +constitute cause: (a) the willful and continued failure by Mr. Michels to +substantially perform his duties, (b) the engaging by Mr. Michels in gross +misconduct or gross negligence materially injurious to the Company, (c) the +commission of an act by Mr. Michels in direct competition with or materially +detrimental to the Company’s best interests, or (d) Mr. Michels’ commission of +a felony. +Upon the termination of Mr. Michels’ employment upon +his death or disability, by Mr. Michels for any reason other than good reason +or by the Company for cause, Mr. Michels will be entitled to receive his salary +through the date of termination and any bonus approved by the Board or the +Compensation Committee prior to the date of termination but not yet paid and, +in the case of a termination upon his death or disability, a cash bonus for the +calendar year in which termination occurs that Mr. Michels would have received +but for his death or disability, prorated through the date of death or +commencement of disability. Upon termination of the agreement by Mr. Michels +with good reason or after a change of control or by the Company without cause +(which includes the Company’s failure to renew the agreement), Mr. Michels +would be entitled to receive his salary through the date of termination and any +bonus that has been approved by the Board or the Compensation Committee prior +to the date of termination but not yet paid, a cash bonus for the calendar year +in which termination occurs equal to Mr. Michels’ target bonus for such year, +and for a period of one year after the date of termination, benefits for Mr. Michels +and/or his family at levels substantially equal to those that would have been +provided to them by the Company if Mr. Michels’ employment had not been +terminated. If termination is for good reason or without cause (which includes +the Company’s failure to renew the agreement) and does not occur during a +change of control period, Mr. Michels would also continue to receive his salary +for 12 months after termination or, if greater and termination occurs during +the initial three-year term of the agreement, the remainder of such +15 +initial term. If, however, +termination is for good reason or without cause (which includes the Company’s +failure to renew the agreement) and occurs during a change of control period, +or if termination is by Mr. Michels after a change of control, Mr. Michels +will be required to enter into a transitional services agreement with the +Company pursuant to which he would provide transitional services for a six-month +period following the termination date in exchange for payment of his salary +over such period, and Mr. Michels would then continue to receive his +salary for 30 additional months after completion of the six-month transition +service period. +A “change in +control” generally is defined to take place when disclosure of such a change +would be required by the proxy rules promulgated by the Commission or when: +· a +person (other than the Company, any of its subsidiaries, any employee benefit +plan of the Company, or any person with voting power arising from a revocable +proxy) acquires beneficial ownership (as defined in Rule 13d-3 under the +Exchange Act) of 30% or more of the combined voting power of the Company’s +voting securities; +· less +than a majority of the directors are persons who were either nominated or +selected by the Board; +· the +consummation of any consolidation or merger in which the Company is not the +surviving corporation or the sale, lease, exchange or other transfer of all or +substantially all of the assets of the Company; or +· the +approval by the stockholders of the Company of any plan or proposal for the +liquidation or dissolution of the Company. +Mr. Michels’ agreement also provides that the Company +will pay an amount equal to the first $1 million of excise tax incurred under Section +280G of the Internal Revenue Code on compensation paid to Mr. Michels upon +a change of control. In addition, if Mr. Michels is made a party to any action, +suit or proceeding by reason of his service as an officer, director, employee, +agent or the like of the Company, or by reason of his serving at the Company’s +request in a similar capacity with another entity, including, without +limitation, as a fiduciary of an employee benefit plan sponsored or established +by the Company, then Mr. Michels shall be indemnified and held harmless by the +Company to the fullest extent authorized by applicable law (including for all +reasonable attorneys’ fees and costs incurred by Mr. Michels) and such +indemnification shall continue even if Mr. Michels has ceased to be a director, +officer, employee, agent or the like of the Company for any reason. +As further +consideration for the severance payable under Mr. Michels’ employment +agreement, during the term of the agreement and for one year thereafter, Mr. Michels +is not permitted to: +· recruit, +solicit or hire any executive or employee of the Company; +· induce +or solicit any current or prospective customer, client or supplier of the +Company to cease becoming a customer, client or supplier or divert Company +business away from any customer, client or supplier of the Company; or +· own, +manage, control, work for or provide services to any entity that competes with +the Company in the market for oral fluid or rapid point-of-care diagnostic +testing in the United States. +All other employment agreements are substantially +similar to Mr. Michels’ employment agreement, with the following exceptions. +Mr. Spair serves as Executive Vice President and Chief +Financial Officer of the Company, and his employment agreement provides for a +base salary of at least $284,000 per year. The initial term of Mr. Spair’s +agreement is two years, rather than three years, from July 1, 2004, with +automatic two-year renewal periods. Mr. Spair’s target bonus percentage is at +least 40% of his base salary, and his agreement +16 +does not provide for a +specific bonus payment for 2004 or the grant of any restricted shares or +options other than Mr. Spair’s right to participate in the Company’s stock +award plan with a target amount at least equal to the target for Mr. Spair +under the Company’s stock option guidelines for senior managers as in effect on +the date of his agreement. The notice periods for termination of Mr. Spair’s +agreement are 60 days, rather than 90 days, and the Company is obligated to pay +an amount up to the first $500,000, rather than $1 million, of excise tax +imposed under Section 280G of the Internal Revenue Code on compensation to Mr. Spair +as a result of a change in control. +Dr. Lee serves as Executive Vice President and Chief +Science Officer of the Company, and his employment agreement provides for a +base salary of at least $250,000 per year. The initial term of Dr. Lee’s +agreement is two years, rather than three years, from September 23, 2005, with +automatic two-year renewal periods. Dr. Lee’s target bonus percentage is at +least 40% of his base salary, and his agreement provided for a cash bonus +payment of not less than $75,000 for the calendar year 2005 and the +reimbursement of up to $10,000 in legal expenses incurred in connection with +his decision to join the Company. His agreement also provided for the grant of +an option to purchase 125,000 shares of the Company’s Common Stock and 40,000 +shares of restricted stock effective as of the date of the agreement and +provided that he would receive at least 21,000 restricted shares as part of his +equity grant for performance during 2005. The agreement further provides that Dr. +Lee has the right to participate in the Company’s stock award plan with a +target amount at least equal to the target for Dr. Lee under the Company’s +stock award guidelines for senior managers as in effect on the date of his +agreement. Dr. Lee’s unvested stock awards will vest to the same extent and +under the same conditions set forth in Mr. Michels’ agreement, except that all +of Dr. Lee’s unvested stock awards will also immediately vest if his employment +is terminated by the Company without cause within 30 months after September 23, +2005, the date of his agreement. The notice periods for termination of Dr. Lee’s +agreement are 60 days, rather than 90 days, and the Company is obligated to pay +an amount up to the first $500,000, rather than $1 million, of excise tax +imposed under Section 280G of the Internal Revenue Code on compensation to Dr. Lee +as a result of a change in control. Dr. Lee is entitled to receive (i) 18 +months, rather than 12 months, of continued salary in the event his agreement +is terminated without cause during a period that is not a change of control +period but within 30 months after September 23, 2005, the date of his +agreement, and (ii) 18 months, rather than 30 months, of continued salary after +completion of the six-month transition service period, in the event of a +termination of the agreement for good reason or without cause during a change of +control period or after a change of control. +Mr. Formica serves as Executive Vice President, +Operations of the Company, and his employment agreement provides for a base +salary of at least $242,550 per year. The initial term of Mr. Formica’s +agreement is two years, rather than three years, from July 1, 2004, with +automatic two-year renewal periods. Mr. Formica’s target bonus percentage is at +least 40% of his base salary, and his agreement does not provide for a specific +bonus payment for 2004 or the grant of any restricted shares or options other +than Mr. Formica’s right to participate in the Company’s stock award plan with +a target amount at least equal to the target for Mr. Formica under the Company’s +stock option guidelines for senior managers as in effect on the date of his +agreement. The notice periods for termination of Mr. Formica’s agreement are 60 +days, rather than 90 days, and the Company is obligated to pay an amount up to +the first $500,000, rather than $1 million, of excise tax imposed under Section +280G of the Internal Revenue Code on compensation to Mr. Formica as a result of +a change in control. Mr. Formica shall be entitled to receive 18 months, rather +than 30 months, of continued salary after completion of the six-month +transition services period, in the event of a termination of his agreement for +good reason or without cause during a change of control period or after a +change of control. +Mr. Zack serves as Executive Vice President, Marketing +and Sales of the Company, and his employment agreement provides for a base +salary of at least $222,111 per year. The initial term of Mr. Zack’s +agreement is two years, rather than three years, from July 1, 2004, with +automatic two-year renewal periods. Mr. Zack’s target bonus percentage is at +least 40% of his base salary, and his agreement +17 +does not provide for a +specific bonus payment for 2004 or the grant of any restricted shares or +options other than Mr. Zack’s right to participate in the Company’s stock award +plan with a target amount at least equal to the target for Mr. Zack under the +Company’s stock option guidelines for senior managers as in effect on the date +of his agreement. The notice periods for termination of Mr. Zack’s agreement +are 60 days, rather than 90 days, and the Company is obligated to pay an amount +up to the first $500,000, rather than $1 million, of excise tax imposed under Section +280G of the Internal Revenue Code on compensation to Mr. Zack as a result of a +change in control. Mr. Zack shall be entitled to receive 18 months, rather than +30 months, of continued salary after completion of the six-month transition +services period, in the event of a termination of his agreement for good reason +or without cause during a change of control period or after a change of +control. +Mr. Jerrett serves as +Senior Vice President, General Counsel and Secretary of the Company, and his +employment agreement provides for a base salary of at least $192,825 per year. +The initial term of Mr. Jerrett’s agreement is two years, rather than +three years, from July 1, 2004, with automatic two-year renewal periods. Mr. Jerrett’s +target bonus percentage is at least 30% of his base salary, and his agreement +does not provide for a specific bonus payment for 2004 or the grant of any +restricted shares or options other than Mr. Jerrett’s right to participate in +the Company’s stock award plan with a target amount at least equal to the +target for Mr. Jerrett under the Company’s stock option guidelines for senior +managers as in effect on the date of his agreement. The notice periods for +termination of Mr. Jerrett’s agreement are 60 days, rather than 90 days, and +the Company is obligated to pay an amount up to the first $500,000, rather than +$1 million, of excise tax imposed under Section 280G of the Internal Revenue +Code on compensation to Mr. Jerrett as a result of a change in control. Mr. Jerrett +shall be entitled to receive 18 months, rather than 30 months, of continued +salary after completion of the six-month transition services period, in the +event of a termination of his agreement for good reason or without cause during +a change of control period or after a change of control. +Compensation of Directors +All nonemployee Directors receive an annual fee of +$25,000. In addition, the Chairman of the Board receives an additional annual +fee of $20,000, the Chairmen of the Audit Committee and Compensation Committee +receive an additional annual fee of $10,000 each, and the Chairman of the +Nominating and Corporate Governance Committee receives an additional annual fee +of $5,000. Thus, the Chairman of the Board, and the Chairmen of the Audit +Committee, Compensation Committee, and Nominating and Corporate Governance +Committee receive aggregate annual fees of $45,000, $35,000, $35,000 and +$30,000, respectively. Annual fees are payable quarterly in advance. +Each nonemployee Director receives a $2,000 fee for +each Board meeting attended, and each member of a Board Committee receives an +additional $1,000 fee for each Committee meeting attended. A meeting fee will +only be paid with respect to a meeting for which minutes are prepared. Nonemployee +Directors also receive reimbursement for their reasonable out-of-pocket costs +of attending Board and Committee meetings. +Nonemployee Directors receive an initial grant of +40,000 stock options upon joining the Board (the “Initial Grant”). An +additional grant of 40,000 stock options is also made to any nonemployee +Director who becomes Chairman of the Board (the “Chairman Grant”). Each +nonemployee Director receives an annual grant of 20,000 stock options (the “Annual +Grant”) on the annual option grant date for officers and employees of the +Company, except for the Chairman of the Board, who receives an Annual Grant of +30,000 stock options. Beginning with the grants for 2006, which are expected to +be awarded in early 2007, the Annual Grant for the Chairman of the Board will +be reduced to 25,000 stock options and the Annual Grant for all other +nonemployee Directors will be reduced to 15,000 stock options. +The options granted to +nonemployee Directors are nonqualified stock options and have an exercise price +equal to the mean between the high and low sales prices of the Company’s Common +Stock as quoted +18 +on The +NASDAQ Stock Market on the grant date. Each Initial Grant and Chairman Grant +generally vests on a monthly basis over the 24 months immediately following the +grant date, and each Annual Grant generally vests on a monthly basis over the +12 months immediately following the grant date. All vesting of the options will +cease 90 days after the nonemployee Director ceases to serve on the Board. Options +become exercisable in full immediately upon the occurrence of a change in +control of the Company. A change in control of the Company would occur on the +happening of such events as the acquisition of beneficial ownership by a person +or group of 30 percent or more of the outstanding Common Stock of the Company, +certain changes in Board membership affecting a majority of positions, certain +mergers or consolidations, a sale or other transfer of all or substantially all +the Company’s assets, or approval by the stockholders of a plan of liquidation +or dissolution of the Company, as well as any change in control required to be +reported under the Commission’s proxy disclosure rules. Payment of the exercise +price may be made in cash or by delivery of previously acquired shares of +Common Stock having a fair market value equal to the aggregate exercise price. +Compensation +Committee Interlocks and Insider Participation +Roger L. Pringle and Douglas G. Watson served as +members of the Compensation Committee of the Board during 2005. In January 2006, +Charles W. Patrick joined the Board and became a member of the Compensation +Committee. None of Mr. Pringle, Mr. Watson or Mr. Patrick currently serves as +an officer of the Company. There are no compensation committee interlocks +between the Company and any other entity involving the Company’s or such entity’s +executive officers or board members. +The following report of the Compensation Committee of +the Board (the “Committee”) and the Stock Price Performance Graph shall not be +deemed to be incorporated by reference by any general statement incorporating +by reference this Proxy Statement into any filing by the Company under either +the Securities Act or the Exchange Act, except to the extent that the Company +specifically incorporates this information by reference. The following report +and the Stock Price Performance Graph shall not otherwise be deemed filed under +such Acts. +Report on Executive Compensation +General . The Committee, which is composed solely of +independent, nonemployee Directors, is responsible for establishing and +administering the Company’s policies that govern executive compensation and +benefit practices. The roles and responsibilities of the Committee are set +forth in a written Charter. +Compensation +Philosophy . The +Company’s executive compensation programs are designed to (i) reflect the +financial performance of the Company and achievement by management of financial +and other performance objectives, (ii) align the interests of management with +the interests of the Company’s stockholders, and (iii) provide long-term +incentives for management. The Company seeks to set compensation at levels +sufficiently competitive to attract and retain high quality executives, and to +motivate them to contribute to the Company’s successes. Specifically, the +Company tries to set compensation levels near the median or 50 th percentile of amounts paid by comparable +medical device and healthcare companies with an opportunity to achieve up to +the 75 th percentile based on performance. +In establishing compensation for executive officers, +the Committee considers the total value of compensation provided to each +officer as well as the Company’s and each officer’s performance against previously-established +objectives, the Company’s industry position, general industry data and +recommendations of third party consultants. In furtherance of these goals, the +components of executive compensation include base salary, incentive cash +bonuses, stock awards and other benefits, and are linked to both Company and +individual performance. +For 2005, the Committee evaluated the performance of +Douglas A. Michels, the Company’s President and Chief Executive Officer, and +reviewed the performance evaluations of the other executive officers. The +Committee also retained an independent compensation consultant to provide a +competitive analysis of +19 +compensation levels paid +to the Company’s officers. Based on these evaluations and a review of the +consultant’s analysis, which included compensation data for other medical +device and healthcare companies, the Committee determined and approved +salaries, incentive cash bonuses and stock awards for Mr. Michels and the other +executive officers. Compensation approved by the Committee for Mr. Michels was +then recommended for approval and approved by the Company’s Board of Directors. +Base +Salary . At least +annually, the Committee sets the salary for all executive officers. The +Committee reviewed the performance of the Chief Executive Officer and other +executive officers, and received and considered management recommendations +concerning salary adjustments for the other executive officers. The Committee +also considered recommendations of the compensation consultant and data +regarding other medical device and healthcare companies. +The Committee’s compensation decisions for 2005 were +influenced by the Company’s strong financial performance and the fact that it +met most of its financial objectives for that year. The Company’s revenues were +more than $69 million in 2005, representing a 28% increase over 2004. Net +income for 2005 was $27.4 million, or $9.7 million before income taxes, and +represented a substantial improvement over the $0.6 million net loss recorded +for 2004. The Company’s gross margin was 60% for 2005, an improvement over the +gross margin of 59% for 2004, and the Company generated $10.6 million in cash +flow from operations during 2005, which substantially exceeded the $3.4 million +generated in 2004. +In addition to the Company’s record financial +performance, the Company made substantial progress towards achieving its +strategic objectives under Mr. Michels’ leadership. These objectives included +expansion of the Company’s base business consisting of its existing product +lines and technologies, development or acquisition of additional point-of-care +tests for infectious diseases and the potential development and offering of new +over-the-counter (“OTC”) products. The Company expanded its base business +significantly in 2005, as evidenced by substantial revenue increases in the +infectious disease testing, substance abuse testing and cryosurgical systems +markets compared to 2004. This growth was achieved in part through the addition +of several new distributor relationships during 2005, the most significant of +which was an agreement with SSL International to distribute the Scholl Freeze +cryosurgical wart removal product in the OTC footcare market in Europe, +Australia and New Zealand. The Company also took important steps towards +expanding its point-of-care testing business with the signing of a license to +several hepatitis C virus (“HCV”) patents held by Ortho-Clinical Diagnostics +and Chiron Corporation. Under these patents, the Company is now developing a +new rapid HCV test on the Company’s OraQuick ® platform. Finally, through the efforts of a +mulit-disciplinary team created by Mr. Michels and a close working relationship +with the FDA, the Company is moving closer to being able to prepare and submit +an application for FDA approval of the OraQuick ® ADVANCE ™ test in the U.S. OTC market. +The Company also substantially strengthened its senior +management team during 2005. Specifically, the Company successfully recruited a +new Chief Science Officer and a new Senior Vice President, Regulatory Affairs +and Quality Assurance. +After considering the Company’s accomplishments and Mr. +Michels’ significant contributions during 2005, the Committee decided to rate Mr. +Michels’ performance as “outstanding.” As a result, and after considering the +recommendations and data provided by the compensation consultant, the Committee +decided to increase Mr. Michels’ salary from $410,000 to $433,600 per year, +which reflects a 5.76% annual increase. Messrs. Spair, Formica, Zack and +Jerrett also received merit increases, and Mr. Jerrett received an additional +increase in salary to better align his overall compensation with industry +standards. +Incentive +Cash Bonuses . During 2005, the Company +adopted the 2005 Self-Funding Management Incentive Plan (the “2005 Award Plan”), +which established target cash bonus awards for executive officers and other +managers for 2005. Awards for 2005 were based on each executive’s achievement +of certain individual performance targets and the Company’s attainment of its +financial targets for the year. Payment +20 +of these awards was from a +bonus pool funded at a level dependent upon how well the Company achieved its +financial objectives for the year. Mr. Michels’ target payment was 50% of base +salary. +The Company’s strong financial performance during 2005 +exceeded the targets established under the 2005 Award Plan. As a result of this +performance and Mr. Michels’ outstanding rating for the year, the Committee +recommended to the Board, and the Board approved, a cash bonus for Mr. Michels +of $359,000, which exceeded Mr. Michels’ 50% target payment under the 2005 +Award Plan. This amount was also determined after consideration by the +Committee of the recommendations and data provided by the compensation +consultant. The Committee also approved cash bonuses to Messrs. Spair, Formica, +Zack and Jerrett under the terms of the 2005 Award Plan, based on an evaluation +of their respective performances during the year, the Company’s strong +performance and industry data. +Stock +Awards . As +previously noted, an important goal of the Company’s compensation program is to +align the interests of the executive officers and other employees with the +interests of the Company’s stockholders. In furtherance of this goal, the +Company maintains the 2000 Stock Award Plan (the “Award Plan”) pursuant to which +the Company may grant stock-based awards to directors, officers, and employees +of, and consultants and advisers to, the Company. +In January 2005, the Company adopted Stock Award +Guidelines for the Company’s management (the “Guidelines”). The purpose of the +Guidelines was to provide a framework for determining annual stock awards for +executives that reflect the executive’s duties and performance evaluation +against individual objectives for the applicable year, and to align the size of +stock awards for executives with comparable positions at other medical device +and healthcare companies. The Guidelines provide for the grant of a mix of +restricted shares and stock options to the Company’s senior management, based +on an individual’s performance. +Utilizing the Guidelines and industry data provided by +the compensation consultant, and in light of Mr. Michels’ outstanding +performance during 2005, the Committee approved the grant of 78,750 restricted +shares and 67,500 stock options to Mr. Michels. Smaller awards of restricted +shares and stock options were also approved for the Company’s other executive +officers. +Other +Compensation . As a general matter, the +Company does not believe that its officers should be treated differently than +other employees, except that such officers should receive base salaries and +have bonus and stock award opportunities commensurate with their higher level +of responsibilities within the organization. The Company’s healthcare, +disability, insurance and other programs and benefits are the same for all +eligible employees, including officers. There are no outstanding loans of any +kind to any executive officer, and since 2002, Federal law has prohibited any +new company loans to executive officers. +In addition, the Company +maintains a 401(k) profit sharing plan (the “401(k) Plan”) in which all +employees of the Company, including executive officers, are eligible to +participate. The Company makes matching contributions for participants on a +dollar-for-dollar basis up to $4,000 per year. Payments of benefits accrued for +401(k) Plan participants will be made upon retirement or upon termination of +employment prior to retirement provided certain conditions have been met by the +participant prior to termination. +COMPENSATION COMMITTEE: +Roger L. Pringle, Chairman +Charles W. Patrick +Douglas G. Watson +March 7, 2006 +21 +Stock Price Performance Graph +The following graph compares the cumulative total +returns to investors in the Company’s Common Stock, the Russell 2000 Index and +the NASDAQ Biotechnology Index for the period from December 31, 2000 +through December 31, 2005. The graph assumes that $100 was invested on December 31, +2000 in the Company’s Common Stock and in each of the above-mentioned indices, +and that all dividends were reinvested. +The Russell 2000 index was +chosen because it is an index of companies with market capitalizations similar +to ours. The NASDAQ Biotechnology Index was chosen because it includes a number +of our competitors. Stockholders are cautioned that the graph shows the returns +to investors only as of the dates noted and may not be representative of the +returns for any other past or future period. +COMPARISON +OF 5 YEAR CUMULATIVE TOTAL RETURN* +AMONG +ORASURE TECHNOLOGIES, INC., THE RUSSELL 2000 INDEX +AND THE NASDAQ BIOTECHNOLOGY INDEX +* $100 invested +on 12/31/00 in stock or index-including reinvestment of dividends. +Fiscal year ending December 31. +22 +Item 2. Amendment +and Restatement of OraSure Technologies, Inc. 2000 Stock Award Plan +General +On November 16, 1999, the Board of Directors of +Epitope adopted, subject to stockholder approval, the Epitope, Inc. 2000 +Stock Award Plan (the “Award Plan”). The Award Plan was approved by Epitope’s +stockholders on February 15, 2000. The Award Plan initially authorized for +award a maximum of 2,500,000 shares of common stock of Epitope, plus the number +of shares that were available for grant under the Epitope, Inc. 1991 Stock +Award Plan on February 15, 2000, and such additional shares that become +available under the terms of the Award Plan thereafter. +Effective September 29, 2000, in connection with +the Merger of Epitope and STC into the Company, the name of the Award Plan was +changed to the OraSure Technologies, Inc. 2000 Stock Award Plan and the +Award Plan was adopted as a stock award plan of the Company. All options +granted under the Award Plan prior to the Merger were assumed by and became +obligations of the Company. +On May 20, 2002, an amendment to the Award Plan +was approved by the Company’s stockholders, increasing the number of shares of +Common Stock authorized for grant by 1,800,000 to a total of 4,300,000 shares, +and on May 18, 2004 an amendment to the Award Plan was approved by the +Company’s stockholders, increasing the number of shares of Common Stock +authorized for grant by 3,000,000 to a total of 7,300,000 shares. The shares +subject to grant under the Award Plan had a market value (determined as the +average high and low sales price on the NASDAQ Stock Market) of $10.25 per +share on March 27, 2006. +On February 14, 2006, +the Company’s Board of Directors (the “Board”) approved and recommended for +submission to stockholders an amended and restated form of the Award Plan in +order to increase the number of shares of Common Stock authorized for grant +under the Award Plan, to make certain changes required by recent tax law +changes and to make certain other improvements to the Award Plan. Assuming that +a quorum is present, the affirmative vote of the holders of a majority of the +shares of Common Stock present, in person or by Proxy at the Annual Meeting, is +required for approval of the amended and restated Award Plan. Shares +represented by a Proxy which are not voted for approval of the amended and +restated Award Plan (by voting no or abstaining) will have the effect of voting +against this proposal. Your Board recommends that stockholders vote FOR approval of the amendment and restatement of the Award +Plan. +Amendment +and Restatement of the Award Plan +As of March 27, 2006, +there were 733,463 shares of Common Stock remaining available for grant as +stock options or other equity awards under the Award Plan. In order to enable +the Company to continue to attract qualified directors, officers, employees and +outside advisors and to compensate its directors, officers, employees and +advisors in a manner that is competitive with compensation provided by other +medical diagnostic companies, the Board determined that additional shares of +Common Stock would need to be authorized for grants under the Award Plan. Accordingly, +the Board approved amendment of the Award Plan to increase the number of +authorized shares by 2,000,000 shares from 7,300,000 shares to 9,300,000 shares. +The Board determined that this increase in authorized shares will meet the +Company’s needs under the Award Plan for the foreseeable future. The Board also +approved additional amendments to the Award Plan in order to comply with recent +tax law changes and to modernize the language of the Award Plan. A copy of the +amended and restated Award Plan is attached to this Proxy Statement as Exhibit A. +23 +Summary of the Award Plan as Amended +A summary description of +certain terms and provisions of the Award Plan as proposed to be amended and +restated follows. +Purpose +The purpose of the Award +Plan is to promote and advance the interests of the Company and its +stockholders by enabling the Company to attract, retain, and reward employees, +outside advisors, and Directors of the Company and any subsidiaries. The Award +Plan is intended to strengthen the mutuality of interests between employees, +advisors, and Directors and the Company’s stockholders by offering equity-based +incentives to promote the long-term growth, profitability and financial success +of the Company. +Eligibility +The Award Plan provides +for stock-based awards to (i) employees of the Company and any +subsidiaries, if any (ii) members of advisory committees or other +consultants to the Company or its subsidiaries (“Advisors”), and (iii) nonemployee +Directors of the Company. Persons who help the Company raise money by selling +securities or who promote or maintain a market for the Company’s securities are +not eligible to participate in the Award Plan as Advisors. In addition, only +Advisors who, in the judgment of the Compensation Committee of the Board (the “Committee”), +are or will be contributors to the long-term success of the Company, will be +eligible to receive Awards (as defined below). As of March 27, 2006, the +Company had 240 employees and five nonemployee Directors, all of whom are +eligible to receive Awards under the Award Plan. +Administration of the Award Plan +The Committee administers the Award Plan and +determines the persons who are to receive Awards and the types, amounts, and +terms of Awards. For example, the Committee may determine the exercise price, +the form of payment of the exercise price, the number of shares subject to an +Award, and the date or dates on which an Award becomes exercisable. The +Committee may delegate to one or more officers of the Company the authority to +determine the recipients of and the types, amounts and terms of Awards granted +to participants who are not Reporting Persons. Awards made by the Committee for +the Company’s Chief Executive Officer are also reviewed and approved by the +full Board. +The Award Plan will continue in effect until (i) the +end of ten years after the original date of stockholder approval (i.e., until February 15, +2010), (ii) Awards have been granted covering all available shares under +the Award Plan or (iii) the Award Plan is otherwise terminated by the +Board. Termination or expiration of the Award Plan will not affect outstanding +Awards. +The Award Plan permits the +Board to amend the Award Plan, subject to stockholder approval if required by +law or the rules of a stock exchange or over-the-counter trading system. In +order to retain favorable treatment of Awards under applicable tax laws, the +Board cannot increase the number of shares covered by the Award Plan without +further stockholder approval. +Awards +Awards that may be granted under the Award Plan +include stock options, stock appreciation rights, restricted awards, +performance awards, and other stock-based awards (collectively, “Awards”). +The following is a brief summary of the various types of Awards that may be +granted under the Award Plan. +Stock +Options . Options granted under the Award +Plan may be either incentive stock options (“ISOs”), a tax-favored form of +Award meeting the requirements of Section 422 of the Internal Revenue +24 +Code, as amended, or +nonqualified options (“NQOs”), which are not entitled to special tax treatment. +The Award Plan limits the maximum term of any option granted to a period not +longer than ten years from the date of grant. The exercise price of any option +granted under the Award Plan may not be less than 100% of the fair market value +of the Common Stock on the date of grant, except that in the case of an option +granted to holders of 10% or more of the Company’s voting securities, the +exercise price may not be less than 110% of the fair market value of the Common +Stock on the date of grant. +The agreement evidencing the grant of a stock option +(the “Option Agreement”) will specify, as determined by the Committee, the time +or times when the option is exercisable, in whole or in part, and the extent to +which the option remains exercisable after the option holder ceases to be an +employee, Advisor or nonemployee Director of the Company. The Option Agreement +may, in the discretion of the Committee, provide whether the option will become +fully exercisable upon the death, disability or retirement of the option holder +or upon a change of control of the Company. An option may be exercised by +payment of the exercise price in cash or, at the discretion of the Committee, +in any combination of cash, previously held shares of Common Stock or share equivalents, +or with proceeds from the sale of shares subject to the option. +Options granted to employees under the Award Plan +generally vest over four years, with 25% of the grant vesting on the first +anniversary of the grant date and the remaining 75% vesting ratably on a +monthly basis over the next three years. Options granted to nonemployee +Directors generally vest ratably on a monthly basis over either a 12 or 24-month +period, depending on the type of grant. See the Section entitled, “Compensation +of Directors,” for a further description of the terms of options granted to +nonemployee Directors under the Award Plan. Options granted under the Award +Plan generally provide for accelerated vesting upon a “change of control.” +Therefore, all unvested options outstanding as of the date of the Merger under +the Award Plan were vested in full on that date. The Committee may provide for +different vesting for any option granted under the Award Plan. +The Committee, in its discretion, may provide in the +Option Agreement that, to the extent that the option is exercised using +previously acquired shares of Common Stock, the option holder shall +automatically be granted a replacement (“reload”) option for a number of shares +of Common Stock equal to the number of shares surrendered upon exercise with an +option price equal to the fair market value of Common Stock on the date of +exercise and subject to such other terms as the Committee determines. +In no event may options for more than 500,000 shares +of Common Stock be granted to any individual under the Award Plan during any +fiscal year period. +Stock +Appreciation Rights . A recipient of stock +appreciation rights (“SARs”) will receive, upon exercise, a payment (in cash or +in shares of Common Stock) based on the increase in the fair market value of a +share of Common Stock between the date of grant and the date of exercise. SARs +may be granted in connection with options or other Awards granted under the +Award Plan or may be granted as independent Awards. In no event may SARs for +more than 500,000 shares of Common Stock be granted to any individual under the +Award Plan during any fiscal year period. +Restricted +Awards . Restricted Awards may take the form +of restricted shares or restricted units. Restricted shares are shares of +Common Stock that may be subject to forfeiture if the recipient terminates +employment or service as an Advisor or nonemployee Director during a specified +period (the “Restriction Period”). Stock certificates representing restricted +shares are issued in the name of the recipient, but are held by the Company +until the expiration of the Restriction Period. From the date of issuance of +restricted shares, the recipient is entitled to the rights of a stockholder +with respect to the shares, including voting and dividend rights. Restricted +units are Awards that entitle the recipient to receive a share of Common Stock +or the fair market value of a share at some future date, which similarly may be +subject to forfeiture if the recipient terminates employment or service as an +Advisor or nonemployee Director during the applicable Restriction Period. At +the expiration of the Restriction Period, payment with respect to +25 +restricted units is made +in an amount equal to the fair market value of the number of shares of Common +Stock covered by the restricted units. Payment may be in cash, unrestricted +shares of Common Stock, or any other form approved by the Committee. +Performance +Awards . Performance Awards are designated in +units equivalent in value to a share of Common Stock. A Performance Award is +subject to forfeiture if or to the extent that the Company, a subsidiary, an +operating group, or the recipient, as specified by the Committee in the Award, +fails to meet performance goals established for a designated performance period. +Performance Awards earned by attaining performance goals are paid at the end of +a performance period in cash, shares of Common Stock, or any other form +approved by the Committee. The number of shares of Common Stock issuable with +respect to Performance Awards granted to any individual executive officer may +not exceed 150,000 shares for any +calendar year. +Other Stock-Based +Awards . The Committee may grant other Awards +that involve payments or grants of shares of Common Stock or are measured by or +in relation to shares of Common Stock. +Shares Subject to the Award Plan +The maximum number of shares of Common Stock for which +Awards may be granted under the Award Plan (as amended) is 9,300,000 shares. As +a result, if approved, there will be 2,733,463 shares of Common Stock available +for grant under the Award Plan. In addition, if an Award under the Award Plan +is cancelled or expires for any reason prior to becoming fully vested or +exercised or is settled in cash in lieu of shares, or is exchanged for other +Awards under the Award Plan, all shares covered by such Awards will be made +available for future Awards under the Award Plan. Any shares used as full or +partial payment to the Company of the option, purchase or other exercise price +of an Award, and any shares covered by a stock appreciation right which are not +issued upon exercise, will also become available for future Awards. As of March 27, +2006, there were options and other Awards outstanding relating to 4,636,067 +shares of Common Stock which had been granted under the Award Plan. +In the event of a change +in the Company’s capitalization affecting the Common Stock, including a stock +dividend, stock split, recapitalization, merger, consolidation, split-up, +combination or exchange of shares or other form of reorganization, the +Committee shall make such proportionate adjustments as it may determine, in its +sole discretion to be appropriate as a result of such change, to the aggregate +number of shares for which Awards may be granted under the Award Plan, the +maximum number of shares which may be sold or awarded to any participant, the +number of shares covered by each outstanding Award, and the price per share in +respect of outstanding Awards. +Federal Income Tax Consequences +The following discussion summarizes the principal +anticipated federal income tax consequences of Awards granted under the Award +Plan, to participants and to the Company. +Incentive +Stock Options . A recipient of an option does +not realize taxable income upon the grant or exercise of an ISO. If no +disposition of shares occurs within two years from the date of grant or within +one year from the date of exercise, then (a) upon the sale of the shares, +any amount realized in excess of the exercise price is taxed to the option +recipient as long-term capital gain and any loss sustained will be a +long-term capital loss, and (b) no deduction is allowed to the Company for +federal income tax purposes. For purposes of computing alternative minimum +taxable income, an ISO is treated as an NQO. +If shares of Common Stock acquired upon the exercise +of an ISO are disposed of prior to the expiration of the two-year and one-year +holding periods described above, then (a) the recipient will realize +ordinary income in the year of disposition in an amount equal to the excess (if +any) of the fair market value of the shares at exercise (or, if less, the +amount realized on a sale of the shares) over the exercise price +26 +thereof and (b) the +Company would be entitled to deduct such amount. Any further gain realized is +taxed as a short-term or long-term capital gain, as applicable, and does not +result in any deduction for the Company. Any disqualifying disposition as +described above will generally avoid the alternative minimum tax consequences +of the exercise of an ISO. +Nonqualified +Options . No income is realized by an option +recipient at the time an NQO is granted. Upon exercise, (a) ordinary +income is realized by the option recipient in an amount equal to the difference +between the exercise price and the fair market value of the shares on the date +of exercise and (b) the Company receives a tax deduction for the same +amount. Upon disposition of the shares, appreciation or depreciation after the +date of exercise is treated as a short-term or long-term capital +gain or loss, as applicable, and will not result in any deduction to the +Company. +Payment +of Exercise Price in Shares . The Committee +may permit participants to pay all or a portion of the exercise price for an +option using previously acquired shares of Common Stock. If an option is +exercised and payment is made in previously held shares (held for six months or +longer), there is no taxable gain or loss to the participant other than any +gain recognized as a result of exercise of the option, as described above. +Stock +Appreciation Rights . The grant of a SAR to a +participant will not cause the recognition of income by the participant. Upon +exercise of a SAR, the participant will realize ordinary income equal to the +amount of cash payable to the participant plus the fair market value of any +shares of Common Stock delivered to the participant. The Company will be +entitled to a deduction equal to the amount of ordinary income realized by the +participant in connection with the exercise of a SAR. +Restricted +Awards and Performance Awards . Generally, a +participant will not recognize any income upon issuance of a Restricted Award +or Performance Award that is subject to forfeiture. Generally, a participant +will recognize ordinary income upon the vesting of Restricted Awards or +Performance Awards in an amount equal to the amount of cash payable to the +participant plus the fair market value of shares of Common Stock delivered to +the participant. Dividends paid with respect to Awards during the period such +Awards are subject to forfeiture will be taxable as ordinary income to the +participant. However, a participant may elect to recognize compensation income +upon the grant of restricted shares, based on the fair market value of the +shares of Common Stock subject to the Award at the date of grant. If a +participant makes such an election, dividends paid with respect to the +restricted shares will not be treated as ordinary income, but rather as +dividend income, and the participant will not recognize additional income when +the restricted shares vest. The Company will be entitled to a deduction equal +to the amount of ordinary income recognized by the participant. If a +participant who receives an Award of restricted shares makes the special +election described above, the Company will not be entitled to deduct dividends +paid with respect to the restricted shares. +Limitation on +Deductibility of Certain Compensation . Section 162(m) of +the Internal Revenue Code generally makes nondeductible to the Company taxable +compensation paid to a single individual in excess of $1 million in any +calendar year if the individual is the Chief Executive Officer or one of the +next four highest-paid executive officers, unless the excess compensation is +considered to be “performance based.” +Among other requirements contained in Section 162(m), the material +terms of a compensation plan in which such officers participate must be +approved by stockholders for awards or compensation provided under the plan to +be considered “performance based.” The +Company may in the future consider structuring Awards to attempt to meet the +requirements of Section 162(m) if it determines the action to be +advisable. +Equity +Compensation Plan Information +The +following table provides information as of December 31, 2005 about the +shares of Common Stock that may be issued upon the exercise of options under +all of our equity compensation plans. These plans +27 +include the OraSure Technologies, Inc. 2000 Stock +Award Plan (the “Award Plan”), the Epitope, Inc. 1991 Stock Award Plan +(the “1991 Plan”), the Agritope, Inc. 1992 Stock Award Plan (the “Agritope +Plan”), and the OraSure Technologies, Inc. Employee Incentive and +Non-Qualified Stock Option Plan (the “Employee Incentive Plan”). The Award +Plan, the 1991 Plan and the Agritope Plan were Epitope equity compensation plans, +and the Employee Incentive Plan was an STC equity compensation plan. In +connection with the Merger of Epitope and STC into the Company on September 29, +2000, the Award Plan was adopted by the Company, and the Company assumed the +obligation to issue shares for the then outstanding stock options granted under +the Award Plan, the 1991 Plan, the Agritope Plan and the Employee Incentive +Plan. Additional grants of equity compensation may only be made under the Award +Plan. +Plan Category +Number of securities +to be issued upon +exercise of +outstanding options +(a) +Weighted-average +exercise price of +outstanding options +(b) +Number of securities +remaining available for +future issuance under +equity compensation plans +(excluding securities +reflected in column (a)) +(c) +Equity +compensation plans approved by security holders +2,079,068 +$ +7.21 +1,838,435 +(1) +Equity +compensation plans not approved by security holders +2,137,717 +(2) +$ +6.94 +(2) +— +Total +4,216,785 +1,838,435 +(1) Represents shares +remaining available for future issuance as of December 31, 2005 under the +Award Plan. +(2) Includes +288,414 shares issuable as of December 31, 2005 under options at a +weighted-average exercise price of $3.72 per share under the Award Plan, the 1991 +Plan, the Agritope Plan, and the Employee Incentive Plan. +Item 3. Ratification +Of Appointment Of Independent Registered Public Accounting Firm +The Audit Committee of the Board of Directors has +reappointed the firm of KPMG LLP (“KPMG”), as our independent registered public +accounting firm for 2006. Ratification of this appointment requires the +affirmative vote of a majority of shares present in person or by Proxy and +entitled to vote at the Annual Meeting. In the absence of instructions to the +contrary, shares of Common Stock represented by properly executed Proxies will +be voted for ratification of the appointment of KPMG as our independent +registered public accounting firm for 2006. If this appointment is not ratified +by stockholders, the Audit Committee may reconsider its appointment. +One or more +representatives of KPMG are expected to be at the Annual Meeting. They will +have an opportunity to make a statement and will be available to respond to +appropriate questions. Your Board recommends that +the stockholders vote “FOR” ratification of the appointment of KPMG . +28 +Audit +Fees; Audit-Related Fees; Tax Fees; All Other Fees. +The +following table presents fees for professional audit services rendered by KPMG +for the audits of our annual financial statements for the fiscal years ended December 31, +2005 and 2004, for the audits of our internal controls over financial reporting +at December 31, 2005 and 2004 and management’s assessment of those +controls, for the review of the financial statements included in our Quarterly +Reports on Form 10-Q for the fiscal years ended December 31, +2005 and 2004, and for fees billed for other services rendered by KPMG: +2005 +2004 +Audit fees(1) +$ +418,700 +$ +403,500 +Audit-related +fees +— +— +Audit and audit related fees +418,700 +403,500 +Tax fees(2) +67,500 +32,500 +All other fees(3) +— +— +Total fees +$ +486,200 +$ +436,000 +(1) Includes fees related to +the audit of our financial statements for each indicated year, audits of our +internal controls over financial reporting and management’s assessment of those +controls for each indicated year, and interim reviews of our financial +statements in the Company’s Quarterly Reports on Form 10-Q for each +indicated year, notwithstanding when the fees were billed or when the services +were rendered. Also, included in 2004 are professional services in connection +with the review of a registration statement on Form S-8 and the +issuance of a related consent. +(2) During 2005 and 2004, we +engaged KPMG to provide tax compliance, tax advice and tax planning services. +(3) The Company did not pay +any other fees to KPMG in connection with their services in 2005 and 2004. +During 2005 and 2004, we did not engage KPMG to +provide any professional services related to financial information systems +design and implementation. +The Audit Committee has +adopted a general practice of pre-approving all audit and non-audit services +provided to the Company by our independent registered public accounting firm. +The Chairman of the Audit Committee has been delegated the authority to +pre-approve audit and non-audit services having an aggregate value of up to +$10,000 in between meetings of the Audit Committee, provided that such +pre-approval is communicated to the Audit Committee at its next scheduled +meeting. All such services have been pre-approved in accordance with these +practices. +Annual Report +Our Annual Report to +Stockholders for the year ended December 31, 2005 accompanies this Proxy +Statement. On written request, we will provide, without +charge, a copy of our Annual Report on Form 10-K for the year ended December 31, +2005, as filed with the Commission (including a list briefly describing the +exhibits thereto), to any record holder or beneficial owner of our Common Stock +on March 27, 2006, the record date for the Annual Meeting, or to any +person who subsequently becomes such a record holder or beneficial owner. Requests +should be directed to the attention of the Secretary of the Company at our +address set forth in the Notice of Annual Meeting of Stockholders immediately +preceding this Proxy Statement. +29 +Deadline For Stockholder Proposals +You may submit +proposals for inclusion in the proxy materials for the Company’s 2007 Annual +Meeting of Stockholders. Any such proposals must meet the stockholder +eligibility and other requirements imposed by rules issued by the +Securities and Exchange Commission and must be received by the Company at 220 +East First Street, Bethlehem, Pennsylvania 18105, Attention: Secretary, in +accordance with Rule 14a-8 promulgated under the Exchange Act, not +later than December 9, 2006. +Our Bylaws provide that a +stockholder proposal must meet certain predetermined requirements in order to +be considered at the Annual Meeting. In order to be considered, a stockholder’s +proposal must be made in writing to the Company’s Secretary and must be +delivered to or received at our principal executive offices not less than +ninety (90) days nor more than one hundred twenty (120) days prior to the +meeting. However, if less than one hundred (100) days’ notice or prior public +disclosure of the date of the meeting is given or made to stockholders, notice +by the stockholder to be timely must be so received no later than the close of +business on the tenth (10 th ) day following the day on which such notice of the date +of the meeting was mailed or such public disclosure was made, whichever first +occurs. The notice to the Secretary must set forth, with respect to each matter +the stockholder proposes to bring before the meeting, a brief description of +the matter and the reasons for considering that matter at the Annual Meeting. The +notice must also include the name and record address of the stockholder, the +class and number of shares of capital stock of the Company, which are +beneficially owned by the stockholder, and any material interest the +stockholder has in the matter(s) proposed for consideration at the Annual +Meeting. To the extent the Board of Directors or the Securities and Exchange +Commission, or a court of competent jurisdiction, deems these Bylaw provisions +to be inconsistent with the right of stockholders to request inclusion of a +proposal in the Company’s proxy materials pursuant to Rule 14a-8 +promulgated under the Exchange Act, such rule shall prevail. +BY ORDER OF THE BOARD OF +DIRECTORS +Jack E. Jerrett +Secretary +April 6, 2006 +30 +EXHIBIT +A +ORASURE TECHNOLOGIES, INC. +2000 STOCK AWARD PLAN +ARTICLE 1 +ESTABLISHMENT AND PURPOSE +(Amended and +Restated Effective as of May 16, 2006) +Establishment . Epitope, Inc. +established this Plan as the Epitope, Inc. 2000 Stock Award Plan, +effective as of February 15, 2000, and the Plan was approved by +shareholders of Epitope, Inc. at the 2000 annual shareholders meeting. +Effective September 29, 2000, in connection with the merger of Epitope, Inc. +with and into OraSure Technologies, Inc., the name of the Plan was changed +to the OraSure Technologies, Inc. 2000 Stock Award Plan and the Plan was +adopted as a stock award plan of OraSure Technologies, Inc. The Plan was +amended and restated, subject to shareholder +approval , effective May 16, 2006. +1.1 Purpose . The purpose of the +Plan is to promote and advance the interests of Corporation and its +shareholders by enabling Corporation to attract, retain, and reward employees, +outside advisors, and directors of Corporation and its subsidiaries. It is also +intended to strengthen the mutuality of interests between such employees, +advisors, and directors and Corporation’s shareholders. The Plan is designed to +meet this intent by offering stock options and other equity-based incentive +awards, thereby providing a proprietary interest in pursuing the long-term +growth, profitability, and financial success of Corporation. +ARTICLE 2 +DEFINITIONS +2.1 Defined +Terms . For purposes of the Plan, the +following terms have the meanings set forth below: +“ Advisor ” +means a natural person who is a consultant to or member of an Advisory +Committee of Corporation or a Subsidiary, who provides bona fide services to +Corporation and who is neither an employee of Corporation or a Subsidiary nor a +Non-Employee Director. “Advisor” excludes any person who provides services to +Corporation in connection with the offer or sale of securities in a capital +raising transaction or to promote or maintain a market for Corporation’s +securities, and any other person excluded from the class of persons to whom +securities may be offered pursuant to a registration statement on Form S-8 +or any successor form of registration statement. +“ Advisory +Committee ” means a scientific advisory committee to Corporation +or a Subsidiary. +“ Award ” +means an award or grant made to a Participant of Options, Stock Appreciation +Rights, Restricted Awards, Performance Awards, or Other Stock-Based Awards +pursuant to the Plan. +“ Award Agreement ” +means an agreement as described in Section 6.4. +“ Board ” +means the Board of Directors of Corporation. +“ Code ” +means the Internal Revenue Code of 1986, as amended and in effect from time to +time, or any successor thereto, together with rules, regulations, and +interpretations promulgated thereunder. Where the context so requires, any +reference to a particular Code section will be construed to refer to the +successor provision to such Code section. +“ Committee ” +means the committee appointed by the Board to administer the Plan as provided +in Article 3 of the Plan. +A- 1 +“ Common Stock ” +means the Common Stock, par value $0.000001 per share, of Corporation or any +security of Corporation issued in substitution, in exchange, or in lieu of such +stock. +“ Continuing Restriction ” +means a Restriction contained in Sections 6.7, 6.8, and 16.4 of the Plan and +any other Restrictions expressly designated by the Committee in an Award +Agreement as a Continuing Restriction. +“ Corporation ” +means OraSure Technologies, Inc., a Delaware corporation, or any successor +corporation. As to awards granted or other action taken prior to September 29, +2000, “Corporation” includes Epitope, Inc., as predecessor to OraSure +Technologies, Inc. +“ Disability ” +means the condition of being “disabled” within the meaning of Section 422(c)(6) of +the Code. However, the Committee may change the foregoing definition of “Disability” +or may adopt a different definition for purposes of specific Awards. +“ Exchange Act ” +means the Securities Exchange Act of 1934, as amended and in effect from time +to time, or any successor statute. Where the context so requires, any reference +to a particular section of the Exchange Act, or to any rule promulgated +under the Exchange Act, shall be construed to refer to successor provisions to +such section or rule. +“ Fair Market +Value ” means with respect to Common Stock, on a particular day, +without regard to any restrictions (other than a restriction which, by its +terms, will never lapse): +(1) if the +Common Stock is at the time listed or admitted to trading on any stock +exchange, the mean between the highest and lowest prices of the Common Stock on +the date in question on the principal national securities exchange on which it +is then listed or admitted to trading. If no reported sale of Common Stock +takes place on the date in question on the principal exchange, then the +reported closing asked price of the Common Stock on such date on the principal +exchange shall be determinative of “Fair Market Value;” +(2) if the +Common Stock is not at the time listed or admitted to trading on a stock +exchange, the mean between the highest reported asked price and lowest reported +bid price of the Common Stock on the date in question in the over-the-counter +market, as such prices are reported in a publication of general circulation +selected by the Committee and regularly reporting the market price of Common +Stock in such market; or +(ii) if the +Common Stock is not listed or admitted to trading on any stock exchange or +traded in the over-the-counter market, an amount as determined in good faith by +the Committee and which shall comply with Section 409A of the Code. +“ Incentive Stock +Option ” or “ ISO ” +means any Option granted pursuant to the Plan that is intended to be and is +specifically designated in its Award Agreement as an “incentive stock option” +within the meaning of Section 422 of the Code. +“ Non-Employee +Director ” means a member of the Board who is not an employee of +Corporation or any Subsidiary. +“ Nonqualified +Option ” or “ NQSO ” means any Option +granted pursuant to the Plan that is not an Incentive Stock Option. +“ Option ” +means an ISO or an NQSO. +“ Other +Stock-Based Award ” means an Award as defined in Section 11.1. +“ Participant ” +means an employee of Corporation or a Subsidiary, an Advisor, or a Non-Employee +Director who is granted an Award under the Plan. +A- 2 +“ Performance Award ” means an Award +granted pursuant to the provisions of Article 10 of the Plan, the Vesting +of which is contingent on performance attainment. +“ Performance Cycle ” means a designated +performance period pursuant to the provisions of Section 10.3 of the Plan. +“ Performance Goal ” means a designated +performance objective pursuant to the provisions of Section 10.4 of the +Plan. +“ Plan ” means this OraSure Technologies, Inc. +2000 Stock Award Plan, as set forth herein and as it may be amended from time +to time. +“ Reporting Person ” means a Participant +who is subject to the reporting requirements of Section 16(a) of the +Exchange Act. +“ Restricted Award ” means a Restricted +Share or a Restricted Unit granted pursuant to Article 9 of the Plan. +“ Restricted Share ” means an Award +described in Section 9.1(a) of the Plan. +“ Restricted Unit ” means an Award of +units representing Shares described in Section 9.1(b) of the Plan. +“ Restriction ” means a provision in the +Plan or in an Award Agreement which limits the exercisability or +transferability, or which governs the forfeiture, of an Award or the Shares, +cash, or other property payable pursuant to an Award. +“ Retirement ” means: +(a) For Participants who are employees, retirement from active +employment with Corporation and its Subsidiaries at or after age 50, or such +earlier retirement date as approved by the Committee for purposes of the Plan; +(b) For Participants who are Non-Employee Directors, termination of +membership on the Board after attaining age 50, or such earlier retirement date +as approved by the Committee for purposes of the Plan; and +(c) For Participants who are Advisors, termination of service as an +Advisor after attaining age 50, or such earlier retirement date as approved by +the Committee for purposes of the Plan. +However, the Committee may +change the foregoing definition of “Retirement” or may adopt a different +definition for purposes of specific Awards. +“ Share ” means a share of Common Stock. +“ Stock Appreciation Right ” or “ SAR ” means an Award to benefit from the +appreciation of Common Stock granted pursuant to the provisions of Article 8 +of the Plan. +“ Subsidiary ” means any “subsidiary +corporation” of Corporation within the meaning of Section 424 of the Code, +namely any corporation in which Corporation directly or indirectly controls 50 +percent or more of the total combined voting power of all classes of stock +having voting power. +“ Ten Percent Shareholder ” means a person who on any given date owns, either directly +or indirectly (taking into account the attribution rules contained in Code +section 424(d)), stock possessing more than 10 percent of the total combined +voting power of all classes of stock of the Company or any Subsidiary under +Code section 424(f). +“ Vest ” or “ Vested ” means: +(a) In the case of an Award that requires exercise, to be or to +become immediately and fully exercisable and free of all Restrictions (other +than Continuing Restrictions); +A- 3 +(b) In the case of an Award that is subject to forfeiture, to be or to +become nonforfeitable, freely transferable, and free of all Restrictions (other +than Continuing Restrictions); +(c) In the case of an Award that is required to be earned by +attaining specified Performance Goals, to be or to become earned and +nonforfeitable, freely transferable, and free of all Restrictions (other than +Continuing Restrictions); or +(d) In the case of any other Award as to which payment is not +dependent solely upon the exercise of a right, election, exercise, or option, +to be or to become immediately payable and free of all Restrictions (except +Continuing Restrictions). +2.2 Gender and Number . Except +where otherwise indicated by the context, any masculine or feminine terminology +used in the Plan shall also include the opposite gender; and the definition of +any term in Section 2.1 in the singular shall also include the plural, and +vice versa. +ARTICLE 3 +ADMINISTRATION +3.1 General . Except as provided +in Section 3.7, the Plan will be administered by a Committee composed as +described in Section 3.2. +3.2 Composition of the Committee . The +Committee will be appointed by the Board from among its members in a number and +with such qualifications as will meet the requirements for approval by a +committee pursuant to both Rule 16b-3 under the Exchange Act and +Section 162(m) of the Code. The Board may from time to time remove +members from, or add members to, the Committee. Vacancies on the Committee, +however caused, will be filled by the Board. The initial members of the +Committee will be the members of Corporation’s existing Executive Compensation +Committee. The Board may at any time replace the Executive Compensation Committee +with another Committee. In the event that the Executive Compensation Committee +ceases to satisfy the requirements of Rule 16b-3 or +Section 162(m) of the Code, the Board will appoint another Committee +satisfying such requirements. +3.3 Authority of the Committee . The +Committee will have full power and authority (subject to such orders or +resolutions as may be issued or adopted from time to time by the Board) to +administer the Plan in its sole discretion, including the authority to: +(a) Construe and interpret the Plan and any Award Agreement; +(b) Promulgate, amend, and rescind rules and procedures relating +to the implementation of the Plan; +(c) With respect to employees and Advisors: +(i) Select the employees and Advisors who shall be granted Awards; +(ii) Determine the number and types of Awards to +be granted to each such Participant; +(iii) Determine the number of Shares, or Share +equivalents, to be subject to each Award; +(iv) Determine the option price, purchase price, +base price, or similar feature for any Award; and +(v) Determine all the terms and conditions of all Award Agreements, +consistent with the requirements of the Plan. +Decisions of the +Committee, or any delegate as permitted by the Plan, shall be final, +conclusive, and binding on all Participants. +A- 4 +3.4 Action by the Committee . A +majority of the members of the Committee will constitute a quorum for the +transaction of business. Action approved by a majority of the members present +at any meeting at which a quorum is present, or action in writing by all the +members of the Committee, will be the valid acts of the Committee. +3.5 Delegation . Notwithstanding the +foregoing, the Committee may delegate to one or more officers of Corporation +the authority to determine the recipients, types, amounts, and terms of Awards +granted to Participants who are not Reporting Persons. +3.6 Liability of Committee Members . No +member of the Committee will be liable for any action or determination made in +good faith with respect to the Plan, any Award, or any Participant. +3.7 Awards to Non-Employee Directors . The +Board or Committee may grant Awards from time to time to Non-Employee +Directors. +3.8 Costs of Plan . The costs and +expenses of administering the Plan will be borne by Corporation. +ARTICLE +4 +DURATION OF THE PLAN AND SHARES SUBJECT TO THE PLAN +4.1 Duration of the Plan . The +Plan is effective February 15, 2000, The Plan shall remain in full force +and effect until the earlier of ten years from the date of shareholder +approval, or the date it is terminated by the Board. The Board shall have the +power to amend, suspend or terminate the Plan at any time, provided that no +such amendment shall be made without shareholder approval to the extent such +approval is required under section 422 of the Code, section 162(m) of the +Code, the rules of a stock exchange or any other applicable law. Termination +of the Plan under this Section shall not affect Awards outstanding under +the Plan at the time of termination. +4.2 Shares Subject to the Plan . +4.2.1 General . The +shares which may be made subject to Awards under the Plan are Shares of Common +Stock, which may be either authorized and unissued Shares or reacquired Shares. +No fractional Shares may be issued under the Plan. +4.2.2 Number of Shares . The +maximum number of Shares for which Awards may be granted under the Plan is 9,300,000 Shares. +4.2.3 Availability of Shares for Future Awards . If +an Award under the Plan is canceled or expires for any reason prior to having +been fully Vested or exercised by a Participant or is settled in cash in lieu +of Shares or is exchanged for other Awards, all Shares covered by such Awards +will be made available for future Awards under the Plan. Furthermore, any +Shares used as full or partial payment to Corporation by a Participant of the +option, purchase, or other exercise price of an Award and any Shares covered by +a Stock Appreciation Right which are not issued upon exercise will become +available for future Awards. +ARTICLE 5 +ELIGIBILITY +5.1 Employees and Advisors . Officers +and other employees of Corporation and any Subsidiaries (who may also be +directors of Corporation or a Subsidiary) and Advisors who, in the Committee’s +judgment, are or will be contributors to the long-term success of Corporation +will be eligible to receive Awards under the Plan. +5.2 Non-Employee Directors . All +Non-Employee Directors will be eligible to receive Awards as provided in Section 3.7 +of the Plan. +A- 5 +ARTICLE 6 +AWARDS +6.1 Types of Awards . The types of Awards +that may be granted under the Plan are: +(a) Options governed by Article 7 of the Plan; +(b) Stock Appreciation Rights governed by Article 8 of the Plan; +(c) Restricted Awards governed by Article 9 of the Plan; +(d) Performance Awards governed by Article 10 of the Plan; and +(e) Other Stock-Based Awards or combination awards governed by Article 11 +of the Plan. +In the discretion of the +Committee, any Award may be granted alone, in addition to, or in tandem with +other Awards under the Plan. +6.2 General . Subject to the +limitations of the Plan, the Committee may cause Corporation to grant Awards to +such Participants, at such times, of such types, in such amounts, for such +periods, with such option prices, purchase prices, or base prices, and subject +to such terms, conditions, limitations, and restrictions as the Committee, in +its discretion, deems appropriate. Awards may be granted as additional +compensation to a Participant or in lieu of other compensation to such +Participant. A Participant may receive more than one Award and more than one +type of Award under the Plan. +6.3 Nonuniform Determinations . The +Committee’s determinations under the Plan or under one or more Award +Agreements, including without limitation, (a) the selection of +Participants to receive Awards, (b) the type, form, amount, and timing of +Awards, (c) the terms of specific Award Agreements, and (d) elections +and determinations made by the Committee with respect to exercise or payments +of Awards, need not be uniform and may be made by the Committee selectively +among Participants and Awards, whether or not Participants are similarly situated. +6.4 Award Agreements . Each Award will be +evidenced by a written Award Agreement between Corporation and the Participant. +Award Agreements may, subject to the provisions of the Plan, contain any +provision approved by the Committee. +6.5 Provisions Governing All Awards . All +Awards will be subject to the following provisions: +(a) Alternative Awards . If +any Awards are designated in their Award Agreements as alternative to each +other, the exercise of all or part of one Award automatically will cause an +immediate equal (or pro rata) corresponding termination of the other +alternative Award or Awards. +(b) Rights as Shareholders . No +Participant will have any rights of a shareholder with respect to Shares +subject to an Award until such Shares are issued in the name of the +Participant. +(c) Employment Rights . Neither +the adoption of the Plan nor the granting of any Award will confer on any +person the right to continued employment with Corporation or any Subsidiary or +the right to remain as a director of Corporation or a member of any Advisory +Committee, as the case may be, nor will it interfere in any way with the right +of Corporation or a Subsidiary to terminate such person’s employment or to +remove such person as an Advisor or as a director at any time for any reason or +for no reason, with or without cause. +(d) Termination Of Employment . The +terms and conditions under which an Award may be exercised or will continue to +Vest, if at all, after a Participant’s termination of employment or service as +an Advisor or as a Non-Employee Director will be determined by the Committee +and specified in the applicable Award Agreement. +A- 6 +(e) Change in Control . The +Committee, in its discretion, may provide in any Award Agreement that in the +event of a change in control of Corporation (as the Committee may define such +term in the Award Agreement), as of the date of such change in control: +(i) All, or a specified portion of, Awards requiring exercise will +become fully and immediately exercisable, notwithstanding any other limitations +on exercise; +(ii) All, or a specified portion of, Awards +subject to Restrictions will become fully Vested; and +(iii) All, or a specified portion of, Awards subject +to Performance Goals will be deemed to have been fully earned. +The +Committee, in its discretion, may include change in control provisions in some +Award Agreements and not in others, may include different change in control +provisions in different Award Agreements, and may include change in control +provisions for some Awards or some Participants and not for others. +(f) Service Periods . At the time of +granting Awards, the Committee may specify, by resolution or in the Award +Agreement, the period or periods of service performed or to be performed by the +Participant in connection with the grant of the Award. +6.6 Tax Withholding . +(a) General . Corporation will +have the right to deduct from any settlement, including the delivery or Vesting +of Shares, made under the Plan any federal, state, or local taxes of any kind +required by law to be withheld with respect to such payments or to take such +other action as may be necessary in the opinion of Corporation to satisfy all +obligations for the payment of such taxes. The recipient of any payment or +distribution under the Plan will make arrangements satisfactory to Corporation +for the satisfaction of any such withholding tax obligations. Corporation will +not be required to make any such payment or distribution under the Plan until +such obligations are satisfied. +(b) Stock Withholding . The +Committee, in its sole discretion, may permit a Participant to satisfy all or a +part of the withholding tax obligations incident to the settlement of an Award +involving payment or delivery of Shares to the Participant by having +Corporation withhold a portion of the Shares that would otherwise be issuable +to the Participant. Such Shares will be valued based on their Fair Market Value +on the date the tax withholding is required to be made. Any stock withholding +with respect to a Reporting Person will be subject to such limitations as the +Committee may impose to comply with the requirements of the Exchange Act. +6.7 Annulment of Awards . Any +Award Agreement may provide that the grant of an Award payable in cash is +provisional until cash is paid in settlement thereof or that grant of an Award +payable in Shares is provisional until the Participant becomes entitled to the +certificate in settlement thereof. In the event the employment (or service as +an Advisor or membership on the Board) of a Participant is terminated for cause +(as defined below), any Award that is provisional will be annulled as of the +date of such termination for cause. For the purpose of this Section 6.7, +the term “for cause” has the meaning set forth in the Participant’s employment +agreement, if any, or otherwise means any discharge (or removal) for material +or flagrant violation of the policies and procedures of Corporation or for +other job performance or conduct which is materially detrimental to the best +interests of Corporation, as determined by the Committee. +6.8 Engaging in Competition With Corporation . Any +Award Agreement may provide that, if a Participant terminates employment with +Corporation or a Subsidiary for any reason whatsoever, and within 18 months +after the date thereof accepts employment with any competitor of (or otherwise +engages in competition with) Corporation, the Committee, in its sole +discretion, may require such Participant to return to Corporation the economic +value of any Award that is realized or obtained (measured at the date +A- 7 +of +exercise, Vesting, or payment) by such Participant at any time during the +period beginning on the date that is six months prior to the date of such +Participant’s termination of employment with Corporation. +ARTICLE 7 +OPTIONS +7.1 Types of +Options . Options granted under the Plan may be +in the form of Incentive Stock Options or Nonqualified Options. The grant of +each Option and the Award Agreement governing each Option will identify the +Option as an ISO or an NQSO. In the event the Code is amended to provide for +tax-favored forms of stock options other than or in addition to Incentive Stock +Options, the Committee may grant Options under the Plan meeting the +requirements of such forms of options. +7.2 General . Options +will be subject to the terms and conditions set forth in Article 6 and this +Article 7 and may contain such additional terms and conditions, not +inconsistent with the express provisions of the Plan, as the Committee (or the +Board with respect to Awards to Non-Employee Directors) deems desirable. +7.3 Option +Price . Each Award Agreement for Options will +state the option exercise price per Share of Common Stock purchasable under the +Option, which will not be less than 100 percent (100%) of the Fair Market Value +of a Share on the date of grant for all Options (ISOs or NQSOs); provided, +however, that in the case of any ISO granted to a Ten Percent Shareholder, the +option exercise price per Share shall not be less than 110 percent (110%) of +the Fair Market Value of a Share on the date of grant. +7.4 Option +Term . The +Award Agreement for each Option will specify the term of each Option, which +shall have a specified period during which the Option may be exercised which is +no longer than ten years, as determined by the Committee. +7.5 Time +of Exercise . The Award Agreement for each Option will specify, as +determined by the Committee: +(a) The +time or times when the Option will become exercisable and whether the Option +will become exercisable in full or in graduated amounts over a period specified +in the Award Agreement; +(b) Such +other terms, conditions, and restrictions as to when the Option may be +exercised as determined by the Committee; and +(c) The +extent, if any, to which the Option will remain exercisable after the +Participant ceases to be an employee, Advisor, or director of Corporation or a +Subsidiary. +An Award Agreement for an Option +may, in the discretion of the Committee, provide whether, and to what extent, +the Option will become immediately and fully exercisable (i) in the event +of the death, Disability, or Retirement of the Participant, or (ii) upon +the occurrence of a change in control of Corporation. +7.6 Method +of Exercise . The Award Agreement for each Option will specify the +method or methods of payment acceptable upon exercise of an Option. An Award +Agreement may provide that the option price is payable in full in cash or, at +the discretion of the Committee: +(a) In +installments on such terms and over such period as the Committee determines; +(b) In +previously acquired Shares (including Restricted Shares); +(c) By +surrendering outstanding Awards under the Plan denominated in Shares or in +Share-equivalent units; +A- 8 +(d) By +delivery (in a form approved by the Committee) of an irrevocable direction to a +securities broker acceptable to the Committee: +(i) To +sell Shares subject to the Option and to deliver all or a part of the sales +proceeds to Corporation in payment of all or a part of the option price and +withholding taxes due; or +(ii) To +pledge Shares subject to the Option to the broker as security for a loan and to +deliver all or a part of the loan proceeds to Corporation in payment of all or +a part of the option price and withholding taxes due; or +(e) In +any combination of the foregoing or in any other form approved by the +Committee. +If Restricted Shares are surrendered +in full or partial payment of an Option price, a corresponding number of the +Shares issued upon exercise of the Option will be Restricted Shares subject to +the same Restrictions as the surrendered Restricted Shares. +7.7 Special +Rules for Incentive Stock Options . In the case of an Option designated as an Incentive +Stock Option, the terms of the Option and the Award Agreement must be in +conformance with the statutory and regulatory requirements specified in Section 422 +of the Code, as in effect on the date such ISO is granted. ISOs may be granted +only to employees of Corporation or a Subsidiary. ISOs may not be granted under +the Plan after February 15, 2010, unless the ten-year limitation of Section 422(b)(2) of +the Code is removed or extended. +7.8 Restricted +Shares . In the +discretion of the Committee, the Shares issuable upon exercise of an Option may +be Restricted Shares if so provided in the Award Agreement. +7.9 Reload +Options . The +Committee, in its discretion, may provide in an Award Agreement for an Option +that in the event all or a portion of the Option is exercised by the +Participant using previously acquired Shares, the Participant will +automatically be granted a replacement Option (with an option price equal to +the Fair Market Value of a Share on the date of such exercise) for a number of +Shares equal to (or equal to a portion of) the number of shares surrendered +upon exercise of the Option. Such reload Option features may be subject to such +terms and conditions as the Committee shall determine, including without +limitation, a condition that the Participant retain the Shares issued upon +exercise of the Option for a specified period of time. +7.10 Limitation +on Number of Shares Subject to Options . In no event may Options for more than 500,000 Shares +be granted to any individual under the Plan during any fiscal year period. +ARTICLE +8 +STOCK APPRECIATION RIGHTS +8.1 General . Stock Appreciation Rights will be subject to the +terms and conditions set forth in Article 6 and this Article 8 and +may contain such additional terms and conditions, not inconsistent with the +express terms of the Plan, as the Committee (or the Board with respect to +Awards to Non-Employee Directors) deems desirable. +8.2 Nature +of Stock Appreciation Right . A Stock Appreciation Right is an Award entitling a +Participant to receive an amount equal to the excess (or if the Committee +determines at the time of grant, a portion of the excess) of the Fair Market +Value of a Share of Common Stock on the date of exercise of the SAR over the +base price, as described below, on the date of grant of the SAR, multiplied by +the number of Shares with respect to which the SAR has been exercised. The base +price will be designated by the Committee in the Award Agreement for the SAR +and shall be the Fair Market Value of a Share on the grant date of the SAR. +8.3 Exercise . A Stock Appreciation Right may be exercised by a +Participant in accordance with procedures established by the Committee. The +Committee may also provide that an SAR will be +A- 9 +automatically +exercised on one or more specified dates or upon the satisfaction of one or +more specified conditions. In the case of SARs granted to Reporting Persons, +exercise of the SAR will be limited by the Committee to the extent required to +comply with the applicable requirements of Rule 16b-3 under the +Exchange Act. +8.4 Form of +Payment . Payment +upon exercise of a Stock Appreciation Right may be made in cash, in +installments, in Shares, or in any combination of the foregoing, or in any +other form as the Committee determines. +8.5 Limitation on Number of Shares Subject to +SARs . In no +event may SARs for more than 500,000 Shares be granted to any individual under +the Plan during any fiscal year period. +ARTICLE +9 +RESTRICTED AWARDS +9.1 Types +of Restricted Awards . Restricted Awards granted under the Plan may be in +the form of either Restricted Shares or Restricted Units. +(a) Restricted +Shares . A +Restricted Share is an Award of Shares transferred to a Participant subject to +such terms and conditions as the Committee deems appropriate, including, +without limitation, restrictions on the sale, assignment, transfer, or other +disposition of such Restricted Shares and may include a requirement that the +Participant forfeit such Restricted Shares back to Corporation upon termination +of Participant’s employment (or service as an Advisor or Non-Employee Director) +for specified reasons within a specified period of time or upon other +conditions, as set forth in the Award Agreement for such Restricted Shares. +Each Participant receiving a Restricted Share will be issued a stock +certificate in respect of such Shares, registered in the name of such +Participant, and will be required to execute a stock power in blank with +respect to the Shares evidenced by such certificate. The certificate evidencing +such Restricted Shares and the stock power will be held in custody by +Corporation until the Restrictions thereon will have lapsed. +(b) Restricted +Units . A +Restricted Unit is an Award to receive a Share or the Fair Market Value of a +Share at some date in the future, which is granted to a Participant subject to +such terms and conditions as the Committee deems appropriate, and may include a +requirement that the Participant forfeit such Restricted Units upon termination +of Participant’s employment (or service as an Advisor or Non-Employee Director) +for specified reasons within a specified period of time or upon other +conditions, as set forth in the Award Agreement for such Restricted Units. +9.2 General . Restricted Awards will be subject to the terms and +conditions of Article 6 and this Article 9 and may contain such +additional terms and conditions, not inconsistent with the express provisions +of the Plan, as the Committee (or the Board with respect to Awards to +Non-Employee Directors) deems desirable. +9.3 Restriction Period . Restricted Awards will provide that such Awards, and +the Shares subject to such Awards, may not be transferred, and may provide +that, in order for a Participant to Vest in such Awards, the Participant must +remain in the employment (or remain as an Advisor or Non-Employee Director) of +Corporation or its Subsidiaries, subject to relief for reasons specified in the +Award Agreement, for a period commencing on the date of the Award and ending on +such later date or dates as the Committee designates at the time of the Award +(the “Restriction Period”). During the Restriction Period, a Participant may +not sell, assign, transfer, pledge, encumber, or otherwise dispose of Shares +received under or governed by a Restricted Award grant. The Committee, in its +sole discretion, may provide for the lapse of restrictions in installments +during the Restriction Period. Upon expiration of the applicable Restriction +Period (or lapse of Restrictions during the Restriction Period where the +Restrictions lapse in installments) the Participant shall be entitled to +settlement of the Restricted Award or +A- 10 +portion +thereof, as the case may be. Although Restricted Awards will usually Vest based +on continued employment (or service as an Advisor or Non-Employee Director) and +Performance Awards under Article 10 shall usually Vest based on attainment +of Performance Goals, the Committee, in its discretion, may condition Vesting +of Restricted Awards on attainment of Performance Goals as well as continued +employment (or service as an Advisor or Non-Employee Director). In such case, +the Restriction Period for such a Restricted Award will include the period +prior to satisfaction of the Performance Goals. +9.4 Forfeiture . If a Participant ceases to be an employee, Advisor of +Corporation or a Subsidiary or Non-Employee Director during the Restriction +Period for any reason other than reasons which may be specified in an Award +Agreement (such as death, Disability, or Retirement), the Award Agreement may +require that all non-Vested Restricted Awards previously granted to the +Participant be forfeited and returned to Corporation. +9.5 Settlement of Restricted Awards . +(a) Restricted Shares . Upon Vesting of a Restricted Share Award, the legend +on such Shares will be removed and the Participant’s stock power will be +returned and the Shares will no longer be Restricted Shares. The Committee may +also, in its discretion, permit a Participant to receive, in lieu of +unrestricted Shares at the conclusion of the Restriction Period, payment in +cash, installments, or in any other manner or combination of such methods as +the Committee, in its sole discretion, determines. +(b) Restricted Units . Upon Vesting of a Restricted Unit Award, a +Participant will be entitled to receive payment for Restricted Units in an +amount equal to the aggregate Fair Market Value of the Shares covered by such +Restricted Units at the expiration of the Applicable Restriction Period. +Payment in settlement of a Restricted Unit will be made as soon as practicable +following the conclusion of the applicable Restriction Period in cash, in +installments, in Shares equal to the number of Restricted Units, or in any +other manner or combination of such methods as the Committee, in its sole +discretion, determines, subject to the applicable restrictions contained in +Code Section 409A. +9.6 Rights as a Shareholder . A Participant will have, with respect to unforfeited +Shares received under a grant of Restricted Shares, all the rights of a +shareholder of Corporation, including the right to vote the Shares, and the +right to receive any cash dividends. Stock dividends issued with respect to +Restricted Shares will be treated as additional Shares covered by the grant of +Restricted Shares and will be subject to the same Restrictions. A Participant +may also have the right to receive dividend equivalents, which may be subject +to forfeiture restrictions, with respect to Restricted Units; provided, +however, that a Participant shall have no rights as a shareholder prior to +delivery of a Share with respect to a Restricted Unit that is payable in +Shares. +ARTICLE +10 +PERFORMANCE AWARDS +10.1 General . Performance Awards will be subject to the terms and +conditions set forth in Article 6 and this Article 10 and may contain +such other terms and conditions not inconsistent with the express provisions of +the Plan, as the Committee (or the Board with respect to Awards to Non-Employee +Directors) deems desirable. +10.2 Nature of Performance Awards . A Performance Award is an Award of units (with each +unit having a value equivalent to one Share) granted to a Participant subject +to such terms and conditions as the Committee deems appropriate, including, +without limitation, the requirement that the Participant forfeit such +Performance Award or a portion thereof in the event specified performance +criteria are not met within a designated period of time. +10.3 Performance Cycles . For each Performance Award, the Committee will designate +a performance period (the “Performance Cycle”) with a duration to be determined +by the Committee in its +A- 11 +discretion +within which specified Performance Goals are to be attained. There may be +several Performance Cycles in existence at any one time and the duration of +Performance Cycles may differ from each other. +10.4 Performance Goals . The Committee will establish Performance Goals for +each Performance Cycle on the basis of such criteria and to accomplish such +objectives as the Committee may from time to time select. Performance Goals may +be based on performance criteria for Corporation, a Subsidiary, or an operating +group, or based on a Participant’s individual performance. Performance Goals +may include objective and subjective criteria. During any Performance Cycle, +the Committee may adjust the Performance Goals for such Performance Cycle as it +deems equitable in recognition of unusual or nonrecurring events affecting +Corporation, changes in applicable tax laws or accounting principles, or such +other factors as the Committee may determine. +10.5 Determination of Awards . As soon as practicable after the end of a Performance +Cycle, the Committee will determine the extent to which Performance Awards have +been earned on the basis of performance in relation to the established +Performance Goals. +10.6 Timing and Form of Payment . Settlement of earned Performance Awards will be made +to the Participant as soon as practicable after the expiration of the +Performance Cycle and the Committee’s determination under Section 10.5, in +the form of cash, installments, Shares, or any combination of the foregoing or +in any other form as the Committee determines. +10.7 Performance Goals for Executive Officers . The performance goals for Performance Awards granted +to executive officers of Corporation may relate to corporate performance, +business unit performance, or a combination of both. +(a) Corporate performance goals will be based on +financial performance goals related to the performance of Corporation as a +whole and may include one or more measures related to earnings, profitability, +efficiency, or return to stockholders such as earnings per share, operating +profit, stock price, costs of production, or other measures. +(b) Business unit performance goals will be based +on a combination of financial goals and strategic goals related to the +performance of an identified business unit for which a Participant has +responsibility. Strategic goals for a business unit may include one or a +combination of objective factors relating to success in implementing strategic +plans or initiatives, introductory products, constructing facilities, or other +identifiable objectives. Financial goals for a business unit may include the +degree to which the business unit achieves one or more objective measures +related to its revenues, earnings, profitability, efficiency, operating profit, +costs of production, or other measures. +(c) Any corporate or business unit goals may be +expressed as absolute amounts or as ratios or percentages. Success may be +measured against various standards, including budget targets, improvement over +prior periods, and performance relative to other companies, business units, or +industry groups. +10.8 Award Limitations . The maximum number of Shares issuable with respect to +Performance Awards granted to any individual executive officer may not exceed +150,000 Shares for any calendar year. +ARTICLE +11 +OTHER STOCK-BASED AND COMBINATION AWARDS +11.1 Other Stock-Based Awards . The Committee (or the Board with respect to Awards to +Non-Employee Directors) may grant other Awards under the Plan pursuant to which +Shares are or may in the future be acquired, or Awards denominated in or +measured by Share equivalent units, including Awards valued using measures +other than the market value of Shares. Such Other Stock-Based Awards may be +granted either alone, in addition to, or in tandem with, any other type of +Award granted under the Plan. +A- 12 +11.2 Combination Awards . The Committee may also grant Awards under the Plan in +tandem or combination with other Awards or in exchange of Awards, or in tandem +or combination with, or as alternatives to, grants or rights under any other +employee plan of Corporation, including the plan of any acquired entity. No +action authorized by this section may reduce the amount of any existing +benefits or change the terms and conditions thereof without the Participant’s +consent. +ARTICLE +12 +DEFERRAL ELECTIONS +The +Committee may permit a Participant to elect to defer receipt of the payment of +cash or the delivery of Shares that would otherwise be due to such Participant +by virtue of the exercise, earn-out, or Vesting of an Award made under the +Plan. If any such election is permitted, the Committee will establish rules and +procedures for such payment deferrals, including, but not limited to: (a) payment +or crediting of reasonable interest on such deferred amounts credited in cash +or (b) the payment or crediting of dividend equivalents in respect of +deferrals credited in Share equivalent units. Such deferrals, if permitted, +shall to the extent possible, comply with Code Section 409A and the +regulations and other guidance promulgated thereunder. +ARTICLE +13 +DIVIDEND EQUIVALENTS +Any +Awards may, at the discretion of the Committee, earn dividend equivalents. In +respect of any such Award that is outstanding on a dividend record date for +Common Stock, the Participant may be credited with an amount equal to the +amount of cash or stock dividends that would have been paid on the Shares +covered by such Award, had such covered Shares been issued and outstanding on +such dividend record date. The Committee will establish such rules and +procedures governing the crediting of dividend equivalents, including the +timing, form of payment, and payment contingencies of such dividend +equivalents, as it deems appropriate or necessary. +ARTICLE +14 +ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, ETC. +14.1 Plan +Does Not Restrict Corporation . The existence of the Plan and the Awards granted +hereunder will not affect or restrict in any way the right or power of the +Board or the shareholders of Corporation to make or authorize any adjustment, +recapitalization, reorganization, or other change in Corporation’s capital structure +or its business, any merger or consolidation of the Corporation, any issue of +bonds, debentures, preferred or prior preference stocks ahead of or affecting +Corporation’s capital stock or the rights thereof, the dissolution or +liquidation of Corporation or any sale or transfer of all or any part of its +assets or business, or any other corporate act or proceeding. +14.2 Adjustments by the Committee . In the event of any change in capitalization +affecting the Common Stock of Corporation, such as a stock dividend, stock +split, recapitalization, merger, consolidation, split-up, combination or +exchange of shares or other form of reorganization, or any other change +affecting the Common Stock, such proportionate adjustments, if any, as the +Committee, in its sole discretion, may deem appropriate to reflect such change, +will be made with respect to the aggregate number of Shares for which Awards in +respect thereof may be granted under the Plan, the maximum number of Shares +which may be sold or awarded to any Participant, the number of Shares covered +by each outstanding Award, and the price per Share in respect of outstanding +Awards. The Committee may also make such adjustments in the number of Shares +covered by, and price or other value of any outstanding Awards in the event of +a spin-off or other distribution (other than normal cash dividends), of +Corporation assets to shareholders. +A- 13 +ARTICLE +15 +AMENDMENT AND TERMINATION +The +Board may amend, suspend, or terminate the Plan or any portion of the Plan at +any time, provided no amendment may be made without shareholder approval if +such approval is required by applicable law or the applicable requirements of a +stock exchange or over-the-counter stock trading system. +ARTICLE1 +6 +MISCELLANEOUS +16.1 Unfunded +Plan . The +Plan will be unfunded and Corporation will not be required to segregate any +assets that may at any time be represented by Awards under the Plan. Any +liability of Corporation to any person with respect to any Award under the Plan +will be based solely upon any contractual obligations that may be effected +pursuant to the Plan. No such obligation of Corporation will be deemed to be +secured by any pledge of, or other encumbrance on, any property of Corporation. +16.2 Payments +to Trust . The Committee is authorized (but has no obligation) +to cause to be established a trust agreement or several trust agreements +whereunder the Committee may make payments of amounts due or to become due to +Participants in the Plan. +16.3 Other +Corporation Benefit and Compensation Programs . Payments and other benefits received by a Participant +under an Award made pursuant to the Plan will not be deemed a part of a +Participant’s regular, recurring compensation for purposes of the termination +indemnity or severance pay law of any state or country and shall not be +included in, or have any effect on, the determination of benefits under any +other employee benefit plan or similar arrangement provided by Corporation or a +Subsidiary unless expressly so provided by such other plan or arrangements, or +except where the Committee expressly determines that an Award or portion of an +Award should be included to accurately reflect competitive compensation +practices or to recognize that an Award has been made in lieu of a portion of +cash compensation. Awards under the Plan may be made in combination with or in +tandem with, or as alternatives to, grants, awards, or payments under any other +Corporation or Subsidiary plans, arrangements, or programs. The Plan +notwithstanding, Corporation or any Subsidiary may adopt such other +compensation programs and additional compensation arrangements as it deems +necessary to attract, retain, and reward employees and directors for their +service with Corporation and its Subsidiaries. +16.4 Securities +Law Restrictions . No Shares may be issued under the Plan unless counsel +for Corporation is satisfied that such issuance will be in compliance with +applicable federal and state securities laws. Certificates for Shares delivered +under the Plan may be subject to such stop-transfer orders and other +restrictions as the Committee may deem advisable under the rules, regulations, +and other requirements of the Securities and Exchange Commission, any stock +exchange upon which the Common Stock is then listed, and any applicable federal +or state securities law. The Committee may cause a legend or legends to be put +on any such certificates to make appropriate reference to such restrictions. +16.5 Governing Law . Except with respect to references to the Code or +federal securities laws, the Plan and all actions taken thereunder shall be +governed by and construed in accordance with the laws of the state of Delaware. +ARTICLE +17 +SHAREHOLDER APPROVAL +The Plan, as amended and restated, +is expressly subject to the approval of the Plan by the shareholders at the +2006 annual meeting of Corporation’s shareholders. +A- 14 +PROXY +2006 Annual Meeting of Stockholders +PROXY SOLICITED ON BEHALF OF THE BOARD OF +DIRECTORS +The undersigned hereby +appoints Jack E. Jerrett and Ronald H. Spair, and each of them, proxies with +full power of substitution, to vote all of the shares which the undersigned +is entitled to vote at the 2006 Annual Meeting of Stockholders of OraSure +Technologies, Inc. (the +“Company”), to be held on Tuesday, May 16, 2006, and at any adjournment or +adjournments thereof, with all the +powers the undersigned would possess if personally present, with respect to +the matters listed on the reverse side. +The shares represented by +this Proxy, if properly executed, will be voted as specified on the reverse +side or, if no specification +is made, will be voted (i) FOR the election of the nominees listed on the +reverse side as directors, (ii) FOR the amendment and restatement of the OraSure Technologies, Inc. 2000 Stock +Award Plan and (iii) FOR the ratification of the appointment of KPMG LLP as the Company’s +independent registered public accounting firm for 2006. If any other business +properly comes before the meeting, the proxies named above will have +discretionary authority to vote thereon in accordance with their best judgement. +PLEASE MARK, DATE, SIGN AND RETURN THE PROXY CARD PROMPTLY. +(Continued and to be marked, dated and signed, on the +other side) +Address Change/Comments (Mark the corresponding box +on the reverse side) +FOLD AND DETACH HERE +OraSure Technologies, Inc. +2006 Annual Meeting of Stockholders +Tuesday, May 16, 2006 +Please +Mark Here +for Address +o +Change or +Comments +SEE +REVERSE SIDE +1. +ELECTION OF +DIRECTORS +FOR +WITHHOLD +2. Amend and Restate +OraSure Technologies, +FOR +AGAINST +ABSTAIN +Class +III (Term Expiring 2009) +o +o +Inc. 2000 Stock Award Plan +o +o +o +01 Douglas +A. Michels +FOR +AGAINST +ABSTAIN +02 Charles +W. Patrick +3. Ratification of +Appointment of KPMG LLP +o +o +o +(Instruction: To withhold +authority to vote for any individual +nominee, mark FOR and +strike a line through the nominee’s +name in the list above. To +withhold authority to vote for all +nominees, mark WITHHOLD.) +Signature +Signature +Date +, 2006 +NOTE: Please sign as name appears +hereon. Joint owners should each sign. When signing as attorney, executor, +administrator, trustee or guardian, please give full title as such. +FOLD AND DETACH HERE +Vote by Internet or Telephone or Mail +24 Hours a Day, 7 Days a Week +Internet and telephone voting is available +through 11:59 PM Eastern Time May 15, 2006. +Your Internet or telephone vote authorizes +the named proxies to vote your shares in the same manner +as if you marked, signed and returned your +proxy card. +Internet +Telephone +Mail +http://www.proxyvoting.com/osur +1-866-540-5760 +Mark, +sign and date your +Use the internet to vote +your proxy. +OR +Use +any touch-tone telephone to +OR +proxy +card and return +Have your proxy card in +hand +vote +your proxy. Have your proxy +it +in the enclosed +when you access the web +site. +card +in hand when you call. +postage-paid +envelope. +If you vote your proxy by Internet or by +telephone, +you do NOT need to mail back your proxy card. \ No newline at end of file diff --git a/raw/proxies/0001116463/0001104659-06-023056/proxy_rpt.txt b/raw/proxies/0001116463/0001104659-06-023056/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..23e74ed6a50b050e64c4d59b1118c4306f0ced64 --- /dev/null +++ b/raw/proxies/0001116463/0001104659-06-023056/proxy_rpt.txt @@ -0,0 +1,6 @@ +Certain Relationships and Related Transactions +Information regarding +employment and severance agreements between the named executive officers and +the Company is set forth in the Section entitled, “Employment Agreements,” in +this Proxy Statement. +11 \ No newline at end of file diff --git a/raw/proxies/0001116463/0001193125-04-059293/proxy.txt b/raw/proxies/0001116463/0001193125-04-059293/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..6a7d551e8ea06eef4e8f39f8bff1d2486a77aca9 --- /dev/null +++ b/raw/proxies/0001116463/0001193125-04-059293/proxy.txt @@ -0,0 +1,1261 @@ +DEF 14A +1 +ddef14a.htm +ORASURE TECHNOLOGIES, INC. +OraSure Technologies, Inc. +OMB APPROVAL +OMB Number: +3235-0059 +Expires: +August 31, 2004 +Estimated average burden +hours per response . . . +14.73 +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to +Section 14(a) +of the Securities Exchange Act of 1934 +(Amendment No. ) +Filed by the Registrant x Filed by a Party other than the +Registrant ¨ +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material Pursuant to §240.14a-12 +OraSure Technologies, Inc. +(Name of Registrant as Specified In Its +Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was +determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the +previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +ORASURE TECHNOLOGIES, INC. +220 East First Street +Bethlehem, Pennsylvania 18015 +April 9, 2004 +Dear Stockholder: +You are cordially invited to attend the 2004 Annual Meeting of Stockholders to be held on Tuesday, May 18, 2004 , at +the Radisson Hotel Bethlehem, 437 Main Street, Bethlehem, Pennsylvania 18018, at 10:00 a.m. Eastern Time. Your Board of Directors and Executive Management Team look forward to personally greeting those present. If you cannot attend in person, we are +pleased to offer a live webcast of the Annual Meeting, which you can access by going to our web site, www.orasure.com . +At the meeting, you will be asked to (i) elect three Class I Directors to serve on the Board of Directors until the Annual Meeting of Stockholders in +2007, (ii) approve an amendment to the OraSure Technologies, Inc. 2000 Stock Award Plan to increase the number of shares of Common Stock authorized for grant under such Award Plan, and (iii) transact such other business as may properly come before +the meeting or any adjournments thereof. +Your Board of +Directors has approved the nominees for Director and recommends that you vote FOR their election to the Board. In addition, your Board of Directors recommends that you vote FOR the amendment to the Company’s 2000 Stock Award Plan. +Your vote is very important, regardless of the number of +shares you own. Whether or not you plan to attend the Annual Meeting in person, we urge you to submit your vote as soon as possible. You will have the option to vote by telephone, via the Internet, or by marking, signing, dating, and mailing the +enclosed Proxy Card in the accompanying postage prepaid envelope. Additional details on these options can be found in the attached Proxy Statement and Proxy Card. You may, of course, attend the Annual Meeting and vote in person regardless of whether +you have previously voted by phone, the Internet or mail. +We +look forward to seeing you at the meeting. +Sincerely yours, +Michael J. +Gausling +President and Chief Executive Officer +ORASURE TECHNOLOGIES, INC. +220 East First Street +Bethlehem, Pennsylvania 18015 +Notice of Annual Meeting of Stockholders +to be held May 18, 2004 +To the Stockholders of OraSure Technologies, Inc.: +The Annual Meeting of Stockholders of OraSure Technologies, Inc., a Delaware +corporation, will be held at the Radisson Hotel Bethlehem, 437 Main Street, Bethlehem, Pennsylvania 18018, on Tuesday, May 18, 2004 , at 10:00 a.m. Eastern Time for the following purposes: +1. To elect three Class I Directors; +2. To approve an amendment increasing the number of +shares of Common Stock authorized for grant under the OraSure Technologies, Inc. 2000 Stock Award Plan; and +3. To consider such other business as may properly come before the meeting or any adjournment thereof. +Additional information is included in the Proxy Statement accompanying this +Notice. Only holders of Common Stock of record at the close of business on March 26, 2004, will be entitled to vote at the Annual Meeting of Stockholders and any adjournments thereof. +By Order of the Board of Directors, +Jack E. Jerrett +Secretary +April 9, 2004 +Bethlehem, Pennsylvania +YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the +Annual Meeting, you are urged to vote your shares as promptly as possible by telephone, via the Internet, or by signing, dating and returning the enclosed Proxy Card, as described in the attached Proxy Statement. Voting by phone, the Internet or +mail does not deprive you of your right to attend the Meeting and to vote your shares in person. +ORASURE TECHNOLOGIES, INC. +220 East First Street +Bethlehem, Pennsylvania 18015 +Proxy Statement +This Proxy Statement is being mailed on or about April 9, 2004, to stockholders of OraSure Technologies, Inc., a Delaware corporation (the +“Company”), in connection with the Company’s solicitation of proxies (each, a “Proxy”) for use at the Annual Meeting of Stockholders to be held on May 18, 2004, at 10:00 a.m. Eastern Time, at the Radisson Hotel Bethlehem, +437 Main Street, Bethlehem, Pennsylvania 18018, and at any adjournments thereof (the “Annual Meeting”). +Proxies +If represented by a properly executed Proxy, whether delivered by phone, the Internet or mail, as described below, your shares will be voted in accordance with your instructions. If you do not provide a Proxy with instructions, your shares +will be voted according to the recommendations of our Board of Directors (the “Board”) as stated on the Proxy. You may revoke the authority granted by your Proxy at any time before the Annual Meeting by notice in writing delivered to the +Secretary of the Company, by delivering a subsequently dated Proxy, or by attending the Annual Meeting, withdrawing the Proxy, and voting in person. +At the Annual Meeting, action will be taken on the matters set forth in the accompanying Notice of Annual Meeting of Stockholders and described in this +Proxy Statement. The Board knows of no other matters to be presented for action at the Annual Meeting. If any other matters do properly come before the Annual Meeting, the persons named in the Proxy will have discretionary authority to vote on those +matters in accordance with their best judgment. +The cost of +soliciting Proxies will be borne by us. In addition to solicitations by mail, certain of our directors, officers, and regular employees may solicit Proxies personally or by telephone or other means without additional compensation. +Arrangements will also be made with brokerage firms and other custodians, +nominees, and fiduciaries to forward solicitation material to the beneficial owners of stock held of record by such persons, and we will, upon request, reimburse them for their reasonable expenses in so doing. +Voting Procedures +You will have a choice of voting over the phone, via the Internet or by +completing and mailing a traditional paper Proxy Card, as described below. Please check your Proxy Card or the information forwarded by your bank, broker or other holder of record to determine which options are available to you. +1 +Voting by Mail . If you desire to vote by using the paper Proxy Card +included with this Proxy Statement instead of by telephone or the Internet, you may do so by completing, signing, dating and returning the Proxy Card in the enclosed, pre-addressed envelope. Postage need not be affixed to the envelope if mailed in +the United States. +Voting by Phone or +Internet . Instead of voting by use of the paper Proxy Card, you may be able to vote by phone or the Internet. Whether you may do so will depend on how your shares are held. +If your shares are registered in your name with Mellon Investor Services LLC, +our transfer agent, you may vote those shares by telephone by calling Mellon Investor Services LLC at 800-435-6710 (toll free in the United States or Canada only) or via the Internet at the following web site: www.eproxy.com/osur . You may +vote by telephone or the Internet by doing so by 11:59 pm Eastern Time (8:59 pm Pacific Time) on May 17, 2004. Additional instructions can be found on the paper Proxy Card accompanying this Proxy Statement. +If your shares are registered in the name of a broker, bank or other +registered holder, you may be able to vote by phone or the Internet if the broker, bank or other record holder has procedures for telephone or Internet voting. If you desire to use either of these voting options, please follow the procedures +provided to you by your broker, bank or other record holder. +The telephone and Internet voting procedures are designed to authenticate your identity, to allow you to give your voting instructions and to confirm that your instructions have been recorded properly. If you vote via the Internet, you +should understand that there may be costs associated with this method of voting, such as usage charges from Internet access providers and telephone companies and printing costs, that you must pay. +Submitting a proxy by mail, the phone or the Internet will not affect your +right to vote in person at the Annual Meeting. +Electronic Access to Proxy Materials and Annual Report . The Notice of Annual Meeting, the Proxy Statement and our 2003 Annual Report are available on our web site at http:// www.orasure.com . If you +are a stockholder of record and would like to view future proxy statements and annual reports over the Internet instead of receiving copies in the mail, please follow the instructions on the paper Proxy Card if you vote by mail or follow the +instructions provided when you vote by phone or over the Internet. If you hold your shares through a bank, broker or other holder, check the information provided by that entity for instructions on how to elect to view future proxy statements and +annual reports over the Internet. Opting to receive your proxy materials and annual report online will save us the cost of producing these materials and mailing them to you in the future. +Voting Securities +On March 26, 2004, the record date for determining stockholders entitled to vote at the Annual Meeting, we had outstanding and entitled to vote at the +meeting 44,425,943 shares of common stock, par value $.000001 per share (“Common Stock”). Each share of Common Stock is entitled to one vote on any matter brought before the Annual Meeting. A majority of the shares of Common Stock +outstanding as of the record date, represented in person or by Proxy at the Annual Meeting, will constitute a quorum for the transaction of business. +2 +Principal Stockholders +The following table sets forth information as of March 26, 2004, regarding the beneficial ownership of the Company’s +Common Stock by (a) each person who is known by us to be the beneficial owner of more than five percent of the Common Stock outstanding, (b) each director and nominee for election as director, (c) each of our executive officers named in the Summary +Compensation Table under “Executive Compensation,” and (d) all of our directors and executive officers as a group. Unless otherwise indicated, the address of each person identified below is c/o OraSure Technologies, Inc., 220 East First +Street, Bethlehem, Pennsylvania 18015. +Pursuant to Rule 13d-3 +under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), shares of Common Stock which a person has a right to acquire pursuant to the exercise of stock options and warrants held by that person that are exercisable within +60 days of March 26, 2004 are deemed to be outstanding for the purpose of computing the percentage ownership of that person, but are not deemed outstanding for computing the percentage ownership of any other person. +Beneficial Owner +Amount and Nature of +Beneficial Ownership (1)(2) +Percent +of Class +Strong Capital Management, Inc.(3) +100 Heritage Reserve +Menomonee Falls, WI 53051 +3,540,839 +8.0 +% +AXA Financial, Inc.(4) +1290 Avenue of the Americas +New York, NY 10104 +2,566,100 +5.8 +% +Michael J. Gausling(5) +1,864,030 +4.2 +% +R. Sam Niedbala, Ph.D.(6) +1,802,575 +4.1 +% +Roger L. Pringle(7) +228,843 +* +Ronald H. Spair +218,436 +* +P. Michael Formica +163,380 +* +Frank G. Hausmann +116,666 +* +Douglas G. Watson +93,333 +* +Gregory B. Lawless +86,666 +* +Joseph E. Zack +76,458 +* +Carter H. Eckert +66,666 +* +Ronny B. Lancaster +26,666 +* +All directors and executive officers as a group (13 people) +4,867,049 +10.7 +% +* +Less than 1% +(1) +Subject to community property laws where applicable, beneficial ownership consists of sole voting and dispositive power except as otherwise indicated. +(2) +Includes shares subject to options exercisable within 60 days of March 26, 2004, as follows: Mr. Eckert, 66,666 shares; Mr. Formica, 123,380 shares; Mr. Gausling, 106,929 shares; +Mr. Hausmann, 116,666 shares; Mr. Lancaster, 26,666 shares; Mr. Lawless, 86,666 shares; Dr. Niedbala, 89,741 shares; Mr. Pringle, 192,218 shares; Mr. Spair, 158,436 shares; Mr. Watson, 93,333 shares; Mr. Zack, 61,458 shares; and all directors and +executive officers as a group, 1,245,489 shares. Also includes 60,000, 40,000 and 15,000 restricted shares held by Mr. Spair, Mr. Formica and Mr. Zack, respectively. +3 +(3) +Based on information contained in a Form 13G\A filed February 16, 2004 by Strong Capital Management, Inc., on which such entity reported that it has shared dispositive and voting +power with respect to 3,540,839 shares. +(4) +Based on information contained on a Form 13G filed February 13, 2004 by AXA Financial, Inc. with respect to the following entities: AXA Assurances I.A.R.D. Mutuelle, AXA Assurances +Vie Mutuelle, AXA Courtage Assurance Mutuelle, AXA, Alliance Capital Management L.P., and The Equitable Life Assurance Society of the United States. AXA Financial, Inc. has sole dispositive power with respect to 2,566,100 shares, sole voting power +with respect to 1,422,900 shares, and shared voting power with respect to 967,000 shares. +(5) +Includes 413,884 shares held by The Michael J. Gausling Grantor Retained Annuity Trust, Dated April 28, 2000, of which Mr. Gausling is the trustee, and 34,424 shares held by the +Michael Gausling Irrevocable Education Trust Dated April 28, 2000, of which Mr. Gausling’s wife, Sharon M. Gausling, is a trustee. +(6) +Includes 413,884 shares held by The Raymond S. Niedbala 2000 Grantor Retained Annuity Trust Dated April 28, 2000, of which Dr. Niedbala is the trustee, 67,366 shares held by The +Raymond S. Niedbala Family Trust Dated April 28, 2000, of which Dr. Niedbala’s wife, Linda-Lee Niedbala, is a trustee, and 52,800 shares held by the Niedbala Charitable Remainder Unit Trust, of which Dr. Niedbala and Linda-Lee Niedbala are +trustees. +(7) +Includes 1,500 shares owned by Mr. Pringle’s spouse. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Exchange Act requires that our executive officers and directors and persons who own more than ten percent of our Common Stock +(collectively, “Reporting Persons”) file reports of ownership and changes in ownership with the Securities and Exchange Commission (the “Commission”). Reporting Persons are required by the Commission’s regulations to furnish +us with copies of all Section 16(a) forms they file. +As a +matter of practice, our administrative staff assists each of the Reporting Persons in preparing initial reports of ownership and reports of changes in beneficial ownership and filing such reports with the Commission and the NASDAQ Stock Market. +Based solely on a review of the copies of such forms and written representations from each of the Reporting Persons, we believe that all Reporting Persons complied with all applicable filing requirements with respect to the year 2003. +Election of Directors +At the Annual Meeting, you will be asked to vote on the election of three +Class I Directors. A majority of the independent members of the Board have nominated Carter H. Eckert, Frank G. Hausmann and Douglas G. Watson for election as Class I Directors, for terms expiring at the Annual Meeting of Stockholders in 2007. The +nominees for election as Directors are presently members of our Board, and Mr. Watson currently serves as Chairman of the Board. +In the absence of instructions to the contrary, shares of Common Stock represented by properly executed Proxies will be voted for the three nominees, each +of whom has consented to be named and to serve if elected. If a quorum is present, each nominee will be elected if he receives a plurality of the votes cast by shares present in person or by Proxy entitled to vote at the Annual Meeting. Abstentions +and shares as to which a broker or other nominee has indicated on a duly executed and returned Proxy or otherwise advised us that it lacks voting authority will have no effect on the required vote. Your Board recommends that you vote FOR the +election of the Director nominees. +We do not know of +anything that would preclude any nominee from serving. However, should any nominee for any reason become unable or unwilling to serve as a Director, the persons named in the enclosed Proxy will vote the shares represented by each Proxy for such +substitute nominee as the Board may approve. +4 +Any vacancy that occurs on the Board that results from an increase in the number of Directors may be +filled by the affirmative vote of a majority of the Directors then in office, and any other vacancy on the Board may be filled by the affirmative vote of a majority of the Directors then in office, even though less than a quorum of the Board, or by +a sole remaining Director. +Certain information with respect to +each person nominated for election as a Director and each person whose term of office as a Director will continue after the Annual Meeting is set forth below. Messrs. Gausling, Hausmann and Pringle became Directors of the Company in connection with +the merger (the “Merger”) of STC Technologies, Inc. (“STC”) and Epitope, Inc. (“Epitope”) into the Company on September 29, 2000, and served on the board of either STC or Epitope prior to the Merger. +Name +Principal Occupation +Age +Director +Since +Class I (Nominees for Terms of Office Expiring in 2007): +Douglas G. Watson +Chief Executive Officer of +Pittencrieff Glen Associates +59 +2002 +Frank G. Hausmann +Former President and Chief Executive Officer +of CenterSpan Communications Corporation +46 +2000 +Carter H. Eckert +Chairman and Chief Executive Officer of +IMPATH Inc. +61 +2001 +Class II (Directors Whose Terms of Office Expire in 2005): +Ronny B. Lancaster +Senior Vice President and Chief Operating +Officer of Morehouse School of Medicine +52 +2003 +Roger L. Pringle +President of The Pringle Company +63 +2000 +Class III (Directors Whose Terms of Office Expire in 2006): +Michael J. Gausling +President and Chief Executive Officer of +the Company +46 +2000 +Gregory B. Lawless +Managing Partner of Collins Mabry & Co. +64 +2001 +Douglas G. Watson +became a member of the Board in May 2002 and became Chairman of the Board in March 2003. Since July 1999, Mr. Watson has been Chief Executive Officer of Pittencrieff Glen Associates, a leadership and management consulting firm, which he founded. +From 1997 to 1999, Mr. Watson served as President and Chief Executive Officer of Novartis Corporation, the U.S. subsidiary of Novartis A.G. Prior to that, Mr. Watson was President and Chief Executive Officer of Ciba-Geigy Corporation, President of +the Ciba Pharmaceuticals Division and Senior Vice President of Planning and Business Development of Ciba’s U.S. Pharmaceuticals Division. From 1986 through 1996, Mr. Watson was on the Board of the Pharmaceutical Research & Manufacturers +Association. Mr. Watson holds an M.A. degree in pure mathematics from Churchill College, Cambridge University, and is a member of the Chartered Institute of Management Accountants. Mr. Watson also serves on the Boards of Engelhard Corporation, +Dendreon Corporation, Genta Incorporated and InforMedix Holdings, Inc., as well as a number of privately held biotech companies. +Frank G. Hausmann had been a member of the board of directors of Epitope since December 1999. Mr. Hausmann was formerly the President and Chief +Executive Officer of CenterSpan Communications Corporation since July 1998, and Vice President, Finance and Administration and Chief Financial Officer prior to that time. From August 1997 to May 1998, Mr. Hausmann served as Vice President, Finance +and Chief Financial Officer of Atlas Telecom, Inc., a developer of enhanced facsimile and voice-mail solutions. From September 1995 to July 1997, he served as Vice President, Corporate Development and General Counsel of Diamond Multimedia Systems, +Inc., a designer and marketer of computer video cards, modems and other peripherals. Mr. Hausmann received B.S. degrees in Economics and Political Science from Willamette University and a J.D. degree from the University of Oregon. He is a +member of the Oregon State Bar. +5 +Carter H. Eckert became a member of the Board in December 2001. Since February 2003, Mr. Eckert has +served as Chairman of the Board and Chief Executive Officer of IMPATH Inc., a cancer information company. In September 2003, IMPATH filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. From 1995 to 2001, Mr. +Eckert served as President of Knoll Pharmaceutical Company and as President of the Americas for Knoll’s parent company, BASF Pharma. During that period, Mr. Eckert also was a member of BASF Pharma’s Pharmaceutical Board, where he was +responsible for global therapeutic franchises and corporate transactions. Prior to joining Knoll and BASF Pharma in 1995, Mr. Eckert was President and Chief Executive Officer of Boots Pharmaceuticals, Inc., a pharmaceutical company, where he was +responsible for North American operations. Mr. Eckert joined Boots Pharmaceuticals in 1985 as Executive Vice President and Chief Operating Officer after more than a decade at Baxter Travenol Laboratories, where he served as President of the +Pharmaceutical Products Division. Mr. Eckert currently serves as a director of IMPATH, Inc. and Andrx Corporation, a trustee of Caldwell College and the Morristown Memorial Health Foundation, and an operating partner of the Athena Group. Mr. Eckert +received his B.S. in Chemical Engineering from the Illinois Institute of Technology and his M.B.A. from Northwestern University. +Ronny B. Lancaster became a member of the Board in May 2003. Mr. Lancaster has served as Chief Operating Officer of the Morehouse School of Medicine in +Atlanta, Georgia since 2003, as Senior Vice President for Management Policy from 1996 to 2003 and as Vice President for Health and Social Policy from 1993 to 1996. Prior to that, Mr. Lancaster was Executive Assistant to the Secretary and Principal +Deputy Assistant Secretary for Planning and Evaluation at the U.S. Department of Health and Human Services (“HHS”), where his responsibilities included a wide range of policy, program and management matters. Prior to serving at HHS, Mr. +Lancaster was General Counsel of Hamilton Enterprises, Inc., Senior Washington Representative for Blue Cross/Blue Shield Association, Chief of the Division of Fee-For-Service Plans at the U.S. Office of Personnel Management, and Executive Assistant +to the Chairman at the National Institute for Advanced Studies. Mr. Lancaster received his B.A. in Economics from the Catholic University of America, his M.B.A. from the Wharton School of the University of Pennsylvania, and his J.D. degree from The +Georgetown University Law Center. He is also admitted to the Bars of Pennsylvania and the District of Columbia and serves as a Board member for the Morehouse College Research Institute and as President for the Minority Health Professions Foundation. +Roger L. Pringle had been Chairman of the Board and a member +of the board of directors of Epitope, and was a director of Agritope, Inc., a plant genetics subsidiary of Epitope, since February 1989. Mr. Pringle is President and founder of The Pringle Company, a strategy and executive consulting firm in +Portland, Oregon. Mr. Pringle is a director of Metro One Telecommunications, Inc., North Pacific Group and H2F Media, Inc. He is also active in funding and advising start-up and emerging companies. +Michael J. Gausling has been the Company’s President and Chief Executive +Officer since January 31, 2002. Prior to that, Mr. Gausling was the Company’s President and Chief Operating Officer since September 2000. Mr. Gausling is a co-founder of STC and served as Chairman of STC’s board of directors since +1996, President and Chief Executive Officer of STC since 1990, and a director of STC since 1987. Mr. Gausling was Executive Vice President, Finance and Operations of STC from 1987 to 1990. Prior to co-founding STC, Mr. Gausling had been employed in +the area of corporate finance at Procter and Gamble. Mr. Gausling received his B.S. in Mechanical Engineering from Rensselaer Polytechnic Institute and his M.B.A. in Finance from Miami University (Ohio). Mr. Gausling also serves on the boards of +Keystone Nazareth Bank and Trust and DeSales University. +Gregory B. Lawless became a member of the Board in April 2001. Since 1998, Mr. Lawless has been the Managing Partner of Collins Mabry & Co., a strategic advisory firm for the life sciences industry, which he co-founded. From 1992 to +1998, Mr. Lawless served as President and Chief Executive Officer of Cygnus, Inc., a medical diagnostics company, and from 1989 to 1992, was President and Chief Operating Officer of Chiron Corporation, also a medical diagnostics company. Mr. Lawless +received his B.S. in Pharmacy from Fordham University, his M.S. in Analytical Chemistry from St. John’s University, and his Ph.D. in Physical Organic Chemistry from Temple University. +6 +Board of Directors +The Board of Directors is comprised of a majority of independent directors. The Board has determined that each member of the Board, except for Mr. +Gausling, is “independent,” as that term is defined in the applicable rules of The NASDAQ Stock Market, Inc. +The Board held nine meetings and acted by written consent on five occasions during the year ended December 31, 2003. Each member of the Board attended +more than 75 percent of the combined total of meetings of the Board and of the committees of the Board on which such member served during the period in the year in which he served as a Director, except for Mr. Eckert. +The Board has approved a process for security holders to send communications +to members of the Board and a policy concerning Board members’ attendance of our annual meetings of stockholders. All members of the Board attended our 2003 Annual Meeting of Stockholders held on May 20, 2003. Descriptions of the process for +security holders to send communications to the Board and the Board’s policy on annual meeting attendance are provided on our website, at www.orasure.com . +Committees of the Board +The Board has four standing committees—the Audit Committee, the Compensation Committee, the Nominating and Corporate Governance Committee and the +Strategic Planning Committee. The Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee are each composed entirely of independent Directors. +Audit Committee . The Audit Committee oversees the Company’s accounting and +financial reporting process, internal controls and audits, and consults with management and the independent auditors on, among other items, matters related to the annual audit, the published financial statements and the accounting principles +applied. As part of its duties, the Audit Committee appoints, evaluates and retains the Company’s independent auditors. It also maintains direct responsibility for the compensation, termination and oversight of the Company’s independent +auditors and evaluates the independent auditors’ qualifications, performance and independence. The Audit Committee approves all services provided to the Company by the independent auditors. The Audit Committee has established procedures for the +receipt, retention and treatment, on a confidential basis, of complaints received by the Company, regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submissions by employees of concerns regarding +questionable accounting or auditing matters. The Audit Committee operates pursuant to a written Charter, a copy of which was attached as an appendix to our Proxy Statement for the 2003 Annual Meeting of Stockholders and is available on our website +at www.orasure.com . +Members of the Audit Committee are +Frank G. Hausmann, Chairman, Carter H. Eckert, Ronny B. Lancaster and Roger L. Pringle. Each member of the Audit Committee is “independent,” as defined in the Exchange Act and applicable rules of The NASDAQ Stock Market, Inc. The Board has +determined that Mr. Hausmann is an “audit committee financial expert,” as that term is defined by applicable rules of the Commission. The Audit Committee met eight times and acted by written consent on one occasion during the year ended +December 31, 2003. +Compensation +Committee . The Compensation Committee of the Board determines and, in the case of the Chief Executive Officer recommends for Board approval, the compensation and benefits for our executive officers, and administers our +stock award plan. The Compensation Committee operates pursuant to a written charter, a copy of which is available on our website at www.orasure.com . Members of the Compensation Committee are Roger L. Pringle, Chairman, Gregory B. Lawless and +Douglas G. Watson. Each member of the Compensation Committee is “independent,” as defined in the applicable rules of The NASDAQ Stock Market, Inc. The Compensation Committee met four times and acted by written consent on three occasions +during the year ended December 31, 2003. +7 +Nominating and Corporate Governance Committee . The Nominating +and Corporate Governance Committee of the Board identifies, evaluates and recommends to the Board candidates for election or re-election to the Board. In addition, this Committee is responsible for developing, recommending for Board approval and +administering a set of corporate governance guidelines and an annual process of self-evaluation by the Board and its committees. The Nominating and Corporate Governance Committee operates pursuant to a written charter, a copy of which is available +on our website at www.orasure.com . Members of the Nominating and Corporate Governance Committee are Carter H. Eckert, Chairman, Ronny B. Lancaster and Gregory B. Lawless. Each member of the Nominating and Corporate Governance Committee is +“independent,” as defined in the applicable rules of The NASDAQ Stock Market, Inc. The Nominating and Corporate Governance Committee was formed in March 2004 and therefore did not meet during the year ended December 31, 2003. +In evaluating and recommending candidates for the Board, the Nominating +and Corporate Governance Committee will consider candidates recommended by members of the Committee or the Board of Directors, officers or employees of the Company, the Company’s security holders and other business contacts. Candidates +recommended by security holders will be considered by the Nominating and Corporate Governance Committee in the same manner as candidates recommended by other sources, but only if the security holder makes its recommendation in accordance with the +advance notification provisions set forth in the Company’s By-laws. For a description of these provisions, see the Section entitled, “Nomination of Directors.” +In evaluating new candidates for Board nomination, the Nominating and Corporate Governance Committee shall consider one or +more of the following factors, as well as any other factors determined by the Committee: independence, integrity, knowledge, judgment, character, leadership skills, education, experience, financial literacy, technical background, and standing in the +community. In evaluating incumbent directors for re-election, the Nominating and Corporate Governance Committee shall consider that director’s overall service to the Company, including the number of meetings attended, level of participation, +quality of performance and other factors deemed relevant by the Committee. +Strategic Planning Committee . The Strategic Planning Committee of the Board assists management in developing corporate and strategic goals and establishing business and +other strategic plans for the purpose of achieving those goals. Members of the Strategic Planning Committee are Douglas G. Watson, Chairman, Carter H. Eckert and Michael J. Gausling. The Strategic Planning Committee met four times during the year +ended December 31, 2003. +Report of the Audit Committee +The following report of the Audit Committee of the Board shall not be +deemed to be incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing by the Company under either the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, +except to the extent that the Company specifically incorporates this information by reference. The following report shall not otherwise be deemed filed under such Acts. +The role of the Audit Committee is to assist the Board of Directors in its oversight of the Company’s financial +reporting process. The Committee operates pursuant to a Charter that was last amended and restated by the Board on February 4, 2003. Management of the Company is responsible for the preparation, presentation and integrity of the Company’s +financial statements, the Company’s accounting and financial reporting principles and internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. The independent auditors are +responsible for auditing the Company’s financial statements and expressing an opinion as to their conformity with generally accepted accounting principles. +In the performance of its oversight function, the Committee has considered and discussed the audited financial statements with management and the +independent auditors. The Committee has also discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, “Communication with Audit Committees,” as currently in effect. Finally, +the Committee has received the written +8 +disclosures and the letter from the independent auditors required by Independence Standards Board Standard No. 1, “Independence Discussions with +Audit Committees,” as currently in effect, has considered whether the provision of non-audit services by the independent auditors to the Company is compatible with maintaining the auditor’s independence and has discussed with the auditors +the auditors’ independence. +The members of the Audit +Committee are not professionally engaged in the practice of auditing or accounting and are not experts in the fields of accounting or auditing, including in respect of auditor independence. Members of the Committee rely without independent +verification on the information provided to them and on the representations made by management and the independent auditors. Accordingly, the Audit Committee’s oversight does not provide an independent basis to determine that management has +maintained appropriate accounting and financial reporting principles or appropriate internal control and procedures designed to assure compliance with accounting standards and applicable laws and regulations. Furthermore, the Audit Committee’s +considerations and discussions referred to above do not assure that the audit of the Company’s financial statements has been carried out in accordance with generally accepted auditing standards, that the financial statements are presented in +accordance with generally accepted accounting principles or that the Company’s auditors are in fact “independent.” +Based upon the reports and discussions described in this report, and subject to the limitations on the role and responsibilities of the Committee referred +to above and in the Committee’s Charter, the Committee recommended to the Board that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 to be filed with the +Securities and Exchange Commission. +SUBMITTED BY THE AUDIT COMMITTEE +OF THE COMPANY’S BOARD OF DIRECTORS +Frank G. Hausmann, Chairman +Carter H. Eckert +Ronny B. Lancaster +Roger L. Pringle +March 3, 2004 +Nomination of Directors +Our Bylaws provide that nominations for election to the Board may be made by the Board or by any stockholder entitled to vote for the election of +Directors at the Annual Meeting. A stockholder’s notice of nomination must be made in writing to the Company’s Secretary and must be delivered to or received at our principal executive offices not less than ninety (90) days nor more than +one hundred twenty (120) days prior to the meeting. However, in the event that less than one hundred (100) days’ notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be +timely must be received no later than the close of business on the tenth (10 th ) day following the day on which such +notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. The notice to the Secretary must set forth, with respect to the nominee, the name, age, business address, residence address, and principal +occupation or employment of the person, the class and number of shares of capital stock of the Company which are beneficially owned by the person, and any other information relating to the person that is required to be disclosed in solicitations for +proxies for election of directors pursuant to Regulation 14A under the Exchange Act. The notice must also include the name and record address of the stockholder making the nomination and the class and number of shares of capital stock of the Company +that are beneficially owned by the stockholder. We may require any proposed nominee to furnish such other information as we may reasonably require to determine the eligibility of the proposed nominee to serve as a Director of the Company. +9 +Executive Officers +The table below provides information about the executive officers of the Company as of March 26, 2004. Officers of the +Company hold office at the discretion of the Board. +Name +Age +Position +Michael J. Gausling +46 +President and Chief Executive Officer +Ronald H. Spair +48 +Executive Vice President and Chief Financial Officer +R. Sam Niedbala, Ph.D. +43 +Executive Vice President and Chief Science Officer +P. Michael Formica +53 +Executive Vice President, Operations +Joseph E. Zack +52 +Executive Vice President, Marketing and Sales +Jack E. Jerrett +45 +Senior Vice President, General Counsel and Secretary +Mark L. Kuna +40 +Vice President, Controller and Assistant Secretary +For biographical +information on Mr. Gausling, see the Section entitled, “Election of Directors,” in this Proxy Statement. +Ronald H. Spair joined the Company as Executive Vice President and Chief Financial Officer in November 2001. Prior to that time, Mr. Spair was Vice +President, Chief Financial Officer and Secretary of Delsys Pharmaceutical Corporation, a pharmaceutical manufacturing system development company, from January 2001 to September 2001. Prior to joining Delsys, he was Senior Vice President, Chief +Financial Officer and Secretary of SuperGen, Inc., a pharmaceutical company, from August 1999. Prior to joining SuperGen, Mr. Spair was Senior Vice President, Chief Financial Officer and Secretary of Sparta Pharmaceuticals, Inc., a development stage +pharmaceutical company, from March 1996 until August 1999. Mr. Spair received his B.S. in Accounting and M.B.A. from Rider College. He is also a licensed Certified Public Accountant and is a member of the New Jersey Society of Certified Public +Accountants and the American Institute of Certified Public Accountants. +R. Sam Niedbala, Ph.D. has been the Company’s Executive Vice President and Chief Science Officer since September 2000. Dr. Niedbala is a co-founder of STC and had served as Executive Vice President, Chief Science Officer and a director +of STC since 1987. Prior to co-founding STC, Dr. Niedbala had been employed by Hoffman-LaRoche, Inc. as a Senior Scientist. Dr. Niedbala received his B.S. in Chemistry from East Stroudsburg University, and his M.S. in Clinical Chemistry and Ph.D. in +Chemistry from Lehigh University. Dr. Niedbala is also a board certified forensic examiner. +P. Michael Formica has served as Executive Vice President, Operations for the Company since November 2002 and as Senior Vice President, Operations for the Company and STC since May 2000. Prior to that time, +Mr. Formica was Division Manager, Mobil Measurement Technologies for Dräger Sicherheitstechnik GmbH (now called Dräger Safety AG & Co. KGaA), in Luebeck, Germany, for eight years with worldwide responsibility, and Director Sales +and Marketing, National Draeger, Inc. (USA) for two years. Dräger is a world leader in chemical detection systems for the industrial safety market, and breath alcohol detection instrumentation. Mr. Formica received his B.S. in Electrical +Engineering from West Virginia University and his M.B.A. from the Graduate School of Industrial Administration, Carnegie Mellon University. +Joseph E. Zack has served as the Company’s Executive Vice President, Marketing and Sales since September 2002. Prior to that time, Mr. Zack served as +Vice President, Marketing and Sales for OraPharma, Inc., a specialty pharmaceutical company focused on oral healthcare, since 1998. Prior to joining OraPharma, Mr. Zack held executive level marketing and sales positions with Advanced Tissue +Sciences, Inc. and the CIBA-GEIGY Pharmaceutical Division. Mr. Zack received his B.A. in Biology from Colgate University and his M.B.A. from St. John’s University. +10 +Jack E. Jerrett has served as the Company’s Senior Vice President and General Counsel since February +2003 and as Vice President and General Counsel since November 2000. He has also served as the Company’s Secretary since February 2001. Prior to joining the Company, Mr. Jerrett served in the positions of Associate General Counsel and Senior +Counsel at PPL Electric Utilities Corporation, and acted as general counsel to PPL Gas Utilities Corporation, since July 1998. Prior to that, Mr. Jerrett was Senior Corporate Attorney of Union Pacific Corporation and an Associate with Morgan, Lewis +& Bockius. Mr. Jerrett received his B.S. in Accounting from Villanova University and his J.D. from the Villanova University School of Law. He is a member of the Pennsylvania Bar and the American and Pennsylvania Bar Associations. +Mark L. Kuna has served as the Company’s Vice President and Controller +since February 2003 and as Controller since February 2001. He also provided accounting and financial analysis support since joining the Company in October 2000. Prior to that time, Mr. Kuna served as Director of Financial Planning and Analysis for +the greater Philadelphia region of XO Communications, Inc. since April 1998. Prior to joining XO Communications, Mr. Kuna served as Vice President and Principal Accounting Officer of Wedco Technology, Inc. since 1989. Prior to joining Wedco +Technology, he was an accountant with Deloitte and Touche. Mr. Kuna received his B.S. in Accounting from the University of Scranton, is a licensed Certified Public Accountant, and is a member of the Pennsylvania and American Institutes of Certified +Public Accountants. +Certain Relationships and Related +Transactions +In October 2002, we entered into a commercial +lease (the “Lease”) with Tech III Partners, LLC (“Tech Partners”), for a 48,000 square foot facility on land adjacent to our Bethlehem, Pennsylvania facilities, and the lease of that facility to us. Tech Partners is owned and +controlled by Michael J. Gausling, the Company’s President and Chief Executive Officer, and Dr. R. Sam Niedbala, the Company’s Executive Vice President and Chief Science Officer. The facility is our new corporate headquarters and houses +manufacturing and administrative operations. +The Lease has an +initial ten-year term ending in October 2012 and a base rent starting at $780,000 per year and increasing to $858,240 per year over that term. The base rental rate may be increased after the fifth year of the initial term in order to reflect changes +in the interest rate on debt incurred by Tech Partners to finance construction of the leased facilities. We have not guaranteed any debt incurred by Tech Partners. We also have an option to renew the Lease for an additional five years at a rental +rate of $975,360 per year, and to purchase the facility at any time during the initial ten-year term based on a formula set forth in the Lease. +Prior to deciding to enter into the Lease and an amendment increasing the base rent to reflect certain tenant fit-out costs, our Board of Directors +retained Imperial Realty Appraisal LLC, an independent commercial real estate appraisal firm, to evaluate the proposed base rental rate. Imperial Realty issued opinions indicating that the annual base rent set forth in the Lease, as amended, is +below the market rental rate we could otherwise expect to pay to lease a comparable commercial property in the same general geographic market. The terms of the Lease are otherwise substantially similar to a commercial lease we entered into with a +third party for our existing Bethlehem, Pennsylvania facilities. +Information regarding employment and severance agreements between the named executive officers and the Company is set forth in the Section entitled, “Employment Agreements,” in this Proxy Statement. +11 +Executive Compensation +Summary Compensation Table +The following table summarizes the compensation of our Chief Executive Officer and the four other most highly compensated executive officers of the +Company for the year ended December 31, 2003 (collectively, including the Chief Executive Officer, the “Named Executive Officers”): +Long-Term +Compensation Awards +All Other +Compensation(2) +Annual Compensation +Restricted +Stock +Awards +Securities +Underlying +Options(1) +Name and Principal Position +Year +Salary +Bonus +Michael J. Gausling +President and +Chief Executive Officer +2003 +2002 +2001 +$ +274,302 +243,000 +225,211 +$ +80,000 +— +— +— +— +— +100,000 +— +— +$ +18,180 +18,612 +15,742 +(4)(5) +(4)(5) +(4)(5) +Ronald H. Spair +Executive Vice President and +Chief Financial Officer +2003 +2002 +2001 +224,264 +205,903 +26,336 +60,000 +20,000 +— +$260,265 +— +(3) +90,000 +65,000 +150,000 +13,000 +82,916 +750 +(4) +(4)(6) +(4) +P. Michael Formica +Executive Vice President, +Operations +2003 +2002 +2001 +210,264 +179,644 +157,134 +50,000 +18,000 +25,000 +260,265 +— +— +(3) +75,000 +45,000 +— +13,000 +13,000 +9,969 +(4) +(4) +(4) +R. Sam Niedbala, Ph.D. +Executive Vice President and +Chief Science Officer +2003 +2002 +2001 +208,389 +201,665 +185,211 +39,650 +— +— +— +— +— +45,000 +— +— +9,000 +9,000 +10,257 +(4) +(4) +(4) +Joseph E. Zack +Executive Vice President +Marketing and Sales +2003 +2002 +2001 +202,187 +54,072 +— +50,000 +— +— +130,133 +— +— +(3) +30,000 +125,000 +— +13,000 +2,625 +— +(4) +(4) +(1) +Represents the number of shares for which options were awarded in each year. +(2) +Except as otherwise noted in (4), (5) and (6) below, represents amounts of cash contributed to a 401(k) profit sharing plan as employer matching contributions. +(3) +On November 5, 2003, Messrs. Spair and Formica each received grants of 30,000 restricted shares, and Mr. Zack received a grant of 15,000 restricted shares. The indicated +amounts were calculated by multiplying the number of shares in each grant by $8.6755, the average of the high and low sales prices for the Company’s common stock on the date of grant. One-half of the shares in each grant vests on the second +anniversary of the grant and the remaining half vests on the third anniversary. The aggregate number of restricted shares as of December 31, 2003, and the value of those shares at the $7.96 closing price of the Company’s common stock as of that +date, for Messrs. Spair, Formica and Zack were, respectively, as follows: 30,000 shares valued at $238,800 for each of Messrs. Spair and Formica and 15,000 shares valued at $119,400 for Mr. Zack. +(4) +Includes automobile allowances of (i) $9,000 for Messrs. Gausling, Spair, Formica and Zack and Dr. Niedbala in 2003, (ii) $9,000 for Messrs. Gausling, Spair and Formica and Dr. +Niedbala, and $2,625 for Mr. Zack in 2002, and (iii) $9,000 for Mr. Gausling and Dr. Niedbala, $9,350 for Mr. Formica, and $750 for Mr. Spair in 2001. +(5) +Includes reimbursement of certain club membership dues and assessments for Mr. Gausling of $5,180 in 2003, $5,612 in 2002 and $2,742 in 2001. +(6) +Includes $69,916 in relocation expenses for Mr. Spair in 2002. These relocation expenses were reimbursed by the Company and include moving costs, realtor fees, closing costs, +furniture storage costs, other miscellaneous expenses, and federal and state income taxes on amounts paid as expense reimbursement. +12 +Option Grants in the Last Fiscal Year(1) +The following table summarizes the number of stock options awarded to the Chief Executive Officer and the other Named +Executive Officers during the year ended December 31, 2003: +Name +Number of +Securities +Underlying +Options +Granted +Percent of +Total +Options +Granted to +Employees in +Fiscal Year +Exercise +Price +Per +Share +Expiration +Date +Potential Realizable +Value at Assumed +Annual Rates of Stock +Price Appreciation for +Option Term(2) +5% +10% +Michael J. Gausling +100,000 +11.1 +$ +6.955 +01/31/2013 +$ +437,396 +$ +1,108,448 +Ronald H. Spair +90,000 +10.0 +6.955 +01/31/2013 +393,657 +997,603 +P. Michael Formica +75,000 +8.3 +6.955 +01/31/2013 +328,047 +831,336 +R. Sam Niedbala, Ph.D. +45,000 +5.0 +6.955 +01/31/2013 +196,828 +498,802 +Joseph E. Zack +30,000 +3.3 +6.955 +01/31/2013 +131,219 +332,534 +(1) +Except as required by law, options are qualified as incentive stock options and vest as to one-fourth one year after the date of grant, with the remaining three-fourths vesting in +equal monthly installments over the following 36 months. Vesting ceases 90 days following termination of employment and is generally accelerated in case of a change in control of the Company. The holder’s right to exercise the options will +terminate immediately upon termination of employment for cause, will expire five years after retirement, and will expire one year after death, disability, or ceasing to be an active employee of the Company for any other reason. Subject to certain +conditions, the exercise price of the options may be paid by delivery of previously acquired shares of Common Stock. No stock appreciation rights were granted during the year ended December 31, 2003. +(2) +The amounts shown are hypothetical gains based on the indicated assumed rates of appreciation of Common Stock compounded annually for a ten-year period. There can be no assurance +that the Common Stock will appreciate in value at any particular rate or at all in future years. +Fiscal Year-End Option Values +The following table shows 2003 year-end amounts and value of shares of the Common Stock underlying outstanding options for the Chief Executive Officer and the other Named Executive Officers: +Shares +Acquired +on +Exercise +Value +Realized +Number of Securities +Underlying Unexercised +Options at Fiscal Year-End +Value of Unexercised +In-the-Money Options at +Fiscal Year-End (2) +Name(1) +Exercisable +Unexercisable +Exercisable +Unexercisable +Michael J. Gausling +— +— +68,388 +117,500 +$ +163,971 +$ +123,880 +Ronald H. Spair +— +— +109,271 +195,729 +67,431 +170,044 +P. Michael Formica +— +— +85,989 +120,721 +67,744 +141,896 +R. Sam Niedbala +— +— +68,388 +62,500 +163,971 +64,755 +Joseph E. Zack +— +— +39,063 +115,937 +155,080 +373,420 +(1) +The Named Executive Officers exercised no stock options during 2003 and held no stock appreciation rights at December 31, 2003. +(2) +In-the-money stock options are options for which the exercise price is less than the fair market value of the underlying stock on a particular date. The values shown in the table +are based on the difference between $8.03, which was the average of the high and low sales prices of the Common Stock as quoted on The NASDAQ Stock Market on December 31, 2003, and the applicable exercise price. +13 +Employment Agreements +We have entered into employment agreements with certain of our executive officers. The agreements with such executive officers, other than Mr. Spair, were +executed at the time of the Merger of Epitope and STC into the Company. +At the time of the Merger, Mr. Gausling served as President and Chief Operating Officer. Mr. Gausling currently serves as President and Chief Executive Officer of the Company. Pursuant to his employment agreement, which had an initial term +of three years (i.e., through September 29, 2003) and was subject to automatic renewal for successive one-year periods unless either party gave the other party notice that the term would not be extended, Mr. Gausling was entitled to a base salary of +at least $225,000 per year. Mr. Gausling was also eligible to participate in the executive bonus plan established by the Company, and to receive or participate in any long-term incentive plan or any other additional benefits that may be made +available by the Company from time to time. Mr. Gausling was also reimbursed for job-related expenses. +Mr. Gausling’s employment agreement would terminate upon his death or upon 60 days’ written notice from Mr. Gausling to the Company. Mr. +Gausling’s employment agreement could also be terminated by the Company for cause (as defined therein), or without cause. Upon the termination of Mr. Gausling’s employment without cause, Mr. Gausling would continue to be paid his annual +salary for the greater of (x) 12 months, (y) the remaining term of the employment agreement, or (z) 36 months if Mr. Gausling elects to treat one of the following events as a termination without cause: (i) a material breach of the employment +agreement by the Company; (ii) a reduction in Mr. Gausling’s salary or a change in his title or a substantial diminution of his duties; or (iii) a change in control of the Company. +A “change in control” generally was defined to take place when disclosure of such a change would be required by +the proxy rules promulgated by the Commission or when: +· +a person (other than the Company, any of its subsidiaries, any employee benefit plan of the Company, or any person with voting power arising from a revocable proxy) acquires +beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of 30% or more of the combined voting power of the Company’s voting securities; +· +less than a majority of the directors are persons who were either nominated or selected by the Board; +· +the consummation of any consolidation or merger in which the Company is not the surviving corporation or the sale, lease, exchange or other transfer of all or substantially all of +the assets of the Company; or +· +the approval by the stockholders of the Company of any plan or proposal for the liquidation or dissolution of the Company. +In March 2004 we announced that Mr. Gausling will retire from the Company by +the end of 2004. Shortly after this announcement, we entered into a transition agreement with Mr. Gausling, which replaced and terminated his employment agreement. Pursuant to the transition agreement, Mr. Gausling will continue to serve as +President and Chief Executive Officer and as a member of the Board until requested to retire by the Board. Regardless of his retirement date, Mr. Gausling will continue to be employed by the Company until December 31, 2004, unless his employment is +terminated for cause (as defined therein). Mr. Gausling has agreed to assist in the transition of responsibilities to his successor. +During 2004, Mr. Gausling will receive an annual base salary of $325,000, will be entitled to full executive benefits under our group health and other +benefit arrangements, and will be entitled to a cash bonus under our 2004 Self-Funding Annual Bonus Plan payable, if at all, at the same time as other executives participating in the Plan receive bonuses. The personal performance factor used to +calculate Mr. Gausling’s 2004 bonus will not be less than the personal performance factor used to determine his cash bonus for 2003. +Pursuant to the transition agreement, Mr. Gausling was granted a non-qualified option to purchase 100,000 shares of Common Stock, pursuant to our 2000 +Stock Award Plan. This option will vest in full on December 31, 2004 so long as Mr. Gausling complies with the transition agreement and remains continuously employed by the +14 +Company through that date. The option will also vest if a “change of control” (as defined in Mr. Gausling’s now terminated employment +agreement) were to occur prior to December 31, 2004. +During +2005, Mr. Gausling will receive salary continuation payments in an aggregate amount of $325,000, payable in four equal installments at the end of each fiscal quarter during 2005. However, if a “change of control” occurs either (i) before +September 29, 2004 or (ii) between September 30, 2004 and December 31, 2004 and we have not hired a successor President and Chief Executive Officer, Mr. Gausling will continue to be paid an annual base salary of $325,000 for a period of 36 months +from the date of the notice of the change in control, except that if Mr. Gausling continues to work for the Company or any of its subsidiaries, then any amounts Mr. Gausling receives as compensation following the event shall be credited against +the amounts payable as a result of the change of control. If Mr. Gausling elects to obtain continuing coverage under our health benefit plan pursuant to COBRA beginning January 1, 2005, the Company will reimburse Mr. Gausling for the cost of his +COBRA premiums for the 12-month period ending December 31, 2005. +During the term of the transition agreement and while Mr. Gausling is entitled to receive salary continuation payments, he has agreed not to: +· +recruit, solicit or hire any executive or employee of the Company; +· +induce or solicit any current or prospective customer, client or supplier of the Company to cease becoming a customer, client or supplier or divert Company business away from any +customer, client or supplier of the Company; or +· +own, manage, control, work for or provide services to any entity that competes with the Company in the market for oral fluid or rapid point-of-care diagnostic testing in the United +States. +Mr. Gausling has also agreed to keep +confidential all confidential and proprietary business data and other information to which he has had access during his employment with the Company. If Mr. Gausling fails to comply with any of the provisions described in this paragraph, he will no +longer be entitled to salary continuation payments and would be required to return to us any salary continuation payments previously received. +As further consideration for the compensation he will receive under the transition agreement, Mr. Gausling has agreed to release the Company from all +claims or liabilities arising prior to the date of the release. +All other employment agreements are substantially similar to Mr. Gausling’s original employment agreement, with the following exceptions: +Mr. Spair serves as Executive Vice President and Chief Financial Officer of the Company, and his agreement provides for a base salary of at least $200,000 +per year. The initial term of Mr. Spair’s employment agreement was two years, rather than three years. Mr. Spair was entitled to be reimbursed for the reasonable costs to relocate from his Hamilton, New Jersey home, up to a maximum aggregate +amount of $40,000, plus an additional amount to compensate Mr. Spair for income taxes payable on the relocation reimbursement. Mr. Spair was also granted an option to purchase 150,000 shares of the Company’s Common Stock on the date he +commenced employment with the Company. Mr. Spair’s employment agreement contains the same termination provisions as Mr. Gausling’s agreement. +Mr. Formica serves as the Executive Vice President, Operations, and his agreement provides for a base salary of at least $150,000 per year. The initial +term of Mr. Formica’s employment agreement was two years, rather than three years. Mr. Formica’s employment agreement contains the same termination provisions as Mr. Gausling’s agreement, except that Mr. Formica will be paid his +salary for 24 months, rather than 36 months, if he elects to treat one of the events described above as a termination without cause. +Dr. Niedbala serves as Executive Vice President and Chief Science Officer of the Company, and his agreement provides for a base salary of at least +$185,000 per year. Dr. Niedbala’s employment agreement contains the same termination provisions as Mr. Gausling’s agreement, except that Dr. Niedbala will be paid his salary for 24 months, rather than 36 months, if he elects to treat one +of the events described above as a termination without cause. +15 +Compensation of Directors +All nonemployee Directors receive an annual fee of $12,000. In addition, the Chairman of the Board receives an additional +annual fee of $13,000, the Chairman of the Audit Committee receives an additional annual fee of $5,000, and the Chairmen of the Compensation Committee, the Nominating and Corporate Governance Committee and the Strategic Planning Committee each +receive additional annual fees of $4,000. Annual fees are payable quarterly in advance. +Each nonemployee Director receives a $1,000 fee for each Board meeting attended, and each member of a Board Committee receives an additional $1,000 fee for each Committee meeting attended. A meeting fee will only be +paid with respect to a meeting for which minutes are prepared. Nonemployee Directors also receive reimbursement for their reasonable out-of-pocket costs of attending Board and Committee meetings. +Nonemployee Directors receive an initial grant of 40,000 stock options upon +joining the Board (the “Initial Grant”). An additional grant of 40,000 stock options is also made to any nonemployee Director who becomes Chairman of the Board (the “Chairman Grant”). Each nonemployee Director receives an annual +grant of 20,000 stock options (the “Annual Grant”) on the annual option grant date for officers and employees of the Company, except for the Chairman of the Board, who receives an Annual Grant of 30,000 stock options. +The options granted to nonemployee Directors are nonqualified stock options +and have an exercise price equal to the mean between the high and low sales prices of the Company’s Common Stock as quoted on The NASDAQ Stock Market on the grant date. Each Initial Grant and Chairman Grant generally vests on a monthly basis +over the 24 months immediately following the grant date, and each Annual Grant generally vests on a monthly basis over the 12 months immediately following the grant date. All vesting of the options will cease 90 days after the nonemployee Director +ceases to serve on the Board. Options become exercisable in full immediately upon the occurrence of a change in control of the Company. A change in control of the Company would occur on the happening of such events as the acquisition of beneficial +ownership by a person or group of 30 percent or more of the outstanding Common Stock of the Company, certain changes in Board membership affecting a majority of positions, certain mergers or consolidations, a sale or other transfer of all or +substantially all the Company’s assets, or approval by the stockholders of a plan of liquidation or dissolution of the Company, as well as any change in control required to be reported by the proxy disclosure rules of the Securities and +Exchange Commission. Payment of the exercise price may be made in cash or by delivery of previously acquired shares of Common Stock having a fair market value equal to the aggregate exercise price. +Compensation Committee Interlocks and Insider Participation +Gregory B. Lawless, Roger L. Pringle and Douglas G. Watson served as members +of the Compensation Committee of the Board during 2003. None of Mr. Lawless, Mr. Pringle or Mr. Watson currently serves as an officer of the Company. There are no compensation committee interlocks between the Company and any other entity involving +the Company’s or such entity’s executive officers or board members. +The following report of the Compensation Committee of the Board (the “Committee”) and the Stock Price Performance Graph shall not be deemed to be incorporated by reference by any general statement +incorporating by reference this Proxy Statement into any filing by the Company under either the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates this information by reference. The following report +and the Stock Price Performance Graph shall not otherwise be deemed filed under such Acts. +Report on Executive Compensation +General . The Committee, which is composed of independent, nonemployee Directors, is responsible for establishing and administering the Company’s policies that govern executive +compensation and benefit practices. For 2003, the Committee evaluated the performance of the Chief Executive Officer and reviewed the performance evaluations of the other executive officers, and approved their salary, merit cash bonus and stock +16 +option grants. Compensation approved by the Committee for the Chief Executive Officer was then recommended for approval by the Company’s Board of +Directors. +Compensation +Philosophy . The Company’s executive compensation programs are designed to (i) reflect the financial performance of the Company and achievement of financial and other performance objectives, (ii) align +the interests of management with the long-term interests of the Company’s stockholders, and (iii) provide long-term incentives for management. The Company seeks to set compensation at levels sufficiently competitive to attract, retain and +motivate high quality executives to contribute to the Company’s successes. In assessing overall compensation for executive officers, the Committee considers the Company’s performance and industry position, general industry data and +recommendations of third party consultants. In furtherance of these goals, the components of executive compensation include base salary, merit cash bonuses, stock option grants and other benefits, and are linked to both Company and individual +performance. +Base +Salary . At least annually, the Committee sets the salary for all executive officers. The Committee reviews the performance of the Chief Executive Officer and other executive officers, and receives and considers +management recommendations concerning salary adjustments for executive officers, as well as compensation data regarding other medical diagnostic and healthcare companies. +The Committee’s compensation decisions for 2003 were heavily influenced by the Company’s strong financial +performance and the fact that it met most of its financial objectives for that year. The Company’s revenues were $40.5 million in 2003, representing a 26% increase over 2002. The net loss for 2003 was reduced to $1.1 million, a $2.2 improvement +over 2002. Significantly, the Company ended 2003 with two consecutive profitable quarters and generated $2.7 million in cash flow from operations during 2003. +In addition to the Company meeting its stated financial objectives, Mr. Gausling met most of his individual performance objectives during 2003. As a +result, the Committee decided to increase Mr. Gausling’s salary from $275,000 to $325,000 per year. This increase was also approved in order to better align Mr. Gausling’s compensation with industry standards. Messrs. Spair, Formica and +Zack also received cost of living increases, and Mr. Formica received an additional increase in salary to reflect an increase in his responsibilities and to better align his compensation with industry standards. +Merit Cash Bonuses . In February 2003, +the Committee and Board of Directors approved the 2003 Self-Funding Award Incentive Plan (the “2003 Bonus Plan”), which established target cash bonus awards for executive officers and other managers for 2003. The terms of the 2003 Bonus +Plan were designed to reward executive officers and management for outstanding performance with cash bonus awards. Awards for 2003 were to be based on each executive’s achievement of certain individual performance targets and the Company’s +attainment of its financial targets for the year. Payment of awards would be from bonus pools funded at levels dependent upon the Company achieving certain financial objectives. The Chief Executive Officer’s target payment was 50% of base +salary. +In light of the Company’s strong financial +performance and Mr. Gausling’s achievement of most of his individual performance objectives during 2003, the Committee awarded Mr. Gausling a cash bonus of $80,000. The Committee also approved cash bonuses to Messrs. Spair, Formica and Zack and +Dr. Niedbala under the terms of the 2003 Bonus Plan. +Stock Options . As previously noted, an important goal of the Company’s compensation program is to align the interests of the executive officers and other employees with the long-term +interests of the Company’s stockholders. In furtherance of this goal, the Company maintains the 2000 Stock Award Plan (the “Award Plan”) pursuant to which the Company may grant stock-based awards to directors, officers, and employees +of, and consultants and advisers to, the Company. +In February +2003, the Committee and the Board of Directors approved Stock Option Award Guidelines for the Company’s executive management (the “Option Guidelines”). The purpose of the Option Guidelines is to +17 +provide a framework for determining annual stock option awards for executives that reflect the executive’s duties and performance evaluation against +individual objectives for the applicable year, and to align the size of option grants for executives with comparable positions at other medical diagnostic and healthcare companies. Utilizing the Option Guidelines, in January 2004, the Committee +awarded Mr. Gausling an option for 150,000 shares and approved smaller awards for the other executive officers. +Other Compensation . The Company provides Mr. Gausling and each other officer at the level of Senior Vice +President and above with a car allowance in an amount equal to $9,000 per year. The Company also reimbursed Mr. Gausling for certain country club dues and assessments incurred in 2003. +In addition, the Company maintains a 401(k) profit sharing plan (the +“401(k) Plan”) in which all employees of the Company, including executive officers, are eligible to participate. The Company makes matching contributions up to the lesser of $4,000 or 10% of the participant’s salary. Payments of +benefits accrued for 401(k) Plan participants will be made upon retirement or upon termination of employment prior to retirement provided certain conditions have been met by the participant prior to termination. +COMPENSATION COMMITTEE: +Roger L. Pringle, Chairman +Gregory B. Lawless +Douglas G. Watson +March 23, 2004 +18 +Stock Price Performance Graph +The following graph compares the cumulative total returns to investors in the Company’s Common Stock, the Russell 2000 +Index and the Nasdaq Biotechnology Index for the period from December 31, 1998 through December 31, 2003. The graph assumes that $100 was invested on December 31, 1998 in the Company’s Common Stock and in each of the above-mentioned indices, +and that all dividends were reinvested. +The Russell 2000 index +was chosen because it is an index of companies with market capitalizations similar to ours. The Nasdaq Biotechnology Index was chosen because it includes a number of our competitors. Stockholders are cautioned that the graph shows the returns to +investors only as of the dates noted and may not be representative of the returns for any other past or future period. +* +The stock performance data for the Company used to generate the graph reflects the cumulative total return on the common stock of Epitope for all periods prior to the September 29, +2000 Merger of Epitope into the Company. +19 +Item 2 +Amendment of the OraSure Technologies, Inc. 2000 Stock Award Plan +General +On November 16, 1999, the Board of Directors of Epitope adopted, subject to stockholder approval, the Epitope, Inc. 2000 Stock Award Plan (the “Award Plan”). The Award Plan was approved by Epitope’s +stockholders on February 15, 2000. The Award Plan initially authorized for award a maximum of 2,500,000 shares of Common Stock, plus the number of shares that were available for grant under the Epitope, Inc. 1991 Stock Award Plan (the “1991 +Plan”) on February 15, 2000 (the “1991 Plan Shares”), and such additional shares that become available under the terms of the Award Plan thereafter. +Effective September 29, 2000, in connection with the Merger of Epitope and STC into the Company, the name of the Award Plan +was changed to the OraSure Technologies, Inc. 2000 Stock Award Plan and the Award Plan was adopted as a stock option plan of the Company. All options granted under the Award Plan prior to the Merger were assumed by and became obligations of the +Company. On May 20, 2002, an amendment to the Award Plan was approved by the Company’s stockholders, increasing the number of shares of Common Stock authorized for grant by 1,800,000 to a total of 4,300,000 shares. The shares subject to grant +under the Award Plan had a market value (determined as the average high and low sales price on the NASDAQ Stock Market) of $9.13 per share on March 26, 2004. +On February 16, 2004, the Company’s Board of Directors (the “Board”) approved and recommended for submission to stockholders an amendment +to increase the number of shares of Common Stock authorized for grant under the Award Plan. Assuming that a quorum is present, the affirmative vote of the holders of a majority of the shares of Common Stock present, in person or by Proxy at the +Annual Meeting, is required for approval of the amendment to the Award Plan. Shares represented by a Proxy which are not voted for approval of the amendment (by voting no or abstaining) will have the effect of voting against the amendment. Your +Board recommends that stockholders vote FOR approval of the amendment to the Award Plan. +Amendment of the Award Plan +As of March 26, 2004, there were no shares of Common Stock remaining available for grant as stock options or other equity awards under the Award Plan. In order to enable the Company to continue to attract qualified directors, officers, +employees and outside advisors and to compensate its directors, officers, employees and advisors in a manner that is competitive with compensation provided by other medical diagnostic companies, the Board determined that additional shares of Common +Stock would need to be authorized for grants under the Award Plan. Accordingly, the Board approved amendment of the Award Plan to increase the number of authorized shares by 3,000,000 shares from 4,300,000 shares to 7,300,000 shares, plus the 1991 +Plan Shares and other shares that become available under the terms of the Award Plan. The Board determined that this increase in authorized shares will meet the Company’s needs under the Award Plan for the foreseeable future. A copy of the +proposed Award Plan amendment is attached to this Proxy Statement as Exhibit A. +Summary of the Award Plan as Amended +A +summary description of certain terms and provisions of the Award Plan as proposed to be amended follows. +Purpose +The purpose of +the Award Plan is to promote and advance the interests of the Company and its stockholders by enabling the Company to attract, retain, and reward employees, outside advisors, and directors of the Company and any subsidiaries. The Award Plan is +intended to strengthen the mutuality of interests between employees, advisors, and directors and the Company’s stockholders by offering equity-based incentives to promote the long-term growth, profitability and financial success of the Company. +20 +Eligibility +The Award Plan provides for stock-based awards to (i) employees of the Company and any subsidiaries, (ii) members of advisory committees or other +consultants to the Company or its subsidiaries (“Advisors”), and (iii) nonemployee directors of the Company. Persons who help the Company raise money by selling securities or who promote or maintain a market for the Company’s +securities are not eligible to participate in the Award Plan as Advisors. In addition, only Advisors who, in the judgment of the Compensation Committee of the Board (the “Committee”), are or will be contributors to the long-term success of +the Company will be eligible to receive Awards (as defined below). As of March 26, 2004, the Company had 183 employees, 25 persons serving as Advisors, and six nonemployee directors, all of whom are eligible to receive Awards under the Award Plan. +Administration of the Award Plan +The Committee administers the Award Plan and determines the persons who are +to receive Awards and the types, amounts, and terms of Awards. For example, the Committee may determine the exercise price, the form of payment of the exercise price, the number of shares subject to an Award, and the date or dates on which an Award +becomes exercisable. The Committee may delegate to one or more officers of the Company the authority to determine the recipients of and the types, amounts and terms of Awards granted to participants who are not Reporting Persons. +The Award Plan will continue in effect until Awards have been granted +covering all available shares under the Award Plan or the Award Plan is otherwise terminated by the Board. Termination of the Award Plan will not affect outstanding Awards. +The Award Plan permits the Board to amend the Award Plan, subject to stockholder approval if required by law or the rules of +a stock exchange or over-the-counter trading system. In order to retain favorable treatment of Awards under applicable tax laws, the Board cannot increase the number of shares covered by the Award Plan without further stockholder approval. +Awards +Awards that may be granted under the Award Plan include stock options, stock appreciation rights, restricted awards, +performance awards, and other stock-based awards (collectively, “Awards”). The following is a brief summary of the various types of Awards that may be granted under the Award Plan. +Stock Options . Options granted +under the Award Plan may be either incentive stock options (“ISOs”), a tax-favored form of Award meeting the requirements of Section 422 of the Internal Revenue Code, as amended, or nonqualified options (“NQOs”), which are not +entitled to special tax treatment. ISOs must expire no more than ten years from the date of grant. The Award Plan does not limit the maximum term of NQOs. The exercise price of any ISO granted under the Award Plan may not be less than 100% of the +fair market value of the Common Stock on the date of grant. The exercise price of any NQO generally may not be less than 75% of the fair market value of the Common Stock on the date of grant. The Award Plan authorizes the Committee to issue deferred +compensation options with an option price substantially less than the fair market value (but not less than $1 per share) for the purpose of deferring a specified amount of income for a recipient. +The agreement evidencing the grant of a stock option (the “Option +Agreement”) will specify, as determined by the Committee, the time or times when the option is exercisable, in whole or in part, and the extent to which the option remains exercisable after the option holder ceases to be an employee, Advisor or +nonemployee director of the Company. The Option Agreement may, in the discretion of the Committee, provide whether the option will become fully exercisable upon the death, disability or retirement of the option holder or upon a change of control of +the Company. An option may be exercised by payment of the exercise price in cash or, at the discretion of the Committee, in any combination of cash, previously held shares of Common Stock or share equivalents, or with proceeds from the sale of +shares subject to the option. +21 +Options granted to employees under the Award Plan generally vest over four years, with 25% of the grant +vesting on the first anniversary of the grant date and the remaining 75% vesting ratably on a monthly basis over the next three years. Options granted to nonemployee Directors generally vest ratably on a monthly basis over either a 12 or 24-month +period, depending on the type of grant. See the Section entitled, “Compensation of Directors,” for a further description of the terms of options granted to nonemployee Directors under the Award Plan. Options granted under the Award Plan +generally provide for accelerated vesting upon a “change of control.” Therefore, all unvested options outstanding as of the date of the Merger under the Award Plan were vested in full on that date. +The Committee, in its discretion, may provide in the Option Agreement that, +to the extent that the option is exercised using previously acquired shares of Common Stock, the option holder shall automatically be granted a replacement (“reload”) option for a number of shares of Common Stock equal to the number of +shares surrendered upon exercise with an option price equal to the fair market value of Common Stock on the date of exercise and subject to such other terms as the Committee determines. +In no event may options for more than 500,000 shares of Common Stock be granted to any individual under the Award Plan +during any fiscal year period. +Stock Appreciation +Rights . A recipient of stock appreciation rights (“SARs”) will receive, upon exercise, a payment (in cash or in shares of Common Stock) based on the increase in the price of a share of Common Stock +between the date of grant and the date of exercise. SARs may be granted in connection with options or other Awards granted under the Award Plan or may be granted as independent Awards. In no event may SARs for more than 500,000 shares of Common +Stock be granted to any individual under the Award Plan during any fiscal year period. +Restricted Awards . Restricted Awards may take the form of restricted shares or restricted units. Restricted shares are shares of Common Stock that may be subject to +forfeiture if the recipient terminates employment or service as an Advisor or nonemployee director during a specified period (the “Restriction Period”). Stock certificates representing restricted shares are issued in the name of the +recipient, but are held by the Company until the expiration of the Restriction Period. From the date of issuance of restricted shares, the recipient is entitled to the rights of a stockholder with respect to the shares, including voting and dividend +rights. Restricted units are Awards of units equivalent in value to a share of Common Stock, which similarly may be subject to forfeiture if the recipient terminates employment or service as an Advisor or nonemployee director during the applicable +Restriction Period. At the expiration of the Restriction Period, payment with respect to restricted units is made in an amount equal to the value of the number of shares of Common Stock covered by the restricted units. Payment may be in cash, +unrestricted shares of Common Stock, or any other form approved by the Committee. +Performance Awards . Performance Awards are designated in units equivalent in value to a share of Common Stock. A Performance Award is subject to forfeiture if or to the +extent that the Company, a subsidiary, an operating group, or the recipient, as specified by the Committee in the Award, fails to meet performance goals established for a designated performance period. Performance Awards earned by attaining +performance goals are paid at the end of a performance period in cash, shares of Common Stock, or any other form approved by the Committee. The number of shares of Common Stock issuable with respect to Performance Awards granted to any individual +executive officer may not exceed 150,000 shares for any calendar year. +Other Stock-Based Awards . The Committee may grant other Awards that involve payments or grants of shares of Common Stock or are measured by or in relation to shares of Common Stock. +Shares Subject to the Award Plan +The maximum number of shares of Common Stock for which Awards may be granted +under the Award Plan (as amended) is 7,300,000 shares, plus the 1991 Plan Shares. In addition, if an Award under the Award Plan, the 1991 Plan or the Incentive Stock Option Plan for Key Employees of Epitope, Inc. (the “Epitope ISOP”) is +22 +cancelled or expires for any reason prior to becoming fully vested or exercised or is settled in cash in lieu of shares, or is exchanged for other Awards +under the Award Plan, all shares covered by such Awards will be made available for future Awards under the Award Plan. Any shares used as full or partial payment to the Company of the option, purchase or other exercise price of an Award, and any +shares covered by a stock appreciation right which are not issued upon exercise, will also become available for future Awards. As of March 26, 2004, there were options and other Awards outstanding relating to 5,239,439 shares of Common Stock which +had been granted under the Award Plan, the 1991 Plan or the Epitope ISOP. +In the event of a change in the Company’s capitalization affecting the Common Stock, including a stock dividend, stock split, recapitalization, merger, consolidation, split-up, combination or exchange of shares +or other form of reorganization, the Committee shall make such proportionate adjustments as it may determine, in its sole discretion to be appropriate as a result of such change, to the aggregate number of shares for which Awards may be granted +under the Award Plan, the maximum number of shares which may be sold or awarded to any participant, the number of shares covered by each outstanding Award, and the price per share in respect of outstanding Awards. +Federal Income Tax Consequences +The following discussion summarizes the principal anticipated federal income +tax consequences of Awards granted under the Award Plan, to participants and to the Company. +Incentive Stock Options . A recipient of an option does not realize taxable income upon the grant or exercise of an ISO. If no disposition of shares occurs within two years +from the date of grant or within one year from the date of exercise, then (a) upon the sale of the shares, any amount realized in excess of the exercise price is taxed to the option recipient as long-term capital gain and any loss sustained will be +a long-term capital loss, and (b) no deduction is allowed to the Company for federal income tax purposes. For purposes of computing alternative minimum taxable income, an ISO is treated as an NQO. +If shares of Common Stock acquired upon the exercise of an ISO are disposed +of prior to the expiration of the two-year and one-year holding periods described above, then (a) the recipient will realize ordinary income in the year of disposition in an amount equal to the excess (if any) of the fair market value of the shares +at exercise (or, if less, the amount realized on a sale of the shares) over the exercise price thereof and (b) the Company would be entitled to deduct such amount. Any further gain realized is taxed as a short-term or long-term capital gain, as +applicable, and does not result in any deduction for the Company. Any disqualifying disposition as described above will generally avoid the alternative minimum tax consequences of the exercise of an ISO. +Nonqualified Options . No income is +realized by an option recipient at the time an NQO is granted. Upon exercise, (a) ordinary income is realized by the option recipient in an amount equal to the difference between the exercise price and the fair market value of the shares on the date +of exercise and (b) the Company receives a tax deduction for the same amount. Upon disposition of the shares, appreciation or depreciation after the date of exercise is treated as a short-term or long-term capital gain or loss, as applicable, and +will not result in any deduction to the Company. +Payment +of Exercise Price in Share s . The Committee may permit participants to pay all or a portion of the exercise price for an option using previously acquired shares of Common Stock. If an option is exercised and payment is +made in previously held shares (held for six months or longer), there is no taxable gain or loss to the participant other than any gain recognized as a result of exercise of the option, as described above. +Stock Appreciation Rights . The grant of +a SAR to a participant will not cause the recognition of income by the participant. Upon exercise of a SAR, the participant will realize ordinary income equal to the amount of cash payable to the participant plus the fair market value of any shares +of Common Stock delivered to the participant. The Company will be entitled to a deduction equal to the amount of ordinary income realized by the participant in connection with the exercise of a SAR. +23 +Restricted Awards and Performance Awards . Generally, a participant +will not recognize any income upon issuance of a Restricted Award or Performance Award that is subject to forfeiture. Generally, a participant will recognize ordinary income upon the vesting of Restricted Awards or Performance Awards in an amount +equal to the amount of cash payable to the participant plus the fair market value of shares of Common Stock delivered to the participant. Dividends paid with respect to Awards during the period such Awards are subject to forfeiture will be taxable +as ordinary income to the participant. However, a participant may elect to recognize compensation income upon the grant of restricted shares, based on the fair market value of the shares of Common Stock subject to the Award at the date of grant. If +a participant makes such an election, dividends paid with respect to the restricted shares will not be treated as ordinary income, but rather as dividend income, and the participant will not recognize additional income when the restricted shares +vest. The Company will be entitled to a deduction equal to the amount of ordinary income recognized by the participant. If a participant who receives an Award of restricted shares makes the special election described above, the Company will not be +entitled to deduct dividends paid with respect to the restricted shares. +Limitation on Deductibility of Certain Compensation . Section 162(m) of the Internal Revenue Code generally makes nondeductible to the Company taxable compensation paid to a single +individual in excess of $1 million in any calendar year if the individual is the Chief Executive Officer or one of the next four highest-paid executive officers, unless the excess compensation is considered to be “performance based.” +Among other requirements contained in Section 162(m), the material terms of a compensation plan in which such officers participate must be approved by stockholders for awards or compensation provided under the plan to be considered “performance +based.” The Company may in the future consider structuring Awards to attempt to meet the requirements of Section 162(m) if it determines the action to be advisable. +Equity Compensation Plan Information +The following table provides information as of December 31, 2003 about the shares of Common Stock that may be issued upon the exercise of options under +all of our equity compensation plans. These plans include the Award Plan, the 1991 Plan, the Agritope, Inc. 1992 Stock Award Plan (the “Agritope Plan”), and the OraSure Technologies, Inc. Employee Incentive and Non-Qualified Stock Option +Plan (the “Employee Incentive Plan”). The Award Plan, the 1991 Plan and the Agritope Plan were Epitope equity compensation plans, and the Employee Incentive Plan was an STC equity compensation Plan. In connection with the Merger of Epitope +and STC into the Company on September 29, 2000, the Award Plan was adopted by the Company, and the Company assumed the obligation to issue shares for the then outstanding stock options granted under the Award Plan, the 1991 Plan, the Agritope Plan +and the Employee Incentive Plan. Additional grants of equity compensation may not be made under the 1991 Plan, the Agritope Plan or the Employee Incentive Plan. +Plan Category +Number of securities to be +issued upon exercise of +outstanding options +(a) +Weighted-average exercise +price of outstanding +options +(b) +Number of securities +remaining available for +future issuance under +equity compensation plans +(excluding securities +reflected in column (a)) +(c) +Equity compensation plans approved by security holders +571,024 +$ +7.059 +1,228,976 +(1) +Equity compensation plans not approved by security holders +3,364,439 +(2) +$ +6.314 +(2) +— +Total +3,935,463 +1,228,976 +(1) +Represents shares remaining available for future issuance as of December 31, 2003 under the Award Plan. +(2) +Includes 812,032 shares issuable as of December 31, 2003 under options at a weighted average exercise price of $3.784 per share under the Award Plan, the 1991 Plan, the Agritope +Plan, and the Employee Incentive Plan. +24 +Annual Report +Our Annual Report to Stockholders for the year ended December 31, 2003 accompanies this Proxy Statement. On written +request, we will provide, without charge, a copy of our Annual Report on Form 10-K for the year ended December 31, 2003, as filed with the Commission (including a list briefly describing the exhibits thereto), to any record holder or beneficial +owner of our Common Stock on March 26, 2004, the record date for the Annual Meeting, or to any person who subsequently becomes such a record holder or beneficial owner. Requests should be directed to the attention of the Secretary of the Company at +our address set forth in the Notice of Annual Meeting of Stockholders immediately preceding this Proxy Statement. +Independent Accountants +Change in Accountant . On May 21, 2002, we dismissed Arthur Andersen LLP (“Andersen”) as our independent +public accountants and engaged KPMG LLP (“KPMG”) to serve as our independent auditors for the year ending December 31, 2002. These actions were effective immediately and were approved by our Audit Committee. The report of Andersen on the +Company’s financial statements for the year ended December 31, 2001 did not contain an adverse opinion or a disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles. During its audit for +the year ended December 31, 2001 and through May 21, 2002, (i) there were no disagreements with Andersen on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not +resolved to Andersen’s satisfaction, would have caused Andersen to make reference to the subject matter of such disagreements in their report on the Company’s financial statements for the year ended December 31, 2001, and (ii) there were +no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K under the Exchange Act. +During the year ended December 31, 2001, and through May 21, 2002, the Company did not consult with KPMG regarding any of the items described in Item 304(a)(2) of Regulation S-K under the Exchange Act. +KPMG has audited the financial statements of the Company for the years ended +December 31, 2003 and 2002. We expect representatives of KPMG to be present at the Annual Meeting and to be available to respond to appropriate questions from stockholders. The representatives of KPMG will have the opportunity to make a statement at +the meeting if they desire to do so. +Audit +Fees . The aggregate fees billed by KPMG related to the audit of our annual financial statements for the years ended December 31, 2003 and 2002, the review of our financial statements included in the Company’s +quarterly reports on Form 10-Q, and services that were provided by KPMG in connection with statutory and regulatory filings or engagements during each of these years totaled $205,597 and $123,250, respectively. Also included in audit fees are +professional services in connection with the review of registration statements on Forms S-3 and S-8, issuance of comfort letters and assistance with accounting guidelines. +Audit-Related Fees . For the years ended December 31, 2003 and 2002, the aggregate fees +billed by KPMG for audit-related services totaled $12,000 and $22,000, respectively. These services consisted primarily of audits of our 401(k) employee benefit plans. +Tax Fees . For the years ended December 31, 2003 and 2002, the aggregate fees billed by +KPMG for tax compliance, tax advice and tax planning services totaled $35,250 and $37,500, respectively. These services consisted primarily of tax compliance services. +All Other Fees . The Company did not pay any other fees to KPMG in connection with their +services in 2003 and 2002. +The Audit Committee has adopted a +general practice of pre-approving all audit and non-audit services provided by KPMG. The Chairman of the Audit Committee has been delegated the authority to pre-approve audit +25 +and non-audit services having an aggregate value of up to $10,000 in between meetings of the Audit Committee, provided that such pre-approval is communicated +to the Audit Committee at its next scheduled meeting. +The +Audit Committee has selected KPMG to serve as the Company’s independent auditor for the year ending December 31, 2004. +Deadline For Stockholder Proposals +You may submit proposals for inclusion in the proxy materials for the Company’s 2005 Annual Meeting of Stockholders. Any such proposals must meet the +stockholder eligibility and other requirements imposed by rules issued by the Securities and Exchange Commission and must be received by the Company at 220 East First Street, Bethlehem, Pennsylvania 18105, Attention: Secretary, not later than +December 11, 2004. +Our Bylaws provide that a stockholder +proposal must meet certain predetermined requirements in order to be considered at the Annual Meeting. In order to be considered, a stockholder’s proposal must be made in writing to the Company’s Secretary and must be delivered to or +received at our principal executive offices not less than ninety (90) days nor more than one hundred twenty (120) days prior to the meeting. However, if less than one hundred (100) days’ notice or prior public disclosure of the date of the +meeting is given or made to stockholders, notice by the stockholder to be timely must be so received no later than the close of business on the tenth (10th) day following the day on which such notice of the date of the meeting was mailed or such +public disclosure was made, whichever first occurs. The notice to the Secretary must set forth, with respect to each matter the stockholder proposes to bring before the meeting, a brief description of the matter and the reasons for considering that +matter at the Annual Meeting. The notice must also include the name and record address of the stockholder, the class and number of shares of capital stock of the Company, which are beneficially owned by the stockholder, and any material interest the +stockholder has in the matter(s) proposed for consideration at the Annual Meeting. +BY ORDER OF THE BOARD OF DIRECTORS +Jack E. Jerrett +Secretary +April 9, 2004 +26 +Exhibit A +Proposed Amendment of OraSure Technologies, Inc. +2000 Stock Award Plan (the “Plan”) +On February 16, 2004, the Company’s Board of Directors approved, and recommended for approval by stockholders, a 3,000,000 share increase in the number of authorized shares under the Award Plan. In order to +reflect this increase in authorized shares, Section 4.2.2 of the Award Plan was amended, subject to stockholder approval, as follows: +“4.2.2 Number of Shares . The maximum number of Shares for which Awards may be granted under the Award +Plan is 7,300,000 Shares, plus the number of Shares that are available for grant under the Epitope, Inc., 1991 Stock Award Plan (the “1991 Plan”), on February 15, 2000, subject to adjustment pursuant to Article 14 of the Award Plan.” +27 +OraSure Technologies, Inc. +diagnostic solutions for the new millennium +PROXY +2004 Annual Meeting of Stockholders +PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned hereby appoints Jack E. Jerrett and Ronald H. Spair, and each of them, proxies with full power of substitution, to vote all of the shares +which the undersigned is entitled to vote at the 2004 Annual Meeting of Stockholders of OraSure Technologies, Inc. (the “Company”), to be held on Tuesday, May 18, 2004, and at any adjournment or adjournments thereof, with all the powers +the undersigned would possess if personally present, with respect to the matters listed on the reverse side. +The shares represented by this Proxy, if properly executed, will be voted as specified on the reverse side or, if no specification is made, will be voted +FOR the election of the nominees listed on the reverse side as directors and FOR Proposal 2, Amendment of OraSure Technologies, Inc. 2000 Stock Award Plan. If any other business properly comes before the meeting, the proxies named above will have +discretionary authority to vote thereon in accordance with their best judgment. +PLEASE MARK, DATE, SIGN, AND RETURN THE PROXY CARD PROMPTLY. +(Continued and to be signed on reverse +side.) +Address Change/Comments (Mark the corresponding box on the reverse side) +é FOLD AND DETACH HERE é +OraSure Technologies, Inc. +diagnostic solutions for the new millennium +2004 Annual Meeting of Stockholders +Tuesday, May 18, 2004 +Please +Mark Here +for Address Change +or comments +SEE REVERSE SIDE +¨ +1. +ELECTION OF DIRECTORS +Class I (Term expiring 2007) +01 Douglas G. Watson +02 Carter H. Eckert +03 Frank G. +Hausmann +FOR +¨ +WITHHOLD +¨ +2. +AMENDMENT OF ORASURE TECHNOLOGIES, INC. 2000 STOCK AWARD PLAN +FOR +¨ +AGAINST +¨ +ABSTAIN +¨ +Consenting to receive all future annual meeting materials and shareholder communications electronically is simple and fast! Enroll today at +www.melloninvestor.com/ISD for secure online access to your proxy materials, statements, tax documents and other important shareholder correspondence. +(Instruction: To withhold authority to vote for any individual nominee, mark FOR and strike a line through the nominee’s name in the list above. To withhold authority to vote +for all nominees, mark WITHHOLD.) +Signature +Signature +Date , 2004 +NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee, guardian or other representative, please give +full title as such. +é FOLD AND DETACH HERE é +Vote by Internet +or Telephone or Mail +24 Hours a Day, 7 Days a Week +Internet and telephone voting is available through 11:59 PM Eastern Time, May 17, 2004. +Your Internet or telephone vote authorizes the named proxies to vote your +shares in the same manner +as if you marked, signed and returned your proxy card. +Internet +http://www.eproxy.com/osur +Use the Internet to vote your proxy. +Have your proxy card in hand when +you access the web site. +OR +Telephone +1-800-435-6710 +Use any touch-tone telephone to +vote your proxy. Have your proxy +card in hand when you call. +OR +Mail +Mark, sign and date +your proxy card +and +return it in the +enclosed postage-paid +envelope. +If you vote your +proxy by Internet or by telephone, +you do NOT need to mail back your proxy card. +You can view the Annual Report and Proxy Statement +on the internet at http://www.orasure.com \ No newline at end of file diff --git a/raw/proxies/0001116463/0001193125-04-059293/proxy_rpt.txt b/raw/proxies/0001116463/0001193125-04-059293/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..d90397515709a816b252286d182f4b2e2707d48a --- /dev/null +++ b/raw/proxies/0001116463/0001193125-04-059293/proxy_rpt.txt @@ -0,0 +1,16 @@ +Certain Relationships and Related +Transactions +In October 2002, we entered into a commercial +lease (the “Lease”) with Tech III Partners, LLC (“Tech Partners”), for a 48,000 square foot facility on land adjacent to our Bethlehem, Pennsylvania facilities, and the lease of that facility to us. Tech Partners is owned and +controlled by Michael J. Gausling, the Company’s President and Chief Executive Officer, and Dr. R. Sam Niedbala, the Company’s Executive Vice President and Chief Science Officer. The facility is our new corporate headquarters and houses +manufacturing and administrative operations. +The Lease has an +initial ten-year term ending in October 2012 and a base rent starting at $780,000 per year and increasing to $858,240 per year over that term. The base rental rate may be increased after the fifth year of the initial term in order to reflect changes +in the interest rate on debt incurred by Tech Partners to finance construction of the leased facilities. We have not guaranteed any debt incurred by Tech Partners. We also have an option to renew the Lease for an additional five years at a rental +rate of $975,360 per year, and to purchase the facility at any time during the initial ten-year term based on a formula set forth in the Lease. +Prior to deciding to enter into the Lease and an amendment increasing the base rent to reflect certain tenant fit-out costs, our Board of Directors +retained Imperial Realty Appraisal LLC, an independent commercial real estate appraisal firm, to evaluate the proposed base rental rate. Imperial Realty issued opinions indicating that the annual base rent set forth in the Lease, as amended, is +below the market rental rate we could otherwise expect to pay to lease a comparable commercial property in the same general geographic market. The terms of the Lease are otherwise substantially similar to a commercial lease we entered into with a +third party for our existing Bethlehem, Pennsylvania facilities. +Information regarding employment and severance agreements between the named executive officers and the Company is set forth in the Section entitled, “Employment Agreements,” in this Proxy Statement. +11 \ No newline at end of file diff --git a/raw/proxies/0001116463/0001193125-05-072694/proxy.txt b/raw/proxies/0001116463/0001193125-05-072694/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..eacfba49ad8e05a6d52f9d36fe2875d0509ccdab --- /dev/null +++ b/raw/proxies/0001116463/0001193125-05-072694/proxy.txt @@ -0,0 +1,1509 @@ +DEF 14A +1 +ddef14a.htm +ORASURE TECHNOLOGIES INC +OraSure Technologies Inc +OMB APPROVAL +OMB Number: +3235-0059 +Expires: +August 31, 2004 +Estimated average burden +hours per response . . . +14.73 +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to +Section 14(a) +of the Securities Exchange Act of 1934 +(Amendment No. ) +Filed by the Registrant x Filed by a Party other than the +Registrant ¨ +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material Pursuant to §240.14a-12 +OraSure Technologies, Inc. +(Name of Registrant as Specified In Its +Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was +determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the +previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +ORASURE TECHNOLOGIES, INC. +220 East First Street +Bethlehem, Pennsylvania 18015 +April 8, 2005 +Dear Stockholder: +You are cordially invited to attend the 2005 Annual Meeting of Stockholders +to be held on Tuesday, May 17, 2005 , at the Historic Hotel Bethlehem, 437 Main Street, Bethlehem, Pennsylvania 18018, at 10:00 a.m. Eastern Time. Your Board of Directors and Executive Management Team look forward to personally greeting those +present. If you cannot attend in person, we are pleased to offer a live webcast of the Annual Meeting, which you can access by going to our web site, www.orasure.com . +At the meeting, you will be asked to (i) elect two Class II Directors to serve on the Board of Directors until the Annual +Meeting of Stockholders in 2008, (ii) ratify the appointment of KPMG LLP as our independent registered public accounting firm to audit and report upon our financial statements and internal controls over financial reporting for the period January 1, +2005 through December 31, 2005, and (iii) transact such other business as may properly come before the meeting or any adjournments thereof. +Your Board of Directors has approved the nominees for Director and recommends that you vote FOR their election to the Board. In addition, your +Board of Directors recommends that you vote FOR the ratification of KPMG’s appointment. +Your vote is very important, regardless of the number of shares you own. Whether or not you plan to attend the Annual Meeting in person, we urge you to +submit your vote as soon as possible. You will have the option to vote by telephone, via the Internet, or by completing, signing, dating, and mailing the enclosed Proxy Card in the accompanying postage prepaid envelope. Additional details on these +options can be found in the attached Proxy Statement and Proxy Card. You may, of course, attend the Annual Meeting and vote in person regardless of whether you have previously voted by phone, the Internet or mail. +We look forward to seeing you at the meeting. +Sincerely yours, +Douglas A. Michels +President +and Chief Executive Officer +ORASURE TECHNOLOGIES, INC. +220 East First Street +Bethlehem, Pennsylvania 18015 +Notice of Annual Meeting of Stockholders +to be held May 17, 2005 +To the Stockholders of OraSure Technologies, Inc.: +The Annual Meeting of Stockholders of OraSure Technologies, Inc., a Delaware +corporation, will be held at the Historic Hotel Bethlehem, 437 Main Street, Bethlehem, Pennsylvania 18018, on Tuesday, May 17, 2005, at 10:00 a.m. Eastern Time for the following purposes: +1. To elect two Class II Directors; +2. To ratify the appointment of KPMG LLP, as our +independent registered public accounting firm, to audit and report upon the Company’s financial statements and internal controls over financial reporting for the period January 1, 2005 through December 31, 2005; and +3. To consider such other business as may properly +come before the meeting or any adjournments thereof. +Additional information is included in the Proxy Statement accompanying this Notice. Only holders of Common Stock of record at the close of business on March 28, 2005, will be entitled to vote at the Annual Meeting of Stockholders and any +adjournments thereof. +By Order of the Board of Directors, +Jack E. Jerrett +Secretary +April 8, 2005 +Bethlehem, Pennsylvania +YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the +Annual Meeting, you are urged to vote your shares as promptly as possible by telephone, via the Internet, or by completing, signing, dating and returning the enclosed Proxy Card, as described in the attached Proxy Statement. Voting by phone, the +Internet or mail does not deprive you of your right to attend the Meeting and to vote your shares in person. +ORASURE TECHNOLOGIES, INC. +220 East First Street +Bethlehem, Pennsylvania 18015 +Proxy Statement +This Proxy Statement is being mailed on or about April 8, 2005, to stockholders of OraSure Technologies, Inc., a Delaware corporation (the +“Company”), in connection with the Company’s solicitation of proxies (each, a “Proxy”) for use at the Annual Meeting of Stockholders to be held on May 17, 2005, at 10:00 a.m. Eastern Time, at the Historic Hotel Bethlehem, +437 Main Street, Bethlehem, Pennsylvania 18018, and at any adjournments thereof (the “Annual Meeting”). +Proxies +If represented by a properly executed Proxy, whether delivered by phone, the Internet or mail, as described below, your shares will be voted in accordance with your instructions. If you do not provide a Proxy with instructions, your shares +will be voted according to the recommendations of our Board of Directors (the “Board”) as stated on the Proxy. You may revoke the authority granted by your Proxy at any time before the Annual Meeting by notice in writing delivered to the +Secretary of the Company, by delivering a subsequently dated Proxy, or by attending the Annual Meeting, withdrawing the Proxy, and voting in person. +At the Annual Meeting, action will be taken on the matters set forth in the accompanying Notice of Annual Meeting of Stockholders and described in this +Proxy Statement. The Board knows of no other matters to be presented for action at the Annual Meeting. If any other matters do properly come before the Annual Meeting, the persons named in the Proxy will have discretionary authority to vote on those +matters in accordance with their best judgment. +The cost of +soliciting Proxies will be borne by us. In addition to solicitations by mail, certain of our directors, officers and regular employees may solicit Proxies personally or by telephone or other means without additional compensation. +Arrangements will also be made with brokerage firms and other custodians, +nominees, and fiduciaries to forward solicitation material to the beneficial owners of stock held of record by such persons, and we will, upon request, reimburse them for their reasonable expenses in so doing. +Voting Procedures +You will have a choice of voting over the phone, via the Internet or by +completing and mailing a traditional paper Proxy Card, as described below. Please check your Proxy Card or the information forwarded by your bank, broker or other holder of record to determine which options are available to you. +1 +Voting by Mail . If you desire to vote by using the paper Proxy Card +included with this Proxy Statement instead of by telephone or the Internet, you may do so by completing, signing, dating and returning the Proxy Card in the enclosed, pre-addressed envelope. Postage need not be affixed to the envelope if mailed in +the United States. +Voting by Phone or +Internet . Instead of voting by use of the paper Proxy Card, you may be able to vote by phone or the Internet. Whether you may do so will depend on how your shares are held. +If your shares are registered in your name with Mellon Investor Services LLC, +our transfer agent, you may vote those shares by telephone by calling Mellon Investor Services LLC at 1-866-540-5760 (toll free in the United States or Canada only) or via the Internet at the following web site: www.proxyvoting.com/osur . You +may vote by telephone or the Internet by doing so by 11:59 pm Eastern Time (8:59 pm Pacific Time) on May 16, 2005. Additional instructions can be found on the paper Proxy Card accompanying this Proxy Statement. +If your shares are registered in the name of a broker, bank or other +registered holder, you may be able to vote by phone or the Internet if the broker, bank or other record holder has procedures for telephone or Internet voting. If you desire to use either of these voting options, please follow the procedures +provided to you by your broker, bank or other record holder. +The telephone and Internet voting procedures are designed to authenticate your identity, to allow you to give your voting instructions and to confirm that your instructions have been recorded properly. If you vote via the Internet, you +should understand that there may be costs associated with this method of voting, such as usage charges from Internet access providers and telephone companies and printing costs, that you must pay. +Submitting a Proxy by mail, the phone or the Internet will not affect your +right to vote in person at the Annual Meeting. +Electronic Access to Proxy Materials and Annual Report . The Notice of Annual Meeting, the Proxy Statement and our 2004 Annual Report are available on our web site at http:// www.orasure.com . If you +are a stockholder of record and would like to view future proxy statements and annual reports over the Internet instead of receiving copies in the mail, please follow the instructions on the paper Proxy Card if you vote by mail or follow the +instructions provided when you vote by phone or over the Internet. If you hold your shares through a bank, broker or other holder, check the information provided by that entity for instructions on how to elect to view future proxy statements and +annual reports over the Internet. Opting to receive your proxy materials and annual report online will save us the cost of producing these materials and mailing them to you in the future. +Voting Securities +On March 28, 2005, the record date for determining stockholders entitled to vote at the Annual Meeting, we had outstanding and entitled to vote at the +meeting 45,408,176 shares of common stock, par value $.000001 per share (“Common Stock”). Each share of Common Stock is entitled to one vote on any matter brought before the Annual Meeting. A majority of the shares of Common Stock +outstanding as of the record date, represented in person or by Proxy at the Annual Meeting, will constitute a quorum for the transaction of business. +2 +Principal Stockholders +The following table sets forth information as of March 28, 2005, regarding the beneficial ownership of the Company’s +Common Stock by (a) each person who is known by us to be the beneficial owner of more than five percent of the Common Stock outstanding, (b) each director and nominee for election as director, (c) each of our executive officers named in the Summary +Compensation Table under “Executive Compensation,” and (d) all of our directors and executive officers as a group. Unless otherwise indicated, the address of each person identified below is c/o OraSure Technologies, Inc., 220 East First +Street, Bethlehem, Pennsylvania 18015. +Pursuant to Rule 13d-3 +under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), shares of Common Stock which a person has a right to acquire pursuant to the exercise of stock options and warrants held by that person that are exercisable within +60 days of March 28, 2005 are deemed to be outstanding for the purpose of computing the percentage ownership of that person, but are not deemed outstanding for computing the percentage ownership of any other person. +Name and Address of +Beneficial +Owner +Amount and Nature of +Beneficial Ownership (1)(2) +Percent +of Class +Strong Capital Management, Inc.(3) +100 Heritage Reserve +Menomonee Falls, +WI 53051 +3,095,986 +6.8 +% +AXA Financial, Inc.(4) +1290 Avenue of the Americas +New York, NY 10104 +2,780,211 +6.1 +% +Michael J. Gausling(5) +1,235,638 +2.7 +% +Douglas A. Michels +428,750 +* +Ronald H. Spair +359,519 +* +P. Michael Formica +265,043 +* +Roger L. Pringle(6) +248,843 +* +Joseph E. Zack +166,458 +* +Douglas G. Watson +140,000 +* +Frank G. Hausmann +136,666 +* +Jack E. Jerrett +132,708 +* +Gregory B. Lawless +106,666 +* +Carter H. Eckert +86,666 +* +Ronny B. Lancaster +66,666 +* +All directors and executive officers as a group (12 people) +2,220,692 +4.7 +% +* +Less than 1% +(1) +Subject to community property laws where applicable, beneficial ownership consists of sole voting and investment power except as otherwise indicated. +(2) +Includes shares subject to options exercisable within 60 days of March 28, 2005, as follows: Mr. Eckert, 86,666 shares; Mr. Formica, 198,793 shares; Mr. Gausling, +267,916 shares; Mr. Hausmann, 136,666 shares; Mr. Jerrett, 115,208 shares; Mr. Lancaster, 66,666 shares; Mr. Lawless, 21,666 shares; Mr. Pringle, 212,218 shares; Mr. Spair, 268,019 shares; Mr. Watson, 140,000 shares; Mr. Zack, 125,208 shares; and +all directors +3 +and executive officers as a group, 1,440,692 shares. Also includes 428,750, 91,500, 66,250, 17,500 and 41,250 restricted shares held by Mr. Michels, Mr. +Spair, Mr. Formica, Mr. Jerrett and Mr. Zack, respectively. +(3) +Based on information contained in a Form 13G/A filed February 11, 2005 by Strong Capital Management, Inc., on which such entity reported that it has sole investment and voting power +with respect to 3,095,986 shares. +(4) +Based on information contained on a Form 13G/A filed February 14, 2005 by AXA Financial, Inc. (“AXF”) on behalf of its subsidiaries, including Alliance Capital Management +L.P. (“Alliance”) and AXA Equitable Life Insurance Company (“Equitable”). AXF is a wholly-owned subsidiary of AXA, a French holding company, which is controlled by the Mutuelles AXA, as a group. Alliance has sole voting power +with respect to 1,325,800 shares, shared voting power with respect to 997,321 shares, and sole investment power with respect to 2,494,361 shares. Alliance’s shares are held by unaffiliated third-party client accounts and managed by Alliance, as +investment advisor. Equitable has sole voting power with respect to 285,850 shares, and sole investment power with respect to 285,850 shares. +(5) +Includes 397,801 shares held by The Michael J. Gausling Grantor Retained Annuity Trust, Dated April 28, 2000, of which Mr. Gausling is the trustee. +(6) +Includes 1,500 shares owned by Mr. Pringle’s spouse. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Exchange Act requires that our executive officers and +directors and persons who own more than ten percent of our Common Stock (collectively, “Reporting Persons”) file reports of ownership and changes in ownership with the Securities and Exchange Commission (the “Commission”). +Reporting Persons are required by the Commission’s regulations to furnish us with copies of all Section 16(a) forms they file. +As a matter of practice, our administrative staff assists each of the Reporting Persons in preparing initial reports of ownership and reports of changes +in beneficial ownership and filing such reports with the Commission and the NASDAQ Stock Market. Based solely on a review of the copies of such forms and written representations from each of the Reporting Persons, we believe that all Reporting +Persons complied with all applicable filing requirements with respect to the year 2004. +Election of Directors +At the Annual Meeting, you will be asked to vote on the election of two Class II Directors. Based on the recommendation of the Nominating and Corporate Governance Committee of the Board, a majority of the independent Directors have +nominated Ronny B. Lancaster and Roger L. Pringle for election as Class II Directors, for terms expiring at the Annual Meeting of Stockholders in 2008. The nominees for election as Directors are presently members of our Board, and Mr. Pringle +currently serves as Chairman of the Compensation Committee of the Board. +In the absence of instructions to the contrary, shares of Common Stock represented by properly executed Proxies will be voted for the two nominees, each of whom has consented to be named and to serve if elected. If a +quorum is present, each nominee will be elected if he receives a plurality of the votes cast by shares present in person or by Proxy and entitled to vote at the Annual Meeting. Abstentions and shares as to which a broker or other nominee has +indicated on a duly executed and returned Proxy or otherwise advised us that it lacks voting authority will have no effect on the required vote. Your Board recommends that you vote FOR the election of the Director nominees. +4 +We do not know of anything that would preclude any nominee from serving. However, should any nominee for +any reason become unable or unwilling to serve as a Director, the persons named in the enclosed Proxy will vote the shares represented by each Proxy for such substitute nominee as the Board may approve. +Any vacancy that occurs on the Board that results from an increase in the +number of Directors may be filled by the affirmative vote of a majority of the Directors then in office, and any other vacancy on the Board may be filled by the affirmative vote of a majority of the Directors then in office, even though less than a +quorum of the Board, or by a sole remaining Director. +Certain +information with respect to each person nominated for election as a Director and each person whose term of office as a Director will continue after the Annual Meeting is set forth below. Messrs. Hausmann and Pringle became Directors of the Company +in connection with the merger (the “Merger”) of STC Technologies, Inc. (“STC”) and Epitope, Inc. (“Epitope”) into the Company on September 29, 2000, and served on the board of Epitope prior to the Merger. +Name +Principal Occupation +Age +Director +Since +Class I (Directors Whose Terms of Office Expire in 2007): +Douglas G. Watson +Chief Executive Officer of +Pittencrieff Glen Associates +60 +2002 +Frank G. Hausmann +Former President and Chief Executive Officer of CenterSpan Communications Corporation +47 +2000 +Carter H. Eckert +Former Chairman and Chief Executive Officer of IMPATH Inc. +62 +2001 +Class II (Nominees for Terms of Office Expiring in 2008): +Ronny B. Lancaster +Senior Vice President and Chief Operating Officer of Morehouse School of Medicine +53 +2003 +Roger L. Pringle +President of The Pringle Company +64 +2000 +Class III (Directors Whose Terms of Office Expire in 2006): +Douglas A. Michels +President and Chief Executive Officer of +the Company +48 +2004 +Gregory B. Lawless +Managing Partner of Collins Mabry & Co. +65 +2001 +Douglas G. Watson +became a member of the Board in May 2002 and became Chairman of the Board in March 2003. Since July 1999, Mr. Watson has been Chief Executive Officer of Pittencrieff Glen Associates, a leadership and management consulting firm, which he founded. +Prior to that, Mr. Watson served as President and Chief Executive Officer of Novartis Corporation, the U.S. subsidiary of Novartis A.G., President and Chief Executive Officer of Ciba-Geigy Corporation, President of the Ciba Pharmaceuticals Division +and Senior Vice President of Planning and Business Development of Ciba’s U.S. Pharmaceuticals Division. Mr. Watson holds an M.A. degree in pure mathematics from Churchill College, Cambridge University, and is a member of the Chartered Institute +of Management Accountants. Mr. Watson also serves on the Boards of Engelhard Corporation, Dendreon Corporation, Genta Inc. and InforMedix Inc. +Frank G. Hausmann had been a member of the Board of Directors of Epitope since December 1999. Since October 2003, Mr. Hausmann has been President of +Capricorn Advisors, a strategic and financial consulting firm which he founded. From October 1999 until October 2003, Mr. Hausmann served as President and Chief Executive Officer and Chairman of the Board of CenterSpan Communications Corporation, an +early stage developer of Internet connection, collaboration, securities and content delivery network solutions and services. Prior to that, Mr. Hausmann served as Vice President, Finance and Administration and Chief Financial Officer of +5 +ThrustMaster, Inc., a developer of PC games, Vice President, Finance and Chief Financial Officer of Atlas Telecom, Inc., a developer of enhanced facsimile +and voice-mail solutions, and Vice President, Corporate Development and General Counsel of Diamond Multimedia Systems, Inc., a designer and marketer of computer video cards, modems and other peripherals. Mr. Hausmann received B.S. degrees in +Economics and Political Science from Willamette University and a J.D. degree from the University of Oregon. He is a member of the Oregon State Bar. +Carter H. Eckert became a member of the Board in December 2001. From February 2003 until March 2004, Mr. Eckert served as Chairman of the Board and Chief +Executive Officer of IMPATH Inc., a cancer information company. In September 2003, IMPATH filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code and, in March 2004, IMPATH’s assets were sold to Genzyme +Corporation and U.S. Oncology Inc. From 1995 to 2001, Mr. Eckert served as President of Knoll Pharmaceutical Company and as President of the Americas for Knoll’s parent company, BASF Pharma. During that period, Mr. Eckert also was a member of +BASF Pharma’s Pharmaceutical Board, where he was responsible for global therapeutic franchises and corporate transactions. Prior to joining Knoll and BASF Pharma, Mr. Eckert was President and Chief Executive Officer of Boots Pharmaceuticals, +Inc., a pharmaceutical company, and President of the Pharmaceutical Products Division of Baxter Travenol Laboratories. Mr. Eckert currently serves as a director of Algorx, Inc., Andrx Corporation and IMPATH, Inc., a trustee of Caldwell College and +the Morristown Memorial Health Foundation, and an operating partner of the Athena Group. Mr. Eckert received his B.S. in Chemical Engineering from the Illinois Institute of Technology and his M.B.A. from Northwestern University. +Ronny B. Lancaster became a member of the Board in May 2003. Mr. Lancaster +has served as Chief Operating Officer of the Morehouse School of Medicine in Atlanta, Georgia since 2003, as Senior Vice President for Management Policy from 1996 to 2003 and as Vice President for Health and Social Policy from 1993 to 1996. Prior to +that, Mr. Lancaster was Executive Assistant to the Secretary and Principal Deputy Assistant Secretary for Planning and Evaluation at the U.S. Department of Health and Human Services (“HHS”), where his responsibilities included a wide range +of policy, program and management matters. Prior to serving at HHS, Mr. Lancaster was General Counsel of Hamilton Enterprises, Inc., Senior Washington Representative for Blue Cross/Blue Shield Association, Chief of the Division of +Fee-For-Service Plans at the U.S. Office of Personnel Management, and Executive Assistant to the Chairman at the National Institute for Advanced Studies. Mr. Lancaster received his B.A. in Economics from the Catholic University of America, his +M.B.A. from the Wharton School of the University of Pennsylvania, and his J.D. degree from The Georgetown University Law Center. He is also admitted to the Bars of Pennsylvania and the District of Columbia and serves as a Board member for the +Morehouse College Research Institute and as President for the Minority Health Professions Foundation. +Roger L. Pringle had been Chairman of the Board and a member of the Board of Directors of Epitope, and was a director of Agritope, Inc., a plant genetics +subsidiary of Epitope, since 1990. Mr. Pringle is President and founder of The Pringle Company, a strategy and executive consulting firm in Portland, Oregon. Mr. Pringle is a director of Metro One Telecommunications, Inc. and is also active in +funding and advising start-up and emerging companies. +Douglas +A. Michels has been the Company’s President and Chief Executive Officer since June 2004. Prior to that, Mr. Michels served as Group Vice President, Global Marketing of Ortho-Clinical Diagnostics from January 2004 to June 2004, President of +Ortho-Clinical Diagnostics International from January 2002 to December 2003, President of Johnson & Johnson Healthcare Systems, Inc. from January 2000 to December 2001, and Vice President Sales & Marketing of Johnson & Johnson Healthcare +Systems, Inc. from June 1997 to December 1999. Earlier in his career, Mr. Michels held various positions of increasing responsibility within the Johnson & Johnson family of companies, including Vice President, Sales & Marketing, Vice +President/General Manager – Immunocytometry Business, Executive Director Sales & Marketing, Director of Marketing, Director of Sales and Regional Sales Manager for Ortho Diagnostic Systems, Inc. Prior to joining Johnson & Johnson, +Mr. Michels worked for the Diagnostics Division of Abbott Laboratories in various sales and product +6 +management positions. Mr. Michels received a B.S. degree in Public Health Administration from the University of Illinois and an M.B.A. from Rutgers +University. +Gregory B. Lawless became a member of the Board in +April 2001. Since 1998, Mr. Lawless has been the Managing Partner of Collins Mabry & Co., a strategic advisory firm for the life sciences industry, which he co-founded. Prior to that, Mr. Lawless served as President and Chief Executive Officer +of Cygnus, Inc., a medical diagnostics company, and President and Chief Operating Officer of Chiron Corporation, also a medical diagnostics company. Mr. Lawless received his B.S. in Pharmacy from Fordham University, his M.S. in Analytical Chemistry +from St. John’s University, and his Ph.D. in Physical Organic Chemistry from Temple University. +Board of Directors +The +Board of Directors is comprised of a majority of independent directors. The Board has determined that each member of the Board, except for Mr. Michels, is “independent,” as that term is defined in the applicable rules of The NASDAQ Stock +Market, Inc. +The Board held eleven meetings and acted by +written consent on two occasions during the year ended December 31, 2004. Each member of the Board attended more than 75 percent of the combined total of meetings of the Board and of the committees of the Board on which such member served during the +period in the year in which he served as a Director. +The Board +has approved a process for security holders to send communications to members of the Board and a policy concerning Board members’ attendance at our annual meetings of stockholders. All members of the Board attended our 2004 Annual Meeting of +Stockholders held on May 18, 2004. Descriptions of the process for security holders to send communications to the Board and the Board’s policy on annual meeting attendance are provided on our website, at www.orasure.com . +Committees of the Board +The Board currently has three standing committees – the Audit Committee, the Compensation Committee and the Nominating +and Corporate Governance Committee. The Strategic Planning Committee of the Board was dissolved in December 2004. The Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee are each composed entirely of +independent Directors. +Audit +Committee . The Audit Committee oversees the Company’s accounting and financial reporting process, internal controls and audits, and consults with management and the independent auditors on, among other items, +matters related to the annual audit, the published financial statements and the accounting principles applied. As part of its duties, the Audit Committee appoints, evaluates and retains the Company’s independent registered public accounting +firm. It also maintains direct responsibility for the compensation, termination and oversight of the Company’s independent registered public accounting firm and evaluates the independent registered public accounting firm’s qualifications, +performance and independence. The Audit Committee approves all services provided to the Company by the independent registered public accounting firm. The Audit Committee has established procedures for the receipt, retention and treatment, on a +confidential basis, of complaints received by the Company, regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submissions by employees of concerns regarding questionable accounting or auditing +matters. The Audit Committee operates pursuant to a written Charter, a copy of which is attached as Appendix A to this Proxy Statement and is available on our website at www.orasure.com . +Members of the Audit Committee are Frank G. Hausmann, Chairman, Carter H. +Eckert, Ronny B. Lancaster and Roger L. Pringle. Each member of the Audit Committee is “independent,” as defined in the Exchange Act and applicable rules of The NASDAQ Stock Market, Inc. The Board has determined that Mr. Hausmann is an +7 +“audit committee financial expert,” as that term is defined by applicable rules of the Commission. The Audit Committee met seven times during the +year ended December 31, 2004. +Compensation +Committee . The Compensation Committee of the Board determines and, in the case of the Chief Executive Officer recommends for Board approval, the compensation and benefits for our executive officers, and administers our +stock award plan. The Compensation Committee operates pursuant to a written charter, a copy of which is available on our website at www.orasure.com . Members of the Compensation Committee are Roger L. Pringle, Chairman, Gregory B. Lawless and +Douglas G. Watson. Each member of the Compensation Committee is “independent,” as defined in the applicable rules of The NASDAQ Stock Market, Inc. The Compensation Committee met twelve times and acted by written consent on five occasions +during the year ended December 31, 2004. +Nominating and +Corporate Governance Committee . The Nominating and Corporate Governance Committee of the Board identifies, evaluates and recommends to the Board candidates for election or re-election to the Board. In addition, this +Committee is responsible for developing, recommending for Board approval and administering a set of corporate governance guidelines and an annual process of self-evaluation by the Board and its committees. The Nominating and Corporate Governance +Committee operates pursuant to a written charter, a copy of which is available on our website at www.orasure.com . Members of the Nominating and Corporate Governance Committee are Carter H. Eckert, Chairman, Ronny B. Lancaster and Gregory B. +Lawless. Each member of the Nominating and Corporate Governance Committee is “independent,” as defined in the applicable rules of The NASDAQ Stock Market, Inc. The Nominating and Corporate Governance Committee meet two times during the +year ended December 31, 2004. +In evaluating and recommending +candidates for the Board, the Nominating and Corporate Governance Committee will consider candidates recommended by members of the Committee or the Board of Directors, officers or employees of the Company, the Company’s security holders and +other business contacts. Candidates recommended by security holders will be considered by the Nominating and Corporate Governance Committee in the same manner as candidates recommended by other sources, but only if the security holder makes its +recommendation in accordance with the advance notification provisions set forth in the Company’s By-laws. For a description of these provisions, see the Section entitled, “Nomination of Directors.” +In evaluating new candidates for Board nomination, the Nominating and +Corporate Governance Committee shall consider one or more of the following factors, as well as any other factors determined by the Committee: independence, integrity, knowledge, judgment, character, leadership skills, education, experience, +financial literacy, technical background, and standing in the community. In evaluating incumbent directors for re-election, the Nominating and Corporate Governance Committee shall consider that director’s overall service to the Company, +including the number of meetings attended, level of participation, quality of performance and other factors deemed relevant by the Committee. +Report of the Audit Committee +The following report of the Audit Committee of the Board shall not be deemed to be “soliciting material” or to be incorporated by reference +by any general statement incorporating by reference this Proxy Statement into any filing by the Company under either the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except to the extent that the Company +specifically incorporates this information by reference. The following report shall not otherwise be deemed filed under such Acts. +The role of the Audit Committee is to assist the Board of Directors in fulfilling its responsibilities to oversee management’s conduct of the +Company’s financial reporting process, including monitoring (1) the participation of management and the outside independent registered public accounting firm in the financial reporting process, (2) the Company’s systems of internal +accounting and financial controls, (3) the annual independent audit of the Company’s financial statements and (4) the qualifications, independence and performance of the outside +8 +independent registered public accounting firm. The Committee selects the Company’s outside independent registered public accounting firm, and once +selected, the outside independent registered public accounting firm reports directly to the Committee. The Committee is responsible for approving both audit and non-audit services to be provided by the outside independent registered public +accounting firm. The Committee operates pursuant to a Charter that was last amended and restated by the Board on May 18, 2004, which is attached as Exhibit A to this proxy statement. +Management of the Company is responsible for the preparation, presentation and integrity of the Company’s financial +statements, the Company’s accounting and financial reporting principles and internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. The independent registered public +accounting firm is responsible for auditing the Company’s financial statements and expressing an opinion as to their conformity with U.S. generally accepted accounting principles. The Committee’s responsibility is to monitor and review +these processes. It is not the Committee’s duty or responsibility to conduct auditing or accounting reviews. +In the performance of its oversight function, the Committee has considered and discussed the audited financial statements with management, which included +a discussion of the quality, and not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements. The Committee met with the independent registered +public accounting firm, with and without management, to discuss the results of their examination and their judgments regarding the Company’s accounting policies. The Committee has also discussed with the independent registered public accounting +firm the matters required to be discussed by Statement on Auditing Standards No. 61, “Communication with Audit Committees,” as currently in effect. Finally, the Committee has received the written disclosures and the letter from the +independent registered public accounting firm required by Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees,” as currently in effect, has considered whether the provision of non-audit services by +the independent registered public accounting firm to the Company is compatible with maintaining the firm’s independence and has discussed with the independent registered public accounting firm the firm’s independence. +Based upon the reports and discussions described in this report, and subject +to the limitations on the role and responsibilities of the Committee referred to above and in the Committee’s Charter, the Committee recommended to the Board that the audited financial statements be included in the Company’s Annual Report +on Form 10-K for the year ended December 31, 2004 for filing with the Securities and Exchange Commission and selected KPMG LLP as the independent registered public accounting firm for fiscal year 2005. The Board is recommending that stockholders +ratify that selection at the Annual Meeting. +SUBMITTED BY THE AUDIT +COMMITTEE +OF THE COMPANY’S BOARD OF DIRECTORS +Frank G. Hausmann, Chairman +Carter H. Eckert +Ronny B. Lancaster +Roger L. Pringle +March 9, 2005 +Nomination of Directors +Our Bylaws provide that nominations for election to the Board may be made by the Board or by any stockholder entitled to vote for the election of +Directors at the Annual Meeting. A stockholder’s notice of nomination must be made in writing to the Company’s Secretary and must be delivered to or received at our +9 +principal executive offices not less than ninety (90) days nor more than one hundred twenty (120) days prior to the meeting. However, in the event that less +than one hundred (100) days’ notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be received no later than the close of business on the tenth (10 th ) day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, +whichever first occurs. The notice to the Secretary must set forth, with respect to the nominee, the name, age, business address, residence address, and principal occupation or employment of the person, the class and number of shares of capital +stock of the Company which are beneficially owned by the person, and any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Regulation 14A under the Exchange +Act. The notice must also include the name and record address of the stockholder making the nomination and the class and number of shares of capital stock of the Company that are beneficially owned by the stockholder. We may require any proposed +nominee to furnish such other information as we may reasonably require to determine the eligibility of the proposed nominee to serve as a Director of the Company. +Executive Officers +The table below provides information about the executive officers of the Company as of March 28, 2005. Officers of the Company hold office at the +discretion of the Board. +Name +Age +Position +Douglas A. Michels +48 +President and Chief Executive Officer +Ronald H. Spair +49 +Executive Vice President and Chief Financial Officer +P. Michael Formica +54 +Executive Vice President, Operations +Joseph E. Zack +53 +Executive Vice President, Marketing and Sales +Jack E. Jerrett +46 +Senior Vice President, General Counsel and Secretary +Mark L. Kuna +41 +Vice President, Controller and Assistant Secretary +For biographical +information on Mr. Michels, see the Section entitled, “Election of Directors,” in this Proxy Statement. +Ronald H. Spair joined the Company as Executive Vice President and Chief Financial Officer in November 2001. Prior to that time, Mr. Spair was Vice +President, Chief Financial Officer and Secretary of Delsys Pharmaceutical Corporation, a pharmaceutical manufacturing system development company, from January 2001 to September 2001. Prior to joining Delsys, he was Senior Vice President, Chief +Financial Officer and Secretary of SuperGen, Inc., a pharmaceutical company, from August 1999. Prior to joining SuperGen, Mr. Spair was Senior Vice President, Chief Financial Officer and Secretary of Sparta Pharmaceuticals, Inc., a development stage +pharmaceutical company. Mr. Spair received his B.S. in Accounting and M.B.A. from Rider College. He is also a licensed Certified Public Accountant and is a member of the New Jersey Society of Certified Public Accountants and the American Institute +of Certified Public Accountants. +P. Michael Formica has served +as Executive Vice President, Operations for the Company since November 2002 and as Senior Vice President, Operations for the Company and STC since May 2000. Prior to that time, Mr. Formica was Division Manager, Mobil Measurement Technologies +for Dräger Sicherheitstechnik GmbH (now called Dräger Safety AG & Co. KGaA), in Lüebeck, Germany, for eight years with worldwide responsibility, and Director Sales and Marketing, National Draeger, Inc. (USA) for two years. +Dräger is a world leader in chemical detection systems for the industrial safety market, and breath alcohol detection instrumentation. Mr. Formica received his B.S. in Electrical Engineering from West Virginia University and his M.B.A. from the +Graduate School of Industrial Administration, Carnegie Mellon University. +10 +Joseph E. Zack has served as the Company’s Executive Vice President, Marketing and Sales since +September 2002. Prior to that time, Mr. Zack served as Vice President, Marketing and Sales for OraPharma, Inc., a specialty pharmaceutical company focused on oral healthcare, since 1998. Prior to joining OraPharma, Mr. Zack held executive level +marketing and sales positions with Advanced Tissue Sciences, Inc. and the CIBA-GEIGY Pharmaceutical Division. Mr. Zack received his B.A. in Biology from Colgate University and his M.B.A. from St. John’s University. +Jack E. Jerrett has served as the Company’s Senior Vice President and +General Counsel since February 2003 and as Vice President and General Counsel since November 2000. He has also served as the Company’s Secretary since February 2001. Prior to joining the Company, Mr. Jerrett served in the positions of Associate +General Counsel and Senior Counsel at PPL Electric Utilities Corporation, and acted as general counsel to PPL Gas Utilities Corporation, since July 1998. Prior to that, Mr. Jerrett was Senior Corporate Attorney of Union Pacific Corporation and an +Associate with Morgan, Lewis & Bockius. Mr. Jerrett received his B.S. in Accounting from Villanova University and his J.D. from the Villanova University School of Law. He is a member of the Pennsylvania Bar and the American and Pennsylvania Bar +Associations. +Mark L. Kuna has served as the Company’s +Vice President and Controller since February 2003 and as Controller since February 2001. He also provided accounting and financial analysis support since joining the Company in October 2000. Prior to that time, Mr. Kuna served as Director of +Financial Planning and Analysis for the greater Philadelphia region of XO Communications, Inc., and Vice President and Principal Accounting Officer of Wedco Technology, Inc. Prior to joining Wedco Technology, he was an accountant with Deloitte and +Touche. Mr. Kuna received his B.S. in Accounting from the University of Scranton, is a licensed Certified Public Accountant, and is a member of the Pennsylvania and American Institutes of Certified Public Accountants. +Certain Relationships and Related Transactions +In October 2002, we entered into a commercial lease (the “Lease”) +with Tech III Partners, LLC (“Tech Partners”), for a 48,000 square foot facility on land adjacent to our Bethlehem, Pennsylvania facilities, and the lease of that facility to us. Tech Partners is owned and controlled by Michael J. +Gausling, the Company’s former President and Chief Executive Officer, and Dr. R. Sam Niedbala, the Company’s former Executive Vice President and Chief Science Officer. Mr. Gausling and Dr. Niedbala both resigned from the Company in 2004. +The facility is currently our corporate headquarters and houses manufacturing and administrative operations. +The Lease, as amended, has an initial ten-year term ending in October 2012 and a base rent starting at $780,000 per year and increasing to $858,240 per +year over that term. The base rental rate may be increased after the fifth year of the initial term in order to reflect changes in the interest rate on debt incurred by Tech Partners to finance construction of the leased facilities. We have not +guaranteed any debt incurred by Tech Partners. We also have an option to renew the Lease for an additional five years at a rental rate of $975,360 per year, and to purchase the facility at any time during the initial ten-year term based on a formula +set forth in the Lease. +Prior to deciding to enter into the +Lease and an amendment increasing the base rent to reflect certain tenant fit-out costs, our Board of Directors retained Imperial Realty Appraisal LLC, an independent commercial real estate appraisal firm, to evaluate the proposed base rental rate. +Imperial Realty issued opinions indicating that the annual base rent set forth in the Lease, as amended, is below the market rental rate we could otherwise expect to pay to lease a comparable commercial property in the same general geographic +market. The terms of the Lease are otherwise substantially similar to a commercial lease we entered into with a third party for our other Bethlehem, Pennsylvania facilities. +Information regarding employment and severance agreements between the named executive officers and the Company is set forth +in the Section entitled, “Employment and Transition Agreements,” in this Proxy Statement. +11 +Executive Compensation +Summary Compensation Table +The following table summarizes the compensation of our Chief Executive Officer and the four other most highly compensated executive officers of the +Company (collectively, including the Chief Executive Officer, the “Named Executive Officers”), as well as Michael J. Gausling, the Company’s former President and Chief Executive Officer, for the year ended December 31, 2004: +Annual Compensation +Long-Term +Compensation Awards +All Other +Compen- +sation(2) +Name and Principal Position +Year +Salary +Bonus +Other +Annual +Compen- +sation +Restricted +Stock +Awards +Securities +Underlying +Options(1) +Douglas A. Michels +President and +Chief Executive Officer +2004 +2003 +2002 +$ +206,154 +— +— +$ +200,000 +— +— +— +— +— +$ +3,158,750 +— +— +(3)(5) +467,500 +— +— +$ +4,000 +— +— +Ronald H. Spair +Executive Vice President and +Chief Financial Officer +2004 +2003 +2002 +281,758 +224,264 +205,903 +157,336 +60,000 +20,000 +$ +5,250 +9,000 +37,203 +(7) +(7) +(7) +405,600 +260,265 +— +(4)(5) +(6) +27,000 +100,000 +90,000 +4,000 +4,000 +45,713 +(8) +P. Michael Formica +Executive Vice President, +Operations +2004 +2003 +2002 +245,242 +210,264 +179,644 +125,404 +50,000 +18,000 +5,250 +9,000 +9,000 +(7) +(7) +(7) +223,400 +260,265 +— +(4)(5) +(6) +22,500 +100,000 +75,000 +4,000 +4,000 +4,000 +Joseph E. Zack +Executive Vice President, +Marketing and Sales +2004 +2003 +2002 +229,985 +202,187 +54,072 +114,831 +50,000 +— +5,250 +9,000 +2,625 +(7) +(7) +(7) +147,000 +130,133 +— +(5) +(6) +22,500 +75,000 +155,000 +4,000 +4,000 +— +Jack E. Jerrett +Senior Vice President, +General Counsel and Secretary +2004 +2003 +2002 +194,555 +176,132 +151,901 +74,761 +31,750 +15,000 +5,250 +9,000 +— +(7) +(7) +98,000 +— +— +(5) +15,000 +40,000 +40,000 +4,000 +4,000 +4,000 +Michael J. Gausling +Former President and +Chief Executive Officer +2004 +2003 +2002 +338,365 +274,302 +243,000 +121,824 +80,000 +— +6,670 +14,180 +14,612 +(7)(9) +(7)(9) +(7)(9) +— +— +— +100,000 +150,000 +100,000 +360,114 +4,000 +4,000 +(10) +(1) +Except as noted below, the amounts represent the number of shares of Common Stock underlying options granted for performance rendered during each specified year, although the award +occurred early in the subsequent year. The number of shares indicated for Mr. Michels for 2004 also includes an option for 400,000 shares granted to Mr. Michels when he joined the Company in June 2004, and the number of shares indicated for Mr. Zack +for 2002 also includes an option for 125,000 shares granted to Mr. Zack when he joined the Company in September 2002. +(2) +Except as otherwise noted in (8) and (10) below, represents amounts of cash contributed to a 401(k) profit sharing plan as employer matching contributions. Employee contributions +are included in the Salary column. +(3) +On June 21, 2004, Mr. Michels received a grant of 350,000 restricted shares pursuant to the terms of his Employment Agreement with the Company. The value of these shares was +calculated by multiplying the number of shares in the grant by $7.765, the average of the high and low sales prices for the Company’s Common Stock as reported on The NASDAQ Stock Market on the date of grant. The first 116,720 shares of Mr. +Michels’ grant vest on the first anniversary of the grant and the remaining 233,280 restricted shares vest on a quarterly basis thereafter in equal amounts of 6,480 shares on each September 30, December 31, March 31 and June 30, commencing +September 30, 2005 and ending June 30, 2014. +(4) +On March 15, 2004, Messrs. Spair and Formica received grants of 30,000 and 10,000 restricted shares, respectively. The value of these shares was calculated by multiplying the number +of shares in each grant by $7.640, the average of the high and low sales prices for the Company’s Common Stock as reported on The NASDAQ Stock Market on the date of grant. One-half of the shares in each grant vests on the first anniversary of +the grant, and the remaining half vests on the second anniversary. +12 +(5) +On January 26, 2005, the Named Executive Officers received the following grants of restricted shares based on their performance during 2004: 78,750 shares for Mr. Michels; 31,500 +shares for Mr. Spair; 26,250 shares for Mr. Formica; 26,250 shares for Mr. Zack; and 17,500 shares for Mr. Jerrett. The value of these shares was calculated by multiplying the number of shares in each grant by $5.60, the average of the high and low +sales prices for the Company’s Common Stock as reported on The NASDAQ Stock Market on the date of grant. One-third of each such grant vests on the first, second and third anniversaries, respectively, of the grant. The aggregate number of +restricted shares held as of December 31, 2004, and the value of those shares at the $6.720 closing price of the Company’s Common Stock as reported on The NASDAQ Stock Market as of that date, for each of the Named Executive Officers, were as +follows: 350,000 shares valued at $2,352,000 for Mr. Michels; 60,000 shares valued at $403,200 for Mr. Spair; 40,000 shares valued at $268,800 for Mr. Formica; and 15,000 shares valued at $100,800 for Mr. Zack. The foregoing amounts exclude the +restricted shares granted on January 26, 2005. If the Company were to declare a dividend on its Common Stock, such a dividend would be payable to the holders of any restricted shares. +(6) +On November 5, 2003, Messrs. Spair and Formica each received grants of 30,000 restricted shares, and Mr. Zack received a grant of 15,000 restricted shares. The indicated +amounts were calculated by multiplying the number of shares in each grant by $8.6755, the average of the high and low sales prices for the Company’s Common Stock on the date of grant. One-half of the shares in each grant vests on the second +anniversary of the grant and the remaining half vests on the third anniversary. +(7) +Includes automobile allowances of (i) $5,250 for Messrs. Spair, Formica, Zack, Jerrett and Gausling in 2004, (ii) $9,000 for Messrs. Gausling, Spair, Formica, Zack and Jerrett in +2003, and (iii) $9,000 for Messrs. Gausling, Spair and Formica, and $2,625 for Mr. Zack, in 2002. Also includes $28,203 in federal and state income taxes reimbursed by the Company on relocation expenses paid to Mr. Spair in 2002. +Mr. Spair’s relocation expenses are included in the All Other Compensation column. +(8) +Includes $41,713 in relocation expenses for Mr. Spair in 2002. These relocation expenses were reimbursed by the Company and include moving costs, realtor fees, closing costs, +furniture storage costs and other miscellaneous expenses. +(9) +Includes reimbursement of certain club membership dues and assessments for Mr. Gausling of $1,420 in 2004, $5,180 in 2003, and $5,612 in 2002. +(10) +Includes $356,114 of salary and benefit continuation payments that were accrued at December 31, 2004 and are payable to Mr. Gausling during 2005 pursuant to his Transition Agreement +and Release, executed in March 2004. +13 +Option Grants in the Last Fiscal Year(1) +The following table summarizes the number of stock options awarded to the Named Executive Officers and Mr. Gausling during +the year ended December 31, 2004: +Name +Number of +Securities +Underlying +Options +Granted +Percent of +Total +Options +Granted to +Employees in +Fiscal Year +Exercise +Price +Per +Share +Expiration +Date +Potential Realizable +Value at Assumed +Annual Rates of Stock +Price Appreciation for +Option Term(3) +5% +10% +Douglas A. Michels +400,000 +26.7 +% +$ +7.765 +6/22/2014 +$ +1,953,347 +$ +4,950,164 +Ronald H. Spair(1) +100,000 +(2) +6.7 +8.200 +1/14/2014 +515,694 +1,306,869 +P. Michael Formica +100,000 +(2) +6.7 +8.200 +1/14/2014 +515,694 +1,306,869 +Joseph E. Zack +75,000 +(2) +5.0 +8.200 +1/14/2014 +386,770 +980,152 +Jack E. Jerrett +40,000 +(2) +2.7 +8.200 +1/14/2014 +206,277 +522,748 +Michael J. Gausling +150,000 +(2) +10.0 +8,200 +1/14/2014 +773,540 +1,960,303 +Michael J. Gausling +100,000 +(4) +6.7 +7.640 +12/31/2009 +249,676 +563,839 +(1) +Except as required by law, or as indicated in (4) below, options are qualified as incentive stock options and vest as to one-fourth one year after the date of grant, with the +remaining three-fourths vesting in equal monthly installments over the following 36 months. Vesting ceases 90 days following termination of employment and is generally accelerated in case of a change in control of the Company. The holder’s +right to exercise the options will terminate immediately upon termination of employment for cause, will expire five years after retirement, and will expire one year after death, disability, or ceasing to be an active employee of the Company for any +other reason. Subject to certain conditions, the exercise price of the options may be paid by delivery of previously acquired shares of Common Stock. No stock appreciation rights were granted during the year ended December 31, 2004. +(2) +The indicated options granted to Messrs. Spair, Formica, Zack, Jerrett and Gausling during the year ended December 31, 2004 represent options granted in respect of performance +rendered during the year ended December 31, 2003. +(3) +The amounts shown are hypothetical gains based on the indicated assumed rates of appreciation of Common Stock compounded annually for the period running from the date of grant +through the expiration date. There can be no assurance that the Common Stock will appreciate in value at any particular rate or at all in future years. +(4) +A non-qualified option to purchase 100,000 shares of Common Stock was granted to Mr. Gausling pursuant to his Transition Agreement and Release, executed in March 2004. This grant +fully vested on December 31, 2004. +14 +Fiscal Year-End Option Values +The following table shows 2004 year-end amounts and value of shares of the Common Stock underlying outstanding options for +the Named Executive Officers and Mr. Gausling: +Name(1) +Shares +Acquired +on +Exercise +Value +Realized +Number of Securities +Underlying Unexercised +Options at Fiscal Year-End +Value of Unexercised +In-the-Money Options at +Fiscal Year-End (2) +Exercisable +Unexercisable +Exercisable +Unexercisable +Douglas A. Michels +— +— +— +400,000 +— +— +Ronald H. Spair +— +— +206,146 +198,854 +$ +44,126 +$ +16,389 +P. Michael Formica +— +— +155,461 +151,249 +30,549 +11,346 +Joseph E. Zack +— +— +84,688 +145,312 +192,376 +149,624 +Jack E. Jerrett +— +— +96,042 +68,958 +20,366 +7,564 +Michael J. Gausling +15,888 +$ +104,265 +217,917 +202,083 +— +— +(1) +Except for Mr. Gausling, the Named Executive Officers exercised no stock options during 2004 and held no stock appreciation rights at December 31, 2004. +(2) +In-the-money stock options are options for which the exercise price is less than the fair market value of the underlying stock on a particular date. The values shown in the table +are based on the difference between $6.796, which was the average of the high and low sales prices of the Common Stock as quoted on The NASDAQ Stock Market on December 31, 2004, and the applicable exercise price. +Equity Compensation Plan Information +The following table provides information as of December 31, 2004 about the +shares of Common Stock that may be issued upon the exercise of options under all of our equity compensation plans. These plans include the OraSure Technologies, Inc. 2000 Stock Award Plan (the “2000 Plan”), the Epitope, Inc. 1991 Stock +Award Plan (the “1991 Plan”), the Agritope, Inc. 1992 Stock Award Plan (the “Agritope Plan”), and the OraSure Technologies, Inc. Employee Incentive and Non-Qualified Stock Option Plan (the “Employee Incentive Plan”). +The 2000 Plan, the 1991 Plan and the Agritope Plan were Epitope equity compensation plans, and the Employee Incentive Plan was an STC equity compensation Plan. In connection with the Merger of Epitope and STC into the Company on September 29, 2000, +the 2000 Plan was adopted by the Company, and the Company assumed the obligation to issue shares for the then outstanding stock options granted under the 2000 Plan, the 1991 Plan, the Agritope Plan and the Employee Incentive Plan. Additional grants +of equity compensation may only be made under the 2000 Plan. +Plan Category +Number of securities +to be issued upon exercise +of outstanding options +(a) +Weighted-average +exercise price of +outstanding options +(b) +Number of securities +remaining available for +future issuance under +equity +compensation +plans (excluding +securities reflected in +column (a)) +(c) +Equity compensation plans approved by security holders +1,875,865 +$ +7.812 +2,509,135 +(1) +Equity compensation plans not approved by security holders +2,998,639 +(2) +$ +6.445 +(2) +— +Total +4,874,504 +2,509,135 +(1) +Represents shares remaining available for future issuance as of December 31, 2004 under the 2000 Plan. For a description of the material features of the 2000 Plan, see Footnote 10 +to the Company’s Financial Statements for the year ended December 31, 2004. +15 +(2) +Includes 645,070 shares issuable as of December 31, 2004 under options at a weighted average exercise price of $3.938 per share under the 2000 Plan, the 1991 Plan, the Agritope +Plan, and the Employee Incentive Plan. +Employment and +Transition Agreements +During 2004, we entered into new +employment agreements with certain of our executive officers. In addition, we entered into a transition agreement and release with Mr. Gausling, our former President and Chief Executive Officer, at the time of his announced intention to retire from +the Company in March 2004. +Employment +Agreements . In June 2004, when Mr. Michels joined the Company as President and Chief Executive Officer, he and the Company entered into an employment agreement that has an initial term of three years (i.e., through +June 22, 2007) and is subject to automatic renewal for successive three-year periods unless the Company gives Mr. Michels at least 90 days written notice that the agreement would not be renewed or Mr. Michels’ employment was otherwise +terminated pursuant to the agreement. Under his agreement, Mr. Michels is entitled to a base salary of at least $400,000 per year, is eligible to participate in the bonus plan established by the Company (with a target bonus at least equal to +50% of his annual salary) and is eligible to receive or participate in any long-term incentive plan or any other additional benefits that may be made available by the Company from time to time. For the calendar year 2004, the agreement provided that +Mr. Michels’ cash bonus would not be less than $160,000. Mr. Michels is also entitled to reimbursement for job-related expenses. The Company reimbursed Mr. Michels for $15,336 of legal expenses he incurred in connection with the negotiation of +the terms of his employment agreement. +Mr. Michels’ +employment agreement provides that he is entitled to participate in the Company’s stock award plan and shall have a target amount of stock options that is at least equal to the target amount for the Company’s Chief Executive Officer as set +forth in the Company’s stock option guidelines for senior managers as in effect on the date Mr. Michels’ employment agreement was executed. All stock awards granted to Mr. Michels are required to immediately vest (i) in the event +of a “change of control” (as defined below) or (ii) if Mr. Michels’ employment is terminated for “good reason” (as defined below) by Mr. Michels or without “cause” (as defined below) by the Company or its +successor during the period which begins three months prior to the occurrence of a change of control and ends 18 months after the occurrence of a change of control (a “change of control period”), and 50% of such stock awards shall vest in +the event Mr. Michels’ employment is terminated for good reason or without cause during any period other than a change of control period. +Under the agreement, Mr. Michels received an option to purchase 400,000 shares of the Company’s Common Stock, with the option for the first 100,000 +shares vesting one year from the date of grant and the option for the remaining 300,000 shares vesting incrementally in equal monthly installments over the next three succeeding years. The agreement also provided for the grant to Mr. Michels of +350,000 restricted shares, with the first 116,720 of such restricted shares vesting one year from the date of grant and the remaining 233,280 shares vesting in equal amounts of 6,480 shares on each subsequent September 30, December 31, March 31 and +June 30, commencing September 30, 2005 and ending June 30, 2014. +Mr. Michels’ employment agreement will terminate upon his death or disability, or Mr. Michels may terminate the agreement at any time upon 90 days written notice to the Company, by providing written notice within 90 days of an event +constituting good reason, or upon 90 days written notice delivered to the Company within 180 days following a change of control. Mr. Michels’ employment agreement can also be terminated by the Company for cause or without cause. As used in the +agreement, the term “good reason” means (i) a material breach of the agreement by the Company that is not cured within 30 days of written notice, (ii) any diminution in Mr. Michels’ position, duties or responsibilities or requirement +that Mr. Michels report to any person other than the Board of Directors, (iii) any relocation of Mr. Michels’ primary place of work to a location that is more than 25 miles from the Company’s Bethlehem, Pennsylvania facilities, or (iv) a +reduction in Mr. Michels’ salary. The agreement further provides that any of the following events shall constitute cause: (a) the willful and continued failure by Mr. Michels to substantially perform his duties, (b) the engaging by Mr. +Michels in gross misconduct or gross negligence materially injurious to the Company, (c) the commission of an act by Mr. Michels in direct competition with or materially detrimental to the Company’s best interests, or (d) Mr. Michels’ +commission of a felony. +16 +Upon the termination of Mr. Michels’ employment upon his death or disability, by Mr. Michels for any +reason other than good reason or by the Company for cause, Mr. Michels will be entitled to receive his salary through the date of termination and any bonus approved by the Board or the Compensation Committee prior to the date of termination but not +yet paid and, in the case of a termination upon his death or disability, a cash bonus for the calendar year in which termination occurs that Mr. Michels would have received but for his death or disability, prorated through the date of death or +commencement of disability. Upon termination of the agreement by Mr. Michels with good reason or after a change of control or by the Company without cause, Mr. Michels would be entitled to receive his salary through the date of termination and any +bonus that has been approved by the Board or the Compensation Committee prior to the date of termination but not yet paid, a cash bonus for the calendar year in which termination occurs equal to Mr. Michels’ target bonus for such year, and for +a period of one year after the date of termination, benefits for Mr. Michels and/or his family at levels substantially equal to those that would have been provided to them by the Company if Mr. Michels’ employment had not been terminated. If +termination is for good reason or without cause and does not occur during a change of control period, Mr. Michels would also continue to receive his salary for 12 months after termination or, if greater and termination occurs during the initial +three-year term of the agreement, the remainder of such initial term. If, however, termination is for good reason or without cause and occurs during a change of control period, or if termination is by Mr. Michels after a change of control, Mr. +Michels will be required to enter into a transitional services agreement with the Company pursuant to which he would provide transitional services for a six-month period following the termination date in exchange for payment of his salary over such +period, and Mr. Michels would then continue to receive his salary for 30 additional months after completion of the six-month transition service period. +A “change in control” generally is defined to take place when disclosure of such a change would be required by the proxy rules promulgated by +the Commission or when: +· +a person (other than the Company, any of its subsidiaries, any employee benefit plan of the Company, or any person with voting power arising from a revocable proxy) acquires +beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of 30% or more of the combined voting power of the Company’s voting securities; +· +less than a majority of the directors are persons who were either nominated or selected by the Board; +· +the consummation of any consolidation or merger in which the Company is not the surviving corporation or the sale, lease, exchange or other transfer of all or substantially all of +the assets of the Company; or +· +the approval by the stockholders of the Company of any plan or proposal for the liquidation or dissolution of the Company. +Mr. Michels’ agreement also provides that the Company will pay an amount +equal to the first $1 million of excise tax incurred under Section 280G of the Internal Revenue Code on compensation paid to Mr. Michels upon a change of control. In addition, if Mr. Michels is made a party to any action, suit or proceeding by +reason of his service as an officer, director, employee, agent or the like of the Company, or by reason of his serving at the Company’s request in a similar capacity with another entity, including, without limitation, as a fiduciary of an +employee benefit plan sponsored or established by the Company, then Mr. Michels shall be indemnified and held harmless by the Company to the fullest extent authorized by applicable law (including for all reasonable attorneys’ fees and costs +incurred by Mr. Michels) and such indemnification shall continue even if Mr. Michels has ceased to be a director, officer, employee, agent or the like of the Company for any reason. +As further consideration for the severance payable under Mr. Michels’ employment agreement, during the term of the +agreement and for one year thereafter, Mr. Michels is not permitted to +· +recruit, solicit or hire any executive or employee of the Company; +17 +· +induce or solicit any current or prospective customer, client or supplier of the Company to cease becoming a customer, client or supplier or divert Company business away from any +customer, client or supplier of the Company; or +· +own, manage, control, work for or provide services to any entity that competes with the Company in the market for oral fluid or rapid point-of-care diagnostic testing in the United +States. +All other employment agreements are +substantially similar to Mr. Michels’ employment agreement, with the following exceptions. +Mr. Spair serves as Executive Vice President and Chief Financial Officer of the Company, and his employment agreement provides for a base salary of at +least $284,000 per year. The initial term of Mr. Spair’s agreement is two years, rather than three years, from July 1, 2004, with automatic two-year renewal periods. Mr. Spair’s target bonus percentage is at least 40% of his base +salary, and his agreement does not provide for a specific bonus payment for 2004 or the grant of any restricted shares or options other than Mr. Spair’s right to participate in the Company’s stock award plan with a target amount at least +equal to the target for Mr. Spair under the Company’s stock option guidelines for senior managers as in effect on the date of his agreement. The notice periods for termination of Mr. Spair’s agreement are 60 days, rather than 90 days, +and the Company is obligated to pay an amount up to the first $500,000, rather than $1 million, of excise tax imposed under Section 280G of the Internal Revenue Code on compensation to Mr. Spair as a result of a change in control. +Mr. Formica serves as Executive Vice President, Operations of the Company, +and his employment agreement provides for a base salary of at least $242,550 per year. The initial term of Mr. Formica’s agreement is two years, rather than three years, from July 1, 2004, with automatic two-year renewal periods. Mr. +Formica’s target bonus percentage is at least 40% of his base salary, and his agreement does not provide for a specific bonus payment for 2004 or the grant of any restricted shares or options other than Mr. Formica’s right to participate +in the Company’s stock award plan with a target amount at least equal to the target for Mr. Formica under the Company’s stock option guidelines for senior managers as in effect on the date of his agreement. The notice periods for +termination of Mr. Formica’s agreement are 60 days, rather than 90 days, and the Company is obligated to pay an amount up to the first $500,000, rather than $1 million, of excise tax imposed under Section 280G of the Internal Revenue Code on +compensation to Mr. Formica as a result of a change in control. Mr. Formica shall be entitled to receive 18 months, rather than 30 months, of continued salary after completion of the six-month transition services period, in the event of a +termination of his agreement for good reason or without cause during a change of control period or after a change of control. +Mr. Zack serves as Executive Vice President, Marketing and Sales of the Company, and his employment agreement provides for a base salary of at least +$222,111 per year. The initial term of Mr. Zack’s agreement is two years, rather than three years, from July 1, 2004, with automatic two-year renewal periods. Mr. Zack’s target bonus percentage is at least 40% of his base salary, and his +agreement does not provide for a specific bonus payment for 2004 or the grant of any restricted shares or options other than Mr. Zack’s right to participate in the Company’s stock award plan with a target amount at least equal to the +target for Mr. Zack under the Company’s stock option guidelines for senior managers as in effect on the date of his agreement. The notice periods for termination of Mr. Zack’s agreement are 60 days, rather than 90 days, and the Company is +obligated to pay an amount up to the first $500,000, rather than $1 million, of excise tax imposed under Section 280G of the Internal Revenue Code on compensation to Mr. Zack as a result of a change in control. Mr. Zack shall be entitled to receive +18 months, rather than 30 months, of continued salary after completion of the six-month transition services period, in the event of a termination of his agreement for good reason or without cause during a change of control period or after a change +of control. +Mr. Jerrett serves as Senior Vice President, +General Counsel and Secretary of the Company, and his employment agreement provides for a base salary of at least $192,825 per year. The initial term of Mr. Jerrett’s agreement is two years, rather than three years, from July 1, 2004, with +automatic two-year renewal periods. +18 +Mr. Jerrett’s target bonus percentage is at least 30% of his base salary, and his agreement does not provide for a specific bonus payment for 2004 +or the grant of any restricted shares or options other than Mr. Jerrett’s right to participate in the Company’s stock award plan with a target amount at least equal to the target for Mr. Jerrett under the Company’s stock option +guidelines for senior managers as in effect on the date of his agreement. The notice periods for termination of Mr. Jerrett’s agreement are 60 days, rather than 90 days, and the Company is obligated to pay an amount up to the first $500,000, +rather than $1 million, of excise tax imposed under Section 280G of the Internal Revenue Code on compensation to Mr. Jerrett as a result of a change in control. Mr. Jerrett shall be entitled to receive 18 months, rather than 30 months, of continued +salary after completion of the six-month transition services period, in the event of a termination of his agreement for good reason or without cause during a change of control period or after a change of control. +Transition Agreement and Release . In +March 2004, we announced that Mr. Gausling would retire from the Company by the end of 2004. Shortly after this announcement, we entered into a transition agreement and release with Mr. Gausling, which replaced and terminated his employment +agreement. Pursuant to the transition agreement and release, Mr. Gausling continued to serve as President and Chief Executive Officer and as a member of the Board until June 2004, when he resigned. Mr. Gausling continued to be employed by the +Company until December 31, 2004. +Pursuant to the terms of his +agreement, Mr. Gausling received an annual base salary of $333,864 and full executive benefits under our group health and other benefit arrangements through the end of 2004. He also received a cash bonus under our 2004 Self-Funding Annual Bonus Plan +in the amount of $121,824. The personal performance factor used to calculate Mr. Gausling’s 2004 bonus could not be less than the personal performance factor used to determine his cash bonus for 2003. Pursuant to his agreement, Mr. Gausling was +also granted a non-qualified option to purchase 100,000 shares of Common Stock, pursuant to our 2000 Stock Award Plan. This option vested in full on December 31, 2004. +During 2005, Mr. Gausling will receive salary continuation payments in an aggregate amount of $333,864, payable in four +equal installments at the end of each fiscal quarter during 2005. In addition, if Mr. Gausling elects to obtain continuing coverage under our health benefit plan pursuant to COBRA beginning January 1, 2005, the Company will reimburse Mr. +Gausling for the cost of his COBRA premiums for the 12-month period ending December 31, 2005. +During the term of the transition agreement and release and while Mr. Gausling is entitled to receive salary continuation payments, he has agreed not to: +· +recruit, solicit or hire any executive or employee of the Company; +· +induce or solicit any current or prospective customer, client or supplier of the Company to cease becoming a customer, client or supplier or divert Company business away from any +customer, client or supplier of the Company; or +· +own, manage, control, work for or provide services to any entity that competes with the Company in the market for oral fluid or rapid point-of-care diagnostic testing in the United +States. +Mr. Gausling has also agreed to keep +confidential all confidential and proprietary business data and other information to which he has had access during his employment with the Company. If Mr. Gausling fails to comply with any of the provisions described in this paragraph, he will no +longer be entitled to salary continuation payments and would be required to return to us any salary continuation payments previously received. As further consideration for the compensation he will receive under the transition agreement, Mr. Gausling +has agreed to release the Company from all claims or liabilities arising prior to the date of the release. +19 +Compensation of Directors +All nonemployee Directors receive an annual fee of $12,000. In addition, the Chairman of the Board receives an additional +annual fee of $13,000, the Chairman of the Audit Committee receives an additional annual fee of $5,000, and the Chairmen of the Compensation Committee and the Nominating and Corporate Governance Committee each receive additional annual fees of +$4,000. Annual fees are payable quarterly in advance. +Each +nonemployee Director receives a $1,000 fee for each Board meeting attended, and each member of a Board Committee receives an additional $1,000 fee for each Committee meeting attended. A meeting fee will only be paid with respect to a meeting for +which minutes are prepared. Nonemployee Directors also receive reimbursement for their reasonable out-of-pocket costs of attending Board and Committee meetings. +Nonemployee Directors receive an initial grant of 40,000 stock options upon joining the Board (the “Initial Grant”). An additional grant of +40,000 stock options is also made to any nonemployee Director who becomes Chairman of the Board (the “Chairman Grant”). Each nonemployee Director receives an annual grant of 20,000 stock options (the “Annual Grant”) on the annual +option grant date for officers and employees of the Company, except for the Chairman of the Board, who receives an Annual Grant of 30,000 stock options. +The options granted to nonemployee Directors are nonqualified stock options and have an exercise price equal to the mean between the high and low sales +prices of the Company’s Common Stock as quoted on The NASDAQ Stock Market on the grant date. Each Initial Grant and Chairman Grant generally vests on a monthly basis over the 24 months immediately following the grant date, and each Annual Grant +generally vests on a monthly basis over the 12 months immediately following the grant date. All vesting of the options will cease 90 days after the nonemployee Director ceases to serve on the Board. Options become exercisable in full immediately +upon the occurrence of a change in control of the Company. A change in control of the Company would occur on the happening of such events as the acquisition of beneficial ownership by a person or group of 30 percent or more of the outstanding Common +Stock of the Company, certain changes in Board membership affecting a majority of positions, certain mergers or consolidations, a sale or other transfer of all or substantially all the Company’s assets, or approval by the stockholders of a plan +of liquidation or dissolution of the Company, as well as any change in control required to be reported by the Commission’s proxy disclosure rules. Payment of the exercise price may be made in cash or by delivery of previously acquired shares of +Common Stock having a fair market value equal to the aggregate exercise price. +Compensation Committee Interlocks and Insider Participation +Gregory B. Lawless, Roger L. Pringle and Douglas G. Watson served as members of the Compensation Committee of the Board during 2004. None of Mr. Lawless, Mr. Pringle or Mr. Watson currently serves as an officer of the +Company. There are no compensation committee interlocks between the Company and any other entity involving the Company’s or such entity’s executive officers or board members. +The following report of the Compensation Committee of the Board (the “Committee”) and the Stock Price +Performance Graph shall not be deemed to be incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing by the Company under either the Securities Act or the Exchange Act, except to the extent +that the Company specifically incorporates this information by reference. The following report and the Stock Price Performance Graph shall not otherwise be deemed filed under such Acts. +Report on Executive Compensation +General . The Committee, which is +composed solely of independent, nonemployee Directors, is responsible for establishing and administering the Company’s policies that govern executive compensation and benefit practices. The roles and responsibilities of the Committee are set +forth in a written Charter, which the Committee reviews on an annual basis. +20 +Compensation Philosophy . The Company’s executive +compensation programs are designed to (i) reflect the financial performance of the Company and achievement by management of financial and other performance objectives, (ii) align the interests of management with the long-term interests of the +Company’s stockholders, and (iii) provide long-term incentives for management. The Company seeks to set compensation at levels sufficiently competitive to attract and retain high quality executives, and to motivate them to contribute to the +Company’s successes. In establishing compensation for executive officers, the Committee considers the total value of compensation provided to each officer as well as the Company’s and each officer’s performance, the Company’s +industry position, general industry data and recommendations of third party consultants. In furtherance of these goals, the components of executive compensation include base salary, merit cash bonuses, stock awards and other benefits, and are linked +to both Company and individual performance. +For 2004, the +Committee evaluated the performance of Douglas A. Michels, the Company’s President and Chief Executive Officer, and reviewed the performance evaluations of the other executive officers. Based on these evaluations and a review of compensation +data for other medical diagnostic and healthcare companies, the Committee determined and approved salaries, merit cash bonuses and stock awards for each of these executives. Compensation approved by the Committee for Mr. Michels was then recommended +for approval and approved by the Company’s Board of Directors. +Base Salary . At least annually, the Committee sets the salary for all executive officers. The Committee reviews the performance of the Chief Executive Officer and other executive officers, and +receives and considers management recommendations concerning salary adjustments for the other executive officers. The Committee also considers compensation data regarding other medical diagnostic and healthcare companies. +The Committee’s compensation decisions for 2004 were heavily influenced +by the Company’s strong financial performance and the fact that it met most of its financial objectives for that year. The Company’s revenues were more than $54 million in 2004, representing a 34% increase over 2003. The net loss for 2004 +was $0.6 million, which is an improvement over the $1.1 million loss reported in 2003. The net loss in 2004 fell short of the Company’s objectives of turning a profit for the year. However, several events that were unknown at the beginning of +the year were the primary reasons for the net loss, including the costs of bringing in Mr. Michels as the Company’s new President and Chief Executive Officer and transition costs for his predecessor, Mr. Gausling, the costs associated with the +Schering-Plough patent litigation and the additional consulting fees incurred to refine the Company’s long-term strategic plans. Despite these events, the Company came close to achieving its goal of profitability for the year, largely because +of the strong focus, under Mr. Michels’ leadership, on increasing revenues and reducing costs elsewhere in the organization. Significantly, the Company reported four consecutive quarters of both record and increased revenues and generated $3.5 +million in positive cash flow from operations during 2004. +Both the Committee and the Board of Directors rated Mr. Michels’ performance during 2004 as outstanding. Mr. Michels successfully handled his transition to the Company and immediately built strong relationships with the Company’s +management, members of the Board of Directors, key customers and business partners of the Company, and the investment community. One example of this relationship building is the Company’s improved relationship with Abbott Laboratories, as +evidenced by the recent execution of a new distribution agreement for the OraQuick ® ADVANCE ™ rapid HIV-1/2 antibody test. Additionally, Mr. Michels has led the effort to obtain a license for Hepatitis C patents held by Ortho-Clinical Diagnostics and Chiron Corporation, which is currently in the advanced stages +of negotiation. +One of Mr. Michels’ most significant +contributions was in the area of strategic planning. Under his leadership, the Company’s management, with assistance from an outside consulting firm, refined the Company’s strategy for the next three to five years. In pursuing this +strategy, the Company will focus on several major areas, including expansion of the Company’s current product lines and technologies, development or acquisition of additional point-of-care tests for infectious diseases and the potential +development and offering of new over-the-counter products such as an over-the-counter rapid HIV test on the Company’s OraQuick ® platform. +21 +Additionally, Mr. Michels developed, with input from the Company’s management and the Board, strategic imperatives to ensure that the Company achieves +its 2005 financial and operational objectives and lays a strong foundation for continued growth in subsequent years. In short, Mr. Michels has shown strong leadership and has made a significant contribution in the short time he has been with the +Company. +Mr. Michels joined the Company in June of 2004. As a +result of his performance during the balance of the year, the Committee decided to increase his salary from $400,000 to $410,000 per year, which reflects a 5% annual increase prorated to reflect the time Mr. Michels was with the Company in 2004. +Messrs. Spair, Formica, Zack and Jerrett also received merit increases, and Mr. Jerrett received an additional increase in salary to better align his overall compensation with industry standards. +Merit Cash Bonuses . In January 2004, the +Company adopted the 2004 Self-Funding Award Incentive Plan (the “2004 Bonus Plan”), which established target cash bonus awards for executive officers and other managers for 2004. The terms of the 2004 Bonus Plan were designed to reward +executive officers and management for outstanding performance with cash bonus awards. Awards for 2004 were based on each executive’s achievement of certain individual performance targets and the Company’s attainment of its financial +targets for the year. Payment of these awards was from a bonus pool funded at a level dependent upon how well the Company achieved its financial objectives for the year. Mr. Michels’ target payment was 50% of base salary. +Under the terms of Mr. Michels’ Employment Agreement, the Company was +committed to pay Mr. Michels a cash bonus of at least $160,000 for 2004. In light of the Company’s strong financial performance and Mr. Michels’ outstanding performance rating for the year, the Committee increased his cash bonus to +$200,000. The Committee also approved cash bonuses to Messrs. Spair, Formica, Zack and Jerrett under the terms of the 2004 Bonus Plan, based on an evaluation of their respective performances during the year. +Stock Awards . As previously +noted, an important goal of the Company’s compensation program is to align the interests of the executive officers and other employees with the long-term interests of the Company’s stockholders. In furtherance of this goal, the Company +maintains the 2000 Stock Award Plan (the “Award Plan”) pursuant to which the Company may grant stock-based awards to directors, officers, and employees of, and consultants and advisers to, the Company. +In February 2003, the Company adopted Stock Option Award Guidelines for the +Company’s executive management (the “Guidelines”). The purpose of the Guidelines was to provide a framework for determining annual stock option awards for executives that reflect the executive’s duties and performance evaluation +against individual objectives for the applicable year, and to align the size of option grants for executives with comparable positions at other medical diagnostic and healthcare companies. +In January 2005, the Committee reevaluated the Guidelines, primarily because +of the anticipated change in accounting rules which will require the expensing of stock options. The Committee considered the potential financial impact of continuing its past practice of granting of stock options to members of the Board and to all +employees of the Company, including its executive officers. In addition, the Committee considered whether it would be appropriate to change the type of equity awards to mitigate any adverse financial impact while continuing to maintain an +appropriate long-term incentive for executive management and alignment with the interests of stockholders. After considering these factors, the Guidelines were amended to instead provide for the grant of a mix of restricted shares and stock options +to the Company’s senior management. +Utilizing the +Guidelines, as amended, and in light of Mr. Michels’ outstanding performance during 2004, the Committee approved the grant of 78,750 restricted shares and 67,500 stock options to Mr. Michels. Smaller awards of restricted shares and stock +options were also approved for the Company’s other executive officers. The Committee decided to continue the practice of granting stock options to all of the Company’s employees below the level of director. No changes were made to the type +or sizes of equity grants provided under the Company’s Compensation Policy for Non-Employee Directors. +22 +Other Compensation . In the past, the Company followed a +practice of providing a car allowance equal to $9,000 per year to each officer at the level of Senior Vice President and above. The Committee reevaluated this practice, and in July 2004, determined that officers at this level should not receive such +an allowance. Accordingly, the Committee added the amount of the annual allowance to each such officer’s base salary. +As a general matter, the Company does not believe that its officers should be treated differently than other employees, except that such officers should +receive base salaries and have bonus and stock award opportunities commensurate with their higher level of responsibilities within the organization. As a result, the Company does not provide personal-benefit perquisites to officers, such as +permanent lodging or defraying the cost of personal entertainment, family travel or tax planning services, reserved parking spaces or separate dining or other facilities. The Company’s healthcare, disability, insurance and other programs and +benefits are the same for all eligible employees, including officers. There are no outstanding loans of any kind to any executive officer, and since 2002, Federal law has prohibited any new company loans to executive officers. +In addition, the Company maintains a 401(k) profit sharing plan (the +“401(k) Plan”) in which all employees of the Company, including executive officers, are eligible to participate. The Company makes matching contributions up to the lesser of $4,000 or 10% of the participant’s salary. Payments of +benefits accrued for 401(k) Plan participants will be made upon retirement or upon termination of employment prior to retirement provided certain conditions have been met by the participant prior to termination. +COMPENSATION COMMITTEE: +Roger L. Pringle, Chairman +Gregory B. Lawless +Douglas G. Watson +March 24, 2005 +23 +Stock Price Performance Graph +The following graph compares the cumulative total returns to investors in the Company’s Common Stock, the Russell 2000 +Index and the Nasdaq Biotechnology Index for the period from December 31, 1999 through December 31, 2004. The graph assumes that $100 was invested on December 31, 1999 in the Company’s Common Stock and in each of the above-mentioned indices, +and that all dividends were reinvested. +The Russell 2000 index +was chosen because it is an index of companies with market capitalizations similar to ours. The Nasdaq Biotechnology Index was chosen because it includes a number of our competitors. Stockholders are cautioned that the graph shows the returns to +investors only as of the dates noted and may not be representative of the returns for any other past or future period. +* The stock performance data for the Company used to generate the graph reflects the cumulative total return on the common stock of Epitope for all +periods prior to the September 29, 2000 Merger of Epitope into the Company. +24 +Item 2. +Ratification Of Appointment Of Independent Registered Accounting Firm +The Audit Committee of the Board of Directors has reappointed the firm of KPMG LLP (“KPMG”), as our independent registered accounting firm, +to audit and report upon our financial statements and internal controls over financial reporting for the period January 1, 2005 through December 31, 2005. Ratification of this appointment requires the affirmative vote of a majority of shares present +in person or by Proxy and entitled to vote at the Annual Meeting. In the absence of instructions to the contrary, shares of Common Stock represented by properly executed Proxies will be voted for ratification of the appointment of KPMG as our +independent registered accounting firm, to audit and report upon our financial statements and internal controls over financial reporting for the period January 1, 2005 through December 31, 2005. If this appointment is not ratified by stockholders, +the Audit Committee may reconsider its appointment. +One or +more representatives of KPMG are expected to be at the Annual Meeting. They will have an opportunity to make a statement and will be available to respond to appropriate questions. Your Board recommends that the stockholders vote “FOR” +ratification of the appointment of KPMG . +Audit Fees; Audit-Related +Fees; Tax Fees; All Other Fees. +The following table +presents fees for professional audit services rendered by KPMG for the audits of our annual financial statements for the fiscal years ended December 31, 2004 and 2003, for the audits of our internal controls over financial reporting at December 31, +2004 and management’s assessment of those controls, for the review of the financial statements included in our Quarterly Reports on Form 10-Q for the fiscal years ended December 31, 2004 and 2003, and for fees billed for other services rendered +by KPMG: +2004 +2003 +Audit fees(1) +$ +403,500 +$ +205,597 +Audit-related fees (2) +— +12,000 +Audit and audit related fees +$ +403,500 +$ +217,597 +Tax fees (3) +32,500 +35,250 +All other fees (4) +— +— +Total fees +$ +436,000 +$ +252,847 +(1) +Includes fees related to the audit of our financial statements for each indicated year, audits of our internal controls over financial reporting and management’s assessment of +those controls for 2004, and interim reviews of our financial statements in the Company’s Quarterly Reports on Form 10-Q for each indicated year, notwithstanding when the fees were billed or when the services were rendered. Also, included are +professional services in connection with the review of registration statements on Form S-3 and S-8, issuance of consents and comfort letters, and assistance with accounting guidelines. +(2) +Audit-related fees consisted principally of fees for the audit of our 401(k) benefit plan. +(3) +During 2004 and 2003, we engaged KPMG to provide tax compliance, tax advice and tax planning services. +(4) +The Company did not pay any other fees to KPMG in connection with their services in 2004 and 2003. +During 2004 and 2003, we did not engage KPMG to provide any professional services related to financial information systems +design and implementation. +The Audit Committee has adopted a +general practice of pre-approving all audit and non-audit services provided to the Company. The Chairman of the Audit Committee has been delegated the authority to pre-approve audit and non-audit services having an aggregate value of up to $10,000 +in between meetings of the Audit Committee, provided that such pre-approval is communicated to the Audit Committee at its next scheduled meeting. All such services have been pre-approved in accordance with these practices. +25 +Annual Report +Our Annual Report to Stockholders for the year ended December 31, 2004 accompanies this Proxy Statement. On written +request, we will provide, without charge, a copy of our Annual Report on Form 10-K for the year ended December 31, 2004, as filed with the Commission (including a list briefly describing the exhibits thereto), to any record holder or beneficial +owner of our Common Stock on March 28, 2005, the record date for the Annual Meeting, or to any person who subsequently becomes such a record holder or beneficial owner. Requests should be directed to the attention of the Secretary of the Company at +our address set forth in the Notice of Annual Meeting of Stockholders immediately preceding this Proxy Statement. +Deadline For Stockholder Proposals +You may submit proposals for inclusion in the proxy materials for the Company’s 2006 Annual Meeting of Stockholders. Any such proposals must meet the +stockholder eligibility and other requirements imposed by rules issued by the Securities and Exchange Commission and must be received by the Company at 220 East First Street, Bethlehem, Pennsylvania 18105, Attention: Secretary, not later than +December 9, 2005. +Our Bylaws provide that a stockholder +proposal must meet certain predetermined requirements in order to be considered at the Annual Meeting. In order to be considered, a stockholder’s proposal must be made in writing to the Company’s Secretary and must be delivered to or +received at our principal executive offices not less than ninety (90) days nor more than one hundred twenty (120) days prior to the meeting. However, if less than one hundred (100) days’ notice or prior public disclosure of the date of the +meeting is given or made to stockholders, notice by the stockholder to be timely must be so received no later than the close of business on the tenth (10 th ) day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. The notice to the Secretary must set forth, with respect +to each matter the stockholder proposes to bring before the meeting, a brief description of the matter and the reasons for considering that matter at the Annual Meeting. The notice must also include the name and record address of the stockholder, +the class and number of shares of capital stock of the Company, which are beneficially owned by the stockholder, and any material interest the stockholder has in the matter(s) proposed for consideration at the Annual Meeting. +BY ORDER OF THE BOARD OF DIRECTORS +Jack E. Jerrett +Secretary +April 8, 2005 +26 +Appendix A +ORASURE TECHNOLOGIES, INC. +BOARD +OF DIRECTORS +Audit Committee Charter +May 18, 2004 +I. PURPOSE +The primary function of the Audit Committee is to assist the Board of +Directors (the “Board”) of OraSure Technologies, Inc. (the “Company”) in fulfilling its responsibility to oversee management’s conduct of the Company’s financial reporting process, including monitoring the participation +of management and the outside auditor in the financial reporting process, the Company’s systems of internal accounting and financial controls, and the annual independent audit of the Company’s financial statements. +In discharging its oversight role, the Audit Committee is empowered to +investigate any matter brought to its attention with full access to all books, records, facilities and personnel of the Company and the power to retain, at the Company’s expense, outside counsel, auditors or other experts for this purpose. The +outside auditor is ultimately accountable to, and the selection, evaluation and replacement of such auditor are the responsibility of, the Audit Committee. +Although the Audit Committee has the responsibilities and powers set forth in this Charter, the role of the Audit Committee is oversight. The members of +the Audit Committee are not full-time employees of the Company and may or may not be accountants or auditors by profession or experts in the fields of accounting and auditing and, in any event, do not serve in such capacity. Consequently, it is not +the duty of the Audit Committee to conduct audits or to determine that the Company’s financial statements and disclosures are complete and accurate and in accordance with generally accepted accounting principles or applicable rules and +regulations. These activities are the responsibility of management and the Company’s outside auditors. +II. COMPOSITION +The Audit Committee shall be comprised of three or more Directors as determined by the Board, each of whom shall (i) be free from any relationship that, in the opinion of the Board, would interfere with the exercise +of his or her independent judgment as a member of the Audit Committee, (ii) meet the independence requirements of Section 10A(m)(3) of the Securities and Exchange Act of 1934 (the “Exchange Act”) and the rules and regulations of the +Securities and Exchange Commission (“SEC”), (iii) not have participated in the preparation of the financial statements of the Company at any time during the past three years, and (iv) meet the independence and financial literacy +requirements of The NASDAQ Stock Market and any other stock exchange or trading market on which the Company’s securities may be listed or approved for quotation. At least one member of the Audit Committee shall be a financial expert as defined +by applicable SEC rules and regulations and NASDAQ listing standards. All members of the Audit Committee shall have a working familiarity with basic finance and accounting practices. Audit Committee members should enhance their familiarity with +finance and accounting by participating in educational programs conducted by the Company or a third party. +Members of the Audit Committee shall be elected by the Board at the Company’s annual organizational meeting or at any regular or special meeting of +the Board, and such members shall serve until their successors shall be duly elected and qualified, or until removal from the Audit Committee by the Board or until such member ceases to be a member of the Board or meet the independence or other +membership requirements set forth in this Charter. Vacancies on the Audit Committee shall be filled by the Board, and any member of the Audit Committee may be removed by the action of a majority of the whole Board. Unless a Chairman of the +27 +Audit Committee is elected by the Board, the members of the Audit Committee may designate a Chairman by majority vote of the full Audit Committee membership. +III. COMPENSATION +Unless otherwise approved by the Board, members of the Audit Committee shall +not receive any compensation from the Company other than Director fees (including equity-based awards), which may include amounts paid to Directors for service on committees and as chairs of committees of the Board. +IV. MEETINGS +The Audit Committee shall meet at the call of the Chairman of the Audit +Committee or of any two members of the Audit Committee (or if there shall be only one other member, then at the call of that member). A majority of the Audit Committee membership shall constitute a quorum for the transaction of business (or if there +shall be only two members, then both must be present), and the act of a majority of those present at any meeting at which a quorum is present (or if there shall be only two members, then they must act unanimously) shall be the act of the Audit +Committee. If there shall be only one member, then that member shall constitute a quorum and may act for the Audit Committee. +The Audit Committee shall keep regular minutes of its proceedings, which minutes shall be recorded in the Minute Book of the Company. The Secretary or +Assistant Secretary of the Company may act as Secretary of the Audit Committee, if requested, or the Audit Committee may appoint one of its members to act as Secretary of a meeting. The Audit Committee may also act by unanimous written consent +without a meeting. +The Audit Committee may request members of +management or others (including the Company’s investment bankers or financial analysts who follow the Company) to attend meetings and to provide pertinent information as necessary. The Committee shall meet with Company management (including the +Chief Financial Officer and Chief Accounting Officer) and the Company’s outside auditors in separate private sessions periodically but not less than quarterly. +V. RESPONSIBILITY AND DUTIES +The following responsibilities and duties shall be the common recurring activities of the Audit Committee in carrying out +its oversight function. These responsibilities and duties are set forth as a guide with the understanding that the Audit Committee may diverge from this guide as appropriate given the circumstances. +1. +The Audit Committee shall have the sole authority to select and replace the Company’s outside auditors (subject to stockholder approval, if applicable), and shall be directly +responsible for the compensation and oversight of the work of the outside auditors, including resolution of disagreements between the Company’s management and the outside auditors regarding financial reporting, for the purpose of preparing its +audit report or related work. The outside auditors shall report directly to the Audit Committee. +2. +The Audit Committee shall review and determine the scope of independent auditing services in advance of each annual audit. +3. +The Audit Committee shall review in advance, and grant any appropriate pre-approvals on (i) all auditing services to be provided by the outside auditors and (ii) +all non-audit services to be provided by the outside auditors as permitted by Section 10A of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or other applicable law and (iii) in connection with services approved under +clauses (i) and (ii), above, all fees and other terms of engagement, including the terms of any engagement letter or similar agreement with the outside auditors. The Chairman of the Audit Committee shall be authorized to execute any such engagement +letter or agreement with the outside auditors, for and on behalf of the Company. The foregoing pre-approval requirement shall be subject to +28 +the de minimis exceptions for non-audit services described in Section 10A(i)(1)(B) of the Exchange Act which are approved by the Audit +Committee prior to completion of the audit. The Audit Committee may delegate to one or more members of the Audit Committee who are independent the authority to grant preapprovals required by this Section 3, provided that any preapproval by such +member or members shall be presented to the full Audit Committee at its next scheduled meeting. +4. +The Audit Committee shall review and approve disclosures required to be included in the Company’s periodic reports filed under Section 13 of the Exchange Act with respect to +approval of non-audit services. +5. +The Audit Committee shall review, based upon the recommendation of the outside auditors and Company management, the scope and plan of work to be done by the outside auditor each +fiscal year, including, staffing, locations, reliance upon management, and internal audit and general audit approach. +6. +The Audit Committee shall review and evaluate the performance of the Company’s outside auditors on at least an annual basis. +7. +The Audit Committee shall, at least annually, obtain and review a report from the outside auditors describing: (1) the outside auditors’ internal quality control procedures and +(2) any material issues raised by the most recent internal quality-control review, or peer review, of the outside auditors, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting +one or more independent audits carried out by the outside auditors, and any steps taken to deal with any such issues. +8. +The Audit Committee shall review with the auditors their independence from Company management, including (1) requesting from the outside auditors annually, a formal written +statement delineating all relationships between the auditor and the Company consistent with Independence Standards Board Standard Number 1 and rules of The NASDAQ Stock Market, and (2) discussing with the outside auditors any such disclosed +relationships and their impact on the outside auditor’s independence. The Audit Committee shall also review the resumes of key partners and managers of the outside auditors in order to evaluate the experience and qualifications of those who +perform services for the Company. +9. +The Audit Committee shall confirm that the lead audit partner, or the lead audit partner responsible for reviewing the audit, for the Company’s outside auditors complies with +applicable partner rotation requirements. +10. +The Audit Committee shall review all reports required to be submitted by the outside auditors to the Audit Committee under Section 10A of the Exchange Act. +11. +The Audit Committee shall review with management and the outside auditors the audited financial statements, including the Company’s disclosures under “Management’s +Discussion and Analysis of Financial Conditions and Results of Operations,” and recommend to the Board whether the audited financial statements should be included in the Company’s Annual Report on Form 10-K (or the Annual Report to +Stockholders if distributed prior to the filing of the Form 10-K filed with the SEC). +12. +The Audit Committee shall review and consider with the outside auditors the matters required to be discussed by Statement of Auditing Standards No. 61, including their judgment +about the quality, not just acceptability, of accounting principles, the reasonableness of significant judgments, and the clarity of the disclosures in the financial statements. +13. +The Audit Committee shall review with management and the outside auditors the Company’s interim financial results to be included in the Company’s quarterly reports on Form +10-Q to be filed with the SEC, including the Company’s disclosures under “Management’s Discussion and Analysis of Financial Conditions and Results of Operation,” prior to submission to stockholders, the SEC or any other +governmental body, any stock exchange or the public. +14. +The Audit Committee shall prepare the report required by the SEC to be included in the Company’s annual proxy statement and any other SEC reports required by +applicable securities laws or the rules of +29 +The NASDAQ Stock Market or any other stock exchange or trading market on which the Company’s securities may be listed or approved for quotation. +15. +The Audit Committee shall review and discuss all reports required by law or regulation to be provided to the Audit Committee by the outside auditor of (1) all critical accounting +policies and practices used by the Company; (2) all alternative treatments of financial information within generally accepted accounting principles that have been discussed by the outside auditor with Company management, the ramifications of the use +of such alternative treatments, and the treatment preferred by the outside auditors; and (3) other material written communications between the outside auditors and Company management, such as any management letter or schedule of unadjusted +differences. +16. +The Audit Committee shall review and discuss with Company management and the outside auditor such accounting policies (and changes therein) of the Company, including any financial +reporting issues, which could have a material impact on the Company’s financial statements (including but not limited to the use of alternative GAAP methods and off-balance sheet structures), as are deemed appropriate for review by the Audit +Committee prior to any interim or year-end filing with the SEC or other regulators. +17. +The Audit Committee shall review and discuss with Company management the effect of accounting and regulatory initiatives on the financial statements of the Company. +18. +The Audit Committee shall discuss with Company management the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures, +including the Company’s risk assessment and risk management policies. +19. +The Audit Committee shall review disclosures made by the Company’s Disclosure Committee or any member thereof or by the Company’s CEO or CFO during their certification +process for the applicable Form 10-K and Form 10-Q about any significant deficiencies in the design or operation of disclosure controls or internal financial controls or material weaknesses therein and any fraud involving management or other +employees who have a significant role in the Company’s disclosure or internal controls. +20. +The Audit Committee shall periodically consult with the outside auditor, without the presence of management, about internal controls and the completeness and accuracy of the +Company’s financial statements. +21. +The Audit Committee shall review and discuss with management and the outside auditor: (1) the management recommendation letter on accounting procedures and internal control and any +other reports prepared by the outside auditor, and management’s responses concerning such reports; (2) any material accounting issues identified by management, or the outside auditor; and (3) other matters required to be communicated by the +outside auditor to the Audit Committee under generally accepted auditing standards. +22. +Prior to releasing the year-end earnings, the Audit Committee shall discuss the results of the audit with the outside auditors. The Audit Committee shall meet with the outside +auditors, with and without management present, to discuss the results of their examination. +23. +The Audit Committee shall review and discuss with Company management earnings press releases, including the use of “pro-forma” or “adjusted” non-GAAP +information, as well as financial information and earnings guidance provided to analysts and rating agencies. +24. +The Audit Committee shall review and approve in advance all of the Company’s related-party transactions. For the purposes of this Charter, “related-party +transactions” shall refer to transactions required to be disclosed pursuant to SEC Regulation S-K, Item 404. +25. +The Audit Committee shall discuss with management and the outside auditors the quality and adequacy of the Company’s internal controls. +30 +26. +The Audit Committee shall establish procedures for: (1) the receipt, retention and treatment of complaints received by the Company regarding accounting, internal audit controls or +auditing matters, and (2) confidential, anonymous submissions by employees of the Company of concerns regarding questionable accounting or auditing matters. +27. +The Audit Committee shall as appropriate meet with the Company’s General Counsel and, if necessary, outside counsel, to review legal and regulatory matters, if any, that could +have a material impact on the Company’s financial statements. +28. +The Audit Committee shall have the authority, to the extent it deems necessary or appropriate, to retain independent legal counsel, accountants or other advisors to assist it in +carrying out its duties. +29. +The Audit Committee shall review and reassess the adequacy of this Charter at least annually, recommend any desired changes to the Charter to the Board for approval, and have the +Charter published at least every three years in accordance with applicable SEC regulations. +30. +The Audit Committee shall perform such other activities as it deems necessary, consistent with the terms of this Charter, the Company’s Bylaws and applicable law, rules and +regulations, including rules of The NASDAQ Stock Market or any other stock exchange or trading market on which the Company’s securities may be listed or approved for quotation. +The Company shall provide for appropriate funding, as determined by the Audit +Committee, to cover the costs of all of the services and activities set forth in this Charter as well as for any other ordinary administrative expenses of the Audit Committee that are necessary or appropriate in carrying out its duties. +VI. REPORTING RESPONSIBILITY +The minutes of the Audit Committee reflecting, among other things, all +actions taken by the Audit Committee, shall be distributed to the Board at a Board meeting following the meeting of the Audit Committee that is the subject of such minutes. In addition, matters within the responsibility of the Audit Committee may be +discussed by the full Board from time to time during the course of the year. +31 +PROXY +2005 Annual Meeting of Stockholders +PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned hereby appoints Jack E. Jerrett and Ronald H. Spair, and each of them, proxies with full power of substitution, to vote all of the shares +which the undersigned is entitled to vote at the 2005 Annual Meeting of Stockholders of OraSure Technologies, Inc. (the “Company”), to be held on Tuesday, May 17, 2005, and at any adjournment or adjournments thereof, with all the powers +the undersigned would possess if personally present, with respect to the matters listed on the reverse side. +The shares represented by this Proxy, if properly executed, will be voted as specified on the reverse side or, if no specification is made, will be voted +FOR the election of the nominees listed on the reverse side as directors and FOR the ratification of the appointment of KPMG LLP to audit and report upon the Company’s financial statements for the period January 1, 2005 through December 31, +2005. If any other business properly comes before the meeting, the proxies named above will have discretionary authority to vote thereon in accordance with their best judgement. +PLEASE MARK, DATE, SIGN AND RETURN THE PROXY CARD PROMPTLY. +(Continued and to be marked, dated and signed, on the other side) +Address Change/Comments (Mark the corresponding box on the reverse side) +é FOLD AND DETACH HERE é +2005 Annual Meeting of +Stockholders +Tuesday, May 17, 2005 +Please +Mark Here +for Address Change +or Comments +SEE REVERSE SIDE +¨ +1. +ELECTION OF DIRECTORS +FOR +WITHHOLD +2. +RATIFICATION OF APPOINTMENT +OF KPMG LLP +FOR +AGAINST +ABSTAIN +Class II (Term Expiring 2008) +¨ +¨ +¨ +¨ +¨ +01 Ronny B. Lancaster +02 Roger L. Pringle +(Instruction: To withhold authority to vote for any individual nominee, mark FOR and strike a line through the nominee’s name in the list above. To withhold authority to vote +for all nominees, mark WITHHOLD.) +Choose MLink sm for fast, easy and secure 24/7 online access to your future proxy materials, investment plan statements, tax documents and more. Simply log on to Investor ServiceDirect ® at www.melloninvestor.com/isd where step-by-step instructions will prompt you +through enrollment. +Signature +Signature +Date , 2005 +NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title +as such. +é FOLD AND DETACH HERE é +Vote by Internet or +Telephone or Mail +24 Hours a Day, 7 Days a Week +Internet and telephone voting is available through 11:59 PM Eastern Time, May 16, 2005. +Your Internet or telephone vote authorizes the named proxies to vote your +shares in the same manner +as if you marked, signed and returned your proxy card. +Internet +http://www.proxyvoting.com/osur +Use the internet to vote your proxy. +Have your proxy card in hand when you access the web site. +OR +Telephone +1-866-540-5760 +Use any touch-tone telephone to vote your proxy. Have your proxy card in hand when you call. +OR +Mail +Mark, sign and date +your proxy card and +return it in the +enclosed postage-paid +envelope. +If you vote your +proxy by Internet or by telephone, +you do NOT need to mail back your proxy card. +You can view the Annual Report and Proxy Statement +on the internet at http://www.orasure.com \ No newline at end of file diff --git a/raw/proxies/0001116463/0001193125-05-072694/proxy_rpt.txt b/raw/proxies/0001116463/0001193125-05-072694/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..3266f3fb775bd6658f8221e6c319d3848982196e --- /dev/null +++ b/raw/proxies/0001116463/0001193125-05-072694/proxy_rpt.txt @@ -0,0 +1,16 @@ +Certain Relationships and Related Transactions +In October 2002, we entered into a commercial lease (the “Lease”) +with Tech III Partners, LLC (“Tech Partners”), for a 48,000 square foot facility on land adjacent to our Bethlehem, Pennsylvania facilities, and the lease of that facility to us. Tech Partners is owned and controlled by Michael J. +Gausling, the Company’s former President and Chief Executive Officer, and Dr. R. Sam Niedbala, the Company’s former Executive Vice President and Chief Science Officer. Mr. Gausling and Dr. Niedbala both resigned from the Company in 2004. +The facility is currently our corporate headquarters and houses manufacturing and administrative operations. +The Lease, as amended, has an initial ten-year term ending in October 2012 and a base rent starting at $780,000 per year and increasing to $858,240 per +year over that term. The base rental rate may be increased after the fifth year of the initial term in order to reflect changes in the interest rate on debt incurred by Tech Partners to finance construction of the leased facilities. We have not +guaranteed any debt incurred by Tech Partners. We also have an option to renew the Lease for an additional five years at a rental rate of $975,360 per year, and to purchase the facility at any time during the initial ten-year term based on a formula +set forth in the Lease. +Prior to deciding to enter into the +Lease and an amendment increasing the base rent to reflect certain tenant fit-out costs, our Board of Directors retained Imperial Realty Appraisal LLC, an independent commercial real estate appraisal firm, to evaluate the proposed base rental rate. +Imperial Realty issued opinions indicating that the annual base rent set forth in the Lease, as amended, is below the market rental rate we could otherwise expect to pay to lease a comparable commercial property in the same general geographic +market. The terms of the Lease are otherwise substantially similar to a commercial lease we entered into with a third party for our other Bethlehem, Pennsylvania facilities. +Information regarding employment and severance agreements between the named executive officers and the Company is set forth +in the Section entitled, “Employment and Transition Agreements,” in this Proxy Statement. +11 \ No newline at end of file diff --git a/raw/proxies/0001116463/0001193125-07-077152/proxy.txt b/raw/proxies/0001116463/0001193125-07-077152/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..730658482e98990acb01aee3e95d312072eac500 --- /dev/null +++ b/raw/proxies/0001116463/0001193125-07-077152/proxy.txt @@ -0,0 +1,2590 @@ +DEF 14A +1 +ddef14a.htm +DEFINITIVE PROXY STATEMENT +Definitive Proxy Statement +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to +Section 14(a) +of the Securities Exchange Act of 1934 +(Amendment No. ) +Filed by the Registrant x Filed by a Party other than the +Registrant ¨ +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material Pursuant to §240.14a-12 +OraSure Technologies, Inc. +(Name of Registrant as Specified In Its +Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was +determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the +previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +ORASURE TECHNOLOGIES, INC. +220 East First Street +Bethlehem, Pennsylvania 18015 +April 9, 2007 +Dear Stockholder: +You are cordially invited to attend the 2007 Annual Meeting of Stockholders +to be held on Tuesday, May 15, 2007 , at the Historic Hotel Bethlehem, 437 Main Street, Bethlehem, Pennsylvania 18018, at 10:00 a.m. Eastern Time. Your Board of Directors and Executive Management Team look forward to personally greeting +those present. If you cannot attend in person, we are pleased to offer a live webcast of the Annual Meeting, which you can access by going to our website, www.orasure.com . +At the meeting, you will be asked to (i) elect two Class I Directors to serve on the Board of Directors until the +Annual Meeting of Stockholders in 2010; (ii) ratify the appointment of KPMG LLP as our independent registered public accounting firm for 2007; and (iii) transact such other business as may properly come before the meeting or any +adjournments thereof. +Your Board of Directors has approved the +nominees for Director and recommends that you vote FOR their election to the Board. In addition, your Board of Directors recommends that you vote FOR the ratification of KPMG’s appointment. +Your vote is very important, regardless of the number of shares you own. +Whether or not you plan to attend the Annual Meeting in person, we urge you to submit your vote as soon as possible. You will have the option to vote by telephone, via the Internet, or by completing, signing, dating, and mailing the enclosed Proxy +Card in the accompanying postage prepaid envelope. Additional details on these options can be found in the attached Proxy Statement and Proxy Card. You may, of course, attend the Annual Meeting and vote in person regardless of whether you have +previously voted by phone, the Internet or mail. +We look +forward to seeing you at the meeting. +Sincerely yours, +Douglas A. Michels +President and Chief Executive Officer +ORASURE TECHNOLOGIES, INC. +220 East First Street +Bethlehem, Pennsylvania 18015 +Notice of Annual Meeting of Stockholders +to be held May 15, 2007 +To the Stockholders of OraSure Technologies, Inc.: +The Annual Meeting of Stockholders of OraSure Technologies, +Inc., a Delaware corporation, will be held at the Historic Hotel Bethlehem, 437 Main Street, Bethlehem, Pennsylvania 18018, on Tuesday, May 15, 2007 , at 10:00 a.m. Eastern Time for the following purposes: +1. To elect two Class I Directors; +2. To ratify the appointment of KPMG LLP as our +independent registered public accounting firm for 2007; and +3. To consider such other business as may properly come before the meeting or any adjournments thereof. +Additional information is included in the Proxy Statement accompanying this Notice. Only holders of Common Stock of record at the close of business on +March 26, 2007, will be entitled to vote at the Annual Meeting of Stockholders and any adjournments thereof. +By Order of the Board of Directors, +Jack E. Jerrett +Secretary +April 9, 2007 +Bethlehem, Pennsylvania +YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the +Annual Meeting, you are urged to vote your shares as promptly as possible by telephone, via the Internet, or by completing, signing, dating and returning the enclosed Proxy Card, as described in the attached Proxy Statement. Voting by phone, the +Internet or mail does not deprive you of your right to attend the Meeting and to vote your shares in person. +ORASURE TECHNOLOGIES, INC. +220 East First Street +Bethlehem, Pennsylvania 18015 +Proxy Statement +This Proxy Statement is being mailed on or about April 9, 2007, to stockholders of OraSure Technologies, Inc., a Delaware corporation (the +“Company”), in connection with the Company’s solicitation of proxies (each, a “Proxy”) for use at the Annual Meeting of Stockholders to be held on May 15, 2007, at 10:00 a.m. Eastern Time, at the Historic Hotel +Bethlehem, 437 Main Street, Bethlehem, Pennsylvania 18018, and at any adjournments thereof (the “Annual Meeting”). +Proxies +If represented by a properly executed Proxy, whether delivered by phone, the Internet or mail, as described below, your shares will be voted in accordance +with your instructions. If you do not provide a Proxy with instructions, your shares will be voted according to the recommendations of our Board of Directors (the “Board”) as stated on the Proxy. You may revoke the authority granted by +your Proxy at any time before the Annual Meeting by notice in writing delivered to the Secretary of the Company, by delivering a subsequently dated Proxy, or by attending the Annual Meeting, withdrawing the Proxy and voting in person. +At the Annual Meeting, action will be taken on the matters set forth in the +accompanying Notice of Annual Meeting of Stockholders and described in this Proxy Statement. The Board knows of no other matters to be presented for action at the Annual Meeting. If any other matters do properly come before the Annual Meeting, the +persons named in the Proxy Card will have discretionary authority to vote on those matters in accordance with their best judgment. +The cost of soliciting Proxies will be borne by us. In addition to solicitations by mail, certain of our Directors, officers and regular employees may +solicit Proxies personally or by telephone or other means without additional compensation. +Arrangements will also be made with brokerage firms and other custodians, nominees, and fiduciaries to forward solicitation material to the beneficial owners of stock held of record by such persons, and we will, upon +request, reimburse them for their reasonable expenses in so doing. +Voting Procedures +You will have a choice of +voting over the phone, via the Internet or by completing and mailing a traditional paper Proxy Card, as described below. Please check your Proxy Card or the information forwarded by your bank, broker or other holder of record to determine which +options are available to you. +1 +Voting by Mail . If you desire to vote by using the paper Proxy Card +included with this Proxy Statement instead of by telephone or the Internet, you may do so by completing, signing, dating and returning the Proxy Card in the enclosed, pre-addressed envelope. Postage need not be affixed to the envelope if mailed in +the United States. +Voting by Phone or +Internet . Instead of voting by use of the paper Proxy Card, you may be able to vote by phone or the Internet. Whether you may do so will depend on how your shares are held. +If your shares are registered in your name with Mellon Investor Services LLC, +our transfer agent, you may vote those shares by telephone by calling Mellon Investor Services LLC at 1-866-540-5760 (toll free in the United States or Canada only) or via the Internet at the following website: www.proxyvoting.com/osur . You +may vote by telephone or the Internet by doing so by 11:59 pm Eastern Time (8:59 pm Pacific Time) on May 14, 2007. Additional instructions can be found on the paper Proxy Card accompanying this Proxy Statement. +If your shares are registered in the name of a broker, bank or other +registered holder, you may be able to vote by phone or the Internet if the broker, bank or other record holder has procedures for telephone or Internet voting. If you desire to use either of these voting options, please follow the procedures +provided to you by your broker, bank or other record holder. +The telephone and Internet voting procedures are designed to authenticate your identity, to allow you to give your voting instructions and to confirm that your instructions have been recorded properly. If you vote via the Internet, you +should understand that there may be costs associated with this method of voting, such as usage charges from Internet access providers and telephone companies, that you must pay. +Submitting a Proxy by mail, the phone or the Internet will not affect your right to vote in person at the Annual Meeting. +Electronic Access to Proxy Materials and Annual +Report . The Notice of Annual Meeting, the Proxy Statement and our 2006 Annual Report are available on our website at http:// www.orasure.com . If you are a stockholder of record and would like to view future proxy +statements and annual reports over the Internet instead of receiving copies in the mail, please follow the instructions on the paper Proxy Card if you vote by mail or follow the instructions provided when you vote by phone or over the Internet. If +you hold your shares through a bank, broker or other holder, check the information provided by that entity for instructions on how to elect to view future proxy statements and annual reports over the Internet. Opting to receive your proxy materials +and annual report online will save us the cost of producing these materials and mailing them to you in the future. +Voting Securities +On March 26, 2007, the record date for determining stockholders entitled to vote at the Annual Meeting, we had outstanding and entitled to vote at the meeting 46,855,010 shares of common stock, par value $.000001 +per share (“Common Stock”). Each share of Common Stock is entitled to one vote on any matter brought before the Annual Meeting. A majority of the shares of Common Stock outstanding as of the record date, represented in person or by Proxy +at the Annual Meeting, will constitute a quorum for the transaction of business. +2 +Principal Stockholders +The following table sets forth information, as of March 26, 2007, regarding the beneficial ownership of the +Company’s Common Stock by (a) each person who is known by us to be the beneficial owner of more than five percent of the Common Stock outstanding, (b) each Director and nominee for election as Director, (c) each of our executive +officers named in the Summary Compensation Table in this Proxy Statement under “Executive Compensation,” and (d) all of our directors and executive officers as a group. Unless otherwise indicated, the address of each person identified +below is c/o OraSure Technologies, Inc., 220 East First Street, Bethlehem, Pennsylvania 18015. +Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), shares of Common Stock which a person has a right to acquire pursuant to the exercise of stock options and +warrants held by that person that are exercisable within 60 days of March 26, 2007 are deemed to be outstanding for the purpose of computing the percentage ownership of that person, but are not deemed outstanding for computing the percentage +ownership of any other person. +Name and Address of +Beneficial +Owner +Amount and Nature of +Beneficial Ownership (1)(2) +Percent +of Class +Wells Fargo & Company(3) +420 Montgomery Street +San Francisco, +CA 94104 +5,631,748 +12.02 +% +BlackRock, Inc.(4) +40 East 52 nd Street +New York, NY 10022 +5,395,311 +11.51 +% +First Manhattan Co.(5) +437 Madison Avenue +New York, NY 10022 +3,338,600 +7.13 +% +Douglas A. Michels +823,915 +1.75 +% +Ronald H. Spair +614,081 +1.30 +% +P. Michael Formica +404,377 +* +Roger L. Pringle(6) +285,927 +* +Joseph E. Zack +307,742 +* +Stephen R. Lee, Ph.D. +178,676 +* +Douglas G. Watson +196,250 +* +Frank G. Hausmann +173,750 +* +Ronny B. Lancaster +103,750 +* +Charles W. Patrick +30,416 +* +Jack Goldstein, Ph.D. +23,750 +* +Michael Celano +15,416 +* +All directors and executive officers as a group (14 people) +3,541,970 +7.19 +% +* +Less than 1% +(1) +Subject to community property laws where applicable, beneficial ownership consists of sole voting and investment power except as otherwise indicated. +3 +(2) +Includes shares subject to options exercisable within 60 days of March 26, 2007, as follows: Mr. Michels, 352,133 shares; Mr. Spair, 412,519 shares; Mr. Formica, +310,198 shares; Mr. Pringle, 249,302 shares; Mr. Zack, 237,655 shares; Dr. Lee, 58,083 shares; Mr. Watson, 196,250 shares; Mr. Hausmann, 173,750 shares; Mr. Lancaster, 103,750 shares; Mr. Patrick, 30,416 shares; +Dr. Goldstein, 23,750 shares; Mr. Celano, 15,416 shares; and all directors and executive officers as a group, 2,441,902 shares. Also includes 325,650, 134,000, 47,250, 47,250 and 106,916 restricted shares held by Mr. Michels, +Mr. Spair, Mr. Formica, Mr. Zack and Dr. Lee, respectively. +(3) +Based on information contained in a Schedule 13G/A filed February 9, 2007 by Wells Fargo & Company (“Wells Fargo”), on behalf of its subsidiaries, Wells +Capital Management Incorporated and Wells Fargo Funds Management, LLC. Wells Fargo has sole voting power with respect to 5,575,266 shares, sole dispositive power with respect to 5,629,248 shares and shared dispositive power with respect to 2,500 +shares. +(4) +Based on information contained in a Schedule 13G/A filed February 13, 2007, by BlackRock, Inc. (“BlackRock”) on behalf of its subsidiaries, including the Master Value +Opportunities Trust (“MVOT”). BlackRock has shared voting and dispositive power with respect to the indicated shares, which include 4,190,272 shares held by MVOT. +(5) +Based on information contained in a Schedule 13G/A filed February 12, 2007 by First Manhattan Co. (“FMC”). FMC has sole voting and dispositive power with respect to +the indicated shares. +(6) +Includes 1,500 shares owned by Mr. Pringle’s spouse. +Corporate Governance +Director Independence +We have adopted Corporate Governance Guidelines which, among other things, require that a majority of the members of the Board meet the independence +requirements of the Securities and Exchange Commission (“SEC”) and The NASDAQ Stock Market (“NASDAQ”), on which our Common Stock is listed. A copy of our Corporate Governance Guidelines is available on our website at +www.orasure.com . +Each year our Board conducts a review +of Director independence. The most recent review occurred in February 2007, during which the Board considered transactions and relationships, if any, between each Director or any member of such Director’s immediate family and the Company. As a +result of this review, the Board determined that Michael Celano, Jack Goldstein, Ph.D., Frank G. Hausmann, Ronny B. Lancaster, Charles W. Patrick, Roger L. Pringle and Douglas G. Watson are “independent,” as that term is defined in the +applicable rules of NASDAQ and the SEC. In concluding that Mr. Celano is independent, the Board considered his past service with KPMG LLP, our current independent registered public accounting firm, and Arthur Andersen LLP, our independent +public accountants prior to KPMG LLP. +Only Douglas A. Michels +and Ronald H. Spair were determined by the Board not to be independent. Mr. Michels is not independent because he is employed as our President and Chief Executive Officer, and Mr. Spair is not independent because he is employed as our +Chief Operating Officer and Chief Financial Officer. Based on the foregoing, the Board of Directors is comprised of a majority of independent Directors. +Board Meetings +The Board held seven meetings and acted by written consent on six occasions during the year ended December 31, 2006. Each member of the Board +attended more than 75 percent of the combined total of meetings of the Board and of the committees of the Board on which such member served during the period in the year in which he served as a Director, except for Dr. Goldstein. +Dr. Goldstein joined the Board in May 2006 and missed +4 +one Board meeting and one Audit Committee meeting out of the total six meetings of both the Board and Audit Committee held after he became a Director. +Annual Meeting and Stockholder Communications +The Board has approved a policy concerning Board members’ attendance at +our annual meeting of stockholders and a process for security holders to send communications to members of the Board. Our 2006 Annual Meeting of Stockholders held on May 16, 2006 was attended by all members of the Board, as constituted at that +time. Descriptions of the Board’s policy on annual meeting attendance and the process for security holders to send communications to the Board are provided on our website, at www.orasure.com . +Committees of the Board +The Board currently has three standing committees – the Audit Committee, +the Compensation Committee, and the Nominating and Corporate Governance Committee. Each Committee is composed entirely of independent Directors. +Audit Committee . The Audit Committee oversees the Company’s accounting and financial reporting process, internal +controls and audits, and consults with management and the Company’s independent registered public accounting firm on, among other items, matters related to the annual audits, the published financial statements and the accounting principles +applied. As part of its duties, the Audit Committee appoints, evaluates and retains the Company’s independent registered public accounting firm. It also maintains direct responsibility for the compensation, termination and oversight of the +Company’s independent registered public accounting firm and evaluates the independent registered public accounting firm’s qualifications, performance and independence. The Audit Committee approves all services provided to the Company by +the independent registered public accounting firm. The Audit Committee has established procedures for the receipt, retention and treatment, on a confidential basis, of complaints received by the Company, regarding accounting, internal accounting +controls or auditing matters, and the confidential, anonymous submissions by employees of concerns regarding questionable accounting or auditing matters. The Audit Committee operates pursuant to a written charter, a copy of which is available on our +website at www.orasure.com . +Members of the Audit +Committee are Douglas G. Watson, Chairman, Michael Celano, Jack Goldstein, Ph.D. and Ronny B. Lancaster. Each member of the Audit Committee is “independent,” as defined in the Exchange Act and applicable NASDAQ rules. The Board has +determined that Messrs. Watson and Celano are each an “audit committee financial expert,” as that term is defined by applicable rules of the SEC. The Audit Committee met six times and acted by written consent on one occasion during the +year ended December 31, 2006. +Compensation +Committee . The primary responsibility of the Compensation Committee is to assist the Board in fulfilling its oversight responsibilities with respect to all types of compensation for our officers and non-employee +Directors. Our overall compensation philosophy, as determined by the Compensation Committee and approved by the Board, is to (i) reward the financial performance of the Company and achievement by the executive officers of financial and other +individual performance objectives, (ii) align the interests of the executive officers with the interests of our stockholders, (iii) provide long-term incentives for the executive officers, and (iv) set compensation levels sufficiently +competitive to attract and retain high quality executives and to motivate them to contribute to our success. +On an annual basis, the Compensation Committee evaluates the performance of the Chief Executive Officer against previously established goals and +objectives and reviews the performance evaluations and compensation recommendations for other executive officers provided by the Chief Executive Officer. Based on the foregoing, along with a review of compensation provided at comparable medical +diagnostic and healthcare companies and +5 +the recommendations of a compensation consultant engaged by the Committee, the Compensation Committee determines cash and equity compensation for the Chief +Executive Officer, other executive officers and the non-employee members of the Board. Compensation for the Chief Executive Officer is submitted for approval by a majority of independent Directors on the Board. +On an as-needed basis, the Compensation Committee retains independent +compensation consultants to assist the Compensation Committee in evaluating and structuring our executive compensation programs and making compensation decisions. During 2006, Aon Consulting and Mercer Human Resources Consulting were engaged for +this purpose. A further discussion of the role of the Compensation Committee, our processes and procedures for determining executive officer and non-employee Director compensation, and the services provided by Aon and Mercer are set forth in the +Section entitled, “Compensation Discussion and Analysis,” in this Proxy Statement. +The Committee is authorized to delegate any of its responsibilities to subcommittees or individuals, as the Committee deems appropriate. To date, the Committee has not exercised this right. +The Compensation Committee operates pursuant to a written charter, a copy of +which is available on our website at www.orasure.com . Members of the Compensation Committee are Roger L. Pringle, Chairman, Charles W. Patrick and Douglas G. Watson. Each member of the Compensation Committee is “independent,” as +defined in applicable NASDAQ rules. The Compensation Committee met nine times and acted by written consent on one occasion during the year ended December 31, 2006. +Nominating and Corporate Governance Committee . The Nominating and Corporate Governance +Committee of the Board identifies, evaluates and recommends to the Board candidates for election or re-election to the Board. In addition, this Committee is responsible for developing, recommending for Board approval and administering our Corporate +Governance Guidelines. The Nominating and Corporate Governance Committee operates pursuant to a written charter. Copies of the Committee’s charter and the Company’s Corporate Governance Guidelines are available on our website at +www.orasure.com . +Members of the Nominating and +Corporate Governance Committee are Ronny B. Lancaster, Chairman, Charles W. Patrick, and Roger L. Pringle. Each member of the Nominating and Corporate Governance Committee is “independent,” as defined in applicable NASDAQ rules. The +Nominating and Corporate Governance Committee met one time and acted by written consent on two occasions during the year ended December 31, 2006. +In evaluating and recommending candidates for the Board, the Nominating and Corporate Governance Committee will consider candidates recommended by members +of the Committee or the Board of Directors, officers or employees of the Company, the Company’s security holders and other business contacts. The Nominating and Corporate Governance Committee may also consult with outside advisors or retain +search firms to assist in the search for qualified candidates. Candidates recommended by security holders will be considered by the Nominating and Corporate Governance Committee in the same manner as candidates recommended by other sources, but only +if the security holder makes its recommendation in accordance with the advance notification provisions set forth in the Company’s By-laws. For a description of these provisions, see the Section entitled, “Nomination of Directors,” in +this Proxy Statement. +In evaluating new candidates for Board +nomination, the Nominating and Corporate Governance Committee considers one or more of the following factors, as well as any other factors determined to be relevant by the Committee based on the needs of the Board and Company: independence, +integrity, knowledge, judgment, character, leadership skills, education, experience, financial literacy, technical background, and standing in the community. In evaluating incumbent Directors for re-election, the Nominating and Corporate Governance +Committee considers that Director’s overall service to the Company, including the number of meetings attended, level of participation, quality of performance and other factors deemed relevant by the Committee. +6 +Nomination of Directors +Our Bylaws provide that nominations for election to the Board may be made by the Board or by any +stockholder entitled to vote for the election of Directors at the Annual Meeting. A stockholder’s notice of nomination must be made in writing to the Company’s Secretary and must be delivered to or received at our principal executive +offices not less than ninety (90) days nor more than one hundred twenty (120) days prior to the meeting. However, in the event that less than one hundred (100) days’ notice or prior public disclosure of the date of the meeting is +given or made to stockholders, notice by the stockholder to be timely must be received no later than the close of business on the tenth (10 th ) day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. The notice to the Secretary must set forth, with respect to the nominee, the +name, age, business address, residence address, and principal occupation or employment of the person, the class and number of shares of capital stock of the Company which are beneficially owned by the person, and any other information relating to +the person that is required to be disclosed in solicitations for proxies for election of Directors pursuant to Regulation 14A under the Exchange Act. The notice must also include the name and record address of the stockholder making the nomination +and the class and number of shares of capital stock of the Company that are beneficially owned by the stockholder. We may require any proposed nominee to furnish such other information as we may reasonably require to determine the eligibility of the +proposed nominee to serve as a Director of the Company. +Report of the Audit +Committee +The information contained in this report +shall not be deemed to be “soliciting material” or “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to liability under that Section. This report shall not be deemed “incorporated by +reference” into any document filed under the Securities Act of 1933, as amended, or the Exchange Act, whether such filing occurs before or after the date hereof, regardless of any general incorporation language in such filing. +The role of the Audit Committee is to assist the Board of Directors in +fulfilling its responsibilities to oversee management’s conduct of the Company’s financial reporting process, including monitoring (1) the participation of management and the outside independent registered public accounting firm in +the financial reporting process, (2) the Company’s systems of internal accounting and financial controls, (3) the annual independent audit of the Company’s financial statements and (4) the qualifications, independence and +performance of the outside independent registered public accounting firm. The Committee selects the Company’s outside independent registered public accounting firm, and once selected, the outside independent registered public accounting firm +reports directly to the Committee. The Committee is responsible for approving both audit and non-audit services to be provided by the outside independent registered public accounting firm. The Committee operates pursuant to a Charter that was last +amended and restated by the Board on May 18, 2004. +Management of the Company is responsible for the preparation, presentation and integrity of the Company’s financial statements, the Company’s accounting and financial reporting principles and internal controls and procedures +designed to assure compliance with accounting standards and applicable laws and regulations. The independent registered public accounting firm is responsible for auditing the Company’s financial statements and expressing an opinion as to their +conformity with U.S. generally accepted accounting principles. The Committee’s responsibility is to monitor and review these processes. It is not the Committee’s duty or responsibility to conduct auditing or accounting reviews. +In the performance of its oversight function, the Committee has considered +and discussed the audited financial statements with management, which included a discussion of the quality, and not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in +the financial statements. The Committee met with the independent registered public accounting firm, with and without management, to discuss the results of their examination and their judgments regarding the Company’s accounting policies. The +Committee has also discussed with the independent registered public accounting firm +7 +the matters required to be discussed by Statement on Auditing Standards No. 61, “Communication with Audit Committees,” as currently in effect. +Finally, the Committee has received the written disclosures and the letter from the independent registered public accounting firm required by Independence Standards Board Standard No. 1, “Independence Discussions with Audit +Committees,” as currently in effect, has considered whether the provision of non-audit services by the independent registered public accounting firm to the Company is compatible with maintaining the firm’s independence and has discussed +with the independent registered public accounting firm the firm’s independence. +Based upon the reports and discussions described in this report, and subject to the limitations on the role and responsibilities of the Committee referred to above and in the Committee’s Charter, the Committee +recommended to the Board that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 for filing with the SEC and selected KPMG LLP as the independent registered public +accounting firm for fiscal year 2007. The Board is recommending that stockholders ratify that selection at the Annual Meeting. +SUBMITTED BY THE AUDIT COMMITTEE +OF THE COMPANY’S BOARD OF +DIRECTORS +Douglas G. Watson, Chairman +Michael Celano +Jack Goldstein, Ph.D. +Ronny B. Lancaster +March 5, 2007 +Executive Officers +The table below provides information about the executive officers of the +Company as of March 26, 2007. Officers of the Company hold office at the discretion of the Board. +Name +Age +Position +Douglas A. Michels +50 +President and Chief Executive Officer +Ronald H. Spair +51 +Chief Financial Officer and Chief Operating Officer +Stephen R. Lee, Ph.D. +47 +Executive Vice President and Chief Science Officer +P. Michael Formica +56 +Executive Vice President, Operations +Joseph E. Zack +55 +Executive Vice President, Marketing and Sales +Jack E. Jerrett +48 +Senior Vice President, General Counsel and Secretary +Mark L. Kuna +43 +Senior Vice President, Finance, Controller and Assistant Secretary +Douglas A. Michels has +been the Company’s President and Chief Executive Officer since June 2004. Prior to that, Mr. Michels served as Group Vice President, Global Marketing of Ortho-Clinical Diagnostics from January 2004 to June 2004, President of Ortho-Clinical +Diagnostics International from January 2002 to December 2003, President of Johnson & Johnson Healthcare Systems, Inc. from January 2000 to December 2001, and Vice President Sales & Marketing of Johnson & Johnson Healthcare +Systems, Inc. from June 1997 to December 1999. Earlier in his career, Mr. Michels held various positions of increasing responsibility within the Johnson & Johnson family of companies, including Vice President, Sales & +Marketing, Vice President/General Manager – Immunocytometry Business, Executive Director Sales & Marketing, Director of Marketing, Director of Sales, and Regional Sales Manager for Ortho Diagnostic Systems, Inc. Prior to joining +Johnson & Johnson, Mr. Michels worked for the Diagnostics Division of Abbott Laboratories in various sales and product management positions. Mr. Michels received a B.S. degree in Public Health Administration from the University of +Illinois and an M.B.A. from Rutgers University. +8 +Ronald H. Spair has been the Company’s Chief Financial Officer and Chief Operating Officer since +September 2006 and served as Executive Vice President and Chief Financial Officer since November 2001. Prior to that time, Mr. Spair was Vice President, Chief Financial Officer and Secretary of Delsys Pharmaceutical Corporation, a +pharmaceutical manufacturing system development company, from January 2001 to September 2001. Prior to joining Delsys, he was Senior Vice President, Chief Financial Officer and Secretary of SuperGen, Inc., a pharmaceutical company, from August 1999 +to January 2001. Prior to joining SuperGen, Mr. Spair was Senior Vice President, Chief Financial Officer and Secretary of Sparta Pharmaceuticals, Inc., a development stage pharmaceutical company. Mr. Spair received both his B.S. in +Accounting and M.B.A. from Rider College. He is also a licensed Certified Public Accountant and is a member of the New Jersey Society of Certified Public Accountants and the American Institute of Certified Public Accountants. +Stephen R. Lee, Ph.D. has been the Company’s Executive Vice President +and Chief Science Officer since September 2005. Prior to that time, Dr. Lee worked at Ortho-Clinical Diagnostics, a Johnson & Johnson company since 1990, serving as Vice President, Assay Research & Development from 2002 to +2005, Executive Director, Worldwide Immunodiagnostic Product Development from 2000 to 2002, and Director, Infectious Disease Assay Development from 1996 to 2000. Dr. Lee has had responsibility for or direct involvement in the development of +over 40 major diagnostic assays, in such areas as infectious disease, cardiology, oncology and other conditions. In 1997, Dr. Lee was awarded the Johnson Medal, Johnson & Johnson’s highest award for Research and Development. Prior +to joining Ortho, Dr. Lee worked as a scientist for both Wampole Labs and Immunicon Corporation. Dr. Lee received a Ph.D. degree in Biochemistry from Cardiff University (U.K.) in 1985 and a BSc. in Biochemistry from Sheffield University +(U.K.) in 1981. +P. Michael Formica has been the Company’s +Executive Vice President, Operations since November 2002 and served as Senior Vice President, Operations for the Company and its predecessor, STC Technologies, Inc., since May 2000. Prior to that time, Mr. Formica was Division Manager, Mobil +Measurement Technologies for Dräger Sicherheitstechnik GmbH (now called Dräger Safety AG & Co. KGaA), in Lüebeck, Germany, for eight years with worldwide responsibility, and Director Sales and Marketing, National Draeger, +Inc. (USA) for two years. Dräger is a world leader in chemical detection systems for the industrial safety market, and breath alcohol detection instrumentation. Mr. Formica received his B.S. in Electrical Engineering from West Virginia +University and his M.B.A. from the Graduate School of Industrial Administration, Carnegie Mellon University. +Joseph E. Zack has been the Company’s Executive Vice President, Marketing and Sales since September 2002. Prior to that time, Mr. Zack served as +Vice President, Marketing and Sales for OraPharma, Inc., a specialty pharmaceutical company focused on oral healthcare, since 1998. Prior to joining OraPharma, Mr. Zack held executive level marketing and sales positions with Advanced Tissue +Sciences, Inc. and the CIBA-GEIGY Pharmaceutical Division. Mr. Zack received his B.A. in Biology from Colgate University and his M.B.A. from St. John’s University. +Jack E. Jerrett has been the Company’s Senior Vice President and General Counsel since February 2003 and served as Vice +President and General Counsel since November 2000. He has also served as the Company’s Secretary since February 2001. Prior to joining the Company, Mr. Jerrett served in the positions of Associate General Counsel and Senior Counsel at PPL +Electric Utilities Corporation, and acted as general counsel to PPL Gas Utilities Corporation, since July 1998. Prior to that time, Mr. Jerrett was Senior Corporate Attorney of Union Pacific Corporation and an Associate with Morgan, +Lewis & Bockius. Mr. Jerrett received his B.S. in Accounting from Villanova University and his J.D. from the Villanova University School of Law. He is a member of the Pennsylvania Bar and the American and Pennsylvania Bar Associations. +Mark L. Kuna has been the Company’s Senior Vice +President, Finance and Controller since September 2006, and served as Vice President and Controller since February 2003 and as Controller since February 2001. Mr. Kuna has also served as the Company’s Assistant Secretary since May 2002 and +provided accounting and financial analysis support since joining the Company in October 2000. Prior to that time, Mr. Kuna served as Director of Financial Planning and Analysis for the greater Philadelphia region of XO Communications, Inc., and +9 +Vice President and Principal Accounting Officer of Wedco Technology, Inc. Prior to joining Wedco Technology, he was an accountant with Deloitte and Touche. +Mr. Kuna received his B.S. in Accounting from the University of Scranton, is a licensed Certified Public Accountant, and is a member of the Pennsylvania and American Institutes of Certified Public Accountants. +Transactions With Related Persons +Since January 1, 2006, there have been no transactions with related +persons which would require disclosure in this Proxy Statement. The Audit Committee is required to review and approve in advance all transactions with related persons involving the Company. This responsibility is described in the Audit +Committee’s charter, a copy of which is available on our website at www.orasure.com . +Information regarding employment and severance agreements between our executive officers and the Company is set forth in the Section entitled, +“Employment Agreements and Potential Payments Upon Termination or Change in Control,” in this Proxy Statement. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Exchange Act requires that our executive officers and Directors and persons who own more than ten percent of our Common Stock +(collectively, “Reporting Persons”) file reports of ownership and changes in ownership with the SEC. Reporting Persons are required by the SEC’s regulations to furnish us with copies of all Section 16(a) forms they file. +As a matter of practice, our administrative staff assists each +of the Reporting Persons who are employees and Directors of the Company in preparing initial reports of ownership and reports of changes in beneficial ownership and filing such reports with the SEC and the NASDAQ. Based solely on a review of the +copies of forms filed by or on behalf of the Reporting Persons and on written representations (if any) from each of the Reporting Persons, we believe that all Reporting Persons complied with all applicable filing requirements with respect to the +year 2006. +ITEM 1. +Election of Directors +At the Annual Meeting, you will be asked to vote on the election of two Class I Directors. A majority of the independent members of the Board have +nominated Jack Goldstein, Ph.D. and Douglas G. Watson for election as Class I Directors, for terms expiring at the Annual Meeting of Stockholders in 2010. The nominees for election as Directors are presently members of our Board. Dr. Goldstein +has served as a member of the Board and as a member of the Audit Committee since May 2006, and Mr. Watson has served on the Board since May 2002, as Chairman of the Board since March 2003, as Chairman of the Audit Committee since August 2006 +and as a member of the Compensation Committee since May 2003. +Frank G. Hausmann, who has served as a Class I member of the Board since September 2000 and as Chairman of the Audit Committee for much of that time, was not nominated to stand for re-election to the Board. Accordingly, +Mr. Hausmann’s service on the Board will end as of the Annual Meeting. We wish to thank Mr. Hausmann for his many years of service to the Company and wish him well in his future endeavors. +In the absence of instructions to the contrary, shares of Common Stock +represented by properly executed Proxies will be voted for the two nominees, each of whom has consented to be named and to serve if elected. If a quorum is present, each nominee will be elected if he receives a plurality of the votes cast by shares +present in person or by Proxy and entitled to vote at the Annual Meeting. Abstentions and shares as to which a broker or other nominee has indicated on a duly executed and returned Proxy or otherwise advised us that it lacks voting authority will +have no effect on the required vote. Your Board recommends that you vote FOR the election of the Director nominees. +10 +We do not know of anything that would preclude any nominee from serving. However, should any nominee for +any reason become unable or unwilling to serve as a Director, the persons named in the enclosed Proxy Card will vote the shares represented by each Proxy for such substitute nominee as the Board may approve. +Any vacancy that occurs on the Board that results from an increase in the +number of Directors may be filled by the affirmative vote of a majority of the Directors then in office, and any other vacancy on the Board may be filled by the affirmative vote of a majority of the Directors then in office, even though less than a +quorum of the Board, or by a sole remaining Director. +Certain +information with respect to each person nominated for election as a Director and each person whose term of office as a Director will continue after the Annual Meeting is set forth below. +Name +Principal Occupation +Age +Director +Since +Class I (Nominees for Terms of Office Expiring in 2010): +Jack Goldstein, Ph.D. +Former President and Chief Operating +Officer of Chiron Corporation +59 +2006 +Douglas G. Watson +Chief Executive Officer of +Pittencrieff Glen Associates +62 +2002 +Class II (Directors Whose Terms of Office Expire in 2008): +Ronny B. Lancaster +Senior Vice President for Federal Government +Relations of Assurant, Inc. +55 +2003 +Roger L. Pringle +President of The Pringle Company +66 +2000 +Ronald H. Spair +Chief Financial Officer and Chief Operating +Officer of the Company +51 +2006 +Class III (Directors Whose Terms Expire in 2009): +Michael Celano +Vice President, Finance and Chief Financial +Officer for BioRexis Pharmaceutical Corporation +48 +2006 +Douglas A. Michels +President and Chief Executive Officer of the Company +50 +2004 +Charles W. Patrick +Principal, Patrick Consulting +52 +2006 +Jack Goldstein, Ph.D. +became a member of the Board in May 2006. Since 2002, Dr. Goldstein worked for Chiron Corporation, one of the foremost global biopharmaceutical companies, first as President of the Chiron Blood Testing Division until November 2004 and +subsequently as President and Chief Operating Officer of the company until its merger with Novartis A.G. in April 2006. From 2000 to 2002, Dr. Goldstein was General Partner at Windamere Venture Partners, L.L.C., a venture fund making +investments in early stage biotechnology, pharmaceutical, medical device and diagnostic companies. From 1997 to 2001, Dr. Goldstein was President and CEO of Applied Imaging Corporation, a leading supplier of instrument systems for prenatal and +cancer genetics. From 1999 until 2002, Dr. Goldstein also served as Chairman of the Board of Applied Imaging. From 1986 to 1997, Dr. Goldstein worked for Johnson & Johnson in various executive management positions, including +President of Ortho Diagnostic Systems and Executive Vice President of Professional Diagnostics at Johnson & Johnson World Headquarters. Dr. Goldstein holds a B.A. degree in Biology from Rider University, and an M.S. in Immunology and a +Ph.D. in Microbiology from St. John’s University. In addition, Dr. Goldstein serves on the Boards of Illumina Inc. and Immucor, Inc. +Douglas G. Watson became a member of the Board in May 2002 and became Chairman of the Board in March 2003. Since July 1999, Mr. Watson has been Chief +Executive Officer of Pittencrieff Glen Associates, a +11 +leadership and management consulting firm, which he founded. Prior to that, Mr. Watson served as President and Chief Executive Officer of Novartis +Corporation, the U.S. subsidiary of Novartis A.G., President and Chief Executive Officer of Ciba-Geigy Corporation, President of the Ciba Pharmaceuticals Division and Senior Vice President of Planning and Business Development of Ciba’s U.S. +Pharmaceuticals Division. Mr. Watson holds an M.A. degree in pure mathematics from Churchill College, Cambridge University, and is a member of the Chartered Institute of Management Accountants. Mr. Watson also serves on the Boards of +BioMimetic Therapeutics, Inc., Dendreon Corporation, Genta Inc. and Javelin Pharmaceuticals Inc. +Ronny B. Lancaster became a member of the Board in May 2003. Mr. Lancaster has served as Senior Vice President, Federal Government Relations of +Assurant, Inc., a provider of specialty insurance and insurance-related products and services since September 2005. From 2003 until September 2005, Mr. Lancaster served as Chief Operating Officer of the Morehouse School of Medicine in Atlanta, +Georgia, as Senior Vice President for Management Policy from 1996 to 2003 and as Vice President for Health and Social Policy from 1993 to 1996. Prior to that, Mr. Lancaster was Executive Assistant to the Secretary and Principal Deputy Assistant +Secretary for Planning and Evaluation at the U.S. Department of Health and Human Services (“HHS”), where his responsibilities included a wide range of policy, program and management matters. Prior to serving at HHS, Mr. Lancaster was +General Counsel of Hamilton Enterprises, Inc., Senior Washington Representative for Blue Cross/Blue Shield Association, Chief of the Division of Fee-For-Service Plans at the U.S. Office of Personnel Management, and Executive Assistant to the +Chairman at the National Institute for Advanced Studies. Mr. Lancaster received his B.A. in Economics from the Catholic University of America, his M.B.A. from the Wharton School of the University of Pennsylvania, and his J.D. degree from The +Georgetown University Law Center. He is also admitted to the Bars of Pennsylvania and the District of Columbia. +Roger L. Pringle has served on the Board since September 2000, when the Company was formed by the merger of Epitope, Inc. (“Epitope”) and STC +Technologies, Inc. Prior to that, Mr. Pringle served as Chairman of the Board and a member of the Board of Directors of Epitope, and was a director of Agritope, Inc., a plant genetics subsidiary of Epitope, since 1990. Mr. Pringle is the +President of The Pringle Company, a strategy and executive consulting firm in Portland, Oregon. Mr. Pringle currently serves on the boards of directors of North Pacific Group and Prolifiq Software, Inc. Mr. Pringle received a B.S. in +Business from Oregon State University and an MBA from the University of Oregon. +For biographical information on Mr. Spair, see the Section entitled, “Executive Officers,” in this Proxy Statement. +Michael Celano became a member of the Board in October 2006. Mr. Celano has served as Vice President, Finance and Chief +Financial Officer for BioRexis Pharmaceutical Corporation, a biopharmaceutical company, since September 2004, and has had extensive experience in accounting and financial matters involving public companies. Before joining BioRexis, Mr. Celano +served as a partner with KPMG LLP, in charge of its Mid-Atlantic Life Sciences Practice, from June 2002 to August 2004, and was co-leader of its National Life Science Practice. Prior to joining KPMG, Mr. Celano was co-leader of the Life Science +Practice for Arthur Andersen. Mr. Celano is a Certified Public Accountant and holds a B.S. degree in Accounting from St. Joseph’s University. +For biographical information on Mr. Michels, see the Section entitled, “Executive Officers,” in this Proxy Statement. +Charles W. Patrick became a member of the Board in January 2006. Since 2000, +Mr. Patrick has served as Principal of Patrick Consulting, a management consulting firm that helps diagnostic and technology companies develop sales, marketing and distribution strategies. During the period September 2000 through April 2001, he +served as the acting President and Chief Executive Officer of Call Nexus, Inc., a provider of virtual call center services. From 1990 to 2000, Mr. Patrick served as Vice President of Sales and Marketing for Biosite Diagnostics, a medical +diagnostics company, and had primary responsibility for developing and achieving +12 +Biosite’s strategic sales and marketing objectives. Prior to his time at Biosite, Mr. Patrick served as World Wide Group Marketing Manager and held +several other sales and marketing positions for the Diagnostics Division of Abbott Laboratories. Mr. Patrick received a B.A. in Communications/Journalism from the University of Central Florida. Mr. Patrick also serves on the Board of +diaDexus, Inc. +Executive Compensation +Compensation Discussion and Analysis +This Compensation Discussion and Analysis (“CD&A”) provides an +overview of the Company’s executive compensation programs together with a description of the material factors underlying the decisions which resulted in compensation for 2006 provided to the Company’s named executive officers (as presented +in tables which follow this CD&A). +Compensation +Philosophy . The objectives of our compensation programs for executive officers are to: +· +reward the financial performance of the Company and achievement by the executive officers of financial and other individual performance objectives; +· +align the interests of the executive officers with the interests of our stockholders; +· +provide long-term incentives for the executive officers; and +· +set compensation levels sufficiently competitive to attract and retain high quality executives and to motivate them to contribute to our success. +Compensation for executive officers is established by the Compensation Committee of our Board (the “Committee”) in accordance with the above objectives. In setting executive compensation, the Committee +considers the Company’s and each executive’s performance against previously established objectives, internal pay equity, the Company’s industry position, general industry data and recommendations of any third party compensation +consultants engaged by the Committee. The Committee seeks to set aggregate compensation levels for executives near the median or fiftieth (50 th ) percentile of amounts paid by comparable medical diagnostics and healthcare companies, for performance consistent with the Company’s target financial and business plans for the applicable +year. The fiftieth (50 th ) percentile is not an absolute target, and the aggregate compensation and the value of +specific compensation components for individual executives may fall below or exceed that target depending on individual performance and contribution by the executive. Executives have an opportunity to achieve aggregate compensation up to or in +excess of the seventy-fifth (75 th ) percentile for performance which exceeds the Company’s financial and +business objectives. Aggregate compensation includes the total value of the base salary, incentive cash bonus and equity awards provided to each executive officer. +Compensation Components . Our executive compensation program consists of the components +set forth below. +1. Base +Salary . The Committee believes that competitive salaries must be paid in order to attract, retain and motivate high quality executives. At least annually, the Committee evaluates and determines the annual base salary for +all executives. In determining salaries, the Committee evaluates the performance of the Chief Executive Officer and reviews performance evaluations and salary recommendations prepared by the Chief Executive Officer for all other executives. The +Committee also considers salary levels paid at other medical diagnostics and healthcare companies, and any recommendations that may be made by any compensation consultant engaged to assist the Committee. The Committee has retained independent +compensation consultants to review our executive compensation practices and to assist the Committee in establishing competitive compensation levels for our executives. +13 +On an as-needed basis, the Committee may approve salary adjustments for executives to reflect promotions +or changes in responsibilities, or to bring the salary of a particular executive more in line with the salaries offered at other medical diagnostics and healthcare companies. When such salary adjustments are made with respect to an executive, the +Committee evaluates the proposed new salary in light of the total cash and non-cash compensation paid to the executive and whether reasonable pay equity will be maintained in light of that executive’s position, responsibilities, experience and +contributions. +2. Incentive Cash +Bonuses . Annual cash bonuses are included as part of executive compensation because the Committee believes that a significant portion of each executive’s compensation should be structured as a variable incentive tied +to both the performance of the Company as well as the individual contribution of the executive. On an annual basis, the Committee has adopted, with approval of the Board, a Management Incentive Plan (the “Incentive Plan”), which is +intended to be the principal vehicle for incentive cash bonus awards. +Incentive cash bonuses are generally paid out of a cash pool funded under the Incentive Plan based on the Company’s achievement of certain specific financial objectives determined by the Committee and approved by the Board. For 2006 +and prior years, these have consisted of revenue, operating income and cash flow from operations objectives for the applicable year. These targets were weighted as 40%, 40% and 20%, respectively, in determining the pool amount. The financial +objectives can be adjusted by the Committee in an equitable manner to reflect changes in the Company’s business or assumptions underlying the original objectives. +With respect to each financial measure, a Threshold, Target and Maximum objective is established for the applicable year. +The Target objectives generally reflect the Company’s financial plan for the year. The Threshold objectives represent a minimum level of performance for which the Committee is still willing to approve incentive cash bonuses. The Maximum +objectives reflect an outstanding level of performance for which the Committee was willing to reward executives with bonuses substantially above the Target level payout. +If the Company meets the Target objectives for revenues, operating income and cash flow from operations, then the pool is +funded at 100% of the aggregate target bonuses for all participants in the plan, as described below. The pool is funded at 50% of the aggregate target bonuses if all of the Threshold objectives are met and at 150% if all of the Maximum objectives +are met. Pro-rata adjustments to the amount of funding are made where a particular financial measure falls above or below the Target. To the extent a financial measure falls below the Threshold objective, there would be no funding for that +particular financial measure. +The amount of the cash bonus +pool is determined by the Committee and recommended for Board approval. The Board may approve a pool greater than that recommended by the Committee if it determines that the Company has achieved a breakthrough performance by substantially exceeding +the Maximum financial objectives for the applicable year. +Individual payments from the bonus pool to executives will depend on the size of the bonus pool and the executive’s achievement of individual performance objectives. These performance objectives for executive officers are determined +annually by the Committee and relate specifically to both the Company’s overall financial performance and the functional areas for which each executive officer is responsible. Bonuses are paid, based on an assessment of each officer’s +performance for the applicable year, using the targets set forth below which reflect a percentage of the executive officer’s base salary. The specific target bonus percentages are set at levels that the Committee believes are competitive with +incentive cash bonus opportunities available at comparable medical diagnostics and healthcare companies for each executive position. +Title +Target Payouts +Chief Executive Officer +50 +% +Chief Operating Officer and Chief Financial Officer +50 +% +Executive Vice President +40 +% +Senior Vice President +30 +% +Vice President +20 +% +14 +Individual performance criteria for executives are generally derived from our strategic objectives +concerning financial performance, strategic planning, research and development, business development, regulatory affairs and quality control, manufacturing, engineering, information systems, sales and marketing, human resources, investor relations +matters, legal matters and/or other objectives approved by the Board. These criteria are established on an annual basis. Awards reflect a weighted average measurement of each executive’s achievement of his or her individual performance +objectives. The weighting given to a particular objective reflects the overall importance of the objective in light of the Company’s strategic goals and objectives. +If an executive officer is rated as a “Meets Expectations,” such officer has generally met his or her individual +performance objectives for the applicable year and would be eligible to receive up to 100% of his or her target bonus, depending on the size of the bonus pool. If an executive officer is rated as “Exceeds Expectations,” such officer has +exceeded his or her individual performance objectives and would be eligible to receive up to 125% of his or her target bonus. If an executive officer is rated as “Outstanding,” such officer has substantially exceeded his or her individual +performance objectives and would be eligible to receive up to 150% of his or her target bonus. Where an executive officer is rated below “Meets Expectations,” no bonus would be payable. +Executive officers must be employed as of the end of the applicable calendar +year and at the time that the bonus award is paid in order to participate in the Incentive Plan. The Committee will recommend for Board approval any bonus award for the Chief Executive Officer based on an assessment of his performance against his +individual performance objectives for the applicable year. The Chief Executive Officer will recommend individual awards for the other executive officers for approval by the Committee based on an assessment of each officer’s performance against +his or her applicable performance objectives. The Committee and Board have the right, in their sole discretion, to reject any or all of the recommended bonus awards, even if the bonus pool has been funded and any or all applicable performance +criteria have been satisfied, based on the business conditions of the Company or other factors at or immediately after the end of the applicable year. +3. Equity Awards . The Committee believes that the best way to promote the long-term growth of the Company is by compensating +executives with equity in the Company in order to more closely align their interests with those of our stockholders. As a result, the Committee administers the OraSure Technologies, Inc. 2000 Stock Award Plan (the “Stock Plan”), pursuant +to which grants of stock options and restricted shares are made to executive officers on an annual basis. +In January 2005, the Committee, with the approval of the Board, adopted Stock Award Guidelines for the Company’s management (the “Stock Award +Guidelines”). The purpose of the Stock Award Guidelines is to provide a framework for determining annual equity awards for executives that reflect the executive’s duties and performance evaluation against individual objectives for the +applicable year and to align the value of the awards for executives with long-term incentive awards for comparable positions at other medical diagnostics and healthcare companies. An executive must be rated as “Meets Expectations” or +better in order to receive an equity award for a particular year. The Stock Award Guidelines, pursuant to which equity awards during 2006 were approved, provide for the grant of a mix of restricted stock and stock options to the Company’s +senior management, based on an individual’s performance evaluation for a particular year, as shown in the table below: +Performance Evaluation +Meets Expectations +Exceeds Expectations +Outstanding +Position +Restricted +Stock +Stock +Option +Restricted +Stock +Stock +Option +Restricted +Stock +Stock +Option +Level I – CEO +52,500 +45,000 +65,625 +56,250 +78,750 +67,500 +Level II – CFO/EVP +21,000 +18,000 +26,250 +22,500 +31,500 +27,000 +Level III – SVP +14,000 +12,000 +17,500 +15,000 +21,000 +18,000 +Level IV – VP +8,750 +7,500 +10,938 +9,375 +13,125 +11,250 +15 +In establishing the foregoing Stock Award Guidelines, the Committee decided that awards should consist of +a mix of stock options and restricted stock rather than solely of stock options because such a mix would have greater value as a long-term incentive and retention mechanism. +Stock options granted by the Committee have an exercise price equal to the fair market value of the Company’s Common +Stock on the date of grant, which is calculated as the mean between the high and low sales price of the Common Stock as reported by NASDAQ for that date. Stock options generally vest over four years, with the first 25% vesting after one year and the +remaining 75% vesting on a monthly basis over the next three years following the first anniversary of the grant date. Grants of restricted stock generally vest over a three-year period, with one-third vesting on the first anniversary of the grant +date, a second third vesting on the second anniversary and the final third vesting on the third anniversary. These vesting restrictions serve to promote the Company’s long-term growth by restricting executives’ ability to realize +short-term gains from their awards. The Committee believes the terms of its equity awards to executives are competitive with the terms of equity awards offered at other medical diagnostics and healthcare companies. +Equity awards are generally made by the Committee each year as part of the +normal annual compensation cycle. The awards for a particular year generally occur in late January or early February of the following year after the Company’s full year financial results are known and performance evaluations for the executive +officers and other senior managers have been prepared. Equity awards approved by the Committee for Mr. Michels are then reviewed and approved by the Board. In addition to the annual equity awards, the Committee may approve stock option and +restricted stock awards for newly hired officers or in recognition of an executive’s promotion or expansion of responsibilities. These latter grants may have vesting or other terms that differ from the terms generally approved for annual equity +awards. +4. Tally Sheets . In +connection with the determination of 2007 annual base salaries and incentive cash bonuses and equity awards for performance during 2006, the Committee adopted a practice of preparing a tally sheet for each executive. Tally sheets set forth the +dollar amounts of all components of each executive’s current compensation, including salary, incentive cash bonus, equity awards and other benefits deemed relevant by the Committee. These tally sheets allow the Committee and management to +review how a change in the amount of each compensation component affects each executive’s total compensation and to review each executive’s compensation in the aggregate. Based upon the review of tally sheets, the Committee establishes +total compensation, in the aggregate, for our named executives which it believes to be reasonable and not excessive. +5. Retirement Programs . We do not maintain any retirement programs other than a 401(k) profit sharing plan (the “401(k) +Plan”). All of our employees, including executive officers, are eligible to participate in the 401(k) Plan. We make matching contributions for participants on a dollar-for-dollar basis up to $4,000 per year. Payments of benefits accrued for a +401(k) Plan participant will be made upon retirement or upon termination of employment prior to retirement, provided certain vesting conditions have been met by the participant prior to termination. +6. Perquisites and Other Compensation . As a +general matter, the Committee does not believe that executive officers should be treated differently than other employees, except that such officers should receive base salaries and have competitive bonus and equity award opportunities commensurate +with their higher level of responsibility, and that certain officers should receive employment agreements as described below. Our healthcare, disability, insurance and other programs and benefits are the same for all eligible employees, including +executive officers. Executive officers do not receive perquisites. There are no outstanding loans of any kind to any executive officer. +7. Employment Agreements . The Company has entered into employment agreements with each of our named executive officers. In +addition to the compensation elements discussed above, these agreements provide for post-employment severance payments and benefits in the event of termination of employment by the Company without “cause” or by the executive for “good +reason” and provide enhanced severance payments upon +16 +such terminations in connection with a “change in control” of the Company. The terms of these agreements are discussed in more detail under the +Section entitled, “Employment Agreements and Potential Payments Upon Termination or Change in Control,” in this Proxy Statement. The Committee believes that these agreements are consistent with industry practice at other medical +diagnostics and healthcare companies, provide an incentive to the applicable executive to remain with the Company, and serve to align the interests of stockholders and senior executives in the event of a change in control of the Company. +Accounting and Tax Treatment of +Compensation . In approving the amount and form of compensation for executives, the Committee considers all elements of the cost to the Company of providing such compensation, including the potential impact of +Section 162(m) of the Internal Revenue Code. Section 162(m) disallows a tax deduction for any publicly-held corporation for individual compensation exceeding $1 million in any taxable year for the Chief Executive Officer and for the four +other most highly compensated officers unless compensation is performance-based. The Committee intends to maintain flexibility to pay compensation that is not entirely deductible when the best interests of the Company would make that advisable. +Non-Employee Director +Compensation . At the Board’s request and direction, the Committee reviews and recommends for Board approval an appropriate amount of compensation for non-employee members of the Board. These non-employee Directors +receive annual fees and stock option grants in consideration for their service on the Board. For a further discussion of non-employee Director compensation, see the Section entitled, “Compensation of Directors,” in this Proxy Statement. +2006 Annual Base Salaries . Annual base salaries +for 2006 for executive officers were established by the Committee based on the Company’s financial performance during 2005, an evaluation of the individual contributions of each officer compared to pre-established performance objectives for +2005, and a review of competitive compensation data and recommendations provided by Aon Consulting (“Aon”), an independent compensation consultant engaged by the Company to assist the Committee. An affiliate of Aon provides insurance +brokerage services for the Company. +Aon collected and analyzed +compensation data from a peer group consisting of the following 16 medical diagnostics and healthcare companies, which were determined to be comparable to the Company based on total revenues and number of employees: Abaxis, Inc., Adeza Biomedical +Corp., American Bio Medica Corp., Bioveris Corp., Cepheid, Inc., Cholestech Corp., Digene Corp., Immunicon Corp., Iris International, Inc., Ivax Diagnostics, Inc., Meridian Bioscience, Inc., Monogram Biosciences, Neogen Corp., Quidel Corp., Third +Wave Technologies, Inc., and Tripath Imaging, Inc. This peer information was supplemented with Radford Life Sciences Executive Survey data containing compensation information for biotechnology companies having 150 to 500 employees. The Radford data +is compiled and published by an affiliate of Aon. +Based upon its review, Aon recommended an annual base salary increase budget of approximately 4.3% +to ensure that aggregate executive compensation was closely aligned with the fiftieth (50 th ) percentile of the +market, with additional higher adjustments for certain officers whose compensation was below the fiftieth (50 th ) percentile. In order to reflect the Company’s performance and each executive’s contributions, and to equitably move salaries toward the fiftieth (50 th ) percentile or maintain them at that level, the Committee approved annual base salary increases in accordance with the guidelines set forth below: +Performance Rating +Low +Mid +High +Meets Expectations +3.00 +% +3.25 +% +3.50 +% +Exceeds Expectations +4.25 +% +4.50 +% +4.75 +% +Outstanding +5.50 +% +5.75 +% +6.00 +% +In accordance with the above guidelines, executives with base salaries at or above the seventy-fifth (75 th ) percentile of the market data for their position received a salary increase under the “Low” column based on their individual performance during 2005. Officers with base salaries at the fiftieth +(50 th ) percentile level were +17 +granted increases under the “Mid” column, and officers at or below the twenty-fifth (25 th ) percentile received salary increases under the “High” column, in each case based on their individual performance evaluations for 2005. Any +officers rated below “Meets Expectations” did not receive a salary increase. +In establishing the 2006 annual base salaries for Mr. Michels and the other executives, the Committee was heavily influenced by our strong financial performance and the fact that we exceeded our financial +objectives for 2005. Our revenues were more than $69 million in 2005, representing a 28% increase over 2004. Cash flow from operations was $10.4 million and operating income was $7.6 million for 2005. This compared to our financial targets for 2005 +of $67.5 million in revenues, $4.6 million in cash flow from operations and operating income of $3 million. Additionally, net income for 2005 was $27.4 million, including an $18.2 million non-cash income tax benefit, which represented a substantial +improvement over the $0.6 million net loss recorded for 2004, and our gross margin was 60% for 2005, a slight improvement over the gross margin of 59% for 2004. These results were weighted at 50% in evaluating the 2005 performance of +Mr. Michels and the other executives. +In addition to our +record financial performance during 2005, the Committee was influenced by the substantial progress made by the Company towards achieving its strategic objectives of expanding its existing product lines and technologies, development or acquisition of +additional point-of-care tests for infectious diseases, and the development of new over-the-counter (“OTC”) products, as follows: +· +The base business expanded significantly during 2005 as evidenced by revenue increases of 67% for infectious disease testing, 34% for substance abuse testing and +13% for cryosurgical systems, as compared to 2004; +· +Several new distributor relationships were added during 2005, the most significant of which was SSL International plc for the distribution of our OTC cryosurgical +product in Europe, Australia and New Zealand; +· +We successfully negotiated a license to several hepatitis C (“HCV”) patents from Ortho-Clinical Diagnostics +and Chiron Corporation, under which we began development of an OraQuick ® HCV test; +· +We formed a multi-disciplinary team to work closely with the FDA to determine the framework for obtaining FDA approval +of our OraQuick ADVANCE ® test for sale in the U.S. OTC market; and +· +We substantially strengthened our senior management team during 2005 with the successful recruitment of a new Chief Science Officer and Senior Vice President, +Regulatory Affairs/Quality Assurance. +In light of the foregoing, the Committee concluded that Mr. Michels had made significant +contributions during 2005 and had substantially exceeded his performance objectives, thereby warranting a performance rating for 2005 of “Outstanding.” As a result, and since Mr. Michels’ compensation was at about the fiftieth +(50 th ) percentile, the Committee increased Mr. Michels’ salary from $410,000 to $433,600 per year, +which represented an approximate 5.75% annual increase. This increase placed Mr. Michels’ salary at slightly above the fiftieth (50 th ) percentile based on the Aon peer group data. +Mr. Spair’s annual base salary for 2006 was increased from $295,218 to $311,500, +representing an approximate 5.50% increase. Mr. Spair’s performance was also rated “Outstanding” by the Committee, and this increase reflected the fact that his salary was slightly below the seventy-fifth (75 th ) percentile. In evaluating Mr. Spair’s performance, the Committee also considered his strong contributions in +managing investor relations, his leadership in reviewing the Company’s options for strategic transactions, and his supervision of the Company’s finance, accounting and human resources functions. +Mr. Formica’s annual base salary was increased from $249,686 to +$260,300, representing a 4.25% increase. Mr. Formica was rated as “Exceeds Expectations” and his increase reflected the fact that his salary was slightly +18 +below the seventy-fifth (75 th ) percentile. In evaluating Mr. Formica’s performance, the Committee also considered his strong contributions in reducing the costs to produce our products, his efforts to automate and improve our manufacturing +processes, and his support of a number of key regulatory and quality initiatives. +Mr. Zack’s annual base salary was increased from $229,743 to $245,100. This represented a +4.50% increase plus a $5,000 adjustment to bring Mr. Zack’s base salary close to the fiftieth (50 th ) percentile. Mr. Zack was rated as “Exceeds Expectations” for 2005 and his increase reflected the fact that his salary was below the fiftieth (50 th ) percentile. In evaluating Mr. Zack’s performance, the Committee also considered his efforts to continue increasing sales of all product lines, +in both the United States and internationally. +Finally, Dr. Lee’s annual base salary was increased from $250,000 to $258,200, +representing an increase of 3.25%. Dr. Lee was rated as “Meets Expectations” and his increase reflected the fact that his salary was slightly below the fiftieth (50 th ) percentile. Since Dr. Lee joined the Company in September 2005, his performance evaluation largely reflected the fact that he had only just started +to implement improvements to our research and development department and product development process. +In September 2006, Mr. Michels recommended that Mr. Spair be promoted to the position of +Chief Operating Officer. As a result of this promotion, Mr. Spair would assume overall supervisory responsibilities for both the Company’s Operations and Sales and Marketing Departments, while retaining his responsibilities as Chief +Financial Officer. Based on Mr. Spair’s past performance and significant contributions to the Company, as well as the recommendation of the Committee, the Board approved Mr. Spair’s promotion and increased his annual base salary +from $311,500 to $350,000. In connection with its upcoming compensation decisions for performance during 2006, the Committee had previously engaged Mercer Human Resources Consulting (“Mercer”), an independent compensation consultant, to +assess the Company’s executive compensation practices and to evaluate the compensation paid executive officers against market data for comparable biotechnology and medical diagnostic companies. The peer group of similarly sized diagnostic and +healthcare companies used by Mercer included Gen-Probe, Inc., Biosite, Inc., Ventana Medical System, Inc., Immucor, Inc., Digene Corp., Stratagene Corp., Lifecell Corp., Meridian Bioscience, Inc., Quidel Corp., Savient Pharmaceuticals, Inc., Tripath +Imaging, Inc., Cepheid, Inc., Angiodynamics, Inc., Abaxis, Inc., Monogram Biosciences, Inc., Adeza Biomedical Corp., and Isis Pharmaceuticals, Inc. Mr. Spair’s new salary was set at slightly below the fiftieth (50 th ) percentile for annual base salaries paid to Chief Operating Officers at companies in the Mercer peer group. In addition, +in September 2006, Mr. Michels recommended an increase in Dr. Lee’s annual base salary from $258,000 to $300,000, in order to reflect his strong contributions and assumption of increased responsibilities related to the reorganization +of the research and development department and expansion of the Company’s product development process, and to bring his compensation closer to the fiftieth (50 th ) percentile as indicated in the Mercer study. Dr. Lee’s salary increase was also approved by the Board. +2006 Incentive Cash Bonuses . In February +2007, the Committee approved incentive cash bonuses to the executive officers under the 2006 Self-Funding Management Incentive Plan (the “2006 Incentive Plan”). Under the 2006 Incentive Plan, the Committee had previously established +Threshold, Target and Maximum financial objectives to be used to fund the bonus pool, based on revenues, operating income and cash flow from operations for 2006. If the Company were to achieve the Target objectives, then the bonus pool would be +funded at approximately $1.375 million, which equals 100% of the aggregate target bonus amounts for the Company’s senior management. If the Company were to achieve only the Threshold objectives, then the bonus pool would be funded at +approximately $688,000 or 50% of the aggregate target bonus, and if the Company were to achieve the Maximum objectives, then the bonus pool would be funded at approximately $2.1 million or 150% of the aggregate target bonuses. +19 +The level of bonus pool funding under the 2006 Incentive Plan was based on the extent to which the +Company achieved the following financial objectives: +Financial Objectives +Threshold +Target +Maximum +2006 Results +Revenues +$84.6 million +$89.0 million +$93.5 million +$68.2 million +Operating Income +$5.3 million +$7.5 million +$11.0 million +$5.5 million +Cash Flow from Operations +$8.3 million +$10.5 million +$14.0 million +$16.9 million +Pool Funding +$688,000 +$1.375 million +$2.063 million +$688,000 +During 2006, the +Company achieved revenues of $68.2 million, operating income of $5.5 million and cash flow from operations of $16.9 million. As a result, the bonus pool received no funding for revenue achievement since sales fell below the Threshold level indicated +above. However, the bonus pool received approximately $275,000 for achievement of the operating income Threshold level and approximately $413,000 for achievement of the cash flow from operations Maximum level, for a total funded bonus pool of +$688,000. +In February 2007, the Committee approved the +distribution of individual bonus awards to executive officers from the bonus pool for 2006, based on their target bonus amounts and an assessment of each officer’s performance during 2006 against pre-established performance objectives. The +Company’s Target financial objectives were also included as part of each executive officer’s individual performance objectives and were weighted at 50% for Messrs. Michels and Spair and 40% for the remaining executive officers, except for +Dr. Lee who had a 30% weighting for these objectives. As a result, in evaluating the 2006 performance of Mr. Michels and the other executive officers, the Committee was heavily influenced by the Company’s failure to achieve its +revenue and operating income financial objectives. No executive officer was rated as “Exceeds Expectations” or “Outstanding,” except for Dr. Lee, who was rated as “Exceeds Expectations.” Mr. Michels and all +other executive officers were rated as “Meets Expectations.” The Committee believed that some bonus awards were appropriate, but at a level substantially below target. +In evaluating Mr. Michels’ performance for 2006, the Committee noted that despite a revenue shortfall for 2006, +the Company nevertheless was able to achieve $5.5 million in operating income and a record $16.9 million in cash flow from operations which substantially exceeded the Maximum objective. The Committee further observed that the revenue shortfall +during 2006 was attributable in large part to a 50% reduction in purchases of our domestic OTC cryosurgical product by our distributor, Prestige Brands Holdings, Inc., and lower government bulk purchases of our OraQuick ® HIV test, both of which were unexpected. Mr. Michels’ performance +evaluation was also influenced by the following positive accomplishments during 2006: +· +The strong leadership and strategic focus by management despite the financial challenges faced in 2006; +· +Increased sales of our OraQuick ADVANCE ® test of 19% and increased sales of Intercept ® of 15%, compared to 2005; +· +Significant progress towards obtaining FDA approval of our OraQuick ADVANCE ® test for use in the OTC market, including successful completion of “stress” or “flex” studies +showing the robustness of the test in home use, the design and commencement of initial label comprehension studies, development of packaging and labeling suitable for the OTC market, and completion of initial work on the design of a counseling and +referral system; +· +Successful implementation of a new product development process which has resulted in significant progress towards extending the shelf life of our OraQuick +ADVANCE ® HIV-1/2 test and the development of +an OraQuick ® HCV test; +· +Expansion of our international business, including the addition of new distributor relationships, significant progress towards obtaining a CE mark for our OraQuick +ADVANCE ® HIV-1/2 test, and the filing for +registrations of this product in several foreign countries. +20 +· +Negotiation and execution of an agreement with Schering-Plough Corporation for collaboration on the development and promotion of an OraQuick ® HCV test; +· +Execution of a letter of intent with Roche Diagnostics for the negotiation of a joint development and commercialization agreement for high throughput +fully-automated oral fluid assays for use with our Intercept ® test; +· +Successful installation and implementation of a company-wide Enterprise Resource Planning System (“ERP”); and +· +Strengthening our management team, with the successful recruitment of a new Senior Vice President, Business Development, Vice President, Sales, Vice President, +International Sales and Senior Vice President, Human Resources. +Based on the foregoing, the Committee awarded Mr. Michels a $108,400 bonus for 2006, which represented 25% of his annual base salary compared to his target bonus of 50%. Mr. Michels’ 2006 incentive cash +bonus was also approved by the full Board. +The Committee +awarded Mr. Spair a bonus of $87,500, which represented 25% of his base salary compared to his target bonus of 50%. In reaching this determination, the Committee also recognized Mr. Spair’s continued work in improving investor +relations, assistance in evaluating potential strategic transactions, leadership in the implementation of the ERP, supervision of Sarbanes-Oxley compliance, assistance in completing the purchase of two previously leased facilities in Bethlehem, +Pennsylvania and closing several other significant transactions during the year, and ongoing supervision of the finance, accounting and human resources functions. +The Committee awarded Mr. Formica a bonus of $52,100, which represented 20% of his base salary compared to his target +of 40%. In approving this award, the Committee considered Mr. Formica’s efforts to reduce the cost of producing our products, to automate manufacturing of our OraQuick ADVANCE ® HIV-1/2 test and oral specimen collection devices, to improve our manufacturing +processes and to complete various other operational initiatives. +The Committee awarded Mr. Zack a bonus of $49,000, which represented 20% of his base salary compared to his target of 40%. In approving this award, the Committee considered his efforts to expand the Company’s domestic sales, +especially of OraQuick ® in the public health and +hospital markets and our Intercept ® product in all +markets, his progress in growing the Company’s international sales, his successful recruitment of new sales and marketing executives and his leadership of various other sales and marketing initiatives. +Finally, the Committee awarded Dr. Lee a $75,000 bonus, which +represented 25% of his base salary compared to his target of 40%. In approving this award, the Committee considered his efforts to extend the shelf life of our OraQuick ADVANCE ® HIV-1/2 test, his assistance in applying for a CE mark for OraQuick ADVANCE ® , his support of our efforts to obtain FDA approval to +sell OraQuick ADVANCE ® in the U.S. OTC +market, his leadership in the development of a new OraQuick ® HCV test and fully-automated homogeneous high throughput oral fluid drugs of abuse assays, and his reorganization and restructuring of our research and development department and product development process. +2006 Equity Awards . In +January 2006, utilizing the Stock Award Guideline described above, the Committee approved stock option and restricted stock awards for the executive officers, based on the performance evaluations of such officers for 2005 (discussed above under +“2006 Annual Base Salaries”), as set forth below: +Executive Officer +Performance Evaluation +Restricted Shares +Stock Options +Douglas A. Michels +Outstanding +78,750 +67,500 +Ronald H. Spair +Outstanding +31,500 +27,000 +P. Michael Formica +Exceeds Expectations +26,250 +22,500 +Joseph E. Zack +Exceeds Expectations +26,250 +22,500 +Stephen R. Lee, Ph.D. +Meets Expectations +21,000 +18,000 +21 +In addition, in September 2006 the Board awarded 50,000 restricted shares to Mr. Spair and 40,000 +restricted shares to Dr. Lee. These awards were determined after consultation with Mercer and were granted in order to reflect the expanded responsibilities of Mr. Spair as a result of his promotion to Chief Operating Officer and the +strong contribution and increased responsibilities of Dr. Lee and to better align their long-term compensation with the peer group data collected by Mercer. +Other Post-2006 Compensation Determinations . In February 2007, the Committee approved +new 2007 annual base salaries for the executive officers, based on the Committee’s review of the total cash and non-cash compensation paid to the executives, considerations of internal pay equity and the peer group data developed by Mercer. In +addition, the Committee approved (1) equity awards under the Stock Award Guidelines based on performance of the executive officers during 2006, (2) the terms of the 2007 Management Incentive Plan (the “2007 Incentive Plan”), +pursuant to which executive officers will be eligible to receive incentive cash bonuses for performance during 2007, and (3) revised Stock Guidelines pursuant to which equity awards may be granted to executive officers based on performance +during 2007 (the “2007 Stock Guidelines”). Mr. Michels 2007 annual base salary and equity grant for 2006, the terms of the 2007 Incentive Plan and the 2007 Stock Guidelines were also approved by the Board. A more detailed description +of the 2007 Incentive Plan and 2007 Stock Guidelines is set forth in our current Report on Form 8-K, filed February 8, 2007. +Other Elements of Compensation . The Committee reviewed each other element of compensation set forth in the Summary +Compensation Table set forth below, and found them to be consistent with the Company’s compensation philosophy as described above. +Summary Compensation Table +The following table summarizes the compensation of our Chief Executive Officer, our Chief Financial Officer and the three other most highly compensated +executive officers of the Company (collectively, including the Chief Executive Officer, the “Named Executive Officers”), for the year ended December 31, 2006: +Name and +Principal Position +Year +Salary +($) +Bonus +($) +Stock +Awards(1)(3) +($) +Option +Awards(2)(3) +($) +Non-Equity +Incentive Plan +Compensation(4) +($) +Change in +Pension Value +and +Nonqualified +Deferred +Compensation +Earnings +($) +All other +Compensation(5) +($) +Total ($) +Douglas A. Michels +President and +Chief Executive Officer +2006 +$ +433,146 +— +$ +584,325 +$ +593,963 +$ +108,400 +— +$ +4,000 +$ +1,723,834 +Ronald H. Spair +Chief Financial Officer +and Chief Operating Officer +2006 +$ +320,220 +— +$ +283,477 +$ +277,078 +$ +87,500 +— +$ +4,000 +$ +972,275 +P. Michael Formica +Executive Vice President, Operations +2006 +$ +260,096 +— +$ +207,940 +$ +251,326 +$ +52,100 +— +$ +4,000 +$ +775,462 +Joseph E. Zack +Executive Vice President, Marketing and Sales +2006 +$ +244,805 +— +$ +163,833 +$ +214,425 +$ +49,000 +— +$ +4,000 +$ +676,063 +Stephen R. Lee, Ph.D. +Executive Vice President, Research and Development +2006 +$ +267,849 +— +$ +209,762 +$ +162,363 +$ +75,000 +— +$ +4,000 +$ +718,974 +(1) +The values set forth in this column reflect the compensation expense recognized for financial statement reporting purposes for the fiscal year ended December 31, 2006, in +accordance with Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment (“SFAS 123R”), of restricted stock awards made to the Named Executive Officers under +the Company’s Stock Award Plan, and may include amounts from restricted stock granted in and prior to 2006. The market value of these shares at the date of grant is recognized on a straight-line basis over the vesting period. Additional +information regarding restricted stock awards is included in footnote 10 to the Company’s audited financial statements for the fiscal year ended December 31, 2006, included in the Company’s Annual Report on Form 10-K filed with the +SEC on March 16, 2007 (the “2006 10-K Report”). +22 +(2) +The values set forth in this column reflect the compensation expense recognized for financial statement reporting purposes for the fiscal year ended December 31, 2006, in +accordance with SFAS 123R, of stock option awards made to the Named Executive Officers under the Stock Award Plan, and may include costs for stock options granted in and prior to 2006. Assumptions used in the calculation of those amounts are +included in footnote 10 to the Company’s audited financial statements for the fiscal year ended December 31, 2006, included in the Company’s 2006 10-K Report. +(3) +The indicated amounts do not include any expense associated with the restricted stock and stock option awards granted to the Named Executive Officers in February 2007 in respect of +performance during 2006. See the Section entitled, “Other Post-2006 Compensation Determinations,” in the CD&A. +(4) +The indicated amounts reflect incentive cash bonuses paid to the Named Executive Officers pursuant to the 2006 Incentive Plan, based on performance during 2006. For a description of +these incentive cash bonus payments, see the Section entitled, “2006 Incentive Cash Bonuses,” in the CD&A. +(5) +The indicated amounts reflect cash contributed to a 401(k) profit sharing plan as an employer-matching contribution, which is offered to all employees of the Company. +Grants of Plan-Based Awards +The following table summarizes information concerning possible and actual +restricted stock and stock option awards for the Named Executive Officers during the fiscal year ended December 31, 2006, as well as possible payouts under the 2006 Incentive Plan: +Name +Grant +Date(1) +Estimated Possible Payouts +Under Non-Equity Incentive +Plan Awards(2) +Estimated Possible Payouts Under +Equity Incentive Plan Awards(3) +All other +Stock +Awards: +Number +Of Shares +Of Stock +Or Units +(#) +All other +Option +Awards: +Number +Of Securities +Underlying +Options +(#) +Exercise +or Base +Price of +Option +Awards(4) +($/Sh) +Grant +Date Fair +Value of +Stock and +Option +Awards(5) +($) +Threshold +($) +Target +($) +Maximum +($) +Threshold +(# Shs.) +Target +(# Shs.) +Maximum +(# Shs.) +Douglas A. Michels +President and Chief Executive Officer +1/23/06 +1/23/06 +N/A +$ +— +— +108,400 +$ +— +— +216,800 +$ +— +— +325,000 +52,500 RS +45,000 SO +— +62,625 RS +56,250 SO +— +78,750 RS +67,500 SO +— +78,750 +— +— +— +67,500 +— +$ +— +9.56 +— +$ +$ +752,850 +340,444 +N/A +Ronald H. Spair +Chief Financial Officer and Chief Operating Officer +1/23/06 +1/23/06 +9/29/06 +N/A +$ +— +— +— +87,500 +$ +— +— +— +175,000 +$ +— +— +— +262,500 +21,000 RS +18,000 SO +— +— +26,250 RS +22,500 SO +— +— +31,500 RS +27,000 SO +— +— +31,500 +— +50,000 +— +— +27,000 +— +— +$ +— +9.56 +— +— +$ +$ +$ +301,140 +136,177 +409,000 +N/A +P. Michael Formica +Executive Vice President, Operations +1/23/06 +1/23/06 +N/A +$ +— +— +52,060 +$ +— +— +104,120 +$ +— +— +156,180 +21,000 RS +18,000 SO +— +26,250 RS +22,500 SO +— +31,500 RS +27,000 SO +— +26,250 +— +— +— +22,500 +— +$ +— +9.56 +— +$ +$ +250,950 +113,481 +N/A +Joseph E. Zack +Executive Vice President, Marketing and Sales +1/23/06 +1/23/06 +N/A +$ +— +— +49,020 +$ +— +— +98,040 +$ +— +— +147,060 +21,000 RS +18,000 SO +— +26,250 RS +22,500 SO +— +31,500 RS +27,000 SO +— +26,250 +— +— +— +22,500 +— +$ +— +9.56 +— +$ +$ +250,950 +113,481 +N/A +Stephen R. Lee, Ph.D. +Executive Vice President, Research and Development +1/23/06 +1/23/06 +9/29/06 +N/A +$ +— +— +— +60,000 +$ +— +— +— +120,000 +$ +— +— +— +180,000 +21,000 RS +18,000 SO +— +— +26,250 RS +22,500 SO +— +— +31,500 RS +27,000 SO +— +— +21,000 +— +40,000 +— +— +18,000 +— +— +$ +— +9.56 +— +— +$ +$ +$ +200,760 +90,785 +327,200 +N/A +(1) +Annual equity incentive awards to Named Executive Officers, consisting of a combination of restricted stock (“RS”) and stock options (“SO”), are determined for +each year pursuant to the Stock Award Guidelines, based on an evaluation of each officer’s performance during the year against previously established performance objectives. Annual equity awards made during 2006 were approved by the +Compensation Committee on January 23, 2006 for performance during 2005. Additional grants of restricted stock were approved on September 29, 2006 for Mr. Spair in connection with his promotion to Chief Operating Officer and for +Dr. Lee in recognition of his strong contribution and expanded responsibilities. For a description of these equity awards and their terms, see the Sections entitled, “Compensation Components – Equity Awards” and “2006 Equity +Awards,” in the CD&A. +(2) +The indicated amounts represent possible payments to the Named Executive Officers under the 2006 Incentive Plan for performance during 2006. On February 1, 2007, incentive cash +bonus payments under the 2006 Incentive Plan were approved by the Compensation Committee for the Named Executive Officers based on the Company’s achievement of certain financial objectives for 2006 and an assessment of each officer’s +performance against pre-established performance objectives. A further description of the payments approved under the 2006 Incentive Plan is set forth in the Section entitled, “2006 Incentive Cash Bonuses,” in the CD&A. Actual amounts +paid for 2006 are also disclosed in the Summary Compensation Table. +(3) +The indicated amounts represent the possible number of shares which could have been granted to Named Executive Officers in 2006 in the form of restricted stock and +stock options pursuant to the Stock Award Guidelines, based on each officer’s performance during 2005. Specific awards of restricted stock and stock options were approved by the Compensation Committee for the Named Executive Officers pursuant +to the Stock Award Guidelines on January 23, 2006 based on an assessment of each officer’s performance against pre-established performance objectives for 2005. A +23 +further description of these equity awards and their terms is set forth in the Sections entitled, “Compensation Components – Equity Awards” +and “2006 Equity Awards,” in the CD&A. Compensation expense associated with RS and SO awards for 2006 and prior years is disclosed in the Summary Compensation Table. +(4) +The exercise price for stock options is the fair market value of the Company’s Common Stock on the date of grant, which is calculated as the mean between the high and low sales +price of the Common Stock as reported by NASDAQ for applicable date. +(5) +The indicated amounts represent the grant date fair value calculated in accordance with SFAS 123R. +Outstanding Equity Awards at Fiscal Year-End +The following table summarizes information regarding unexercised stock options and unvested restricted stock held by the +Named Executive Officers at December 31, 2006: +Option Awards(1) +Stock Awards(1) +Name +Number of +Securities +Underlying +Unexercised +Options +(#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options(2) +(#) +Unexercisable +Equity Incentive +Plan Awards +Number of +Securities +Underlying +Unexercised +Unearned +Options +(#) +Option +Exercise +Price +($/Sh.) +Option +Expiration +Date +Number of +Shares or +Units of +Stock +That Have +Not Vested(2) +(#) +Market Value +of Shares or +Units of Stock +That Have +Not +Vested(3) +($) +Equity Incentive +Plan Awards: +Number of +Unearned +Shares, Units or +Other Rights +That Have Not +Vested (#) +Equity Incentive +Plan Awards: +Market or +Payout Value of +Unearned +Shares, Units or +Other +Rights +That Have Not +Vested ($) +Douglas A. Michels +President and Chief +Executive Officer +250,000 +32,344 +— +— +— +— +150,000 +35,156 +67,500 +— +— +— +— +— +— +— +— +— +$ +$ +$ +7.77 +5.60 +9.56 +— +— +— +6/22/2014 +1/26/2015 +1/23/2016 +— +— +— +— +— +— +194,400 +52,500 +78,750 +$ +$ +$ +— +— +— +1,605,744 +433,650 +650,475 +— +— +— +— +— +— +— +— +— +— +— +— +Ronald H. Spair +Chief Financial Officer +and Chief Operating +Officer +150,000 +65,000 +88,125 +72,917 +12,938 +— +— +— +— +— +— +1,875 +27,083 +14,062 +27,000 +— +— +— +— +— +— +— +— +— +— +— +— +$ +$ +$ +$ +$ +$ +10.70 +5.87 +6.96 +8.20 +5.60 +9.56 +— +— +— +11/1/2011 +1/31/2012 +1/31/2013 +1/14/2014 +1/26/2015 +1/23/2016 +— +— +— +— +— +— +— +— +— +21,000 +31,500 +50,000 +$ +$ +$ +— +— +— +— +— +— +173,460 +260,190 +413,000 +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +P. Michael Formica +Executive Vice +President, Operations +52,960 +33,750 +45,000 +73,438 +72,917 +10,781 +— +— +— +— +— +— +1,562 +27,083 +11,719 +22,500 +— +— +— +— +— +— +— +— +— +— +— +$ +$ +$ +$ +$ +$ +$ +10.71 +7.09 +5.87 +6.96 +8.20 +5.60 +9.56 +— +— +10/16/2010 +12/13/2010 +1/31/2012 +1/31/2013 +1/14/2014 +1/26/2015 +1/23/2016 +— +— +— +— +— +— +— +— +— +17,500 +26,250 +$ +$ +— +— +— +— +— +— +— +144,550 +216,825 +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +Joseph E. Zack +Executive Vice +President, Marketing +and Sales +125,000 +29,375 +54,688 +10,781 +— +— +— +— +625 +20,312 +11,719 +22,500 +— +— +— +— +— +— +— +— +— +$ +$ +$ +$ +$ +4.06 +6.96 +8.20 +5.60 +9.56 +— +— +9/9/2012 +1/31/2013 +1/14/2014 +1/26/2015 +1/23/2016 +— +— +— +— +— +— +— +17,500 +26,250 +$ +$ +— +— +— +— +— +144,550 +216,825 +— +— +— +— +— +— +— +— +— +— +— +— +— +— +Stephen R. Lee, Ph.D. +Executive Vice +President, Research and +Development +39,063 +— +— +— +— +85,937 +18,000 +— +— +— +— +— +— +— +— +$ +$ +8.97 +9.56 +— +— +— +9/23/2015 +1/23/2016 +— +— +— +— +— +26,666 +21,000 +40,000 +$ +$ +$ +— +— +220,261 +173,460 +330,400 +— +— +— +— +— +— +— +— +— +— +(1) +The indicated information does not include restricted stock or stock options awarded to the Named Executive Officers in February 2007 pursuant to the Stock Award Guidelines, in +respect of performance during 2006. For a further discussion of such awards, see the Section entitled, “Other Post-2006 Compensation Determinations,” in the CD&A. +(2) +Stock options vest over four years, with the first 25% vesting on the first anniversary of the grant date and the remaining 75% vesting on a monthly basis over the next three years +following the first anniversary of the grant date. Grants of restricted stock vest over a three-year period, with one-third vesting on the first anniversary of the grant date, a second third vesting on the second anniversary and the final third +vesting on the third anniversary. +(3) +The indicated values were determined by multiplying the number of unvested shares of restricted stock shown in this table by $8.26 per share, the closing price of the Company’s +Common Stock as reported by NASDAQ on December 29, 2006, the last trading date in 2006. +24 +Option Exercises and Stock Vested +The following table summarizes information with respect to the exercise of stock options and vesting of restricted stock for +each of the Named Executive Officers during the fiscal year ended December 31, 2006: +Option Awards(1) +Stock Awards +Name +Number of +Shares +Acquired +on Exercise +(#) +Value +Realized +on Exercise +($) +Number Of +Shares +Acquired +on Vesting +(#) +Value +Realized +on Vesting(2) +($) +Douglas A. Michels +President and Chief Executive Officer +— +— +52,170 +$ +507,392 +Ronald H. Spair +Chief Financial Officer and Chief Operating Officer +— +— +40,500 +$ +385,065 +P. Michael Formica +Executive Vice President, Operations +— +— +28,750 +$ +263,613 +Joseph E. Zack +Executive Vice President, Marketing and Sales +— +— +16,250 +$ +151,638 +Stephen R. Lee, Ph.D. +Executive Vice President, Research and Development +— +— +13,334 +$ +107,139 +(1) +No stock options were exercised by any of the Named Executive Officers during 2006. +(2) +The indicated amounts were calculated by multiplying the number of restricted shares acquired upon vesting by the market value of the Company’s Common Stock on the applicable +vesting date. The market value was determined by calculating the mean between the high and low sales price of the Common Stock as reported by NASDAQ on the vesting date. +Pension Benefits +We provide no pension benefits to the Named Executive Officers other than the right to participate in our 401(k) Plan. For a further description of the +terms of the 401(k) Plan, see the Section entitled, “Compensation Components – Retirement Programs,” in the CD&A. +Nonqualified Deferred Compensation +None of the Named Executive Officers has received any nonqualified deferred compensation during the fiscal year ended December 31, 2006. +Employment Agreements and Potential Payments Upon Termination or Change in Control +Mr. Michels has an employment agreement with the +Company that provides for the various components of compensation described in the CD&A. In addition, upon a termination of employment, Mr. Michels’ contract provides for certain post-employment severance and other benefits, as +described below. +Mr. Michels’ employment agreement +will terminate upon his death or disability, or Mr. Michels may terminate the agreement at any time upon 90 days written notice to the Company, by providing written notice within 90 days of an event constituting “good reason” (as +defined below), or upon 90 days written notice delivered to the Company within 180 days following a “change in control” (as defined below). Mr. Michels’ employment agreement can also be terminated by the Company for +“cause” (as defined below) or without “cause.” +25 +As used in the agreement, the term “good reason” means (i) a material breach of the +agreement by the Company that is not cured within 30 days of written notice, (ii) any diminution in Mr. Michels’ position, duties or responsibilities or requirement that Mr. Michels report to any person other than the Board of +Directors, (iii) any relocation of Mr. Michels’ primary place of work to a location that is more than 25 miles from the Company’s Bethlehem, Pennsylvania facilities, or (iv) a reduction in Mr. Michels’ salary. The +agreement further provides that any of the following events shall constitute “cause”: (a) the willful and continued failure by Mr. Michels to substantially perform his duties, (b) the engaging by Mr. Michels in gross +misconduct or gross negligence materially injurious to the Company, (c) the commission of an act by Mr. Michels in direct competition with or materially detrimental to the Company’s best interests, or (d) Mr. Michels’ +commission of a felony. +A “change in control” +generally is defined to take place when disclosure of such a change would be required by the proxy rules promulgated by the SEC or when: +· +a person (other than the Company, any of its subsidiaries, any employee benefit plan of the Company, or any person with voting power arising from a revocable proxy) +acquires beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of 30% or more of the combined voting power of the Company’s voting securities; +· +less than a majority of the directors are persons who were either nominated or selected by the Board; +· +the consummation of any consolidation or merger in which the Company is not the surviving corporation or the sale, lease, exchange or other transfer of all or +substantially all of the assets of the Company; or +· +the approval by the stockholders of the Company of any plan or proposal for the liquidation or dissolution of the Company. +A “change in control period” is the period which begins three +months prior to the occurrence of a change in control and ends 18 months after the occurrence of a change in control. +Upon the termination of Mr. Michels’ employment upon his death or disability, by Mr. Michels for any reason other than good reason or by +the Company for cause, Mr. Michels will be entitled to receive his salary through the date of termination and any bonus approved by the Board or the Compensation Committee prior to the date of termination but not yet paid and, in the case of a +termination upon his death or disability, a cash bonus for the calendar year in which termination occurs that Mr. Michels would have received but for his death or disability, prorated through the date of death or commencement of disability. +Upon termination of the agreement by Mr. Michels with good reason or after a change in control or by the Company without cause (which includes the Company’s failure to renew the agreement), Mr. Michels would be entitled to receive his +salary through the date of termination and any bonus that has been approved by the Board or the Compensation Committee prior to the date of termination but not yet paid, a cash bonus for the calendar year in which termination occurs equal to +Mr. Michels’ target bonus for such year, and for a period of one year after the date of termination, benefits for Mr. Michels and/or his family at levels substantially equal to those that would have been provided to them by the +Company if Mr. Michels’ employment had not been terminated. If termination is for good reason or without cause (which includes the Company’s failure to renew the agreement) and does not occur during a change in control period, +Mr. Michels would also continue to receive his salary for 12 months after termination or, if greater and termination occurs during the initial three-year term of the agreement, the remainder of such initial term. If, however, termination is for +good reason or without cause (which includes the Company’s failure to renew the agreement) and occurs during a change in control period, or if termination is by Mr. Michels after a change in control, Mr. Michels will be required to +enter into a transitional services agreement with the Company pursuant to which he would provide transitional services for a six-month period following the termination date in exchange for payment of his salary over such period, and Mr. Michels +would then continue to receive his salary for 30 additional months after completion of the six-month transition service period. Mr. Michels’ agreement also provides that the Company will pay an amount equal to the first $1 million of +excise tax incurred under Section 280G of the Internal Revenue Code on compensation paid to Mr. Michels upon a change in control. +26 +All stock awards granted to Mr. Michels are required to immediately vest (i) in the event of a +change in control or (ii) if Mr. Michels’ employment is terminated for good reason by Mr. Michels or by the Company without cause during a change in control period, and 50% of such stock awards shall vest in the event +Mr. Michels’ employment is terminated for good reason or by the Company without cause during any period other than a change in control period. +The termination and severance provisions in the employment agreements for the other Named Executive Officers are substantially similar to +Mr. Michels’ employment agreement, with the following exceptions. The notice periods for termination of the agreements for Messrs. Spair, Formica, Zack and Dr. Lee are 60 days, rather than 90 days, and the Company is obligated to pay +an amount up to the first $500,000, rather than $1 million, of excise tax imposed under Section 280G of the Internal Revenue Code on compensation paid as a result of a change in control. Messrs. Formica and Zack are entitled to receive 18 +months, rather than 30 months, of continued salary after completion of the six-month transition services period, in the event of a termination of their agreements for good reason or without cause during a change in control period or after a change +in control. Dr. Lee is entitled to receive (i) 18 months, rather than 12 months, of continued salary in the event his agreement is terminated without cause during a period that is not a change in control period but within 30 months after +September 23, 2005, the date of his agreement, and (ii) 18 months, rather than 30 months, of continued salary after completion of the six-month transition service period, in the event of a termination of the agreement for good reason or +without cause during a change in control period or after a change in control. +27 +The following table provides estimates of the potential severance and other post-termination benefits the +Named Executive Officers would receive assuming their employment was terminated as of December 31, 2006: +Name +Benefit +Voluntary +Termination +or +Termination +for Cause +Termination +for Death +or +Disability(1) +Termination +for Good +Reason or +Without +Cause Not +Within +Change in +Control +Period(1) +Termination after +Change in +Control, or for +Good Reason or +Without Cause +Within Change in +Control +Period(1)(2) +Douglas A. Michels +President and Chief +Executive Officer +Salary Continuation +Bonus +Accelerated Option Vesting +Accelerated Restricted +Stock Vesting +Health Care Benefits +— +— +— +— +— +$ +$ +— +108,400 +— +2,689,869 +— +$ +$ +$ +$ +$ +433,600 +216,800 +83,918 +1,344,935 +13,430 +$ +$ +$ +$ +$ +1,300,800 +216,800 +167,835 +2,689,869 +13,430 +Total +— +$ +2,798,269 +$ +2,092,683 +$ +4,388,734 +Ronald H. Spair +Chief Financial Officer and Chief Operating Officer +Salary Continuation +Bonus +Accelerated Option Vesting +Accelerated Restricted +Stock Vesting +Health Care Benefits +— +— +— +— +— +$ +$ +— +87,500 +— +846,650 +— +$ +$ +$ +$ +$ +350,000 +175,000 +20,757 +423,325 +8,999 +$ +$ +$ +$ +$ +1,050,000 +175,000 +41,514 +846,650 +8,999 +Total +— +$ +934,150 +$ +978,081 +$ +2,122,163 +P. Michael Formica +Executive Vice President, Operations +Salary Continuation +Bonus +Accelerated Option Vesting +Accelerated Restricted +Stock Vesting +Health Care Benefits +— +— +— +— +— +$ +$ +— +52,100 +— +361,375 +— +$ +$ +$ +$ +$ +260,300 +104,120 +17,430 +180,688 +13,428 +$ +$ +$ +$ +$ +520,600 +104,120 +34,859 +361,375 +13,428 +Total +— +$ +413,475 +$ +575,966 +$ +1,034,382 +Joseph E. Zack +Executive Vice President, Marketing and Sales +Salary Continuation +Bonus +Accelerated Option Vesting +Accelerated Restricted +Stock Vesting +Health Care Benefits +— +— +— +— +— +$ +$ +— +49,000 +— +361,375 +— +$ +$ +$ +$ +$ +245,100 +98,040 +16,615 +180,688 +9,163 +$ +$ +$ +$ +$ +490,200 +98,040 +33,230 +361,375 +9,163 +Total +— +$ +410,375 +$ +549,606 +$ +992,008 +Stephen R. Lee, Ph.D. +Executive Vice President, Research and Development +Salary Continuation +Bonus +Accelerated Option Vesting +Accelerated Restricted +Stock Vesting +Health Care Benefits +— +— +— +— +— +$ +$ +— +75,000 +— +724,121 +— +$ +$ +$ +$ +450,000 +120,000 +— +362,061 +9,163 +$ +$ +$ +$ +600,000 +120,000 +— +724,121 +9,163 +Total +— +$ +799,121 +$ +941,224 +$ +1,453,284 +28 +(1) +The indicated values for the accelerated vesting of stock options reflect (i) the number of option shares which would vest on an accelerated basis, multiplied by (ii) the +excess, if any, of the $8.26 per share closing price for the Company’s Common Stock, as reported by NASDAQ on December 29, 2006 (the last trading date in 2006), over the applicable exercise price for each option. The indicated values for +the accelerated vesting of restricted stock reflect the $8.26 per share closing price multiplied by the number of shares which would vest on an accelerated basis. +(2) +The Company will also pay the excise tax incurred under Section 280G of the Internal Revenue Code on compensation paid to the Named Executive Officers in the event of a change +in control in an amount up to $1 million for Mr. Michels and $500,000 for the other Named Executive Officers. +Compensation of Directors +All non-employee Directors receive an annual fee of $25,000. In addition, the Chairman of the Board receives an additional annual fee of $20,000, the +Chairmen of the Audit Committee and Compensation Committee receive an additional annual fee of $10,000 each, and the Chairman of the Nominating and Corporate Governance Committee receives an additional annual fee of $5,000. Thus, the Chairman of the +Board, and the Chairmen of the Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee receive aggregate annual fees of $45,000, $35,000, $35,000 and $30,000, respectively. Annual fees are payable quarterly in +advance. +Each non-employee Director receives a $2,000 fee for +each Board meeting attended, and each member of a Board Committee receives an additional $1,000 fee for each Committee meeting attended. Fees will be payable for meetings held in person or by conference telephone. A meeting fee will only be paid +with respect to a meeting for which minutes are prepared. Non-employee Directors also receive reimbursement for their reasonable out-of-pocket costs of attending Board and Committee meetings. +Non-employee Directors receive an initial grant of 40,000 stock options upon +joining the Board (the “Initial Grant”). An additional grant of 40,000 stock options is also made to any non-employee Director who becomes Chairman of the Board (the “Chairman Grant”). Each non-employee Director receives an +annual grant of 15,000 stock options (the “Annual Grant”) on the annual option grant date for officers and employees of the Company, except for the Chairman of the Board, who receives an Annual Grant of 25,000 stock options. +The options granted to non-employee Directors are nonqualified stock options +and have an exercise price equal to the mean between the high and low sales prices of the Company’s Common Stock as quoted on NASDAQ on the grant date. Each Initial Grant and Chairman Grant generally vests on a monthly basis over the 24 months +immediately following the grant date, and each Annual Grant generally vests on a monthly basis over the 12 months immediately following the grant date. Options become exercisable in full immediately upon the occurrence of a change in control of the +Company. A change in control of the Company would occur on the happening of such events as the acquisition of beneficial ownership by a person or group of 30 percent or more of the outstanding Common Stock of the Company, certain changes in Board +membership affecting a majority of positions, certain mergers or consolidations, a sale or other transfer of all or substantially all the Company’s assets, or approval by the stockholders of a plan of liquidation or dissolution of the Company, +as well as any change in control required to be reported under the SEC’s proxy disclosure rules. Payment of the exercise price may be made in cash or by delivery of previously acquired shares of Common Stock having a fair market value equal to +the aggregate exercise price. +29 +The following table summarizes information related to compensation of non-employee Directors during the +fiscal year ended December 31, 2006: +Name(1) +Fees +Earned +or Paid +in Cash +($) +Stock +Awards +($) +Option +Awards(2)(3) +($) +Non-Equity +Incentive Plan +Compensation +($) +Change in +Pension +Value and +Nonqualified +Deferred +Compensation +Earnings +All Other +Compensation +($) +Total ($) +Michael Celano +$ +10,250 +— +$ +20,155 +— +— +— +$ +30,405 +Jack Goldstein, Ph.D. +$ +21,486 +— +$ +58,594 +— +— +— +$ +80,080 +Frank G. Hausmann +$ +46,500 +— +$ +104,687 +— +— +— +$ +151,187 +Ronny B. Lancaster +$ +51,000 +— +$ +104,687 +— +— +— +$ +155,687 +Charles W. Patrick +$ +47,484 +— +$ +127,007 +— +— +— +$ +174,491 +Roger L. Pringle +$ +63,000 +— +$ +104,687 +— +— +— +$ +167,687 +Douglas G. Watson +$ +73,500 +— +$ +157,031 +— +— +— +$ +230,531 +(1) +Because Messrs. Michels and Spair are officers of the Company, they are not entitled to any separate compensation for service on the Board or any Committee thereof and have not been +included in this table. +(2) +The values set forth in this column reflect the compensation expense recognized for financial statement reporting purposes for the fiscal year ended December 31, 2006, in +accordance with SFAS 123R, of stock option awards made to non-employee Directors under the Stock Award Plan, and this may include costs for stock options granted in and prior to 2006. Assumptions used in the calculation of these amounts are included +in footnote 10 to the Company’s audited financial statements for the fiscal year ended December 31, 2006, included in the Company’s 2006 10-K Report. This column does not include the value of any stock options awarded to non-employee +Directors in February 2007. +(3) +Non-employee Directors held options to purchase the following aggregate number of shares of the Company’s Common Stock at December 31, 2006: Mr. Celano: 40,000 +shares; Dr. Goldstein: 40,000 shares; Mr. Hausmann: 170,000 shares; Mr. Lancaster: 100,000 shares; Mr. Patrick: 40,000 shares; Mr. Pringle: 245,552 shares; and Mr. Watson: 190,000 shares. None of the non-employee +Directors held any restricted shares as of December 31, 2006. The aggregate number of stock options and restricted shares held by Messrs. Michels and Spair are set forth in the table in the Section entitled, “Outstanding Equity Awards at +Fiscal Year-End,” in this Proxy Statement. The grant day fair value of the stock options awarded to the non-employee Directors in 2006, calculated pursuant to SFAS 123R, is as follows: $167,420 for Mr. Celano; $189,524 for +Dr. Goldstein; $100,872 for Mr. Hausmann; $100,872 for Mr. Lancaster; $207,223 for Mr. Patrick; $100,872 for Mr. Pringle and $151,308 for Mr. Watson. +Compensation Committee Interlocks and Insider Participation +Roger L. Pringle, Charles W. Patrick and Douglas G. Watson served as members +of the Compensation Committee of the Board during 2006. None of Mr. Pringle, Mr. Watson or Mr. Patrick has served or is currently serving as an officer or employee of the Company, nor have they engaged in any transactions involving +the Company which would require disclosure as a transaction with a related person. There are no compensation committee interlocks between the Company and any other entity involving the Company’s or such entity’s executive officers or board +members. +Compensation Committee Report +The information contained in this report shall not be deemed to be +“soliciting material” or “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that Section. This report shall not be deemed to be “ incorporated by reference” +into any document filed under the Securities Act of 1933, as amended, or the Exchange Act, whether such filing occurs before or after the date hereof, regardless of any general incorporation language in such filing. +30 +The Compensation Committee of OraSure Technologies, Inc. has reviewed and discussed with the +Company’s management the Section entitled, “Compensation Discussion and Analysis,” contained in this Proxy Statement. Based on that review and discussion, the Compensation Committee recommended to the Company’s Board of Directors +that the foregoing Compensation Discussion and Analysis be included in the Company’s Proxy Statement for the 2007 Annual Meeting of Stockholders. +COMPENSATION COMMITTEE: +Roger L. Pringle, Chairman +Charles W. Patrick +Douglas G. Watson +March 26, 2007 +Equity Compensation Plan Information +The following table provides information as of December 31, 2006 about +the shares of Common Stock that may be issued upon the exercise of options under all of our equity compensation plans. These plans include the Stock Award Plan, the Epitope, Inc. 1991 Stock Award Plan (the “1991 Plan”), the Agritope, Inc. +1992 Stock Award Plan (the “Agritope Plan”), and the OraSure Technologies, Inc. Employee Incentive and Non-Qualified Stock Option Plan (the “Employee Incentive Plan”). The Stock Award Plan, the 1991 Plan and the Agritope Plan +were Epitope equity compensation plans, and the Employee Incentive Plan was an STC Technologies, Inc. equity compensation plan. In connection with the merger of Epitope and STC into the Company on September 29, 2000, the Award Plan was adopted +by the Company, and the Company assumed the obligation to issue shares for the then outstanding stock options granted under the Stock Award Plan, the 1991 Plan, the Agritope Plan and the Employee Incentive Plan. Additional grants of equity +compensation may only be made under the Stock Award Plan. +Plan Category +Number of securities to be +issued upon exercise of +outstanding options +(a) +Weighted-average exercise +price of outstanding +options +(b) +Number of securities +remaining available for +future issuance +under +equity compensation plans +(excluding securities +reflected in column (a)) +(c) +Equity compensation plans approved by security holders +3,115,604 +$ +7.88 +2,749,391 +(1) +Equity compensation plans not approved by security holders +1,672,814 +(2) +$ +6.61 +(2) +— +Total +4,788,418 +2,749,391 +(1) +Represents shares remaining available for future issuance as of December 31, 2006 under the Stock Award Plan. +(2) +Includes 262,732 shares issuable as of December 31, 2006 under options at a weighted-average exercise price of $3.82 per share under the 1991 Plan, the Agritope Plan, and the +Employee Incentive Plan. +31 +Item 2. Ratification Of Appointment Of Independent Registered Public Accounting Firm +The Audit Committee of the Board of Directors has reappointed the firm of +KPMG LLP (“KPMG”) as our independent registered public accounting firm for 2007. Ratification of this appointment requires the affirmative vote of a majority of shares present in person or by Proxy and entitled to vote at the Annual +Meeting. In the absence of instructions to the contrary, shares of Common Stock represented by properly executed Proxies will be voted for ratification of the appointment of KPMG as our independent registered public accounting firm for 2007. If this +appointment is not ratified by stockholders, the Audit Committee may reconsider its appointment. +One or more representatives of KPMG are expected to be at the Annual Meeting. They will have an opportunity to make a statement and will be available to +respond to appropriate questions. Your Board recommends that the stockholders vote “FOR” ratification of the appointment of KPMG . +Audit Fees; Audit-Related Fees; Tax Fees; All Other Fees. +The following table presents fees for professional audit services rendered by KPMG for the audits of our annual financial statements for the fiscal years +ended December 31, 2006 and 2005, for the audits of our internal controls over financial reporting at December 31, 2006 and 2005 and management’s assessment of those controls and for the review of the financial statements included in +our Quarterly Reports on Form 10-Q for the fiscal years ended December 31, 2006 and 2005. The following table also includes fees billed for other services rendered by KPMG: +2006 +2005 +Audit fees(1) +$ +455,000 +$ +418,700 +Audit-related fees +— +— +Audit and audit related fees +$ +455,000 +$ +418,700 +Tax fees (2) +115,725 +67,500 +All other fees (3) +— +— +Total fees +$ +570,725 +$ +486,200 +(1) +Includes fees related to the audit of our financial statements for each indicated year, audits of our internal controls over financial reporting and management’s assessment of +those controls for each indicated year, and interim reviews of our financial statements in the Company’s Quarterly Reports on Form 10-Q for each indicated year, notwithstanding when the fees were billed or when the services were rendered. Also, +included in 2006 are professional services in connection with the review of a registration statement on Form S-8 and the issuance of a related consent. +(2) +During 2006 and 2005, we engaged KPMG to provide tax compliance, tax advice and tax planning services. +(3) +The Company did not pay any other fees to KPMG in connection with their services in 2006 and 2005. +During 2006 and 2005, we did not engage KPMG to provide any professional services related to financial information systems +design and implementation. +The Audit Committee has adopted a +general practice of pre-approving all audit and non-audit services provided to the Company by our independent registered public accounting firm. The Chairman of the Audit Committee has been delegated the authority to pre-approve audit and non-audit +services having an aggregate value of up to $10,000 in between meetings of the Audit Committee, provided that such pre-approval is communicated to the Audit Committee at its next scheduled meeting. All services by KPMG have been pre-approved in +accordance with these practices. +32 +Annual Report +Our Annual Report to Stockholders for the year ended December 31, 2006 accompanies this Proxy Statement. On written +request, we will provide, without charge, a copy of our Annual Report on Form 10-K for the year ended December 31, 2006, as filed with the SEC (including a list briefly describing the exhibits thereto), to any record holder or beneficial owner +of our Common Stock on March 26, 2007, the record date for the Annual Meeting, or to any person who subsequently becomes such a record holder or beneficial owner. Requests should be directed to the attention of the Secretary of the Company at +our address set forth in the Notice of Annual Meeting of Stockholders immediately preceding this Proxy Statement. +Deadline For Stockholder Proposals +You may submit proposals for inclusion in the proxy materials for the Company’s 2008 Annual Meeting of Stockholders. Any such proposals must meet the +stockholder eligibility and other requirements imposed by rules issued by the SEC and must be received by the Company at 220 East First Street, Bethlehem, Pennsylvania 18015, Attention: Secretary, in accordance with Rule 14a-8 promulgated under the +Exchange Act, not later than December 10, 2007. +Our Bylaws provide that a stockholder proposal must meet certain predetermined requirements in +order to be considered at the Annual Meeting. In order to be considered, a stockholder’s proposal must be made in writing to the Company’s Secretary and must be delivered to or received at our principal executive offices not less than +ninety (90) days nor more than one hundred twenty (120) days prior to the meeting. However, if less than one hundred (100) days’ notice or prior public disclosure of the date of the meeting is given or made to stockholders, +notice by the stockholder to be timely must be so received no later than the close of business on the tenth (10 th ) day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. The notice to the Secretary must set forth, with respect to each matter the +stockholder proposes to bring before the meeting, a brief description of the matter and the reasons for considering that matter at the Annual Meeting. The notice must also include the name and record address of the stockholder, the class and number +of shares of capital stock of the Company which are beneficially owned by the stockholder, and any material interest the stockholder has in the matter(s) proposed for consideration at the Annual Meeting. To the extent the Board of Directors or the +SEC, or a court of competent jurisdiction, deems these Bylaw provisions to be inconsistent with the right of stockholders to request inclusion of a proposal in the Company’s proxy materials pursuant to Rule 14a-8 promulgated under the Exchange +Act, such rule shall prevail. +BY ORDER OF THE +BOARD OF DIRECTORS +Jack E. Jerrett +Secretary +April 9, 2007 +33 +Please +Mark Here +for Address Change or Comments +¨ +SEE REVERSE SIDE +FOR +WITHHOLD +2. Ratification of Appointment of KPMG LLP +FOR +AGAINST +ABSTAIN +1. ELECTION OF DIRECTORS +Class I (Term Expiring 2010) +¨ +¨ +¨ +¨ +¨ +01 Douglas G. Watson +02 Jack Goldstein, Ph.D. +(Instruction: To withhold authority to vote for any individual nominee, mark FOR and strike a line through the nominee’s name in the +list above. To withhold authority to vote for all nominees, mark WITHHOLD.) +Signature +Signature +Date +, 2007 +NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as +such. +é FOLD AND DETACH HERE é +WE ENCOURAGE YOU TO +TAKE ADVANTAGE OF INTERNET OR TELEPHONE VOTING, +BOTH ARE AVAILABLE 24 HOURS A DAY, 7 DAYS A WEEK. +Internet and telephone voting is available through 11:59 PM Eastern Time +May 14, 2007. +Your Internet or telephone vote authorizes +the named proxies to vote your shares in the same manner +as if you marked, signed and returned your proxy card. +INTERNET +http:/ /www.proxyvoting.com/osur +Use the +internet to vote your proxy. Have your proxy card in hand when you access the web site. +OR +TELEPHONE +1-866-540-5760 +Use any touch-tone telephone to vote your proxy. Have your proxy card in hand when you call. +If you vote your proxy +by Internet or by telephone, you do NOT need to mail back your proxy card. To vote by mail , mark, sign and date your proxy card and return it in the enclosed postage-paid envelope. +Choose MLink SM for fast, easy and secure 24/7 online +access to your future proxy materials, investment plan statements, tax documents and more. Simply log on to Investor ServiceDirect ® at www.melloninvestor.com/isd where step-by-step instructions will prompt you through +enrollment. +PROXY +2007 Annual Meeting of Stockholders +PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned hereby appoints Jack E. Jerrett and Mark L. Kuna, and each of them, proxies with full power of substitution, to vote all of the shares which the undersigned is entitled to vote at the 2007 Annual Meeting of Stockholders of +OraSure Technologies, Inc. (the “Company”), to be held on Tuesday, May 15, 2007, and at any adjournment or adjournments thereof, with all the powers the undersigned would possess if personally present, with respect to the matters listed on +the reverse side. +The shares represented by this Proxy, if +properly executed, will be voted as specified on the reverse side or, if no specification is made, will be voted (i) FOR the election of the nominees listed on the reverse side as directors and (ii) FOR the ratification of the appointment of KPMG +LLP as the Company’s independent registered public accounting firm for 2007. If any other business properly comes before the meeting, the proxies named above will have discretionary authority to vote thereon in accordance with their best +judgement. +PLEASE MARK, DATE, SIGN AND RETURN THE PROXY CARD +PROMPTLY. +(Continued and to be marked, dated and signed, on the other side) +Address Change/Comments (Mark the corresponding box on the reverse +side) +é FOLD AND DETACH HERE é +OraSure Technologies, Inc. +2007 Annual Meeting of Stockholders +Tuesday, May 15, 2007 \ No newline at end of file diff --git a/raw/proxies/0001116463/0001193125-07-077152/proxy_rpt.txt b/raw/proxies/0001116463/0001193125-07-077152/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..8a1b6f64f29abf4f2fb41175c200fd17ed26c946 --- /dev/null +++ b/raw/proxies/0001116463/0001193125-07-077152/proxy_rpt.txt @@ -0,0 +1,6 @@ +Transactions With Related Persons +Since January 1, 2006, there have been no transactions with related +persons which would require disclosure in this Proxy Statement. The Audit Committee is required to review and approve in advance all transactions with related persons involving the Company. This responsibility is described in the Audit +Committee’s charter, a copy of which is available on our website at www.orasure.com . +Information regarding employment and severance agreements between our executive officers and the Company is set forth in the Section entitled, +“Employment Agreements and Potential Payments Upon Termination or Change in Control,” in this Proxy Statement. \ No newline at end of file diff --git a/raw/proxies/0001116463/0001193125-08-076381/proxy.txt b/raw/proxies/0001116463/0001193125-08-076381/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..0c80f944826fc274be8d9220f132aee67ab9851d --- /dev/null +++ b/raw/proxies/0001116463/0001193125-08-076381/proxy.txt @@ -0,0 +1,3100 @@ +DEF 14A +1 +ddef14a.htm +DEFINITIVE NOTICE & PROXY +Definitive Notice & Proxy +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) +of the Securities Exchange Act of +1934 +(Amendment No. ) +Filed by the Registrant x +Filed by a Party other than the Registrant ¨ +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material Pursuant to §240.14a-12 +OraSure Technologies, Inc. +(Name of Registrant as Specified In Its +Charter) +(Name of Person(s) Filing Proxy Statement, if +other than the Registrant) +Payment of Filing +Fee (Check the appropriate box): +x +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was +determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the +previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +ORASURE TECHNOLOGIES, INC. +220 East First Street +Bethlehem, Pennsylvania 18015 +April 7, 2008 +Dear Stockholder: +You are cordially invited to attend the 2008 Annual Meeting of Stockholders to be held on Tuesday, May 13, 2008 , at the Historic Hotel +Bethlehem, 437 Main Street, Bethlehem, Pennsylvania 18018, at 10:00 a.m. Eastern Time. Your Board of Directors and Executive Management Team look forward to personally greeting those present. If you cannot attend in person, we are pleased to offer a +live webcast of the Annual Meeting, which you can access by going to our website, www.orasure.com . +At the meeting, you will be +asked to (i) elect three Class II Directors to serve on the Board of Directors until the Annual Meeting of Stockholders in 2011; (ii) approve amendments to the OraSure Technologies, Inc. 2000 Stock Award Plan to increase the number of +shares of Common Stock authorized for grant under such Award Plan, to extend the duration of the Award Plan and to make certain other changes; (iii) ratify the appointment of KPMG LLP as our independent registered public accounting firm for +2008; and (iv) transact such other business as may properly come before the meeting or any adjournments thereof. +Your Board of +Directors has approved the nominees for Director and recommends that you vote FOR their election to the Board. In addition, your Board of Directors recommends that you vote FOR the amendment to the Company’s 2000 Stock Award Plan +and FOR the ratification of KPMG’s appointment. +Your vote is very important, regardless of the number of shares you own. +Whether or not you plan to attend the Annual Meeting in person, we urge you to submit your vote as soon as possible. You will have the option to vote by telephone, via the Internet, or by completing, signing, dating, and mailing the enclosed Proxy +Card in the accompanying postage prepaid envelope. Additional details on these options can be found in the attached Proxy Statement and Proxy Card. You may, of course, attend the Annual Meeting and vote in person regardless of whether you have +previously voted by phone, the Internet or mail. +We look forward to seeing you at the meeting. +Sincerely yours, +Douglas A. Michels +President and Chief Executive Officer +ORASURE TECHNOLOGIES, INC. +220 East First Street +Bethlehem, Pennsylvania 18015 +Notice of Annual Meeting of Stockholders +to be held May 13, 2008 +To the Stockholders of OraSure Technologies, Inc.: +The Annual Meeting of Stockholders of OraSure Technologies, Inc., a Delaware corporation, will be held at the Historic Hotel Bethlehem, 437 Main Street, Bethlehem, Pennsylvania 18018, on Tuesday, May 13, +2008 , at 10:00 a.m. Eastern Time for the following purposes: +1. To elect three Class II Directors; +2. To approve an amendment increasing the number of shares of Common Stock authorized for grant under the OraSure Technologies, +Inc. 2000 Stock Award Plan, extending the duration of the Award Plan and making certain other changes; +3. To ratify +the appointment of KPMG LLP as our independent registered public accounting firm for 2008; and +4. To consider such +other business as may properly come before the meeting or any adjournments thereof. +Additional information is included in the Proxy +Statement accompanying this Notice. Only holders of Common Stock of record at the close of business on March 24, 2008, will be entitled to vote at the Annual Meeting of Stockholders and any adjournments thereof. +By Order of the Board of Directors, +Jack E. Jerrett +Secretary +April 7, 2008 +Bethlehem, Pennsylvania +YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the +Annual Meeting, you are urged to vote your shares as promptly as possible by telephone, via the Internet, or by completing, signing, dating and returning the enclosed Proxy Card, as described in the attached Proxy Statement. Voting by phone, the +Internet or mail does not deprive you of your right to attend the Meeting and to vote your shares in person. +ORASURE TECHNOLOGIES, INC. +220 East First Street +Bethlehem, Pennsylvania 18015 +Proxy Statement +This Proxy Statement is being mailed on or about April 7, +2008, to stockholders of OraSure Technologies, Inc., a Delaware corporation (the “Company”), in connection with the Company’s solicitation of proxies (each, a “Proxy”) for use at the Annual Meeting of Stockholders to be held +on May 13, 2008, at 10:00 a.m. Eastern Time, at the Historic Hotel Bethlehem, 437 Main Street, Bethlehem, Pennsylvania 18018, and at any adjournments thereof (the “Annual Meeting”). +Proxies +If represented by a properly +executed Proxy, whether delivered by phone, the Internet or mail, as described below, your shares will be voted in accordance with your instructions. If you do not provide a Proxy with instructions, your shares will be voted according to the +recommendations of our Board of Directors (the “Board”) as stated on the Proxy. You may revoke the authority granted by your Proxy at any time before the Annual Meeting by notice in writing delivered to the Secretary of the Company, by +delivering a subsequently dated Proxy, or by attending the Annual Meeting, withdrawing the Proxy and voting in person. +At the Annual +Meeting, action will be taken on the matters set forth in the accompanying Notice of Annual Meeting of Stockholders and described in this Proxy Statement. The Board knows of no other matters to be presented for action at the Annual Meeting. If any +other matters do properly come before the Annual Meeting, the persons named in the Proxy Card will have discretionary authority to vote on those matters in accordance with their best judgment. +The cost of soliciting Proxies will be borne by us. In addition to solicitations by mail, certain of our Directors, officers and regular employees may +solicit Proxies personally or by telephone or other means without additional compensation. +Arrangements will also be made with brokerage +firms and other custodians, nominees, and fiduciaries to forward solicitation material to the beneficial owners of stock held of record by such persons, and we will, upon request, reimburse them for their reasonable expenses in so doing. +Voting Procedures +You will have a +choice of voting over the phone, via the Internet or by completing and mailing a traditional paper Proxy Card, as described below. Please check your Proxy Card or the information forwarded by your bank, broker or other holder of record to determine +which options are available to you. +Voting by Mail . If you desire to vote by using the paper Proxy +Card included with this Proxy Statement instead of by telephone or the Internet, you may do so by completing, signing, dating and returning the Proxy Card in the enclosed, pre-addressed envelope. Postage need not be affixed to the envelope if mailed +in the United States. +1 +Voting by Phone or Internet . Instead of voting by use of the paper +Proxy Card, you may be able to vote by phone or the Internet. Whether you may do so will depend on how your shares are held. +If your +shares are registered in your name with BNY Mellon Shareowner Services, our transfer agent, you may vote those shares by telephone by calling BNY Mellon Shareowner Services at 1-866-540-5760 (toll free in the United States or Canada only) or via the +Internet at the following website: www.proxyvoting.com/osur . You may vote by telephone or the Internet provided you do so by 11:59 pm Eastern Time (8:59 pm Pacific Time) on May 12, 2008. Additional instructions can be found on the paper +Proxy Card accompanying this Proxy Statement. +If your shares are registered in the name of a broker, bank or other registered holder, you +may be able to vote by phone or the Internet if the broker, bank or other record holder has procedures for telephone or Internet voting. If you desire to use either of these voting options, please follow the procedures provided to you by your +broker, bank or other record holder. +The telephone and Internet voting procedures are designed to authenticate your identity, to allow you +to give your voting instructions and to confirm that your instructions have been recorded properly. If you vote via the Internet, you should understand that there may be costs associated with this method of voting, such as usage charges from +Internet access providers and telephone companies, that you must pay. +Submitting a Proxy by mail, the phone or the Internet will not +affect your right to vote in person at the Annual Meeting. +Electronic Access to Proxy Materials and Annual +Report . The Notice of Annual Meeting, the Proxy Statement and our 2007 Annual Report are available on our website at http://www.orasure.com . If you are a stockholder of record and would like to view future proxy +statements and annual reports over the Internet instead of receiving copies in the mail, please follow the instructions on the paper Proxy Card if you vote by mail or follow the instructions provided when you vote by phone or over the Internet. If +you hold your shares through a bank, broker or other holder, check the information provided by that entity for instructions on how to elect to view future proxy statements and annual reports over the Internet. Opting to receive your proxy materials +and annual report online will save us the cost of producing these materials and mailing them to you in the future. +Voting Securities +On March 24, 2008, the record date for determining stockholders entitled to vote at the Annual Meeting, we had outstanding and +entitled to vote at the meeting 47,831,648 shares of common stock, par value $.000001 per share (“Common Stock”). Each share of Common Stock is entitled to one vote on any matter brought before the Annual Meeting. A majority of the shares +of Common Stock outstanding as of the record date, represented in person or by Proxy at the Annual Meeting, will constitute a quorum for the transaction of business. +Broker non-votes, votes withheld and abstentions will be counted for purposes of determining whether a quorum has been reached at the Annual Meeting. Because abstentions will be included in tabulations of the votes +entitled to vote for purposes of determining whether a proposal has been approved, abstentions have the same effect as negative votes. Broker non-votes, however, are not counted as shares present and entitled to be voted with respect to the matters +which the broker has not expressly voted. A broker “non-vote” occurs when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have the discretionary voting power with respect +to that item and has not received instructions from the beneficial owner. There cannot be broker non-votes for the matters described under Items 1 and 3 of this Proxy Statement, as a broker’s discretionary authority to vote on such matters is +not limited, and broker non-votes are not counted in determining whether the affirmative vote required for the approval of the matter described under Item 2 has been cast. +Director elections are determined by a plurality of the votes cast. Approval of the amendment to our 2000 Stock Award Plan and ratification of the +appointment of our independent registered public accounting firm for 2008 each require the affirmative vote of a majority of shares present and entitled to vote at the Annual Meeting and voting thereon. +2 +Principal Stockholders +The following table sets forth information, as of March 24, 2008, regarding the beneficial ownership of the Company’s Common Stock by +(a) each person who is known by us to be the beneficial owner of more than five percent of the Common Stock outstanding, (b) each Director and nominee for election as Director, (c) each of our executive officers named in the Summary +Compensation Table in this Proxy Statement under “Executive Compensation,” and (d) all of our directors and executive officers as a group. Unless otherwise indicated, the address of each person identified below is c/o OraSure +Technologies, Inc., 220 East First Street, Bethlehem, Pennsylvania 18015. +Pursuant to Rule 13d-3 under the Securities Exchange Act of +1934, as amended (the “Exchange Act”), shares of Common Stock which a person has a right to acquire pursuant to the exercise of stock options and warrants held by that person that are exercisable within 60 days of March 24, 2008 are +deemed to be outstanding for the purpose of computing the percentage ownership of that person, but are not deemed outstanding for computing the percentage ownership of any other person. +Name and Address of +Beneficial Owner +Amount and Nature of +Beneficial Ownership 1,2 +Percent +of Class +Wells Fargo & Company 3 +7,227,244 +15.11 +% +420 Montgomery Street +San Francisco, CA 94104 +First Manhattan Co. 4 +3,528,500 +7.38 +% +437 Madison Avenue +New York, NY 10022 +BlackRock, Inc. 5 +2,975,737 +6.22 +% +40 East 52 nd Street +New York, NY 10022 +Douglas A. Michels +1,000,983 +2.07 +% +Ronald H. Spair +693,889 +1.44 +% +P. Michael Formica +450,823 +* +Roger L. Pringle 6 +300,927 +* +Joseph E. Zack +349,190 +* +Stephen R. Lee, Ph.D. +234,146 +* +Douglas G. Watson +221,250 +* +Ronny B. Lancaster +118,750 +* +Charles W. Patrick +58,750 +* +Jack Goldstein, Ph.D. +58,750 +* +Michael Celano +50,416 +* +All directors and executive officers as a group (13 people) +3,973,333 +7.86 +% +* +Less than 1% +(1) +Subject to community property laws where applicable, beneficial ownership consists of sole voting and investment power except as otherwise indicated. +3 +(2) +Includes shares subject to options exercisable within 60 days of March 24, 2008, as follows: Mr. Michels, 499,946 shares; Mr. Spair, 456,749 shares; Mr. Formica, +343,740 shares; Mr. Pringle, 264,302 shares; Mr. Zack, 267,030 shares; Dr. Lee, 100,864 shares; Mr. Watson, 221,250 shares; Mr. Lancaster, 118,750 shares; Mr. Patrick, 58,750 shares; Dr. Goldstein, 58,750 shares; +Mr. Celano, 50,416 shares; and all directors and executive officers as a group, 2,752,374 shares. Also includes 295,355, 131,833, 43,750, 49,000 and 90,749 restricted shares held by Mr. Michels, Mr. Spair, Mr. Formica, +Mr. Zack and Dr. Lee, respectively. +(3) +Based on information contained in a Schedule 13G/A filed March 20, 2008 by Wells Fargo & Company (“Wells Fargo”), on behalf of its subsidiaries, Wells +Capital Management Incorporated, Wells Fargo Funds Management, LLC, Wells Fargo Bank, National Association, and Wells Fargo Investments, LLC. Wells Fargo has sole voting power with respect to 7,164,897 shares, sole dispositive power with respect to +7,255,119 shares and shared dispositive power with respect to 2,125 shares. +(4) +Based on information contained in a Schedule 13G/A filed February 13, 2008 by First Manhattan Co. (“FMC”). FMC has sole voting and dispositive power with respect to +the indicated shares. +(5) +Based on information contained in a Schedule 13G/A filed February 8, 2008, by BlackRock, Inc. (“BlackRock”) on behalf of certain of its subsidiaries. BlackRock has +shared voting and dispositive power with respect to the indicated shares. +(6) +Includes 1,500 shares owned by Mr. Pringle’s spouse. +Corporate Governance +Director Independence +We have adopted Corporate Governance Guidelines which, among other things, require that a majority of the members of the Board meet the independence requirements of the Securities and Exchange Commission +(“SEC”) and The NASDAQ Stock Market (“NASDAQ”), on which our Common Stock is listed. A copy of our Corporate Governance Guidelines is available on our website at www.orasure.com . +Each year our Board conducts a review of Director independence. The most recent review occurred in February 2008, during which the Board considered +transactions and relationships, if any, between each Director or any member of such Director’s immediate family and the Company. As a result of this review, the Board determined that Michael Celano, Jack Goldstein, Ph.D., Ronny B. Lancaster, +Charles W. Patrick, Roger L. Pringle and Douglas G. Watson are “independent,” as that term is defined in the applicable rules of NASDAQ and the SEC. In concluding that Mr. Celano is independent, the Board considered his past service +with KPMG LLP, our current independent registered public accounting firm, and Arthur Andersen LLP, our independent public accountants prior to KPMG LLP, and his current employment as Managing Director for Aon Risk Services (“Aon”). Aon or +its affiliates provide insurance brokerage and executive compensation consulting services for us. +Only Douglas A. Michels and Ronald H. +Spair were determined by the Board not to be independent. Mr. Michels is not independent because he is employed as our President and Chief Executive Officer, and Mr. Spair is not independent because he is employed as our Chief Operating +Officer and Chief Financial Officer. Based on the foregoing, the Board of Directors is comprised of a majority of independent Directors. +Board Meetings +The Board held nine meetings and acted by written consent on two occasions during the year ended December 31, 2007. Each member of +the Board attended more than 75 percent of the combined total of meetings of the Board and of the committees of the Board on which such member served during the period in the year in which he served as a Director. +4 +Annual Meeting and Stockholder Communications +The Board has approved a policy concerning Board members’ attendance at our annual meeting of stockholders and a process for security holders to send +communications to members of the Board. Our 2007 Annual Meeting of Stockholders held on May 15, 2007 was attended by all members of the Board, as constituted at that time. Descriptions of the Board’s policy on annual meeting attendance and +the process for security holders to send communications to the Board are provided on our website, at www.orasure.com . +Committees of the Board +The Board currently has three standing committees – the Audit Committee, the Compensation +Committee and the Nominating and Corporate Governance Committee. Each Committee is composed entirely of independent Directors. +Audit +Committee. The Audit Committee oversees the Company’s accounting and financial reporting process, internal controls and audits, and consults with management and the Company’s independent registered public +accounting firm on, among other items, matters related to the annual audits, the published financial statements and the accounting principles applied. As part of its duties, the Audit Committee appoints, evaluates and retains the Company’s +independent registered public accounting firm. It also maintains direct responsibility for the compensation, termination and oversight of the Company’s independent registered public accounting firm and evaluates the independent registered +public accounting firm’s qualifications, performance and independence. The Audit Committee approves all services provided to the Company by the independent registered public accounting firm. The Audit Committee has established procedures for +the receipt, retention and treatment, on a confidential basis, of complaints received by the Company, regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submissions by employees of concerns +regarding questionable accounting or auditing matters. The Audit Committee operates pursuant to a written charter, a copy of which is available on our website at www.orasure.com . +Members of the Audit Committee are Michael Celano, Chairman, Jack Goldstein, Ph.D., Ronny B. Lancaster and Douglas G. Watson. Each member of the Audit +Committee is “independent,” as defined in the Exchange Act and applicable NASDAQ rules. The Board has determined that Messrs. Celano and Watson are each an “audit committee financial expert,” as that term is defined by applicable +rules of the SEC. The Audit Committee met eight times during the year ended December 31, 2007. +Compensation +Committee. The primary responsibility of the Compensation Committee is to assist the Board in fulfilling its oversight responsibilities with respect to all types of compensation for our officers and non-employee +Directors. Our overall compensation philosophy, as determined by the Compensation Committee and approved by the Board, is to (i) reward the financial performance of the Company and achievement by the executive officers of financial and other +individual performance objectives, (ii) align the interests of the executive officers with the interests of our stockholders, (iii) provide long-term incentives for the executive officers, and (iv) set compensation levels sufficiently +competitive to attract and retain high quality executives and to motivate them to contribute to our success. +On an annual basis, the +Compensation Committee evaluates the performance of the Chief Executive Officer against previously established goals and objectives and reviews the performance evaluations and compensation recommendations for other executive officers provided by the +Chief Executive Officer. Based on the foregoing, along with a review of compensation provided at comparable medical diagnostic and healthcare companies and the recommendations of a compensation consultant engaged by or for the Committee, the +Compensation Committee determines cash and equity compensation for the Chief Executive Officer, other executive officers and the non-employee members of the Board. Compensation for the Chief Executive Officer is submitted for approval by a majority +of independent Directors on the Board. +5 +On an as-needed basis, the Compensation Committee retains independent compensation consultants to assist +the Compensation Committee in evaluating and structuring our executive compensation programs and making compensation decisions. During 2007, Radford Surveys & Consulting, a business unit of Aon, and Mercer Human Resources Consulting were +engaged for this purpose. A further discussion of the role of the Compensation Committee, our processes and procedures for determining executive officer and non-employee Director compensation, and the services provided by Radford and Mercer are set +forth in the Section entitled, “Compensation Discussion and Analysis,” in this Proxy Statement. +The Committee is authorized to +delegate any of its responsibilities to subcommittees or individuals, as the Committee deems appropriate. To date, the Committee has not exercised this right. +The Compensation Committee operates pursuant to a written charter, a copy of which is available on our website at www.orasure.com . Members of the Compensation Committee are Roger L. Pringle, Chairman, Jack +Goldstein, Ph.D., Charles W. Patrick and Douglas G. Watson. Each member of the Compensation Committee is “independent,” as defined in applicable NASDAQ rules. The Compensation Committee met six times and acted by written consent on two +occasions during the year ended December 31, 2007. +Nominating and Corporate Governance +Committee . The Nominating and Corporate Governance Committee of the Board identifies, evaluates and recommends to the Board candidates for election or re-election to the Board. In addition, this Committee is +responsible for developing, recommending for Board approval and administering our Corporate Governance Guidelines. The Nominating and Corporate Governance Committee operates pursuant to a written charter. Copies of the Committee’s charter and +the Company’s Corporate Governance Guidelines are available on our website at www.orasure.com . +Members of the Nominating and +Corporate Governance Committee are Ronny B. Lancaster, Chairman, Michael Celano, Charles W. Patrick, and Roger L. Pringle. Each member of the Nominating and Corporate Governance Committee is “independent,” as defined in applicable NASDAQ +rules. The Nominating and Corporate Governance Committee met two times during the year ended December 31, 2007. +In evaluating and +recommending candidates for the Board, the Nominating and Corporate Governance Committee will consider candidates recommended by members of the Committee or the Board of Directors, officers or employees of the Company, the Company’s security +holders and other business contacts. The Nominating and Corporate Governance Committee may also consult with outside advisors or retain search firms to assist in the search for qualified candidates. Candidates recommended by security holders will be +considered by the Nominating and Corporate Governance Committee in the same manner as candidates recommended by other sources, but only if the security holder makes its recommendation in accordance with the advance notification provisions set forth +in the Company’s By-laws. For a description of these provisions, see the Section entitled, “Nomination of Directors,” in this Proxy Statement. +In evaluating new candidates for Board nomination, the Nominating and Corporate Governance Committee considers one or more of the following factors, as well as any other factors determined to be relevant by the +Committee based on the needs of the Board and Company: independence, integrity, knowledge, judgment, character, leadership skills, education, experience, financial literacy, technical background and standing in the community. In evaluating incumbent +Directors for re-election, the Nominating and Corporate Governance Committee considers that Director’s overall service to the Company, including the number of meetings attended, level of participation, quality of performance and other factors +deemed relevant by the Committee. +Nomination of Directors +Our Bylaws provide that nominations for election to the Board may be made by the Board or by any stockholder entitled to vote for the election of Directors at the Annual Meeting. A stockholder’s notice of +nomination must be made in writing to the Company’s Secretary and must be delivered to or received at our +6 +principal executive offices not less than ninety (90) days nor more than one hundred twenty (120) days prior to the meeting. However, in the event +that less than one hundred (100) days’ notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be received no later than the close of business on the tenth +(10 th ) day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first +occurs. The notice to the Secretary must set forth, with respect to the nominee, the name, age, business address, residence address, and principal occupation or employment of the person, the class and number of shares of capital stock of the Company +which are beneficially owned by the person, and any other information relating to the person that is required to be disclosed in solicitations for proxies for election of Directors pursuant to Regulation 14A under the Exchange Act. The notice must +also include the name and record address of the stockholder making the nomination and the class and number of shares of capital stock of the Company that are beneficially owned by the stockholder. We may require any proposed nominee to furnish such +other information as we may reasonably require to determine the eligibility of the proposed nominee to serve as a Director of the Company. +Report of +the Audit Committee +The information contained in this report shall not be deemed to be “soliciting material” or +“filed” for purposes of Section 18 of the Exchange Act or otherwise subject to liability under that Section. This report shall not be deemed “incorporated by reference” into any document filed under the Securities Act of +1933, as amended, or the Exchange Act, whether such filing occurs before or after the date hereof, regardless of any general incorporation language in such filing. +The role of the Audit Committee is to assist the Board of Directors in fulfilling its responsibilities to oversee management’s conduct of the Company’s financial reporting process, including monitoring +(1) the participation of management and the outside independent registered public accounting firm in the financial reporting process, (2) the Company’s systems of internal accounting and financial controls, (3) the annual +independent audit of the Company’s financial statements and (4) the qualifications, independence and performance of the outside independent registered public accounting firm. The Committee selects the Company’s outside independent +registered public accounting firm, and once selected, the outside independent registered public accounting firm reports directly to the Committee. The Committee is responsible for approving both audit and non-audit services to be provided by the +outside independent registered public accounting firm. The Committee operates pursuant to a Charter that was last amended and restated by the Board on August 14, 2007. +Management of the Company is responsible for the preparation, presentation and integrity of the Company’s financial statements, the Company’s +accounting and financial reporting principles and internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. The independent registered public accounting firm is responsible for +auditing the Company’s financial statements and expressing an opinion as to their conformity with U.S. generally accepted accounting principles. The Committee’s responsibility is to monitor and review these processes. It is not the +Committee’s duty or responsibility to conduct auditing or accounting reviews. +In the performance of its oversight function, the +Committee has considered and discussed the audited financial statements with management, which included a discussion of the quality, and not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the +clarity of disclosures in the financial statements. The Committee met with the independent registered public accounting firm, with and without management, to discuss the results of their audit and their judgments regarding the Company’s +accounting policies. The Committee has also discussed with the independent registered public accounting firm the matters required to be discussed by Statement on Auditing Standards No. 61, “Communication with Audit Committees,” as +currently in effect. Finally, the Committee has received the written disclosures and the letter from the independent registered public accounting firm required by Independence Standards Board Standard No. 1, “Independence Discussions with +Audit Committees,” as currently in effect, has considered whether the +7 +provision of non-audit services by the independent registered public accounting firm to the Company is compatible with maintaining the firm’s +independence and has discussed with the independent registered public accounting firm the firm’s independence. +Based upon the reports +and discussions described in this report, and subject to the limitations on the role and responsibilities of the Committee referred to above and in the Committee’s Charter, the Committee recommended to the Board that the audited financial +statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 for filing with the SEC and selected KPMG LLP as the independent registered public accounting firm for fiscal year 2008. The Board is +recommending that stockholders ratify that selection at the Annual Meeting. +SUBMITTED BY THE AUDIT COMMITTEE +OF THE COMPANY’S BOARD OF DIRECTORS +Michael Celano, Chairman +Jack Goldstein, Ph.D. +Ronny B. Lancaster +Douglas G. Watson +March 3, 2008 +Executive Officers +The table below provides information about the executive +officers of the Company as of March 24, 2008. Officers of the Company hold office at the discretion of the Board. +Name +Age +Position +Douglas A. Michels +51 +President and Chief Executive Officer +Ronald H. Spair +52 +Chief Financial Officer and Chief Operating Officer +Stephen R. Lee, Ph.D. +48 +Executive Vice President and Chief Science Officer +P. Michael Formica +57 +Executive Vice President, Operations +Joseph E. Zack +56 +Executive Vice President, Marketing and Sales +Jack E. Jerrett +49 +Senior Vice President, General Counsel and Secretary +Mark L. Kuna +44 +Senior Vice President, Finance, Controller and Assistant Secretary +Douglas A. Michels has been the Company’s President and Chief Executive Officer since June +2004. Prior to that, Mr. Michels served as Group Vice President, Global Marketing of Ortho-Clinical Diagnostics from January 2004 to June 2004, President of Ortho-Clinical Diagnostics International from January 2002 to December 2003, and +President of Johnson & Johnson Healthcare Systems, Inc. from January 2000 to December 2001. Earlier in his career, Mr. Michels held various positions of increasing responsibility within the Johnson & Johnson family of +companies, including Vice President, Sales & Marketing, Vice President/General Manager – Immunocytometry Business, Executive Director Sales & Marketing, Director of Marketing, Director of Sales, and Regional Sales Manager for +Ortho Diagnostic Systems, Inc. Prior to joining Johnson & Johnson, Mr. Michels worked for the Diagnostics Division of Abbott Laboratories in various sales and product management positions. Mr. Michels received a B.S. degree in +Public Health Administration from the University of Illinois and an M.B.A. from Rutgers University. +Ronald H. Spair has been the +Company’s Chief Financial Officer and Chief Operating Officer since September 2006 and served as Executive Vice President and Chief Financial Officer since November 2001. Prior to that time, Mr. Spair was Vice President, Chief Financial +Officer and Secretary of Delsys Pharmaceutical Corporation, a pharmaceutical manufacturing system development company, from January 2001 to September 2001. Prior to joining Delsys, he was Senior Vice President, Chief Financial Officer and Secretary +of SuperGen, +8 +Inc., a pharmaceutical company, from August 1999 to January 2001. Prior to joining SuperGen, Mr. Spair was Senior Vice President, Chief Financial +Officer and Secretary of Sparta Pharmaceuticals, Inc., a development stage pharmaceutical company. Mr. Spair received both his B.S. in Accounting and M.B.A. from Rider College. He is also a licensed Certified Public Accountant and is a member +of the New Jersey Society of Certified Public Accountants and the American Institute of Certified Public Accountants. +Stephen R. Lee, +Ph.D. has been the Company’s Executive Vice President and Chief Science Officer since September 2005. Prior to that time, Dr. Lee worked at Ortho-Clinical Diagnostics, a Johnson & Johnson company, since 1990, serving as Vice +President, Assay Research & Development from 2002 to 2005, Executive Director, Worldwide Immunodiagnostic Product Development from 2000 to 2002, and Director, Infectious Disease Assay Development from 1996 to 2000. Dr. Lee has had +responsibility for or direct involvement in the development of over 40 major diagnostic assays, in such areas as infectious disease, cardiology, oncology and other conditions. In 1997, Dr. Lee was awarded the Johnson Medal, Johnson & +Johnson’s highest award for Research and Development. Prior to joining Ortho, Dr. Lee worked as a scientist for both Wampole Labs and Immunicon Corporation. Dr. Lee received a Ph.D. degree in Biochemistry from Cardiff University +(U.K.) in 1985 and a BSc. in Biochemistry from Sheffield University (U.K.) in 1981. +P. Michael Formica has been the Company’s +Executive Vice President, Operations since November 2002 and served as Senior Vice President, Operations for the Company and its predecessor, STC Technologies, Inc., since May 2000. Prior to that time, Mr. Formica was Division Manager, Mobil +Measurement Technologies for Dräger Sicherheitstechnik GmbH (now called Dräger Safety AG & Co. KGaA), in Lüebeck, Germany, for eight years with worldwide responsibility, and Director Sales and Marketing, National Draeger, +Inc. (USA) for two years. Dräger is a world leader in chemical detection systems for the industrial safety market, and breath alcohol detection instrumentation. Mr. Formica received his B.S. in Electrical Engineering from West Virginia +University and his M.B.A. from the Graduate School of Industrial Administration, Carnegie Mellon University. +Joseph E. Zack has been the +Company’s Executive Vice President, Marketing and Sales since September 2002. Prior to that time, Mr. Zack served as Vice President, Marketing and Sales for OraPharma, Inc., a specialty pharmaceutical company focused on oral healthcare, +since 1998. Prior to joining OraPharma, Mr. Zack held executive level marketing and sales positions with Advanced Tissue Sciences, Inc. and the CIBA-GEIGY Pharmaceutical Division. Mr. Zack received his B.A. in Biology from Colgate +University and his M.B.A. from St. John’s University. +Jack E. Jerrett has been the Company’s Senior Vice President and General +Counsel since February 2003 and served as Vice President and General Counsel since November 2000. He has also served as the Company’s Secretary since February 2001. Prior to joining the Company, Mr. Jerrett served in the positions of +Associate General Counsel and Senior Counsel at PPL Electric Utilities Corporation, and acted as general counsel to PPL Gas Utilities Corporation, since July 1998. Prior to that time, Mr. Jerrett was Senior Corporate Attorney of Union Pacific +Corporation and an Associate with Morgan, Lewis & Bockius. Mr. Jerrett received his B.S. in Accounting from Villanova University and his J.D. from the Villanova University School of Law. He is a member of the Pennsylvania Bar and the +American and Pennsylvania Bar Associations. +Mark L. Kuna has been the Company’s Senior Vice President, Finance and Controller since +September 2006, and served as Vice President and Controller since February 2003 and as Controller since February 2001. Mr. Kuna has also served as the Company’s Assistant Secretary since May 2002 and provided accounting and financial +analysis support since joining the Company in October 2000. Prior to that time, Mr. Kuna served as Director of Financial Planning and Analysis for the greater Philadelphia region of XO Communications, Inc., and Vice President and Principal +Accounting Officer of Wedco Technology, Inc. Prior to joining Wedco Technology, he was an accountant with Deloitte and Touche. Mr. Kuna received his B.S. in Accounting from the University of Scranton, is a licensed Certified Public Accountant, +and is a member of the Pennsylvania and American Institutes of Certified Public Accountants. +9 +Transactions With Related Persons +Since January 1, 2007, there have been no transactions with related persons which would require disclosure in this Proxy Statement. The Audit Committee is required to review and approve in advance all +transactions with related persons involving the Company. The Audit Committee may approve a related party transaction if the transaction is on terms comparable to those that could be obtained in arms’ length dealings with an unrelated third +party. The Audit Committee also reviews any public disclosures of a related party transaction contained in our SEC filings. These responsibilities are described in the Audit Committee’s charter, a copy of which is available on our website at +www.orasure.com . +Information regarding employment and severance agreements between our executive officers and the Company is set +forth in the Section entitled, “Employment Agreements and Potential Payments Upon Termination or Change in Control,” in this Proxy Statement. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Exchange Act requires that our +executive officers and Directors and persons who own more than ten percent of our Common Stock (collectively, “Reporting Persons”) file reports of ownership and changes in ownership with the SEC. Reporting Persons are required by the +SEC’s regulations to furnish us with copies of all Section 16(a) forms they file. +As a matter of practice, our administrative +staff assists each of the Reporting Persons who are employees and Directors of the Company in preparing initial reports of ownership and reports of changes in beneficial ownership and filing such reports with the SEC and the NASDAQ. Based solely on +a review of the copies of forms filed by or on behalf of the Reporting Persons and on written representations (if any) from each of the Reporting Persons, we believe that all Reporting Persons complied with all applicable filing requirements with +respect to the year 2007. +ITEM 1. +Election of Directors +At the Annual Meeting, you +will be asked to vote on the election of three Class II Directors. A majority of the independent members of the Board have nominated Ronny B. Lancaster, Roger L Pringle and Ronald H. Spair for election as Class II Directors, for terms expiring +at the Annual Meeting of Stockholders in 2011. +The nominees for election as Directors are presently members of our Board. +Mr. Lancaster joined the Board in 2003 and serves as Chairman of the Nominating and Corporate Governance Committee and as a member of the Audit Committee. Mr. Pringle has served as a member of the Board since 2000, and is currently +Chairman of the Compensation Committee and a member of the Nominating and Corporate Governance Committee. Mr. Pringle is also a former member of the Audit Committee. Mr. Spair has served as a member of the Board since 2006 and is our Chief +Financial Officer and Chief Operating Officer. +In the absence of instructions to the contrary, shares of Common Stock represented by +properly executed Proxies will be voted for the three nominees, each of whom has consented to be named and to serve if elected. If a quorum is present, each nominee will be elected if he receives a plurality of the votes cast by shares present in +person or by Proxy and entitled to vote at the Annual Meeting. Abstentions will have no effect on the required vote. Your Board recommends that you vote FOR the election of the Director nominees. +We do not know of anything that would preclude any nominee from serving. However, should any nominee for any reason become unable or unwilling to serve +as a Director, the persons named in the enclosed Proxy Card will vote the shares represented by each Proxy for such substitute nominee as the Board may approve. +Any vacancy that occurs on the Board that results from an increase in the number of Directors may be filled by the affirmative vote of a majority of the Directors then in office, and any other vacancy on the Board may +be filled by the affirmative vote of a majority of the Directors then in office, even though less than a quorum of the Board, or by a sole remaining Director. +10 +Certain information with respect to each person nominated for election as a Director and each person +whose term of office as a Director will continue after the Annual Meeting is set forth below. +Name +Principal Occupation +Age +Director +Since +Class I (Directors Whose Terms of Office Expire in 2010): +Jack Goldstein, Ph.D. +Former President and Chief Operating +Officer of Chiron Corporation +60 +2006 +Douglas G. Watson +Chief Executive Officer of +Pittencrieff Glen Associates +63 +2002 +Class II (Nominees for Terms of Office Expiring in 2011): +Ronny B. Lancaster +Senior Vice President for Federal Government +Relations of Assurant, Inc. +56 +2003 +Roger L. Pringle +President of The Pringle Company +67 +2000 +Ronald H. Spair +Chief Financial Officer and Chief Operating +Officer of the Company +52 +2006 +Class III (Directors Whose Terms of Office Expire in 2009): +Michael Celano +Managing Director of Aon Risk Services +49 +2006 +Douglas A. Michels +President and Chief Executive Officer of the +Company +51 +2004 +Charles W. Patrick +Principal, Patrick Consulting +53 +2006 +Jack Goldstein, Ph.D. became a member of the Board in May 2006. Since 2002, Dr. Goldstein +worked for Chiron Corporation, one of the foremost global biopharmaceutical companies, first as President of the Chiron Blood Testing Division until November 2004 and subsequently as President and Chief Operating Officer of the company until its +merger with Novartis A.G. in April 2006. From 2000 to 2002, Dr. Goldstein was General Partner at Windamere Venture Partners, L.L.C., a venture fund making investments in early stage biotechnology, pharmaceutical, medical device and diagnostic +companies. From 1997 to 2001, Dr. Goldstein was President and CEO of Applied Imaging Corporation, a leading supplier of instrument systems for prenatal and cancer genetics. From 1999 until 2002, Dr. Goldstein also served as Chairman of the +Board of Applied Imaging. From 1986 to 1997, Dr. Goldstein worked for Johnson & Johnson in various executive management positions, including President of Ortho Diagnostic Systems and Executive Vice President of Professional Diagnostics +at Johnson & Johnson World Headquarters. Dr. Goldstein holds a B.A. degree in Biology from Rider University, and an M.S. in Immunology and a Ph.D. in Microbiology from St. John’s University. In addition, Dr. Goldstein serves +on the Boards of Illumina Inc. and Immucor, Inc. +Douglas G. Watson became a member of the Board in May 2002 and became Chairman of the +Board in March 2003. Since July 1999, Mr. Watson has been Chief Executive Officer of Pittencrieff Glen Associates, a leadership and management consulting firm, which he founded. Prior to that, Mr. Watson served as President and Chief +Executive Officer of Novartis Corporation, the U.S. subsidiary of Novartis A.G., President and Chief Executive Officer of Ciba-Geigy Corporation, President of the Ciba Pharmaceuticals Division and Senior Vice President of Planning and Business +Development of Ciba’s U.S. Pharmaceuticals Division. Mr. Watson holds an M.A. degree in pure mathematics from Churchill College, Cambridge University, and is a member of the Chartered Institute of Management Accountants. Mr. Watson +also serves on the Boards of BioMimetic Therapeutics, Inc., Dendreon Corporation, Genta Inc. and Javelin Pharmaceuticals Inc. +Ronny B. +Lancaster became a member of the Board in May 2003. Mr. Lancaster has served as Senior Vice President, Federal Government Relations of Assurant, Inc., a provider of specialty insurance and insurance-related products and services since September +2005. From 2003 until September 2005, Mr. Lancaster served in various capacities at the Morehouse School of Medicine in Atlanta, including as Chief Operating Officer. Prior to +11 +that, Mr. Lancaster was Executive Assistant to the Secretary and Principal Deputy Assistant Secretary for Planning and Evaluation at the U.S. Department +of Health and Human Services (“HHS”). Prior to serving at HHS, Mr. Lancaster was General Counsel of Hamilton Enterprises, Inc., Senior Washington Representative for Blue Cross/Blue Shield Association, and Chief of the Division of +Fee-For-Service Plans at the U.S. Office of Personnel Management. Mr. Lancaster received his B.A. in Economics from the Catholic University of America, his M.B.A. from the Wharton School of the University of Pennsylvania, and his J.D. degree +from The Georgetown University Law Center. He is also admitted to the Bars of Pennsylvania and the District of Columbia. Mr. Lancaster currently serves on the Board of Immucor, Inc. and on the Medical Advisory Board of Henry Schein, Inc. +Roger L. Pringle has served on the Board since September 2000, when the Company was formed by the merger of Epitope, Inc. +(“Epitope”) and STC Technologies, Inc. Prior to that, Mr. Pringle served as Chairman of the Board and a member of the Board of Directors of Epitope, and was a director of Agritope, Inc., a plant genetics subsidiary of Epitope, since +1990. Mr. Pringle is the President of The Pringle Company, a strategy and executive consulting firm in Portland, Oregon. Mr. Pringle currently serves on the boards of directors of North Pacific Group and Prolifiq Software, Inc. +Mr. Pringle received a B.S. in Business from Oregon State University and an MBA from the University of Oregon. +For biographical +information on Mr. Spair, see the Section entitled, “Executive Officers,” in this Proxy Statement. +Michael Celano became a +member of the Board in October 2006. Mr. Celano has served as Managing Director of Aon Risk Services since August 2007. From September 2004 to May 2007, Mr. Celano served as Vice President, Finance and Chief Financial Officer for BioRexis +Pharmaceutical Corporation, a biopharmaceutical company. Before joining BioRexis, Mr. Celano served as a partner with KPMG LLP, in charge of its Mid-Atlantic Life Sciences Practice, from June 2002 to August 2004, and was co-leader of its +National Life Science Practice. Prior to joining KPMG, Mr. Celano was co-leader of the Life Science Practice for Arthur Andersen. Mr. Celano is a Certified Public Accountant and holds a B.S. degree in Accounting from St. Joseph’s +University. +For biographical information on Mr. Michels, see the Section entitled, “Executive Officers,” in this Proxy +Statement. +Charles W. Patrick became a member of the Board in January 2006. Since 2000, Mr. Patrick has served as Principal of +Patrick Consulting, a management consulting firm that helps diagnostic and technology companies develop sales, marketing and distribution strategies. Mr. Patrick is also the President and Co-owner of ADS Golf, Inc. During the period September +2000 through April 2001, he served as the President and Chief Executive Officer of Call Nexus, Inc., a provider of virtual call center services. From 1990 to 2000, Mr. Patrick served as Vice President of Sales and Marketing for Biosite +Diagnostics, a medical diagnostics company, and had primary responsibility for developing and achieving Biosite’s strategic sales and marketing objectives. Prior to his time at Biosite, Mr. Patrick served as World Wide Group Marketing +Manager and held several other sales and marketing positions for the Diagnostics Division of Abbott Laboratories. Mr. Patrick received a B.A. in Communications/Journalism from the University of Central Florida. Mr. Patrick also serves on +the Board of diaDexus, Inc. +Executive Compensation +Compensation Discussion and Analysis +This Compensation Discussion and Analysis +(“CD&A”) provides an overview of the Company’s executive compensation programs together with a description of the material factors underlying the decisions which resulted in compensation for 2007 provided to the Company’s +Chief Executive Officer and the other named executive officers (collectively, the “NEOs”), as presented in tables which follow this CD&A. +12 +Compensation Philosophy . The objectives of our compensation programs +for executive officers are to: +· +reward executive officers for the financial performance of the Company and achievement by such officers of financial and other individual performance objectives; +· +align the interests of the executive officers with the interests of our stockholders; +· +provide long-term incentives for the executive officers; and +· +set compensation levels sufficiently competitive to attract and retain high quality executives and to motivate them to contribute to our success. +Compensation for executive officers is established by the +Compensation Committee of our Board (the “Committee”) in accordance with the above objectives. In setting executive compensation, the Committee considers the Company’s and each executive’s performance against previously +established objectives, internal pay equity, the Company’s industry position, general industry data and recommendations of third party compensation consultants engaged by the Committee. The Committee seeks to set aggregate compensation levels +for executives near the median or fiftieth (50 th ) percentile of amounts paid by comparable medical diagnostics and healthcare companies, for +performance consistent with the Company’s target financial and business plans for the applicable year. The fiftieth (50 th ) percentile is +not an absolute target, and the aggregate compensation and the value of specific compensation components for individual executives may fall below or exceed that target depending on individual performance and contribution by the executive. Executives +have an opportunity to achieve aggregate compensation up to or in excess of the seventy-fifth (75 th ) percentile for performance which exceeds +the Company’s financial and business objectives. Aggregate compensation includes the total value of the base salary, incentive cash bonus and equity awards provided to each executive officer. +In connection with the determination of annual compensation, the Committee reviews tally sheets for each executive. Tally sheets set forth the dollar +amounts of all components of each executive’s current compensation, including salary, incentive cash bonus, equity awards, potential change of control payments and other benefits deemed relevant by the Committee. These tally sheets allow the +Committee and management to review how a change in the amount of each compensation component affects each executive’s total compensation and to review each executive’s compensation in the aggregate. Based upon the review of tally sheets, +the Committee establishes aggregate compensation for our executives which it believes to be reasonable. +Compensation +Components . Our executive compensation program consists of the components set forth below. +1. Base +Salary . The Committee believes that competitive salaries must be paid in order to attract, retain and motivate high quality executives. Each year, the Committee evaluates and determines the annual base salaries for all +executives. Annual salary adjustments for executive officers are initially proposed by the Chief Executive Officer to the Committee. In determining salaries, the Committee considers performance evaluations of the Chief Executive Officer prepared by +each non-employee Director on the Board and performance evaluations prepared by the Chief Executive Officer for all other executives. The Committee also considers salary levels paid at other medical diagnostics and healthcare companies and any +recommendations that may be made by any compensation consultant engaged to assist the Committee. The Committee has retained independent compensation consultants to review our executive compensation practices and to assist the Committee in +establishing competitive compensation levels for our executives. +On an as-needed basis, the Committee may approve salary adjustments for +executives to reflect promotions or changes in responsibilities, or to bring the salary of a particular executive more in line with the salaries offered at other medical diagnostics and healthcare companies. When such salary adjustments are made +with respect to an executive, the Committee evaluates the proposed new salary in light of the total cash and non-cash compensation paid to the executive and whether reasonable pay equity will be maintained in light of that executive’s position, +responsibilities, experience and contributions. +13 +2. Incentive Cash Bonuses . Annual cash bonuses are included as part of +executive compensation because the Committee believes that a significant portion of each executive’s compensation should be structured as a variable incentive tied to both the performance of the Company as well as the individual contribution of +the executive. On an annual basis, the Committee has adopted, with approval of the Board, a Management Incentive Plan (the “Incentive Plan”), which is intended to be the principal vehicle for incentive cash bonus awards. +Incentive cash bonuses are generally paid out of a cash pool funded under the Incentive Plan based on the Company’s achievement of certain specific +financial and strategic objectives determined by the Committee and approved by the Board. The objectives are each weighted to determine their respective contributions to the pool amount. Each objective can be adjusted by the Committee or Board in an +equitable manner to reflect unexpected changes in the Company’s business or assumptions underlying the original objective. +With +respect to each financial objective, a Threshold, Target and Maximum performance level is established. The Target levels generally reflect the Company’s financial plan for the year. The Threshold levels represent a minimum level of performance +for which the Committee is willing to approve incentive cash bonuses. The Maximum levels reflect an outstanding level of performance for which the Committee is willing to reward executives with bonuses substantially above the Target level payout. +With respect to the strategic objectives, the Threshold, Target and Maximum performance levels represent achievement of a specified number of the strategic objectives. +If the Company meets all the Target levels, the pool is funded at 100% of the aggregate target bonuses for all participants in the Incentive Plan, as described below. The pool is funded at 50% of the aggregate target +bonuses if all of the Threshold levels are met and at 150% if all of the Maximum levels are met. Pro-rata adjustments to the amount of funding for each objective are made where a particular performance level is above or below the Target. To the +extent a performance level is below the Threshold objective, there would be no funding for that particular item. +The amount of the cash +bonus pool is determined by the Committee and recommended for Board approval. The Board may approve a pool greater than that recommended by the Committee if it determines that the Company has achieved a breakthrough performance by substantially +exceeding the Maximum performance level. The Committee and Board also retain discretion to increase or decrease the size of the pool in order to reflect specific performance or market conditions affecting the Company. +Individual payments from the bonus pool to executives depend on the size of the bonus pool and the executive’s achievement of individual performance +objectives. Performance objectives for executive officers are approved annually by the Committee and relate specifically to both the Company’s overall financial performance and the functional areas for which each executive officer is +responsible. Bonuses are paid, based on an assessment of each officer’s performance for the applicable year, using targets expressed as a percentage of the executive officer’s base salary. +Individual performance criteria for executives are generally derived from our financial and strategic objectives which include financial performance, +strategic planning, research and development, business development, regulatory affairs and quality control, manufacturing, engineering, information systems, sales and marketing, human resources, investor relations matters, legal matters and/or other +objectives approved by the Board. These objectives are established on an annual basis. Awards reflect a weighted average measurement of each executive’s achievement of his or her individual performance objectives. The weighting given to a +particular objective reflects the overall importance of the objective in light of the Company’s strategic goals and the executive’s functional responsibilities. +If an executive officer is rated as a “Meets Expectations,” such officer has generally met his or her individual performance objectives for the applicable year and would be eligible to receive up to 100% of +his or her target bonus, depending on the size of the bonus pool. If an executive officer is rated as “Exceeds +14 +Expectations,” such officer has exceeded his or her individual performance objectives and would be eligible to receive up to 125% of his or her target +bonus. If an executive officer is rated as “Outstanding,” such officer has substantially exceeded his or her individual performance objectives and would be eligible to receive up to 150% of his or her target bonus. Where an executive +officer is rated below “Meets Expectations,” no bonus normally would be payable. The Committee and Board retain the discretion to increase or decrease the bonus paid to an individual executive to reflect the specific contributions of that +executive, the Company’s overall performance and market conditions. +Executive officers must be employed at the end of the applicable +calendar year and at the time that the bonus award is paid in order to participate in the Incentive Plan. The Committee recommends for Board approval any bonus award for the Chief Executive Officer based on an assessment of his performance against +his individual performance objectives. The Chief Executive Officer recommends individual awards for the other executive officers for approval by the Committee based on an assessment of each officer’s performance against his or her applicable +performance objectives. The Committee and Board have the right, in their sole discretion, to reject any or all of the recommended bonus awards, even if the bonus pool has been funded and any or all applicable performance criteria have been +satisfied, based on the business conditions of the Company or other factors deemed relevant by the Committee or Board. +3. Equity +Awards . The Committee believes that the best way to promote the long-term growth of the Company is by compensating executives with equity in the Company in order to more closely align their interests with those of our +stockholders. As a result, the Committee administers the OraSure Technologies, Inc. 2000 Stock Award Plan (the “Stock Plan”), pursuant to which grants of stock options and restricted shares are made to executive officers on an annual +basis. +The Committee, with the approval of the Board, adopts from time to time Stock Award Guidelines for the Company’s management +(the “Stock Award Guidelines”). The purpose of the Stock Award Guidelines is to provide a framework for determining annual equity awards for executives that reflect the executive’s duties and performance evaluation against individual +objectives for the applicable year and to align the value of the awards for executives with long-term incentive awards for comparable positions at other medical diagnostics and healthcare companies. An executive must be rated as “Meets +Expectations” or better in order to receive an equity award. +The Stock Award Guidelines provide for the grant of a mix of restricted +stock and stock options to the Company’s senior management, based on an individual’s performance evaluation for a particular year. The Committee decided that awards should consist of a mix of stock options and restricted stock rather than +solely of stock options because such a mix would have greater value as a long-term incentive and retention mechanism. +Annual stock option +awards have an exercise price equal to the fair market value of the Company’s Common Stock on the date of grant, which is calculated as the mean between the high and low sales price of the Common Stock as reported by NASDAQ for that date. Stock +options generally vest over four years, with the first 25% vesting after one year and the remaining 75% vesting on a monthly basis over the next three years following the first anniversary of the grant date. Grants of restricted stock generally vest +over a three-year period, with one-third vesting on the first anniversary of the grant date, a second third vesting on the second anniversary and the final third vesting on the third anniversary. These vesting restrictions serve to promote the +Company’s long-term growth by restricting executives’ ability to realize short-term gains from their awards. The Committee believes the terms of its equity awards to executives are competitive with the terms of equity awards offered at +other medical diagnostics and healthcare companies. +Equity awards are generally made by the Committee each year as part of the normal +annual compensation cycle. The awards for a particular year generally occur in late January or early February of the following year after the Company’s full year financial results are known and performance evaluations for the executive officers +have been prepared. Equity awards approved by the Committee for the Chief Executive Officer are then reviewed +15 +and approved by the Board. In addition to the annual equity awards, the Committee may approve stock option and restricted stock awards for newly hired +officers or in recognition of an executive’s promotion or expansion of responsibilities. These latter grants may have vesting or other terms that differ from the terms generally approved for annual equity awards. Notwithstanding the Stock Award +Guidelines, all equity awards are made at the discretion of the Committee or Board. +4. Retirement +Programs . We do not maintain any retirement programs other than a 401(k) profit sharing plan (the “401(k) Plan”). All of our employees, including executive officers, are eligible to participate in the 401(k) +Plan. We make matching contributions for participants on a dollar-for-dollar basis up to $4,000 per year. Payments of benefits accrued for a 401(k) Plan participant will be made upon retirement or upon termination of employment prior to retirement, +provided certain vesting conditions have been met by the participant prior to termination. +5. Perquisites and Other +Compensation . As a general matter, the Committee does not believe that executive officers should be treated differently than other employees, except that such officers should receive base salaries and have competitive +bonus and equity award opportunities commensurate with their higher level of responsibility, and that certain officers should receive employment agreements as described below. Our healthcare, disability, and other insurance programs and benefits are +the same for all eligible employees, including executive officers. Executive officers do not receive perquisites. There are no outstanding loans of any kind to any executive officer. +6. Potential Payments Upon Termination or Change in Control Pursuant to Employment Agreements . The Company has entered into +employment agreements with each of our NEOs. In addition to the compensation elements discussed above, these agreements provide for post-employment severance payments and benefits in the event of termination of employment by the Company without +“cause” or by the executive for “good reason” and provide enhanced severance payments upon such terminations in connection with a “change in control” of the Company. The terms of these agreements are discussed in more +detail under the Section entitled, “Employment Agreements and Potential Payments Upon Termination or Change in Control,” in this Proxy Statement. The Committee believes that these agreements are generally consistent with industry practice +at other medical diagnostics and healthcare companies, provide an incentive to the applicable executive to remain with the Company, and serve to align the interests of stockholders and the executive in the event of a change in control of the +Company. +Accounting and Tax Treatment of Compensation . In approving the amount and form of +compensation for the NEOs, the Committee considers all elements of the cost to the Company of providing such compensation, including the potential impact of Section 162(m) of the Internal Revenue Code. Section 162(m) disallows a tax +deduction for any publicly-held corporation for individual compensation exceeding $1 million in any taxable year for the Chief Executive Officer and for the three most highly compensated officers unless compensation is performance-based. The +Committee intends to maintain flexibility to pay compensation that is not entirely deductible when the best interests of the Company would make that advisable. +Non-Employee Director Compensation . At the Board’s request and direction, the Committee reviews and recommends for Board approval an appropriate amount of compensation for +non-employee members of the Board. These non-employee Directors receive annual fees and stock option grants in consideration for their service on the Board. For a further discussion of non-employee Director compensation, see the Section entitled, +“Compensation of Directors,” in this Proxy Statement. +2007 Annual Base Salaries . Annual +base salaries for 2007 for our NEOs were established by the Committee based on the Company’s financial performance during 2006, an evaluation of the individual contributions of each officer compared to pre-established performance objectives for +2006, and a review of competitive compensation data and recommendations provided by Radford Surveys & Consulting (“Radford”) and Mercer Human Resources Consulting (“Mercer”). Radford and Mercer are independent +compensation consultants engaged by or for the Committee. Radford is a business unit of Aon, and its affiliates provide +16 +insurance brokerage services for the Company. One of our Directors is also employed by an affiliate of Radford. Achievement of the Company’s Target +financial objectives for 2006 were weighted at 40% for all NEOs, except Dr. Lee where these objectives were weighted at 30%. +Radford +collected and analyzed compensation data from a peer group consisting of the following 16 medical diagnostics and healthcare companies, which were determined to be comparable to the Company based on total revenues and number of employees: Abaxis, +Inc., Adeza Biomedical Corp., American Bio Medica Corp., Bioveris Corp., Cepheid, Inc., Cholestech Corp., Digene Corp., Immunicon Corp., Iris International, Inc., Ivax Diagnostics, Inc., Meridian Bioscience, Inc., Monogram Biosciences, Neogen Corp., +Quidel Corp., Third Wave Technologies, Inc., and Tripath Imaging, Inc. This peer information was supplemented with Radford Life Sciences Executive Survey data containing compensation information for biotechnology companies having 150 to 500 +employees. +Mercer collected and analyzed compensation data for the following 17 medical diagnostic and healthcare companies similar in +size to the Company as determined by revenues, market capitalization and number of employees: Abaxis, Inc., Adeza Biomedical Corp., Angiodynamics, Inc., Biosite, Inc., Cepheid, Inc., Digene Corp., Gen-Probe, Inc., Immucor, Inc., Isis +Pharmaceuticals, Inc., Lifecell Corp., Meridian Bioscience, Inc., Monogram Biosciences, Inc., Quidel Corp., Savient Pharmaceuticals, Inc., Stratagene Corp., Tripath Imaging, Inc. and Ventana Medical System, Inc. Mercer also analyzed survey data +comparisons in the biotechnology industry similar in size to us, published by Presidio, Top Five Data Services and Mercer. +Based on its discussions with both Radford and Mercer, the Committee targeted an aggregate annual +base salary increase budget of approximately 4.0% with an additional 1.0% for additional market-based adjustments. In order to reflect the Company’s performance and each executive’s contributions, and to equitably move salaries toward the +fiftieth (50 th ) percentile or maintain them at approximately that level, the Committee approved the following guidelines for determining annual +base salary increases: +Performance Rating +Low +Mid +High +Meets Expectations +3.00 +% +3.50 +% +4.00 +% +Exceeds Expectations +4.00 +% +4.50 +% +5.00 +% +Outstanding +5.00 +% +6.00 +% +7.00 +% +Executives with base salaries at or above +the seventy-fifth (75 th ) percentile of the market data for their position received a salary increase under the “Low” column based on +their individual performance during 2006. Officers with base salaries at or near the fiftieth (50 th ) percentile level were granted increases +under the “Mid” column, and officers below or near the twenty-fifth (25 th ) percentile received salary increases under the +“High” column, in each case based on their individual performance evaluations for 2006. Any officers rated below “Meets Expectations” did not receive a salary increase. +In establishing the 2007 annual base salaries for the NEOs, the Committee balanced the +Company’s lower than expected financial performance for 2006 against the many other positive accomplishments achieved by the NEOs. During 2006, the Company reported revenues of $68.2 million compared to a target of $89 million, operating income +of $5.5 million compared to a target of $5.3 million, and cash flow from operations of $16.9 million compared to a target of $10.5 million. In evaluating our 2006 financial performance, the Committee noted that the $5.5 million in operating income +and the $16.9 million in record cash flow from operations were achieved despite lower revenues for the year. The Committee further noted that the lower 2006 revenues were attributable in large part to a 50% reduction in purchases of our domestic +over-the-counter (“OTC”) product by our distributor, Prestige Brands Holdings, Inc., and lower government bulk purchases of our OraQuick ® HIV test, both of which were not expected. The Committee’s decision was influenced by the following positive accomplishments during 2006: +· +The strong leadership and strategic focus by management despite the financial challenges faced in 2006; +17 +· +Increased sales of our OraQuick ® test of 19% and increased +sales of Intercept ® of 15%, as compared to 2005; +· +Significant progress towards seeking FDA approval of our OraQuick ® +rapid HIV test for use in the OTC market, including successful completion of “stress” or “flex” studies showing the robustness of the test in home use, the design and +commencement of initial label comprehension studies, development of packaging and labeling suitable for the OTC market, and completion of initial work on the design of an information and referral system; +· +Successful implementation of a new product development process which resulted in significant progress towards extending +the shelf life of our OraQuick ADVANCE ® HIV-1/2 test and the development of an OraQuick ® Hepatitis C (“HCV”) +test; +· +Expansion of our international business, including the addition of new distributor relationships, significant progress +towards obtaining a CE mark for our OraQuick ADVANCE ® HIV-1/2 test, and the filing for registrations of this product in several foreign countries; +· +Negotiation and execution of an agreement with Schering-Plough Corporation for collaboration on the development of an +OraQuick ® HCV test and promotion of that test in the U.S. physicians’ office market; +· +Execution of a letter of intent with Roche Diagnostics for the negotiation of a joint development and commercialization +agreement for high throughput fully-automated oral fluid assays for use with our Intercept ® test; +· +Successful installation and implementation of a company-wide Enterprise Resource Planning System (“ERP”); and +· +Strengthening our management team, with the successful recruitment of a new Senior Vice President, Business Development, Vice President, Sales, Vice President, +International Sales and Senior Vice President, Human Resources. +In light of the foregoing, the Committee concluded that Mr. Michels earned a performance rating for 2006 of “Meets Expectations.” As a result, and since Mr. Michels’ compensation was at about the fiftieth +(50 th ) percentile, the Committee increased Mr. Michels’ annual base salary from $433,600 to $448,800 for 2007, which represented an +approximate 3.50% annual increase. +Mr. Spair’s annual base salary was +increased from $350,000 to $364,000 for 2007, representing an approximate 4.00% increase. Mr. Spair’s performance was rated “Meets Expectations” by the Committee, and this increase reflected the fact that his salary was below the +fiftieth (50 th ) percentile. In evaluating Mr. Spair’s performance, the Committee also considered his increased responsibilities as +Chief Operating Officer, his management of the Company’s financial planning, reporting and accounting functions, his contributions in managing investor relations, his leadership in reviewing potential strategic transactions, his assistance in +the implementation of the ERP and his leadership in completing the purchases of the Company’s primary operating facilities in Bethlehem, PA. +Dr. Lee’s annual base salary was increased from $300,000 to $313,500 for 2007, +representing an increase of 4.50%. Dr. Lee was rated as “Exceeds Expectations” and his increase reflected the fact that his salary was near the fiftieth (50 th ) percentile. In evaluating Dr. Lee’s performance, the Committee also considered his strong contributions toward extending the shelf life of our OraQuick ADVANCE ® HIV test, his assistance in obtaining a CE mark for the OraQuick ADVANCE ® HIV test, his assistance in the clinical development of an OraQuick ® HIV test for the OTC market, his leadership in developing our OraQuick ® HCV test, his contribution in collaborating with Roche +Diagnostics in the development of fully automated, high-throughput oral fluid drug assays, and his implementation of improvements to our research and development department and product development process. +18 +Mr. Formica’s annual base salary was +increased from $260,300 to $268,100 for 2007, representing a 3.00% increase. Mr. Formica was rated as “Meets Expectations” and his increase reflected the fact that his salary was near the seventy-fifth (75 th ) percentile. In evaluating Mr. Formica’s performance, the Committee also considered his contributions in reducing the costs to produce our +products, his efforts to automate and improve our manufacturing processes, and his support of a number of key regulatory and quality initiatives. +Finally, Mr. Zack’s annual base salary was increased from $245,100 to $252,500 for 2007. +This represented a 3.00% increase. Mr. Zack was rated as “Meets Expectations” for 2006. Although his salary was below the fiftieth (50 th ) percentile, Mr. Zack received a 3.00% increase rather than the 3.50% indicated in the Committee’s guidelines, as a result of the Company’s lower than expected revenues during 2006. In evaluating Mr. Zack’s +performance, the Committee also considered his efforts to increase our international sales. +2007 Incentive Cash +Bonuses . In February 2008, the Committee approved incentive cash bonuses to the executive officers under the 2007 Management Incentive Plan (the “2007 Incentive Plan”). Under the 2007 Incentive Plan, the +Committee had previously established Threshold, Target and Maximum performance levels for financial and strategic objectives to be used to fund the bonus pool. +The financial objectives consisted of performance levels for total revenues and cash flow from +operations for 2007. The strategic objectives consisted of the following: (1) complete clinical trials and submit a pre-market application with the FDA for our OraQuick ® HCV test +during 2007; (2) hire an executive to lead our efforts to commercialize an OraQuick ® rapid HIV test for the United States OTC market and develop a product launch plan; (3) submit +a 510(k) application with the FDA for a new claim for our OTC cryosurgical product; (4) obtain CE Mark approval for our OraQuick ADVANCE ® HIV test and initiate sales of that +product in Europe; (5) generate revenues for our U.S. OTC cryosurgical wart product above budget and resolve dispute with Prestige Brands and clarify our strategy; and (6) bring at least one strategic transaction to the Board for +consideration. The revenue objectives, the cash flow from operations objectives and the strategic objectives as a group, were each weighted at 33 1 / 3 % in determining the level of bonus pool funding. The following sets forth the potential bonus pool funding at each performance level: +Threshold +Target +Maximum +Revenues +$ +70.0 million +$ +79.8 million +$ +86.5 million +Cash Flow from Operations +$ +1.9 million +$ +8.4 million +$ +12.4 million +Strategic Objectives (No. Achieved) +2 +4 +6 +Pool Funding +$ +825,000 +$ +1.65 million +$ +2.475 million +If the Company were to achieve the Target performance levels for all objectives, then the bonus +pool would be funded at approximately $1.65 million, which equals 100% of the aggregate target bonus amounts for the Company’s senior management. If the Company were to achieve only the Threshold levels, then the bonus pool would be funded at +approximately $825,000 or 50% of the aggregate target bonus, and if the Company were to achieve the Maximum objectives, then the bonus pool would be funded at approximately $2.475 million or 150% of the aggregate target bonuses. +During 2007, the Company achieved revenues of $82.7 million. However, this amount was reduced for purposes of bonus pool funding by approximately $4.0 +million to $78.7 million to eliminate incremental sales of our OTC cryosurgical product to Prestige Brands. These incremental sales were eliminated because they had not been included in the Company’s financial projections. After adjustment, +this result was slightly below the revenue Target of $79.8 million and resulted in a prorated funding for this objective of $517,000. +The +Company also recorded $11.6 million in cash flow from operations for 2007. This also was reduced to $9.2 million to eliminate $2.4 million in cash flow from the incremental sales to Prestige Brands. After adjustment, this exceeded the cash flow +Target of $8.4 million and resulted in a prorated funding for this objective of $569,000. +19 +With respect to the strategic objectives, the Committee determined that management achieved three of the +initiatives, should receive 50% credit for two initiatives and did not meet one initiative. As a result, the Committee concluded that a total of four initiatives were achieved. This met the Target objective of achieving 4 of the strategic +initiatives and resulted in funding for this objective of $550,000. +Based on the +foregoing, the initial bonus pool funding for 2007 totalled $1.636 million. The Committee then elected to exercise its discretion to increase the bonus pool by $214,000 to an aggregate of $1.85 million in recognition of (i) the significant +progress made in the clinical development of an OraQuick ® HIV test for home use and an OraQuick ® HCV test for professional use, +(ii) the generation of $4.0 million in incremental, non-budgeted sales despite the pending dispute with Prestige Brands, (iii) management’s efforts to expand sales internationally and (iv) the successful resolution and settlement +of the patent infringement litigation against Schering-Plough. The final bonus pool funding of $1.85 million was also approved by the full Board. +The specific target percentages for individual bonus payments under the 2007 Incentive Plan are shown below and were set by the Committee (with Board approval) at levels that the Committee believed were competitive with incentive cash bonus +opportunities available at comparable medical diagnostics and healthcare companies for each executive position. +Title +Target Payouts +Chief Executive Officer +50 +% +Chief Operating Officer and Chief Financial Officer +50 +% +Executive Vice President +40 +% +Senior Vice President +30 +% +In February 2008, the Committee approved the distribution of individual bonus awards to executive +officers from the bonus pool for 2007, based on the target bonus amounts described above and an assessment of each officer’s performance during 2007 against pre-established performance objectives. The Company’s Target financial objectives +were also included as part of each executive officer’s individual performance objectives for 2007 and were weighted at 50% for Mr. Michels and Mr. Spair, 40% for Mr. Formica and Mr. Zack and 30% for Dr. Lee. +In evaluating Mr. Michels, the Committee rated his performance as “Exceeds Expectations” for 2007. In reaching this determination, the +Committee considered the following accomplishments during the year: +· +The 21% increase in total revenues compared to 2006, including revenue increases from infectious disease testing and cryosurgical systems of 23% and 36%, +respectively; +· +Successful development of an OraQuick ® rapid HCV test with +performance equal to or better than HCV immunoassays currently on the market and significant work preparing for clinical trials of this product; +· +Substantial progress in completing the packaging and a customer reference and referral system for an OraQuick ® HIV test for home use, completion of operational and label comprehension studies, and preparation for the start of both observed and unobserved user studies for this product; +· +Substantial progress towards extending the shelf life of our OraQuick ADVANCE ® HIV Test; +· +Completion of clinical studies required for a 510(k) submission for a line extension of our OTC cryosurgical product; +· +Generation of approximately $4 million in incremental, non-budgeted revenues for our domestic OTC cryosurgical wart removal product and resolution of our dispute +with Prestige Brands; +· +Successful resolution and settlement of our pending patent infringement litigation against Schering-Plough; +20 +· +Receipt of a CE mark for our OraQuick ADVANCE ® HIV Test and +initiation of sales of this product in Europe; +· +Substantial progress on the collaborative development of fully-automated homogeneous oral fluid drugs of abuse assays +with Roche Diagnostics, which will be used with our Intercept ® oral fluid collection device; +· +Substantial growth in our international businesses, including $4.4 million in revenues generated from sales of our OTC cryosurgical wart removal product in Mexico; +and +· +Strengthening of our management team through recruitment of a Vice President, Consumer Marketing, and Vice President, Government and External Affairs, as well as +several other mid-level managers. +Based on the foregoing, the Committee awarded Mr. Michels a $280,000 bonus for +2007, which represented 62.4% of his annual base salary compared to his target bonus of 50%. Mr. Michels’ 2007 incentive cash bonus was also approved by the Board. +The Committee rated Mr. Spair’s performance for 2007 as “Exceeds Expectations” and awarded him a bonus of $227,000, which represented +62.4% of his base salary compared to his target bonus of 50%. In reaching this determination, the Committee recognized Mr. Spair’s expanded responsibilities for the overall supervision of Sales and Marketing and Operations, and his +continued work in improving investor relations, management of the financial planning, reporting and accounting functions, assistance in evaluating potential strategic transactions, leadership in the implementation of the Company’s ERP and +supervision of Sarbanes-Oxley compliance. +The Committee rated Dr. Lee’s +performance for 2007 as “Exceeds Expectations” and awarded him a $156,000 bonus, which represented 49.8% of his base salary compared to his target of 40%. In reaching this determination, the Committee considered his efforts to extend the +shelf life of our OraQuick ADVANCE ® HIV-1/2 test, his assistance in obtaining a CE mark for OraQuick ADVANCE ® , his +support of our efforts to obtain FDA approval of our OraQuick ® HIV test for home use, his leadership in the development of a new OraQuick ® HCV test and fully-automated homogeneous high throughput oral fluid drugs of abuse assays, and his reorganization and restructuring of our research and development department and product development process. +The Committee rated Mr. Formica’s performance for 2007 as “Meets +Expectations” and awarded him a bonus of $107,000, which represented 39.9% of his base salary and was equal to his target. In reaching this determination, the Committee considered Mr. Formica’s efforts to reduce the cost of producing +our products, to automate manufacturing of our OraQuick ADVANCE ® HIV-1/2 test and oral specimen collection devices, to improve our manufacturing processes and to complete various +other operational initiatives. +Finally, the Committee rated Mr. Zack’s +performance for 2007 as “Meets Expectations” and awarded him a bonus of $100,500, which represented 39.8% of his base salary and was equal to his target. In reaching this determination, the Committee considered his efforts to expand the +Company’s domestic sales, especially of OraQuick ® in the public health and hospital markets, his progress in growing the Company’s international sales, his successful recruitment +of new sales and marketing executives and his leadership of various other sales and marketing initiatives. +2007 Equity +Awards . The amounts of potential equity awards to be granted in 2007 (expressed in number of shares) under the Stock Award Guidelines adopted by the Committee and Board for performance during 2006, are summarized +below: +Performance Evaluation +Meets Expectations +Exceeds Expectations +Outstanding +Position +Restricted +Stock +Stock +Option +Restricted +Stock +Stock +Option +Restricted +Stock +Stock +Option +CEO/COO/CFO +52,500 Shs +45,000 Shs +65,625 Shs +56,250 Shs +78,750 Shs +67,500 Shs +EVP +21,000 Shs +18,000 Shs +26,250 Shs +22,500 Shs +31,500 Shs +27,000 Shs +SVP +14,000 Shs +12,000 Shs +17,500 Shs +15,000 Shs +21,000 Shs +18,000 Shs +21 +In February 2007, utilizing the Stock Award Guideline described above, the Committee approved stock +option and restricted stock awards for the executive officers, based on the performance evaluations of such officers for 2006 (discussed above under “2007 Annual Base Salaries”), as set forth below: +Executive Officer +Performance Evaluation +Restricted Shares +Stock Options +Douglas A. Michels +Meets Expectations +52,500 +45,000 +Ronald H. Spair +Meets Expectations +52,500 +45,000 +Stephen R. Lee, Ph.D. +Exceeds Expectations +26,250 +22,500 +P. Michael Formica +Meets Expectations +21,000 +18,000 +Joseph E. Zack +Meets Expectations +21,000 +18,000 +Other Elements of Compensation . The Committee reviewed each +other element of compensation set forth in the Summary Compensation Table set forth below, and found them to be consistent with the Company’s compensation philosophy as described above. +Summary Compensation Table +The following +table summarizes the compensation of our Chief Executive Officer and the other NEOs, for the years ended December 31, 2007 and 2006: +Name and +Principal Position +Year +Salary +($) +Bonus +($) +Stock +Awards 1 +($) +Option +Awards 2 +($) +Non-Equity +Incentive Plan +Compensation 3 +($) +Change in +Pension Value +and +Nonqualified +Deferred +Compensation +Earnings +($) +All other +Compen- +sation 4 +($) +Total ($) +Douglas A. Michels +President and Chief Executive Officer +2007 +2006 +$ +$ +448,508 +433,146 +— +— +$ +$ +731,911 +584,325 +$ +$ +614,608 +593,963 +$ +$ +280,000 +108,400 +— +— +$ +$ +4,000 +4,000 +$ +$ +2,079,027 +1,723,834 +Ronald H. Spair +Chief Financial Officer and Chief Operating Officer +2007 +2006 +$ +$ +363,731 +320,220 +— +— +$ +$ +428,237 +283,477 +$ +$ +208,806 +277,078 +$ +$ +227,000 +87,500 +— +— +$ +$ +4,000 +4,000 +$ +$ +1,231,774 +972,275 +Stephen R. Lee, Ph.D. +Executive Vice President, Research and Development +2007 +2006 +$ +$ +313,241 +267,849 +— +— +$ +$ +361,892 +209,762 +$ +$ +176,476 +162,363 +$ +$ +156,000 +75,000 +— +— +$ +$ +4,000 +4,000 +$ +$ +1,011,609 +718,974 +P. Michael Formica +Executive Vice President, Operations +2007 +2006 +$ +$ +267,950 +260,096 +— +— +$ +$ +185,730 +207,940 +$ +$ +177,651 +251,326 +$ +$ +107,000 +52,100 +— +— +$ +$ +4,000 +4,000 +$ +$ +742,331 +775,462 +Joseph E. Zack +Executive Vice President, Marketing and Sales +2007 +2006 +$ +$ +252,358 +244,805 +— +— +$ +$ +185,730 +163,833 +$ +$ +147,656 +214,425 +$ +$ +100,500 +49,000 +— +— +$ +$ +4,000 +4,000 +$ +$ +690,244 +676,063 +(1) +The values set forth in this column reflect the compensation expense recognized for financial statement reporting purposes for the applicable year, in accordance with Financial +Accounting Standards Board Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment (“SFAS 123R”), of restricted stock awards made to the NEOs under the Company’s Stock Award Plan, and may +include amounts from restricted stock granted in and prior to such year. The market value of these shares at the date of grant is recognized on a straight-line basis over the vesting period. Additional information regarding restricted stock awards +is included in footnote 10 to the Company’s audited financial statements for the year ended December 31, 2007, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 12, 2008 (the “2007 10-K +Report”). +(2) +The values set forth in this column reflect the compensation expense recognized for financial statement reporting purposes for the applicable year, in accordance with SFAS 123R, of +stock option awards made to the NEOs under the Stock Award Plan, and may include costs for stock options granted in and prior to such year. Assumptions used in the calculation of those amounts are included in footnote 10 to the Company’s +audited financial statements for the year ended December 31, 2007, included in the Company’s 2007 10-K Report. +22 +(3) +The indicated amounts reflect incentive cash bonuses paid to the NEOs pursuant to the 2007 Incentive Plan, based on performance during 2007. For a description of these incentive +cash bonus payments, see the Section entitled, “2007 Incentive Cash Bonuses,” in the CD&A. +(4) +The indicated amounts reflect cash contributed to a 401(k) profit sharing plan as an employer-matching contribution, which is offered to all employees of the Company. +Grants of Plan-Based Awards +The following table summarizes information concerning possible and actual restricted stock and stock option awards for the NEOs during the fiscal year ended December 31, 2007, as well as possible payouts under the 2007 Incentive Plan: +Name +Grant +Date 1 +Estimated Possible Payouts +Under Non-Equity Incentive +Plan +Awards 2 +Estimated Possible Payouts Under +Equity Incentive Plan Awards 3 +All other +Stock +Awards: +Number +Of Shares +Of Stock +Or Units +(#) +All other +Option +Awards: +Number +Of Securities +Underlying +Options +(#) +Exercise +or Base +Price of +Option +Awards 4 +($/Sh) +Grant +Date Fair +Value of +Stock +and +Option +Awards 5 +($) +Threshold +($) +Target +($) +Maximum +($) +Threshold +(# Shs.) +Target +(# Shs.) +Maximum +(# Shs.) +Douglas A. Michels +President and Chief Executive Officer +2/1/07 +2/1/07 +N/A +N/A +$ +— +— +112,200 +— +$ +— +— +224,400 +— +$ +— +— +336,600 +— +— +— +52,500 RS +45,000 SO +— +— +65,625 RS +56,250 SO +— +— +78,750 RS +67,500 SO +52,500 +— +— +— +— +45,000 +— +— +$ +— +8.28 +— +— +$ +$ +434,438 +161,735 +N/A +N/A +Ronald H. Spair +Chief Financial Officer and Chief Operating Officer +2/1/07 +2/1/07 +N/A +N/A +$ +— +— +91,000 +— +$ +— +— +182,000 +— +$ +— +— +273,000 +— +— +— +52,500 RS +45,000 SO +— +— +65,625 RS +56,250 SO +— +— +78,750 RS +67,500 SO +52,500 +— +— +— +— +45,000 +— +— +$ +— +8.28 +— +— +$ +$ +434,438 +161,735 +N/A +N/A +Stephen R. Lee, Ph.D. +Executive Vice President, +Research and Development +2/1/07 +2/1/07 +N/A +N/A +$ +— +— +62,700 +— +$ +— +— +125,400 +— +$ +— +— +188,100 +— +— +— +21,000 RS +18,000 SO +— +— +26,250 RS +22,500 SO +— +— +31,500 RS +27,000 SO +26,250 +— +— +— +— +22,500 +— +— +$ +— +8.28 +— +— +$ +$ +217,219 +80,867 +N/A +N/A +P. Michael Formica +Executive Vice President, +Operations +2/1/07 +2/1/07 +N/A +N/A +$ +— +— +53,620 +— +$ +— +— +107,240 +— +$ +— +— +160,860 +— +— +— +21,000 RS +18,000 SO +— +— +26,250 RS +22,500 SO +— +— +31,500 RS +27,000 SO +21,000 +— +— +— +— +18,000 +— +— +$ +— +8.28 +— +— +$ +$ +173,775 +64,694 +N/A +N/A +Joseph E. Zack +Executive Vice President, +Marketing and Sales +2/1/07 +2/1/07 +N/A +N/A +$ +— +— +50,500 +— +$ +— +— +101,000 +— +$ +— +— +151,500 +— +— +— +21,000 RS +18,000 SO +— +— +26,250 RS +22,500 SO +— +— +31,500 RS +27,000 SO +21,000 +— +— +— +— +18,000 +— +— +$ +— +8.28 +— +— +$ +$ +173,775 +64,694 +N/A +N/A +(1) +Annual equity incentive awards to NEOs, consisting of a combination of restricted stock (“RS”) and stock options (“SO”), are determined for each year pursuant to +the Stock Award Guidelines, based on an evaluation of each officer’s performance during the year against previously established performance objectives. Annual equity awards made during 2007 were approved by the Compensation Committee on +February 1, 2007 for performance during 2006. For a description of these equity awards and their terms, see the Sections entitled, “Compensation Components – Equity Awards” and “2007 Equity Awards,” in the CD&A. +(2) +The indicated amounts represent possible incentive cash bonus payments to the NEOs under the 2007 Incentive Plan for performance during 2007. On February 1, 2008, bonus +payments under the 2007 Incentive Plan were approved by the Compensation Committee for each of the NEOs based on the Company’s achievement of certain financial and strategic objectives for 2007 and an assessment of each officer’s +performance against pre-established performance objectives. A further description of the payments approved under the 2007 Incentive Plan is set forth in the Section entitled, “2007 Incentive Cash Bonuses,” in the CD&A. Actual amounts +paid for 2007 are also disclosed in the Summary Compensation Table. +(3) +The indicated amounts represent the possible number of shares which could have been granted to the NEOs in 2007 in the form of restricted stock and stock options pursuant to the +Stock Award Guidelines, based on each officer’s performance during 2006. Specific awards of restricted stock and stock options were approved by the Compensation Committee for the NEOs pursuant to the applicable Stock Award Guidelines on +February 1, 2007 based on an assessment of each officer’s performance against pre-established performance objectives for 2006. A further description of these equity awards and their terms is set forth in the Sections entitled, +“Compensation Components – Equity Awards” and “2007 Equity Awards,” in the CD&A. Compensation expense associated with RS and SO awards for 2007 and prior years is disclosed in the Summary Compensation Table. +(4) +The exercise price for stock options is the fair market value of the Company’s Common Stock on the date of grant, which is calculated as the mean between the high and low sales +price of the Common Stock as reported by NASDAQ on the date of grant. +(5) +The indicated amounts represent the grant date fair value calculated in accordance with SFAS 123R. +23 +Outstanding Equity Awards at Fiscal Year-End +The following table summarizes information regarding unexercised stock options and unvested restricted stock held by the NEOs at December 31, 2007: +Option Awards 1 +Stock Awards 1 +Name +Number of +Securities +Underlying +Unexercised +Options +(#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options 2 +(#) +Unexercisable +Equity Incentive +Plan Awards +Number of +Securities +Underlying +Unexercised +Unearned +Options +(#) +Option +Exercise +Price +($/Sh.) +Option +Expiration +Date +Number of +Shares or +Units of +Stock +That +Have +Not Vested 2 +(#) +Market +Value of +Shares or +Units of +Stock That +Have +Not +Vested 8 +($) +Equity Incentive +Plan Awards: +Number of +Unearned +Shares, Units or +Other Rights +That Have Not +Vested (#) +Equity Incentive +Plan Awards: +Market or +Payout Value of +Unearned +Shares, Units or +Other Rights +That Have Not +Vested ($) +Douglas A. Michels +President and Chief Executive Officer +350,000 +49,219 +32,343 +— +— +— +— +— +50,000 +18,281 +35,157 +45,000 +— +— +— +— +3(a) +3(b) +3(c) +3(d) +— +— +— +— +— +— +— +— +$ +$ +$ +$ +7.77 +5.60 +9.56 +8.28 +— +— +— +— +6/22/2014 +1/26/2015 +1/23/2016 +2/01/2017 +— +— +— +— +— +— +— +— +168,480 +26,250 +52,500 +52,500 +3(e) +3(f) +3(g) +3(h) +$ +$ +$ +$ +— +— +— +— +1,497,787 +233,363 +466,725 +466,725 +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +Ronald H. Spair +Chief Financial Officer and Chief Operating Officer +150,000 +65,000 +90,000 +97,917 +19,688 +12,937 +— +— +— +— +— +— +— +— +2,083 +7,312 +14,063 +45,000 +— +— +— +— +4(a) +4(b) +4(c) +4(d) +— +— +— +— +— +— +— +— +— +— +— +$ +$ +$ +$ +$ +$ +$ +10.70 +5.87 +6.96 +8.20 +5.60 +9.56 +8.28 +— +— +— +— +11/1/2011 +1/31/2012 +1/31/2013 +1/14/2014 +1/26/2015 +1/23/2016 +2/01/2017 +— +— +— +— +— +— +— +— +— +— +— +10,500 +21,000 +33,333 +52,500 +4(e) +4(f) +4(g) +4(h) +$ +$ +$ +$ +— +— +— +— +— +— +— +93,345 +186,690 +296,330 +466,725 +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +Stephen R. Lee, Ph.D. +Executive Vice President, Research and Development +70,313 +8,625 +— +— +— +— +— +54,687 +9,375 +22,500 +— +— +— +— +5(a) +5(b) +5(c) +— +— +— +— +— +— +— +$ +$ +$ +8.97 +9.56 +8.28 +— +— +— +— +9/23/2015 +1/23/2016 +2/01/2017 +— +— +— +— +— +— +— +13,333 +14,000 +26,666 +26,250 +5(d) +5(e) +5(f) +5(g) +$ +$ +$ +$ +— +— +— +118,530 +124,460 +237,061 +233,363 +— +— +— +— +— +— +— +— +— +— +— +— +— +— +P. Michael Formica +Executive Vice President, Operations +52,960 +33,750 +45,000 +75,000 +97,917 +16,406 +10,781 +— +— +— +— +— +— +— +— +2,083 +6,094 +11,719 +18,000 +— +— +— +6(a) +6(b) +6(c) +6(d) +— +— +— +— +— +— +— +— +— +— +— +$ +$ +$ +$ +$ +$ +$ +$ +10.71 +7.09 +5.87 +6.96 +8.20 +5.60 +9.56 +8.28 +— +— +— +10/16/2010 +12/13/2010 +1/31/2012 +1/31/2013 +1/14/2014 +1/26/2015 +1/23/2016 +2/01/2017 +— +— +— +— +— +— +— +— +— +— +— +8,750 +17,500 +21,000 +6(e) +6(f) +6(g) +$ +$ +$ +— +— +— +— +— +— +— +— +77,788 +155,575 +186,690 +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +Joseph E. Zack +Executive Vice President, Marketing and Sales +125,000 +30,000 +73,438 +16,406 +10,781 +— +— +— +— +— +— +1,562 +6,094 +11,719 +18,000 +— +— +— +7(a) +7(b) +7(c) +7(d) +— +— +— +— +— +— +— +— +— +$ +$ +$ +$ +$ +$ +4.06 +6.96 +8.20 +5.60 +9.56 +8.28 +— +— +— +9/9/2012 +1/31/2013 +1/14/2014 +1/26/2015 +1/23/2016 +2/01/2017 +— +— +— +— +— +— +— +— +— +8,750 +17,500 +21,000 +7(e) +7(f) +7(g) +$ +$ +$ +— +— +— +— +— +— +77,788 +155,575 +186,690 +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +(1) +The indicated information does not include restricted stock or stock options awarded to the NEOs in February 2008 pursuant to the Stock Award Guidelines, in respect of performance +during 2007. +24 +(2) +Stock options vest over four years, with the first 25% vesting on the first anniversary of the grant date and the remaining 75% vesting on a monthly basis over the next three years +following the first anniversary of the grant date. Grants of restricted stock vest over a three-year period, with one-third vesting on the first anniversary of the grant date, a second third vesting on the second anniversary and the final third +vesting on the third anniversary. +(3) +The indicated stock options and restricted stock vest as follows: +(a) +8,333 options on the 22 nd of each month, from January 22, 2008 through June 22, 2008; +(b) +1,406 options on the 26 th of each month, from January 26, 2008 through January 26, 2009; +(c) +1,406 options on the 23 rd of each month, from January 23, 2008 through January 23, 2010; +(d) +11,250 options on February 1, 2008, and 937 options on the 1 st of each month, from March 1, 2008 through February 1, 2011; +(e) +6,480 restricted shares quarterly on March 31, June 30, September 30 and December 31 of each year, from March 31, 2008 through June 30, 2014; +(f) +26,250 restricted shares on January 26, 2008; +(g) +26,250 restricted shares on January 23, 2008 and 2009; and +(h) +17,500 restricted shares on February 1, 2008, 2009, and 2010. +(4) +The indicated stock options and restricted stock vest as follows: +(a) +2,083 options on January 14, 2008; +(b) +562 options on the 26 th of each month, from January 26, 2008 through January 26, 2009; +(c) +562 options on the 23 rd of each month, from January 23, 2008 through January 23, 2010; +(d) +11,250 options on February 1, 2008, and 937 options on the 1 st of each month, from March 1, 2008 through February 1, 2011; +(e) +10,500 restricted shares on January 26, 2008; +(f) +10,500 restricted shares on January 23, 2008 and 2009; +(g) +16,667 restricted shares on September 29, 2008 and 2009; and +(h) +17,500 restricted shares on February 1, 2008, 2009, and 2010. +(5) +The indicated stock options and restricted stock vest as follows: +(a) +2,604 options on the 23 rd of each month, from January 23, 2008 through September 23, 2009; +(b) +375 options on the 23 rd of each month, from January 23, 2008 through January 23, 2010; +(c) +5,625 options on February 1, 2008, and 469 options on the 1 st of each month, from March 1, 2008 through February 1, 2011; +(d) +13,333 restricted shares on September 23, 2008; +(e) +7,000 restricted shares on January 23, 2008 and 2009; +(f) +13,333 restricted shares on September 29, 2008 and 2009; and +(g) +8,750 restricted shares on February 1, 2008, 2009, and 2010. +(6) +The indicated stock options and restricted stock vest as follows: +(a) +2,083 options on January 14, 2008; +(b) +469 options on the 26 th of each month, from January 26, 2008 through January 26, 2009; +(c) +469 options on the 23 rd of each month, from January 23, 2008 through January 23, 2010; +(d) +4,500 options on February 1, 2008, and 375 options on the 1 st of each month, from March 1, 2008 through February 1, 2011; +(e) +8,750 restricted shares on January 26, 2008; +(f) +8,750 restricted shares on January 23, 2008 and 2009; and +(g) +7,000 restricted shares on February 1, 2008, 2009, and 2010. +25 +(7) +The indicated stock options and restricted stock vest as follows: +(a) +1,562 options on January 14, 2008; +(b) +469 options on the 26 th of each month, from January 26, 2008 through January 26, 2009; +(c) +469 options on the 23 rd of each month, from January 23, 2008 through January 23, 2010; +(d) +4,500 options on February 1, 2008, and 375 options on the 1 st of each month, from March 1, 2008 through February 1, 2011; +(e) +8,750 restricted shares on January 26, 2008; +(f) +8,750 restricted shares on January 23, 2008 and 2009; and +(g) +7,000 restricted shares on February 1, 2008, 2009, and 2010. +(8) +The indicated values were determined by multiplying the number of unvested shares of restricted stock shown in this table by $8.89 per share, the closing price of the Company’s +Common Stock as reported by NASDAQ on December 31, 2007. +Option Exercises and Stock Vested +The following table summarizes information with respect to the exercise of stock options and vesting of restricted stock for each of the NEOs during the +fiscal year ended December 31, 2007: +Option Awards 1 +Stock Awards +Name +Number of +Shares +Acquired +on Exercise +(#) +Value +Realized +on +Exercise +($) +Number Of +Shares +Acquired +on Vesting +(#) +Value +Realized +on +Vesting 2 +($) +Douglas A. Michels +President and Chief Executive Officer +— +— +78,420 +$ +661,374 +Ronald H. Spair +Chief Financial Officer and Chief Operating Officer +— +— +37,667 +$ +343,538 +Stephen R. Lee, Ph.D. +Executive Vice President, Research and Development +— +— +33,667 +$ +317,597 +P. Michael Formica +Executive Vice President, Operations +— +— +17,500 +$ +145,863 +Joseph E. Zack +Executive Vice President, Marketing and Sales +— +— +17,500 +$ +145,863 +(1) +No stock options were exercised by any of the NEOs during 2007. +(2) +The indicated amounts were calculated by multiplying the number of restricted shares acquired upon vesting by the market value of the Company’s Common Stock on the applicable +vesting date. The market value was determined by calculating the mean between the high and low sales price of the Common Stock as reported by NASDAQ on the vesting date. +Pension Benefits +We provide no pension benefits to the NEOs other than the right to participate in +our 401(k) Plan. For a further description of the terms of the 401(k) Plan, see the Section entitled, “Compensation Components – Retirement Programs,” in the CD&A. +Nonqualified Deferred Compensation +None of the NEOs has received any nonqualified deferred +compensation during the fiscal year ended December 31, 2007. +26 +Employment Agreements and Potential Payments Upon Termination or Change in Control +Mr. Michels has an employment agreement with the Company that provides for the various components of compensation described in the CD&A. In +addition, upon a termination of employment, Mr. Michels’ contract provides for certain post-employment severance and other benefits, as described below. +Mr. Michels’ employment agreement will terminate upon his death or disability. In addition, Mr. Michels may terminate his employment at any time and for any reason upon 90 days written notice to the +Company, for “good reason” (as defined below), or following a “change in control” (as defined below). Mr. Michels’ employment agreement can also be terminated by the Company for “cause” (as defined below) or +without “cause.” +As used in the agreement, the term “good reason” means (i) a material breach of the agreement by +the Company that is not cured within 30 days of written notice, (ii) any diminution in Mr. Michels’ position, duties or responsibilities or requirement that Mr. Michels report to any person other than the Board of Directors, +(iii) any relocation of Mr. Michels’ primary place of work to a location that is more than 25 miles from the Company’s Bethlehem, Pennsylvania facilities, or (iv) a reduction in Mr. Michels’ salary. The agreement +further provides that any of the following events shall constitute “cause”: (a) the willful and continued failure by Mr. Michels to substantially perform his duties, (b) the engaging by Mr. Michels in gross misconduct +or gross negligence materially injurious to the Company, (c) the commission of an act by Mr. Michels in direct competition with or materially detrimental to the Company’s best interests, or (d) Mr. Michels’ commission +of a felony. +A “change in control” generally is defined to take place when disclosure of such a change would be required by the +proxy rules promulgated by the SEC or when: +· +a person (other than the Company, any of its subsidiaries, any employee benefit plan of the Company, or any person with voting power arising from a revocable proxy) +acquires beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of 30% or more of the combined voting power of the Company’s voting securities; +· +less than a majority of the directors are persons who were either nominated or selected by the Board; +· +the consummation of any consolidation or merger in which the Company is not the surviving corporation or the sale, lease, exchange or other transfer of all or +substantially all of the assets of the Company; or +· +the approval by the stockholders of the Company of any plan or proposal for the liquidation or dissolution of the Company. +A “change in control period” is the period which begins three months prior to the occurrence of a change in control and ends 18 months after the occurrence of +a change in control. +Upon the termination of Mr. Michels’ employment upon his death or disability, by Mr. Michels for any +reason other than good reason or by the Company for cause, Mr. Michels will be entitled to receive his salary through the date of termination and any bonus approved by the Board or the Compensation Committee prior to the date of termination but +not yet paid and, in the case of a termination upon his death or disability, a cash bonus for the calendar year in which termination occurs that Mr. Michels would have received but for his death or disability, prorated through the date of death +or commencement of disability. Upon termination of the agreement by Mr. Michels with good reason or after a change in control or by the Company without cause (which includes the Company’s failure to renew the agreement), Mr. Michels +would be entitled to receive his salary through the date of termination and any bonus that has been approved by the Board or the Compensation Committee prior to the date of termination but not yet paid, a cash bonus for the calendar year in which +termination occurs equal to Mr. Michels’ target bonus for such year, and for a period of one year after the date of termination, benefits for Mr. Michels and/or his family at levels substantially equal to those that would have been +provided to them by the +27 +Company if Mr. Michels’ employment had not been terminated. If termination is for good reason or without cause (which includes the Company’s +failure to renew the agreement) and does not occur during a change in control period, Mr. Michels would also continue to receive his salary for 12 months after termination or, if greater and termination occurs during the initial three-year term +of the agreement, the remainder of such initial term. If, however, termination is for good reason or without cause (which includes the Company’s failure to renew the agreement) and occurs during a change in control period, or if termination is +by Mr. Michels after a change in control, Mr. Michels will be required to enter into a transitional services agreement with the Company pursuant to which he would provide transitional services for a six-month period following the +termination date in exchange for payment of his salary over such period, and Mr. Michels would then continue to receive his salary for 30 additional months after completion of the six-month transition service period. Mr. Michels’ +agreement also provides that the Company will pay an amount equal to the first $1 million of excise tax incurred under Section 280G of the Internal Revenue Code on compensation paid to Mr. Michels upon a change in control. +All stock awards granted to Mr. Michels are required to immediately vest (i) in the event of a change in control or (ii) if +Mr. Michels’ employment is terminated for good reason by Mr. Michels or by the Company without cause during a change in control period, and 50% of such stock awards shall vest in the event Mr. Michels’ employment is +terminated for good reason or by the Company without cause during any period other than a change in control period. +The termination and +severance provisions in the employment agreements for the other NEOs are substantially similar to Mr. Michels’ employment agreement, with the following exceptions. The Company is obligated to pay an amount up to the first $500,000, rather +than $1 million, of excise tax imposed under Section 280G of the Internal Revenue Code on compensation paid as a result of a change in control for Messrs. Spair, Formica, Zack and Dr. Lee. Messrs. Formica and Zack are entitled to receive +18 months, rather than 30 months, of continued salary after completion of the six-month transition services period, in the event of a termination of their agreements for good reason or without cause during a change in control period or after a +change in control. Dr. Lee is entitled to receive (i) 18 months, rather than 12 months, of continued salary in the event his agreement is terminated without cause during a period that is not a change in control period but within 30 months +after September 23, 2005, the date of his agreement, and (ii) 18 months, rather than 30 months, of continued salary after completion of the six-month transition service period, in the event of a termination of the agreement for good reason +or without cause during a change in control period or after a change in control. +28 +The following table provides estimates of the potential severance and other post-termination benefits the +NEOs would receive assuming their employment was terminated as of December 31, 2007: +Name +Benefit +Voluntary +Termination +or +Termination +for Cause +Termination +for Death +or +Disability 1 +Termination +for Good +Reason or +Without +Cause Not +Within +Change in +Control +Period 1 +Termination after +Change in +Control, or for +Good Reason or +Without Cause +Within Change +in +Control +Period 1,2 +Douglas A. Michels +Salary Continuation +— +— +$ +444,800 +$ +1,334,400 +President and Chief +Bonus +— +$ +280,000 +$ +222,400 +$ +222,400 +Executive Officer +Accelerated Option Vesting +— +— +$ +72,053 +$ +144,106 +Accelerated Restricted +Stock Vesting +— +$ +2,664,600 +$ +1,332,300 +$ +2,664,600 +Health Care Benefits +— +— +$ +10,161 +$ +10,161 +Total +— +$ +2,944,600 +$ +2,081,714 +$ +4,375,667 +Ronald H. Spair +Salary Continuation +— +— +$ +364,000 +$ +1,092,000 +Chief Financial Officer +Bonus +— +$ +227,000 +$ +182,000 +$ +182,000 +and Chief Operating +Accelerated Option Vesting +— +— +$ +26,592 +$ +53,183 +Officer +Accelerated Restricted +Stock Vesting +— +$ +1,043,090 +$ +521,545 +$ +1,043,090 +Health Care Benefits +— +— +$ +7,775 +$ +7,775 +Total +— +$ +1,270,090 +$ +1,101,912 +$ +2,378,048 +Stephen R. Lee, Ph.D. +Salary Continuation +— +— +$ +473,250 +$ +631,000 +Executive Vice +Bonus +— +$ +156,000 +$ +126,200 +$ +126,200 +President, Research +Accelerated Option Vesting +— +— +$ +6,919 +$ +13,838 +and Development +Accelerated Restricted +Stock Vesting +— +$ +713,414 +$ +356,707 +$ +713,414 +Health Care Benefits +— +— +$ +7,501 +$ +7,501 +Total +— +$ +869,414 +$ +970,577 +$ +1,491,953 +P. Michael Formica +Salary Continuation +— +— +$ +268,100 +$ +536,200 +Executive Vice +Bonus +— +$ +107,000 +$ +107,240 +$ +107,240 +President, Operations +Accelerated Option Vesting +— +— +$ +12,358 +$ +24,717 +Accelerated Restricted +Stock Vesting +— +$ +420,053 +$ +210,026 +$ +420,053 +Health Care Benefits +— +— +$ +10,139 +$ +10,139 +Total +— +$ +527,053 +$ +607,863 +$ +1,098,349 +Joseph E. Zack +Salary Continuation +— +— +$ +252,500 +$ +505,000 +Executive Vice +Bonus +— +$ +100,500 +$ +101,000 +$ +101,000 +President, Marketing +Accelerated Option Vesting +— +— +$ +16,105 +$ +32,209 +and Sales +Accelerated Restricted +Stock Vesting +— +$ +420,053 +$ +210,026 +$ +420,053 +Health Care Benefits +— +— +$ +7,655 +$ +7,655 +Total +— +$ +520,553 +$ +587,286 +$ +1,065,917 +(1) +The indicated values for the accelerated vesting of stock options reflect (i) the number of option shares which would vest on an accelerated basis, multiplied +by (ii) the excess, if any, of the $8.89 per share closing price for the Company’s Common Stock, as reported by NASDAQ on December 31, 2007, over the +29 +applicable exercise price for each option. The indicated values for the accelerated vesting of restricted stock reflect the $8.89 per share closing price +multiplied by the number of shares which would vest on an accelerated basis. +(2) +The Company will also pay the excise tax incurred under Section 280G of the Internal Revenue Code on compensation paid to the Named Executive Officers in the event of a change +in control in an amount up to $1 million for Mr. Michels and $500,000 for the other NEOs. +Compensation of Directors +All non-employee Directors receive an annual fee of $25,000. In addition, the Chairman of the Board receives an additional annual fee of $20,000, the +Chairmen of the Audit Committee and Compensation Committee receive an additional annual fee of $10,000 each, and the Chairman of the Nominating and Corporate Governance Committee receives an additional annual fee of $5,000. Thus, the Chairman of the +Board, and the Chairmen of the Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee receive aggregate annual fees of $45,000, $35,000, $35,000 and $30,000, respectively. Annual fees are payable quarterly in +advance. +Each non-employee Director receives a $2,000 fee for each Board meeting attended, and each member of a Board Committee receives +an additional $1,000 fee for each Committee meeting attended. Fees will be payable for meetings held in person or by conference telephone. A meeting fee will only be paid with respect to a meeting for which minutes are prepared. Non-employee +Directors also receive reimbursement for their reasonable out-of-pocket costs of attending Board and Committee meetings. +Non-employee +Directors receive an initial grant of 40,000 stock options upon joining the Board (the “Initial Grant”). An additional grant of 40,000 stock options is also made to any non-employee Director who becomes Chairman of the Board (the +“Chairman Grant”). Each non-employee Director receives an annual grant of 15,000 stock options (the “Annual Grant”) on the annual option grant date for officers and employees of the Company, except for the Chairman of the Board, +who receives an Annual Grant of 25,000 stock options. +The options granted to non-employee Directors are nonqualified stock options and +have an exercise price equal to the mean between the high and low sales prices of the Company’s Common Stock as quoted on NASDAQ on the grant date. Each Initial Grant and Chairman Grant generally vests on a monthly basis over the 24 months +immediately following the grant date, and each Annual Grant generally vests on a monthly basis over the 12 months immediately following the grant date. Options become exercisable in full immediately upon the occurrence of a change in control of the +Company. A change in control of the Company would occur on the happening of such events as the acquisition of beneficial ownership by a person or group of 30 percent or more of the outstanding Common Stock of the Company, certain changes in Board +membership affecting a majority of positions, certain mergers or consolidations, a sale or other transfer of all or substantially all the Company’s assets, or approval by the stockholders of a plan of liquidation or dissolution of the Company, +as well as any change in control required to be reported under the SEC’s proxy disclosure rules. Payment of the exercise price may be made in cash or by delivery of previously acquired shares of Common Stock having a fair market value equal to +the aggregate exercise price. +30 +The following table summarizes information related to compensation of non-employee Directors during the +fiscal year ended December 31, 2007: +Name 1 +Fees +Earned +or Paid +in Cash +($) +Stock +Awards +($) +Option +Awards 2,3 +($) +Non-Equity +Incentive Plan +Compensation +($) +Change in +Pension +Value +and +Nonqualified +Deferred +Compensation +Earnings +All Other +Compensation +($) +Total ($) +Michael Celano +$ +53,486 +— +$ +132,780 +— +— +— +$ +186,266 +Jack Goldstein, Ph.D. +$ +54,000 +— +$ +143,817 +— +— +— +$ +197,817 +Ronny B. Lancaster +$ +58,000 +— +$ +55,527 +— +— +— +$ +113,527 +Charles W. Patrick +$ +51,030 +— +$ +152,567 +— +— +— +$ +203,597 +Roger L. Pringle +$ +59,000 +— +$ +55,527 +— +— +— +$ +114,527 +Douglas G. Watson +$ +82,000 +— +$ +91,488 +— +— +— +$ +173,488 +(1) +Because Messrs. Michels and Spair are officers of the Company, they are not entitled to any separate compensation for service on the Board or any Committee thereof and have not been +included in this table. +(2) +The values set forth in this column reflect the compensation expense recognized for financial statement reporting purposes for the fiscal year ended December 31, 2007, in +accordance with SFAS 123R, of stock option awards made to non-employee Directors under the Stock Award Plan, and this may include costs for stock options granted in and prior to 2007. Assumptions used in the calculation of these amounts are included +in footnote 10 to the Company’s audited financial statements for the fiscal year ended December 31, 2007, included in the Company’s 2007 10-K Report. This column does not include the value of any stock options awarded to non-employee +Directors in February 2008. +(3) +Non-employee Directors held options to purchase the following aggregate number of shares of the Company’s Common Stock at December 31, 2007: Mr. Celano: 55,000 +shares; Dr. Goldstein: 55,000 shares; Mr. Lancaster: 115,000 shares; Mr. Patrick: 55,000 shares; Mr. Pringle: 260,552 shares; and Mr. Watson: 215,000 shares. None of the non-employee Directors held any restricted shares as +of December 31, 2007. The aggregate number of stock options and restricted shares held by Messrs. Michels and Spair are set forth in the table in the Section entitled, “Outstanding Equity Awards at Fiscal Year-End,” in this Proxy +Statement. The grant date fair values of the stock options awarded to the non-employee Directors in 2007, calculated pursuant to SFAS 123R, are as follows: $53,912 for Messrs. Celano, Lancaster, Patrick, Pringle and Dr. Goldstein and $89,853 +for Mr. Watson. +Compensation Committee Interlocks and Insider Participation +Roger L. Pringle, Jack Goldstein, Ph.D., Charles W. Patrick and Douglas G. Watson served as members of the Compensation Committee of the Board during +2007. None of Mr. Pringle, Dr. Goldstein, Mr. Patrick or Mr. Watson has served or is currently serving as an officer or employee of the Company, nor have they engaged in any transactions involving the Company which would require +disclosure as a transaction with a related person. There are no compensation committee interlocks between the Company and any other entity involving the Company’s or such entity’s executive officers or board members. +31 +Compensation Committee Report +The information contained in this report shall not be deemed to be “soliciting material” or “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities +of that Section. This report shall not be deemed to be “ incorporated by reference” into any document filed under the Securities Act of 1933, as amended, or the Exchange Act, whether such filing occurs before or after the date +hereof, regardless of any general incorporation language in such filing. +The Compensation Committee of OraSure Technologies, Inc. has +reviewed and discussed with the Company’s management the Section entitled, “Compensation Discussion and Analysis,” contained in this Proxy Statement. Based on that review and discussion, the Compensation Committee recommended to the +Company’s Board of Directors that the foregoing Compensation Discussion and Analysis be included in the Company’s 2007 10-K Report and Proxy Statement for the 2008 Annual Meeting of Stockholders. +COMPENSATION COMMITTEE: +Roger L. Pringle, Chairman +Jack Goldstein, Ph.D. +Charles W. Patrick +Douglas G. Watson +March 29, 2008 +Item 2. Amendment of OraSure Technologies, Inc. 2000 Stock Award Plan +General +On November 16, 1999, the Board of Directors of Epitope adopted, subject to stockholder approval, the Epitope, Inc. 2000 Stock Award Plan (the +“Award Plan”). The Award Plan was approved by Epitope’s stockholders on February 15, 2000. The Award Plan initially authorized for award a maximum of 2,500,000 shares of common stock of Epitope, plus the number of shares that +were available for grant under the Epitope, Inc. 1991 Stock Award Plan on February 15, 2000, and such additional shares that become available under the terms of the Award Plan thereafter. +Effective September 29, 2000, in connection with the merger of Epitope, Inc. and STC Technologies, Inc. into the Company, the name of the Award Plan +was changed to the OraSure Technologies, Inc. 2000 Stock Award Plan and the Award Plan was adopted as a stock award plan of the Company. All options granted under the Award Plan prior to the merger were assumed by and became obligations of the +Company. The shares subject to grant under the Award Plan had a market value (determined as the average high and low sales price on the NASDAQ Stock Market) of $7.38 per share on March 24, 2008. +The Company’s Board of Directors (the “Board”) has approved and recommended for submission to stockholders several amendments to the Award +Plan including an increase in the number of shares of Common Stock authorized for grant under the Award Plan and an extension in the duration of the Award Plan. Assuming that a quorum is present, the affirmative vote of the holders of a majority of +the shares of Common Stock present, in person or by Proxy at the Annual Meeting, is required for approval of the proposed amendments. Shares voted in person or represented by a Proxy which are not voted for approval of the amended Award Plan (by +voting no or abstaining) will have the effect of voting against this proposal. Shares as to which a broker or other nominee has indicated on a duly executed and returned Proxy or otherwise advised us that it lacks voting authority will have no +effect on the vote for this proposal. Your Board recommends that stockholders vote FOR approval of the amendment of the Award Plan. +32 +Amendment to the Award Plan +As of March 24, 2008, there were 1,149,993 shares of Common Stock remaining available for grant as stock options or other equity awards under the Award Plan. In order to enable the Company to continue to attract +qualified directors, officers, employees and outside advisors and to compensate its directors, officers, employees and advisors in a manner that is competitive with compensation provided by other medical diagnostic companies, the Board determined +that additional shares of Common Stock would need to be authorized for grants under the Award Plan. Accordingly, subject to stockholder approval, the Board approved amendment of the Award Plan to increase the number of authorized shares by 2,500,000 +shares. As a result of this increase, there will be a total of 3,649,993 shares available under the Award Plan on or after March 24, 2008. The Board determined that this increase in authorized shares will meet the Company’s needs under the +Award Plan for the foreseeable future. The Board also approved (i) limitations on the number of Incentive Stock Options, Restricted Awards, Performance Awards and Other Stock-Based Awards which may be granted under the Award Plan on or after +March 24, 2008; (ii) an extension of the duration of the Award Plan until May 13, 2018, and (iii) the elimination of a “reload” provision in the Award Plan, which stated that any shares of Common Stock used as partial +payment by a participant of the option, purchase or exercise price of an Award and any shares covered by a Stock Appreciation Right that are not used upon exercise, will become available for future Awards. The Award Plan was previously filed as +Exhibit 10 to the Company’s Current Report on Form 8-K filed May 18, 2006, and a copy of the proposed amendments is attached to this Proxy Statement as Exhibit A. +Summary of the Award Plan as Amended +A summary description of certain terms and provisions of the +Award Plan as proposed to be amended follows. +Purpose +The purpose of the Award Plan is to promote and advance the interests of the Company and its stockholders by enabling the Company to attract, retain, and reward employees, outside advisors, and Directors of the +Company and any subsidiaries. The Award Plan is intended to strengthen the mutuality of interests between employees, advisors, and Directors and the Company’s stockholders by offering equity-based incentives to promote the long-term growth, +profitability and financial success of the Company. +Eligibility +The Award Plan provides for stock-based awards to (i) employees of the Company and any subsidiaries, if any (ii) members of advisory committees or other consultants to the Company or its subsidiaries +(“Advisors”), and (iii) nonemployee Directors of the Company. Persons who help the Company raise money by selling securities or who promote or maintain a market for the Company’s securities are not eligible to participate in the +Award Plan as Advisors. In addition, only Advisors who, in the judgment of the Compensation Committee of the Board (the “Committee”), are or will be contributors to the long-term success of the Company, will be eligible to receive Awards +(as defined below). As of March 24, 2008, the Company had 292 employees and six nonemployee Directors, all of whom are eligible to receive Awards under the Award Plan. +Administration of the Award Plan +The Committee administers the Award Plan and determines the persons +who are to receive Awards and the types, amounts, and terms of Awards. For example, the Committee may determine the exercise price, the form of payment of the exercise price, the number of shares subject to an Award, and the date or dates on which +an Award becomes exercisable. The Committee may delegate to one or more officers of the Company the authority to determine the recipients of and the types, amounts and terms of Awards granted to participants who are not Reporting Persons. Awards +made by the Committee for the Company’s Chief Executive Officer are also reviewed and approved by the full Board. +33 +The Award Plan will continue in effect until May 13, 2018 or until the Award Plan is otherwise +terminated by the Board. Termination or expiration of the Award Plan will not affect outstanding Awards. +The Award Plan permits the Board +to amend the Award Plan, subject to stockholder approval if required by law or the rules of a stock exchange or over-the-counter trading system. In order to retain favorable treatment of Awards under applicable tax laws, the Board cannot increase +the number of shares covered by the Award Plan without further stockholder approval. +Awards +Awards that may be granted under the Award Plan include stock options, stock appreciation rights, restricted awards, performance awards, and other +stock-based awards (collectively, “Awards”). The following is a brief summary of the various types of Awards that may be granted under the Award Plan. +Stock Options . Options granted under the Award Plan may be either incentive stock options (“ISOs”), a tax-favored form of Award meeting the requirements of +Section 422 of the Internal Revenue Code, as amended, or nonqualified options (“NQOs”), which are not entitled to special tax treatment. The Award Plan limits the maximum term of any option granted to a period not longer than ten +years from the date of grant. The exercise price of any option granted under the Award Plan may not be less than 100% of the fair market value of the Common Stock on the date of grant, except that in the case of an option granted to holders of 10% +or more of the Company’s voting securities, the exercise price may not be less than 110% of the fair market value of the Common Stock on the date of grant. +The agreement evidencing the grant of a stock option (the “Option Agreement”) will specify, as determined by the Committee, the time or times when the option is exercisable, in whole or in part, and the +extent to which the option remains exercisable after the option holder ceases to be an employee, Advisor or nonemployee Director of the Company. The Option Agreement may, in the discretion of the Committee, provide whether the option will become +fully exercisable upon the death, disability or retirement of the option holder or upon a change of control of the Company. An option may be exercised by payment of the exercise price in cash or, at the discretion of the Committee, in any +combination of cash, previously held shares of Common Stock or share equivalents, or with proceeds from the sale of shares subject to the option. +Options granted to employees under the Award Plan generally vest over four years, with 25% of the grant vesting on the first anniversary of the grant date and the remaining 75% vesting ratably on a monthly basis over the next three years. +Options granted to nonemployee Directors generally vest ratably on a monthly basis over either a 12 or 24-month period, depending on the type of grant. See the Section entitled, “Compensation of Directors,” for a further description of the +terms of options granted to nonemployee Directors under the Award Plan. Options granted under the Award Plan generally provide for accelerated vesting upon a “change of control.” Therefore, all unvested options outstanding as of the date +of the merger under the Award Plan were vested in full on that date. The Committee may provide for different vesting for any option granted under the Award Plan. +The Committee, in its discretion, may provide in the Option Agreement that, to the extent that the option is exercised using previously acquired shares of Common Stock, the option holder shall automatically be granted +a replacement (“reload”) option for a number of shares of Common Stock equal to the number of shares surrendered upon exercise with an option price equal to the fair market value of Common Stock on the date of exercise and subject to such +other terms as the Committee determines. +In no event may options for more than 500,000 shares of Common Stock be granted to any individual +under the Award Plan during any fiscal year period. +34 +Stock Appreciation Rights . A recipient of stock appreciation rights +(“SARs”) will receive, upon exercise, a payment (in cash or in shares of Common Stock) based on the increase in the fair market value of a share of Common Stock between the date of grant and the date of exercise. SARs may be granted in +connection with options or other Awards granted under the Award Plan or may be granted as independent Awards. In no event may SARs for more than 500,000 shares of Common Stock be granted to any individual under the Award Plan during any fiscal year +period. +Restricted Awards . Restricted Awards may take the form of restricted shares or restricted +units. Restricted shares are shares of Common Stock that may be subject to forfeiture if the recipient terminates employment or service as an Advisor or nonemployee Director during a specified period (the “Restriction Period”). Stock +certificates representing restricted shares are issued in the name of the recipient, but are held by the Company until the expiration of the Restriction Period. From the date of issuance of restricted shares, the recipient is entitled to the rights +of a stockholder with respect to the shares, including voting and dividend rights. Restricted units are Awards that entitle the recipient to receive a share of Common Stock or the fair market value of a share at some future date, which similarly may +be subject to forfeiture if the recipient terminates employment or service as an Advisor or nonemployee Director during the applicable Restriction Period. At the expiration of the Restriction Period, payment with respect to restricted units is made +in an amount equal to the fair market value of the number of shares of Common Stock covered by the restricted units. Payment may be in cash, unrestricted shares of Common Stock, or any other form approved by the Committee. +Performance Awards . Performance Awards are designated in units equivalent in value to a share of Common Stock. A +Performance Award is subject to forfeiture if or to the extent that the Company, a subsidiary, an operating group, or the recipient, as specified by the Committee in the Award, fails to meet performance goals established for a designated performance +period. Performance Awards earned by attaining performance goals are paid at the end of a performance period in cash, shares of Common Stock, or any other form approved by the Committee. The number of shares of Common Stock issuable with respect to +Performance Awards granted to any individual executive officer may not exceed 150,000 shares for any calendar year. +Other +Stock-Based Awards . The Committee may grant other Awards that involve payments or grants of shares of Common Stock or are measured by or in relation to shares of Common Stock. +Shares Subject to the Award Plan +If the amendment is +approved, the maximum number of shares of Common Stock for which Awards may be granted under the Award Plan (as amended) will be 3,649,993 shares on or after March 24, 2008. This amount includes 1,149,993 shares of Common Stock that were +available for Awards prior to the amendment plus 2,500,000 shares proposed to be added by the amendment. If an Award under the Award Plan is cancelled or expires for any reason prior to becoming fully vested or exercised or is settled in cash +in lieu of shares, or is exchanged for other Awards under the Award Plan, then all shares covered by such Awards will be made available for future Awards under the Award Plan. As of March 24, 2008, there were options and other Awards +outstanding relating to 6,157,218 shares of Common Stock which had been granted under the Award Plan. +In the event of a change in the +Company’s capitalization affecting the Common Stock, including a stock dividend, stock split, recapitalization, merger, consolidation, split-up, combination or exchange of shares or other form of reorganization, the Committee shall make such +proportionate adjustments as it may determine, in its sole discretion to be appropriate as a result of such change, to the aggregate number of shares for which Awards may be granted under the Award Plan, the maximum number of shares which may be +sold or awarded to any participant, the number of shares covered by each outstanding Award, and the price per share in respect of outstanding Awards. +Federal Income Tax Consequences +The following discussion summarizes the principal anticipated federal income tax +consequences of Awards granted under the Award Plan, to participants and to the Company. +35 +Incentive Stock Options . A recipient of an option does not realize +taxable income upon the grant or exercise of an ISO. If no disposition of shares occurs within two years from the date of grant or within one year from the date of exercise, then (a) upon the sale of the shares, any amount realized in excess of +the exercise price is taxed to the option recipient as long-term capital gain and any loss sustained will be a long-term capital loss, and (b) no deduction is allowed to the Company for federal income tax purposes. For purposes of computing +alternative minimum taxable income, an ISO is treated as an NQO. +If shares of Common Stock acquired upon the exercise of an ISO are +disposed of prior to the expiration of the two-year and one-year holding periods described above, then (a) the recipient will realize ordinary income in the year of disposition in an amount equal to the excess (if any) of the fair market value +of the shares at exercise (or, if less, the amount realized on a sale of the shares) over the exercise price thereof and (b) the Company would be entitled to deduct such amount. Any further gain realized is taxed as a short-term or long-term +capital gain, as applicable, and does not result in any deduction for the Company. Any disqualifying disposition as described above will generally avoid the alternative minimum tax consequences of the exercise of an ISO. +Nonqualified Options . No income is realized by an option recipient at the time an NQO is granted. Upon exercise, +(a) ordinary income is realized by the option recipient in an amount equal to the difference between the exercise price and the fair market value of the shares on the date of exercise and (b) the Company receives a tax deduction for the +same amount. Upon disposition of the shares, appreciation or depreciation after the date of exercise is treated as a short-term or long-term capital gain or loss, as applicable, and will not result in any deduction to the Company. +Payment of Exercise Price in Share s . The Committee may permit participants to pay all or a portion of the exercise +price for an option using previously acquired shares of Common Stock. If an option is exercised and payment is made in previously held shares (held for six months or longer), there is no taxable gain or loss to the participant other than any gain +recognized as a result of exercise of the option, as described above. +Stock Appreciation Rights . The +grant of a SAR to a participant will not cause the recognition of income by the participant. Upon exercise of a SAR, the participant will realize ordinary income equal to the amount of cash payable to the participant plus the fair market value of +any shares of Common Stock delivered to the participant. The Company will be entitled to a deduction equal to the amount of ordinary income realized by the participant in connection with the exercise of a SAR. +Restricted Awards and Performance Awards . Generally, a participant will not recognize any income upon issuance of a +Restricted Award or Performance Award that is subject to forfeiture. Generally, a participant will recognize ordinary income upon the vesting of Restricted Awards or Performance Awards in an amount equal to the amount of cash payable to the +participant plus the fair market value of shares of Common Stock delivered to the participant. Dividends paid with respect to Awards during the period such Awards are subject to forfeiture will be taxable as ordinary income to the participant. +However, a participant may elect to recognize compensation income upon the grant of restricted shares, based on the fair market value of the shares of Common Stock subject to the Award at the date of grant. If a participant makes such an election, +dividends paid with respect to the restricted shares will not be treated as ordinary income, but rather as dividend income, and the participant will not recognize additional income when the restricted shares vest. The Company will be entitled to a +deduction equal to the amount of ordinary income recognized by the participant. If a participant who receives an Award of restricted shares makes the special election described above, the Company will not be entitled to deduct dividends paid with +respect to the restricted shares. +Limitation on Deductibility of Certain +Compensation . Section 162(m) of the Internal Revenue Code generally makes nondeductible to the Company taxable compensation paid to a single individual in excess of $1 million in any calendar year if the +individual is the Chief Executive Officer or one of the next four highest-paid executive officers, unless the excess compensation is considered to be “performance based.” Among other requirements contained in Section 162(m), the +material terms of a compensation plan in which such officers participate must be approved by stockholders for awards or compensation provided under the plan to be considered “performance based.” The Company may in the future consider +structuring Awards to attempt to meet the requirements of Section 162(m) if it determines the action to be advisable. +36 +Equity Compensation Plan Information +The following table provides information as of December 31, 2007 about the shares of Common Stock that may be issued upon the exercise of options under all of our equity compensation plans. These plans include +the Award Plan, the Epitope, Inc. 1991 Stock Award Plan (the “1991 Plan”), the Agritope, Inc. 1992 Stock Award Plan (the “Agritope Plan”), and the OraSure Technologies, Inc. Employee Incentive and Non-Qualified Stock Option Plan +(the “Employee Incentive Plan”). The Award Plan, the 1991 Plan and the Agritope Plan were Epitope equity compensation plans, and the Employee Incentive Plan was an STC Technologies, Inc. equity compensation plan. In connection with the +merger of Epitope and STC into the Company on September 29, 2000, the Award Plan was adopted by the Company, and the Company assumed the obligation to issue shares for the then outstanding stock options granted under the Award Plan, the 1991 +Plan, the Agritope Plan and the Employee Incentive Plan. Additional grants of equity compensation may only be made under the Award Plan. +Plan Category +Number of securities to be +issued upon exercise of +outstanding options +(a) +Weighted-average exercise +price of outstanding +options +(b) +Number of securities +remaining available for +future issuance +under +equity compensation plans +(excluding securities +reflected in column (a)) +(c) +Equity compensation plans approved by security holders +3,293,582 +$ +7.98 +1,993,376 +1 +Equity compensation plans not approved by security holders +1,432,959 +2 +$ +6,82 +2 +— +Total +4,726,541 +1,993,376 +(1) +Represents shares remaining available for future issuance as of December 31, 2007 under the Award Plan. +(2) +Includes 182,814 shares issuable as of December 31, 2007 under options at a weighted-average exercise price of $3.89 per share under the 1991 Plan, the Agritope Plan, and the +Employee Incentive Plan. +Item 3. Ratification Of Appointment Of Independent Registered Public Accounting Firm +The Audit Committee of the Board of Directors has reappointed the firm of KPMG LLP (“KPMG”) as our independent registered public accounting firm +for 2008. Ratification of this appointment requires the affirmative vote of a majority of shares present in person or by Proxy and entitled to vote at the Annual Meeting. Shares voted in person or represented by Proxy which are not voted for this +ratification (by voting no or abstaining) will have the effect of voting against this proposal. In the absence of instructions to the contrary, shares of Common Stock represented by properly executed Proxies will be voted for ratification of the +appointment of KPMG as our independent registered public accounting firm for 2008. If this appointment is not ratified by stockholders, the Audit Committee may reconsider its appointment. +One or more representatives of KPMG are expected to be at the Annual Meeting. They will have an opportunity to make a statement and will be available to +respond to appropriate questions. Your Board recommends that the stockholders vote “FOR” ratification of the appointment of KPMG . +Audit Fees; Audit-Related Fees; Tax Fees; All Other Fees. +The following table presents fees for professional audit services +rendered by KPMG for the audits of our annual financial statements for the years ended December 31, 2007 and 2006, for the audits of our internal +37 +controls over financial reporting as of December 31, 2007 and 2006 and for the review of the financial statements included in our Quarterly Reports on +Form 10-Q for the fiscal years ended December 31, 2007 and 2006. The following table also includes fees billed for other services rendered by KPMG: +2007 +2006 +Audit fees 1 +$ +487,500 +$ +455,000 +Audit-related fees +— +— +Audit and audit related fees +487,500 +455,000 +Tax fees 2 +88,550 +115,725 +All other fees 3 +— +— +Total fees +$ +576,050 +$ +570,725 +(1) +Includes fees related to the audit of our financial statements for each indicated year, audits of our internal controls over financial reporting, and interim reviews of our +financial statements in the Company’s Quarterly Reports on Form 10-Q for each indicated year, notwithstanding when the fees were billed or when the services were rendered. Also, included in 2006 are professional services in connection with the +review of a registration statement on Form S-8 and the issuance of a related consent. +(2) +During 2007 and 2006, we engaged KPMG to provide tax compliance, tax advice and tax planning services. +(3) +The Company did not pay any other fees to KPMG in connection with their services in 2007 and 2006. +During 2007 and 2006, we did not engage KPMG to provide any professional services related to financial information systems design and implementation. +The Audit Committee has adopted a general practice of pre-approving all audit and non-audit services provided to the Company by our +independent registered public accounting firm. The Chairman of the Audit Committee has been delegated the authority to pre-approve audit and non-audit services having an aggregate value of up to $10,000 in between meetings of the Audit Committee, +provided that such pre-approval is communicated to the Audit Committee at its next scheduled meeting. All services by KPMG have been pre-approved in accordance with these practices. +Annual Report +Our Annual Report to Stockholders for the year ended +December 31, 2007 accompanies this Proxy Statement. On written request, we will provide, without charge, a copy of our Annual Report on Form 10-K for the year ended December 31, 2007, as filed with the SEC (including a list briefly +describing the exhibits thereto), to any record holder or beneficial owner of our Common Stock on March 24, 2008, the record date for the Annual Meeting, or to any person who subsequently becomes such a record holder or beneficial owner. +Requests should be directed to the attention of the Secretary of the Company at our address set forth in the Notice of Annual Meeting of Stockholders immediately preceding this Proxy Statement. +Deadline For Stockholder Proposals +You may submit proposals for inclusion in the proxy materials for the Company’s 2009 Annual Meeting of Stockholders. Any such proposals must meet the stockholder eligibility and other requirements imposed by rules issued by the SEC and +must be received by the Company at 220 East First Street, Bethlehem, Pennsylvania 18015, Attention: Secretary, in accordance with Rule 14a-8 promulgated under the Exchange Act, not later than December 9, 2008. +38 +Our Bylaws provide that a stockholder proposal +must meet certain predetermined requirements in order to be considered at the Annual Meeting. In order to be considered, a stockholder’s proposal must be made in writing to the Company’s Secretary and must be delivered to or received at +our principal executive offices not less than ninety (90) days nor more than one hundred twenty (120) days prior to the meeting. However, if less than one hundred (100) days’ notice or prior public disclosure of the date of the +meeting is given or made to stockholders, notice by the stockholder to be timely must be so received no later than the close of business on the tenth (10 th ) day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. The notice to the Secretary must set forth, with respect to each matter the stockholder +proposes to bring before the meeting, a brief description of the matter and the reasons for considering that matter at the Annual Meeting. The notice must also include the name and record address of the stockholder, the class and number of shares of +capital stock of the Company which are beneficially owned by the stockholder, and any material interest the stockholder has in the matter(s) proposed for consideration at the Annual Meeting. To the extent the Board of Directors or the SEC, or a +court of competent jurisdiction, deems these Bylaw provisions to be inconsistent with the right of stockholders to request inclusion of a proposal in the Company’s proxy materials pursuant to Rule 14a-8 promulgated under the Exchange Act, such +rule shall prevail. +BY ORDER OF THE BOARD OF DIRECTORS +Jack E. Jerrett +Secretary +April 7, 2008 +39 +Exhibit A +Proposed Amendment of OraSure Technologies, Inc. +2000 Stock Award Plan (the “Award +Plan”) +The Company’s Board of Directors has approved, and recommended for approval by stockholders, (i) a 2,500,000 share increase in +the number of authorized shares available under the Award Plan, (ii) an extension of the duration of the Award Plan to May 13, 2018 and (iii) certain other amendments. In order to reflect these changes, Sections 4.1, 4.2.2 and 4.2.3 +and Article 17 of the Award Plan were amended and restated, subject to stockholder approval, as follows: +“4.1 Duration of the +Plan . The Plan is effective February 15, 2000, The Plan shall remain in full force and effect until May 13, 2018, or the date it is terminated by the Board. The Board shall have the power to amend, suspend or terminate the Plan at any +time, provided that no such amendment shall be made without shareholder approval to the extent such approval is required under section 422 of the Code, section 162(m) of the Code, the rules of a stock exchange or any other applicable law. +Termination of the Plan under this Section shall not affect Awards outstanding under the Plan at the time of termination.” +* * * * +“4.2.2 Number of Shares; Restrictions . +(a) The maximum number of Shares for which Awards may be granted under the Plan on or after March 24, 2008, is +3,649,993 Shares, plus any Shares that become available as the result of the cancellation or expiration of any Award, subject to adjustment for changes in capitalization affecting the Corporation’s Common Stock pursuant to Section 14.2 of +the Plan. +(b) The maximum number of Shares that may be issued pursuant to paragraph (a) above on or after +March 24, 2008, pursuant to Incentive Stock Options, is 1,824,997 Shares, subject to adjustment for changes in capitalization affecting the Corporation’s Common Stock pursuant to Section 14.2 of the Plan. +(c) The maximum number of Shares that may be issued pursuant to paragraph (a) above on or after March 24, 2008, as Restricted +Awards, Performance Awards or Other Stock-Based Awards is 2,399,993 Shares, subject to adjustment for changes in capitalization affecting the Corporation’s Common Stock pursuant to Section 14.2 of the Plan and provided that the Shares +under any such Award that is cancelled or expires shall be available for future Awards under this provision.” +* * * * +“4.2.3 Availability of Shares for Future +Awards . If an Award under the Plan is canceled or expires for any reason prior to having been fully Vested or exercised by a Participant or is settled in cash in lieu of Shares or is exchanged for other Awards, then all Shares covered by such +Awards will be made available for future Awards under the Plan.” +* * * * +“ARTICLE 17 +SHAREHOLDER APPROVAL +The Plan, as amended and +restated, is expressly subject to the approval by the shareholders at the 2008 annual meeting of the Corporation’s shareholders.” +40 +Please +Mark Here +for Address Change or Comments +¨ +SEE REVERSE SIDE +FOR +WITHHOLD +2. Amend OraSure Technologies, Inc. 2000 Stock Award Plan +FOR +AGAINST +ABSTAIN +1. ELECTION OF DIRECTORS +Class II (Term Expiring 2011) +¨ +¨ +¨ +¨ +¨ +01 Ronny B. Lancaster +02 Roger L. Pringle +03 Ronald H. Spair +3. Ratification of Appointment of KPMG LLP +FOR +¨ +AGAINST +¨ +ABSTAIN +¨ +(Instruction: To withhold authority to vote for any individual nominee, mark FOR and strike a line +through the nominee’s name in the list above. To withhold authority to vote for all nominees, mark WITHHOLD.) +Signature +Signature +Date +, 2008 +NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. +é FOLD AND DETACH HERE é +WE ENCOURAGE YOU TO TAKE ADVANTAGE OF INTERNET OR TELEPHONE VOTING, +BOTH ARE AVAILABLE 24 HOURS A DAY, 7 DAYS A WEEK. +Internet and telephone voting is available through 11:59 PM Eastern Time May 12, 2008. +Your +Internet or telephone vote authorizes the named proxies to vote your shares in the same manner +as if you marked, signed and returned +your proxy card. +INTERNET +http:/ /www.proxyvoting.com/osur +Use the +internet to vote your proxy. Have your proxy card in hand when you access the web site. +OR +TELEPHONE +1-866-540-5760 +Use any touch-tone telephone to vote your proxy. Have your proxy card in hand when you call. +If you vote your proxy by Internet or by telephone, you do NOT need to mail back your proxy card. +To vote by mail , mark, sign and date your proxy card and return it in the enclosed postage-paid envelope. +Choose +MLink SM for fast, easy and secure 24/7 online access to your future proxy materials, investment plan statements, tax documents and more. Simply log on to Investor ServiceDirect ® at +www.bnymellon.com/shareowner/isd where step-by-step instructions will prompt you through enrollment. +PROXY +2008 Annual Meeting of Stockholders +PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned hereby appoints Jack E. Jerett and Mark L. Kuna, and each of them, proxies with full power of substitution, to vote all of the shares +which the undersigned is entitled to vote at the 2008 Annual Meeting of Stockholders of OraSure Technologies, Inc. (the “Company”), to be held on Tuesday, May 13, 2008, and at any adjournment or adjournments thereof, with all the +powers the undersigned would possess if personally present, with respect to the matters listed on the reverse side. +The shares represented +by this Proxy, if properly executed, will be voted as specified on the reverse side or, if no specification is made, will be voted (i) FOR the election of the nominees listed on the reverse side as directors, (ii) FOR the amendment of the +OraSure Technologies, Inc. 2000 Stock Award Plan and (iii) FOR the ratification of the appointment of KPMG LLP as the Company’s in dependent registered public accounting firm for 2008. If any other business properly comes before the +meeting, the proxies named above will have discretionary authority to vote thereon in accordance with their best judgement. +PLEASE MARK, +DATE, SIGN AND RETURN THE PROXY CARD PROMPTLY. +(Continued and to be marked, dated and signed, on the other side) +Address Change/Comments (Mark the corresponding box on the reverse +side) +é FOLD AND DETACH HERE é +OraSure Technologies, Inc. +2008 Annual Meeting of Stockholders +Tuesday, May 13, 2008 \ No newline at end of file diff --git a/raw/proxies/0001116463/0001193125-08-076381/proxy_rpt.txt b/raw/proxies/0001116463/0001193125-08-076381/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..fb1ac2d9d68ef460d04316aef2a62b8a9f3c2d21 --- /dev/null +++ b/raw/proxies/0001116463/0001193125-08-076381/proxy_rpt.txt @@ -0,0 +1,7 @@ +Transactions With Related Persons +Since January 1, 2007, there have been no transactions with related persons which would require disclosure in this Proxy Statement. The Audit Committee is required to review and approve in advance all +transactions with related persons involving the Company. The Audit Committee may approve a related party transaction if the transaction is on terms comparable to those that could be obtained in arms’ length dealings with an unrelated third +party. The Audit Committee also reviews any public disclosures of a related party transaction contained in our SEC filings. These responsibilities are described in the Audit Committee’s charter, a copy of which is available on our website at +www.orasure.com . +Information regarding employment and severance agreements between our executive officers and the Company is set +forth in the Section entitled, “Employment Agreements and Potential Payments Upon Termination or Change in Control,” in this Proxy Statement. \ No newline at end of file diff --git a/raw/proxies/0001116463/0001193125-09-070802/proxy.txt b/raw/proxies/0001116463/0001193125-09-070802/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..2746d45d567a5ecf22e268d91ffd364292f76355 --- /dev/null +++ b/raw/proxies/0001116463/0001193125-09-070802/proxy.txt @@ -0,0 +1,3749 @@ +DEF 14A +1 +ddef14a.htm +ORASURE TECHNOLOGIES, INC. -- DEF14A +OraSure Technologies, Inc. -- DEF14A +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) +of the Securities Exchange Act of +1934 +(Amendment No. ) +Filed by the Registrant x +Filed by a Party other than the Registrant ¨ +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material Pursuant to §240.14a-12 +OraSure Technologies, Inc. +(Name of Registrant as Specified In Its +Charter) +(Name of Person(s) Filing Proxy Statement, if +other than the Registrant) +Payment of Filing +Fee (Check the appropriate box): +x +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was +determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the +previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +ORASURE TECHNOLOGIES, INC. +220 East First Street +Bethlehem, Pennsylvania 18015 +April 1, 2009 +Dear Stockholder: +You are cordially invited to attend the 2009 Annual Meeting of Stockholders to be held on Tuesday, May 12, 2009 , at the Historic Hotel +Bethlehem, 437 Main Street, Bethlehem, Pennsylvania 18018, at 10:00 a.m. Eastern Time. Your Board of Directors and Executive Management Team look forward to personally greeting those present. If you cannot attend in person, we are pleased to offer a +live webcast of the Annual Meeting, which you can access by going to our website, www.orasure.com . +This year we are pleased to take +advantage of the Securities and Exchange Commission rule allowing companies to furnish proxy materials to their stockholders over the Internet. A Notice of Availability of Proxy Materials (the “Notice”) has been sent to you, containing +information on how to access copies of the proxy materials and vote your shares. We believe this e-proxy process will expedite stockholders’ receipt of proxy materials, while lowering the cost of delivery and reducing the environmental impact +of our Annual Meeting. +At the meeting, you will be asked to (i) elect three Class III Directors to serve on the Board of Directors +until the Annual Meeting of Stockholders in 2012; (ii) ratify the appointment of KPMG LLP as our independent registered public accounting firm for 2009; (iii) consider a stockholder proposal, if properly presented at the Annual Meeting, to +modify the Company’s Management Incentive Plan; and (iv) transact such other business as may properly come before the meeting or any adjournment(s) thereof. +Your Board of Directors has approved the nominees for Director and recommends that you vote FOR their election to the Board. In addition, your Board of Directors recommends that you vote FOR the +ratification of KPMG’s appointment and AGAINST the stockholder proposal. +Your vote is very important, regardless of the number +of shares you own. Whether or not you plan to attend the Annual Meeting in person, we urge you to submit your vote as soon as possible. You will have the option to vote by telephone, via the Internet, or by completing, signing, dating, and returning +a paper Proxy Card. Additional details on these options can be found in the Notice sent to you or in the proxy materials. You may, of course, attend the Annual Meeting and vote in person regardless of whether you have previously voted by phone, the +Internet or mail. +We look forward to seeing you at the meeting. +Sincerely, +Douglas A. Michels +President and Chief Executive Officer +Table of Contents +Table of Contents +Page +Notice of Annual Meeting of Stockholders +Proxy Statement +1 +Meeting Attendance +1 +Proxies +2 +Voting Procedures +2 +Voting Securities +3 +Principal Stockholders +4 +Corporate Governance +5 +Director Independence +5 +Board Meetings +6 +Annual Meeting Attendance and Stockholder Communications +6 +Committees of the Board +6 +Nomination of Directors +8 +Report of the Audit Committee +8 +Executive Officers +10 +Transactions with Related Persons +11 +Section 16(a) Beneficial Ownership Reporting Compliance +11 +ITEM 1. — Election of Directors +12 +Executive Compensation +14 +Compensation Discussion and Analysis +14 +Summary Compensation Table +27 +Grants of Plan-Based Awards +28 +Outstanding Equity Awards at Fiscal Year-End +29 +Option Exercises and Stock Vested +32 +Pension Benefits +32 +Nonqualified Deferred Compensation +32 +Employment Agreements and Potential Payments Upon Termination or Change in Control +32 +Compensation of Directors +36 +Compensation Committee Interlocks and Insider Participation +37 +Compensation Committee Report +38 +Equity Compensation Plan Information +38 +ITEM 2. – Ratification Of Appointment Of Independent Registered Public Accounting Firm +39 +Audit Fees; Audit-Related Fees; Tax Fees; All Other Fees +39 +ITEM 3. – Stockholder Proposal to Modify the Company’s Management Incentive Plan +40 +Annual Report +42 +Deadline for Stockholder Proposals +42 +Table of Contents +ORASURE TECHNOLOGIES, INC. +220 East First Street +Bethlehem, Pennsylvania +18015 +Notice of Annual Meeting of Stockholders +to be held May 12, 2009 +To the +Stockholders of OraSure Technologies, Inc.: +The Annual Meeting of Stockholders of OraSure Technologies, Inc., a Delaware corporation, will +be held at the Historic Hotel Bethlehem, 437 Main Street, Bethlehem, Pennsylvania 18018, on Tuesday, May 12, 2009 , at 10:00 a.m. Eastern Time, for the following purposes: +1. To elect three Class III Directors; +2. To ratify the appointment of KPMG LLP as our independent registered public accounting firm for 2009; +3. To consider a stockholder proposal, if properly presented at the meeting, to modify the Company’s Management Incentive Plan; and +4. To consider such other business as may properly come before the meeting or any adjournments thereof. +Additional information is included in the Proxy Statement accompanying this Notice. Only holders of Common Stock of record at the close of business on +March 23, 2009, will be entitled to vote at the Annual Meeting of Stockholders and any adjournment(s) thereof. +By +Order of the Board of Directors, +Jack E. Jerrett +Secretary +April 1, 2009 +Bethlehem, Pennsylvania +YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the Annual Meeting, you are urged to vote your shares as promptly as possible by telephone, via the +Internet, or by completing, signing, dating and returning a paper Proxy Card, as described in the attached Proxy Statement. Voting by phone, the Internet or mail does not deprive you of your right to attend the Meeting and to vote your shares in +person. +Table of Contents +ORASURE TECHNOLOGIES, INC. +220 East First Street +Bethlehem, Pennsylvania 18015 +Proxy Statement +We are providing these Proxy +Materials to stockholders of OraSure Technologies, Inc., a Delaware corporation (the “Company”), in connection with the Company’s solicitation of proxies (each, a “Proxy”) for use at the Annual Meeting of Stockholders to be +held on May 12, 2009, at 10:00 a.m. Eastern Time, at the Historic Hotel Bethlehem, 437 Main Street, Bethlehem, Pennsylvania 18018, and at any adjournment(s) thereof (the “Annual Meeting”). +As a stockholder, you are invited to attend the Annual Meeting and are requested to vote on the matters described in this Proxy Statement. For your +convenience, we are pleased to offer a live webcast of our Annual Meeting which you can access by going to the Investor Relations section of our website, at www.orasure.com . +In accordance with the rules and regulations adopted by the Securities and Exchange Commission (“SEC”), instead of mailing a printed copy of +our Proxy Materials to each stockholder of record, we have elected to furnish Proxy Materials, including this Proxy Statement, the Proxy Card and the Company’s Annual Report to Stockholders for the year ended December 31, 2008 +(“Annual Report”), to our stockholders by providing access to such documents on the Internet. On April 1, 2009, we mailed a Notice of Internet Availability of Proxy Materials (sometimes referred to as the “Notice”), +indicating that this Proxy Statement is now available to our stockholders of record entitled to vote at the Annual Meeting. All stockholders and beneficial holders have the ability to access a copy of our Proxy Materials on a website referred to, +and at the URL address included, in the Notice. Stockholders will not receive printed copies of the Proxy Materials unless they request those copies. The Notice also instructs stockholders how to submit a Proxy through the Internet. If you would +like to receive a paper copy or e-mail copy of your Proxy Materials, you should follow the instructions for requesting such materials included in the Notice. We will pay the entire cost of preparing, assembling, printing, mailing and distributing +these Proxy Materials and soliciting votes. If you choose to access the Proxy Materials and/or vote over the Internet, you are responsible for any Internet access charges you may incur. +Meeting Attendance +If you are a stockholder of +record, meaning that you hold shares directly with the Company, and you plan to attend the Annual Meeting, please bring your Notice or Proxy Card. If you are a beneficial holder, meaning that your shares are held for you by a bank, broker or other +intermediary, please bring a recent broker statement as proof of ownership of your shares as of the March 23, 2009 record date for the Annual Meeting. You will be required to present these materials as well as a valid photo identification in +order to be admitted to the Annual Meeting. Company representatives will be at the entrance to the Annual Meeting and these representatives will +1 +Table of Contents +have the authority to determine, on the Company’s behalf, whether these admission procedures have been followed and whether you will be granted +admission to the Annual Meeting. Additional meeting procedures will be provided at the entrance to the Annual Meeting. Only the Company’s stockholders will be granted access to the Annual Meeting. Members of the media and of the general public +will not be granted access. +Proxies +If represented by a properly executed Proxy, whether delivered by phone, the Internet or mail, as described below, your shares will be voted in +accordance with your instructions. If you do not provide instructions with your Proxy, your shares will be voted according to the recommendations of our Board of Directors (the “Board”) as stated on the Proxy. You may revoke the authority +granted by your Proxy at any time before the Annual Meeting by notice in writing delivered to the Secretary of the Company, by delivering a subsequently dated Proxy, or by attending the Annual Meeting, withdrawing the Proxy and voting in person. +At the Annual Meeting, action will be taken on the matters set forth in the accompanying Notice of Annual Meeting of Stockholders and +described in this Proxy Statement. The Board knows of no other matters to be presented for action at the Annual Meeting. If any other matters do properly come before the Annual Meeting, the persons named in the Proxy Card will have discretionary +authority to vote on those matters in accordance with their best judgment. +The cost of soliciting Proxies will be borne by us. In addition +to solicitations by e-proxy and/or by mail, certain of our Directors, officers and regular employees may solicit Proxies personally or by telephone or other means without additional compensation. We have also engaged Morrow & Co. to provide +proxy solicitation services at a fee estimated at $5,000. +Arrangements will be made with brokerage firms and other custodians, nominees +and fiduciaries to forward solicitation materials to the beneficial owners of stock held of record by such persons, and we will, upon request, reimburse them for their reasonable expenses in so doing. +Voting Procedures +You will have a choice of voting over the phone, via the Internet or by completing and mailing a paper Proxy Card, as described below. Please check your Notice, Proxy Card or the information forwarded by your bank, broker or other holder of +record to determine which options are available to you. +Voting by Mail . If you desire to vote by +using a paper Proxy Card instead of by telephone or the Internet, you will need to either print a copy of the Proxy Card from the website indicated in your Notice or follow the instructions in your Notice to request that a paper copy be sent to you. +You will then need to complete, sign, date and return the Proxy Card to the Company, as described on the Proxy Card. +Voting by Phone +or Internet . Instead of voting by use of the paper Proxy Card, you may be able to vote by phone or the Internet. Whether you may do so will depend on how your shares are held. +If your shares are registered in your name with BNY Mellon Shareowner Services, our transfer agent, you may vote those shares by telephone by calling BNY +Mellon Shareowner Services at 1-866-540-5760 (toll free in the United States or Canada only) or via the Internet at the following website: www.proxyvoting.com/osur . You may vote by telephone or the Internet provided you do so by 11:59 pm +Eastern Time (8:59 pm Pacific Time) on May 11, 2009. Additional instructions can be found on your Notice and the Proxy Card accompanying this Proxy Statement. +2 +Table of Contents +If your shares are registered in the name of a broker, bank or other registered holder, you may be able +to vote by phone or the Internet if the broker, bank or other record holder has procedures for telephone or Internet voting. If you desire to use either of these voting options, please follow the procedures provided to you by your broker, bank or +other record holder. +The telephone and Internet voting procedures are designed to authenticate your identity, to allow you to give your +voting instructions and to confirm that your instructions have been recorded properly. If you vote via the Internet, you should understand that there may be costs associated with this method of voting, such as usage charges from Internet access +providers and telephone companies, that you must pay. +Submitting a Proxy by mail, the phone or the Internet will not affect your right to +withdraw your Proxy and vote in person at the Annual Meeting, provided that you follow the admission procedures described above. +Voting Securities +On March 23, 2009, the record date for determining stockholders entitled to vote at the Annual Meeting, we +had outstanding and entitled to vote at the meeting 46,827,871 shares of common stock, par value $.000001 per share (“Common Stock”). Each share of Common Stock is entitled to one vote on any matter brought before the Annual Meeting. A +majority of the shares of Common Stock outstanding as of the record date, represented in person or by Proxy at the Annual Meeting, will constitute a quorum for the transaction of business. +Broker non-votes, votes withheld and abstentions will be counted for purposes of determining whether a quorum has been reached at the Annual Meeting. +Because abstentions will be included in tabulations of the votes entitled to vote for purposes of determining whether a proposal has been approved, abstentions have the same effect as negative votes. Broker non-votes, however, are not counted as +shares present and entitled to be voted with respect to the matters which the broker has not expressly voted. A broker “non-vote” occurs when a nominee holding shares for a beneficial owner does not vote on a particular proposal because +the nominee does not have the discretionary voting power with respect to that item and has not received instructions from the beneficial owner. There can be no broker non-votes for the matters described under Items 1 and 2 of this Proxy Statement, +as a broker’s discretionary authority to vote on such matters is not limited. There can be broker non-votes for the matter described under Item 3 of this Proxy Statement. +Director elections are determined by a plurality of the votes cast. Ratification of the appointment of our independent registered public accounting firm +for 2009 and consideration of the stockholder proposal each require the affirmative vote of a majority of shares present and entitled to vote at the Annual Meeting and voting thereon. +3 +Table of Contents +Principal Stockholders +The following table sets forth information, as of March 23, 2009, regarding the beneficial ownership of the Company’s Common Stock by +(a) each person who is known by us to be the beneficial owner of more than five percent of the Common Stock outstanding, (b) each Director and nominee for election as Director, (c) each of our executive officers named in the Summary +Compensation Table in this Proxy Statement under “Executive Compensation,” and (d) all of our directors and executive officers as a group. Unless otherwise indicated, the address of each person identified below is c/o OraSure +Technologies, Inc., 220 East First Street, Bethlehem, Pennsylvania 18015. +Pursuant to Rule 13d-3 under the Securities Exchange Act of +1934, as amended (the “Exchange Act”), shares of Common Stock which a person has a right to acquire pursuant to the exercise of stock options and warrants held by that person that are exercisable within 60 days of March 23, 2009 are +deemed to be outstanding for the purpose of computing the percentage ownership of that person, but are not deemed outstanding for computing the percentage ownership of any other person. +Name and Address of +Beneficial Owner +Amount and Nature of +Beneficial Ownership 1,2 +Percent +of Class +Wells Fargo & Company 3 +7,202,827 +15.4 +% +420 Montgomery Street +San Francisco, CA 94104 +BlackRock, Inc . 4 +3,544,442 +7.6 +% +40 East 52 nd Street +New York, NY 10022 +First Manhattan Co. 5 +3,318,100 +7.1 +% +437 Madison Avenue +New York, NY 10022 +D.E. Shaw Valence 6 +3,115,527 +6.7 +% +Portfolios, L.L.C. +120 W. 45 th Street +Tower 45, 39 th Floor +New York, NY 10036 +Manning & Napier Advisors, Inc. 7 +2,655,536 +5.7 +% +290 Woodcliff Drive +Fairport, NY 14450 +Joseph L. Harrosh 8 +2,303,664 +5.0 +% +P.O. Box 6009 +Fremont, CA 94538 +Douglas A. Michels +1,084,181 +2.3 +% +Ronald H. Spair +763,314 +1.6 +% +P. Michael Formica +513,408 +1.1 +% +Roger L. Pringle 9 +337,177 +* +Joseph E. Zack +337,039 +* +Stephen R. Lee, Ph.D. +283,859 +* +Douglas G. Watson +275,000 +* +Jack E. Jerrett +267,651 +* +Ronny B. Lancaster +167,765 +* +Charles W. Patrick +100,000 +* +Michael Celano +95,000 +* +Jack Goldstein, Ph.D. +85,000 +* +All directors and executive officers as a group (12 people) +4,185,202 +8.9 +% +4 +Table of Contents +* +Less than 1% +(1) +Subject to community property laws where applicable, beneficial ownership consists of sole voting and investment power except as otherwise indicated. +(2) +Includes shares subject to options exercisable within 60 days of March 23, 2009, as follows: Mr. Michels, 565,233 shares; Mr. Spair, 493,467 shares; Mr. Formica, +363,241 shares; Mr. Pringle, 275,552 shares; Mr. Zack, 293,469 shares; Dr. Lee, 146,291 shares; Mr. Watson, 240,000 shares; Mr. Jerrett, 205,125 shares; Mr. Lancaster, 130,000 shares; Mr. Patrick, 70,000 shares; +Mr. Celano, 70,000 shares; Dr. Goldstein, 70,000 shares; and all directors and executive officers as a group, 2,762,423 shares. Also includes unvested restricted shares, as follows: Mr. Michels, 257,430 shares; Mr. Spair, 112,939 +shares; Mr. Formica, 72,450 shares; Mr. Pringle, 15,000 shares; Dr. Lee, 61,033 shares; Mr. Watson, 25,000 shares; Mr. Jerrett, 28,299 shares; Mr. Lancaster, 15,000 shares; Mr. Patrick, 15,000 shares; +Mr. Celano, 15,000 shares; Dr. Goldstein, 15,000 shares; and all directors and executive officers as a group, 674,186 shares. +(3) +Based on information contained in a Schedule 13G/A filed January 21, 2009 by Wells Fargo & Company (“Wells Fargo”), on behalf of certain of its subsidiaries. +Wells Fargo has sole voting power with respect to 7,127,175 shares, sole dispositive power with respect to 7,185,657 shares and shared dispositive power with respect to 17,170 shares. +(4) +Based on information contained in a Schedule 13G/A filed February 10, 2009, by BlackRock, Inc. (“BlackRock”) on behalf of certain of its subsidiaries. BlackRock has +shared voting and dispositive power with respect to the indicated shares. +(5) +Based on information contained in a Schedule 13G/A filed February 10, 2009 by First Manhattan Co. (“FMC”). FMC has sole voting and dispositive power with respect to +the indicated shares. +(6) +Based on information contained in a Schedule 13G/A filed February 17, 2009 by D.E. Shaw Valence Portfolios, L.L.C. (“DESV”), D.E. Shaw & Co., L.P. +(“DES”) and Dave E. Shaw (“Shaw”). DESV has shared voting and dispositive power with respect to 3,114,606 shares and DES and Shaw have shared voting and dispositive power with respect to all of the indicated shares. +(7) +Based on information contained in a Schedule 13G filed February 12, 2009 by Manning & Napier Advisors, Inc. (“MNA”). MNA has sole voting power with respect +to 2,643,216 shares and sole dispositive power with respect to all of the indicated shares. +(8) +Based on information contained in a Schedule 13G filed March 4, 2009 by Joseph L. Harrosh. Mr. Harrosh has sole voting and dispositive power with respect to the indicated +shares. +(9) +Includes 1,500 shares owned by Mr. Pringle’s spouse. +Corporate Governance +Director Independence +We have adopted Corporate Governance Guidelines which, among other things, require that a majority of the members of the Board meet the independence +requirements of the Securities and Exchange Commission (“SEC”) and The NASDAQ Stock Market (“NASDAQ”), on which our Common Stock is listed. A copy of our Corporate Governance Guidelines is available on our website at +www.orasure.com . +Each year our Board conducts a review of Director independence. The most recent review occurred in February 2009, +during which the Board considered transactions and relationships, if any, between each Director or any member of such Director’s immediate family and the Company. As a result of this review, the Board determined that Michael Celano, Jack +Goldstein, Ph.D., Ronny B. Lancaster, Charles W. Patrick, Roger L. Pringle and Douglas G. Watson are “independent,” as that term is defined in the applicable rules of NASDAQ and the SEC. In concluding that Mr. Celano is independent, +the Board considered his past service with KPMG LLP, our current independent registered public accounting firm, and Arthur Andersen LLP, our independent +5 +Table of Contents +public accountants prior to KPMG LLP, and his recent employment as Managing Director for Aon Risk Services (“Aon”). Aon or its affiliates provide +insurance brokerage for us and executive compensation consulting services for our Compensation Committee. +Only Douglas A. Michels and +Ronald H. Spair were determined by the Board not to be independent. Mr. Michels is not independent because he is employed as our President and Chief Executive Officer, and Mr. Spair is not independent because he is employed as our Chief +Financial Officer and Chief Operating Officer. Based on the foregoing, the Board of Directors is comprised of a majority of independent Directors. +Board Meetings +The Board held eight meetings and acted by written consent on five occasions during the year ended December 31, +2008. Each member of the Board attended more than 75 percent of the combined total of meetings of the Board and of the committees of the Board on which such member served during the period in the year in which he served as a Director. +Annual Meeting Attendance and Stockholder Communications +The Board has approved a policy concerning Board members’ attendance at our annual meeting of stockholders and a process for security holders to send +communications to members of the Board. Our 2008 Annual Meeting of Stockholders held on May 13, 2008 was attended by all members of the Board. Descriptions of the Board’s policy on annual meeting attendance and the process for security +holders to send communications to the Board are provided on our website, at www.orasure.com . +Committees of the Board +The Board currently has three standing committees – the Audit Committee, the Compensation Committee +and the Nominating and Corporate Governance Committee. Each Committee is composed entirely of independent Directors. +Audit +Committee. The Audit Committee oversees the Company’s accounting and financial reporting process, internal controls and audits, and consults with management and the Company’s independent registered public +accounting firm on, among other items, matters related to the annual audits, the published financial statements and the accounting principles applied. As part of its duties, the Audit Committee appoints, evaluates and retains the Company’s +independent registered public accounting firm. It also maintains direct responsibility for the compensation, termination and oversight of the Company’s independent registered public accounting firm and evaluates the independent registered +public accounting firm’s qualifications, performance and independence. The Audit Committee approves all services provided to the Company by the independent registered public accounting firm. The Audit Committee has established procedures for +the receipt, retention and treatment, on a confidential basis, of complaints received by the Company, regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submissions by employees of concerns +regarding questionable accounting or auditing matters. The Audit Committee operates pursuant to a written charter, a copy of which is available on our website at www.orasure.com . +Members of the Audit Committee are Michael Celano, Chairman, Jack Goldstein, Ph.D., Ronny B. Lancaster and Douglas G. Watson. Each member of the Audit +Committee is “independent,” as defined in the Exchange Act and applicable NASDAQ rules. The Board has determined that Messrs. Celano and Watson are each an “audit committee financial expert,” as that term is defined by applicable +rules of the SEC. The Audit Committee met eight times during the year ended December 31, 2008. +Compensation +Committee. The primary responsibility of the Compensation Committee is to assist the Board in fulfilling its oversight responsibilities with respect to all types of compensation for our officers and +6 +Table of Contents +non-employee Directors. Our overall compensation philosophy, as determined by the Compensation Committee and approved by the Board, is to (i) reward +executive officers for the performance of the Company and achievement by the executives of financial and other individual performance objectives, (ii) align the interests of the executive officers with the interests of our stockholders, +(iii) provide long-term incentives for the executive officers, and (iv) set compensation levels sufficiently competitive to attract and retain high quality executives and to motivate them to contribute to our success. +On an annual basis, the Compensation Committee evaluates the performance of the Chief Executive Officer against previously established goals and +objectives and reviews the performance evaluations and compensation recommendations for other executive officers provided by the Chief Executive Officer. Based on the foregoing, along with a review of compensation provided at comparable medical +diagnostic and healthcare companies and the recommendations of a compensation consultant engaged by the Committee, the Compensation Committee determines cash and equity compensation for the Chief Executive Officer, other executive officers and the +non-employee members of the Board. Compensation for the Chief Executive Officer is submitted for approval by a majority of independent Directors on the Board. +On an as-needed basis, the Compensation Committee retains independent compensation consultants to assist the Compensation Committee in evaluating and structuring our executive compensation programs and making +compensation decisions. In establishing executive compensation for 2008, Radford Surveys & Consulting (“Radford”) was engaged for this purpose. Radford is a business unit of Aon, which provides insurance brokerage services for the +Company. One of our Directors was previously employed by an affiliate of Radford. The Committee intends to engage a consultant to assist in the evaluation of executive compensation during 2009. A further discussion of the role of the Compensation +Committee, our processes and procedures for determining executive officer and non-employee Director compensation, and the services provided by compensation consultants are set forth in the Section entitled, “Compensation Discussion and +Analysis,” in this Proxy Statement. +The Committee is authorized to delegate any of its responsibilities to subcommittees or +individuals, as the Committee deems appropriate. To date, the Committee has not exercised this right. +The Compensation Committee operates +pursuant to a written charter, a copy of which is available on our website at www.orasure.com . Members of the Compensation Committee are Roger L. Pringle, Chairman, Jack Goldstein, Ph.D., Charles W. Patrick and Douglas G. Watson. Each member +of the Compensation Committee is “independent,” as defined in applicable NASDAQ rules. The Compensation Committee met five times and acted by written consent on three occasions during the year ended December 31, 2008. +Nominating and Corporate Governance Committee . The Nominating and Corporate Governance Committee of the Board +identifies, evaluates and recommends to the Board candidates for election or re-election to the Board. In addition, this Committee is responsible for developing, recommending for Board approval and administering our Corporate Governance Guidelines. +The Nominating and Corporate Governance Committee operates pursuant to a written charter. Copies of the Committee’s charter and the Company’s Corporate Governance Guidelines are available on our website at www.orasure.com . +Members of the Nominating and Corporate Governance Committee are Ronny B. Lancaster, Chairman, Michael Celano, Charles W. Patrick, and +Roger L. Pringle. Each member of the Nominating and Corporate Governance Committee is “independent,” as defined in applicable NASDAQ rules. The Nominating and Corporate Governance Committee met three times during the year ended +December 31, 2008. +In evaluating and recommending candidates for the Board, the Nominating and Corporate Governance Committee will +consider candidates recommended by members of the Committee or the Board of Directors, officers or employees of the Company, the Company’s security holders and other business contacts. The Nominating and Corporate Governance Committee may also +consult with outside advisors or retain search firms to assist in the search for qualified candidates. Candidates recommended by security holders will be considered +7 +Table of Contents +by the Nominating and Corporate Governance Committee in the same manner as candidates recommended by other sources, but only if the security holder makes its +recommendation in accordance with the advance notification provisions set forth in the Company’s By-laws. For a description of these provisions, see the Section entitled, “Nomination of Directors,” in this Proxy Statement. +In evaluating new candidates for Board nomination, the Nominating and Corporate Governance Committee considers one or more of the following factors, +as well as any other factors determined to be relevant by the Committee based on the needs of the Board and Company: independence, integrity, knowledge, judgment, character, leadership skills, education, experience, financial literacy, technical +background and standing in the community. In evaluating incumbent Directors for re-election, the Nominating and Corporate Governance Committee considers that Director’s overall service to the Company, including the number of meetings attended, +level of participation, quality of performance and other factors deemed relevant by the Committee. +Nomination of Directors +Our Bylaws provide that nominations for election to the Board may be made by the +Board or by any stockholder entitled to vote for the election of Directors at the Annual Meeting. A stockholder’s notice of nomination must be made in writing to the Company’s Secretary and must be delivered to or received at our principal +executive offices not less than ninety (90) days nor more than one hundred twenty (120) days prior to the meeting. However, in the event that less than one hundred (100) days’ notice or prior public disclosure of the date of the +meeting is given or made to stockholders, notice by the stockholder to be timely must be received no later than the close of business on the tenth (10 th ) day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. The notice to the Secretary must set forth, with respect to the nominee, the name, age, +business address, residence address, principal occupation or employment of the person, the class and number of shares of capital stock of the Company which are beneficially owned by the person, and any other information relating to the person that +is required to be disclosed in solicitations for proxies for election of Directors pursuant to Regulation 14A under the Exchange Act. The notice must also include, as to the stockholder giving the notice and the beneficial owner, if any, on whose +behalf the nomination is made: (i) the name and address of the stockholder and such beneficial owner; (ii) the class and number of shares of capital stock of the Company which are held of record or beneficially owned by such stockholder +and such beneficial owner and any other direct or indirect pecuniary or economic interest in any capital stock of the Company of such stockholder and beneficial owner, including without limitation, any derivative instrument, swap, option, warrant, +short interest, hedge, profit sharing arrangement or borrowed or loaned shares; (iii) a description of any arrangements or understandings between such stockholder and beneficial owner and each proposed nominee and any other person (including +their names) pursuant to which the nomination(s) are to be made by such stockholder and such beneficial owner or with respect to actions to be proposed or taken by such nominee if elected as a Director; (iv) a representation that such +stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice; and (v) any other information relating to such stockholder and such beneficial owner that would be required to be disclosed in a +proxy statement or other filings required to be made in connection with solicitations of proxies for election of Directors, or may otherwise be required pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated +thereunder. We may also require any proposed nominee to furnish such other information as we may reasonably require to determine the eligibility of the proposed nominee to serve as a Director of the Company. +Report of the Audit Committee +The information contained in this report shall not be deemed to be “soliciting material” or “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to liability under that Section. This report +shall not be deemed “incorporated by reference” into any document filed under the Securities Act of 1933, as amended, or the Exchange Act, whether such filing occurs before or after the date hereof, regardless of any general incorporation +language in such filing. +8 +Table of Contents +The role of the Audit Committee is to assist the Board of Directors in fulfilling its responsibilities to +oversee management’s conduct of the Company’s financial reporting process, including monitoring (1) the participation of management and the outside independent registered public accounting firm in the financial reporting process, +(2) the Company’s systems of internal accounting and financial controls, (3) the annual independent audit of the Company’s financial statements and (4) the qualifications, independence and performance of the outside +independent registered public accounting firm. The Committee selects the Company’s outside independent registered public accounting firm, and once selected, the outside independent registered public accounting firm reports directly to the +Committee. The Committee is responsible for approving both audit and non-audit services to be provided by the outside independent registered public accounting firm. The Committee operates pursuant to a Charter that was last amended and restated by +the Board on August 14, 2007. +Management of the Company is responsible for the preparation, presentation and integrity of the +Company’s financial statements, the Company’s accounting and financial reporting principles and internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. The independent +registered public accounting firm is responsible for auditing the Company’s financial statements and expressing an opinion as to their conformity with U.S. generally accepted accounting principles. The Committee’s responsibility is to +monitor and review these processes. It is not the Committee’s duty or responsibility to conduct auditing or accounting reviews. +In +the performance of its oversight function, the Committee has considered and discussed the audited financial statements with management, which included a discussion of not only the quality, but also the acceptability, of the accounting principles, +the reasonableness of significant judgments and the clarity of disclosures in the financial statements. The Committee met with the independent registered public accounting firm, with and without management, to discuss the results of their audit and +their judgments regarding the Company’s accounting policies. The Committee has also discussed with the independent registered public accounting firm the matters required to be discussed by Statement on Auditing Standards No. 61, +“Communication with Audit Committees,” as currently in effect. Finally, the Committee has received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the +Public Company Accounting Oversight Board as currently in effect, has considered whether the provision of non-audit services by the independent registered public accounting firm to the Company is compatible with maintaining the firm’s +independence and has discussed with the independent registered public accounting firm the firm’s independence. +Based upon the reports +and discussions described in this report, and subject to the limitations on the role and responsibilities of the Committee referred to above and in the Committee’s Charter, the Committee recommended to the Board that the audited financial +statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 for filing with the SEC and selected KPMG LLP as the independent registered public accounting firm for fiscal year 2009. The Board is +recommending that stockholders ratify that selection at the Annual Meeting. +SUBMITTED BY THE AUDIT COMMITTEE +OF THE COMPANY’S BOARD OF DIRECTORS +Michael Celano, Chairman +Jack Goldstein, Ph.D. +Ronny B. Lancaster +Douglas G. Watson +March 3, 2009 +9 +Table of Contents +Executive Officers +The table below provides information about the executive officers of the Company as of March 23, 2009. Officers of the Company hold office at the +discretion of the Board. +Name +Age +Position +Douglas A. Michels +52 +President and Chief Executive Officer +Ronald H. Spair +53 +Chief Financial Officer and Chief Operating Officer +Stephen R. Lee, Ph.D. +49 +Executive Vice President and Chief Science Officer +P. Michael Formica +58 +Executive Vice President, Operations and General Manager, Cryosurgery +Jack E. Jerrett +50 +Senior Vice President, General Counsel and Secretary +Mark L. Kuna +45 +Senior Vice President, Finance, Controller and Assistant Secretary +Douglas A. Michels has been the Company’s President and Chief Executive Officer since June +2004. Prior to that, Mr. Michels served as Group Vice President, Global Marketing of Ortho-Clinical Diagnostics from January 2004 to June 2004, President of Ortho-Clinical Diagnostics International from January 2002 to December 2003, and +President of Johnson & Johnson Healthcare Systems, Inc. from January 2000 to December 2001. Earlier in his career, Mr. Michels held various positions of increasing responsibility within the Johnson & Johnson family of +companies, including Vice President, Sales & Marketing, Vice President/General Manager – Immunocytometry Business, Executive Director Sales & Marketing, Director of Marketing, Director of Sales, and Regional Sales Manager for +Ortho Diagnostic Systems, Inc. Prior to joining Johnson & Johnson, Mr. Michels worked for the Diagnostics Division of Abbott Laboratories in various sales and product management positions. Mr. Michels received a B.S. degree in +Public Health Administration from the University of Illinois and an M.B.A. from Rutgers University. +Ronald H. Spair has been the +Company’s Chief Financial Officer and Chief Operating Officer since September 2006 and served as Executive Vice President and Chief Financial Officer since November 2001. Prior to that time, Mr. Spair was Vice President, Chief Financial +Officer and Secretary of Delsys Pharmaceutical Corporation, a pharmaceutical manufacturing system development company, from January 2001 to September 2001. Prior to joining Delsys, he was Senior Vice President, Chief Financial Officer and Secretary +of SuperGen, Inc., a pharmaceutical company, from August 1999 to January 2001. Prior to joining SuperGen, Mr. Spair was Senior Vice President, Chief Financial Officer and Secretary of Sparta Pharmaceuticals, Inc., a development stage +pharmaceutical company. Mr. Spair received both his B.S. in Accounting and M.B.A. from Rider College. He is also a licensed Certified Public Accountant and is a member of the New Jersey Society of Certified Public Accountants and the American +Institute of Certified Public Accountants. +Stephen R. Lee, Ph.D. has been the Company’s Executive Vice President and Chief Science +Officer since September 2005. Prior to that time, Dr. Lee worked at Ortho-Clinical Diagnostics, a Johnson & Johnson company, since 1990, serving as Vice President, Assay Research & Development from 2002 to 2005, Executive +Director, Worldwide Immunodiagnostic Product Development from 2000 to 2002, and Director, Infectious Disease Assay Development from 1996 to 2000. Dr. Lee has had responsibility for or direct involvement in the development of over 40 major +diagnostic assays, in such areas as infectious disease, cardiology, oncology and other conditions. In 1997, Dr. Lee was awarded the Johnson Medal, Johnson & Johnson’s highest award for Research and Development. Prior to joining +Ortho, Dr. Lee worked as a scientist for both Wampole Labs and Immunicon Corporation. Dr. Lee received a BSc. in Biochemistry from Sheffield University (U.K.) in 1981 and a Ph.D. degree in Biochemistry from Cardiff University (U.K.) in +1985. +P. Michael Formica has been the Company’s Executive Vice President, Operations since November 2002 and General Manager, +Cryosurgery since August 2008. He served as Senior Vice President, Operations for the Company and its predecessor, STC Technologies, Inc., since May 2000. Prior to that time, Mr. Formica was Division Manager, Mobil Measurement Technologies for +Dräger Sicherheitstechnik GmbH (now called Dräger Safety AG & Co. KGaA), in Lüebeck, Germany, for eight years with worldwide responsibility, and Director Sales and Marketing, National Draeger, Inc. (USA) for two years. +Dräger is a world leader in chemical detection +10 +Table of Contents +systems for the industrial safety market, and breath alcohol detection instrumentation. Mr. Formica received his B.S. in Electrical Engineering from +West Virginia University and his M.B.A. from the Graduate School of Industrial Administration, Carnegie Mellon University. +Jack E. Jerrett +has been the Company’s Senior Vice President and General Counsel since February 2003 and served as Vice President and General Counsel since November 2000. He has also served as the Company’s Secretary since February 2001. Prior to joining +the Company, Mr. Jerrett served in the positions of Associate General Counsel and Senior Counsel at PPL Electric Utilities Corporation, and acted as general counsel to PPL Gas Utilities Corporation, since July 1998. Prior to that time, +Mr. Jerrett was Senior Corporate Attorney of Union Pacific Corporation and an Associate with Morgan, Lewis & Bockius. Mr. Jerrett received his B.S. in Accounting from Villanova University and his J.D. from the Villanova University +School of Law. He is a member of the Pennsylvania Bar and the American and Pennsylvania Bar Associations. +Mark L. Kuna has been the +Company’s Senior Vice President, Finance and Controller since September 2006, and served as Vice President and Controller since February 2003 and as Controller since February 2001. Mr. Kuna has also served as the Company’s Assistant +Secretary since May 2002 and provided accounting and financial analysis support since joining the Company in October 2000. Prior to that time, Mr. Kuna served as Director of Financial Planning and Analysis for the greater Philadelphia region of +XO Communications, Inc., and Vice President and Principal Accounting Officer of Wedco Technology, Inc. Prior to joining Wedco Technology, he was an accountant with Deloitte and Touche. Mr. Kuna received his B.S. in Accounting from the +University of Scranton, is a licensed Certified Public Accountant, and is a member of the Pennsylvania and American Institutes of Certified Public Accountants. +Transactions With Related Persons +Since January 1, 2008, there have +been no transactions with related persons which would require disclosure in this Proxy Statement. The Audit Committee is required to review and approve in advance all transactions with related persons involving the Company. The Audit Committee may +approve a related party transaction if the transaction is on terms comparable to those that could be obtained in arms’ length dealings with an unrelated third party. The Audit Committee also reviews any public disclosures of a related party +transaction contained in our SEC filings. These responsibilities are described in the Audit Committee’s charter, a copy of which is available on our website at www.orasure.com . +Information regarding employment and severance agreements between our executive officers and the Company is set forth in the Section entitled, +“Employment Agreements and Potential Payments Upon Termination or Change in Control,” in this Proxy Statement. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Exchange Act requires that our executive +officers and Directors and persons who own more than ten percent of our Common Stock (collectively, “Reporting Persons”) file reports of ownership and changes in ownership with the SEC. Reporting Persons are required by the SEC’s +regulations to furnish us with copies of all Section 16(a) forms they file. +As a matter of practice, our administrative staff assists +each of the Reporting Persons who are employees and Directors of the Company in preparing initial reports of ownership and reports of changes in beneficial ownership and filing such reports with the SEC and the NASDAQ. Based solely on a review of +the copies of forms filed by or on behalf of the Reporting Persons and on written representations (if any) from each of the Reporting Persons, we believe that all Reporting Persons, with the exception of two of our Directors, complied with all +applicable filing requirements with respect to the year 2008. A Form 4 disclosing the annual grant of stock options in 2008 was filed one day late for Roger L. Pringle because of a change in his SEC EDGAR filing code that was not initially +communicated to the Company. A Form 4 was filed several days late with respect to +11 +Table of Contents +three purchases of shares of Common Stock for Ronny B. Lancaster because Mr. Lancaster failed to cancel a buy order with his broker and shares were +inadvertently purchased. +ITEM 1. +Election of Directors +At the Annual Meeting, you +will be asked to vote on the election of three Class III Directors. A majority of the independent members of the Board have nominated Michael Celano, Douglas A. Michels and Charles W. Patrick for election as Class III Directors, for terms +expiring at the Annual Meeting of Stockholders in 2012. +The nominees for election as Directors are presently members of our Board. +Mr. Celano joined the Board in 2006, is currently Chairman of the Audit Committee and serves on the Nominating and Corporate Governance Committee. Mr. Michels joined the Board in 2004 and is the Company’s President and Chief Executive +Officer. Mr. Patrick joined the Board in 2006 and serves on the Compensation Committee and the Nominating and Corporate Governance Committees. +In the absence of instructions to the contrary, shares of Common Stock represented by properly executed Proxies will be voted for the three nominees, each of whom has consented to be named and to serve if elected. If a quorum is present, +each nominee will be elected if he receives a plurality of the votes cast by shares present in person or by Proxy and entitled to vote at the Annual Meeting. Abstentions will have no effect on the required vote. Your Board recommends that you +vote FOR the election of the Director nominees. +We do not know of anything that would preclude any nominee from serving. However, +should any nominee for any reason become unable or unwilling to serve as a Director, the persons named in the enclosed Proxy Card will vote the shares represented by each Proxy for such substitute nominee as the Board may approve. +Any vacancy that occurs on the Board that results from an increase in the number of Directors may be filled by the affirmative vote of a majority of the +Directors then in office, and any other vacancy on the Board may be filled by the affirmative vote of a majority of the Directors then in office, even though less than a quorum of the Board, or by a sole remaining Director. +Certain information with respect to each person nominated for election as a Director and each person whose term of office as a Director will continue +after the Annual Meeting is set forth below. +Name +Principal Occupation +Age +Director +Since +Class I (Directors Whose Terms of Office Expire in 2010): +Jack Goldstein, Ph.D. +Former President and Chief Operating +Officer of Chiron +Corporation +61 +2006 +Douglas G. Watson +Chief Executive Officer of +Pittencrieff Glen Associates +64 +2002 +Class II (Directors Whose Terms of Office Expire in 2011): +Ronny B. Lancaster +Senior Vice President for Federal Government Relations of Assurant, Inc. +57 +2003 +Roger L. Pringle +President of The Pringle Company +68 +2000 +Ronald H. Spair +Chief Financial Officer and Chief Operating Officer of the Company +53 +2006 +Class III (Nominees for Terms Expiring in 2012): +Michael Celano +Chief Financial Officer of Kensey Nash Corporation +50 +2006 +Douglas A. Michels +President and Chief Executive Officer of the Company +52 +2004 +Charles W. Patrick +Principal, Patrick Consulting +54 +2006 +12 +Table of Contents +Jack Goldstein, Ph.D., became a member of the Board in May 2006. Dr. Goldstein worked for Chiron +Corporation, one of the foremost global biopharmaceutical companies, first as President of the Chiron Blood Testing Division from 2002 until November 2004 and subsequently as President and Chief Operating Officer of the company until its merger with +Novartis A.G. in April 2006. From 2000 to 2002, Dr. Goldstein was General Partner at Windamere Venture Partners, L.L.C., a venture fund making investments in early stage biotechnology, pharmaceutical, medical device and diagnostic companies. +From 1997 to 2001, Dr. Goldstein was President and CEO of Applied Imaging Corporation, a leading supplier of instrument systems for prenatal and cancer genetics. From 1999 until 2002, Dr. Goldstein also served as Chairman of the Board of +Applied Imaging. From 1986 to 1997, Dr. Goldstein worked for Johnson & Johnson in various executive management positions, including President of Ortho Diagnostic Systems and Executive Vice President of Professional Diagnostics at +Johnson & Johnson World Headquarters. Dr. Goldstein holds a B.A. degree in Biology from Rider University, and an M.S. in Immunology and a Ph.D. in Microbiology from St. John’s University. In addition, Dr. Goldstein serves on +the Board of Illumina Inc. +Douglas G. Watson became a member of the Board in May 2002 and became Chairman of the Board in March 2003. +Since July 1999, Mr. Watson has been Chief Executive Officer of Pittencrieff Glen Associates, a leadership and management consulting firm, which he founded. Prior to that, Mr. Watson served as President and Chief Executive Officer of +Novartis Corporation, the U.S. subsidiary of Novartis A.G., President and Chief Executive Officer of Ciba-Geigy Corporation, President of the Ciba Pharmaceuticals Division and Senior Vice President of Planning and Business Development of Ciba’s +U.S. Pharmaceuticals Division. Mr. Watson holds an M.A. degree in pure mathematics from Churchill College, Cambridge University, and is a member of the Chartered Institute of Management Accountants. Mr. Watson also serves on the Boards of +BioMimetic Therapeutics, Inc., Dendreon Corporation, Genta Inc. and Javelin Pharmaceuticals Inc. +Ronny B. Lancaster became a member of the +Board in May 2003. Mr. Lancaster has served as Senior Vice President, Federal Government Relations of Assurant, Inc., a provider of specialty insurance and insurance-related products and services since September 2005. From 2003 until September +2005, Mr. Lancaster served in various capacities at the Morehouse School of Medicine in Atlanta, including as Chief Operating Officer. Prior to that, Mr. Lancaster was Executive Assistant to the Secretary and Principal Deputy Assistant +Secretary for Planning and Evaluation at the U.S. Department of Health and Human Services (“HHS”). Prior to serving at HHS, Mr. Lancaster was General Counsel of Hamilton Enterprises, Inc., Senior Washington Representative for Blue +Cross/Blue Shield Association, and Chief of the Division of Fee-For-Service Plans at the U.S. Office of Personnel Management. Mr. Lancaster received his B.A. in Economics from the Catholic University of America, his M.B.A. from the Wharton +School of the University of Pennsylvania, and his J.D. degree from The Georgetown University Law Center. He is also admitted to the Bars of Pennsylvania and the District of Columbia. Mr. Lancaster currently serves on the Board of Immucor, Inc. +and on the Medical Advisory Board of Henry Schein, Inc. +Roger L. Pringle has served on the Board since September 2000, when the Company +was formed by the merger of Epitope, Inc. (“Epitope”) and STC Technologies, Inc. Prior to that, Mr. Pringle served as Chairman of the Board and a member of the Board of Directors of Epitope, and was a director of Agritope, Inc., a +plant genetics subsidiary of Epitope, since 1990. Mr. Pringle is the President of The Pringle Company, a strategy and executive consulting firm in Portland, Oregon, which was founded in 1976. Mr. Pringle currently serves on the boards +of directors of Northwest Bank, North Pacific Group and Prolifiq Software, Inc. Mr. Pringle received a B.S. in Business from Oregon State University and an MBA from the University of Oregon. +For biographical information on Mr. Spair, see the Section entitled, “Executive Officers,” in this Proxy Statement. +Michael Celano became a member of the Board in October 2006. Mr. Celano has served as Chief Financial Officer of Kensey Nash Corporation, a +biomaterials company, since March 2009 and as Managing Director of Aon Risk Services from August 2007 to December 2008. From September 2004 to May 2007, Mr. Celano served +13 +Table of Contents +as Vice President, Finance and Chief Financial Officer for BioRexis Pharmaceutical Corporation, a biopharmaceutical company. Before joining BioRexis, +Mr. Celano served as a partner with KPMG LLP, in charge of its Mid-Atlantic Life Sciences Practice, from June 2002 to August 2004, and was co-leader of its National Life Science Practice. Prior to joining KPMG, Mr. Celano was co-leader of +the Life Science Practice for Arthur Andersen. Mr. Celano is a Certified Public Accountant and holds a B.S. degree in Accounting from St. Joseph’s University. +For biographical information on Mr. Michels, see the Section entitled, “Executive Officers,” in this Proxy Statement. +Charles W. Patrick became a member of the Board in January 2006. Since 2000, Mr. Patrick has served as Principal of Patrick Consulting, a management consulting firm that helps diagnostic and technology companies +develop sales, marketing and distribution strategies. Mr. Patrick is also the President and Co-owner of ADS Golf, Inc. During the period September 2000 through April 2001, he served as the President and Chief Executive Officer of Call Nexus, +Inc., a provider of virtual call center services. From 1990 to 2000, Mr. Patrick served as Vice President of Sales and Marketing for Biosite Diagnostics, a medical diagnostics company, and had primary responsibility for developing and achieving +Biosite’s strategic sales and marketing objectives. Prior to his time at Biosite, Mr. Patrick served as World Wide Group Marketing Manager and held several other sales and marketing positions for the Diagnostics Division of Abbott +Laboratories. Mr. Patrick received a B.A. in Communications/Journalism from the University of Central Florida. Mr. Patrick also serves on the Board of diaDexus, Inc. +Executive Compensation +Compensation +Discussion and Analysis +This Compensation Discussion and Analysis (“CD&A”) provides an overview of the Company’s +executive compensation programs together with a description of the material factors underlying the decisions which resulted in compensation for 2008 provided to the Company’s Chief Executive Officer (“CEO”) and the other named +executive officers (collectively, the “NEOs”), as presented in tables which follow this CD&A. +Compensation +Philosophy . The objectives of our compensation programs for executive officers are to: +· +reward executive officers for the performance of the Company and achievement by such officers of other individual performance objectives; +· +align the interests of the executive officers with the interests of our stockholders; +· +provide long-term incentives for the executive officers; and +· +set compensation at sufficiently competitive levels to attract and retain high quality executives and to motivate them to contribute to our success. +Compensation for executive officers is established by the Compensation Committee of our Board (the +“Committee”) in accordance with the above objectives. In setting executive compensation, the Committee considers the Company’s and each executive’s performance against previously established objectives, internal pay equity, the +Company’s industry position, general industry data and recommendations of third party compensation consultants engaged by the Committee. In determining whether to retain a compensation consultant, the Committee has sole authority to decide +whether to hire or fire any such consultant and to control the nature and scope of the engagement. +The Committee seeks to set aggregate compensation levels for executives near the median or fiftieth (50 th ) percentile of amounts paid by comparable medical diagnostic and healthcare companies for performance consistent with the Company’s target financial and strategic business plans for the applicable year. The fiftieth +(50 th ) percentile is not an absolute target and the aggregate compensation and the value of specific compensation +14 +Table of Contents +components for individual executives may fall below or exceed that target depending on individual performance and contribution by the executive. Aggregate +compensation includes the total value of the base salary, incentive cash bonus and equity awards provided to each executive officer. As a general matter, the compensation provided to our CEO and to all but one of the other NEOs for 2008 is at or +below the fiftieth (50 th ) percentile for their respective positions. +In determining annual compensation, the Committee reviews tally sheets for each executive. Tally sheets set forth the dollar amounts of all components of +each executive’s current compensation, including salary, incentive cash bonus, equity awards, potential change of control payments and other benefits deemed relevant by the Committee. These tally sheets allow the Committee and management to +review how a change in the amount of each compensation component affects each executive’s total compensation and to review each executive’s compensation in the aggregate. Included in each tally sheet is the estimated amount of severance +and other benefits payable to the executive under various termination scenarios. Based upon the review of tally sheets, the Committee establishes aggregate compensation for our executives which it believes to be reasonable. The Committee reviews all +components of compensation provided to the CEO and other NEOs. +The Committee also considers the Company’s financial condition and +economic circumstances when establishing executive compensation. During 2008, our financial performance did not meet our initial projections. Because of this, the Committee determined that no salary increases should be awarded in 2009 to the CEO and +other NEOs. In addition, the pool for incentive cash bonuses and individual bonus payments approved by the Committee in January 2009 for executive performance during 2008 were substantially reduced as compared to the prior year pool funding and +bonus payments because of the Company’s lower than expected financial performance. Finally, in establishing the management stock award guidelines for 2009, the Committee decided to maintain the same ranges of shares for potential stock option +and restricted share grants as used for the 2008 guidelines. At the current stock price, the Committee would have had to substantially increase the range of potential equity grants in order to provide for a consistent value transfer to executives +receiving awards. However, by opting not to change the equity ranges, executives receiving awards in early 2010 for performance during 2009 will likely receive a much lower value transfer than in past years. The Committee believes the foregoing +actions were appropriate given the current difficult economic environment and the Company’s recent financial performance. +Compensation Components . Our executive compensation program consists of the components set forth below. +1. Base Salary . The Committee believes that competitive salaries must be paid in order to attract, retain and motivate high quality executives. Each year, the Committee evaluates and +determines the annual base salaries for all executives. Annual salary adjustments for executive officers are initially proposed by the CEO to the Committee. In determining salaries, the Committee considers performance evaluations of the CEO prepared +by non-employee Directors on the Board and performance evaluations prepared by the CEO for all other executives. The Committee also considers salary levels paid at other medical diagnostic and healthcare companies and any recommendations that may be +made by any compensation consultant engaged to assist the Committee. The Committee has retained independent compensation consultants to review our executive compensation practices and to assist the Committee in establishing competitive compensation +levels for our executives. +Periodically, the Committee may approve salary adjustments for executives to reflect promotions or changes in +responsibilities, or to bring the salary of a particular executive more in line with the salaries offered at other medical diagnostics and healthcare companies. When such salary adjustments are made with respect to an executive, the Committee +evaluates the proposed new salary in light of the total cash and non-cash compensation paid to the executive and whether reasonable pay equity will be maintained in light of that executive’s position, responsibilities, experience and +contributions. +15 +Table of Contents +2. Incentive Cash Bonuses . Annual cash bonuses are included as part of +executive compensation because the Committee believes that a significant portion of each executive’s compensation should be structured as a variable incentive tied to both the overall performance of the Company as well as the individual +contribution of the executive. On an annual basis, the Committee has adopted, with approval of the Board, a Management Incentive Plan (the “Incentive Plan”), which is intended to be the principal vehicle for incentive cash bonus awards. +Incentive cash bonuses are generally paid out of a cash pool funded under the Incentive Plan based on the Company’s achievement of +certain specific financial and strategic objectives determined by the Committee and approved by the Board at the beginning of each fiscal year. The financial objectives typically consist of short-term targets that represent improvement in financial +performance compared to the prior year. The strategic objectives represent milestones that the Committee and Board believe are critical to achieving long-term growth and profitability. Because we are a small cap company that needs to make +substantial investment in our product and clinical development activities, the Committee and Board believe it is important to tie incentive cash payments not only to the attainment of short-term financial targets, but also to the achievement of +strategic objectives that will benefit the Company and its stockholders over the long term. The objectives are each weighted to determine their respective contributions to the pool amount. Each objective can be adjusted by the Committee or Board in +an equitable manner to reflect unexpected changes in the Company’s business or assumptions underlying the original objective. +With +respect to each financial objective, a Threshold, Target and Maximum performance level is established. The Target levels generally reflect the Company’s financial or operating plan for the year. Except in special circumstances, the Threshold +levels represent a minimum level of performance for which the Committee is willing to approve incentive cash bonuses. The Maximum levels reflect an outstanding level of performance for which the Committee is willing to reward executives with bonuses +substantially above the Target level payout. With respect to the strategic objectives, Threshold and Target performance levels are established to be consistent with the Company’s long-term strategic goals for our business. Whether a Maximum +performance level is achieved for a strategic objective is generally left to the discretion of the Committee. +If the Company meets all the +Target levels, the pool is funded at 100% of the aggregate target bonuses for all participants in the Incentive Plan, as described below. The pool is funded at 50% of the aggregate target bonuses if all of the Threshold levels are met and at 150% if +all of the Maximum levels are met. Pro-rata adjustments to the amount of funding for each objective are made where a particular performance is in between the pre-established performance levels. To the extent a performance level is below the +Threshold objective, there would be no funding for that particular item unless the Committee or Board determines, in their discretion, that some funding is warranted. +The amount of the cash bonus pool is determined by the Committee and recommended for Board approval. The Board may approve a pool greater than that recommended by the Committee if it determines that the Company has +achieved a breakthrough performance by substantially exceeding the Maximum performance level. The Committee and Board also retain discretion to increase or decrease the size of the pool in order to reflect specific performance or market conditions +affecting the Company. The cash bonus pool is used to pay bonuses not only to the Company’s NEOs, but also to all other officers of the Company and employees at the level of director. The number of individuals who participate in the Incentive +Plan typically ranges from 20 to 30 people. +Individual payments from the bonus pool to executives depend on the size of the bonus pool, +the executive’s achievement of individual performance objectives and the number of individuals participating in the plan at the time bonuses are awarded. Performance objectives for executive officers are approved annually by the Committee and +relate specifically to both the Company’s overall financial performance and the functional areas for which each executive officer is responsible. Bonuses are paid, based on an assessment of each officer’s performance for the applicable +year, using targets expressed as a percentage of the executive officer’s base salary. +16 +Table of Contents +Individual performance criteria for executives are generally derived from the Company’s financial +and strategic objectives which include financial performance, strategic planning, research and development, business development, regulatory affairs and quality control, manufacturing, engineering, information systems, sales and marketing, human +resources, investor relations matters, legal matters and/or other objectives approved by the Board. These objectives are established on an annual basis. Awards reflect a weighted average measurement of each executive’s achievement of his or her +individual performance objectives. The weighting given to a particular objective reflects the overall importance of the objective in light of the Company’s strategic goals and the executive’s functional responsibilities. +If an executive officer has met or exceeded his or her individual performance objectives and/or the Company’s expectations for the applicable year, +he or she may be eligible to receive up to 150% of his or her target bonus, depending on the size of the bonus pool. The Committee and Board retain the discretion to adjust an individual executive’s performance evaluation and to increase or +decrease the bonus paid to such individual to reflect the specific contributions of that executive, the Company’s overall performance, market conditions or other circumstances. +Executive officers must be employed at the end of the applicable calendar year and at the time that the bonus award is paid in order to participate in +the Incentive Plan. The Committee recommends for Board approval any bonus award for the CEO based on an assessment of his performance against his individual performance objectives. The CEO recommends individual awards for the other executive +officers for approval by the Committee based on an assessment of each officer’s performance against his or her applicable performance objectives. The Committee and Board have the right, in their sole discretion, to reject any or all of the +recommended bonus awards, even if the bonus pool has been funded and any or all applicable performance criteria have been satisfied, based on the business conditions of the Company or other factors deemed relevant by the Committee or Board. +3. Equity Awards . The Committee believes that an additional way to promote the long-term growth of the +Company is by compensating executives with equity in the Company in order to more closely align their interests with those of our stockholders. As a result, the Committee administers the OraSure Technologies, Inc. 2000 Stock Award Plan (the +“Stock Plan”), pursuant to which grants of stock options and restricted shares are made to executive officers on an annual basis. +The Committee, with the approval of the Board, adopts from time to time Stock Award Guidelines for the Company’s management (the “Stock Award Guidelines”). The purpose of the Stock Award Guidelines is to provide a framework +for determining annual equity awards for executives that reflect the executive’s duties and performance evaluation against individual objectives for the applicable year and to align the value of the awards for executives with long-term +incentive awards for comparable positions at other medical diagnostics and healthcare companies. An executive must be rated as “Meets Expectations” or better in order to receive an equity award, unless the Committee or Board otherwise +determines in its discretion that an equity award is appropriate in view of the executive’s specific contributions, the Company’s overall performance, market conditions or other factors. +The Stock Award Guidelines provide for the grant of a mix of restricted stock and stock options to the Company’s senior management, based on an +individual’s performance evaluation for a particular year. The entire amount of each grant is dependent on the Committee’s assessment of the recipient’s performance. The Committee has decided that awards should consist of a mix of +stock options and restricted stock rather than solely of stock options because such a mix would have greater value as a long-term incentive and retention mechanism. Awards made during 2008 consisted of 60% restricted stock and 40% stock options, +based on the market value of potential awards. +Annual stock option awards have an exercise price equal to the fair market value of the +Company’s Common Stock on the date of grant, which is calculated as the mean between the high and low sales price of the +17 +Table of Contents +Common Stock as reported by NASDAQ for that date. Stock options generally vest over four years, with the first 25% vesting after one year and the remaining +75% vesting on a monthly basis over the next three years following the first anniversary of the grant date. Grants of restricted stock generally vest over a three-year period, with one-third vesting on the first anniversary of the grant date, a +second third vesting on the second anniversary and the final third vesting on the third anniversary. These vesting restrictions serve to promote the Company’s long-term growth by restricting executives’ ability to realize short-term gains +from their awards. The Committee believes the terms of its equity awards to executives are competitive with the terms of equity awards offered at other medical diagnostics and healthcare companies. +Equity awards are generally made by the Committee each year as part of the normal annual compensation cycle. The awards for a particular year generally +occur in late January or early February of the following year after the Company’s full year financial results are known and performance evaluations for the executive officers have been prepared. Equity awards approved by the Committee for the +CEO are then reviewed and approved by the Board. In addition to the annual equity awards, the Committee may approve stock option and restricted stock awards for newly hired officers or in recognition of an executive’s promotion or expansion of +responsibilities. These latter grants may have vesting or other terms that differ from the terms generally approved for annual equity awards. Notwithstanding the Stock Award Guidelines, all equity awards are made at the discretion of the Committee +or Board. +4. Retirement Programs . We do not maintain any retirement programs other than a 401(k) profit +sharing plan (the “401(k) Plan”). All of our employees, including executive officers, are eligible to participate in the 401(k) Plan. We make matching contributions for participants on a dollar-for-dollar basis up to $4,000 per year. +Payments of benefits accrued for a 401(k) Plan participant will be made upon retirement or upon termination of employment prior to retirement, provided certain vesting conditions have been met by the participant prior to termination. +5. Perquisites and Other Compensation . As a general matter, the Committee does not believe that executive officers should +be treated differently than other employees, except that such officers should receive base salaries and have competitive bonus and equity award opportunities commensurate with their higher level of responsibility, and that certain officers should +receive employment agreements as described below. Our healthcare, disability, and other insurance programs and benefits are the same for all eligible employees, including executive officers. Executive officers do not receive perquisites. There are +no outstanding loans of any kind to any executive officer. +6. Potential Payments Upon Termination or Change in Control Pursuant to +Employment Agreements . The Company has entered into employment agreements with each of our NEOs. In addition to the compensation elements discussed above, these agreements provide for post-employment severance payments and +benefits in the event of termination of employment by the Company without “cause” or by the executive for “good reason” and provide enhanced severance payments upon such terminations in connection with a “change in +control” of the Company. The terms of these agreements are discussed in more detail under the Section entitled, “Employment Agreements and Potential Payments Upon Termination or Change in Control,” in this Proxy Statement. The +Committee believes that these agreements are generally consistent with industry practice at other medical diagnostic and healthcare companies, provide an incentive to the applicable executive to remain with the Company, and serve to align the +interests of stockholders and the executive in the event of a change in control of the Company. +Accounting and Tax Treatment of +Compensation . In approving the amount and form of compensation for the NEOs, the Committee considers all elements of the cost to the Company of providing such compensation, including the potential impact of +Section 162(m) of the Internal Revenue Code. Section 162(m) disallows a tax deduction for any publicly-held corporation for individual compensation exceeding $1 million in any taxable year for the CEO and for the three most highly +compensated officers unless compensation is performance-based. The Committee intends to maintain flexibility to pay compensation that is not entirely deductible when the best interests of the Company would make that advisable. +18 +Table of Contents +Non-Employee Director Compensation . At the Board’s request and +direction, the Committee reviews and recommends for Board approval an appropriate amount of compensation for non-employee members of the Board. These non-employee Directors receive annual fees and equity grants in consideration for their service on +the Board. For a further discussion of non-employee Director compensation, see the Section entitled, “Compensation of Directors,” in this Proxy Statement. +2008 Annual Base Salaries . Annual base salaries paid in 2008 to our NEOs were established by the Committee at the beginning of 2008 based on the Company’s financial +performance during 2007, an evaluation of the individual contributions of each officer compared to pre-established performance objectives for 2007, and a review of competitive compensation data and recommendations provided by Radford +Surveys & Consulting (“Radford”), an independent compensation consultant. +Radford collected and analyzed compensation +data from a peer group consisting of the following 22 medical diagnostics and healthcare companies, which were determined to be comparable to the Company based on total revenues, number of employees and market value: Abaxis, Inc., Akom, Inc., +Angiodynamics, Inc., Cepheid, Inc., Cholestech Corp., Digene Corp., Enzo Biochem, Inc., Harvard Bioscience, Inc., Home Diagnostics, Immucor, Inc., IRIS International, Inc., LifeCell Corp., Luminex Corp., Meridian Bioscience, Inc., Monogram +Biosciences, Inc., Myriad Genetics, Inc., Neogen Corp., Quidel Corp., Savient Pharmaceuticals, Inc., Third Wave Technologies, Inc., Trinity Biotech, and Ventana Medical Systems, Inc. This peer information was supplemented with Radford Life Sciences +Executive Survey data containing compensation information for biotechnology companies having 150 to 500 employees and annual revenues ranging from $40 million to $199 million. +Based on its discussions with Radford and Company management, the Committee targeted an aggregate +annual base salary increase budget of approximately 4.1% with an additional 1.0% for market-based adjustments. In order to reflect the Company’s performance and each executive’s contributions, and to equitably move salaries toward the +fiftieth (50 th ) percentile or maintain them at approximately that level, the Committee approved the following guidelines for determining annual +base salary increases: +Performance Rating +Low +Mid +High +Meets Expectations +3.00 +% +3.50 +% +4.00 +% +Exceeds Expectations +4.00 +% +4.50 +% +5.00 +% +Outstanding +5.00 +% +6.00 +% +7.00 +% +Executives with base salaries at or above +the seventy-fifth (75 th ) percentile of the market data for their position received a salary increase under the “Low” column based on +their individual performance during 2007. Officers with base salaries at or near the fiftieth (50 th ) percentile level were granted increases +under the “Mid” column, and officers below or near the twenty-fifth (25 th ) percentile received salary increases under the +“High” column, in each case based on their individual performance evaluations for 2007. Any officers rated below “Meets Expectations” did not receive a salary increase. +In establishing the annual base salaries paid to the NEOs in 2008, the Committee focused on the Company’s strong financial performance for 2007 as +well as the many other positive accomplishments achieved by the Company in 2007. The Company reported revenues of $82.7 million for 2007 compared to a target of $79.8 million. This represented a 21% increase over revenues reported for 2006. In +addition, the Company generated cash flow from operations of $11.6 million during 2007 compared to a target of $8.4 million. The Committee’s decision was also strongly influenced by the following positive accomplishments during 2007: +· +Successful development of an OraQuick ® rapid Hepatitis C +(“HCV”) test with performance equal to or better than HCV immunoassays currently on the market and significant work preparing for clinical trials of this product; +· +Substantial progress in completing the packaging and a customer reference and referral system for an OraQuick ® HIV test for home or over-the-counter (“OTC”) use, completion of operational and label comprehension studies, and preparation for the start of both observed and unobserved user +studies for this product; +19 +Table of Contents +· +Substantial progress towards extending the shelf life of our OraQuick ADVANCE ® HIV-1/2 Test; +· +Completion of clinical studies required for a 510(k) submission for a line extension of our OTC cryosurgical product; +· +Successful resolution and settlement of our patent infringement litigation against Schering-Plough; +· +Resolution of our contract dispute with Prestige Brands; +· +Receipt of a CE mark for our OraQuick ADVANCE ® HIV-1/2 Test +and initiation of sales of this product in Europe; +· +Substantial progress on the collaborative development of fully-automated homogeneous oral fluid drugs-of-abuse assays +with Roche Diagnostics, which will be used with our Intercept ® oral fluid collection device; +· +Substantial growth in our international businesses, including $4.4 million in revenues generated from sales of our OTC cryosurgical wart removal product in Mexico; +and +· +Strengthening of our management team through successful recruitment of a Vice President, Consumer Marketing, and Vice President, Government and External Affairs, as +well as several other mid-level managers. +In light of the +foregoing, the Committee concluded that Mr. Michels earned a performance rating for 2007 of “Exceeds Expectations.” As a result, and since Mr. Michels’ compensation was then below the fiftieth (50 th ) percentile, the Committee increased Mr. Michels’ annual base salary from $448,800 to $475,500 for 2008, which included an approximate 4.5% +merit increase and an additional $6,500 market adjustment to bring Mr. Michels’ salary closer to the fiftieth (50 th ) percentile. +Mr. Michels’ new salary was also approved by the Board. +Mr. Spair’s annual base salary was increased from $364,000 to $380,500 for 2008, representing an approximate 4.5% increase. Mr. Spair’s performance was rated “Exceeds Expectations” by the Committee for +performance during 2007, and this increase reflected the fact that his salary was below the fiftieth (50 th ) percentile. In evaluating +Mr. Spair’s performance, the Committee considered the Company’s strong financial performance and progress in achieving its strategic objectives during 2007, Mr. Spair’s expanded responsibilities for the overall supervision +of Sales and Marketing and Operations, and his continued work in improving investor relations, management of the financial planning, reporting and accounting functions, assistance in evaluating potential strategic transactions, leadership in the +implementation of the Company’s enterprise resource planning system and supervision of Sarbanes-Oxley compliance. +Dr. Lee’s annual base salary was increased from $313,500 to $336,500 for 2008, +representing a 4.5% merit increase and an additional $8,960 market adjustment. Dr. Lee was rated as “Exceeds Expectations” for performance during 2007, and his increase reflected the fact that his salary was below the fiftieth (50 +th ) percentile. In evaluating Dr. Lee’s performance, the Committee also considered his efforts to extend the shelf life of our +OraQuick ADVANCE ® HIV-1/2 test, his assistance in obtaining a CE mark for OraQuick ADVANCE ® , his support of +clinical development of an OraQuick ® HIV OTC test, his leadership in the development of a new OraQuick ® HCV test and +fully-automated homogeneous high throughput oral fluid drugs of abuse assays, and his reorganization and restructuring of our research and development department and product development process. +Mr. Formica’s annual base salary was increased from $268,100 to $277,500 for 2008, +representing a 3.5% increase. Mr. Formica was rated as “Meets Expectations” for performance during 2007, and his increase reflected the fact that his salary was near the seventy-fifth (75 th ) percentile. In evaluating Mr. Formica’s performance, the Committee also considered his contributions in reducing the costs to produce our products, his efforts to +automate and improve our manufacturing processes, and his support of a number of key regulatory and quality initiatives. +20 +Table of Contents +In August 2008, Mr. Formica was appointed as General Manager, Cryosurgery, with responsibility for +the Company’s cryosurgical business on a worldwide basis. Mr. Formica assumed this position while retaining his responsibilities as Executive Vice President, Operations. As a result of this expansion of his duties, the Committee increased +Mr. Formica’s annual base salary from $277,500 to $315,000. +Mr. Zack’s annual base salary was increased from $252,000 to $261,000 for 2008, representing a 3.6% increase. Mr. Zack was rated as “Meets Expectations” for performance during 2007. In evaluating +Mr. Zack’s performance, the Committee considered his efforts to expand the Company’s domestic sales, especially of OraQuick ADVANCE ® in the public health and hospital +markets, his progress in growing international sales, his successful recruitment of new sales and marketing executives and his leadership of various other sales and marketing initiatives. On August 29, 2008, Mr. Zack retired from the +Company, but agreed to provide consulting services to the Company for twelve months following termination of his employment at compensation equal to his then current annual base salary. +Finally, Mr. Jerrett’s annual base salary was increased from $251,500 to $260,000 for 2008, representing a 3.4% increase. Mr. Jerrett was +rated as “Meets Expectations” for performance during 2007. In evaluating Mr. Jerrett’s performance, the Committee considered his handling of commercial matters across all of the Company’s business lines, his leadership in +preparing SEC filings and public disclosures, his ongoing advice and counsel to the Board and senior management, his responsibilities for corporate governance and compliance matters, his work in maintaining and defending the Company’s patent +estate, and his handling of litigation and various disputes involving the Company. +2008 Incentive Cash +Bonuses . In February 2009, the Committee approved incentive cash bonuses to the executive officers under the 2008 Management Incentive Plan (the “2008 Incentive Plan”). These bonuses were awarded for +performance during 2008. +Under the 2008 Incentive Plan, the Committee had previously established Threshold, Target and Maximum performance +levels for financial objectives and Threshold and Target performance levels for several strategic objectives to be used to fund the bonus pool. +The financial objectives consisted of performance levels for total revenues and operating income for 2008. The Target performance levels reflected the revenue and operating income objectives contained in our 2008 budget or operating plan. +The operating income performance levels also reflected the significant investment we expected to make in our product and clinical development programs during 2008. +The strategic objectives for 2008 consisted of the following: (1) substantial progress towards +commercializing our OraQuick ® HCV test; (2) continued efforts to complete clinical development and obtain FDA approval of an OraQuick ® HIV OTC test, (3) extend the OraQuick ® HIV test shelf life in the U.S. and other markets; (4) demonstrate progress in developing an enhanced or +second generation rapid HIV test; and (5) bring at least one strategic transaction to the Board for consideration. +The revenue +objectives, the operating income objectives, and the strategic objectives as a group, were each weighted at 30%, 30% and 40%, respectively, in determining the level of bonus pool funding. The individual strategic objectives were separately weighted +to reflect their strategic importance to the Company, by assigning potential points achievable at the Threshhold, Target and Maximum performance levels. The following sets forth the potential bonus pool funding at each performance level: +Threshold +Target +Maximum +Revenues +$ +83.0 million +$ +95.0 million +$ +100.0 million +Operating Income (Loss) +$ +(6.0) million +$0 +$2.5 million +Strategic Objectives (Points) +40 +60 +100 +Pool Funding +$850,000 +$1.7 million +$2.55 million +21 +Table of Contents +If the Company were to achieve the Target performance levels for all objectives, then the bonus pool +would be funded at approximately $1.7 million, which equals 100% of the aggregate target bonus amounts for the Company’s senior management. If the Company were to achieve only the Threshold levels, then the bonus pool would be funded at +approximately $850,000 or 50% of the aggregate target bonus, and if the Company were to achieve the Maximum objectives, then the bonus pool would be funded at approximately $2.55 million or 150% of the aggregate target bonuses. +During 2008, the Company achieved revenues of $71.1 million and an operating loss of $16.3 million, which were below the Threshhold performance levels +for these financial objectives. As a result, there was no bonus pool funding approved for either objective. +With respect to the strategic +objectives, the Committee determined that management achieved the Maximum performance level for one initiative, the Target performance level for another initiative, the Threshhold performance levels for two initiatives and did not achieve one +initiative. As a result, the Committee concluded that a total of 51 points out of a maximum of 100 available points should be awarded, resulting in a prorated funding for the strategic objectives as a group of $527,000. +Based on the foregoing, the total bonus pool funding determined by the Committee for 2008 performance was $527,000, or approximately 31% of the potential +amount of funding that would have been provided if all of the financial and strategic objectives had been met at the Target performance levels. This amount was also approved by the full Board. The bonus pool was available to pay bonuses to the +Company’s five NEOs and twenty other members of our management team. +The specific target percentages for individual bonus payments +under the 2008 Incentive Plan are shown below and were set by the Committee (with Board approval) in February 2008 at levels that the Committee believed were competitive with incentive cash bonus opportunities available at comparable medical +diagnostic and healthcare companies for each executive position. +Title +Target Payouts +Chief Executive Officer +60 +% +Chief Financial Officer and Chief Operating Officer +50 +% +Executive Vice President +40 +% +Senior Vice President +35 +% +In February 2009, the Committee approved the payout of individual bonus awards to executive +officers from the bonus pool for 2008, based on the target bonus amounts described above and an assessment of each officer’s performance during 2008 against pre-established performance objectives. The Company’s Target financial and +strategic objectives were also included as part of each executive officer’s individual performance objectives for 2008 and were weighted at 50% for Mr. Michels and Mr. Spair, 40% for Messrs. Formica and Zack, and 30% for Dr. Lee +and Mr. Jerrett. +In evaluating Mr. Michels, the Committee first considered the Company’s lower than expected financial +performance during 2008, the reasons for this performance and responsive actions taken by management. The Committee noted that the Company’s financial performance was driven primarily by lower than expected revenues in the following business +areas: +· +Cryosurgical Products . Approximately $2.8 million in anticipated revenues were not achieved when our Latin American distributor, Genomma Labs, unexpectedly +reduced purchases of the Company’s OTC cryosurgical product in early 2008, as a result of increased product returns from Mexican retailers who had overstocked during the winter months. Sales were approximately $2.5 million lower as a result of +unexpectedly slower sales to the Company’s European distributor, SSL International. Despite continued strong sales in the United Kingdom, SSL was not as successful in expanding distribution in +22 +Table of Contents +other European countries, primarily France, Germany and Italy, in large part due to stronger competition from other OTC products. An additional $2.5 million +in Histofreezer ® sales were lost primarily as a result of diversion of lower-priced Histofreezer ® product by several +international distributors into the U.S. professional market. +· +Infectious Disease Testing . Although direct sales of the OraQuick ADVANCE ® HIV-1/2 test in the U.S. public health market grew in 2008 compared to 2007, the amount of growth was approximately $5.7 million lower than originally anticipated. Despite the additional $35 million in CDC funding +for routine HIV screening in healthcare settings and the CDC’s stated objective of testing an additional one million individuals, jurisdictions receiving this funding used less of it to purchase rapid HIV tests and/or deferred testing, which +impacted growth of OraQuick ADVANCE ® sales during 2008. Approximately $1.3 million of international OraQuick ® sales were +also not realized due to an unexpected change in funding sources by a significant African governmental customer, Madagascar, in early 2008, which eliminated the ability of this customer to purchase our oral fluid OraQuick ® test as originally expected. Finally, sales of our OraQuick ADVANCE ® HIV-1/2 test to Abbott Laboratories were approximately $3.7 million lower than +anticipated, primarily because of the decision to terminate our exclusive distribution agreement, which was not made until the latter part of 2008; and +· +DOA Testing . Sales of our Intercept ® product line in +the U.S. workplace testing market were approximately $3.0 million lower than expected, largely due to the worsening economic and employment climate throughout 2008. +Although disappointed with the Company’s 2008 financial performance, the Committee concluded +that the primary reasons for lower than expected revenues were neither easily foreseeable at the beginning of the year nor entirely preventable by management. The Committee also noted that Mr. Michels and his management team responded quickly +and aggressively to address each of these circumstances as they arose. During the summer of 2008, the Sales and Marketing Department was substantially reorganized and several key managers were replaced, with Mr. Michels assuming direct +day-to-day responsibility for this department. A new Vice President, International Sales was hired along with several international sales directors, thereby providing additional resources and focus in the international markets. New marketing +directors were also hired to strengthen sales of OraQuick ® and other products. Since the reorganization, enhanced processes and procedures for forecasting sales, generating new customers +and managing accounts across all product lines have been implemented. Another significant change was the assignment of worldwide responsibility for the Company’s cryosurgical business to Mr. Formica in order to increase attention and focus +on this important area. Since assuming this position, Mr. Formica has aggressively addressed the diversion issue mentioned above and implemented changes to improve distributor performance and find new distribution channels, in both the +professional and OTC markets. Finally, the Committee noted that termination of the Abbott agreement and transition to a direct sales model for OraQuick ADVANCE ® in the U.S. hospital +market were implemented in a very efficient manner, with minimal business disruption. The Committee concluded that these actions were appropriate and timely responses by Mr. Michels and his team to the challenges faced during 2008 and have +positioned the Company to respond more effectively to unanticipated events in the future. +In addition to the foregoing, the +Committee’s decision was significantly influenced by the many positive accomplishments achieved by management during 2008, including the following: +· +Completed clinical testing and submitted a premarket approval (“PMA”) application for an OraQuick ® rapid HCV test, which is now under review by the FDA; +· +Obtained FDA approval of the OraQuick ® product and process +enhancements and a twelve-month shelf life, making this important test even more attractive to customers in both domestic and international markets; +· +Successfully completed the observed user study for an OraQuick ® +HIV OTC test at the first interim look of the trial (i.e., 1,000 patents) and submitted the resulting data to the FDA; +23 +Table of Contents +· +Signed a final development agreement with Roche Diagnostics, completed development for the NIDA-5 panel of high throughput fully automated oral fluid drugs-of-abuse +assays and began the transfer of these new products to manufacturing; +· +Successfully developed a prototype of an enhanced or second generation rapid HIV test with improved sensitivity and specificity; +· +Successfully transitioned the Abbott Laboratories hospital business for OraQuick ADVANCE ® and began servicing all major group purchasing organizations that accounted for 80% of Abbott’s 2008 sales, with over 1,500 hospitals now under contract; +· +Successfully acquired and deployed the resources required for a direct sales model for OraQuick ADVANCE ® in hospitals, including a substantially larger hospital sales force, expanded capabilities for contracting, customer care, telephone sales, warehousing and logistics, credit, collections and +accounts receivable, and new capabilities for EDI, internet and fax product ordering and fulfillment; +· +Increased direct OraQuick ADVANCE ® sales in the U.S. +public health market by 28%, U.S. physician offices sales by 30% and Latin American sales by 760%, despite worsening global economic conditions; +· +Generated over $7.0 million during 2008 from the Schering-Plough settlement and license agreement; +· +Successfully negotiated and executed a second collaboration agreement with Schering-Plough for the clinical development +and promotion of an OraQuick ® rapid HCV test outside the United States; +· +Effectively developed the new national Freeze’n Clear Skin Clinic™ brand for the initial launch of the Company’s OTC cryosurgical product in the U.S. +in early 2009; +· +Maintained a greater than 70% institutional investor base and continued support by the Company’s largest stockholders, despite the worsening economic climate, +the challenging financial year during 2008 and a lower stock price; +· +Effectively responded to the filing of a major patent infringement lawsuit by Inverness Medical and Church & +Dwight with minimal impact on the Company’s OraQuick ® business; +· +Strengthened and expanded key relationships under the direction of the Company’s new Vice President, Government Affairs, including with the Veterans’ +Administration, Centers for Disease Control and Prevention, Substance Abuse and Mental Health Services Administration, United States Department of Health and Human Services, FDA, National Alliance of State and Territorial AIDS Directors, the +community of Caribbean governments eligible for PEPFAR funding and other agencies and stakeholders; and +· +Successfully implemented a headcount reduction at the end of 2008 to reduce future costs while refocusing resources on critical operations and functions. +Based on the foregoing, the Committee concluded that the lower than expected financial performance for 2008 was largely +offset by the strong actions taken by Mr. Michels and his team and the other positive accomplishments achieved during the year. As a result, the Committee determined that a “Meets Expectations” performance rating was warranted for +Mr. Michels and awarded Mr. Michels a $88,450 bonus for 2008, which represented 18.6% of his annual base salary compared to his target bonus of 60%. Mr. Michels’ 2008 incentive cash bonus was also approved by the Board. The +Committee determined that Mr. Michels’ performance rating and its decision to award a bonus well below his target for 2008 reasonably balanced the Company’s financial performance against the key actions taken and accomplishments +achieved under Mr. Michels’ direction. +The Committee rated +Mr. Spair’s performance for 2008 as “Meets Expectations” and awarded him a bonus of $58,975, which represented 15.5% of his base salary compared to his target bonus of 50%. In reaching this determination, the Committee balanced +the Company’s lower than expected financial performance during 2008 against Mr. Spair’s successful maintenance of the Company’s institutional investor base during a difficult year, his leadership of the transition to a direct +hospital sales model for OraQuick ADVANCE ® , his successful +24 +Table of Contents +management of the Company’s cash investments with no impairment charges during an extremely challenging economic environment, his leadership in +implementing the Company’s $25.0 million stock repurchase program, his assumption of supervisory responsibility for business development activities and his contribution in evaluating potential strategic transactions, his supervision of +Sarbanes-Oxley compliance and preparation of SEC filings and public disclosures, his leadership (along with Mr. Jerrett) in successfully resolving several potential claims by third parties without any formal legal proceedings, and his ongoing +management of the financial planning, reporting and accounting functions. +The +Committee rated Dr. Lee’s performance for 2008 as “Meets Expectations” and awarded him a $41,725 bonus, which represented 12.4% of his base salary compared to his target of 40%. In reaching this determination, the Committee +considered his efforts to obtain FDA approval of the OraQuick ® product and process enhancements and 12-month shelf life, his support of our OraQuick ® HIV OTC clinical studies and discussions with the FDA, his work on the PMA submission for a new OraQuick ® HCV test, his leadership in the development of +fully-automated homogeneous high throughput oral fluid drugs-of-abuse assays, and his leadership in the development of an enhanced or second generation rapid HIV test. +The Committee rated Mr. Formica’s performance for 2008 as “Meets Expectations” +and awarded him a bonus of $39,050, which represented 12.4% of his base salary compared to his target of 40%. In reaching this determination, the Committee considered Mr. Formica’s efforts to reduce the cost of producing our products, to +automate manufacturing of our OraQuick ADVANCE ® HIV-1/2 test and oral specimen collection devices, to improve our manufacturing processes, to obtain FDA approval of the OraQuick ® product and process improvements and a 12-month shelf life, and to complete various other operational initiatives, as well as his assistance in implementing a direct hospital sales model for +OraQuick ADVANCE ® and support of the PMA submission for a new OraQuick ® HCV test. The Committee also recognized his +assumption of expanded responsibilities for the Company’s worldwide cryosurgical business and his aggressive actions to address the diversion issue in the U.S. physician market and improve the performance of our distributors. +In light of the Company’s financial performance during 2008, the Committee determined that Mr. Zack’s performance would not have warranted +a bonus for 2008 had he stayed with the Company. Accordingly, under the terms of his employment agreement, Mr. Zack was not entitled to any bonus and none was paid to him. +Finally, the Committee rated Mr. Jerrett’s performance for 2008 as “Meets +Expectations” and awarded him a bonus of $28,200, which represented 10.8% of his base salary compared to his target of 35%. In reaching this determination, the Committee considered his leadership (along with Mr. Spair) in successfully +resolving several potential claims by third parties without any formal legal proceedings, his successful handling of multiple commercial issues across all of the Company’s business lines, his successful implementation of a new contract +management system to accommodate the large volume of contracts generated from the implementation of a direct hospital sales model for OraQuick ADVANCE ® , his leadership in responding +to the patent infringement litigation filed by Inverness Medical and Church & Dwight, his leadership in negotiating and executing a settlement of the patent infringement lawsuit against Schering-Plough, his help in negotiating and executing +the international collaboration agreement with Schering-Plough for the OraQuick ® HCV test, his efforts to prepare all SEC filings and other public disclosures, and his ongoing advice and +counsel to the Board and senior management. +25 +Table of Contents +2008 Equity Awards . The amounts of potential equity awards to be +granted in 2008 (expressed in number of shares) under the Stock Award Guidelines adopted by the Committee and Board for performance during 2007, are summarized below: +Performance Evaluation +Meets Expectations +Exceeds Expectations +Outstanding +Position +Restricted +Stock +Stock +Option +Restricted +Stock +Stock +Option +Restricted +Stock +Stock +Option +President/CEO +52,500 Shs +45,000 Shs +65,625 Shs +56,250 Shs +78,750 Shs +67,500 Shs +CFO/COO +42,500 Shs +36,500 Shs +53,000 Shs +45,500 Shs +63,500 Shs +54,500 Shs +EVP +21,000 Shs +18,000 Shs +26,250 Shs +22,500 Shs +31,500 Shs +27,000 Shs +SVP +14,000 Shs +12,000 Shs +17,500 Shs +15,000 Shs +21,000 Shs +18,000 Shs +In February 2008, utilizing the Stock Award Guideline described above, the Committee approved +stock option and restricted stock awards for the executive officers, based on the performance evaluations of such officers for 2007 (discussed above under “2008 Annual Base Salaries”), as set forth below: +Executive Officer +Performance Evaluation +Restricted Shares +Stock Options +Douglas A. Michels +Exceeds Expectations +65,625 Shs +56,250 Shs +Ronald H. Spair +Exceeds Expectations +53,000 Shs +45,500 Shs +Stephen R. Lee, Ph.D. +Exceeds Expectations +26,250 Shs +22,500 Shs +P. Michael Formica +Meets Expectations +21,000 Shs +18,000 Shs +Joseph E. Zack +Meets Expectations +26,250 Shs +22,500 Shs +Jack E. Jerrett +Meets Expectations +14,000 Shs +12,000 Shs +Although Mr. Zack’s performance had been rated as “Meets Expectations” for +2007, the Committee exercised its discretion to increase his equity grants to the levels provided for an “Exceeds Expectations” performance rating. The Committee decided to take this action in order to recognize Mr. Zack’s +significant efforts to build the Company’s international business during 2007, including his extensive travel and meetings with international distributors. +Finally, as previously noted, in August 2008 Mr. Formica was appointed as the Company’s General Manager, Cryosurgery. As a result of this substantial increase in his responsibilities, the Committee awarded +Mr. Formica an option to purchase 20,000 shares of Common Stock that vests over five years and 30,000 restricted shares that vest over four years. +Other Elements of Compensation . The Committee reviewed each other element of compensation set forth in the Summary Compensation Table set forth below, and found them to be +consistent with the Company’s compensation philosophy as described above. +26 +Table of Contents +Summary Compensation Table +The following table summarizes the compensation of our CEO and the other NEOs, for the years ended December 31, 2008, 2007 and 2006: +Name and +Principal Position +Year +Salary +($) +Bonus +($) +Stock +Awards 1 +($) +Option +Awards 2 +($) +Non-Equity +Incentive Plan +Compensation 3 +($) +Change in +Pension Value +and +Nonqualified +Deferred +Compensation +Earnings +($) +All other +Compen- +sation 4 +($) +Total ($) +Douglas A. Michels +President and Chief +Executive Officer +2008 +$ +474,884 +— +$ +768,347 +$ +424,464 +$ +88,450 +— +$ +4,000 +$ +1,760,145 +2007 +$ +448,508 +— +$ +731,911 +$ +614,608 +$ +280,000 +— +$ +4,000 +$ +2,079,027 +2006 +$ +433,146 +— +$ +584,325 +$ +593,963 +$ +108,400 +— +$ +4,000 +$ +1,723,834 +Ronald H. Spair +Chief Financial Officer +and Chief Operating Officer +2008 +$ +380,119 +— +$ +515,891 +$ +112,682 +$ +58,975 +— +$ +4,000 +$ +1,071,667 +2007 +$ +363,731 +— +$ +428,237 +$ +208,806 +$ +227,000 +— +$ +4,000 +$ +1,231,774 +2006 +$ +320,220 +— +$ +283,477 +$ +277,078 +$ +87,500 +— +$ +4,000 +$ +972,275 +Stephen R. Lee, Ph.D. +Executive Vice President, Research and +Development +2008 +$ +335,969 +— +$ +399,994 +$ +194,806 +$ +41,725 +— +$ +4,000 +$ +976,494 +2007 +$ +313,241 +— +$ +361,892 +$ +176,476 +$ +156,000 +— +$ +4,000 +$ +1,011,609 +2006 +$ +267,849 +— +$ +209,762 +$ +162,363 +$ +75,000 +— +$ +4,000 +$ +718,974 +P. Michael Formica +Executive Vice President, Operations and +General Manager, Cryosurgery +2008 +$ +290,120 +— +$ +210,294 +$ +65,300 +$ +39,050 +— +$ +4,000 +$ +608,764 +2007 +$ +267,950 +— +$ +185,730 +$ +177,651 +$ +107,000 +— +$ +4,000 +$ +742,331 +2006 +$ +260,096 +— +$ +207,940 +$ +251,326 +$ +52,100 +— +$ +4,000 +$ +775,462 +Joseph E. Zack +Executive Vice President, Marketing and Sales +2008 +$ +185,857 +— +$ +215,253 +$ +98,035 +— +— +$ +69,250 +5 +$ +568,395 +2007 +$ +252,358 +— +$ +185,730 +$ +147,656 +$ +100,500 +— +$ +4,000 +$ +690,244 +2006 +$ +244,805 +— +$ +163,833 +$ +214,425 +$ +49,000 +— +$ +4,000 +$ +676,063 +Jack E. Jerrett +Senior Vice President and General Counsel +2008 +$ +259,804 +— +$ +142,171 +$ +46,928 +$ +28,200 +— +$ +4,000 +$ +481,103 +2007 +$ +251,315 +— +$ +134,974 +$ +62,722 +$ +75,000 +— +$ +4,000 +$ +528,011 +2006 +$ +241,364 +— +$ +95,617 +$ +115,275 +$ +36,300 +— +$ +4,000 +$ +492,556 +(1) +The values set forth in this column reflect the compensation expense recognized for financial statement reporting purposes for the applicable year, in accordance with Financial +Accounting Standards Board Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment (“SFAS 123R”), of restricted stock awards made to the NEOs under the Company’s Stock Award Plan, and may +include amounts from restricted stock granted in and prior to such year. The market value of these shares at the date of grant is recognized on a straight-line basis over the vesting period. Additional information regarding restricted stock awards +is included in footnote 9 to the Company’s audited financial statements for the year ended December 31, 2008, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 10, 2009 (the “2008 10-K +Report”). +(2) +The values set forth in this column reflect the compensation expense recognized for financial statement reporting purposes for the applicable year, in accordance with SFAS 123R, of +stock option awards made to the NEOs under the Stock Award Plan, and may include costs for stock options granted in and prior to such year. Assumptions used in the calculation of those amounts are included in footnote 9 to the Company’s audited +financial statements for the year ended December 31, 2008, included in the Company’s 2008 10-K Report. +(3) +The indicated amounts reflect incentive cash bonuses paid to the NEOs pursuant to the 2008 Incentive Plan, based on performance during 2008. For a description of these incentive +cash bonus payments, see the Section entitled, “2008 Incentive Cash Bonuses,” in the CD&A. +(4) +The indicated amounts reflect cash contributed to a 401(k) profit sharing plan as an employer-matching contribution, which is offered to all employees of the Company. +(5) +Includes $65,250 in compensation paid to Mr. Zack pursuant to a consulting agreement covering the 12-month period following termination of his employment with the Company in +August 2008. +27 +Table of Contents +Grants of Plan-Based Awards +The following table summarizes information concerning possible and actual restricted stock and stock option awards for the NEOs during the fiscal year +ended December 31, 2008, as well as possible payouts under the 2008 Incentive Plan: +Name +Grant +Date 1 +Estimated Possible Payouts +Under Non-Equity +Incentive +Plan Awards 2 +Estimated Possible Payouts Under +Equity Incentive Plan Awards 3 +All other +Stock +Awards: +Number +Of Shares +Of Stock +Or Units +(#) +All other +Option +Awards: +Number +Of Securities +Underlying +Options +(#) +Exercise +or Base +Price of +Option +Awards 4 +($/Sh) +Grant +Date Fair +Value of +Stock and +Option +Awards 5 +($) +Threshold +($) +Target +($) +Maximum +($) +Threshold +(# Shs.) +Target +(# Shs.) +Maximum +(# Shs.) +Douglas A. Michels +President and Chief +Executive Officer +2/1/08 +— +— +— +— +— +— +65,625 +— +— +$ +528,609 +2/1/08 +— +— +— +— +— +— +— +56,250 +$ +8.06 +$ +176,951 +N/A +$ +142,650 +$ +285,300 +$ +427,950 +52,500 RS +65,625 RS +78,750 RS +— +— +— +N/A +N/A +— +— +— +45,000 SO +56,250 SO +67,500 SO +— +— +— +N/A +Ronald H. Spair +Chief Financial Officer and Chief Operating Officer +2/1/08 +— +— +— +— +— +— +53,000 +— +— +$ +426,915 +2/1/08 +— +— +— +— +— +— +— +45,500 +$ +8.06 +$ +143,134 +N/A +$ +95,125 +$ +190,250 +$ +285,375 +42,500 RS +53,000 RS +63,500 RS +— +— +— +N/A +N/A +— +— +— +36,500 SO +45,500 SO +54,500 SO +— +— +— +N/A +Stephen R. Lee, Ph.D. +Executive Vice President, Research and Development +2/1/08 +— +— +— +— +— +— +26,250 +— +— +$ +211,444 +2/1/08 +— +— +— +— +— +— +— +22,500 +$ +8.06 +$ +70,781 +N/A +$ +67,300 +$ +134,600 +$ +201,900 +21,000 RS +26,250 RS +31,500 RS +— +— +— +N/A +N/A +— +— +— +18,000 SO +22,500 SO +27,000 SO +— +— +— +N/A +P. Michael Formica +Executive Vice President, Operations and +General Manager, +Cryosurgery +2/1/08 +— +— +— +— +— +— +21,000 +— +— +$ +169,155 +2/1/08 +— +— +— +— +— +— +— +18,000 +$ +8.06 +$ +56,624 +8/19/08 +— +— +— +— +— +— +30,000 +— +— +$ +146,850 +8/19/08 +— +— +— +— +— +— +— +20,000 +$ +4.90 +$ +42,760 +N/A +$ +63,000 +$ +126,000 +$ +189,000 +21,000 RS +26,250 RS +31,500 RS +— +— +— +N/A +N/A +— +— +— +18,000 SO +22,500 SO +27,000 SO +— +— +— +N/A +Joseph E. Zack +Executive Vice President, Marketing and Sales +2/1/08 +— +— +— +— +— +— +26,250 +— +— +$ +211,444 +2/1/08 +— +— +— +— +— +— +— +22,500 +$ +8.06 +$ +70,781 +N/A +$ +52,200 +$ +104,400 +$ +156,600 +21,000 RS +26,250 RS +31,500 RS +— +— +— +N/A +N/A +— +— +— +18,000 SO +22,500 SO +27,000 SO +— +— +— +N/A +Jack E. Jerrett +Senior Vice President +and General Counsel +2/1/08 +— +— +— +— +— +— +14,000 +— +— +$ +112,770 +2/1/08 +— +— +— +— +— +— +— +12,000 +$ +8.06 +$ +37,750 +N/A +$ +45,500 +$ +91,000 +$ +136,500 +14,000 RS +17,500 RS +21,000 RS +— +— +— +N/A +N/A +— +— +— +12,000 SO +15,000 SO +18,000 SO +— +— +— +N/A +(1) +Annual equity incentive awards to NEOs, consisting of a combination of restricted stock (“RS”) and stock options (“SO”), are determined for each year pursuant to +the Stock Award Guidelines, based on an evaluation of each officer’s performance during the year against previously established performance objectives. Annual equity awards made during 2008 were approved by the Compensation Committee on +February 1, 2008 for performance during 2007. For a description of these equity awards and their terms, see the Sections entitled, “Compensation Components – Equity Awards” and “2008 Equity Awards,” in the CD&A. +(2) +The indicated amounts represent possible incentive cash bonus payments to the NEOs under the 2008 Incentive Plan for performance during 2008. On January 23, 2009, bonus +payments under the 2008 Incentive Plan were approved by the Compensation Committee for the NEOs based on an assessment of the Company’s performance against certain financial and strategic objectives for 2008 and of each officer’s +performance against pre-established individual performance objectives. A further description of the payments approved under the 2008 Incentive Plan is set forth in the Section entitled, “2008 Incentive Cash Bonuses,” in the CD&A. +Actual amounts paid for 2008 are also disclosed in the Summary Compensation Table. +(3) +The indicated amounts represent the possible number of shares which could have been granted to the NEOs in 2008 in the form of restricted stock and stock options pursuant to the +Stock Award Guidelines, based on each officer’s performance during 2007. Specific awards of restricted stock and stock options were approved by the Compensation Committee for the NEOs pursuant to the applicable Stock Award Guidelines on +February 1, 2008 based on an assessment of each officer’s performance against pre-established performance objectives for 2007. A further description of these equity awards and their terms is set forth in the Sections entitled, +“Compensation Components – Equity Awards” and “2008 Equity Awards,” in the CD&A. Compensation expense associated with RS and SO awards for 2008 and prior years is disclosed in the Summary Compensation Table. +(4) +The exercise price for stock options is the fair market value of the Company’s Common Stock on the date of grant, which is calculated as the mean between the high and low sales +price of the Common Stock as reported by NASDAQ on the date of grant. +(5) +The indicated amounts represent the grant date fair value calculated in accordance with SFAS 123R. +28 +Table of Contents +Outstanding Equity Awards at Fiscal Year-End +The following table summarizes information regarding unexercised stock options and unvested restricted stock held by the NEOs at December 31, 2008: +Option Awards 1 +Stock Awards 1 +Name +Number of +Securities +Underlying +Unexercised +Options +(#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options 2 +(#) +Unexercisable +Equity +Incentive +Plan +Awards +Number +of +Securities +Underlying +Unexercised +Unearned +Options +(#) +Option +Exercise +Price +($/Sh.) +Option +Expiration +Date +Number +of Shares +or Units +of Stock +That +Have Not +Vested 2 +(#) +Market +Value of +Shares or +Units +of +Stock +That +Have Not +Vested 8 +($) +Equity +Incentive +Plan +Awards: +Number of +Unearned +Shares, +Units or +Other +Rights +That +Have +Not +Vested (#) +Equity +Incentive +Plan +Awards: +Market +or Payout +Value of +Unearned +Shares, +Units or +Other +Rights +That +Have Not +Vested ($) +Douglas A. Michels +President and Chief +Executive Officer +400,000 +— +— +$ +7.77 +6/22/2014 +— +— +— +— +66,094 +1,406 +3(a) +— +$ +5.60 +1/26/2015 +— +— +— +— +49,218 +18,282 +3(b) +— +$ +9.56 +1/23/2016 +— +— +— +— +20,625 +24,375 +3(c) +— +$ +8.28 +2/1/2017 +— +— +— +— +— +56,250 +3(d) +— +$ +8.06 +2/1/2018 +— +— +— +— +— +— +— +— +— +142,560 +3(e) +$ +524,621 +— +— +— +— +— +— +— +26,250 +3(f) +$ +96,600 +— +— +— +— +— +— +— +35,000 +3(g) +$ +128,800 +— +— +— +— +— +— +— +65,625 +3(h) +$ +241,500 +— +— +Ronald H. Spair +Chief Financial Officer and Chief Operating Officer +150,000 +— +— +$ +10.70 +11/1/2011 +— +— +— +— +65,000 +— +— +$ +5.87 +1/31/2012 +— +— +— +— +90,000 +— +— +$ +6.96 +1/31/2013 +— +— +— +— +100,000 +— +— +$ +8.20 +1/14/2014 +— +— +— +— +26,438 +562 +4(a) +— +$ +5.60 +1/26/2015 +— +— +— +— +19,687 +7,313 +4(b) +— +$ +9.56 +1/23/2016 +— +— +— +— +20,625 +24,375 +4(c) +— +$ +8.28 +2/1/2017 +— +— +— +— +— +45,500 +4(d) +— +$ +8.06 +2/1/2018 +— +— +— +— +— +— +— +— +— +10,500 +4(e) +$ +38,640 +— +— +— +— +— +— +— +16,666 +4(f) +$ +61,331 +— +— +— +— +— +— +— +35,000 +4(g) +$ +128,800 +— +— +— +— +— +— +— +53,000 +4(h) +$ +195,040 +Stephen R. Lee, Ph.D. +Executive Vice President, Research and Development +101,563 +23,437 +5(a) +— +$ +8.97 +9/23/2015 +— +— +— +— +13,125 +4,875 +5(b) +— +$ +9.56 +1/23/2016 +— +— +— +— +10,312 +12,188 +5(c) +— +$ +8.28 +2/1/2017 +— +— +— +— +— +22,500 +5(d) +— +$ +8.06 +2/1/2018 +— +— +— +— +— +— +— +— +— +7,000 +5(e) +$ +25,760 +— +— +— +— +— +— +— +13,333 +5(f) +$ +49,065 +— +— +— +— +— +— +— +17,500 +5(g) +$ +64,400 +— +— +— +— +— +— +— +26,250 +5(h) +$ +96,600 +— +— +P. Michael Formica +Executive Vice President, Operations and +General Manager, Cryosurgery +52,960 +— +— +$ +10.71 +10/16/2010 +— +— +— +— +33,750 +— +— +$ +7.09 +12/13/2010 +— +— +— +— +45,000 +— +— +$ +5.87 +1/31/2012 +— +— +— +— +75,000 +— +— +$ +6.96 +1/31/2013 +— +— +— +— +100,000 +— +— +$ +8.20 +1/14/2014 +— +— +— +— +22,031 +469 +6(a) +— +$ +5.60 +1/26/2015 +— +— +— +— +16,406 +6,094 +6(b) +— +$ +9.56 +1/23/2016 +— +— +— +— +8,250 +9,750 +6(c) +— +$ +8.28 +2/01/2017 +— +— +— +— +— +18,000 +6(d) +— +$ +8.06 +2/01/2018 +— +— +— +— +— +20,000 +6(e) +— +$ +4.90 +8/19/2018 +— +— +— +— +— +— +— +— +— +8,750 +6(f) +$ +32,200 +— +— +— +— +— +— +— +14,000 +6(g) +$ +51,520 +— +— +— +— +— +— +— +21,000 +6(h) +$ +77,280 +— +— +— +— +— +— +— +30,000 +6(i) +$ +110,400 +— +— +29 +Table of Contents +Option Awards 1 +Stock Awards 1 +Name +Number of +Securities +Underlying +Unexercised +Options +(#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options 2 +(#) +Unexercisable +Equity +Incentive +Plan +Awards +Number +of +Securities +Underlying +Unexercised +Unearned +Options +(#) +Option +Exercise +Price +($/Sh.) +Option +Expiration +Date +Number +of Shares +or Units +of Stock +That +Have Not +Vested 2 +(#) +Market +Value of +Shares +or Units +of +Stock +That +Have Not +Vested 8 +($) +Equity +Incentive +Plan +Awards: +Number of +Unearned +Shares, +Units or +Other +Rights +That +Have +Not +Vested (#) +Equity +Incentive +Plan +Awards: +Market +or Payout +Value of +Unearned +Shares, +Units or +Other +Rights +That +Have Not +Vested ($) +Joseph E. Zack +Executive Vice President, Marketing and Sales +125,000 +— +— +$ +4.06 +9/9/2012 +— +— +— +— +30,000 +— +— +$ +6.96 +1/31/2013 +— +— +— +— +75,000 +— +— +$ +8.20 +8/29/2013 +— +— +— +— +21,328 +— +— +$ +5.60 +8/29/2013 +— +— +— +— +18,516 +— +— +$ +9.56 +8/29/2013 +— +— +— +— +12,375 +— +— +$ +8.28 +8/29/2013 +— +— +— +— +11,250 +— +— +$ +8.06 +8/29/2013 +— +— +— +— +Jack E. Jerrett +Senior Vice President and General Counsel +25,000 +— +— +$ +8.03 +11/27/2010 +— +— +— +— +30,000 +— +— +$ +7.09 +12/13/2010 +— +— +— +— +30,000 +— +— +$ +5.87 +1/31/2012 +— +— +— +— +40,000 +— +— +$ +6.96 +1/31/2013 +— +— +— +— +40,000 +— +— +$ +8.20 +1/14/2014 +— +— +— +— +14,688 +312 +7(a) +— +$ +5.60 +1/26/2015 +— +— +— +— +13,125 +4,875 +7(b) +— +$ +9.56 +1/23/2016 +— +— +— +— +5,500 +6,500 +7(c) +— +$ +8.28 +2/01/2017 +— +— +— +— +— +12,000 +7(d) +— +$ +8.06 +2/01/2018 +— +— +— +— +— +— +— +— +— +7,000 +7(e) +$ +25,760 +— +— +— +— +— +— +— +9,333 +7(f) +$ +34,345 +— +— +— +— +— +— +— +14,000 +7(g) +$ +51,520 +— +— +(1) +The indicated information does not include restricted stock or stock options awarded to the NEOs in January 2009 pursuant to the Stock Award Guidelines, in respect of performance +during 2008. +(2) +Stock options vest over four years, with the first 25% vesting on the first anniversary of the grant date and the remaining 75% vesting on a monthly basis over the next three years +following the first anniversary of the grant date. Grants of restricted stock vest over a three-year period, with one-third vesting on the first anniversary of the grant date, a second third vesting on the second anniversary and the final third +vesting on the third anniversary. +(3) +The indicated stock options and restricted stock vest as follows: +(a) +1,406 options on January 26, 2009; +(b) +1,406 options on the 23 rd of each month, from January 23, 2009 through January 23, 2010; +(c) +937 options on the 1 st of each month, from January 1, 2009 through February 1, 2011; +(d) +14,063 options on February 1, 2009 and 1,172 options on the 1 st of each month, from March 1, 2009 through February 1, 2012; +(e) +6,480 restricted shares quarterly on March 31, June 30, September 30 and December 31 of each year; from March 31, 2009 through June 30, 2014; +(f) +26,250 restricted shares on January 23, 2009; +(g) +17,500 restricted shares on February 1, 2009 and 2010; and +(h) +21,875 restricted shares on February 1, 2009, 2010 and 2011. +(4) +The indicated stock options and restricted stock vest as follows: +(a) +562 options on January 26, 2009; +(b) +562 options on the 23 rd of each month, from January 23, 2009 through January 23, 2010; +(c) +937 options on the 1 st of each month, from January 1, 2009 through February 1, 2011; +(d) +11,375 options on February 1, 2009 and 948 options on the 1 st of each month from March 1, 2009 through February 1, 2012; +(e) +10,500 restricted shares on January 23, 2009; +30 +Table of Contents +(f) +16,666 restricted shares on September 29, 2009; +(g) +17,500 restricted shares on February 1, 2009 and 2010; and +(h) +17,667 restricted shares on February 1, 2009, 2010 and 2011. +(5) +The indicated stock options and restricted stock vest as follows: +(a) +2,604 options on the 23 rd of each month, from January 23, 2009 through September 23, 2009; +(b) +375 options on the 23 rd of each month, from January 23, 2009 through January 23, 2010; +(c) +469 options on the 1 st of each month, from January 1, 2009 through February 1, 2011; +(d) +5,625 options on February 1, 2009 and 469 options on the 1 st of each month, from March 1, 2009 through February 1, 2012; +(e) +7,000 restricted shares on January 23, 2009; +(f) +13,333 restricted shares on September 29, 2009; +(g) +8,750 restricted shares on February 1, 2009 and 2010; and +(h) +8,750 restricted shares on February 1, 2009, 2010 and 2011. +(6) +The indicated stock options and restricted stock vest as follows: +(a) +469 options on January 26, 2009; +(b) +469 options on the 23 rd of each month, from January 23, 2009 through January 23, 2010; +(c) +375 options on the 1 st of each month, from January 1, 2009 through February 1, 2011; +(d) +4,500 options on February 1, 2009 and 375 options on the 1 st of each month, from March 1, 2009 through February 1, 2012; +(e) +4,000 options on August 19, 2009, and 333 options on the 19 th of each month, from September 19, 2009 through August 19, 2013; +(f) +8,750 restricted shares on January 23, 2009; +(g) +7,000 restricted shares on February 1, 2009 and 2010; +(h) +7,000 restricted shares on February 1, 2009, 2010 and 2011; and +(i) +7,500 restricted shares on August 19, 2009, 2010, 2011 and 2012. +(7) +The indicated stock options and restricted stock vest as follows: +(a) +312 options on January 26, 2009; +(b) +375 options on the 23 rd of each month, from January 23, 2009 through January 23, 2010; +(c) +250 options on the 1 st of each month, from January 1, 2009 through February 1, 2011; +(d) +3,000 options on February 1, 2009 and 250 options on the 1 st of each month, from March 1, 2009 through February 1, 2012; +(e) +7,000 restricted shares on January 23, 2009; +(f) +4,667 restricted shares on February 1, 2009 and 2010; and +(g) +4,667 restricted shares on February 1, 2009, 2010, and 2011. +(8) +The indicated values were determined by multiplying the number of unvested shares of restricted stock shown in this table by $3.68 per share, the closing price of the Company’s +Common Stock as reported by NASDAQ on December 31, 2008. +31 +Table of Contents +Option Exercises and Stock Vested +The following table summarizes information with respect to the exercise of stock options and vesting of restricted stock for each of the NEOs during the +fiscal year ended December 31, 2008: +Option Awards 1 +Stock Awards +Name +Number of +Shares +Acquired +on Exercise +(#) +Value +Realized +on +Exercise +($) +Number Of +Shares +Acquired +on Vesting +(#) +Value +Realized +on +Vesting 2 +($) +Douglas A. Michels +President and Chief Executive Officer +— +— +95,920 +$ +706,809 +Ronald H. Spair +Chief Financial Officer and Chief Operating Officer +— +— +55,167 +$ +394,379 +Stephen R. Lee, Ph.D. +Executive Vice President, Research and Development +— +— +42,416 +$ +261,300 +P. Michael Formica +Executive Vice President, Operations and General Manager, Cryosurgery +— +— +24,500 +$ +202,773 +Joseph E. Zack 3 +Executive Vice President, Marketing and Sales +— +— +49,000 +$ +324,660 +Jack E. Jerrett +Senior Vice President and General Counsel +— +— +17,500 +$ +144,941 +(1) +No stock options were exercised by any of the NEOs during 2008. +(2) +The indicated amounts were calculated by multiplying the number of restricted shares acquired upon vesting by the market value of the Company’s Common Stock on the applicable +vesting date. The market value was determined by calculating the mean between the high and low sales price of the Common Stock as reported by NASDAQ on the vesting date. +(3) +The amounts indicated for Mr. Zack include 24,500 shares, having a value of $121,888, for which the vesting was accelerated as a result of the termination of +Mr. Zack’s employment with the Company in August 2008. +Pension Benefits +We provide no pension benefits to the NEOs other than the right to participate in our 401(k) Plan. For a further description of the terms of the 401(k) +Plan, see the Section entitled, “Compensation Components – Retirement Programs,” in the CD&A. +Nonqualified +Deferred Compensation +None of the NEOs has received any nonqualified deferred compensation during the fiscal year ended +December 31, 2008. +Employment Agreements and Potential Payments Upon Termination or Change in Control +Mr. Michels has an employment agreement with the Company that provides for the various components of compensation described in the CD&A. In +addition, upon a termination of employment, Mr. Michels’ contract provides for certain post-employment severance and other benefits, as described below. +32 +Table of Contents +Mr. Michels’ employment agreement will terminate upon his death or disability. In addition, +Mr. Michels may terminate his employment at any time and for any reason upon 90 days written notice to the Company, for “good reason” (as defined below), or following a “change in control” (as defined below). +Mr. Michels’ employment agreement can also be terminated by the Company for “cause” (as defined below) or without “cause.” +As used in the agreement, the term “good reason” means (i) a material breach of the agreement by the Company that is not cured within 30 days of written notice, (ii) any diminution in +Mr. Michels’ base compensation or authority, duties or responsibilities, (iii) a material diminution in the authority, duties or responsibilities of the person to whom Mr. Michels reports, including a change in +Mr. Michels’ reporting obligation from the Board to another employee of the Company, if applicable, (iv) a material diminution of the budget over which Mr. Michels exercises control, or (v) a material change in +Mr. Michels’ job location. +A “change in control” generally is defined to take place when disclosure of such a change +would be required by the proxy rules promulgated by the SEC or when: +· +any person, or more than one person acting as a group within the meaning of Section 409A of the Internal Revenue Code (the “Code”) and the +regulations issued thereunder, acquires ownership of stock of the Company that, together with stock held by such person or group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of the Company; +· +any person, or more than one person acting as a group within the meaning of Code Section 409A and the regulations issued thereunder, acquires (or has acquired +during the 12-month period ending on the date of the most recent acquisition) ownership of stock of the Company possessing 30 percent or more of the total voting power of the Company’s stock; +· +a majority of the members of the Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the +members of the Board before the date of the appointment or election; or +· +a person, or more than one person acting as a group within the meaning of Code Section 409A and the regulations issued thereunder, acquires (or has acquired +during the 12-month period ending on the date of the most recent acquisition) assets from the Company that have a total gross fair market value equal to or more than 40 percent of the total gross fair market value of all the assets of the Company +immediately before such acquisition or acquisitions. +A “change in control period” is the period which begins +on the occurrence of a change in control and ends 18 months thereafter. +Upon the termination of Mr. Michels’ employment upon his +death or disability, by Mr. Michels for any reason other than good reason or by the Company for cause, Mr. Michels will be entitled to receive his salary through the date of termination and any bonus approved by the Board or the +Compensation Committee prior to the date of termination but not yet paid and, in the case of a termination upon his death or disability, a cash bonus for the calendar year in which termination occurs that Mr. Michels would have received but for +his death or disability, prorated through the date of death or commencement of disability. Upon termination of the agreement by Mr. Michels with good reason or after a change in control or by the Company without cause (which includes the +Company’s failure to renew the agreement), Mr. Michels would be entitled to receive his salary through the date of termination and any bonus that has been approved by the Board or the Compensation Committee prior to the date of termination +but not yet paid, a cash bonus for the calendar year in which termination occurs equal to Mr. Michels’ target bonus for such year, and for a period of one year after the date of termination, benefits for Mr. Michels and/or his family +at levels substantially equal to those that would have been provided to them by the Company if Mr. Michels’ employment had not been terminated. If termination is for good reason or without cause (which includes the Company’s failure +to renew the agreement) and does not occur during a change in control period, Mr. Michels would also receive a lump sum amount equivalent to 12 months of his annual salary. +33 +Table of Contents +If, however, termination is for good reason or without cause (which includes the Company’s failure to renew the agreement) and occurs during a change in +control period, or if termination is by Mr. Michels after a change in control, Mr. Michels will receive a lump sum amount equivalent to 36 months of his annual salary. If Mr. Michels is a “specified employee” within the +meaning of Code Section 409A at the time of the termination of his employment and any of the foregoing payments would subject him to any tax, interest or penalty under Code Section 409A or regulation thereunder, then the payment shall not +be made until the first day which is at least six months after the date of termination of his employment. Mr. Michels’ agreement also provides that the Company will pay an amount equal to the first $1 million of excise tax incurred under +Section 280G of the Internal Revenue Code on compensation paid to Mr. Michels upon a change in control. +Upon termination of +Mr. Michels’ employment as a result of disability, for good reason, by the Company without cause or by Mr. Michels after a change of control, Mr. Michels can elect to receive medical and dental insurance coverage for himself and +his family under any plans offered by the Company to the extent the Company is self insured or coverage for former employees is available on reasonable terms (as determined by the Company) from the Company’s providers of medical and dental +coverage. +All stock awards granted to Mr. Michels are required to immediately vest (i) in the event of a change in control or +(ii) if Mr. Michels’ employment is terminated for good reason by Mr. Michels or by the Company without cause during a change in control period, and 50% of such stock awards shall vest in the event Mr. Michels’ +employment is terminated for good reason or by the Company without cause during any period other than a change in control period. +The +termination and severance provisions in the employment agreements for the other NEOs are substantially similar to Mr. Michels’ employment agreement, with the following exceptions. The Company is obligated to pay an amount up to the first +$500,000, rather than $1 million, of excise tax imposed under Section 280G of the Internal Revenue Code on compensation paid as a result of a change in control for Messrs. Spair, Formica, Jerrett and Dr. Lee. Messrs. Formica and Jerrett +and Dr. Lee are entitled to receive severance payments equivalent to 24 months of their annual salary, rather than 36 months, in the event of a termination of their agreements for good reason or without cause during a change in control period +or after a change in control. +34 +Table of Contents +The following table provides estimates of the potential severance and other post-termination benefits the +NEOs would receive assuming their employment was terminated as of December 31, 2008: +Name 1 +Benefit +Voluntary +Termination +or +Termination +for Cause +Termination +for Death +or +Disability 2 +Termination +for Good +Reason or +Without +Cause Not +Within +Change in +Control +Period 2 +Termination after +Change in +Control, or for +Good Reason or +Without Cause +Within Change +in +Control +Period 2,3 +Douglas A. Michels +President and Chief Executive Officer +Salary Continuation +— +— +$ +475,500 +$ +1,426,500 +Bonus +— +$ +88,450 +$ +285,300 +$ +285,300 +Accelerated Option Vesting +— +— +— +— +Accelerated Restricted +Stock Vesting +— +$ +991,521 +$ +495,760 +$ +991,521 +Health Care Benefits +— +$ +12,624 +$ +12,624 +Total +— +$ +1,079,971 +$ +1,269,184 +$ +2,715,945 +Ronald H. Spair +Chief Financial Officer and Chief Operating Officer +Salary Continuation +— +— +$ +380,500 +$ +1,141,500 +Bonus +— +$ +58,975 +$ +190,250 +$ +190,250 +Accelerated Option Vesting +— +— +— +— +Accelerated Restricted Stock Vesting +— +$ +423,811 +$ +211,905 +$ +423,811 +Health Care Benefits +— +$ +10,212 +$ +10,212 +Total +— +$ +482,786 +$ +792,867 +$ +1,765,773 +Stephen R. Lee, Ph.D. +Executive Vice President, Research and Development +Salary Continuation +— +— +$ +336,500 +$ +673,000 +Bonus +— +$ +41,725 +$ +134,600 +$ +134,600 +Accelerated Option Vesting +— +— +— +— +Accelerated Restricted Stock Vesting +— +$ +235,825 +$ +117,913 +$ +235,825 +Health Care Benefits +— +— +$ +9,996 +$ +9,996 +Total +— +$ +277,550 +$ +599,009 +$ +1,053,421 +P. Michael Formica +Executive Vice President, Operations and General Manager Cryosurgery +Salary Continuation +— +— +$ +315,000 +$ +630,000 +Bonus +— +$ +39,050 +$ +126,000 +$ +126,000 +Accelerated Option Vesting +— +— +— +— +Accelerated Restricted Stock Vesting +— +$ +271,400 +$ +135,700 +$ +271,400 +Health Care Benefits +— +— +$ +12,420 +$ +12,420 +Total +— +$ +310,450 +$ +589,120 +$ +1,039,820 +Jack E. Jerrett +Senior Vice President and General Counsel +Salary Continuation +— +— +$ +260,000 +$ +520,000 +Bonus +— +$ +28,200 +$ +91,000 +$ +91,000 +Accelerated Option Vesting +— +— +— +— +Accelerated Restricted Stock Vesting +— +$ +111,625 +$ +55,813 +$ +111,625 +Health Care Benefits +— +— +$ +10,332 +$ +10,332 +Total +— +$ +139,825 +$ +417,145 +$ +732,957 +(1) +Mr. Zack is not included in this table because his employment with the Company terminated in August 2008. +35 +Table of Contents +(2) +The indicated values for the accelerated vesting of stock options reflect (i) the number of option shares which would vest on an accelerated basis, multiplied by (ii) the +excess, if any, of the $3.68 per share closing price for the Company’s Common Stock, as reported by NASDAQ on December 31, 2008, over the applicable exercise price for each option. The indicated values for the accelerated vesting of +restricted stock reflect the $3.68 per share closing price multiplied by the number of shares which would vest on an accelerated basis. +(3) +The Company will also pay the excise tax incurred under Section 280G of the Internal Revenue Code on compensation paid to the Named Executive Officers in the event of a change +in control in an amount up to $1 million for Mr. Michels and $500,000 for the other NEOs. +Compensation of +Directors +All non-employee Directors receive an annual fee of $25,000. In addition, the Chairman of the Board receives an additional +annual fee of $20,000, the Chairmen of the Audit Committee and Compensation Committee receive an additional annual fee of $10,000 each, and the Chairman of the Nominating and Corporate Governance Committee receives an additional annual fee of +$5,000. Thus, the Chairman of the Board, and the Chairmen of the Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee receive aggregate annual fees of $45,000, $35,000, $35,000 and $30,000, respectively. Annual +fees are payable quarterly in advance. +Each non-employee Director receives a $2,000 fee for each Board meeting attended, and each member +of a Board Committee receives an additional $1,000 fee for each Committee meeting attended. Fees will be payable for meetings held in person or by conference telephone. A meeting fee will only be paid with respect to a meeting for which minutes are +prepared. Non-employee Directors also receive reimbursement for their reasonable out-of-pocket costs of attending Board and Committee meetings. +Non-employee Directors receive an initial grant of 40,000 stock options upon joining the Board (the “Initial Grant”). An additional grant of 40,000 stock options is also made to any non-employee Director who becomes Chairman of +the Board (the “Chairman Grant”). Each non-employee Director receives an annual grant of 15,000 stock options (the “Annual Grant”) on the annual option grant date for officers and employees of the Company, except for the Chairman +of the Board, who receives an Annual Grant of 25,000 stock options. +The options granted to non-employee Directors are nonqualified stock +options and have an exercise price equal to the mean between the high and low sales prices of the Company’s Common Stock as quoted on NASDAQ on the grant date. Each Initial Grant and Chairman Grant generally vests on a monthly basis over the 24 +months immediately following the grant date, and each Annual Grant generally vests on a monthly basis over the 12 months immediately following the grant date. Options become exercisable in full immediately upon the occurrence of a change in control +of the Company. A change in control of the Company would occur on the happening of such events as the acquisition of beneficial ownership by a person or group of 30 percent or more of the outstanding Common Stock of the Company, certain changes in +Board membership affecting a majority of positions, certain mergers or consolidations, a sale or other transfer of all or substantially all the Company’s assets, or approval by the stockholders of a plan of liquidation or dissolution of the +Company, as well as any change in control required to be reported under the SEC’s proxy disclosure rules. Payment of the exercise price may be made in cash or by delivery of previously acquired shares of Common Stock having a fair market value +equal to the aggregate exercise price. +On January 23, 2009, the Board approved the grant of restricted shares instead of stock +options for each non-employee Director in order to better align the Board’s practices with recent trends in Director compensation. The number of restricted shares awarded equaled the number of options that would have otherwise have been awarded +under the Company’s existing Director compensation program. The Board intends to reevaluate its compensation practices for non-employee Directors during 2009, with the assistance of an independent compensation consultant, in order to determine +whether any changes are appropriate to reflect market conditions. +36 +Table of Contents +The following table summarizes information related to compensation of non-employee Directors during the +fiscal year ended December 31, 2008: +Name 1 +Fees +Earned +or Paid +in Cash +($) +Stock +Awards +($) +Option +Awards 2 , 3 +($) +Non-Equity +Incentive Plan +Compensation +($) +Change in +Pension +Value +and +Nonqualified +Deferred +Compensation +Earnings +All Other +Compensation +($) +Total ($) +Michael Celano +$ +62,000 +— +$ +111,458 +— +— +— +$ +173,458 +Jack Goldstein, Ph.D. +$ +53,000 +— +$ +84,085 +— +— +— +$ +137,085 +Ronny B. Lancaster +$ +58,000 +— +$ +47,788 +— +— +— +$ +105,788 +Charles W. Patrick +$ +48,000 +— +$ +50,337 +— +— +— +$ +98,337 +Roger L. Pringle +$ +58,000 +— +$ +47,787 +— +— +— +$ +105,787 +Douglas G. Watson +$ +73,000 +— +$ +79,646 +— +— +— +$ +152,646 +(1) +Because Messrs. Michels and Spair are officers of the Company, they are not entitled to any separate compensation for service on the Board or any Committee thereof and have not been +included in this table. +(2) +The values set forth in this column reflect the compensation expense recognized for financial statement reporting purposes for the fiscal year ended December 31, 2008, in +accordance with SFAS 123R, of stock option awards made to non-employee Directors under the Stock Award Plan, and this may include costs for stock options granted in and prior to 2008. Assumptions used in the calculation of these amounts are included +in footnote 9 to the Company’s audited financial statements for the fiscal year ended December 31, 2008, included in the Company’s 2008 10-K Report. This column does not include the value of restricted stock awarded to non-employee +Directors in January 2009. +(3) +Non-employee Directors held options to purchase the following aggregate number of shares of the Company’s Common Stock at December 31, 2008: Mr. Celano: 70,000 +shares; Dr. Goldstein: 70,000 shares; Mr. Lancaster: 130,000 shares; Mr. Patrick: 70,000 shares; Mr. Pringle: 275,552 shares; and Mr. Watson: 240,000 shares. None of the non-employee Directors held any restricted shares as +of December 31, 2008. The aggregate number of stock options and restricted shares held by Messrs. Michels and Spair are set forth in the table in the Section entitled, “Outstanding Equity Awards at Fiscal Year-End,” in this Proxy +Statement. The grant date fair values of the stock options awarded to the non-employee Directors in 2008, calculated pursuant to SFAS 123R, are as follows: $47,187 for Messrs. Celano, Lancaster, Patrick, Pringle and Dr. Goldstein and $78,645 +for Mr. Watson. +Compensation Committee Interlocks and Insider Participation +Roger L. Pringle, Jack Goldstein, Ph.D., Charles W. Patrick and Douglas G. Watson served as members of the Compensation Committee of the Board during +2008. None of Mr. Pringle, Dr. Goldstein, Mr. Patrick or Mr. Watson has served or is currently serving as an officer or employee of the Company, nor have they engaged in any transactions involving the Company which would require +disclosure as a transaction with a related person. There are no compensation committee interlocks between the Company and any other entity involving the Company’s or such entity’s executive officers or board members. +37 +Table of Contents +Compensation Committee Report +The information contained in this report shall not be deemed to be “soliciting material” or “filed” for purposes of Section 18 +of the Exchange Act, or otherwise subject to the liabilities of that Section. This report shall not be deemed to be “ incorporated by reference” into any document filed under the Securities Act of 1933, as amended, or the Exchange +Act, whether such filing occurs before or after the date hereof, regardless of any general incorporation language in such filing. +The +Compensation Committee of OraSure Technologies, Inc. has reviewed and discussed with the Company’s management the Section entitled, “Compensation Discussion and Analysis,” contained in this Proxy Statement. Based on that review and +discussion, the Compensation Committee recommended to the Company’s Board of Directors that the foregoing Compensation Discussion and Analysis be included in the Company’s 2008 10-K Report and Proxy Statement for the 2009 Annual Meeting of +Stockholders. +COMPENSATION COMMITTEE: +Roger L. Pringle, Chairman +Jack Goldstein, Ph.D. +Charles W. Patrick +Douglas G. Watson +March 23, 2009 +Equity Compensation Plan Information +The following table provides information as of December 31, 2008 about the shares of Common Stock that may be issued upon the exercise of options +under all of our equity compensation plans. These plans include the Award Plan, the Epitope, Inc. 1991 Stock Award Plan (the “1991 Plan”), the Agritope, Inc. 1992 Stock Award Plan (the “Agritope Plan”), and the OraSure +Technologies, Inc. Employee Incentive and Non-Qualified Stock Option Plan (the “Employee Incentive Plan”). The Award Plan, the 1991 Plan and the Agritope Plan were Epitope equity compensation plans, and the Employee Incentive Plan was an +STC Technologies, Inc. equity compensation plan. In connection with the merger of Epitope and STC into the Company on September 29, 2000, the Award Plan was adopted by the Company, and the Company assumed the obligation to issue shares for the +then outstanding stock options granted under the Award Plan, the 1991 Plan, the Agritope Plan and the Employee Incentive Plan. Additional grants of equity compensation may only be made under the Award Plan. +Plan Category +Number of securities to be +issued upon exercise of +outstanding options +(a) +Weighted-average exercise +price of outstanding +options +(b) +Number of securities +remaining available +for future issuance +under equity +compensation plans +(excluding +securities +reflected in column (a)) +(c) +Equity compensation plans approved +by security holders +3,735,019 +$ +7.86 +3,732,346 +1 +Equity compensation plans not approved by security holders +1,395,688 +2 +$ +6.82 +2 +— +Total +5,130,707 +3,732,346 +(1) +Represents shares remaining available for future issuance as of December 31, 2008 under the Award Plan. +(2) +Includes 180,479 shares issuable as of December 31, 2008 under options at a weighted-average exercise price of $3.93 per share under the 1991 Plan, the Agritope Plan, and the +Employee Incentive Plan. +38 +Table of Contents +ITEM 2. +Ratification Of Appointment Of Independent Registered Public Accounting Firm +The Audit Committee of the Board of Directors has approved the reappointment of KPMG LLP (“KPMG”) as our independent registered public accounting firm for 2009. Ratification of this appointment requires the +affirmative vote of a majority of shares present in person or by Proxy and entitled to vote at the Annual Meeting. Shares voted in person or represented by Proxy which are not voted for this ratification (by voting no or abstaining) will have the +effect of voting against this proposal. In the absence of instructions to the contrary, shares of Common Stock represented by properly executed Proxies will be voted for ratification of the appointment of KPMG as our independent registered public +accounting firm for 2009. If this appointment is not ratified by stockholders, the Audit Committee may reconsider its appointment. +One or +more representatives of KPMG are expected to be at the Annual Meeting. They will have an opportunity to make a statement and will be available to respond to appropriate questions. Your Board recommends that the stockholders vote “FOR” +ratification of the appointment of KPMG . +Audit Fees; Audit-Related Fees; Tax Fees; All Other Fees. +The following table presents fees for professional audit services rendered by KPMG for the audits of our annual financial statements for the years ended +December 31, 2008 and 2007, for the audits of our internal controls over financial reporting as of December 31, 2008 and 2007 and for the review of the financial statements included in our Quarterly Reports on Form 10-Q for the fiscal +years ended December 31, 2008 and 2007. The following table also includes fees billed for other services rendered by KPMG: +2008 +2007 +Audit fees 1 +$ +489,500 +$ +487,500 +Audit-related fees +— +— +Audit and audit related fees +489,500 +487,500 +Tax fees 2 +132,385 +88,550 +All other fees 3 +— +— +Total fees +$ +621,885 +$ +576,050 +(1) +Includes fees related to the audit of our financial statements for each indicated year, audits of our internal control over financial reporting for each indicated year, and interim +reviews of our financial statements in the Company’s Quarterly Reports on Form 10-Q for each indicated year, notwithstanding when the fees were billed or when the services were rendered. Also, included in 2008 are professional services in +connection with the review of a registration statement on Form S-8 and the issuance of a related consent. +(2) +During 2008 and 2007, we engaged KPMG to provide tax compliance, tax advice and tax planning services. +(3) +The Company did not pay any other fees to KPMG in connection with their services in 2008 and 2007. +During 2008 and 2007, we did not engage KPMG to provide any professional services related to financial information systems design and implementation. +The Audit Committee has adopted a general practice of pre-approving all audit and non-audit services provided to the Company by our +independent registered public accounting firm. The Chairman of the Audit Committee has been delegated the authority to pre-approve audit and non-audit services having an aggregate value of up to $10,000 in between meetings of the Audit Committee, +provided that such pre-approval is communicated to the Audit Committee at its next scheduled meeting. All services by KPMG in 2008 and 2007 were pre-approved in accordance with these practices. +39 +Table of Contents +ITEM 3. +Stockholder Proposal to Modify the Company’s Management Incentive Plan +We have been advised that James J. Martin, with an address at 475 Milano Drive, Easton, PA 18040, the beneficial owner of 400 shares of our Common Stock, intends to submit the proposal which is quoted verbatim in +italics below at the Annual Meeting. Approval of this proposal requires the affirmative vote of a majority of shares present in person or represented by Proxy and entitled to vote at the Annual Meeting. Shares voted in person or represented by Proxy +which are not voted for this proposal (by voting no or abstaining) will have the effect of voting against this proposal. Brokers do not have discretion to vote on this proposal without your instruction. If you do not instruct your broker how to vote +in this proposal, your broker will deliver a non-vote on this proposal. Broker non-votes, if any, will have no effect on the vote on this proposal. In the absence of instructions to the contrary, shares of Common Stock represented by properly +executed Proxies will be voted against the stockholder proposal to modify our Management Incentive Plan. +Stockholder Proposal +“That the Orasure Management Incentive Plan (the “Incentive Plan”), which is intended to be the principal vehicle for incentive cash +bonus awards, be modified to reflect that the cash pool to fund the incentive cash bonuses shall be approved by the Board only when the company’s annual revenues exceed the total of the Company’s annual cost of products sold plus +operating expenses and, that the dollar amount that the annual revenue exceed the total of the annual cost of products sold plus operating expenses shall be the maximum amount of the cash pool used to fund the incentive cash bonuses for that +year”. +Supporting Statement +The Orasure Management Incentive Plan (the “Incentive Plan”) currently allows for a cash pool to fund cash bonuses regardless of whether the Company is making an operating profit. For Orasure to pay cash bonuses out of revenues +that historically have not exceeded operating expenses further reduces revenue and makes achieving a positive and improving earnings per share performance even more unlikely. +Other companies pay cash bonuses but in all cases that I am aware of they are funded out of corporate income or profit. For example, the Microsoft +Company’s Executive Officers Incentive Plan (EOIP), which is designed to “align management interest with shareholder’s long tern (sic) interests” grants 2009 awards-including cash bonuses from an “incentive pool with maximum +funding of 0.35% of Microsoft’s fiscal year 2009 Corporate Operating income.” +Comment +As a stockholder I have a material interest in seeing the above proposal adopted because I believe that modification of the “Incentive Plan” +as proposed would result in the Company having a better opportunity to realize a level of earnings per share that could improve the chances of the Company’s share value appreciating. +The Company’s Response +The Board of Directors +has carefully considered the proposal submitted by Mr. Martin and recommends that stockholders vote against this proposal. The Board believes it is not in the best interests of the Company or its stockholders to modify the Company’s +Management Incentive Plan (“MIP”) so as to fund and pay incentive cash bonuses only when and to the extent that the Company achieves an operating profit. +The amount of funding for our MIP is determined by whether the Company achieves both short-term financial and long-term strategic objectives established by the Board from year-to-year. The objectives are each weighted +to determine their respective contributions to the pool amount. Mr. Martin’s proposal ignores the fact that our MIP has historically based at least 60% of potential bonus pool funding on current financial performance. For example, in our +MIP for 2007 (“2007 MIP”), the Board established financial objectives for +40 +Table of Contents +Company revenues and cash flow from operations that together accounted for 66 2 / 3 +% of potential pool funding. Similarly, in the MIP for 2008 (“2008 MIP”), the financial objectives for Company revenues and operating income accounted for 60% of potential pool funding. Under +either MIP, if the Company failed to meet the specified financial objectives, the funding for management’s incentive cash bonuses would be substantially reduced. +The balance of the potential bonus pool funding under our MIPs depends upon the achievement of +strategic objectives. For our 2008 MIP, these objectives included (i) milestones related to obtaining regulatory approval for and commercializing an OraQuick ® rapid HCV test, +(ii) progress in the clinical development and obtaining FDA approval of an OraQuick ® HIV OTC test, (iii) obtaining FDA approval to extend the shelf life of the OraQuick +ADVANCE ® HIV test to twelve months or more, (iv) progress in developing an improved or second generation rapid HIV test, and (v) bringing a fully analyzed strategic +transaction to the Board for consideration. Similar strategic objectives were adopted for our 2007 MIP and our MIP for 2009 performance and were weighted approximately the same as our 2008 MIP. +The Board has adopted this blended approach because we believe it is important to provide management with incentives to achieve not only short-term +financial goals based on year-over-year performance, but also long-term strategic objectives that will contribute to the Company’s future profitability and growth. To that end, the Board believes it is critically important to motivate +management by tying at least a portion of potential cash incentive payments to strategic objectives that the Board specifically identifies as being most important to the Company’s future. This is especially true for a small cap growth company +like ours, which must devote substantial resources to the continued development and refinement of our existing and new product lines. +During the past several years, and in particular during 2008, the Company was faced with the difficult choice of whether or not to make substantial investments in research and clinical development programs, even though those investments +would negatively affect near-term financial performance. If cash bonuses were dependent solely on short-term financial goals, our MIP might motivate management to sacrifice the investment needed for our future solely to meet a one-year financial +target. That, in turn, could substantially reduce the level or delay the achievement of our future profitability and impair our ability to sustain that profitability on a long-term basis. Failure to adequately invest in long-term projects could also +reduce the value of our Common Stock, to the detriment of our stockholders. The Board therefore believes it is appropriate to adopt a more balanced approach than that reflected in Mr. Martin’s proposal – one that rewards management +for the achievement of both near-term financial and longer-term strategic objectives, and has the best chance of ultimately contributing to increased stockholder value. +Mr. Martin’s proposal is also unduly restrictive. It is important that the Board retain sufficient flexibility to structure our executive compensation programs in a way that both meets the Company’s +needs and is sufficient to attract and retain high-quality managers. Compensation programs need to reflect changing economic and competitive conditions. For example, if the current negative economic conditions persist or worsen, the Company’s +financial performance could suffer, and it may be even more critical to reward executives based on strategic or other non-financial performance until economic conditions improve. Limiting the Company’s ability to structure our MIP, in the +manner proposed by Mr. Martin, would likely make it more difficult to keep our executive compensation plans current and attractive enough to recruit and retain high-quality executives. +The Board’s blended approach also clearly holds management accountable for its performance. If the Company fails to achieve either the short-term +financial objectives or the long-term strategic objectives, the incentive bonus funding and payments for management will be substantially reduced. That is exactly what happened for 2008. As discussed under “Executive Compensation” in this +Proxy Statement, the Company failed to achieve both the revenue and operating income Targets established under the 2008 MIP and only met some of the strategic objectives. Consequently, no funding for the financial objectives was included in the +bonus pool and only partial funding for strategic objectives was provided. As a result, the Company’s CEO and other NEOs received only 31% of their target bonuses, a substantial reduction from what could have been achieved if the +41 +Table of Contents +Target financial and strategic objectives had been fully met. The Board believes this outcome equitably compensated members of management while at the same +time holding them accountable for their actual performance during 2008. +Contrary to Mr. Martin’s Supporting Statement, the +Company’s approach is consistent with bonus plans adopted at other similarly-situated companies. In particular, life sciences companies need to invest heavily in research and/or clinical development and, consequently, generate operating losses, +some times for several years. To attract, motivate and retain high-quality management, those companies must design bonus plans that are forward looking and reward those individuals for the achievement of longer-term strategic objectives. As +described above, the Board believes we are in a similar position and should take a similar approach. +Moreover, Mr. Martin’s +reliance on the Microsoft Executive Officers Incentive Plan (“EOIP”) is misplaced. We are a very different company in a very different industry than Microsoft. Microsoft has a consistent record of profitable operations and is clearly +beyond the development stage, and so it seems more appropriate for a company like Microsoft to fund its EOIP based on a percentage of operating income. According to its 2008 Proxy Statement, Microsoft used funding from its EOIP to award both cash +bonuses and stock awards and it thereby incentivized its management for short-term and long-term performance in a different manner than we do. The Board believes the Microsoft model is simply inapplicable to a company like ours, which has not +achieved sustained profitability primarily because of our continuing need to make significant investments in research and product development activities. +The Board believes that our stockholders have been and will continue to be well served by the compensation practices implemented by the Board of Directors. Our MIPs strike an appropriate balance between short-term +financial and long-term strategic objectives and provide appropriate incentives while maintaining accountability for our senior management. +Board +Recommendation +For the foregoing reasons, the Board believes that the proposal is not in the best interests of the Company or its +stockholders and recommends that stockholders vote AGAINST this proposal. +Annual Report +Our Annual Report to Stockholders for the year ended December 31, 2008 accompanies this Proxy Statement. On written request, we will provide, +without charge, a copy of our Annual Report on Form 10-K for the year ended December 31, 2008, as filed with the SEC (including a list briefly describing the exhibits thereto), to any record holder or beneficial owner of our Common Stock on +March 23, 2009, the record date for the Annual Meeting, or to any person who subsequently becomes such a record holder or beneficial owner. Requests should be directed to the attention of the Secretary of the Company at our address set forth in +the Notice of Annual Meeting of Stockholders immediately preceding this Proxy Statement. +Deadline For +Stockholder Proposals +You may submit proposals for inclusion in the proxy materials for the Company’s 2010 Annual Meeting of +Stockholders. Any such proposals must meet the stockholder eligibility and other requirements imposed by rules issued by the SEC and must be received by the Company at 220 East First Street, Bethlehem, Pennsylvania 18015, Attention: Secretary, in +accordance with Rule 14a-8 promulgated under the Exchange Act, not later than December 2, 2009. +42 +Table of Contents +Our Bylaws provide that a stockholder proposal +must meet certain predetermined requirements in order to be considered at the Annual Meeting. In order to be considered, a stockholder’s proposal must be made in writing to the Company’s Secretary and must be delivered to or received at +our principal executive offices not less than ninety (90) days nor more than one hundred twenty (120) days prior to the meeting. However, if less than one hundred (100) days’ notice or prior public disclosure of the date of the +meeting is given or made to stockholders, notice by the stockholder to be timely must be so received no later than the close of business on the tenth (10 th ) day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. The notice to the Secretary must set forth, with respect to each matter the stockholder +proposes to bring before the meeting, a brief description of the matter and the reasons for considering that matter at the Annual Meeting. The notice must also include, as to the stockholder giving the notice and the beneficial owner, if any, on +whose behalf notice of the proposed business is made: (i) the name and address of the stockholder and such beneficial owner; (ii) any material interest of such stockholder and such beneficial holder in such business; (iii) the class +and number of shares of capital stock of the Company which are held of record or beneficially owned by the stockholder and such beneficial owner and any other direct or indirect pecuniary or economic interest in any capital stock of the Company of +such stockholder and such beneficial owner, including without limitation, any derivative instrument, swap, option, warrant, short interest, hedge, profit sharing arrangement or borrowed or loaned shares; (iv) a representation that such +stockholder intends to appear in person or by proxy at the meeting to propose the business described in its notice; and (v) any other information relating to such business matter that would be required to be disclosed in a proxy statement or +other filings required to be made in connection with solicitations of proxies pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. To the extent the Board of Directors or the SEC, or a court of +competent jurisdiction, deems these Bylaw provisions to be inconsistent with the right of stockholders to request inclusion of a proposal in the Company’s proxy materials pursuant to Rule 14a-8 promulgated under the Exchange Act, such rule +shall prevail. +43 +Table of Contents +PROXY +2009 Annual Meeting of Stockholders +PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned hereby appoints Jack E. Jerrett and Mark L. Kuna, and each of them, proxies with full power of +substitution, to vote all of the shares which the undersigned is entitled to vote at the 2009 Annual Meeting of Stockholders of OraSure Technologies, Inc. (the “Company”), to be held at the Historic Hotel Bethlehem, 437 Main Street, +Bethlehem, Pennsylvania 18018 on Tuesday, May 12, 2009, at 10:00 a.m. (local time), and at any adjournment or adjournments thereof, with all the powers the undersigned would possess if personally present, with respect to the matters listed on the +reverse side. +The shares represented by this Proxy, if properly executed, will be voted as specified on +the reverse side or, if no specification is made, will be voted (i) FOR the election of the nominees listed on the reverse side as directors, (ii) FOR the ratification of the appointment of KPMG LLP as the Company’s independent registered +public accounting firm for 2009 and (iii) AGAINST the stockholder proposal to modify the Company’s Management Incentive Plan. If any other business properly comes before the meeting, the proxies named above will have discretionary authority to +vote thereon in accordance with their best judgment. +PLEASE MARK, DATE, SIGN AND RETURN THE PROXY CARD PROMPTLY. +(Continued and to be marked, dated and signed, on the other side) +Address Change/Comments +(Mark the corresponding box on the reverse side) +BNY MELLON SHAREOWNER SERVICES +P.O. BOX +3550 +SOUTH HACKENSACK, NJ 07606-9250 +p FOLD AND DETACH HERE p +OraSure Technologies, Inc. +2009 Annual Meeting of Stockholders +Tuesday, May 12, 2009 +Choose MLink SM for fast, easy and secure 24/7 online access to your future proxy materials, investment plan statements, tax documents and more. Simply log on to Investor +ServiceDirect ® at www.bnymellon.com/shareowner/isd where step-by-step instructions will prompt you through enrollment. +46269 +Table of Contents +Please mark +your votes as +indicated in +this example +x +FOR +WITHHOLD +*EXCEPTIONS +FOR +AGAINST +ABSTAIN +1. +ELECTIONOF DIRECTORS +Class III (Term Expiring 2012) +¨ +¨ +¨ +2. Ratification of Appointment of KPMG LLP +¨ +¨ +¨ +Nominees: +01 Michael Celano +02 Douglas A. Michels +03 Charles W. Patrick +3. Stockholder Proposal to Modify Management Incentive Plan +¨ +¨ +¨ +(INSTRUCTIONS: To withhold authority to vote for any +individual nominee, mark the “Exceptions” box and write that +nominee’s name in the space provided below.) +*Exceptions +Mark Here for Address +¨ +Change or Comments +SEE REVERSE +Signature +Signature +Date +NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or +guardian, please give full title as such. +p FOLD AND DETACH HERE p +WE ENCOURAGE YOU TO TAKE ADVANTAGE OF INTERNET OR TELEPHONE VOTING, +BOTH ARE AVAILABLE 24 HOURS A DAY, 7 DAYS A WEEK. +Internet and telephone voting is available through 11:59 PM Eastern Time May 11, 2009. +INTERNET +http:/ +/www.proxyvoting.com/osur +Use the Internet to vote your proxy. Have your proxy card in hand when you access the web site. +OR +TELEPHONE +1-866-540-5760 +Use any touch-tone telephone to vote your proxy. Have your proxy card in hand when you call. +If you vote your proxy by Internet or by +telephone, you do NOT need to mail back your proxy card. +To vote by mail , mark, sign and date your +proxy card and return it in the enclosed postage-paid envelope. +Important notice regarding the Internet availability of proxy materials for the Annual Meeting of Stockholders. +Your Internet or telephone vote authorizes +the named proxies to vote your shares in the same manner as if you marked, signed and returned your proxy card. +The Proxy Statement, 2008 Annual Report to Stockholders and other Proxy Materials are available at: +http://bnymellon.mobular.net/bnymellon/osur +46269 \ No newline at end of file diff --git a/raw/proxies/0001116463/0001193125-09-070802/proxy_rpt.txt b/raw/proxies/0001116463/0001193125-09-070802/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..fad3ab63b9c4a9d096b57e23c1cddc8a70d7b248 --- /dev/null +++ b/raw/proxies/0001116463/0001193125-09-070802/proxy_rpt.txt @@ -0,0 +1,7 @@ +Transactions With Related Persons +Since January 1, 2008, there have +been no transactions with related persons which would require disclosure in this Proxy Statement. The Audit Committee is required to review and approve in advance all transactions with related persons involving the Company. The Audit Committee may +approve a related party transaction if the transaction is on terms comparable to those that could be obtained in arms’ length dealings with an unrelated third party. The Audit Committee also reviews any public disclosures of a related party +transaction contained in our SEC filings. These responsibilities are described in the Audit Committee’s charter, a copy of which is available on our website at www.orasure.com . +Information regarding employment and severance agreements between our executive officers and the Company is set forth in the Section entitled, +“Employment Agreements and Potential Payments Upon Termination or Change in Control,” in this Proxy Statement. \ No newline at end of file diff --git a/raw/proxies/0001116463/0001193125-10-075003/proxy.txt b/raw/proxies/0001116463/0001193125-10-075003/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..6721c28ff7659758f78ebc9c4004c39fe22691a7 --- /dev/null +++ b/raw/proxies/0001116463/0001193125-10-075003/proxy.txt @@ -0,0 +1,3600 @@ +DEF 14A +1 +ddef14a.htm +ORASURE TECHNOLOGIES, INC. - DEFINITIVE PROXY STATEMENT +OraSure Technologies, Inc. - Definitive Proxy Statement +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. +20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) +of the Securities Exchange Act of 1934 +(Amendment No. +) +Filed by the Registrant x Filed by a Party other than the Registrant ¨ +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material Pursuant to §240.14a-12 +OraSure Technologies, Inc. +(Name of Registrant as Specified +In Its Charter) +(Name of Person(s) Filing Proxy +Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and +state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. +Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +ORASURE TECHNOLOGIES, INC. +220 East First Street +Bethlehem, Pennsylvania 18015 +April 1, 2010 +Dear Stockholder: +You are cordially invited to attend the 2010 Annual Meeting of +Stockholders to be held on Tuesday, May 11, 2010 , at the Historic Hotel Bethlehem, 437 Main Street, Bethlehem, Pennsylvania 18018, at 10:00 a.m. Eastern Time. Your Board of Directors and Executive Management Team personally look forward +to greeting those present. If you cannot attend in person, we are pleased to offer a live webcast of the Annual Meeting, which you can access by going to our website, www.orasure.com . +Pursuant to the Securities and Exchange Commission rule allowing companies to furnish proxy materials to their stockholders over the +Internet,, a Notice of Availability of Proxy Materials (the “Notice”) has been sent to you. The Notice contains information on how to access copies of the proxy materials and vote your shares. +At the meeting, you will be asked to (i) elect two Class I Directors to serve on the Board of Directors until the Annual Meeting of +Stockholders in 2013; (ii) ratify the appointment of KPMG LLP as our independent registered public accounting firm for 2010; and (iii) transact such other business as may properly come before the meeting or any adjournment(s) thereof. +The Board of Directors has approved the nominees for Director and recommends that you vote FOR their election to the +Board. In addition, the Board of Directors recommends that you vote FOR the ratification of KPMG’s appointment. +Your vote is very important, regardless of the number of shares you own. Whether or not you plan to attend the Annual Meeting in person, we urge you to submit your vote as soon as possible. You will have the option to vote by telephone, via +the Internet, or by completing, signing, dating, and returning a paper Proxy Card. Additional details on these options can be found in the Notice sent to you or in the proxy materials. You may, of course, attend the Annual Meeting and vote in person +regardless of whether you have previously voted by phone, the Internet or mail. +We look forward to seeing you at the meeting. +Sincerely, +Douglas A. Michels +President and Chief Executive Officer +Table of Contents +Table of Contents +Page +Notice of Annual Meeting of Stockholders +Proxy Statement +1 +Meeting Attendance +1 +Proxies +2 +Voting Procedures +2 +Voting Securities +3 +Principal Stockholders +4 +Corporate Governance +5 +Board Operations and Leadership Structure +5 +Oversight of Risk Management +6 +Director Independence +6 +Board Meetings +6 +Annual Meeting Attendance and Stockholder Communications +6 +Committees of the Board +6 +Nomination of Directors +8 +Report of the Audit Committee +9 +Executive Officers +11 +Transactions with Related Persons +12 +Section 16(a) Beneficial Ownership Reporting Compliance +13 +ITEM 1. – Election of Directors +13 +Executive Compensation +16 +Compensation Discussion and Analysis +16 +Summary Compensation Table +29 +Grants of Plan-Based Awards +30 +Outstanding Equity Awards at Fiscal Year-End +31 +Option Exercises and Stock Vested +34 +Pension Benefits +34 +Nonqualified Deferred Compensation +34 +Employment Agreements and Potential Payments Upon Termination or Change in Control +34 +2009 Director Compensation +38 +Compensation Committee Interlocks and Insider Participation +39 +Compensation Risk Assessment +39 +Compensation Committee Report +39 +Equity Compensation Plan Information +40 +ITEM 2. – Ratification Of Appointment Of Independent Registered Public Accounting +Firm +41 +Audit Fees; Audit-Related Fees; Tax Fees; All Other Fees +41 +Annual Report +42 +Deadline for Stockholder Proposals +43 +Table of Contents +ORASURE TECHNOLOGIES, INC. +220 East First Street +Bethlehem, Pennsylvania 18015 +Notice of Annual +Meeting of Stockholders +to be held May 11, 2010 +To the Stockholders of OraSure Technologies, Inc.: +The Annual Meeting of Stockholders of OraSure Technologies, Inc., a Delaware corporation, will be held at the Historic Hotel Bethlehem, 437 +Main Street, Bethlehem, Pennsylvania 18018, on Tuesday, May 11, 2010 , at 10:00 a.m. Eastern Time, for the following purposes: +1. +To elect two Class I Directors for terms expiring in 2013; +2. +To ratify the appointment of KPMG LLP as our independent registered public accounting firm for 2010; and +3. +To consider such other business as may properly come before the meeting or any adjournments thereof. +Additional information is included in the Proxy Statement accompanying this Notice. Only holders of Common Stock of record at the close of +business on March 22, 2010, will be entitled to vote at the Annual Meeting of Stockholders and any adjournment(s) thereof. +By Order of the Board of Directors, +Jack E. Jerrett +Secretary +April 1, 2010 +Bethlehem, Pennsylvania +YOUR VOTE IS IMPORTANT. Whether or not you plan to +attend the Annual Meeting, you are urged to vote your shares as promptly as possible by telephone, via the Internet, or by completing, signing, dating and returning a paper Proxy Card, as described in the attached Proxy Statement. Voting by phone, +the Internet or mail does not deprive you of your right to attend the Meeting and to vote your shares in person. +Table of Contents +ORASURE TECHNOLOGIES, INC. +220 East First Street +Bethlehem, Pennsylvania 18015 +Proxy Statement +We are providing these Proxy Materials to stockholders of OraSure Technologies, Inc., a Delaware corporation (the “Company”), in connection with the Company’s solicitation of proxies (each, +a “Proxy”) for use at the Annual Meeting of Stockholders to be held on May 11, 2010, at 10:00 a.m. Eastern Time, at the Historic Hotel Bethlehem, 437 Main Street, Bethlehem, Pennsylvania 18018, and at any adjournment(s) thereof (the +“Annual Meeting”). +As a stockholder, you are invited to attend the Annual Meeting and are requested to vote on the +matters described in this Proxy Statement. For your convenience, we are pleased to offer a live webcast of our Annual Meeting which you can access by going to the Investor Relations section of our website, at www.orasure.com . The webcast will +end after the formal portion of the meeting is adjourned and will not include the presentation by management or question and answer session for those present at the Annual Meeting. +In accordance with the rules and regulations adopted by the Securities and Exchange Commission (“SEC”), instead of mailing a +printed copy of our Proxy Materials to each stockholder of record, we are furnishing Proxy Materials, including this Proxy Statement, the Proxy Card and the Company’s Annual Report to Stockholders for the year ended December 31, 2009 +(“Annual Report”), to our stockholders by providing access to such documents on the Internet. On April 1, 2010, we mailed a Notice of Internet Availability of Proxy Materials (sometimes referred to as the “Notice”), +indicating that this Proxy Statement is now available to our stockholders of record entitled to vote at the Annual Meeting. All stockholders and beneficial holders have the ability to access a copy of our Proxy Materials on a website referred to and +URL address included in the Notice. Stockholders will not receive printed copies of the Proxy Materials unless they request those copies. The Notice also instructs stockholders as to how to submit a Proxy through the Internet. If you would like to +receive a paper or e-mail copy of your Proxy Materials, you should follow the instructions for requesting such materials included in the Notice. We will pay the entire cost of preparing, assembling, printing, mailing and distributing these Proxy +Materials and soliciting votes. If you choose to access the Proxy Materials and/or vote over the Internet, you are responsible for any Internet access charges you may incur. +Meeting Attendance +If you +are a stockholder of record, meaning that you hold shares directly with the Company, and you plan to attend the Annual Meeting, please bring your Notice or Proxy Card. If you are a beneficial holder, meaning that your shares are held for you by a +bank, broker or other intermediary, please bring a recent broker statement as proof of ownership of your shares as of the March 22, 2010 record date for the Annual Meeting. You will be required to present these materials as well as a valid +photo identification in order to be admitted to the Annual Meeting. Company representatives will be at the entrance to the Annual Meeting and these representatives will +1 +Table of Contents +have the authority to determine, on the Company’s behalf, whether these admission procedures have been followed and whether you will be granted admission to the Annual Meeting. Additional +meeting procedures will be provided at the entrance to the Annual Meeting. Only the Company’s stockholders will be granted access to the Annual Meeting. Members of the media and of the general public will not be granted access. +Proxies +If represented by a properly executed Proxy, whether delivered by phone, the Internet or mail, as described below, your shares will be voted in accordance with your instructions. If you do not provide +instructions with your Proxy, your shares will be voted according to the recommendations of our Board of Directors (the “Board”) as stated on the Proxy. You may revoke the authority granted by your Proxy at any time before the Annual +Meeting by notice in writing delivered to the Secretary of the Company, by delivering a subsequently dated Proxy, or by attending the Annual Meeting, withdrawing the Proxy and voting in person. +At the Annual Meeting, action will be taken on the matters set forth in the accompanying Notice of Annual Meeting of Stockholders and +described in this Proxy Statement. The Board knows of no other matters to be presented for action at the Annual Meeting. If any other matters do properly come before the Annual Meeting, the persons named in the Proxy Card will have discretionary +authority to vote on those matters in accordance with their best judgment. +The cost of soliciting Proxies will be borne by +us. In addition to solicitations by e-proxy and/or by mail, certain of our Directors, officers and regular employees may solicit Proxies personally or by telephone or other means without additional compensation. We have also engaged +Morrow & Co., LLC, 470 West Ave., Stamford, CT 06902, to provide proxy solicitation services at a fee estimated at $5,000 plus expenses. +Arrangements will be made with brokerage firms and other custodians, nominees and fiduciaries to forward solicitation materials to the beneficial owners of stock held of record by such persons, and we +will, upon request, reimburse them for their reasonable expenses in so doing. +Voting Procedures +You will have a choice of voting over the phone, via the Internet or by completing and mailing a paper Proxy Card, as +described below. Please check your Notice, Proxy Card or the information forwarded by your bank, broker or other holder of record to determine which options are available to you. +Voting by Phone or Internet . If you desire to vote by phone or the Internet, whether you may do so will +depend on how your shares are held. +If your shares are registered in your name with BNY Mellon Shareowner Services, our +transfer agent, you may vote those shares by telephone by calling BNY Mellon Shareowner Services at 1-866-540-5760 (toll free in the United States or Canada only) or via the Internet at the following website: www.proxyvoting.com/osur . You may +vote by telephone or the Internet provided you do so by 11:59 pm Eastern Time (8:59 pm Pacific Time) on May 10, 2010. Additional instructions can be found on your Notice and the Proxy Card accompanying this Proxy Statement. +If your shares are registered in the name of a broker, bank or other registered holder, you may be able to vote by phone or the Internet if +the broker, bank or other record holder has procedures for telephone or Internet voting. If you desire to use either of these voting options, please follow the procedures provided to you by your broker, bank or other record holder. +2 +Table of Contents +The telephone and Internet voting procedures are designed to authenticate your identity, to +allow you to give your voting instructions and to confirm that your instructions have been recorded properly. If you vote via the Internet, you should understand that there may be costs associated with this method of voting, such as usage charges +from Internet access providers and telephone companies, that you must pay. +Voting by +Mail . If you desire to vote by using a paper Proxy Card instead of by telephone or the Internet, you will need to either print a copy of the Proxy Card from the website indicated in your Notice or follow the +instructions in your Notice to request that a paper copy be sent to you. You will then need to complete, sign, date and return the Proxy Card to the Company, as described on the Proxy Card. +Submitting a Proxy by phone, the Internet or mail will not affect your right to withdraw your Proxy and vote in person at the Annual +Meeting, provided that you follow the admission procedures described above. +Voting Securities +On March 22, 2010, the record date for determining stockholders entitled to vote at the Annual Meeting, we had +outstanding and entitled to vote at the meeting 47,084,999 shares of common stock, par value $.000001 per share (“Common Stock”). Each share of Common Stock is entitled to one vote on any matter brought before the Annual Meeting. A +majority of the shares of Common Stock outstanding as of the record date, represented in person or by Proxy at the Annual Meeting, will constitute a quorum for the transaction of business. +Broker non-votes, votes withheld and abstentions will be counted for purposes of determining whether a quorum has been reached at the Annual +Meeting. Because abstentions will be included in tabulations of the votes entitled to vote for purposes of determining whether a proposal has been approved, abstentions have the same effect as negative votes. Broker non-votes, however, are not +counted as shares present and entitled to be voted with respect to the matters which the broker has not expressly voted. A broker “non-vote” occurs when a nominee holding shares for a beneficial owner does not vote on a particular proposal +because the nominee does not have the discretionary voting power with respect to that item and has not received instructions from the beneficial owner. Thus, your broker can vote on the ratification of our independent registered public accounting +firm, even if the broker does not receive voting instructions from you. However, your broker does not have discretionary authority to vote on the election of Directors without instructions from you. If you do not provide instructions with respect to +the election of Directors, a broker non-vote will occur and your shares will not be voted on that matter. +Director elections +are determined by a plurality of the votes cast. Ratification of the appointment of our independent registered public accounting firm for 2010 requires the affirmative vote of a majority of shares present and entitled to vote at the Annual Meeting +and voting thereon. +3 +Table of Contents +Principal Stockholders +The following table sets forth information, as of March 22, 2010, regarding the beneficial ownership of the Company’s Common Stock +by (a) each person who is known by us to be the beneficial owner of more than five percent of the Common Stock outstanding, (b) each Director and nominee for election as Director, (c) each of our executive officers named in the +Summary Compensation Table in this Proxy Statement under “Executive Compensation,” and (d) all of our directors and executive officers as a group. Unless otherwise indicated, the address of each person identified below is c/o OraSure +Technologies, Inc., 220 East First Street, Bethlehem, Pennsylvania 18015. +Pursuant to Rule 13d-3 under the Securities +Exchange Act of 1934, as amended (the “Exchange Act”), shares of Common Stock which a person has a right to acquire pursuant to the exercise of stock options and warrants held by that person that are exercisable within 60 days of +March 22, 2010 are deemed to be outstanding for the purpose of computing the percentage ownership of that person, but are not deemed outstanding for computing the percentage ownership of any other person. +Name and Address of +Beneficial Owner +Amount and Nature of +Beneficial Ownership 1,2 +Percent +of Class +Wells Fargo and Company 3 +6,963,179 +14.8 +% +420 Montgomery Street +San Francisco, CA 94104 +BlackRock, Inc . 4 +5,961,659 +12.7 +% +40 East 52 nd Street +New York, NY 10022 +First Manhattan Co. 5 +3,650,308 +7.8 +% +437 Madison Avenue +New York, NY 10022 +Manning & Napier Advisors, Inc. 6 +2,721,137 +5.8 +% +290 Woodcliff Drive +Fairport, NY 14450 +HealthCor Management, L.P. 7 +2,525,000 +5.4 +% +152 West 57 th Street +47 th Floor +New York, NY 10019 +Douglas A. Michels +1,178,795 +2.5 +% +Ronald H. Spair +841,621 +1.8 +% +P. Michael Formica +556,705 +1.2 +% +Roger L. Pringle 8 +347,077 +* +Stephen R. Lee, Ph.D. +337,122 +* +Douglas G. Watson +300,000 +* +Jack E. Jerrett +297,289 +* +Ronny B. Lancaster +177,740 +* +Charles W. Patrick +115,000 +* +Michael Celano +105,790 +* +Jack Goldstein, Ph.D. +95,500 +* +All directors and executive officers as a group (13 people) +4,607,883 +9.2 +% +4 +Table of Contents +* +Less than 1% +(1) +Subject to community property laws where applicable, beneficial ownership consists of sole voting and investment power except as otherwise indicated. +(2) +Includes shares subject to options exercisable within 60 days of March 22, 2010, as follows: Mr. Michels, 631,636 shares; Mr. Spair, 544,192 shares; +Mr. Formica, 394,835 shares; Mr. Pringle, 275,552 shares; Dr. Lee, 185,312 shares; Mr. Watson, 240,000 shares; Mr. Jerrett, 222,081 shares; Mr. Lancaster, 130,000 shares; Mr. Patrick, 70,000 shares; +Mr. Celano, 70,000 shares; Dr. Goldstein, 70,000 shares; and all directors and executive officers as a group, 2,986,216 shares. Also includes unvested restricted shares, as follows: Mr. Michels, 234,581 shares; Mr. Spair, 95,426 +shares; Mr. Formica, 65,250 shares; Mr. Pringle, 15,000 shares; Dr. Lee, 49,870 shares; Mr. Watson, 25,000 shares; Mr. Jerrett, 32,069 shares; Mr. Lancaster, 15,000 shares; Mr. Patrick, 15,000 shares; +Mr. Celano, 15,000 shares; Dr. Goldstein, 15,000 shares; and all directors and executive officers as a group, 626,742 shares. +(3) +Based on information contained in a Schedule 13G/A filed January 25, 2010 by Wells Fargo and Company (“Wells Fargo”), on behalf of certain of its +subsidiaries. Wells Fargo has sole voting power with respect to 6,901,193 shares, sole dispositive power with respect to 6,962,679 shares and shared dispositive power with respect to 500 shares. +(4) +Based on information contained in a Schedule 13G/A filed January 8, 2010, by BlackRock, Inc. (“BlackRock”) on behalf of certain of its subsidiaries. +BlackRock has sole voting and dispositive power with respect to the indicated shares. +(5) +Based on information contained in a Schedule 13G/A filed February 16, 2010 by First Manhattan Co. (“FMC”). FMC has sole voting and dispositive power with +respect to 3,649,308 shares and shared dispositive power with respect to 500 shares. +(6) +Based on information contained in a Schedule 13G/A filed January 29, 2010 by Manning & Napier Advisors, Inc. (“MNA”). MNA has sole voting power +with respect to 2,708,817 shares and sole dispositive power with respect to all of the indicated shares. +(7) +Based on information contained in a Schedule 13G filed February 11, 2010 by HealthCor Management, L.P. (“HCM”) and its affiliates. HCM has shared voting +and dispositive power with respect to the indicated shares. +(8) +Includes 1,500 shares owned by Mr. Pringle’s spouse. +Corporate Governance +Board Operation +and Leadership Structure +The Board has adopted Corporate Governance Principles which, along with the Charters for each of +its Committees and the Company’s Code of Business Conduct and Ethics, provide a framework for the governance of the Company. The Company’s Corporate Governance Principles address matters such as the responsibilities and composition of the +Board, Director independence and the conduct of Board and Committee meetings. The Company’s Code of Business Conduct and Ethics sets forth guiding principles of business ethics and certain legal requirements applicable to all Company employees +and Directors. Copies of the current Corporate Governance Principles and Code of Business Conduct and Ethics are available at the Company’s website, www.orasure.com . +Currently, the Company’s Chief Executive Officer does not hold the position of Chairman of the Board as the Company believes it is +appropriate for the Board to be led by an individual who is independent of management. Mr. Watson has served as the Chairman of our Board since March 2003. In the future, however, the Board may reconsider whether its Chief Executive Officer +should also serve as Board Chairman. +5 +Table of Contents +Oversight of Risk Management +As part of its oversight of the Company’s operations, the Board and Audit Committee monitor the management of risks by the +Company’s executives. The Audit Committee reviews the risks that the Company may face and receives reports from senior management on the nature of these risks and the procedures and processes in place to manage and mitigate such risks. +Substantive areas of risk reviewed by the Audit Committee include financial, regulatory, legal compliance, operational, information technology and employment risks. The Audit Committee provides a report to the full Board on the matters covered +during each of its meetings, including its risk monitoring activities. In addition, senior management provides periodic reports to the full Board on the major risks facing the Company and the processes and procedures in place to manage such risks. +Director Independence +The Company’s Corporate Governance Guidelines require, among other things, that a majority of the members of the Board meet the independence requirements of the Securities and Exchange Commission +(“SEC”) and The NASDAQ Stock Market (“NASDAQ”), on which our Common Stock is listed. Each year our Board conducts a review of Director independence. The most recent review occurred in February 2010, during which the Board +considered transactions and relationships, if any, between each Director or any member of such Director’s immediate family and the Company. As a result of this review, the Board determined that Michael Celano, Jack Goldstein, Ph.D., Ronny B. +Lancaster, Charles W. Patrick, Roger L. Pringle and Douglas G. Watson are “independent,” as that term is defined in the applicable rules of NASDAQ and the SEC. +Only Douglas A. Michels and Ronald H. Spair were determined by the Board not to be independent. Mr. Michels is not independent because he is employed as our President and Chief Executive Officer, and +Mr. Spair is not independent because he is employed as our Chief Financial Officer and Chief Operating Officer. Based on the foregoing, the Board of Directors is comprised of a majority of independent Directors. +Board Meetings +The Board held seven meetings and acted by written consent on four occasions during the year ended December 31, 2009. Each member of the Board attended more than 75 percent of the combined total +of meetings of the Board and of the committees of the Board on which such member served during the period in the year in which he served as a Director. +Annual Meeting Attendance and Stockholder Communications +The Board has approved a policy concerning Board members’ attendance at our annual meeting of stockholders and a process for security holders to send communications to members of the Board. Our 2009 Annual Meeting of Stockholders held +on May 12, 2009 was attended by all members of the Board. Descriptions of the Board’s policy on annual meeting attendance and the process for security holders to send communications to the Board are provided on our website, at +www.orasure.com . +Committees of the Board +The Board currently has three standing committees – the Audit Committee, the Compensation Committee and the Nominating and Corporate +Governance Committee. Each Committee is composed entirely of independent Directors. +Audit +Committee . The Audit Committee oversees the Company’s accounting and financial reporting process, internal controls and audits, and consults with management and the Company’s independent registered public +accounting firm on, among other items, matters related to the annual audits, the published financial statements and the accounting principles applied. As part of its duties, the Audit Committee appoints, evaluates and retains the Company’s +independent registered public accounting firm. It also maintains direct responsibility for the compensation, termination and oversight of the Company’s independent registered public accounting firm +6 +Table of Contents +and evaluates the independent registered public accounting firm’s qualifications, performance and independence. The Audit Committee approves all services provided to the Company by the +independent registered public accounting firm. The Audit Committee has established procedures for the receipt, retention and treatment, on a confidential basis, of complaints received by the Company, regarding accounting, internal accounting +controls or auditing matters, and the confidential, anonymous submissions by employees of concerns regarding questionable accounting or auditing matters. The Audit Committee operates pursuant to a written charter, a copy of which is available on our +website at www.orasure.com . +Members of the Audit Committee are Michael Celano, Chairman, Jack Goldstein, Ph.D., +Charles W. Patrick and Douglas G. Watson. Each member of the Audit Committee is “independent,” as defined in the Exchange Act and applicable NASDAQ rules. The Board has determined that Mr. Celano is an “audit committee financial +expert,” as that term is defined by applicable rules of the SEC. The Audit Committee met eight times during the year ended December 31, 2009. +Compensation Committee . The primary responsibility of the Compensation Committee is to assist the Board in fulfilling its oversight responsibilities with respect to +all types of compensation for our officers and non-employee Directors. Our overall compensation philosophy, as determined by the Compensation Committee and approved by the Board, is to (i) reward executive officers for the performance of the +Company and achievement by the executives of financial and other individual performance objectives, (ii) align the interests of the executive officers with the interests of our stockholders, (iii) provide long-term incentives for the +executive officers, and (iv) set compensation levels sufficiently competitive to attract and retain high quality executives and to motivate them to contribute to our success. +On an annual basis, the Compensation Committee evaluates the performance of the Chief Executive Officer against previously established goals +and objectives and reviews the performance evaluations and compensation recommendations for other executive officers provided by the Chief Executive Officer. Based on the foregoing, along with a review of compensation provided at comparable medical +diagnostic and healthcare companies and the recommendations of a compensation consultant engaged by the Committee, the Compensation Committee determines cash and equity compensation for the Chief Executive Officer, other executive officers and the +non-employee members of the Board. Compensation for the Chief Executive Officer is submitted for approval by a majority of independent Directors on the Board. +On an as-needed basis, the Compensation Committee retains independent compensation consultants to assist the Compensation Committee in evaluating and structuring our executive compensation programs and +making compensation decisions. During 2009, after evaluating competing proposals from three compensation consultants, the Committee engaged Radford, a division of Aon Corporation, for this purpose. Radford was directed to provide (i) a +competitive assessment of the cash and equity compensation paid to non-employee members of the Board based on an analysis of a peer group of medical diagnostic and other healthcare companies and to provide specific advice on changing the cash +component from a mix of fixed and per meeting fees to only the payment of fixed annual fees; (ii) a competitive assessment of the annual base salaries, incentive cash bonuses and equity compensation paid to the Company’s executives based +on an analysis of a peer group of medical diagnostic and other healthcare companies; and (iii) advice regarding the equity compensation paid to the Company’s executives. +We paid Radford a total of $41,000 for the executive compensation consulting services described above and an additional $4,950 for the +Company’s participation in and access to the compensation and benefits surveys conducted by Radford for life sciences companies in 2009. In addition, Aon Risk Services, an affiliate of Radford, provides insurance brokerage services for the +Company. We paid Aon Risk Services $229,119 in premiums and Aon Risk Services retained approximately $35,000 in commissions in connection with the renewal of the Company’s directors’ and officers’ insurance coverage during 2009. A +further discussion of the role of the Compensation Committee, our processes and procedures for determining executive officer and non-employee Director compensation, and the services provided by compensation consultants are set forth in the Section +entitled, “Compensation Discussion and Analysis,” in this Proxy Statement. +7 +Table of Contents +The Committee is authorized to delegate any of its responsibilities to subcommittees or +individuals, as the Committee deems appropriate. To date, the Committee has not exercised this right. +The Compensation +Committee operates pursuant to a written charter, a copy of which is available on our website at www.orasure.com . Members of the Compensation Committee are Jack Goldstein, Ph.D., Chairman, Ronny B. Lancaster, Roger L. Pringle and Douglas G. +Watson. Each member of the Compensation Committee is “independent,” as defined in applicable NASDAQ rules. The Compensation Committee met seven times and acted by written consent on two occasions during the year ended December 31, +2009. +Nominating and Corporate Governance Committee . The Nominating and Corporate +Governance Committee of the Board identifies, evaluates and recommends to the Board candidates for election or re-election to the Board. In addition, this Committee is responsible for developing, recommending for Board approval and administering our +Corporate Governance Guidelines. The Nominating and Corporate Governance Committee operates pursuant to a written charter. Copies of the Committee’s charter and the Company’s Corporate Governance Guidelines are available on our website at +www.orasure.com . +Members of the Nominating and Corporate Governance Committee are Ronny B. Lancaster, Chairman, +Michael Celano, Charles W. Patrick, and Roger L. Pringle. Each member of the Nominating and Corporate Governance Committee is “independent,” as defined in applicable NASDAQ rules. The Nominating and Corporate Governance Committee met four +times during the year ended December 31, 2009. +In evaluating and recommending candidates for the Board, the Nominating +and Corporate Governance Committee will consider candidates recommended by members of the Committee or the Board of Directors, officers or employees of the Company, the Company’s security holders and other business contacts. The Nominating and +Corporate Governance Committee may also consult with outside advisors or retain search firms to assist in the search for qualified candidates. Candidates recommended by security holders will be considered by the Nominating and Corporate Governance +Committee in the same manner as candidates recommended by other sources, but only if the security holder makes its recommendation in accordance with the advance notification provisions set forth in the Company’s By-laws. For a description of +these provisions, see the Section entitled, “Nomination of Directors,” in this Proxy Statement. +The Nominating and +Corporate Governance Committee considers diversity and other factors in evaluating new candidates for the Board. The term diversity is used broadly to include not only race, gender and national origin, but also the following, as well as any other +factors determined to be relevant by the Committee based on the needs of the Board and Company: independence, integrity, knowledge, judgment, character, leadership skills, education, industry experience, financial literacy, technical background, +specialized expertise, and standing in the community. In evaluating incumbent Directors for re-election, the Nominating and Corporate Governance Committee considers that Director’s background, experience and overall service to the Company, +including the number of meetings attended, level of participation, quality of performance and other factors deemed relevant by the Committee. +Nomination of Directors +Our Bylaws provide that nominations for +election to the Board may be made by the Board or by any stockholder entitled to vote for the election of Directors at the Annual Meeting. A stockholder’s notice of nomination must be made in writing to the Company’s Secretary and must be +delivered to or received at our principal executive offices not less than ninety (90) days nor more than one hundred twenty (120) days prior to the meeting. However, in the event that less than one hundred (100) days’ notice or +prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be received no later than the close of business on the tenth (10 th ) day following the day on which such notice of the date of the meeting was mailed or such public +disclosure was made, whichever first occurs. The notice to the Secretary must set forth, with respect to the nominee, the name, age, business address, residence address, principal occupation or employment of the person, the class and number of +shares of capital stock of the Company which are beneficially +8 +Table of Contents +owned by the person, and any other information relating to the person that is required to be disclosed in solicitations for proxies for election of Directors pursuant to Regulation 14A under the +Exchange Act. The notice must also include, as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination is made: (i) the name and address of the stockholder and such beneficial owner; (ii) the +class and number of shares of capital stock of the Company which are held of record or beneficially owned by such stockholder and such beneficial owner and any other direct or indirect pecuniary or economic interest in any capital stock of the +Company of such stockholder and beneficial owner, including without limitation, any derivative instrument, swap, option, warrant, short interest, hedge, profit sharing arrangement or borrowed or loaned shares; (iii) a description of any +arrangements or understandings between such stockholder and beneficial owner and each proposed nominee and any other person (including their names) pursuant to which the nomination(s) are to be made by such stockholder and such beneficial owner or +with respect to actions to be proposed or taken by such nominee if elected as a Director; (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice; and +(v) any other information relating to such stockholder and such beneficial owner that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of +Directors, or may otherwise be required pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. We may also require any proposed nominee to furnish such other information as we may reasonably require to +determine the eligibility of the proposed nominee to serve as a Director of the Company. +Report of the Audit +Committee +The information contained in this report shall not be deemed to be “soliciting material” or +“filed” for purposes of Section 18 of the Exchange Act or otherwise subject to liability under that Section. This report shall not be deemed “incorporated by reference” into any document filed under the Securities Act of +1933, as amended, or the Exchange Act, whether such filing occurs before or after the date hereof, regardless of any general incorporation language in such filing. +The role of the Audit Committee is to assist the Board of Directors in fulfilling its responsibilities to oversee management’s conduct of the Company’s financial reporting process, including +monitoring (1) the participation of management and the outside independent registered public accounting firm in the financial reporting process, (2) the Company’s systems of internal accounting and financial controls, (3) the +annual independent audit of the Company’s financial statements and (4) the qualifications, independence and performance of the outside independent registered public accounting firm. The Committee selects the Company’s outside +independent registered public accounting firm, and once selected, the outside independent registered public accounting firm reports directly to the Committee. The Committee is responsible for approving both audit and non-audit services to be +provided by the outside independent registered public accounting firm. The Committee operates pursuant to a Charter that was last amended and restated by the Board on August 14, 2007. +Management of the Company is responsible for the preparation, presentation and integrity of the Company’s financial statements, the +Company’s accounting and financial reporting principles and internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. The independent registered public accounting firm is +responsible for auditing the Company’s financial statements and expressing an opinion as to their conformity with U.S. generally accepted accounting principles. The Committee’s responsibility is to monitor and review these processes. It is +not the Committee’s duty or responsibility to conduct auditing or accounting reviews. +In the performance of its +oversight function, the Committee has considered and discussed the audited financial statements with management, which included a discussion of not only the quality, but also the acceptability, of the accounting principles, the reasonableness of +significant judgments and the clarity of disclosures in the financial statements. The Committee met with the independent registered public accounting firm, with and without management, to discuss the results of their audit and their judgments +regarding the Company’s accounting policies. The Committee has also discussed with the independent registered public +9 +Table of Contents +accounting firm the matters required to be discussed by Statement on Auditing Standards No. 61, “Communication with Audit Committees,” as currently in effect. Finally, the +Committee has received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board as currently in effect, has considered whether +the provision of non-audit services by the independent registered public accounting firm to the Company is compatible with maintaining the firm’s independence and has discussed with the independent registered public accounting firm the +firm’s independence. +Based upon the reports and discussions described in this report, and subject to the limitations on +the role and responsibilities of the Committee referred to above and in the Committee’s Charter, the Committee recommended to the Board that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the +year ended December 31, 2009 for filing with the SEC and selected KPMG LLP as the independent registered public accounting firm for fiscal year 2010. The Board is recommending that stockholders ratify that selection at the Annual Meeting. +SUBMITTED BY THE AUDIT COMMITTEE +OF THE COMPANY’S BOARD OF DIRECTORS +Michael Celano, Chairman +Jack Goldstein, Ph.D. +Charles W. Patrick +Douglas G. Watson +March 10, 2010 +10 +Table of Contents +Executive Officers +The table below provides information about the executive officers of the Company as of March 22, 2010. Officers of the Company hold +office at the discretion of the Board. +Name +Age +Position +Douglas A. Michels +53 +President and Chief Executive Officer +Ronald H. Spair +54 +Chief Financial Officer and Chief Operating Officer +Stephen R. Lee, Ph.D. +50 +Executive Vice President and Chief Science Officer +P. Michael Formica +59 +Executive Vice President and General Manager, Cryosurgery +Manuel O. Mendez +42 +Senior Vice President, Marketing and Sales +Jack E. Jerrett +51 +Senior Vice President, General Counsel and Secretary +Mark L. Kuna +46 +Senior Vice President, Finance, Controller and Assistant Secretary +Douglas A. Michels has been the Company’s President and Chief Executive Officer since June 2004. Prior to that, Mr. Michels served as Group Vice President, Global Marketing of Ortho-Clinical +Diagnostics, President of Ortho-Clinical Diagnostics International, and President of Johnson & Johnson Healthcare Systems, Inc. Earlier in his career, Mr. Michels held various positions of increasing responsibility within the +Johnson & Johnson family of companies, including Vice President, Sales & Marketing, Vice President/General Manager – Immunocytometry Business, Executive Director Sales & Marketing, Director of Marketing, Director of +Sales, and Regional Sales Manager for Ortho Diagnostic Systems, Inc. Prior to joining Johnson & Johnson, Mr. Michels worked for the Diagnostics Division of Abbott Laboratories in various sales and product management positions. +Mr. Michels received a B.S. degree in Public Health Administration from the University of Illinois and an M.B.A. from Rutgers University. +Ronald H. Spair has been the Company’s Chief Financial Officer and Chief Operating Officer since September 2006 and served as Executive Vice President and Chief Financial Officer since November 2001. +Prior to that time, Mr. Spair was Vice President, Chief Financial Officer and Secretary of Delsys Pharmaceutical Corporation, a pharmaceutical manufacturing system development company, Senior Vice President, Chief Financial Officer and +Secretary of SuperGen, Inc., a pharmaceutical company, and Senior Vice President, Chief Financial Officer and Secretary of Sparta Pharmaceuticals, Inc., a development stage pharmaceutical company. Mr. Spair received both his B.S. in Accounting +and M.B.A. from Rider College. He is also a licensed Certified Public Accountant and is a member of the New Jersey Society of Certified Public Accountants and the American Institute of Certified Public Accountants. +Stephen R. Lee, Ph.D. has been the Company’s Executive Vice President and Chief Science Officer since September 2005. Prior to that +time, Dr. Lee worked at Ortho-Clinical Diagnostics, a Johnson & Johnson company, serving as Vice President, Assay Research & Development, Executive Director, Worldwide Immunodiagnostic Product Development, and Director, +Infectious Disease Assay Development. Dr. Lee has had responsibility for or direct involvement in the development of over 40 major diagnostic assays, in such areas as infectious disease, cardiology, oncology and other conditions. While at +Ortho, Dr. Lee was awarded the Johnson Medal, Johnson & Johnson’s highest award for Research and Development. Prior to joining Ortho, Dr. Lee worked as a scientist for both Wampole Labs and Immunicon Corporation. Dr. Lee +received a BSc. in Biochemistry from Sheffield University (U.K.) in 1981 and a Ph.D. degree in Biochemistry from Cardiff University (U.K.) in 1985. +P. Michael Formica has been the Company’s Executive Vice President since January 2010 and General Manager, Cryosurgery since August 2008. He served as Executive Vice President, Operations for the +Company from November 2002 to January 2010 and as Senior Vice President, Operations for the Company and its predecessor, STC Technologies, Inc., since May 2000. Prior to that time, Mr. Formica was Division Manager, Mobil Measurement +Technologies for Dräger Sicherheitstechnik GmbH (now called Dräger Safety AG & Co. KGaA), in Lüebeck, Germany, for eight years with worldwide responsibility, and Director Sales and Marketing, +11 +Table of Contents +National Draeger, Inc. (USA) for two years. Dräger is a world leader in chemical detection systems for the industrial safety market, and breath alcohol detection instrumentation. +Mr. Formica received his B.S. in Electrical Engineering from West Virginia University and his M.B.A. from the Graduate School of Industrial Administration, Carnegie Mellon University. +Manuel O. Mendez has been the Company’s Senior Vice President, Marketing and Sales since February 2010 and served as Vice President, +Marketing and Sales from November 2009 to February 2010 and as Vice President, Marketing from May 2009 to November 2009. From January 2007 to May 2009, Mr. Mendez was Head/Director of Global Sales, Marketing and Business Development for Thermo +Fisher Scientific, Inc., a global provider of analytical instruments, laboratory equipment and related products to the pharmaceutical and healthcare industries. Prior to that time, Mr. Mendez served as General Manager for the diagnostics +business of Abbott Laboratories in the Benelux region of Europe from December 2005 to July 2007 and General Manager of Abbott’s diagnostics business in Korea prior to December 2005. Earlier in his career, he also held other senior sales and +marketing positions with Abbott. Mr. Mendez received his B.S. in Biochemical Engineering from Boston University and his M.B.A from the Kellogg School at Northwestern University. +Jack E. Jerrett has been the Company’s Senior Vice President and General Counsel since February 2003 and served as Vice President and +General Counsel since November 2000. He has also served as the Company’s Secretary since February 2001. Prior to joining the Company, Mr. Jerrett served in the positions of Associate General Counsel and Senior Counsel at PPL Electric +Utilities Corporation, and acted as general counsel to PPL Gas Utilities Corporation. Prior to that time, Mr. Jerrett was Senior Corporate Attorney of Union Pacific Corporation and an Associate with Morgan, Lewis & Bockius. +Mr. Jerrett received his B.S. in Accounting from Villanova University and his J.D. from the Villanova University School of Law. He is a member of the Pennsylvania Bar and the American and Pennsylvania Bar Associations. +Mark L. Kuna has been the Company’s Senior Vice President, Finance and Controller since September 2006, and served as Vice President +and Controller since February 2003 and as Controller since February 2001. Mr. Kuna has also served as the Company’s Assistant Secretary since May 2002 and provided accounting and financial analysis support since joining the Company in +October 2000. Prior to that time, Mr. Kuna served as Director of Financial Planning and Analysis for the greater Philadelphia region of XO Communications, Inc., and Vice President and Principal Accounting Officer of Wedco Technology, Inc. Prior +to joining Wedco Technology, he was an accountant with Deloitte and Touche. Mr. Kuna received his B.S. in Accounting from the University of Scranton, is a licensed Certified Public Accountant, and is a member of the Pennsylvania and American +Institutes of Certified Public Accountants. +Transactions With Related Persons +Since January 1, 2009, there have been no transactions with related persons which would require disclosure in this Proxy Statement. The +Audit Committee is required to review and approve in advance all transactions with related persons involving the Company. The Audit Committee may approve a related party transaction if the transaction is on terms comparable to those that could be +obtained in arms’ length dealings with an unrelated third party. The Audit Committee also reviews any public disclosures of a related party transaction contained in our SEC filings. These responsibilities are described in the Audit +Committee’s charter, a copy of which is available on our website at www.orasure.com . +Information regarding +employment and severance agreements between our executive officers and the Company is set forth in the Section entitled, “Employment Agreements and Potential Payments Upon Termination or Change in Control,” in this Proxy Statement. +12 +Table of Contents +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Exchange Act requires that our executive officers and Directors and persons who own more than +ten percent of our Common Stock (collectively, “Reporting Persons”) file reports of ownership and changes in ownership with the SEC. Reporting Persons are required by the SEC’s regulations to furnish us with copies of all +Section 16(a) forms they file. +As a matter of practice, our administrative staff assists each of the Reporting Persons +who are employees and Directors of the Company in preparing initial reports of ownership and reports of changes in beneficial ownership and filing such reports with the SEC and the NASDAQ. Based solely on a review of the copies of forms filed by or +on behalf of the Reporting Persons and on written representations (if any) from each of the Reporting Persons, we believe that all Reporting Persons complied on a timely basis with all applicable filing requirements with respect to the year 2009. +ITEM 1. +Election of Directors +At +the Annual Meeting, you will be asked to vote on the election of two Class I Directors. A majority of the independent members of the Board have nominated Jack Goldstein, Ph.D. and Douglas G. Watson for election as Class I Directors, for terms +expiring at the Annual Meeting of Stockholders in 2013. +The nominees for election as Directors are presently members of our +Board. Dr. Goldstein joined the Board in 2006, is currently Chairman of the Compensation Committee and serves on the Audit Committee. Mr. Watson joined the Board in 2002, is Chairman of the Board and serves on the Audit and Compensation +Committees. +In the absence of instructions to the contrary, shares of Common Stock represented by properly executed Proxies +will be voted for the two nominees, each of whom has consented to be named and to serve if elected. If a quorum is present, each nominee will be elected if he receives a plurality of the votes cast by shares present in person or by Proxy and +entitled to vote at the Annual Meeting. Abstentions will have no effect on the required vote. Your Board recommends that you vote FOR the election of the Director nominees. +We do not know of anything that would preclude any nominee from serving. However, should any nominee for any reason become unable or +unwilling to serve as a Director, the persons named in the enclosed Proxy Card will vote the shares represented by each Proxy for such substitute nominee as the Board may approve. +Any vacancy that occurs on the Board that results from an increase in the number of Directors may be filled by the affirmative vote of a +majority of the Directors then in office, and any other vacancy on the Board may be filled by the affirmative vote of a majority of the Directors then in office, even though less than a quorum of the Board, or by a sole remaining Director. +13 +Table of Contents +Certain information with respect to each person nominated for election as a Director and +each person whose term of office as a Director will continue after the Annual Meeting, including the particular experience, qualifications, attributes and skills they possess that led to the conclusion that they should serve as a Director, is set +forth below. +Name +Principal Occupation +Age +Director +Since +Class I (Nominees for Terms Expiring in 2013): +Jack Goldstein, Ph.D. +Former President and Chief Operating Officer of Chiron Corporation +62 +2006 +Douglas G. Watson +Chief Executive Officer of Pittencrieff Glen Associates +65 +2002 +Class II (Directors Whose Terms Expire in 2011): +Ronny B. Lancaster +Senior Vice President for Federal Government Relations of Assurant, Inc. +58 +2003 +Roger L. Pringle +President of The Pringle Company +69 +2000 +Ronald H. Spair +Chief Financial Officer and Chief Operating Officer of the Company +54 +2006 +Class III (Directors Whose Terms Expire in 2012): +Michael Celano +Chief Financial Officer of Kensey Nash Corporation +51 +2006 +Douglas A. Michels +President and Chief Executive Officer of the Company +53 +2004 +Charles W. Patrick +Principal, Patrick Consulting +55 +2006 +Jack Goldstein, Ph.D., +became a member of the Board in May 2006. Dr. Goldstein worked for Chiron Corporation, one of the foremost global biopharmaceutical companies, first as President of the Chiron Blood Testing Division from 2002 until November 2004 and +subsequently as President and Chief Operating Officer of the company until its merger with Novartis A.G. in April 2006. Prior to that time, Dr. Goldstein was General Partner at Windamere Venture Partners, L.L.C., a venture fund making +investments in early stage biotechnology, pharmaceutical, medical device and diagnostic companies and, President, CEO and Chairman of Applied Imaging Corporation, a leading supplier of instrument systems for prenatal and cancer genetics. +Dr. Goldstein also worked for Johnson & Johnson in various executive management positions, including as President of Ortho Diagnostic Systems and Executive Vice President of Professional Diagnostics at Johnson & Johnson World +Headquarters. Dr. Goldstein holds a B.A. degree in Biology from Rider University, and an M.S. in Immunology and a Ph.D. in Microbiology from St. John’s University. In addition, Dr. Goldstein serves on the Board of Illumina Inc. and +Oncogenex Pharmaceuticals, Inc. and previously served on the Board of Immucor, Inc. Dr. Goldstein’s long business career and executive-level management experience in the pharmaceutical and medical diagnostics industries, his scientific +expertise, his business development and venture capital experience and his service on the Boards and Board Committees of other public and private companies led to the conclusion that he should serve on the Company’s Board. +Douglas G. Watson became a member of the Board in May 2002 and became Chairman of the Board in March 2003. Since July 1999, Mr. Watson +has been Chief Executive Officer of Pittencrieff Glen Associates, a leadership and management consulting firm, which he founded. Prior to that, Mr. Watson served as President and Chief Executive Officer of Novartis Corporation, the U.S. +subsidiary of Novartis A.G., President and Chief Executive Officer of Ciba-Geigy Corporation, President of the Ciba Pharmaceuticals Division and Senior Vice President of Planning and Business Development of Ciba’s U.S. Pharmaceuticals Division. +Mr. Watson holds an M.A. degree in pure mathematics from Churchill College, Cambridge University, and is a member of the Chartered Institute of Management Accountants. Mr. Watson also serves on the Boards of BioMimetic Therapeutics, Inc., +Dendreon Corporation, Genta Inc. and Javelin Pharmaceuticals Inc. and previously served on +14 +Table of Contents +the Board of Engelhard Corporation. Mr. Watson’s long business career and executive-level management experience in the pharmaceutical industry, his financial and accounting expertise +and his service on the Boards and Board Committees of other private and public companies led to the conclusion that he should serve on the Company’s Board. +Ronny B. Lancaster became a member of the Board in May 2003. Mr. Lancaster has served as Senior Vice President, Federal Government Relations of Assurant, Inc., a provider of specialty insurance and +insurance-related products and services since September 2005. From 2003 until September 2005, Mr. Lancaster served in various capacities at the Morehouse School of Medicine in Atlanta, including as Chief Operating Officer. Prior to that, +Mr. Lancaster was Executive Assistant to the Secretary and Principal Deputy Assistant Secretary for Planning and Evaluation at the U.S. Department of Health and Human Services,, General Counsel of Hamilton Enterprises, Inc., Senior Washington +Representative for Blue Cross/Blue Shield Association, and Chief of the Division of Fee-For-Service Plans at the U.S. Office of Personnel Management. Mr. Lancaster received his B.A. in Economics from the Catholic University of America, his +M.B.A. from the Wharton School of the University of Pennsylvania, and his J.D. degree from The Georgetown University Law Center. He is also admitted to the Bars of Pennsylvania and the District of Columbia. Mr. Lancaster currently serves on the +Board of Immucor, Inc. and on the Medical Advisory Board of Henry Schein, Inc. Mr. Lancaster’s expertise in government affairs and political matters, his extensive medical and healthcare experience and his legal training led to the +conclusion that he should serve on the Company’s Board. +Roger L. Pringle has served on the Board since September 2000, +when the Company was formed by the merger of Epitope, Inc. (“Epitope”) and STC Technologies, Inc. Prior to that, Mr. Pringle served as Chairman of the Board and a member of the Board of Directors of Epitope, and was a director of +Agritope, Inc., a plant genetics subsidiary of Epitope. Mr. Pringle is the President of The Pringle Company, a strategy and executive consulting firm in Portland, Oregon, which was founded in 1976. Mr. Pringle currently serves on the +Boards of Bank of the Northwest and Prolifiq Software, Inc. and previously served on the Boards of Metro One Telecommunications Inc. and North Pacific Group. Mr. Pringle received a B.S. in Business from Oregon State University and an MBA from +the University of Oregon. Mr. Pringle’s long service as a member of the Board of Epitope, his entrepreneurial and business leadership skills and his service on the Boards of other private and public companies led to the conclusion that he +should serve on the Company’s Board. +For biographical information on Mr. Spair, see the Section entitled, +“Executive Officers,” in this Proxy Statement. Mr. Spair’s service as Chief Financial Officer and Chief Operating Officer of the Company, his financial and accounting expertise and his extensive business and investor relations +experience led to the conclusion that he should serve on the Company’s Board. +Michael Celano became a member of the +Board in October 2006. Mr. Celano has served as Chief Financial Officer of Kensey Nash Corporation, a biomaterials company, since March 2009 and as Managing Director of Aon Risk Services from August 2007 to December 2008. From September 2004 to +May 2007, Mr. Celano served as Vice President, Finance and Chief Financial Officer for BioRexis Pharmaceutical Corporation, a biopharmaceutical company. Before joining BioRexis, Mr. Celano served as a partner with KPMG LLP, in charge of +its Mid-Atlantic Life Sciences Practice, and was co-leader of its National Life Science Practice. Prior to joining KPMG, Mr. Celano was co-leader of the Life Science Practice for Arthur Andersen. Mr. Celano is a Certified Public Accountant +and holds a B.S. degree in Accounting from St. Joseph’s University. Mr. Celano’s accounting and financial expertise, and specifically his long career in public accounting focused in the life sciences area, and his extensive business +experience led to the conclusion that he should serve on the Company’s Board. +For biographical information on +Mr. Michels, see the Section entitled, “Executive Officers,” in this Proxy Statement. Mr. Michels’ service as President and Chief Executive Officer of the Company, his extensive business and executive-level management +experience in the medical diagnostics field and his sales and marketing expertise led to the conclusion that he should serve on the Company’s Board. +15 +Table of Contents +Charles W. Patrick became a member of the Board in January 2006. Since 2000, +Mr. Patrick has served as Principal of Patrick Consulting, a management consulting firm that helps diagnostic and technology companies develop sales, marketing and distribution strategies. Mr. Patrick is also the President and Co-owner of +ADS Golf, Inc. Prior to that time, he served as the President and Chief Executive Officer of Call Nexus, Inc., a provider of virtual call center services, and Vice President of Sales and Marketing for Biosite Diagnostics, a medical diagnostics +company, where he had primary responsibility for developing and achieving Biosite’s strategic sales and marketing objectives. Prior to his time at Biosite, Mr. Patrick served as World Wide Group Marketing Manager and held several other +sales and marketing positions for the Diagnostics Division of Abbott Laboratories. Mr. Patrick received a B.A. in Communications/Journalism from the University of Central Florida. Mr. Patrick also serves on the Board of diaDexus, Inc. +Mr. Patrick’s extensive sales and marketing background, his experience in the medical diagnostics industry and his entrepreneurial skills led to the conclusion that he should serve on the Company’s Board. +Executive Compensation +Compensation Discussion and Analysis +This +Compensation Discussion and Analysis (“CD&A”) provides an overview of the Company’s executive compensation programs together with a description of the material factors underlying the decisions which resulted in compensation for +2009 provided to the Company’s Chief Executive Officer (“CEO”) and the other named executive officers (collectively, the “NEOs”), as presented in tables which follow this CD&A. +Compensation Philosophy . The objectives of our compensation programs for executive officers are to: +· +reward executive officers for the performance of the Company and achievement by such officers of other individual performance objectives; +· +align the interests of the executive officers with the interests of our stockholders; +· +provide long-term incentives for the executive officers; and +· +set compensation at sufficiently competitive levels to attract and retain high quality executives and to motivate them to contribute to our success. +Compensation for executive officers is established by the Compensation Committee of our Board (the +“Committee”) in accordance with the above objectives. In setting executive compensation, the Committee considers the Company’s and each executive’s performance against previously established objectives, internal pay equity, the +Company’s industry position, general industry data and recommendations of independent third party compensation consultants engaged by the Committee. The Committee periodically retains independent compensation consultants to review our executive +compensation practices and to assist the Committee in establishing competitive compensation levels for our executives. In determining whether to retain a compensation consultant, the Committee has sole authority to decide whether to hire or fire any +such consultant and to control the nature and scope of the engagement. +The Committee seeks to set +aggregate compensation levels for executives near the median or fiftieth (50 th ) percentile of amounts paid by comparable medical diagnostic and healthcare companies (defined by industry, revenues, market capitalization, number of employees or a combination of these factors) +for performance consistent with the Company’s target financial and strategic business plans for the applicable year. Use of the fiftieth (50 th ) percentile is intended as a market check and not as an absolute target. As a result, the aggregate compensation +and the value of specific compensation components for individual executives may fall below or exceed that median level depending on individual performance and contribution by the executive. Aggregate compensation includes the total value of the base +salary, incentive cash bonus and equity awards provided to each executive officer. As a general matter, the compensation provided to our NEOs for 2009 is near the fiftieth (50 th ) percentile for their respective positions. +16 +Table of Contents +Annual Performance Evaluations . On an annual basis, the +Committee evaluates the performance of the CEO against predetermined performance objectives and the CEO evaluates the performance of the other NEOs against their respective predetermined performance objectives. Annual performance objectives for the +NEOs are established at the beginning of the applicable year and generally include two parts: the Company’s overall target financial/strategic performance objectives and the individual objectives in the functional areas for which the executive +is responsible. For each NEO, these objectives are then weighted to reflect their relative importance to the Company and the executive’s functional responsibilities. With respect to 2009, the Company’s annual financial/strategic +performance objectives were weighted at 50% for Messrs. Michels and Spair, 40% for Mr. Formica and 30% for Dr. Lee and Mr. Jerrett, with the individual performance objectives for these executives accounting for the balance of the +weighting. +Depending on the Company’s overall performance and the extent to which an executive achieves his individual +objectives for a particular year, the executive will be rated as “Does Not Meet,” “Meets Expectations,” “Exceeds Expectations” or “Outstanding.” As described later in this CD&A, the Committee uses the +performance ratings to determine annual base salary adjustments, incentive cash bonuses and equity awards. +Tally +Sheets . In determining annual compensation, the Committee reviews tally sheets for each executive. Tally sheets set forth the dollar amounts of all components of each NEO’s current compensation, including salary, +incentive cash bonus, equity awards, potential change of control payments and other benefits deemed relevant by the Committee. These tally sheets allow the Committee to review how a change in the amount of each compensation component affects each +executive’s total compensation and to review each executive’s compensation in the aggregate. Included in each tally sheet is the estimated amount of severance and other benefits payable to the executive under various termination scenarios. +Based upon the review of tally sheets, the Committee establishes aggregate compensation for our executives which it believes to be reasonable. +Competitive Assessments . In 2007, the Committee engaged Radford, an independent compensation consultant (“Radford”), to review the Company’s +compensation practices. Radford collected and analyzed compensation data from a peer group consisting of the following 22 medical diagnostic and healthcare companies, which were determined to be comparable to the Company based on total revenues, +number of employees and market value: Abaxis, Inc., Akom, Inc., Angiodynamics, Inc., Cepheid, Inc., Cholestech Corp., Digene Corp., Enzo Biochem, Inc., Harvard Bioscience, Inc., Home Diagnostics, Immunicor, Inc., IRIS International, Inc., LifeCell +Corp., Luminex Corp., Meridian Bioscience, Inc., Monogram Biosciences, Inc., Myriad Genetics, Inc., Neogen Corp., Quidel Corp., Savient Pharmaceuticals, Inc., Third Wave Technologies, Inc., Trinity Biotech, and Ventana Medical Systems, Inc. This +peer group information was supplemented with Radford Life Sciences Executive Survey data containing compensation information for biotechnology companies having 150 to 500 employees and annual revenues ranging from $40 million to $199 million. The +information provided by Radford was used by the Committee in determining executive compensation for 2008 and 2009. +17 +Table of Contents +During 2009, the Committee again engaged Radford to prepare a competitive assessment of +compensation practices. Radford collected and analyzed compensation data from (i) a group of companies with a similar diagnostic product focus and business stage as the Company, with revenues ranging from $25 million to $250 million, market +capitalizations ranging from $55 million to $475 million and employee populations ranging from 95 to 860 (“Diagnostic Peers”); and (ii) a broader group of life sciences companies with revenues ranging from $50 million to $200 million +(“Life Science Peers”). The companies comprising each of these peer groups were as follows: +Diagnostic Peers +Life Science Peers +Caliper Life Sciences +454 Life Sciences/Roche +Meridian Bioscience +Cepheid +Acorda Therapeutics +Micrus Endovascular +Clarient +Affymax +Monogram Biosciences +Genomic Health +Alnylam Pharmaceuticals +Morphosys AG +Genoptix +Alphatec Spine +Nektar Therapeutics +Harvard Biosciences +Auxilium Pharmaceuticals +Noven Pharmaceuticals +Immucor +Biocryst Pharmaceuticals +NPS Pharmaceuticals +Meridian Biosciences +Caliper Life Sciences +Onyx Pharmaceuticals +Monogram Biosciences +Candela Laser +OraSure Technologies +Quidel +Cepheid +Orthovita +Sequenom +Clarient +Osteotech +Surmodics +Conceptus +Pozen +Cryolife +Progenics Pharmaceutical +Emergent Biosolutions +Prostrakan +Enzon +QLT +Eresearch Technology +Questcor Pharmaceuticals +Eurand +Quidel +Exactech +R&D Systems +Exelixis +Salix Pharmaceuticals +Genomic Health +Santarus +Genoptix +Sciclone Pharmaceuticals +Harvard Bioscience +Sorin Group USA +Heska +Starr Surgical Company +Indevus Pharmaceuticals +Sucampo Pharmaceuticals +Infinity Pharmaceutical +Surmodics +Inspire Pharmaceuticals +Symyx Technologies +Ista Pharmaceuticals +Verenium +Jazz Pharmaceuticals +Vertex Pharmaceuticals +Kensey Nash +Vivus +Maxygen +Xoma +Medarex +Zymogenetics +The competitive compensation data developed by Radford in 2009 was used by the Committee in determining base salary levels, the incentive bonus targets and equity award guidelines for 2010. +Compensation Components . Our executive compensation program consists of the components set forth below. +1. Annual Base Salary . The Committee believes that competitive salaries must be paid in order +to attract, retain and motivate high quality executives. Each year, the Committee evaluates and determines the annual base salaries for the NEOs. Annual salary adjustments for executive officers (other than the CEO) are initially proposed by the CEO +to the Committee. In determining salaries, the Committee considers the annual performance evaluation of the CEO prepared by non-employee Directors on the Board and the annual performance evaluations prepared by the CEO for all other executives. The +Committee also considers the +18 +Table of Contents +Company’s budget for expected salary adjustments, salary levels paid at comparable medical diagnostic and healthcare companies and any recommendations that may be made by any compensation +consultant engaged to assist the Committee. An executive’s annual salary adjustment will tend to be at the higher end of the range budgeted by the Company if the executive receives a performance rating of “Meets Expectations” or +better and such executive’s pre-adjustment salary level is at or near the 50 th percentile for his or her position at comparable medical diagnostic and healthcare companies. +From time to time, the Committee may approve salary adjustments for executives to reflect promotions or changes in responsibilities, to bring the salary of a particular executive more in line with the +salaries offered at comparable medical diagnostics and healthcare companies or to reflect other factors. When such salary adjustments are made with respect to an executive, the Committee evaluates the proposed new salary in light of the total cash +and non-cash compensation paid to the executive and whether reasonable internal pay equity will be maintained in light of that executive’s position, responsibilities, experience and contributions. +2. Incentive Cash Bonuses . Annual cash bonuses are included as part of executive compensation because the +Committee believes that a significant portion of each executive’s compensation should be structured as a variable incentive tied to both the overall performance of the Company as well as the individual contribution of the executive. On an +annual basis, the Committee has adopted, with approval of the Board, a Management Incentive Plan (the “Incentive Plan”), which is intended to be the principal vehicle for incentive cash bonus awards. +Incentive cash bonuses are generally paid out of a cash pool funded under the Incentive Plan based on the Company’s achievement of +certain specific financial and strategic objectives determined by the Committee and approved by the Board at the beginning of each fiscal year. The financial objectives typically consist of short-term targets that represent improvement in financial +performance compared to the prior year. The strategic objectives represent milestones that the Committee and Board believe are critical to achieving long-term growth and profitability. Because we are a small cap company that needs to make +substantial investment in our product and clinical development activities, the Committee and Board believe it is important to tie incentive cash payments not only to the attainment of short-term financial targets, but also to the achievement of +strategic objectives that will benefit the Company and its stockholders over the long term. The objectives are each weighted to determine their respective contributions to the pool amount. Each objective can be adjusted by the Committee or Board in +an equitable manner to reflect unexpected changes in the Company’s business or assumptions underlying the original objective or other factors. +With respect to each financial objective, a Threshold, Target and Maximum performance level is established. The Target levels generally reflect the Company’s financial budget or operating plan for +the year. Except in special circumstances, the Threshold levels represent a minimum level of performance for which the Committee is willing to approve incentive cash bonuses. The Maximum levels reflect outstanding performance for which the Committee +is willing to reward executives with bonuses substantially above the Target level payout. With respect to the strategic objectives, Threshold and Target performance levels are established to be consistent with the Company’s long-term strategic +goals for our business. Maximum performance levels may also be established for one or more strategic objectives at the time the Incentive Plan is adopted or deferred for later determination in the discretion of the Committee and Board. +If the Company meets all the Target levels, the pool is funded at 100% of the aggregate target bonuses for all participants in the +Incentive Plan, as described below. The pool is funded at 50% of the aggregate target bonuses if all of the Threshold levels are met and at 150% if all of the Maximum levels are met. Pro-rata adjustments to the amount of funding for each objective +are made where a particular performance is in between the pre-established performance levels. To the extent a performance level is below the Threshold objective, there would be no funding for that particular item unless the Committee or Board +determines, in their discretion, that some funding is warranted. +19 +Table of Contents +The amount of the cash bonus pool is determined by the Committee and recommended for Board +approval. The Board may approve a pool greater than that recommended by the Committee if it determines that the Company has achieved a breakthrough performance by substantially exceeding the Maximum performance level. The Committee and Board also +retain discretion to increase or decrease the size of the pool in order to reflect specific performance or market conditions affecting the Company and the final performance assessments for each participant for the applicable year. The cash bonus +pool is used to pay bonuses not only to the Company’s NEOs, but also to all other officers of the Company and employees at the level of director. The number of individuals who participate in the Incentive Plan each year typically ranges from 20 +to 30 people. +Individual payments from the bonus pool to executives depend on the size of the bonus pool, the +executive’s achievement of individual performance objectives and the number of individuals participating in the plan at the time bonuses are awarded. Bonuses are paid, based on an assessment of each officer’s performance for the applicable +year, using targets expressed as a percentage of the executive officer’s base salary. +If an executive officer has met or +exceeded his or her individual performance objectives and/or the Company’s expectations for the applicable year, he or she may be eligible to receive up to 150% of his or her target bonus, depending on the size of the bonus pool. The Committee +and Board retain the discretion to adjust an individual executive’s performance evaluation and to increase or decrease the bonus paid to such individual to reflect the specific contributions of that executive, the Company’s overall +performance, market conditions or other circumstances. +Executive officers must be employed at the end of the applicable +calendar year and at the time that the bonus award is paid in order to participate in the Incentive Plan. The Committee recommends for Board approval any bonus award for the CEO based on an assessment of his performance against his individual +performance objectives. The CEO recommends individual awards for the other executive officers for approval by the Committee based on an assessment of each executive’s performance against his or her applicable performance objectives. The +Committee and Board have the right, in their sole discretion, to reject any or all of the recommended bonus awards, even if the bonus pool has been funded and any or all applicable performance criteria have been satisfied, based on the business +conditions of the Company or other factors deemed relevant by the Committee or Board. +3. Equity +Awards . The Committee believes that an additional way to promote the long-term growth of the Company is by compensating executives with equity in the Company in order to more closely align their interests with those of our +stockholders. As a result, the Committee administers the OraSure Technologies, Inc. 2000 Stock Award Plan (the “Stock Plan”), pursuant to which grants of stock options and restricted shares are made to executive officers on an annual +basis. +The Committee, with the approval of the Board, adopts on an annual basis Stock Award Guidelines for the Company’s +management (the “Stock Award Guidelines”). The purpose of the Stock Award Guidelines is to provide a framework for determining annual equity awards for executives that reflect the executive’s duties and performance evaluation against +individual objectives for the applicable year and to align the value of the awards for executives with long-term incentive compensation for similar positions at comparable medical diagnostics and healthcare companies. An executive must be rated as +“Meets Expectations” or better in order to receive an equity award, unless the Committee or Board otherwise determines in its discretion that an equity award is appropriate in view of the executive’s specific contributions, the +Company’s overall performance, market conditions or other factors. +The Stock Award Guidelines +provide for the grant of a mix of restricted stock and stock options to the NEOs, based on an executive’s performance evaluation for a particular year. The entire amount of each grant is dependent on the Committee’s assessment of the +executive’s performance. The value of equity awarded to an executive receiving a “Meets Expectations” performance evaluation for a particular year is intended to approximate the fiftieth (50 th ) percentile of long-term incentive compensation for that +position paid by comparable medical diagnostic and healthcare companies. The Stock Award Guidelines provide an executive +20 +Table of Contents +with the opportunity to receive up to the seventy-fifth (75 th +) percentile of long-term incentive compensation for that executive’s position paid by comparable medical diagnostic and healthcare companies if their individual performance is +rated above the “Meets Expectations” level. The Committee has decided that awards should consist of a mix of stock options and restricted stock rather than solely of stock options because such a mix would have greater value as a long-term +incentive and retention mechanism. Awards made during 2009 consisted of 60% restricted stock and 40% stock options, based on the market value of potential awards. +Annual stock option awards have an exercise price equal to the fair market value of the Company’s Common Stock on the date of grant, which is calculated as the mean between the high and low sales +price of the Common Stock as reported by NASDAQ for that date. Stock options generally vest over four years, with the first 25% vesting after one year and the remaining 75% vesting on a monthly basis over the next three years following the first +anniversary of the grant date. Grants of restricted stock generally vest over a three-year period, with one-third vesting on the first anniversary of the grant date, a second third vesting on the second anniversary and the final third vesting on the +third anniversary. These vesting restrictions serve to promote the Company’s long-term growth by restricting executives’ ability to realize short-term gains from their awards. The Committee believes the terms of its equity awards to +executives are competitive with the terms of equity awards offered at comparable medical diagnostics and healthcare companies. +Equity awards are generally made by the Committee each year as part of the normal annual compensation cycle. The awards for a particular year generally occur in late January or early February of the following year after the Company’s +full year financial results are known and performance evaluations for the executive officers have been prepared. Equity awards approved by the Committee for the CEO are then reviewed and approved by the Board. In addition to the annual equity +awards, the Committee may approve stock option and restricted stock awards for newly hired officers or in recognition of an executive’s promotion or expansion of responsibilities. These latter grants may have vesting or other terms that differ +from the terms generally approved for annual equity awards. Notwithstanding the Stock Award Guidelines, equity awards are made at the discretion of the Committee or Board. +4. Retirement Programs . We do not maintain any retirement programs other than a 401(k) profit sharing plan +(the “401(k) Plan”). All of our employees, including executive officers, are eligible to participate in the 401(k) Plan. We make matching contributions for participants on a dollar-for-dollar basis up to $4,000 per year. Payments of +benefits accrued for a 401(k) Plan participant will be made upon retirement or upon termination of employment prior to retirement, provided certain vesting conditions have been met by the participant prior to termination. +5. Perquisites and Other Compensation . As a general matter, the Committee and Board do not believe that +executive officers should be treated differently than other employees, except that such officers should receive annual base salaries and have competitive bonus and equity award opportunities commensurate with their higher level of responsibility, +and that executive officers should receive employment agreements as described below. Our healthcare, disability, and other insurance programs and benefits are the same for all eligible employees, including executive officers. Executive officers do +not receive perquisites. +6. Potential Payments Upon Termination or Change in Control Pursuant to Employment +Agreements . The Company has entered into employment agreements with each of the NEOs. In addition to the compensation elements discussed above, these agreements provide for post-employment severance payments and benefits +in the event of termination of employment by the Company without “cause” or by the executive for “good reason” and provide enhanced severance payments upon such terminations in connection with a “change in control” of +the Company. The terms of these agreements are discussed in more detail under the Section entitled, “Employment Agreements and Potential Payments Upon Termination or Change in Control,” in this Proxy Statement. The Committee believes that +these agreements are generally consistent with industry practice at comparable medical diagnostic and healthcare companies, provide an incentive to the applicable executive to remain with the Company, and serve to align the interests of stockholders +and the executives in the event of a change in control of the Company. +21 +Table of Contents +Accounting and Tax Treatment of Compensation . In +approving the amount and form of compensation for the NEOs, the Committee considers all elements of the cost to the Company of providing such compensation, including the potential impact of Section 162(m) of the Internal Revenue Code. +Section 162(m) disallows a tax deduction for any publicly-held corporation for individual compensation exceeding $1 million in any taxable year for the CEO and for the three most highly compensated officers unless compensation is +performance-based. The Committee intends to maintain flexibility to pay compensation that is not entirely deductible when the best interests of the Company would make that advisable. +2009 Annual Base Salaries . Annual base salaries paid in 2009 to our NEOs were established by the +Committee at the beginning of 2009 based on a review of performance during 2008. Primarily as a result of the Company’s lower than expected financial performance during 2008, the Committee elected not to approve any increases in the salaries +paid to the NEOs during 2009, even though each NEO received a “Meets Expectations” rating for their respective individual performances during 2008, as described below. Thus, the salaries paid to Mr. Michels and the other NEOs during +2009 remained at the following 2008 levels: +NEO +2009 Base Salary +Mr. Michels +$ +475,500 +Mr. Spair +$ +380,500 +Dr. Lee +$ +336,500 +Mr. Formica +$ +315,000 +Mr. Jerrett +$ +260,000 +In evaluating the +performance during 2008 by Mr. Michels and the other NEOs, the Committee first considered the Company’s lower than expected financial performance during that year. The Committee noted that these results were driven primarily by factors +that were neither easily foreseeable at the beginning of the year nor entirely preventable by management. These factors included the following: +· +Slower growth in direct sales of the OraQuick ADVANCE ® HIV-1/2 test in the U.S. public health market because jurisdictions receiving CDC funding used less of these funds to purchase rapid HIV tests and/or deferred +testing; +· +Lower international OraQuick ® sales due to an unexpected change in funding sources by a significant African governmental customer; +· +Lower sales of our OraQuick ADVANCE ® HIV-1/2 test to Abbott Laboratories primarily because of the decision to terminate our exclusive distribution agreement, which was not made until the latter part of +2008; +· +Reduced purchases of the Company’s OTC cryosurgical product in early 2008 by the Company’s Latin American distributor, Genomma Labs, as a +result of increased product returns from Mexican retailers who had overstocked during the winter months; +· +Slower sales to the Company’s OTC European distributor, SSL International, in large part due to stronger competition from other OTC products; +· +Lower Histofreezer ® +sales primarily as a result of diversion of a lower-priced Histofreezer ® product by several +international distributors into the U.S. professional market; and +· +Lower than expected sales of our Intercept ® product line in the U.S. workplace testing market due to the worsening economic and employment climate throughout 2008. +The Committee also noted that Mr. Michels and his management team responded quickly and aggressively to address each of the above +circumstances as they arose. In addition, the Committee’s evaluation was significantly influenced by the many positive accomplishments achieved by management during 2008, including the following: +· +Completed clinical testing and submitted a premarket approval (“PMA”) application for an OraQuick ® rapid HCV test, which is now under review by the FDA; +22 +Table of Contents +· +Obtained FDA approval of the OraQuick ® product and process enhancements and a twelve-month shelf life, making this important test even more attractive to customers in both domestic and international +markets; +· +Successfully completed the observed user study for an OraQuick ® HIV OTC test at the first interim look of the trial (i.e., 1,000 patents) and submitted the resulting data to the FDA; +· +Signed a final development agreement with Roche Diagnostics, completed development for the NIDA-5 panel of high throughput fully automated oral fluid +drugs-of-abuse assays and began the transfer of these new products to manufacturing; +· +Continued progress in developing an enhanced or second generation rapid HIV test with improved sensitivity and specificity; +· +Successfully transitioned the Abbott Laboratories hospital business for OraQuick ADVANCE ® and began servicing all major group purchasing organizations that accounted for 80% of Abbott’s 2008 sales, with over 1,500 hospitals then under contract; +· +Successfully acquired and deployed the resources required for a direct sales model for OraQuick ADVANCE ® in hospitals, including a substantially larger hospital sales force, expanded capabilities for contracting, customer care, telephone sales, warehousing +and logistics, credit, collections and accounts receivable, and new capabilities for EDI, internet and fax product ordering and fulfillment; +· +Increased direct OraQuick ADVANCE ® sales in the U.S. public health market by 28%, U.S. physician offices sales by 30% and Latin American sales by 760%, despite worsening global economic conditions; +· +Generated over $7.0 million during 2008 from the Merck & Co., Inc. (formerly, Schering-Plough) settlement and license agreement; +· +Successfully negotiated and executed a second collaboration agreement with Merck for the clinical development and promotion of an OraQuick ® rapid HCV test outside the United States; +· +Effectively developed the new national Freeze’n Clear Skin Clinic™ brand for the initial launch of the Company’s OTC cryosurgical +product in the U.S. in early 2009; +· +Maintained a greater than 70% institutional investor base and continued support by the Company’s largest stockholders, despite the worsening +economic climate, the challenging financial year during 2008 and a lower stock price; +· +Effectively responded to the filing of a major patent infringement lawsuit by Inverness Medical and Church & Dwight with minimal impact on the +Company’s OraQuick ® HIV business; +· +Strengthened and expanded key relationships under the direction of the Company’s new Vice President, Government Affairs, including with the +Veterans’ Administration, Centers for Disease Control and Prevention, Substance Abuse and Mental Health Services Administration, United States Department of Health and Human Services, FDA, National Alliance of State and Territorial AIDS +Directors, the community of Caribbean governments eligible for PEPFAR funding and other agencies and stakeholders; and +· +Successfully implemented a headcount reduction at the end of 2008 to reduce future costs while refocusing resources on critical operations and +functions. +Based on the foregoing, the Committee concluded that the lower than expected financial +performance for 2008 was largely offset by the strong actions taken by Mr. Michels and his team and the other positive accomplishments achieved during the year. As a result, the Committee determined that a “Meets Expectations” rating +was warranted for Mr. Michels for his 2008 performance. +23 +Table of Contents +In rating Mr. Spair’s performance for 2008 as “Meets +Expectations,” the Committee balanced the Company’s lower than expected financial performance against Mr. Spair’s successful maintenance of the Company’s institutional investor base during a difficult year, his leadership of +the transition to a direct hospital sales model for OraQuick ADVANCE ® , his successful management of the +Company’s cash investments during an extremely challenging economic environment, his assumption of supervisory responsibility for business development activities and his contribution in evaluating potential strategic transactions, his +supervision of Sarbanes-Oxley compliance and preparation of SEC filings and public disclosures, and his ongoing management of the financial planning, reporting and accounting functions. +In rating Dr. Lee’s performance for 2008 as “Meets Expectations,” the Committee considered his +efforts to obtain FDA approval of the OraQuick ® HIV product enhancements and 12-month shelf life, his support of +our OraQuick ® HIV OTC clinical studies and discussions with the FDA, his work on the PMA submission for a new +OraQuick ® HCV test, his leadership in the development of fully-automated homogeneous high throughput oral fluid +drugs-of-abuse assays, and his leadership in the development of an enhanced or second generation rapid HIV test. +In rating Mr. Formica’s performance for 2008 as “Meets Expectations,” the Committee considered Mr. Formica’s efforts to reduce the cost of producing our products, to automate manufacturing of our OraQuick +ADVANCE ® HIV-1/2 test and oral specimen collection devices, to improve our manufacturing processes, to +obtain FDA approval of the OraQuick ® product and process improvements and a 12-month shelf life, and to complete +various other operational initiatives, as well as his assistance in implementing a direct hospital sales model for OraQuick ADVANCE ® and support of the PMA submission for a new OraQuick ® HCV test. The Committee also recognized his assumption of expanded responsibilities for the Company’s worldwide cryosurgical business. +Finally, in rating Mr. Jerrett’s performance for 2008 as “Meets Expectations,” the Committee +considered his leadership in successfully resolving several potential claims by third parties without any formal legal proceedings, his successful handling of multiple commercial issues across all of the Company’s business lines, his successful +implementation of a new contract management system to accommodate the large volume of contracts generated from the implementation of a direct hospital sales model for OraQuick ADVANCE ® , his leadership in responding to the patent infringement litigation filed by Inverness Medical and Church & Dwight, his leadership in negotiating and +executing a settlement of the patent infringement lawsuit against Merck, his help in negotiating and executing the international collaboration agreement with Merck for the OraQuick ® HCV test, his efforts to prepare all SEC filings and other public disclosures, and his ongoing advice and counsel to the Board and senior management. +2009 Incentive Cash Bonuses . In January 2010, the Committee approved incentive cash bonuses to the +executive officers under the 2009 Management Incentive Plan (the “2009 Incentive Plan”). These bonuses were awarded for performance during 2009. +Under the 2009 Incentive Plan, the Committee had previously established Threshold, Target and Maximum performance levels for financial objectives and Threshold and Target performance levels for several +strategic objectives to be used to fund the bonus pool. +The financial objectives consisted of performance levels for total +revenues and improvement in operating results for 2009. The Target performance levels reflected the revenue and operating performance objectives contained in our 2009 financial budget or operating plan. The operating performance improvement +objectives also reflected the significant additional investment we expected to make in our product and clinical development programs during 2009. +The strategic objectives for 2009 consisted of the following: (1) continued efforts to bring our OraQuick ® HCV test to market; (2) continued efforts to bring an OraQuick ® HIV OTC test to market; (3) continued efforts to bring to market high-throughput oral fluid drug testing assays that are used with our Intercept ® collection device; (4) sales goals for our OraQuick ADVANCE ® HIV test to the U.S. hospital market; and (5) bringing at least one fully-vetted strategic transaction to the Board for consideration. +24 +Table of Contents +The revenue objectives, the improvement in operating performance objectives, and the +strategic objectives as a group, were each weighted at 30%, 30% and 40%, respectively, in determining the level of bonus pool funding. The individual strategic objectives were separately weighted to reflect their strategic importance to the Company, +by assigning potential points achievable at the Threshold, Target and Maximum performance levels. The following sets forth the potential bonus pool funding at each performance level: +Threshold +Target +Maximum +Revenues +$ +71.0 million +$ +81.0 million +$ +90.0 million +Operating Performance Improvement +$4.0 million +$8.0 million +$ +16.0 million +Strategic Objectives (Points) +32 +60 +90 +Pool Funding +$864,000 +$1.73 million +$2.6 million +If the Company were to +achieve the Target performance levels for all objectives, then the bonus pool would be funded at approximately $1.73 million, which equals 100% of the aggregate target bonus amounts for the Company’s senior management participating in the 2009 +Incentive Plan. If the Company were to achieve only the Threshold levels, then the bonus pool would be funded at approximately $864,000 or 50% of the aggregate target bonus, and if the Company were to achieve the Maximum levels, then the bonus pool +would be funded at approximately $2.6 million or 150% of the aggregate target bonuses. The foregoing funding levels assume each participant is rated as “Meets Expectations” for their 2009 performance. +During 2009, the Company achieved revenues of $77.0 million, which fell between the Threshold and Target performance levels for this +financial objective. As a result, the Committee concluded that a pro-rated bonus pool funding of $415,000 should be approved for this objective. +During 2009, the Company reported an operating loss of $8.79 million, which compared to an operating loss of $11.5 for 2008. The 2009 operating loss included a $3.0 million impairment charge recorded by +the Company with respect to previously capitalized HCV patent license milestone payments. In evaluating this objective, the Committee concluded that the impairment charge should be excluded from the 2009 operating results when measuring the +improvement over 2008 because this charge was not expected when the objective was first established. The Committee also excluded from the improvement calculation a $4.8 million lump-sum litigation settlement payment received during 2008. As a +result, the Committee concluded that operating performance for 2009 improved by $10.5 million, which fell between the Target and Maximum performance levels and warranted a pro-rated bonus pool funding of $604,000 for this objective. +With respect to the strategic objectives, the Committee evaluated the Company’s 2009 activities as meeting the following performance +levels with the indicated point totals. +2009 +Activities +Strategic Objective +Performance Level +Points +1. Submitted and received CE mark approval for OraQuick ® HCV test. +Threshold +10 +2. Clarified clinical requirements for OraQuick ® HIV OTC test through discussions with FDA and Blood Products Advisory Committee. +Target +15 +3. Submitted 4 high-throughput oral fluid assays for FDA 510(k) clearance. +Threshold +6 +4. Sold more than 950,000 OraQuick ADVANCE ® tests in U.S. hospital market. +Between Target +and Maximum +12 +5. Fully analyzed and obtained Board approval of competitive bid for diagnostic patent estate held by bankrupt entity, which was +ultimately not selected as successful bid. +Target +10 +Total Points +53 +25 +Table of Contents +As a result, the Committee concluded that a total of 53 points out of a maximum of 90 +available points should be awarded, resulting in a pro-rated funding for the strategic objectives as a group of $606,000. +Based on the foregoing, the total bonus pool funding determined by the Committee for 2009 performance was $1,795,000, which includes $170,000 in additional funding approved by the Committee in its discretion to recognize the many other +positive accomplishments by the Company during 2009 and to ensure sufficient bonus funding for participants rated above the “Meets Expectations” level for 2009. The bonus pool amount was also approved by the full Board and was used to pay +bonuses to the Company’s NEOs and twenty other members of our management team. +The specific target percentages for +individual bonus payments under the 2009 Incentive Plan are shown below and were set by the Committee (with Board approval) at levels that the Committee believes are competitive with incentive cash bonus opportunities available at comparable medical +diagnostic and healthcare companies for each executive position. +Title +Target Payouts +Chief Executive Officer +60 +% +Chief Financial Officer and Chief Operating Officer +50 +% +Executive Vice President +40 +% +Senior Vice President +35 +% +In January +2010, the Committee approved the payout of individual bonus awards to executive officers from the bonus pool for 2009, based on the target bonus amounts described above and an assessment of each officer’s performance during 2009 against +pre-established performance objectives. +In evaluating Mr. Michels, the Committee considered that the +Company’s $77.0 million in revenues for 2009 exceeded the Threshold level but did not meet the Target level established for the year. However, the Committee noted that the shortfall from Target occurred during a very difficult economic +environment and in a year when the Company experienced a significant and unexpected challenge in the manufacture of its OraQuick ® HIV test. The Committee also considered the substantial and above-Target improvement in the Company’s operating performance, the increase in gross margin to 61% +in 2009 compared to 58% in 2008, and the substantial reduction in cash used in operating activities for the year. In addition to the foregoing, the Committee’s decision was significantly influenced by many positive accomplishments achieved by +management during 2009, including the following: +· +Receipt of CE mark approval for the OraQuick ® rapid HCV test and preparation for commercial launch of this product in Europe; +· +Filed PMA application amendment containing additional clinical data requested by the FDA for use of the OraQuick ® HCV test on venous whole blood samples; +· +Clarified requirements for final clinical study for an OraQuick ® HIV OTC test through ongoing discussions with the FDA and its Blood Product Advisory Committee (“BPAC”); +· +Achieved improved field performance of the enhanced OraQuick ® HIV test, with specificity of 99.94% based on data from the Company’s sentinel sites; +· +Successfully resolved manufacturing issue related to the OraQuick ADVANCE ® HIV test, eliminated a substantial second quarter order backlog and restored critical inventory levels with minimal customer impact; +· +Signed a final commercialization agreement with Roche Diagnostics for the worldwide distribution of high throughput fully automated oral fluid drugs of +abuse assays in combination with the Company’s Intercept ® oral specimen collection device; +· +Continued to progress development of an enhanced or second generation rapid HIV test with improved performance; +26 +Table of Contents +· +Increased OraQuick ADVANCE ® HIV sales in the U.S. by 21% and in international markets by almost 40%, despite continued difficult global economic conditions; +· +Successfully resolved a major patent infringement lawsuit by Inverness Medical and Church & Dwight with settlement terms favorable to the +Company; +· +Maintained a greater than 65% institutional investor base and continued support by the Company’s largest stockholders, despite the continued +difficult economic environment and low stock price; and +· +Strengthened our management team through the addition of a new Vice President, Marketing and Sales, and new Vice President, Regulatory and Quality +Assurance. +Based on the foregoing, the Committee rated Mr. Michels as a “Meets Expectations” +and awarded Mr. Michels a $303,500 bonus for 2009, which represented 63.8% of his annual base salary compared to his target bonus of 60%. The Committee determined that Mr. Michels should receive a bonus amount pro-rated between the +“Meets Expectations” and “Exceeds Expectations” ratings. Mr. Michels’ 2009 incentive cash bonus was also approved by the Board. +The Committee rated Mr. Spair’s performance for 2009 as “Meets Expectations” and awarded him a bonus +of $202,500, which represented 53.2% of his base salary compared to his target bonus of 50%. In reaching this determination, the Committee decided that, like Mr. Michels, Mr. Spair should also receive a bonus amount prorated between the +“Meets Expectations” and “Exceeds Expectations” ratings. The Committee also considered Mr. Spair’s successful maintenance of the Company’s institutional investor base, his ongoing supervision of the Company’s +operations and resolution of the manufacturing issue related to the OraQuick ® HIV test, his supervision of +Sarbanes-Oxley compliance and preparation of SEC filings and public disclosures, his leadership (along with Mr. Jerrett) in successfully resolving the Inverness Medical/Church & Dwight patent infringement litigation, and his ongoing +management of the financial planning, reporting and accounting functions. +The Committee rated +Dr. Lee’s performance for 2009 as “Exceeds Expectations” and awarded him a $158,500 bonus, which represented 47.1% of his base salary compared to his target of 40%. In reaching this determination, the Committee considered his +efforts to support ongoing OraQuick ® HCV clinical studies and regulatory submissions, his support of the ongoing +clinical development of an OraQuick ® HIV OTC test and related discussions with the FDA and BPAC, his support of +the clinical development of fully automated homogeneous high throughput oral fluid drugs of abuse assays, his leadership in the development of a second generation Intercept ® oral specimen collection device, his leadership in the development of an enhanced or second generation rapid HIV test, his assistance in evaluating new technology +platforms and business development opportunities, and his ongoing support of manufacturing processes and operations. +The Committee rated Mr. Formica’s performance for 2009 as “Meets Expectations” and awarded him a bonus of $118,500, which represented 37.6% of his base salary compared to his target of +40%. In reaching this determination, the Committee considered Mr. Formica’s efforts to reduce the cost of producing our products, to automate manufacturing of our OraQuick ADVANCE ® HIV-1/2 test and oral specimen collection devices, to resolve the OraQuick ® HIV manufacturing issue, to improve our manufacturing processes, and to complete various other operational initiatives. The Committee also recognized his leadership +in supervising the Company’s worldwide cryosurgical business and his aggressive actions to address the diversion issue in the U.S. physician market and improve the performance of our distributors. +Finally, the Committee rated Mr. Jerrett’s performance for 2009 as “Exceeds Expectations” and awarded him a bonus of +$107,000, which represented 41.2% of his base salary compared to his target of 35%. In reaching this determination, the Committee considered his leadership (along with Mr. Spair) in successfully resolving the Inverness Medical/Church & +Dwight patent infringement litigation and several other potential claims by third parties, his successful handling of multiple commercial issues across all of the Company’s business lines, his efforts to prepare all SEC filings and other public +disclosures, and his ongoing advice and counsel to the Board and senior management. +27 +Table of Contents +2009 Equity Awards . The amounts of potential equity +awards to be granted in 2009 (expressed in number of shares) under the Stock Award Guidelines adopted by the Committee and Board for performance during 2008, are summarized below: +Performance Evaluation +Meets Expectations +Exceeds Expectations +Outstanding +Position +Restricted +Stock +Stock +Option +Restricted +Stock +Stock +Option +Restricted +Stock +Stock +Option +President/CEO +53,620 Shs +90,990 Shs +67,020 Shs +113,740 Shs +105,910 Shs +179,740 Shs +CFO/COO +43,440 Shs +73,720 Shs +54,160 Shs +91,910 Shs +64,880 Shs +110,110 Shs +EVP +21,450 Shs +36,400 Shs +26,820 Shs +45,490 Shs +32,170 Shs +54,610 Shs +SVP +14,300 Shs +24,260 Shs +17,870 Shs +30,350 Shs +21,450 Shs +36,380 Shs +In January +2009, utilizing the Stock Award Guideline described above, the Committee approved stock option and restricted stock awards for the NEOs, based on the performance evaluations of such officers for 2008, as set forth below. A description of the basis +for each NEO’s 2008 performance evaluation is set forth above under the Section entitled, “2009 Annual Base Salaries,” in this Proxy Statement. +Executive Officer +Performance Evaluation +Restricted Shares +Stock Options +Douglas A. Michels +Meets Expectations +53,620 Shs +90,990 Shs +Ronald H. Spair +Meets Expectations +43,440 Shs +73,720 Shs +Stephen R. Lee, Ph.D. +Meets Expectations +21,450 Shs +36,400 Shs +P. Michael Formica +Meets Expectations +21,450 Shs +36,400 Shs +Jack E. Jerrett +Meets Expectations +14,300 Shs +24,260 Shs +Other +Elements of Compensation . The Committee reviewed each other element of compensation set forth in the Summary Compensation Table set forth below, and found them to be consistent with the Company’s compensation +philosophy as described above. +28 +Table of Contents +Summary Compensation Table +The following table summarizes the compensation of our CEO and the other NEOs, for the years ended December 31, 2009, 2008 and +2007: +Name and +Principal Position +Year +Salary +($) +Bonus +($) +Stock +Awards 1 +($) +Option +Awards 2 +($) +Non-Equity +Incentive Plan +Compensation 3 +($) +Change in +Pension Value +and +Nonqualified +Deferred +Compensation +Earnings +($) +All other +Compen- +sation 4 +($) +Total ($) +Douglas A. Michels +President and +Chief Executive Officer +2009 +$ +475,500 +— +$ +150,404 +$ +105,894 +$ +303,500 +— +$ +4,000 +$ +1,039,298 +2008 +$ +474,884 +— +$ +528,609 +$ +176,951 +$ +88,450 +— +$ +4,000 +$ +1,272,894 +2007 +$ +448,508 +— +$ +434,438 +$ +161,735 +$ +280,000 +— +$ +4,000 +$ +1,328,681 +Ronald H. Spair +Chief Financial Officer +and Chief Operating Officer +2009 +$ +380,500 +— +$ +121,849 +$ +85,795 +$ +202,500 +— +$ +4,000 +$ +794,644 +2008 +$ +380,119 +— +$ +426,915 +$ +143,134 +$ +58,975 +— +$ +4,000 +$ +1,013,143 +2007 +$ +363,731 +— +$ +434,438 +$ +161,735 +$ +227,000 +— +$ +4,000 +$ +1,190,904 +Stephen R. Lee, Ph.D. +Executive Vice President, Research and +Development +2009 +$ +336,500 +— +$ +60,167 +$ +42,362 +$ +158,500 +— +$ +4,000 +$ +601,529 +2008 +$ +335,969 +— +$ +211,444 +$ +70,781 +$ +41,725 +— +$ +4,000 +$ +663,919 +2007 +$ +313,241 +— +$ +217,219 +$ +80,867 +$ +156,000 +— +$ +4,000 +$ +771,327 +P. Michael Formica +Executive Vice President and General Manager, +Cryosurgery +2009 +$ +315,000 +— +$ +60,167 +$ +42,362 +$ +118,500 +— +$ +4,000 +$ +540,029 +2008 +$ +290,120 +— +$ +316,005 +$ +99,384 +$ +39,050 +— +$ +4,000 +$ +748,559 +2007 +$ +267,950 +— +$ +173,775 +$ +64,694 +$ +107,000 +— +$ +4,000 +$ +617,419 +Jack E. Jerrett +Senior Vice President +and General Counsel +2009 +$ +260,000 +— +$ +40,112 +$ +28,234 +$ +107,000 +— +$ +4,000 +$ +439,346 +2008 +$ +259,804 +— +$ +112,770 +$ +37,750 +$ +28,200 +— +$ +4,000 +$ +442,524 +2007 +$ +251,315 +— +$ +115,850 +$ +43,129 +$ +75,000 +— +$ +4,000 +$ +489,294 +(1) +The indicated amounts reflect the aggregate grant date fair value of restricted stock awards made to the NEOs during 2009 under the Company’s Stock Award Plan, +computed in accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 718. Certain assumptions used in the calculation of those amounts are set forth for the applicable year of award in footnote 10 to the Company’s +audited financial statements for the year ended December 31, 2009, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 15, 2010 (the “2009 10-K Report”). +(2) +The values set forth in this column reflect the aggregate grant date fair value of stock option awards made to the NEOs during 2009 under the Stock Award Plan, computed +in accordance with FASB ASC Topic 718. Certain assumptions used in the calculation of those amounts are set forth for the applicable year of award in footnote 10 to the Company’s audited financial statements for the year ended December 31, +2009, included in the Company’s 2009 10-K Report. +(3) +The indicated amounts reflect incentive cash bonuses paid to the NEOs pursuant to the 2009 Incentive Plan, based on performance during 2009. For a description of these +incentive cash bonus payments, see the Section entitled, “2009 Incentive Cash Bonuses,” in the CD&A. +(4) +The indicated amounts reflect cash contributed to a 401(k) profit sharing plan as an employer-matching contribution, which is offered to all employees of the Company. +29 +Table of Contents +Grants of Plan-Based Awards +The following table summarizes information concerning possible and actual restricted stock and stock option awards for the NEOs during the +fiscal year ended December 31, 2009 as well as possible payouts under the 2009 Incentive Plan: +Name +Grant +Date 1 +Estimated Possible Payouts +Under Non-Equity Incentive +Plan Awards 2 +Estimated Possible Payouts Under +Equity Incentive Plan Awards 3 +All other +Stock +Awards: +Number +Of Shares +Of Stock +Or Units +(#) +All other +Option +Awards: +Number +Of Securities +Underlying +Options +(#) +Exercise +or Base +Price of +Option +Awards 4 +($/Sh) +Grant +Date Fair +Value of +Stock and +Option +Awards 5 +($) +Threshold +($) +Target +($) +Maximum +($) +Threshold +(# Shs.) +Target +(# Shs.) +Maximum +(# Shs.) +Douglas A. Michels +President and Chief +Executive Officer +1/23/09 +— +— +— +— +— +— +53,620 +— +$ +150,404 +1/23/09 +— +— +— +— +— +— +— +90,990 +$ +2.81 +$ +105,894 +N/A +$ +142,650 +$ +285,300 +$ +427,950 +53,620 RS +67,020 RS +105,910 RS +— +— +— +N/A +N/A +— +— +— +90,990 SO +113,740 SO +179,740 SO +— +— +— +N/A +Ronald H. Spair +Chief Financial Officer and +Chief Operating Officer +1/23/09 +— +— +— +— +— +— +43,440 +— +— +$ +121,849 +1/23/09 +— +— +— +— +— +— +— +73,720 +$ +2.81 +$ +85,795 +N/A +$ +95,125 +$ +190,250 +$ +285,375 +43,440 RS +54,160 RS +64,880 RS +— +— +— +N/A +N/A +— +— +— +73,720 SO +91,910 SO +110,110 SO +— +— +— +N/A +Stephen R. Lee, Ph.D. +Executive Vice President, +Research and Development +1/23/09 +— +— +— +— +— +— +21,450 +— +— +$ +60,167 +1/23/09 +— +— +— +— +— +— +— +36,400 +$ +2.81 +$ +42,362 +N/A +$ +67,300 +$ +134,600 +$ +201,900 +21,450 RS +26,820 RS +32,170 RS +— +— +— +N/A +N/A +— +— +— +36,400 SO +45,490 SO +54,610 SO +— +— +— +N/A +P. Michael Formica +Executive Vice President +and General Manager, +Cryosurgery +1/23/09 +— +— +— +— +— +— +21,450 +— +— +$ +60,167 +1/23/09 +— +— +— +— +— +— +— +36,400 +$ +2.81 +$ +42,362 +N/A +$ +63,000 +$ +126,000 +$ +189,000 +21,450 RS +26,820 RS +32,170 RS +— +— +— +N/A +N/A +— +— +— +36,400 SO +45,490 SO +54,610 SO +— +— +— +N/A +Jack E. Jerrett +Senior Vice President +and General Counsel +1/23/09 +— +— +— +— +— +— +14,300 +— +— +$ +40,112 +1/23/09 +— +— +— +— +— +— +— +24,260 +$ +2.81 +$ +28,234 +N/A +$ +45,500 +$ +91,000 +$ +136,500 +14,300 RS +17,870 RS +21,450 RS +— +— +— +N/A +N/A +— +— +— +24,260 SO +30,350 SO +36,380 SO +— +— +— +N/A +(1) +Annual equity incentive awards to NEOs, consisting of a combination of restricted stock (“RS”) and stock options (“SO”), are determined for each +year pursuant to the applicable Stock Award Guidelines, based on an evaluation of each officer’s performance during the year against previously established performance objectives. Annual equity awards made during 2009 were approved by the +Compensation Committee on January 23, 2009 for performance during 2008. For a description of these equity awards and their terms, see the Sections entitled, “Compensation Components – Equity Awards” and “2009 Equity +Awards,” in the CD&A. +(2) +The indicated amounts represent possible incentive cash bonus payments to the NEOs under the 2009 Incentive Plan for performance during 2009. On January 25, 2010, +bonus payments under the 2009 Incentive Plan were approved by the Compensation Committee for the NEOs based on an assessment of the Company’s performance against certain financial and strategic objectives for 2009 and of each officer’s +performance against pre-established individual performance objectives. A further description of the payments approved under the 2009 Incentive Plan is set forth in the Section entitled, “2009 Incentive Cash Bonuses,” in the CD&A. +Actual amounts paid for 2009 are also disclosed in the Summary Compensation Table. +(3) +The indicated amounts represent the possible number of shares which could have been granted to the NEOs in 2009 in the form of restricted stock and stock options +pursuant to the Stock Award Guidelines, based on each officer’s performance during 2008. Specific RS and SO awards were approved by the Compensation Committee for the NEOs pursuant to the applicable Stock Award Guidelines on January 23, +2009 based on an assessment of each officer’s performance against pre-established performance objectives for 2008. A further description of these equity awards and their terms is set forth in the Sections entitled, “Compensation Components +– Equity Awards” and “2009 Equity Awards,” in the CD&A. The values of the RS and SO awards during 2009 and prior years are disclosed in the Summary Compensation Table. +(4) +The exercise price for stock options is the fair market value of the Company’s Common Stock on the date of grant, which is calculated as the mean between the high +and low sales price of the Common Stock as reported by NASDAQ on the date of grant. +(5) +The indicated amounts represent the grant date fair value calculated in accordance with FASB ASC Topic 718. +30 +Table of Contents +Outstanding Equity Awards at Fiscal Year-End +The following table summarizes information regarding unexercised stock options and unvested restricted stock held by the NEOs at +December 31, 2009: +Option Awards 1 +Stock Awards 1 +Name +Number of +Securities +Underlying +Unexercised +Options +(#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options 2 +(#) +Unexercisable +Equity +Incentive +Plan +Awards +Number +of +Securities +Underlying +Unexercised +Unearned +Options +(#) +Option +Exercise +Price +($/Sh.) +Option +Expiration +Date +Number +of Shares +or Units +of Stock +That +Have Not +Vested 2 +(#) +Market +Value +of +Shares +or Units +of Stock +That +Have Not +Vested 8 +($) +Equity +Incentive +Plan +Awards: +Number of +Unearned +Shares, +Units or +Other +Rights +That +Have +Not +Vested (#) +Equity +Incentive +Plan +Awards: +Market +or Payout +Value of +Unearned +Shares, +Units or +Other +Rights +That +Have Not +Vested ($) +Douglas A. Michels +President and Chief +Executive Officer +400,000 +— +— +$ +7.77 +6/22/2014 +— +— +— +— +67,500 +— +— +$ +5.60 +1/26/2015 +— +— +— +— +66,093 +1,407 +3 (a) +— +$ +9.56 +1/23/2016 +— +— +— +— +31,875 +13,125 +3 (b) +— +$ +8.28 +2/01/2017 +— +— +— +— +25,781 +30,469 +3 (c) +— +$ +8.06 +2/01/2018 +— +— +— +— +— +90,990 +3 (d) +— +$ +2.81 +1/23/2019 +— +— +— +— +— +— +— +— +— +116,640 +3 (e) +$ +592,531 +— +— +— +— +— +— +— +17,500 +3 (f) +$ +88,900 +— +— +— +— +— +— +— +43,750 +3 (g) +$ +222,250 +— +— +— +— +— +— +— +53,620 +3 (h) +$ +272,390 +— +— +Ronald H. Spair +Chief Financial Officer +and Chief Operating Officer +150,000 +— +— +$ +10.70 +11/1/2011 +— +— +— +— +65,000 +— +— +$ +5.87 +1/31/2012 +— +— +— +— +90,000 +— +— +$ +6.96 +1/31/2013 +— +— +— +— +100,000 +— +— +$ +8.20 +1/14/2014 +— +— +— +— +27,000 +— +— +$ +5.60 +1/26/2015 +— +— +— +— +26,437 +563 +4 (a) +— +$ +9.56 +1/23/2016 +— +— +— +— +31,875 +13,125 +4 (b) +— +$ +8.28 +2/01/2017 +— +— +— +— +20,854 +24,646 +4 (c) +— +$ +8.06 +2/01/2018 +— +— +— +— +— +73,720 +4 (d) +— +$ +2.81 +1/23/2019 +— +— +— +— +— +— +— +— +— +17,500 +4 (e) +$ +88,900 +— +— +— +— +— +— +— +35,333 +4 (f) +$ +179,492 +— +— +— +— +— +— +— +43,440 +4 (g) +$ +220,675 +— +— +Stephen R. Lee, Ph.D. +Executive Vice President, Research and Development +125,000 +— +— +$ +8.97 +9/23/2015 +— +— +— +— +17,625 +375 +5 (a) +— +$ +9.56 +1/23/2016 +— +— +— +— +15,937 +6,563 +5 (b) +— +$ +8.28 +2/01/2017 +— +— +— +— +10,312 +12,188 +5 (c) +— +$ +8.06 +2/01/2018 +— +— +— +— +— +36,400 +5 (d) +— +$ +2.81 +1/23/2019 +— +— +— +— +— +— +— +— +— +8,750 +5 (e) +$ +44,450 +— +— +— +— +— +— +— +17,500 +5 (f) +$ +88,900 +— +— +— +— +— +— +— +21,450 +5 (g) +$ +108,966 +— +— +31 +Table of Contents +Option Awards 1 +Stock Awards 1 +Name +Number of +Securities +Underlying +Unexercised +Options +(#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options 2 +(#) +Unexercisable +Equity +Incentive +Plan +Awards +Number +of +Securities +Underlying +Unexercised +Unearned +Options +(#) +Option +Exercise +Price +($/Sh.) +Option +Expiration +Date +Number +of Shares +or Units +of Stock +That +Have Not +Vested 2 +(#) +Market +Value +of +Shares +or Units +of Stock +That +Have Not +Vested 8 +($) +Equity +Incentive +Plan +Awards: +Number of +Unearned +Shares, +Units or +Other +Rights +That +Have +Not +Vested (#) +Equity +Incentive +Plan +Awards: +Market +or Payout +Value of +Unearned +Shares, +Units or +Other +Rights +That +Have Not +Vested ($) +P. Michael Formica +Executive Vice President and General Manager, +Cryosurgery +52,960 +— +— +$ +10.71 +10/16/2010 +— +— +— +— +33,750 +— +— +$ +7.09 +12/13/2010 +— +— +— +— +45,000 +— +— +$ +5.87 +1/31/2012 +— +— +— +— +75,000 +— +— +$ +6.96 +1/31/2013 +— +— +— +— +100,000 +— +— +$ +8.20 +1/14/2014 +— +— +— +— +22,500 +— +— +$ +5.60 +1/26/2015 +— +— +— +— +22,031 +469 +6 (a) +— +$ +9.56 +1/23/2016 +— +— +— +— +12,750 +5,250 +6 (b) +— +$ +8.28 +2/01/2017 +— +— +— +— +8,250 +9,750 +6 (c) +— +$ +8.06 +2/01/2018 +— +— +— +— +5,333 +14,667 +6 (d) +— +$ +4.90 +8/19/2018 +— +— +— +— +— +36,400 +6 (e) +— +$ +2.81 +1/23/2019 +— +— +— +— +— +— +— +— +— +7,000 +6 (f) +$ +35,560 +— +— +— +— +— +— +— +14,000 +6 (g) +$ +71,120 +— +— +— +— +— +— +— +22,500 +6 (h) +$ +114,300 +— +— +— +— +— +— +— +21,450 +6 (i) +$ +108,966 +— +— +Jack E. Jerrett +Senior Vice President +and General Counsel +25,000 +— +— +$ +8.03 +11/27/2010 +— +— +— +— +30,000 +— +— +$ +7.09 +12/13/2010 +— +— +— +— +30,000 +— +— +$ +5.87 +1/31/2012 +— +— +— +— +40,000 +— +— +$ +6.96 +1/31/2013 +— +— +— +— +40,000 +— +— +$ +8.20 +1/14/2014 +— +— +— +— +15,000 +— +— +$ +5.60 +1/26/2015 +— +— +— +— +17,625 +375 +7 (a) +— +$ +9.56 +1/23/2016 +— +— +— +— +8,500 +3,500 +7 (b) +— +$ +8.28 +2/01/2017 +— +— +— +— +5,500 +6,500 +7 (c) +— +$ +8.06 +2/01/2018 +— +— +— +— +— +24,260 +7 (d) +— +$ +2.81 +1/23/2019 +— +— +— +— +— +— +— +— +— +4,666 +7 (e) +$ +23,703 +— +— +— +— +— +— +— +9,333 +7 (f) +$ +47,412 +— +— +— +— +— +— +— +14,300 +7 (g) +$ +72,644 +— +— +(1) +The indicated information does not include restricted stock or stock options awarded to the NEOs in January 2010 pursuant to the applicable Stock Award Guidelines, in +respect of performance during 2009. +(2) +Stock options vest over four years, with the first 25% vesting on the first anniversary of the grant date and the remaining 75% vesting on a monthly basis over the next +three years following the first anniversary of the grant date. Grants of restricted stock vest over a three-year period, with one-third vesting on the first anniversary of the grant date, a second third vesting on the second anniversary and the +final third vesting on the third anniversary. +(3) +The indicated stock options and restricted stock vest as follows: +(a) +1,407 options on January 23, 2010; +(b) +937 options on the 1 st of each month, from January 1, 2010 through February 1, 2011; +(c) +1,172 options on the 1 st of each month, from January 1, 2010 through February 1, 2012; +(d) +22,748 options on January 23, 2010 and 1,895 options on the 23 rd of each month, from February 23, 2010 through January 23, 2013; +(e) +6,480 restricted shares quarterly on March 31, June 30, September 30 and December 31 of each year; from March 31, 2010 through +June 30, 2014; +32 +Table of Contents +(f) +17,500 restricted shares on February 1, 2010; +(g) +21,875 restricted shares on February 1, 2010 and 2011; and +(h) +17,873 restricted shares on January 23, 2010, 2011 and 2012. +(4) +The indicated stock options and restricted stock vest as follows: +(a) +563 options on January 23, 2010; +(b) +937 options on the 1 st of each month, from January 1, 2010 through February 1, 2011; +(c) +948 options on the 1 st of each month from January 1, 2010 through February 1, 2012; +(d) +18,430 options on January 23, 2010 and 1,536 options on the 23 rd of each month, from February 23, 2010 through January 23, 2013; +(e) +17,500 restricted shares on February 1, 2010; +(f) +17,667 restricted shares on February 1, 2010 and 2011; and +(g) +14,480 restricted shares on January 23, 2010, 2011 and 2012. +(5) +The indicated stock options and restricted stock vest as follows: +(a) +375 options on January 23, 2010; +(b) +469 options on the 1 st of each month, from January 1, 2010 through February 1, 2011; +(c) +469 options on the 1 st of each month, from January 1, 2010 through February 1, 2012; +(d) +9,100 options on January 23, 2010 and 758 options on the 23 rd of each month from February 23, 2010 through January 23, 2013; +(e) +8,750 restricted shares on February 1, 2010; +(f) +8,750 restricted shares on February 1, 2010 and 2011; and +(g) +7,150 restricted shares on January 23, 2010, 2011 and 2012. +(6) +The indicated stock options and restricted stock vest as follows: +(a) +469 options on January 23, 2010; +(b) +375 options on the 1 st of each month, from January 1, 2010 through February 1, 2011; +(c) +375 options on the 1 st of each month, from January 1, 2010 through February 1, 2012; +(d) +333 options on the 19 th of each month, from January 19, 2010 through August 19, 2013; +(e) +9,100 options on January 23, 2010 and 758 options on the 23 rd of each month from February 23, 2010 through January 23, 2013; +(f) +7,000 restricted shares on February 1, 2010; +(g) +7,000 restricted shares on February 1, 2010 and 2011; +(h) +7,500 restricted shares on August 19, 2010, 2011 and 2012; and +(i) +7,150 restricted shares on January 23, 2010, 2011 and 2012. +(7) +The indicated stock options and restricted stock vest as follows: +(a) +375 options on January 23, 2010; +(b) +250 options on the 1 st of each month, from January 1, 2010 through February 1, 2011; +(c) +250 options on the 1 st of each month, from January 1, 2010 through February 1, 2012; +(d) +6,065 options on January 23, 2010 and 505 options on the 23 rd of each month from February 23, 2010 through January 23, 2013; +(e) +4,666 restricted shares on February 1, 2010; +(f) +4,667 restricted shares on February 1, 2010, and 2011; and +(g) +4,767 restricted shares on January 23, 2010, 2011 and 2012. +(8) +The indicated values were determined by multiplying the number of unvested shares of restricted stock shown in this table by $5.08 per share, the closing price of the +Company’s Common Stock as reported by NASDAQ on December 31, 2009. +33 +Table of Contents +Option Exercises and Stock Vested +The following table summarizes information with respect to the exercise of stock options and vesting of restricted stock for each of the NEOs +during the fiscal year ended December 31, 2009: +Option Awards 1 +Stock Awards +Name +Number of +Shares +Acquired +on Exercise +(#) +Value +Realized +on +Exercise +($) +Number Of +Shares +Acquired +on Vesting +(#) +Value +Realized +on +Vesting 2 +($) +Douglas A. Michels +President and Chief Executive Officer +— +— +91,545 +$ +275,064 +Ronald H. Spair +Chief Financial Officer and Chief Operating Officer +— +— +62,333 +$ +184,026 +Stephen R. Lee, Ph.D. +Executive Vice President, Research and Development +— +— +37,833 +$ +111,926 +P. Michael Formica +Executive Vice President and General Manager, Cryosurgery +— +— +30,250 +$ +84,706 +Jack E. Jerrett +Senior Vice President and General Counsel +— +— +16,334 +$ +47,170 +(1) +No stock options were exercised by any of the NEOs during 2009. +(2) +The indicated amounts were calculated by multiplying the number of restricted shares acquired upon vesting by the market value of the Company’s Common Stock on the +applicable vesting date. The market value was determined by calculating the mean between the high and low sales price of the Common Stock as reported by NASDAQ on the vesting date. +Pension Benefits +We provide no pension benefits to the NEOs other than the right to participate in our 401(k) Plan. For a further description of the terms of the 401(k) Plan, see the Section entitled, “Compensation +Components – Retirement Programs,” in the CD&A. +Nonqualified Deferred Compensation +None of the NEOs has received any nonqualified deferred compensation during the fiscal year ended December 31, 2009. +Employment Agreements and Potential Payments Upon Termination or Change in Control +Mr. Michels has an employment agreement with the Company that provides for the various components of compensation described in the +CD&A. In addition, upon a termination of employment, Mr. Michels’ contract provides for certain post-employment severance and other benefits, as described below. +Mr. Michels’ employment agreement will terminate upon his death or disability. In addition, Mr. Michels may terminate his +employment at any time and for any reason upon 90 days written notice to the Company, for “good reason” (as defined below), or following a “change in control” (as defined below). Mr. Michels’ employment agreement can +also be terminated by the Company for “cause” (as defined below) or without “cause.” +34 +Table of Contents +As used in the agreement, the term “good reason” means (i) a material breach +of the agreement by the Company that is not cured within 30 days of written notice, (ii) any diminution in Mr. Michels’ base compensation or authority, duties or responsibilities, (iii) a material diminution in the authority, +duties or responsibilities of the person to whom Mr. Michels reports, including a change in Mr. Michels’ reporting obligation from the Board to another employee of the Company, if applicable, (iv) a material diminution of the +budget over which Mr. Michels exercises control, or (v) a material change in Mr. Michels’ job location. +A +“change in control” generally is defined to take place when disclosure of such a change would be required by the proxy rules promulgated by the SEC or when: +· +any person, or more than one person acting as a group within the meaning of Section 409A of the Internal Revenue Code (the “Code”) and +the regulations issued thereunder, acquires ownership of stock of the Company that, together with stock held by such person or group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of the Company; +· +any person, or more than one person acting as a group within the meaning of Code Section 409A and the regulations issued thereunder, acquires (or +has acquired during the 12-month period ending on the date of the most recent acquisition) ownership of stock of the Company possessing 30 percent or more of the total voting power of the Company’s stock; +· +a majority of the members of the Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority +of the members of the Board before the date of the appointment or election; or +· +a person, or more than one person acting as a group within the meaning of Code Section 409A and the regulations issued thereunder, acquires (or +has acquired during the 12-month period ending on the date of the most recent acquisition) assets from the Company that have a total gross fair market value equal to or more than 40 percent of the total gross fair market value of all the assets of +the Company immediately before such acquisition or acquisitions. +A “change in control period” is +the period which begins on the occurrence of a change in control and ends 18 months thereafter. +Upon the termination of +Mr. Michels’ employment upon his death or disability, by Mr. Michels for any reason other than good reason or by the Company for cause, Mr. Michels will be entitled to receive his salary through the date of termination and any +bonus approved by the Board or the Compensation Committee prior to the date of termination but not yet paid and, in the case of a termination upon his death or disability, a cash bonus for the calendar year in which termination occurs that +Mr. Michels would have received but for his death or disability, prorated through the date of death or commencement of disability. Upon termination of the agreement by Mr. Michels with good reason or after a change in control or by the +Company without cause (which includes the Company’s failure to renew the agreement), Mr. Michels would be entitled to receive his salary through the date of termination and any bonus that has been approved by the Board or the Compensation +Committee prior to the date of termination but not yet paid, a cash bonus for the calendar year in which termination occurs equal to Mr. Michels’ target bonus for such year, and for a period of one year after the date of termination, +benefits for Mr. Michels and/or his family at levels substantially equal to those that would have been provided to them by the Company if Mr. Michels’ employment had not been terminated. If termination is for good reason or without +cause (which includes the Company’s failure to renew the agreement) and does not occur during a change in control period, Mr. Michels would also receive a lump sum amount equivalent to 12 months of his annual salary. If, however, +termination is for good reason or without cause (which includes the Company’s failure to renew the agreement) and occurs during a change in control period, or if termination is by Mr. Michels after a change in control, Mr. Michels +will receive a lump sum amount equivalent to 36 months of his annual salary. If Mr. Michels is a “specified employee” within the meaning of Code Section 409A at the time of the termination of his employment and any of the +foregoing payments would subject him to any tax, interest or penalty under Code Section 409A or regulation thereunder, then the payment shall not be made until the first day which is at +35 +Table of Contents +least six months after the date of termination of his employment. Mr. Michels’ agreement also provides that the Company will pay an amount equal to the first $1 million of excise tax +incurred under Section 280G of the Internal Revenue Code on compensation paid to Mr. Michels upon a change in control. +Upon termination of Mr. Michels’ employment as a result of disability, for good reason, by the Company without cause or by Mr. Michels after a change of control, Mr. Michels can elect to receive medical and dental +insurance coverage for himself and his family under any plans offered by the Company to the extent the Company is self insured or coverage for former employees is available on reasonable terms (as determined by the Company) from the Company’s +providers of medical and dental coverage. +All stock awards granted to Mr. Michels are required to immediately vest +(i) in the event of a change in control or (ii) if Mr. Michels’ employment is terminated for good reason by Mr. Michels or by the Company without cause during a change in control period, and 50% of such stock awards shall +vest in the event Mr. Michels’ employment is terminated for good reason or by the Company without cause during any period other than a change in control period. +The termination and severance provisions in the employment agreements for the other NEOs are substantially similar to Mr. Michels’ employment agreement, with the following exceptions. The +Company is obligated to pay an amount up to the first $500,000, rather than $1 million, of excise tax imposed under Section 280G of the Internal Revenue Code on compensation paid as a result of a change in control for Messrs. Spair, Formica, +Jerrett and Dr. Lee. Messrs. Formica and Jerrett and Dr. Lee are entitled to receive severance payments equivalent to 24 months of their annual salary, rather than 36 months, in the event of a termination of their agreements for good +reason or without cause during a change in control period or after a change in control. +36 +Table of Contents +The following table provides estimates of the potential severance and other post-termination +benefits the NEOs would receive assuming their employment was terminated as of December 31, 2009: +Name +Benefit +Voluntary +Termination +or +Termination +for Cause +Termination +for Death +or +Disability 1 +Termination +for Good +Reason or +Without +Cause Not +Within +Change in +Control +Period 1 +Termination after +Change in +Control, or for +Good Reason or +Without Cause +Within Change +in +Control +Period 1,2 +Douglas A. Michels +President and Chief +Executive Officer +Salary Continuation +— +— +$ +475,500 +$ +1,426,500 +Bonus +— +$ +303,500 +$ +285,300 +$ +285,300 +Accelerated Option Vesting +— +— +$ +103,501 +$ +207,002 +Accelerated Restricted Stock Vesting +— +$ +1,176,071 +$ +588,035 +$ +1,176,071 +Health Care Benefits +— +— +$ +14,735 +$ +14,735 +Total +— +$ +1,479,571 +$ +1,467,071 +$ +3,109,608 +Ronald H. Spair +Chief Financial +Officer and Chief Operating Officer +Salary Continuation +— +— +$ +380,500 +$ +1,141,500 +Bonus +— +$ +202,500 +$ +190,250 +$ +190,250 +Accelerated Option +Vesting +— +— +$ +83,857 +$ +167,713 +Accelerated Restricted +Stock Vesting +— +$ +489,067 +$ +244,533 +$ +489,067 +Health Care Benefits +— +— +$ +11,422 +$ +11,422 +Total +— +$ +691,567 +$ +910,562 +$ +1,999,952 +Stephen R. Lee, Ph.D. +Executive Vice +President, Research +and Development +Salary Continuation +— +— +$ +336,500 +$ +673,000 +Bonus +— +$ +158,500 +$ +134,600 +$ +134,600 +Accelerated Option +Vesting +— +— +$ +41,405 +$ +82,810 +Accelerated Restricted +Stock Vesting +— +$ +242,316 +$ +121,158 +$ +242,316 +Health Care Benefits +— +— +$ +11,428 +$ +11,428 +Total +— +$ +400,816 +$ +645,091 +$ +1,144,154 +P. Michael Formica +Executive Vice +President and General Manager, Cryosurgery +Salary Continuation +— +— +$ +315,000 +$ +630,000 +Bonus +— +$ +118,500 +$ +126,000 +$ +126,000 +Accelerated Option +Vesting +— +— +$ +42,762 +$ +85,523 +Accelerated Restricted +Stock Vesting +— +$ +329,946 +$ +164,973 +$ +329,946 +Health Care Benefits +— +— +$ +14,532 +$ +14,532 +Total +— +$ +448,446 +$ +663,267 +$ +1,186,001 +Jack E. Jerrett +Senior Vice President +and General Counsel +Salary Continuation +— +— +$ +260,000 +$ +520,000 +Bonus +— +$ +107,000 +$ +91,000 +$ +91,000 +Accelerated Option +Vesting +— +— +$ +27,596 +$ +55,192 +Accelerated Restricted +Stock Vesting +— +$ +143,759 +$ +71,879 +$ +143,759 +Health Care Benefits +— +— +$ +11,688 +$ +11,688 +Total +— +$ +250,759 +$ +462,163 +$ +821,639 +37 +Table of Contents +(1) +The indicated values for the accelerated vesting of stock options reflect (i) the number of option shares which would vest on an accelerated basis, multiplied by +(ii) the excess, if any, of the $5.08 per share closing price for the Company’s Common Stock, as reported by NASDAQ on December 31, 2009, over the applicable exercise price for each option. The indicated values for the accelerated +vesting of restricted stock reflect the $5.08 per share closing price multiplied by the number of shares which would vest on an accelerated basis. +(2) +The Company will also pay the excise tax incurred under Section 280G of the Internal Revenue Code on compensation paid to the NEOs in the event of a change in +control in an amount up to $1 million for Mr. Michels and $500,000 for the other NEOs. +2009 +Director Compensation +During 2009, all non-employee Directors received an annual fee of $25,000. In addition, the Chairman +of the Board received an additional annual fee of $20,000, the Chairmen of the Audit Committee and Compensation Committee received an additional annual fee of $10,000 each, and the Chairman of the Nominating and Corporate Governance Committee +received an additional annual fee of $5,000. Thus, the Chairman of the Board, and the Chairmen of the Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee received aggregate annual fees of $45,000, $35,000, +$35,000 and $30,000, respectively. +Each non-employee Director also received a $2,000 fee for each Board meeting attended, and +each member of a Board Committee received an additional $1,000 fee for each Committee meeting attended. Fees were payable for meetings held in person or by conference telephone. A meeting fee was paid only with respect to a meeting for which minutes +are prepared. Non-employee Directors received reimbursement for their reasonable out-of-pocket costs of attending Board and Committee meetings. +Each non-employee Director also received a grant of 15,000 restricted shares (the “Annual Grant”) on the annual option grant date for officers and employees of the Company, except for the +Chairman of the Board, who received an Annual Grant of 25,000 restricted shares. Each Annual Grant vests on a monthly basis over the 12 months immediately following the grant date and will immediately vest upon the occurrence of a change in control +of the Company. A change in control of the Company would occur on the happening of such events as the acquisition of beneficial ownership by a person or group of 30 percent or more of the outstanding Common Stock of the Company, certain changes in +Board membership affecting a majority of positions, certain mergers or consolidations, a sale or other transfer of all or substantially all the Company’s assets, or approval by the stockholders of a plan of liquidation or dissolution of the +Company, as well as any change in control required to be reported under the SEC’s proxy disclosure rules. +The following +table summarizes information related to compensation of non-employee Directors during the fiscal year ended December 31, 2009: +Name 1 , 2 +Fees +Earned +or Paid +in Cash +($) +Stock +Awards 3 +($) +Option +Awards +($) +Non-Equity +Incentive Plan +Compensation +($) +Change in +Pension +Value +and +Nonqualified +Deferred +Compensation +Earnings +All Other +Compensation +($) +Total ($) +Michael Celano +$ +61,000 +$ +42,075 +— +— +— +— +$ +103,075 +Jack Goldstein, Ph.D. +$ +59,000 +$ +42,075 +— +— +— +— +$ +101,075 +Ronny B. Lancaster +$ +54,000 +$ +42,075 +— +— +— +— +$ +96,075 +Charles W. Patrick +$ +52,000 +$ +42,075 +— +— +— +— +$ +94,075 +Roger L. Pringle +$ +55,000 +$ +42,075 +— +— +— +— +$ +97,075 +Douglas G. Watson +$ +74,000 +$ +70,125 +— +— +— +— +$ +144,125 +(1) +Because Messrs. Michels and Spair are officers of the Company, they are not entitled to any separate compensation for service on the Board or any Committee thereof and +have not been included in this table. +38 +Table of Contents +(2) +Non-employee Directors held the following number of restricted shares (“RSs”) and stock options(“SOs”) at December 31, 2009: Mr. Celano: +15,000 RSs; 70,000 SOs; Dr. Goldstein: 15,000 RSs; 70,000 SOs; Mr. Lancaster: 15,000 RSs; 130,000 SOs; Mr. Patrick: 15,000 RSs; 70,000 SOs; Mr. Pringle: 15,000 RSs; 275,552 SOs; and Mr. Watson: 25,000 RSs; 240,000 SOs. The +aggregate number of stock options and restricted shares held by Messrs. Michels and Spair are set forth in the table in the Section entitled, “Outstanding Equity Awards at Fiscal Year-End,” in this Proxy Statement. +(3) +The indicated amounts reflect the aggregate grant date fair value of restricted stock awards made to non-employee Directors during 2009 under the Stock Award Plan, +computed in accordance with FAS ASC Topic 718. Certain assumptions used in the calculation of those amounts are set forth for the applicable year of award in footnote 10 to the Company’s audited financial statements for the fiscal year ended +December 31, 2009, included in the Company’s 2009 10-K Report. This column does not include the value of restricted stock awarded to non-employee Directors in January 2010. +Compensation Committee Interlocks and Insider Participation +Jack Goldstein, Ph.D., Roger L. Pringle, Ronny B. Lancaster and Douglas G. Watson served as members of the Compensation Committee of the +Board during 2009. None of Dr. Goldstein, Mr. Pringle, Mr. Lancaster or Mr. Watson has served or is currently serving as an officer or employee of the Company, nor have they engaged in any transactions involving the Company which +would require disclosure as a transaction with a related person. There are no compensation committee interlocks between the Company and any other entity involving the Company’s or such entity’s executive officers or board members. +Compensation Risk Assessment +Management conducted a risk assessment of the Company’s compensation policies and practices, including its executive compensation programs. In its review, management considered the attributes of the +Company’s policies and practices and other factors, including: +· +The mix of fixed and variable compensation opportunities. +· +The balance between annual and long-term performance opportunities. +· +The corporate and individual performance objectives established for annual and long-term incentive compensation. +· +The internal controls and procedures in place to mitigate risks facing the Company. +· +The risk that unintended consequences could result from various aspects of the Company’s compensation policies and practices. +Based on its review and assessment, management concluded that the Company’s policies and practices are +designed with the appropriate balance of risk and reward in relation to the Company’s overall business strategy, do not incentivize executives to take unnecessary or excessive risks and that any risks arising from the Company’s +compensation policies and practices are not reasonably likely to have a material adverse affect on the Company. +Compensation Committee Report +The information contained in this report shall not +be deemed to be “soliciting material” or “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that Section. This report shall not be deemed to be “ incorporated by +reference” into any document filed under the Securities Act of 1933, as amended, or the Exchange Act, whether such filing occurs before or after the date hereof, regardless of any general incorporation language in such filing. +39 +Table of Contents +The Compensation Committee of OraSure Technologies, Inc. has reviewed and discussed with the +Company’s management the Section entitled, “Compensation Discussion and Analysis,” contained in this Proxy Statement. Based on that review and discussion, the Compensation Committee recommended to the Company’s Board of Directors +that the foregoing Compensation Discussion and Analysis be included in the Company’s 2009 10-K Report and Proxy Statement for the 2010 Annual Meeting of Stockholders. +COMPENSATION COMMITTEE: +Jack Goldstein, Ph.D., Chairman +Ronny B. Lancaster +Roger L. Pringle +Douglas G. Watson +March 25, 2010 +Equity Compensation Plan Information +The following table provides information as of December 31, 2009 about the shares of Common Stock that may be issued upon the exercise of options under all of our equity compensation plans. These +plans include the Award Plan, the Epitope, Inc. 1991 Stock Award Plan (the “1991 Plan”), the Agritope, Inc. 1992 Stock Award Plan (the “Agritope Plan”), and the OraSure Technologies, Inc. Employee Incentive and Non-Qualified +Stock Option Plan (the “Employee Incentive Plan”). The Award Plan, the 1991 Plan and the Agritope Plan were Epitope equity compensation plans, and the Employee Incentive Plan was an STC Technologies, Inc. equity compensation plan. In +connection with the merger of Epitope and STC into the Company on September 29, 2000, the Award Plan was adopted by the Company, and the Company assumed the obligation to issue shares for the then outstanding stock options granted under the +Award Plan, the 1991 Plan, the Agritope Plan and the Employee Incentive Plan. Additional grants of equity compensation may only be made under the Award Plan. +Plan Category +Number of securities to be +issued upon exercise of +outstanding options +(a) +Weighted-average exercise +price of outstanding +options +(b) +Number of securities +remaining available +for future issuance +under equity +compensation +plans +(excluding securities +reflected in column (a)) +(c) +Equity compensation plans approved by security holders +4,097,718 +$ +7.13 +3,031,540 +1 +Equity compensation plans not approved by security holders +1,333,947 +2 +$ +6.99 +2 +— +Total +5,431,665 +3,031,540 +(1) +Represents shares remaining available for future issuance as of December 31, 2009 under the Award Plan. +(2) +Includes 125,552 shares issuable as of December 31, 2009 under options at a weighted-average exercise price of $4.42 per share under the 1991 Plan, the Agritope +Plan, and the Employee Incentive Plan. +40 +Table of Contents +ITEM 2. +Ratification Of Appointment Of Independent Registered Public Accounting Firm +The Audit Committee of the Board of Directors has approved the reappointment of KPMG LLP (“KPMG”) as our independent registered +public accounting firm for 2010. Ratification of this appointment requires the affirmative vote of a majority of shares present in person or by Proxy and entitled to vote at the Annual Meeting. Shares voted in person or represented by Proxy which +are not voted for this ratification (by voting no or abstaining) will have the effect of voting against this proposal. In the absence of instructions to the contrary, shares of Common Stock represented by properly executed Proxies will be voted for +ratification of the appointment of KPMG as our independent registered public accounting firm for 2010. If this appointment is not ratified by stockholders, the Audit Committee may reconsider its appointment. +One or more representatives of KPMG are expected to be at the Annual Meeting. They will have an opportunity to make a statement and will be +available to respond to appropriate questions. Your Board recommends that the stockholders vote “FOR” ratification of the appointment of KPMG . +Audit Fees; Audit-Related Fees; Tax Fees; All Other Fees. +The following table presents fees for professional audit services rendered by KPMG for the audits of our annual financial statements for the years ended December 31, 2009 and 2008, for the audits of our internal control over financial +reporting as of December 31, 2009 and 2008 and for the review of the financial statements included in our Quarterly Reports on Form 10-Q for the fiscal years ended December 31, 2009 and 2008. The following table also includes fees billed +for other services rendered by KPMG: +2009 +2008 +Audit fees 1 +$ +450,000 +$ +489,500 +Audit-related fees +— +— +Audit and audit related fees +450,000 +489,500 +Tax fees 2 +131,821 +132,385 +All other fees 3 +— +— +Total fees +$ +581,821 +$ +621,885 +(1) +Includes fees related to the audit of our financial statements for each indicated year, audits of our internal control over financial reporting for each indicated year, +and interim reviews of our financial statements in the Company’s Quarterly Reports on Form 10-Q for each indicated year, notwithstanding when the fees were billed or when the services were rendered. Also, included in 2008 are professional +services in connection with the review of a registration statement on Form S-8 and the issuance of a related consent. +(2) +During 2009 and 2008, we engaged KPMG to provide tax compliance and tax planning services. +(3) +The Company did not pay any other fees to KPMG in connection with their services in 2009 and 2008. +The Audit Committee has adopted a general practice of pre-approving all audit and non-audit services provided to the Company by our +independent registered public accounting firm. The Chairman of the Audit Committee has been delegated the authority to pre-approve audit and non-audit services having an aggregate value of up to $10,000 in between meetings of the Audit Committee, +provided that such pre-approval is communicated to the Audit Committee at its next scheduled meeting. All services by KPMG in 2009 and 2008 were pre-approved in accordance with these practices. +41 +Table of Contents +Annual Report +Our Annual Report to Stockholders for the year ended December 31, 2009 accompanies this Proxy Statement. On written request, we will +provide, without charge, a copy of our Annual Report on Form 10-K for the year ended December 31, 2009, as filed with the SEC (including a list briefly describing the exhibits thereto), to any record holder or beneficial owner of our +Common Stock on March 22, 2010, the record date for the Annual Meeting, or to any person who subsequently becomes such a record holder or beneficial owner. Requests should be directed to the attention of the Secretary of the Company at our +address set forth in the Notice of Annual Meeting of Stockholders immediately preceding this Proxy Statement. +42 +Table of Contents +Deadline For Stockholder Proposals +You may submit proposals for inclusion in the proxy materials for the Company’s 2011 Annual Meeting of Stockholders. Any such proposals +must meet the stockholder eligibility and other requirements imposed by rules issued by the SEC and must be received by the Company at 220 East First Street, Bethlehem, Pennsylvania 18015, Attention: Secretary, in accordance with Rule 14a-8 +promulgated under the Exchange Act, not later than December 2, 2010. +Our Bylaws provide that a +stockholder proposal must meet certain predetermined requirements in order to be considered at the Annual Meeting. In order to be considered, a stockholder’s proposal must be made in writing to the Company’s Secretary and must be delivered +to or received at our principal executive offices not less than ninety (90) days nor more than one hundred twenty (120) days prior to the meeting. However, if less than one hundred (100) days’ notice or prior public disclosure of +the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received no later than the close of business on the tenth (10 th ) day following the day on which such notice of the date of the meeting was mailed or such public disclosure was +made, whichever first occurs. The notice to the Secretary must set forth, with respect to each matter the stockholder proposes to bring before the meeting, a brief description of the matter and the reasons for considering that matter at the Annual +Meeting. The notice must also include, as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf notice of the proposed business is made: (i) the name and address of the stockholder and such beneficial owner; +(ii) any material interest of such stockholder and such beneficial holder in such business; (iii) the class and number of shares of capital stock of the Company which are held of record or beneficially owned by the stockholder and such +beneficial owner and any other direct or indirect pecuniary or economic interest in any capital stock of the Company of such stockholder and such beneficial owner, including without limitation, any derivative instrument, swap, option, warrant, short +interest, hedge, profit sharing arrangement or borrowed or loaned shares; (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to propose the business described in its notice; and (v) any other +information relating to such business matter that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies pursuant to Section 14 of the Exchange Act and the rules +and regulations promulgated thereunder. To the extent the Board of Directors or the SEC, or a court of competent jurisdiction, deems these Bylaw provisions to be inconsistent with the right of stockholders to request inclusion of a proposal in the +Company’s proxy materials pursuant to Rule 14a-8 promulgated under the Exchange Act, such rule shall prevail. +BY ORDER OF THE BOARD OF +DIRECTORS +Jack E. Jerrett +Secretary +April 1, 2010 +43 +Table of Contents +YOUR VOTE IS IMPORTANT. PLEASE VOTE TODAY. +We encourage you to take advantage of Internet or telephone voting. +Both are available 24 hours a day, 7 days a week. +Internet and telephone voting are available through 11:59 PM Eastern Time May 10, 2010. +INTERNET +http://www.proxyvoting.com/osur +Use the +Internet to vote your proxy. Have your proxy +card in hand when you access the web site. +OR +TELEPHONE +1-866-540-5760 +Use any touch-tone telephone to vote your proxy. Have your proxy card in hand when you call. +If you vote your proxy by Internet or by telephone, you do NOT need to mail back your proxy card. +To vote by mail, mark, sign and date your proxy card and return it in the enclosed postage-paid envelope. +Your Internet or telephone vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed and returned your proxy card. +WO# +Fulfillment# +71693 +71696 +q FOLD AND DETACH HERE q +Please mark your votes as +indicated in this example +x +FOR +WITHHOLD +*EXCEPTIONS +FOR +AGAINST +ABSTAIN +1. +ELECTION OF DIRECTORS +Class I (Term Expiring 2013) +¨ +¨ +¨ +2. +Ratification of Appointment of KPMG LLP for fiscal year 2010 +¨ +¨ +¨ +Nominees: +01 +Jack Goldstein, Ph.D. +02 +Douglas G. Watson +(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark the “Exceptions” box and write that nominee’s name in the space provided +below.) +*Exceptions +Mark Here for +Address Change +or Comments SEE REVERSE +¨ +Signature +Signature +Date +NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, +administrator, trustee or guardian, please give full title as such. +Table of Contents +OraSure Technologies, Inc. +2010 Annual Meeting of Stockholders +Tuesday, +May 11, 2010 +Choose MLink SM for fast, easy and secure 24/7 online access to your future proxy materials, investment plan statements, tax +documents and more. Simply log on to Investor ServiceDirect ® at www.bnymellon.com/shareowner/isd +where step-by-step instructions will prompt you through enrollment. +Important notice regarding the Internet availability of proxy materials for the Annual Meeting of Stockholders. The Proxy Statement, 2009 Annual Report to Stockholders and +other Proxy Materials are available at: http://www.proxyvoting.com/osur +q FOLD AND DETACH HERE q +PROXY +2010 Annual Meeting of Stockholders +PROXY SOLICITED ON BEHALF OF THE BOARD +OF DIRECTORS +The undersigned hereby appoints Jack E. Jerrett and Mark L. Kuna, and each of them, proxies with full power of substitution, to +vote all of the shares which the undersigned is entitled to vote at the 2010 Annual Meeting of Stockholders of OraSure Technologies, Inc. (the “Company”), to be held at the Historic Hotel Bethlehem, 437 Main Street, Bethlehem, Pennsylvania +18018 on Tuesday, May 11, 2010, at 10:00 a.m. (local time), and at any adjournment or adjournments thereof, with all the powers the undersigned would possess if personally present, with respect to the matters listed on the reverse +side. +The shares represented by this Proxy, if properly executed, will be voted as specified on the reverse side or, if no specification is made, will +be voted (i) FOR the election of the nominees listed on the reverse side as directors and (ii) FOR the ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm for 2010. If any other +business properly comes before the meeting, the proxies named above will have discretionary authority to vote thereon in accordance with their best judgment. +PLEASE MARK, DATE, SIGN AND RETURN THE PROXY CARD PROMPTLY. +Address Change/Comments +(Mark the corresponding box on the reverse side) +BNY MELLON SHAREOWNER SERVICES +P.O. BOX 3550 +SOUTH HACKENSACK, NJ 07606-9250 +(Continued and to be marked, dated and signed, on the other +side) +WO# +Fulfillment# +71693 +71696 \ No newline at end of file diff --git a/raw/proxies/0001116463/0001193125-10-075003/proxy_rpt.txt b/raw/proxies/0001116463/0001193125-10-075003/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..7b79e8172e95790f321ff1999f943f0e95820348 --- /dev/null +++ b/raw/proxies/0001116463/0001193125-10-075003/proxy_rpt.txt @@ -0,0 +1,9 @@ +Transactions With Related Persons +Since January 1, 2009, there have been no transactions with related persons which would require disclosure in this Proxy Statement. The +Audit Committee is required to review and approve in advance all transactions with related persons involving the Company. The Audit Committee may approve a related party transaction if the transaction is on terms comparable to those that could be +obtained in arms’ length dealings with an unrelated third party. The Audit Committee also reviews any public disclosures of a related party transaction contained in our SEC filings. These responsibilities are described in the Audit +Committee’s charter, a copy of which is available on our website at www.orasure.com . +Information regarding +employment and severance agreements between our executive officers and the Company is set forth in the Section entitled, “Employment Agreements and Potential Payments Upon Termination or Change in Control,” in this Proxy Statement. +12 +Table of Contents \ No newline at end of file diff --git a/raw/proxies/0001116463/0001193125-11-091272/proxy.txt b/raw/proxies/0001116463/0001193125-11-091272/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..9ec9d5df1e361eb4a42c81565890461db630bee6 --- /dev/null +++ b/raw/proxies/0001116463/0001193125-11-091272/proxy.txt @@ -0,0 +1,4398 @@ +DEF 14A +1 +ddef14a.htm +DEFINITIVE PROXY STATEMENT +Definitive Proxy Statement +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) +of the Securities Exchange Act of 1934 +(Amendment No. +) +Filed by the Registrant x Filed by a Party other than the +Registrant ¨ +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material Pursuant to §240.14a-12 +OraSure Technologies, Inc. +(Name of Registrant as +Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and +state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. +Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +ORASURE TECHNOLOGIES, INC. +220 East First Street +Bethlehem, Pennsylvania 18015 +April 7, 2011 +Dear Stockholder: +You are cordially invited to attend the 2011 Annual Meeting of +Stockholders to be held on Tuesday, May 17, 2011 , at the Historic Hotel Bethlehem, 437 Main Street, Bethlehem, Pennsylvania 18018, at 10:00 a.m. Eastern Time. Your Board of Directors and Executive Management Team personally look forward +to greeting those present. If you cannot attend in person, we are pleased to offer a live webcast of the Annual Meeting, which you can access by going to our website, www.orasure.com . +Pursuant to the Securities and Exchange Commission rule allowing companies to furnish proxy materials to their stockholders over the +Internet, a Notice of Availability of Proxy Materials (the “Notice”) has been sent to you. The Notice contains information on how to access copies of the proxy materials and vote your shares. +At the meeting, you will be asked to (i) elect three Class II Directors to serve on the Board of Directors until the Annual Meeting +of Stockholders in 2014; (ii) ratify the appointment of KPMG LLP as our independent registered public accounting firm for 2011; (iii) approve, by a non-binding advisory vote, the compensation of the Company’s named executive officers +as disclosed in these materials; (iv) approve, by a non-binding advisory vote, the frequency of future stockholder advisory votes on executive compensation; (v) approve the amendment and restatement of the Company’s Stock Award Plan, +including an increase in the number of shares of Common Stock authorized for grant under such Plan; and (vi) transact such other business as may properly come before the meeting or any adjournment(s) thereof. +The Board of Directors has approved the nominees for Director and recommends that you vote FOR their election to the Board. In +addition, the Board of Directors recommends that you vote FOR the ratification of KPMG’s appointment, FOR the Company’s executive compensation, FOR an advisory vote on executive compensation by stockholders every three +years, and FOR the amendment and restatement of the Stock Award Plan. +Your vote is very important, regardless of the +number of shares you own. Whether or not you plan to attend the Annual Meeting in person, we urge you to submit your vote as soon as possible. You will have the option to vote by telephone, via the Internet, or by completing, signing, dating, and +returning a paper Proxy Card. Additional details on these options can be found in the Notice sent to you or in the proxy materials. You may, of course, attend the Annual Meeting and vote in person regardless of whether you have previously voted by +phone, the Internet or mail. +We look forward to seeing you at the meeting. +Sincerely, +Douglas A. Michels +President and Chief Executive Officer +Table of Contents +Table of Contents +Page +Notice of Annual Meeting of Stockholders +Proxy Statement +1 +Meeting Attendance +1 +Proxies +2 +Voting Procedures +2 +Voting Securities +3 +Principal Stockholders +3 +Corporate Governance +5 +Board Operation and Leadership Structure +5 +Oversight of Risk Management +5 +Insider Trading +5 +Director Independence +5 +Board Meetings +6 +Annual Meeting Attendance and Stockholder Communications +6 +Committees of the Board +6 +Nomination of Directors +8 +Report of the Audit Committee +9 +Executive Officers +11 +Transactions with Related Persons +12 +Section 16(a) Beneficial Ownership Reporting Compliance +12 +ITEM 1. – Election of Directors +13 +ITEM 2. – Ratification of Appointment of Independent Registered Public Accounting +Firm +16 +Audit Fees; Audit-Related Fees; Tax Fees; All Other Fees +17 +Executive Compensation +17 +Compensation Discussion and Analysis +17 +Summary Compensation Table +31 +Grants of Plan-Based Awards +32 +Outstanding Equity Awards at Fiscal Year-End +33 +Option Exercises and Stock Vested +36 +Pension Benefits +36 +Nonqualified Deferred Compensation +36 +Employment Agreements and Potential Payments Upon Termination or Change in Control +36 +2010 Director Compensation +40 +Compensation Committee Interlocks and Insider Participation +41 +Compensation Risk Assessment +41 +Compensation Committee Report +42 +ITEM 3. – Non-Binding Advisory Vote on Executive Compensation +42 +ITEM +4. – Non-Binding Advisory Vote on Frequency of Future Advisory Votes on Executive Compensation +44 +ITEM +5. – Amendment and Restatement of OraSure Technologies, Inc. Stock Award Plan Equity Compensation Plan Information +45 +Annual Report +52 +Deadline for Stockholder Proposals +53 +Exhibit A – Amended and Restated Stock Award Plan +Table of Contents +ORASURE TECHNOLOGIES, INC. +220 East First Street +Bethlehem, Pennsylvania 18015 +Notice of Annual Meeting of Stockholders +to be held May 17, 2011 +To the Stockholders of OraSure Technologies, Inc.: +The Annual Meeting of Stockholders of OraSure Technologies, Inc., a Delaware corporation, will be held at the Historic Hotel Bethlehem, +437 Main Street, Bethlehem, Pennsylvania 18018, on Tuesday, May 17, 2011 , at 10:00 a.m. Eastern Time, for the following purposes: +1. +To elect three Class II Directors for terms expiring in 2014; +2. +To ratify the appointment of KPMG LLP as our independent registered public accounting firm for 2011; +3. +To approve, by a non-binding advisory vote, the compensation of the Company’s named executive officers as disclosed in the Proxy Statement accompanying this +Notice; +4. +To approve, by a non-binding advisory vote, the frequency of future advisory votes by stockholders on executive compensation; +5. +To approve the amendment and restatement of the Company’s Stock Award Plan, including an increase in the number of shares authorized for grant under such Plan; and +6. +To consider such other business as may properly come before the meeting or any adjournments thereof. +Additional information is included in the Proxy Statement accompanying this Notice. Only holders of Common Stock of record at the close +of business on March 28, 2011, will be entitled to vote at the Annual Meeting of Stockholders and any adjournment(s) thereof. +By Order of the Board of Directors, +Jack E. Jerrett +Secretary +April 7, 2011 +Bethlehem, Pennsylvania +YOUR VOTE IS IMPORTANT. Whether or not you plan +to attend the Annual Meeting, you are urged to vote your shares as promptly as possible by telephone, via the Internet, or by completing, signing, dating and returning a paper Proxy Card, as described in the attached Proxy Statement. Voting by +phone, the Internet or mail does not deprive you of your right to attend the Meeting and to vote your shares in person. +Table of Contents +ORASURE TECHNOLOGIES, INC. +220 East First Street +Bethlehem, Pennsylvania 18015 +Proxy Statement +We are providing these Proxy Materials to stockholders of OraSure Technologies, Inc., a Delaware corporation (the “Company”), in connection with the Company’s solicitation of proxies (each, +a “Proxy”) for use at the Annual Meeting of Stockholders to be held on May 17, 2011, at 10:00 a.m. Eastern Time, at the Historic Hotel Bethlehem, 437 Main Street, Bethlehem, Pennsylvania 18018, and at any adjournment(s) thereof (the +“Annual Meeting”). +As a stockholder, you are invited to attend the Annual Meeting and are requested to vote on the +matters described in this Proxy Statement. For your convenience, we are pleased to offer a live webcast of our Annual Meeting which you can access by going to the Investor Relations section of our website, at www.orasure.com . The webcast will +end after the formal portion of the meeting is adjourned and will not include the presentation by management or question and answer session for those present at the Annual Meeting. +We are furnishing Proxy Materials, including this Proxy Statement, the Proxy Card and the Company’s Annual Report to Stockholders +for the year ended December 31, 2010 (“Annual Report”), to our stockholders by providing access to such documents on the Internet. On April 7, 2011, we mailed a Notice of Internet Availability of Proxy Materials (sometimes +referred to as the “Notice”), indicating that this Proxy Statement is now available to our stockholders of record entitled to vote at the Annual Meeting. All stockholders and beneficial holders have the ability to access a copy of our +Proxy Materials on a website referred to and URL address included in the Notice. Stockholders will not receive printed copies of the Proxy Materials unless they request those copies. The Notice also instructs stockholders as to how to submit a Proxy +through the Internet. If you would like to receive a paper or e-mail copy of your Proxy Materials, you should follow the instructions for requesting such materials included in the Notice. We will pay the entire cost of preparing, assembling, +printing, mailing and distributing these Proxy Materials and soliciting votes. If you choose to access the Proxy Materials and/or vote over the Internet, you are responsible for any Internet access charges you may incur. +Meeting Attendance +If you are a stockholder of record, meaning that you hold shares directly with the Company, and you plan to attend the Annual Meeting, please bring your Notice or Proxy Card. If you are a beneficial +holder, meaning that your shares are held for you by a bank, broker or other intermediary, please bring a recent broker statement as proof of ownership of your shares as of the March 28, 2011 record date for the Annual Meeting. You will be +required to present these materials as well as a valid photo identification in order to be admitted to the Annual Meeting. Company representatives will be at the entrance to the Annual Meeting and these representatives will have the authority to +determine, on the Company’s behalf, whether these admission procedures have been followed and whether you will be granted admission to the Annual Meeting. Additional meeting procedures will be provided at the entrance to the Annual Meeting. +Only the Company’s stockholders will be granted access to the Annual Meeting. Members of the media and of the general public will not be granted access. +1 +Table of Contents +Proxies +If represented by a properly executed Proxy, whether delivered by phone, the Internet or mail, as described below, your shares will be +voted in accordance with your instructions. If you do not provide instructions with your Proxy, your shares will be voted according to the recommendations of our Board of Directors (the “Board”) as stated on the Proxy. You may revoke the +authority granted by your Proxy at any time before the Annual Meeting by notice in writing delivered to the Secretary of the Company, by delivering a subsequently dated Proxy, or by attending the Annual Meeting, withdrawing the Proxy and voting in +person. +At the Annual Meeting, action will be taken on the matters set forth in the accompanying Notice of Annual Meeting of +Stockholders and described in this Proxy Statement. The Board knows of no other matters to be presented for action at the Annual Meeting. If any other matters do properly come before the Annual Meeting, the persons named in the Proxy Card will have +discretionary authority to vote on those matters in accordance with their best judgment. +The cost of soliciting Proxies will +be borne by us. In addition to solicitations by e-proxy and/or by mail, certain of our Directors, officers and regular employees may solicit Proxies personally or by telephone or other means without additional compensation. We have also engaged +Morrow & Co., LLC, 470 West Ave., Stamford, CT 06902, to provide proxy solicitation services at a fee estimated at $5,500 plus expenses. +Arrangements will be made with brokerage firms and other custodians, nominees and fiduciaries to forward solicitation materials to the beneficial owners of stock held of record by such persons, and we +will, upon request, reimburse them for their reasonable expenses in so doing. +Voting Procedures +You will have a choice of voting over the phone, via the Internet or by completing and mailing a paper Proxy Card, as +described below. Please check your Notice, Proxy Card or the information forwarded by your bank, broker or other holder of record to determine which options are available to you. +Voting by Phone or Internet . If you desire to vote by phone or the Internet, whether you may do so +will depend on how your shares are held. +If your shares are registered in your name with BNY Mellon Shareowner Services, our +transfer agent, you may vote those shares by telephone by calling BNY Mellon Shareowner Services at 1-866-540-5760 (toll free in the United States or Canada only) or via the Internet at the following website: www.proxyvoting.com/osur . You may +vote by telephone or the Internet provided you do so by 11:59 pm Eastern Time (8:59 pm Pacific Time) on May 16, 2011. Additional instructions can be found on your Notice and the Proxy Card accompanying this Proxy Statement. +If your shares are registered in the name of a broker, bank or other registered holder, you may be able to vote by phone or the Internet +if the broker, bank or other record holder has procedures for telephone or Internet voting. If you desire to use either of these voting options, please follow the procedures provided to you by your broker, bank or other record holder. +The telephone and Internet voting procedures are designed to authenticate your identity, to allow you to give your voting instructions +and to confirm that your instructions have been recorded properly. If you vote via the Internet, you should understand that there may be costs associated with this method of voting, such as usage charges from Internet access providers and telephone +companies, that you must pay. +2 +Table of Contents +Voting by Mail . If you desire to vote by using a paper +Proxy Card instead of by telephone or the Internet, you will need to either print a copy of the Proxy Card from the website indicated in your Notice or follow the instructions in your Notice to request that a paper copy be sent to you. You will then +need to complete, sign, date and return the Proxy Card to the Company, as described on the Proxy Card. +Submitting a Proxy by +phone, the Internet or mail will not affect your right to withdraw your Proxy and vote in person at the Annual Meeting, provided that you follow the admission procedures described above. +Voting Securities +On March 28, 2011, the record date for determining stockholders entitled to vote at the Annual Meeting, we had outstanding and entitled to vote at the meeting 47,494,896 shares of common stock, par +value $.000001 per share (“Common Stock”). Each share of Common Stock is entitled to one vote on any matter brought before the Annual Meeting. A majority of the shares of Common Stock outstanding as of the record date, represented in +person or by Proxy at the Annual Meeting, will constitute a quorum for the transaction of business. +Broker non-votes, votes +withheld and abstentions will be counted for purposes of determining whether a quorum has been reached at the Annual Meeting. Because abstentions will be included in tabulations of the votes entitled to vote for purposes of determining whether a +proposal has been approved, abstentions have the same effect as negative votes. Broker non-votes, however, are not counted as shares present and entitled to be voted with respect to the matters which the broker has not expressly voted. A broker +“non-vote” occurs when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have the discretionary voting power with respect to that item and has not received instructions on +how to vote the shares from the beneficial owner. Discretionary voting by a broker or other nominee is not permitted in connection with the election of Directors or matters related to executive compensation, including the Company’s Stock Award +Plan and advisory votes. Thus, if your broker or nominee does not receive instructions from you, a broker non-vote will occur and your shares will not be voted on these matters. +Principal Stockholders +The following table sets forth information, as of March 28, 2011, regarding the beneficial ownership of the Company’s Common Stock by (a) each person who is known by us to be the beneficial +owner of more than five percent of the Common Stock outstanding, (b) each Director and nominee for election as Director, (c) each of our executive officers named in the Summary Compensation Table in this Proxy Statement under +“Executive Compensation,” and (d) all of our directors and executive officers as a group. Unless otherwise indicated, the address of each person identified below is c/o OraSure Technologies, Inc., 220 East First Street, Bethlehem, +Pennsylvania 18015. +3 +Table of Contents +Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the +“Exchange Act”), shares of Common Stock which a person has a right to acquire pursuant to the exercise of stock options and warrants held by that person that are exercisable within 60 days of March 28, 2011 are deemed to be +outstanding for the purpose of computing the percentage ownership of that person, but are not deemed outstanding for computing the percentage ownership of any other person. +Name and Address of +Beneficial Owner +Amount and Nature of +Beneficial Ownership 1,2 +Percent +of Class +Wells Fargo and Company 3 +420 Montgomery Street +San Francisco, CA +94104 +7,758,869 +16.3 +% +BlackRock, Inc . 4 +40 East 52nd Street +New York, NY 10022 +6,067,605 +12.8 +% +Douglas A. Michels +1,311,792 +2.7 +% +Ronald H. Spair +944,317 +2.0 +% +Stephen R. Lee, Ph.D. +382,383 +* +Roger L. Pringle 5 +337,577 +* +Douglas G. Watson +325,000 +* +Jack E. Jerrett +269,937 +* +Mark L. Kuna +239,971 +* +Ronny B. Lancaster +187,715 +* +Charles W. Patrick +124,818 +* +Michael Celano +116,580 +* +Jack Goldstein, Ph.D. 6 +106,000 +* +All directors and executive officers as a group (12 people) +4,346,090 +8.7 +% +*Less +than 1% +(1) +Subject to community property laws where applicable, beneficial ownership consists of sole voting and investment power except as otherwise indicated. +(2) +Includes shares subject to options exercisable within 60 days of March 28, 2011, as follows: Mr. Michels, 712,902 shares; Mr. Spair, 611,576 shares; +Dr. Lee, 220,177 shares; Mr. Pringle, 255,552 shares; Mr. Watson, 240,000 shares; Mr. Jerrett, 189,018 shares; Mr. Kuna, 142,508 shares; Mr. Lancaster, 130,000 shares; Mr. Patrick, 70,000 shares; Mr. Celano, +70,000 shares; Dr. Goldstein, 70,000 shares; and all directors and executive officers as a group, 2,711,733 shares. Also includes unvested restricted shares, as follows: Mr. Michels, 223,106 shares; Mr. Spair, 97,613 shares; Dr. Lee, +43,530 shares; Mr. Pringle, 15,000 shares; Mr. Watson, 25,000 shares; Mr. Jerrett, 27,579 shares; Mr. Kuna, 32,569 shares; Mr. Lancaster, 15,000 shares; Mr. Patrick, 15,000 shares; Mr. Celano, 15,000 shares; Dr. +Goldstein, 15,000 shares; and all directors and executive officers as a group, 534,397 shares. +(3) +Based on information contained in a Schedule 13G/A filed January 20, 2011 by Wells Fargo and Company (“Wells Fargo”), on behalf of certain of its +subsidiaries. Wells Fargo has sole voting power with respect to 7,100,302 shares and sole dispositive power with respect to 7,758,869 shares. +(4) +Based on information contained in a Schedule 13G/A filed January 10, 2011, by BlackRock, Inc. (“BlackRock”) on behalf of certain of its subsidiaries. +BlackRock has sole voting and dispositive power with respect to the indicated shares. +(5) +Includes 1,500 shares owned by Mr. Pringle’s spouse. +(6) +On April 5, 2011, Dr. Goldstein retired from our Board of Directors and on April 6, 2011 Stephen S. Tang, Ph.D, was appointed as a new Director. As of March 28, 2011, +Dr. Tang owned no shares of the Company’s Common Stock. +4 +Table of Contents +Corporate Governance +Board Operation and Leadership Structure +The Board has adopted Corporate Governance Principles which, along with the Charters for each of its Committees and the Company’s Code of Business Conduct and Ethics, provide a framework for the +governance of the Company. The Company’s Corporate Governance Principles address matters such as the responsibilities and composition of the Board, Director independence and the conduct of Board and Committee meetings. The Company’s Code +of Business Conduct and Ethics sets forth guiding principles of business ethics and certain legal requirements applicable to all Company employees and Directors. Copies of the current Corporate Governance Principles and Code of Business Conduct and +Ethics are available at the Company’s website, www.orasure.com . +Currently, the Company’s Chief Executive +Officer does not hold the position of Chairman of the Board as the Company believes it is appropriate for the Board to be led by an individual who is independent of management. Mr. Watson has served as the Chairman of our Board since March +2003. In the future, however, the Board may reconsider whether its Chief Executive Officer should also serve as Board Chairman. +Oversight of Risk Management +As part of its oversight of the Company’s operations, the Board and Audit Committee +monitor the management of risks by the Company’s executives. The Audit Committee reviews the risks that the Company may face and receives reports from senior management on the nature of these risks and the procedures and processes in place to +manage and mitigate such risks. Substantive areas of risk reviewed by the Audit Committee include financial, regulatory, legal compliance, operational, information technology and employment risks. The Audit Committee provides a report to the full +Board on the matters covered during each of its meetings, including its risk monitoring activities. In addition, senior management provides periodic reports to the full Board on the major risks facing the Company and the processes and procedures in +place to manage such risks. +Insider Trading +The Company has a policy designed to prevent any trading in the Company’s Common Stock or other securities by a person while such +person is in possession of material nonpublic information. This policy applies to members of the Board, executive officers and all other employees of the Company. The policy prohibits trading in the Company’s securities on the basis of material +nonpublic information, requires preapproval for directors and all employees of transactions in Company securities and establishes regular trading windows after each calendar quarter following the Company’s announcement of its quarterly +financial results. Directors and employees are expressly precluded from engaging in short-term or speculative transactions involving Company securities, including short sales, the buying or selling of puts or calls, the purchase of securities on +margin, prepaid variable forward contracts, equity swaps, collars, exchange funds and other similar financial instruments. +Director Independence +The Company’s Corporate Governance Guidelines require, among other things, that a majority +of the members of the Board meet the independence requirements of the Securities and Exchange Commission (“SEC”) and The NASDAQ Stock Market (“NASDAQ”), on which our Common Stock is listed. Each year our Board, with assistance +from the Nominating and Corporate Governance Committee, conducts a review of Director independence. The most recent annual review occurred in the first quarter of 2011, during which the Board considered transactions and relationships, if any, +between each Director or any member of such Director’s immediate family and the Company. The Board also conducted an independence review when Stephen S. Tang, Ph.D. became a Director in April 2011. As a result of these reviews, the Board +determined that Michael Celano, Ronny B. Lancaster, Charles W. Patrick, Roger L. Pringle, Stephen S. Tang, Ph.D., and Douglas G. Watson are “independent,” as that term is defined in the applicable rules of NASDAQ and the SEC. +5 +Table of Contents +Only Douglas A. Michels and Ronald H. Spair were determined by the Board not to be +independent. Mr. Michels is not independent because he is employed as our President and Chief Executive Officer, and Mr. Spair is not independent because he is employed as our Chief Financial Officer and Chief Operating Officer. Based on +the foregoing, the Board of Directors is comprised of a majority of independent Directors. +Board Meetings +The Board held nine meetings and acted by written consent on four occasions during the year ended December 31, 2010. +Each member of the Board attended more than 75 percent of the combined total of meetings of the Board and of the committees of the Board on which such member served during the period in the year in which he served as a Director. +Annual Meeting Attendance and Stockholder Communications +The Board has approved a policy concerning Board members’ attendance at our annual meeting of stockholders and a process for security +holders to send communications to members of the Board. Our 2010 Annual Meeting of Stockholders held on May 11, 2010 was attended by all members of the Board. Descriptions of the Board’s policy on annual meeting attendance and the process +for security holders to send communications to the Board are provided on our website, at www.orasure.com . +Committees of the Board +The Board currently has +three standing committees – the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee. Each Committee is composed entirely of independent Directors. +Audit Committee. The Audit Committee oversees the Company’s accounting and financial reporting +process, internal controls and audits, and consults with management and the Company’s independent registered public accounting firm on, among other items, matters related to the annual audits, the published financial statements and the +accounting principles applied. As part of its duties, the Audit Committee appoints, evaluates and retains the Company’s independent registered public accounting firm. It also maintains direct responsibility for the compensation, termination and +oversight of the Company’s independent registered public accounting firm and evaluates the independent registered public accounting firm’s qualifications, performance and independence. The Audit Committee approves all services provided to +the Company by the independent registered public accounting firm. The Audit Committee has established procedures for the receipt, retention and treatment, on a confidential basis, of complaints received by the Company, regarding accounting, internal +accounting controls or auditing matters, and the confidential, anonymous submissions by employees of concerns regarding questionable accounting or auditing matters. The Audit Committee operates pursuant to a written charter, a copy of which is +available on our website at www.orasure.com . +Members of the Audit Committee are Michael Celano, Chairman, Charles W. +Patrick, Stephen S. Tang, Ph.D. and Douglas G. Watson. During 2010, Jack Goldstein, Ph.D. resigned from the Audit Committee and on April 5, 2011 he retired from the Board. On April 6, 2011, Dr. Tang was appointed to the Board and replaced +Dr. Goldstein as a member of the Audit Committee. +Each member of the Audit Committee is “independent,” as +defined in the Exchange Act and applicable NASDAQ rules. The Board has determined that Mr. Celano is an “audit committee financial expert,” as that term is defined by applicable rules of the SEC. The Audit Committee met eleven times +during the year ended December 31, 2010. +Compensation Committee. The primary +responsibility of the Compensation Committee is to assist the Board in fulfilling its oversight responsibilities with respect to all types of compensation for our officers and non-employee Directors. Our overall compensation philosophy, as +determined by the Compensation Committee and approved by the Board, is to (i) reward executive officers for the performance of the Company and achievement by the executives of financial and other individual performance objectives, +(ii) align the interests of +6 +Table of Contents +the executive officers with the interests of our stockholders, (iii) provide long-term incentives for the executive officers, and (iv) set compensation levels sufficiently competitive +to attract and retain high quality executives and to motivate them to contribute to our success. +On an annual basis, the +Compensation Committee evaluates the performance of the Chief Executive Officer against previously established goals and objectives and reviews the performance evaluations and compensation recommendations for other executive officers provided by the +Chief Executive Officer. Based on the foregoing, along with a review of compensation provided at comparable medical diagnostic and healthcare companies and the recommendations of a compensation consultant engaged by the Compensation Committee, the +Committee determines cash and equity compensation for the Chief Executive Officer, other executive officers and the non-employee members of the Board. Compensation for the Chief Executive Officer is submitted for approval by a majority of +independent Directors on the Board. +On an as-needed basis, the Compensation Committee retains independent compensation +consultants to assist the Compensation Committee in evaluating and structuring our executive compensation program and making compensation decisions. During 2009, the Committee engaged Radford, a division of Aon Corporation, for this purpose. Radford +was directed to provide (i) a competitive assessment of the cash and equity compensation paid to non-employee members of the Board, based on an analysis of a peer group of medical diagnostic and other healthcare companies and to provide +specific advice on changing the cash component from a mix of fixed and meeting fees to only the payment of annual fees; (ii) a competitive assessment of the annual base salaries, incentive cash bonuses and equity compensation paid to the +Company’s executives, based on an analysis of a peer group of medical diagnostic and other healthcare companies; and (iii) advice regarding the equity compensation paid to the Company’s executives. The Committee used the analysis and +advice provided by Radford in setting compensation for 2010. +During 2010, the Committee decided to change its compensation +consultant and engaged Pearl Meyer & Partners (“PM&P”). PM&P was directed to (i) review the Company’s philosophy and approach for executive compensation; (ii) assist the Committee in updating a peer group of +medical diagnostic and healthcare companies comparable to the Company; (iii) review the pay mix and annual and long-term compensation plans utilized by the peer group; (iv) provide a competitive market assessment of compensation paid to +the Company’s executives; and (v) assist the Committee in developing a long-term incentive plan under which equity awards would be granted for performance in 2011. +We paid PM&P approximately $85,000 for the executive compensation consulting services described above. A further discussion of the role of the Compensation Committee, our processes and procedures for +determining executive officer and non-employee Director compensation, and the services provided by compensation consultants are set forth in the Section entitled, “Compensation Discussion and Analysis,” in this Proxy Statement. +The Committee is authorized to delegate any of its responsibilities to subcommittees or individuals, as the Committee deems appropriate. +To date, the Committee has not exercised this right. +The Compensation Committee operates pursuant to a written charter, a +copy of which is available on our website at www.orasure.com . Members of the Compensation Committee are Roger L. Pringle, Chairman, Ronny B. Lancaster, Stephen S. Tang, Ph.D. and Douglas G. Watson. Jack Goldstein, Ph.D. served on the +Compensation Committee during 2010. Following his retirement from the Board on April 5, 2011, Dr. Goldstein was replaced on the Compensation Committee by Dr. Tang. +Each member of the Compensation Committee is “independent,” as defined in applicable NASDAQ rules. The Compensation Committee met eight times and acted by written consent on one occasion during +the year ended December 31, 2010. +Nominating and Corporate Governance +Committee . The Nominating and Corporate Governance Committee of the Board identifies, evaluates and recommends to the Board candidates for election or re-election to the Board. In addition, this Committee is +responsible for developing, recommending for Board approval and +7 +Table of Contents +administering our Corporate Governance Guidelines. The Nominating and Corporate Governance Committee operates pursuant to a written charter. Copies of the Committee’s charter and the +Company’s Corporate Governance Guidelines are available on our website at www.orasure.com . +Members of the +Nominating and Corporate Governance Committee are Ronny B. Lancaster, Chairman, Michael Celano, Charles W. Patrick, and Roger L. Pringle. Each member of the Nominating and Corporate Governance Committee is “independent,” as defined in +applicable NASDAQ rules. The Nominating and Corporate Governance Committee met four times during the year ended December 31, 2010. +In evaluating and recommending candidates for the Board, the Nominating and Corporate Governance Committee will consider candidates recommended by members of the Committee or the Board of Directors, +officers or employees of the Company, the Company’s security holders and other business contacts. The Nominating and Corporate Governance Committee may also consult with outside advisors or retain search firms to assist in the search for +qualified candidates. Candidates recommended by security holders will be considered by the Nominating and Corporate Governance Committee in the same manner as candidates recommended by other sources, but only if the security holder makes its +recommendation in accordance with the advance notification provisions set forth in the Company’s By-laws. For a description of these provisions, see the Section entitled, “Nomination of Directors,” in this Proxy Statement. +Although there is no formal policy governing Board diversity, the Nominating and Corporate Governance Committee considers diversity and +other factors in evaluating new candidates for the Board. The term diversity is used broadly to include not only race, gender and national origin, but also the following, as well as any other factors determined to be relevant by the Committee +based on the needs of the Board and Company: independence, integrity, knowledge, judgment, character, leadership skills, education, industry experience, financial literacy, technical background, specialized expertise, and standing in the community. +In evaluating incumbent Directors for re-election, the Nominating and Corporate Governance Committee considers that Director’s background, experience and overall service to the Company, including the number of meetings attended, level +of participation, quality of performance and other factors deemed relevant by the Committee. +Nomination of +Directors +Our Bylaws provide that nominations for election to the Board may be made by the Board or by +any stockholder entitled to vote for the election of Directors at the Annual Meeting. A stockholder’s notice of nomination must be made in writing to the Company’s Secretary and must be delivered to or received at our principal executive +offices not less than ninety (90) days nor more than one hundred twenty (120) days prior to the meeting. However, in the event that less than one hundred (100) days’ notice or prior public disclosure of the date of the meeting is +given or made to stockholders, notice by the stockholder to be timely must be received no later than the close of business on the tenth (10 th ) day following the day on which such notice of the date of the meeting was mailed or such public disclosure was +made, whichever first occurs. The notice to the Secretary must set forth, with respect to the nominee, the name, age, business address, residence address, principal occupation or employment of the person, the class and number of shares of capital +stock of the Company which are beneficially owned by the person, and any other information relating to the person that is required to be disclosed in solicitations for proxies for election of Directors pursuant to Regulation 14A under the Exchange +Act. The notice must also include, as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination is made: (i) the name and address of the stockholder and such beneficial owner; (ii) the class and +number of shares of capital stock of the Company which are held of record or beneficially owned by such stockholder and such beneficial owner and any other direct or indirect pecuniary or economic interest in any capital stock of the Company of such +stockholder and beneficial owner, including without limitation, any derivative instrument, swap, option, warrant, short interest, hedge, profit sharing arrangement or borrowed or loaned shares; (iii) a description of any arrangements or +understandings between such stockholder and beneficial +8 +Table of Contents +owner and each proposed nominee and any other person (including their names) pursuant to which the nomination(s) are to be made by such stockholder and such beneficial owner or with respect to +actions to be proposed or taken by such nominee if elected as a Director; (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice; and (v) any other +information relating to such stockholder and such beneficial owner that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of Directors, or may +otherwise be required pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. We may also require any proposed nominee to furnish such other information as we may reasonably require to determine the +eligibility of the proposed nominee to serve as a Director of the Company. +Report of the Audit Committee +The information contained in this report shall not be deemed to be “soliciting material” or “filed” +for purposes of Section 18 of the Exchange Act or otherwise subject to liability under that Section. This report shall not be deemed “incorporated by reference” into any document filed under the Securities Act of 1933, as amended, or +the Exchange Act, whether such filing occurs before or after the date hereof, regardless of any general incorporation language in such filing. +The role of the Audit Committee is to assist the Board of Directors in fulfilling its responsibilities to oversee management’s conduct of the Company’s financial reporting process, including +monitoring (1) the participation of management and the outside independent registered public accounting firm in the financial reporting process, (2) the Company’s systems of internal accounting and financial controls, (3) the +annual independent audit of the Company’s financial statements and (4) the qualifications, independence and performance of the outside independent registered public accounting firm. The Committee selects the Company’s outside +independent registered public accounting firm, and once selected, the outside independent registered public accounting firm reports directly to the Committee. The Committee is responsible for approving both audit and non-audit services to be +provided by the outside independent registered public accounting firm. The Committee operates pursuant to a Charter that was last amended and restated by the Board on August 14, 2007. +Management of the Company is responsible for the preparation, presentation and integrity of the Company’s financial statements, the +Company’s accounting and financial reporting principles and internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. The independent registered public accounting firm is +responsible for auditing the Company’s financial statements and expressing an opinion as to their conformity with U.S. generally accepted accounting principles. The Committee’s responsibility is to monitor and review these processes. It is +not the Committee’s duty or responsibility to conduct auditing or accounting reviews. +In the performance of its +oversight function, the Committee has considered and discussed the audited financial statements with management, which included a discussion of not only the quality, but also the acceptability, of the accounting principles, the reasonableness of +significant judgments and the clarity of disclosures in the financial statements. The Committee met with the independent registered public accounting firm, with and without management, to discuss the results of their audit and their judgments +regarding the Company’s accounting policies. The Committee has also discussed with the independent registered public accounting firm the matters required to be discussed by Statement on Auditing Standards No. 61, “Communication with +Audit Committees,” as currently in effect. Finally, the Committee has received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting +Oversight Board as currently in effect, has considered whether the provision of non-audit services by the independent registered public accounting firm to the Company is compatible with maintaining the firm’s independence and has discussed with +the independent registered public accounting firm the firm’s independence. +9 +Table of Contents +Based upon the reports and discussions described in this report, and subject to the +limitations on the role and responsibilities of the Committee referred to above and in the Committee’s Charter, the Committee recommended to the Board that the audited financial statements be included in the Company’s Annual Report on Form +10-K for the year ended December 31, 2010 for filing with the SEC and selected KPMG LLP as the independent registered public accounting firm for fiscal year 2011. The Board is recommending that stockholders ratify that selection at the Annual +Meeting. +SUBMITTED BY THE AUDIT COMMITTEE +OF THE COMPANY’S BOARD OF DIRECTORS +Michael Celano, +Chairman +Charles W. Patrick +Douglas G. Watson +March 2, 2011 +10 +Table of Contents +Executive Officers +The table below provides information about the executive officers of the Company as of March 28, 2011. Officers of the Company hold +office at the discretion of the Board. +Name +Age +Position +Douglas A. Michels +54 +President and Chief Executive Officer +Ronald H. Spair +55 +Chief Financial Officer and Chief Operating Officer +Stephen R. Lee, Ph.D. +51 +Executive Vice President and Chief Science Officer +Anthony Zezzo II +57 +Executive Vice President, Marketing and Sales +Jack E. Jerrett +52 +Senior Vice President, General Counsel and Secretary +Mark L. Kuna +47 +Senior Vice President, Finance, Controller and Assistant Secretary +Douglas A. Michels has been the Company’s President and Chief Executive Officer since June 2004. Prior to that, Mr. Michels served as Group Vice President, Global Marketing of Ortho-Clinical +Diagnostics, President of Ortho-Clinical Diagnostics International, and President of Johnson & Johnson Healthcare Systems, Inc. Earlier in his career, Mr. Michels held various positions of increasing responsibility within the +Johnson & Johnson family of companies, including Vice President, Sales & Marketing, Vice President/General Manager – Immunocytometry Business, Executive Director Sales & Marketing, Director of Marketing, Director of +Sales, and Regional Sales Manager for Ortho Diagnostic Systems, Inc. Prior to joining Johnson & Johnson, Mr. Michels worked for the Diagnostics Division of Abbott Laboratories in various sales and product management positions. +Mr. Michels received a B.S. degree in Public Health Administration from the University of Illinois and an M.B.A. from Rutgers University. In addition, Mr. Michels serves on the Board of West Pharmaceutical Services, Inc. and is a member of +the Board of Trustees of St. Luke’s Hospital. +Ronald H. Spair has been the Company’s Chief Financial Officer and +Chief Operating Officer since September 2006 and served as Executive Vice President and Chief Financial Officer since November 2001. Prior to that time, Mr. Spair was Vice President, Chief Financial Officer and Secretary of Delsys +Pharmaceutical Corporation, a pharmaceutical manufacturing system development company, Senior Vice President, Chief Financial Officer and Secretary of SuperGen, Inc., a pharmaceutical company, and Senior Vice President, Chief Financial Officer and +Secretary of Sparta Pharmaceuticals, Inc., a development stage pharmaceutical company. Mr. Spair received both his B.S. in Accounting and M.B.A. from Rider College. He is also a licensed Certified Public Accountant and is a member of the New +Jersey Society of Certified Public Accountants and the American Institute of Certified Public Accountants. +Stephen R. Lee, +Ph.D. has been the Company’s Executive Vice President and Chief Science Officer since September 2005. Prior to that time, Dr. Lee worked at Ortho-Clinical Diagnostics, a Johnson & Johnson company, serving as Vice President, Assay +Research & Development, Executive Director, Worldwide Immunodiagnostic Product Development, and Director, Infectious Disease Assay Development. Dr. Lee has had responsibility for or direct involvement in the development of over 40 +major diagnostic assays, in such areas as infectious disease, cardiology, oncology and other conditions. While at Ortho, Dr. Lee was awarded the Johnson Medal, Johnson & Johnson’s highest award for Research and Development. Prior +to joining Ortho, Dr. Lee worked as a scientist for both Wampole Labs and Immunicon Corporation. Dr. Lee received a BSc. in Biochemistry from Sheffield University (U.K.) in 1981 and a Ph.D. degree in Biochemistry from Cardiff University +(U.K.) in 1985. +Anthony Zezzo II has been the Company’s Executive Vice President, Marketing and Sales since January +2011. From 2004 to December 2010, Mr. Zezzo was Vice President, North American Sales and Marketing at the Ortho-Clinical Diagnostics Division of Johnson & Johnson. Prior to that time, Mr. Zezzo held a series of increasingly +responsible positions within Johnson & Johnson, including as Executive Director, Johnson & Johnson Healthcare Systems from 1994 to 1996, Executive Director, Marketing and Sales for the AIDS/Hepatitis +11 +Table of Contents +Division of Ortho Diagnostics from 1996 through 1999 and Vice President, Sales and Marketing for Ortho Diagnostics’ businesses in the United States, Canada and Latin America, from 1999 to +2004. Mr. Zezzo received his B.A. in Political Science from Grove City College. +Jack E. Jerrett has been the +Company’s Senior Vice President and General Counsel since February 2003 and served as Vice President and General Counsel since November 2000. He has also served as the Company’s Secretary since February 2001. Prior to joining the Company, +Mr. Jerrett served in the positions of Associate General Counsel and Senior Counsel at PPL Electric Utilities Corporation, and acted as general counsel to PPL Gas Utilities Corporation. Prior to that time, Mr. Jerrett was Senior Corporate +Attorney of Union Pacific Corporation and an Associate with Morgan, Lewis & Bockius. Mr. Jerrett received his B.S. in Accounting from Villanova University and his J.D. from the Villanova University School of Law. He is a member of the +Pennsylvania Bar and the American and Pennsylvania Bar Associations. +Mark L. Kuna has been the Company’s Senior Vice +President, Finance and Controller since September 2006, and served as Vice President and Controller since February 2003 and as Controller since February 2001. Mr. Kuna has also served as the Company’s Assistant Secretary since May 2002 and +provided accounting and financial analysis support since joining the Company in October 2000. Prior to that time, Mr. Kuna served as Director of Financial Planning and Analysis for the greater Philadelphia region of XO Communications, Inc., and +Vice President and Principal Accounting Officer of Wedco Technology, Inc. Prior to joining Wedco Technology, he was an accountant with Deloitte and Touche. Mr. Kuna received his B.S. in Accounting from the University of Scranton, is a licensed +Certified Public Accountant, and is a member of the Pennsylvania and American Institutes of Certified Public Accountants. +Transactions With Related Persons +Since January 1, 2010, there have been no transactions with related persons +which would require disclosure in this Proxy Statement. The Audit Committee is required to review and approve in advance all transactions with related persons involving the Company. The Audit Committee may approve a related party transaction if the +transaction is on terms comparable to those that could be obtained in arms’ length dealings with an unrelated third party. The Audit Committee also reviews any public disclosures of a related party transaction contained in our SEC filings. +These responsibilities are described in the Audit Committee’s charter, a copy of which is available on our website at www.orasure.com . +Information regarding employment and severance agreements between our executive officers and the Company is set forth in the Section entitled, “Employment Agreements and Potential Payments Upon +Termination or Change in Control,” in this Proxy Statement. +Section 16(a) Beneficial +Ownership Reporting Compliance +Section 16(a) of the Exchange Act requires that our executive officers and Directors +and persons who own more than ten percent of our Common Stock (collectively, “Reporting Persons”) file reports of ownership and changes in ownership with the SEC. Reporting Persons are required by the SEC’s regulations to furnish us +with copies of all Section 16(a) forms they file. +As a matter of practice, our administrative staff assists each of the +Reporting Persons who are employees and Directors of the Company in preparing initial reports of ownership and reports of changes in beneficial ownership and filing such reports with the SEC and the NASDAQ. Based solely on a review of the copies of +forms filed by or on behalf of the Reporting Persons and on written representations (if any) from each of the Reporting Persons, we believe that all Reporting Persons complied on a timely basis with all applicable filing requirements with respect to +the year 2010. +12 +Table of Contents +ITEM 1. +Election of Directors +Background +At the Annual Meeting, you will be asked to vote on the election of three Directors. A majority of the independent members +of the Board have nominated Ronny B. Lancaster, Roger L. Pringle and Ronald H. Spair for election as Class II Directors, for terms expiring at the Annual Meeting of Stockholders in 2014. +The nominees for election as Directors are presently members of our Board. Mr. Lancaster joined the Board in 2003, is currently +Chairman of the Nominating and Corporate Governance Committee and serves on the Compensation Committee. Mr. Pringle joined the Board in 2000 and serves on the Compensation Committee and Nominating and Corporate Governance Committee. +Mr. Spair joined the Board in 2006 and is the Company’s Chief Financial Officer and Chief Operating Officer. +We do +not know of anything that would preclude any nominee from serving. However, should any nominee for any reason become unable or unwilling to serve as a Director, the persons named in the enclosed Proxy Card will vote the shares represented by each +Proxy for such substitute nominee as the Board may approve. +Any vacancy that occurs on the Board that results from an +increase in the number of Directors may be filled by the affirmative vote of a majority of the Directors then in office, and any other vacancy on the Board may be filled by the affirmative vote of a majority of the Directors then in office, even +though less than a quorum of the Board, or by a sole remaining Director. +Effective April 5, 2011, Jack Goldstein, Ph.D. +decided to retire from our Board. Dr. Goldstein became a Director in 2006 and had served as Chairman of the Compensation Committee and as a member of the Audit Committee. The Board extends its heartfelt thanks to Dr. Goldstein for his many +contributions to the Company and wishes him well in his future endeavors. On April 6, 2011, the Board appointed Stephen S. Tang, Ph.D. to fill the vacancy created by Dr. Goldstein’s retirement as a Class I Director with a term expiring in +2013. Dr. Tang was also appointed to serve on the Audit Committee and Compensation Committee. +13 +Table of Contents +Certain information with respect to each person nominated for election as a Director and +each person whose term of office as a Director will continue after the Annual Meeting, including the particular experience, qualifications, attributes and skills they possess that led to the conclusion that they should serve as a Director, is set +forth below. +Name +Principal Occupation +Age +Director +Since +Class I (Directors Whose Terms Expire in 2013): +Stephen S. Tang, Ph.D. +President and Chief Executive Officer of The University City Science Center +50 +2011 +Douglas G. Watson +Chief Executive Officer of Pittencrieff Glen Associates +66 +2002 +Class II (Nominees for Terms Expiring in 2014): +Ronny B. Lancaster +Senior Vice President for Federal Government Relations of Assurant, Inc. +59 +2003 +Roger L. Pringle +President of The Pringle Company +70 +2000 +Ronald H. Spair +Chief Financial Officer and Chief Operating Officer of the Company +55 +2006 +Class III (Directors Whose Terms Expire in 2012): +Michael Celano +Chief Financial Officer of Kensey Nash Corporation +52 +2006 +Douglas A. Michels +President and Chief Executive Officer of the Company +54 +2004 +Charles W. Patrick +Principal, Patrick Consulting +56 +2006 +Stephen S. Tang, Ph.D., +became a member of the Board in April 2011. Since January 2008, Dr. Tang has served as President and Chief Executive Officer of The University City Science Center, an urban research park and business incubator owned by over thirty leading +universities, medical schools and health networks in the greater Philadelphia, Pennsylvania area. Prior to that, Dr. Tang was employed by Olympus America, Inc., serving as Group Vice President for Life Science from 2006 to 2008 and as Vice +President of Life Science Business Development from 2005 to 2006. Prior to his work with Olympus America, Dr. Tang served as President and Chief Executive Officer of Millennium Cell Inc., an energy technology firm, from 2000 to 2004 and as Vice +President and Managing Director of the global pharmaceutical and healthcare practice of A.T. Kearney Inc. prior to 2000. Dr. Tang holds a B.S. degree in Chemistry from The College of William and Mary, an M.S. degree and Ph.D. in Chemical +Engineering from Lehigh University and an MBA from The Wharton School of Business at the University of Pennsylvania. Dr. Tang’s extensive business experience, and in particular his experience in the life sciences industry and with +strategic and business development matters, led to the conclusion that he should serve on the Company’s Board. +Douglas +G. Watson became a member of the Board in May 2002 and became Chairman of the Board in March 2003. Since July 1999, Mr. Watson has been Chief Executive Officer of Pittencrieff Glen Associates, a leadership and management consulting firm, which +he founded. Prior to that, Mr. Watson served as President and Chief Executive Officer of Novartis Corporation, the U.S. subsidiary of Novartis A.G., President and Chief Executive Officer of Ciba-Geigy Corporation, President of the Ciba +Pharmaceuticals Division and Senior Vice President of Planning and Business Development of Ciba’s U.S. Pharmaceuticals Division. Mr. Watson holds an M.A. degree in pure mathematics from Churchill College, Cambridge University, and is a +member of the Chartered Institute of Management Accountants. Mr. Watson also serves on the Boards of BioMimetic Therapeutics, Inc., Dendreon Corporation and Delcath Systems Inc. and previously served on the Boards of Engelhard Corporation, +Genta Inc. and Javelin Pharmaceuticals Inc. Mr. Watson’s long business career and executive-level management experience in the pharmaceutical industry, his financial and accounting expertise +14 +Table of Contents +and his service on the Boards and Board Committees of other private and public companies led to the conclusion that he should serve on the Company’s Board. +Ronny B. Lancaster became a member of the Board in May 2003. Mr. Lancaster has served as Senior Vice President, Federal Government +Relations of Assurant, Inc., a provider of specialty insurance and insurance-related products and services since September 2005. From 1993 until September 2005, Mr. Lancaster served in various capacities at the Morehouse School of Medicine in +Atlanta, including as Chief Operating Officer. Prior to that, Mr. Lancaster was Executive Assistant to the Secretary and Principal Deputy Assistant Secretary for Planning and Evaluation at the U.S. Department of Health and Human Services,, +General Counsel of Hamilton Enterprises, Inc., Senior Washington Representative for Blue Cross/Blue Shield Association, and Chief of the Division of Fee-For-Service Plans at the U.S. Office of Personnel Management. Mr. Lancaster received his +B.A. in Economics from the Catholic University of America, his M.B.A. from the Wharton School of the University of Pennsylvania, and his J.D. degree from The Georgetown University Law Center. He is admitted to the Bars of Pennsylvania and the +District of Columbia. Mr. Lancaster currently serves on the Board of Immucor, Inc. and on the Medical Advisory Board of Henry Schein, Inc. Mr. Lancaster’s expertise in government affairs and political matters, his extensive medical +and healthcare experience and his legal training led to the conclusion that he should serve on the Company’s Board. +Roger L. Pringle has served on the Board since September 2000, when the Company was formed by the merger of Epitope, Inc. +(“Epitope”) and STC Technologies, Inc. Prior to that, Mr. Pringle served as Chairman of the Board and a member of the Board of Directors of Epitope, and was a director of Agritope, Inc., a plant genetics subsidiary of Epitope. +Mr. Pringle is the President of The Pringle Company, a strategy and executive consulting firm in Portland, Oregon, which was founded in 1976. Mr. Pringle currently serves on the Boards of Bank of the Northwest and Prolifiq Software, +Inc. and previously served on the Boards of Metro One Telecommunications Inc. and North Pacific Group. Mr. Pringle received a B.S. in Business from Oregon State University and an MBA from the University of Oregon. Mr. Pringle’s long +service as a member of the Board of Epitope, his entrepreneurial and business leadership skills and his service on the Boards of other private and public companies led to the conclusion that he should serve on the Company’s Board. +For biographical information on Mr. Spair, see the Section entitled, “Executive Officers,” in this Proxy Statement. +Mr. Spair’s service as Chief Financial Officer and Chief Operating Officer of the Company, his financial and accounting expertise and his extensive business and investor relations experience led to the conclusion that he should serve on +the Company’s Board. +Michael Celano became a member of the Board in October 2006. Mr. Celano has served as Chief +Financial Officer of Kensey Nash Corporation, a biomaterials company, since March 2009 and as Managing Director of Aon Risk Services from August 2007 to December 2008. From September 2004 to May 2007, Mr. Celano served as Vice President, +Finance and Chief Financial Officer for BioRexis Pharmaceutical Corporation, a biopharmaceutical company. Before joining BioRexis, Mr. Celano served as a partner with KPMG LLP, in charge of its Mid-Atlantic Life Sciences Practice, and was +co-leader of its National Life Science Practice. Prior to joining KPMG, Mr. Celano was co-leader of the Life Science Practice for Arthur Andersen. Mr. Celano is a Certified Public Accountant and holds a B.S. degree in Accounting from St. +Joseph’s University. Mr. Celano’s accounting and financial expertise, and specifically his long career in public accounting focused in the life sciences area, and his extensive business experience led to the conclusion that he should +serve on the Company’s Board. +For biographical information on Mr. Michels, see the Section entitled, +“Executive Officers,” in this Proxy Statement. Mr. Michels’ service as President and Chief Executive Officer of the Company, his extensive business and executive-level management experience in the medical diagnostics field and +his sales and marketing expertise led to the conclusion that he should serve on the Company’s Board. +15 +Table of Contents +Charles W. Patrick became a member of the Board in January 2006. Since 2000, +Mr. Patrick has served as Principal of Patrick Consulting, a management consulting firm that helps diagnostic and technology companies develop sales, marketing and distribution strategies. Mr. Patrick is also the President and Co-owner of +ADS Golf, Inc. Prior to that time, he served as the President and Chief Executive Officer of Call Nexus, Inc., a provider of virtual call center services, and Vice President of Sales and Marketing for Biosite Diagnostics, a medical diagnostics +company, where he had primary responsibility for developing and achieving Biosite’s strategic sales and marketing objectives. Prior to his time at Biosite, Mr. Patrick served as World Wide Group Marketing Manager and held several other +sales and marketing positions for the Diagnostics Division of Abbott Laboratories. Mr. Patrick received a B.A. in Communications/Journalism from the University of Central Florida. Mr. Patrick also serves on the Board of diaDexus, Inc. +Mr. Patrick’s extensive sales and marketing background, his experience in the medical diagnostics industry and his entrepreneurial skills led to the conclusion that he should serve on the Company’s Board. +Vote Required; Board Recommendation +If a quorum is present, each nominee will be elected if he receives a plurality of the votes cast by shares present in person or by Proxy and entitled to vote at the Annual Meeting. Abstentions and broker +non-votes will have no effect on the required vote. In the absence of instructions to the contrary, shares of Common Stock represented by properly executed Proxies will be voted for the nominees, each of whom has consented to be named and to serve +if elected. +Your Board recommends that you vote FOR the election of the Director nominees. +ITEM 2. +Ratification of Appointment of Independent Registered Public Accounting Firm +Background +The Audit Committee of the Board of Directors has approved the +reappointment of KPMG LLP (“KPMG”) as our independent registered public accounting firm for 2011. The Audit Committee has also recommended that the Board submit the appointment of KPMG for ratification by stockholders at the Annual +Meeting. If this appointment is not ratified by stockholders, the Audit Committee may reconsider its appointment. +One or more +representatives of KPMG are expected to be at the Annual Meeting. They will have an opportunity to make a statement and will be available to respond to appropriate questions. +Vote Required; Board Recommendation +Ratification of the appointment of +KPMG requires the affirmative vote of a majority of shares present in person or by Proxy and entitled to vote at the Annual Meeting. Shares voted in person or represented by Proxy which are not voted for this ratification (by voting no or +abstaining) will have the effect of voting against this proposal. In the absence of instructions to the contrary, shares of Common Stock represented by properly executed Proxies will be voted for ratification of the appointment of KPMG as our +independent registered public accounting firm for 2011. +Your Board recommends that the stockholders vote “FOR” +ratification of the appointment of KPMG. +16 +Table of Contents +Audit Fees; Audit-Related Fees; Tax Fees; All Other Fees. +The following table presents fees for professional audit services rendered by KPMG for the audits of our annual financial statements for +the years ended December 31, 2010 and 2009, for the audits of our internal control over financial reporting as of December 31, 2010 and 2009 and for the review of the financial statements included in our Quarterly Reports on Form 10-Q for +the fiscal years ended December 31, 2010 and 2009. The following table also includes fees billed for other services rendered by KPMG: +2010 +2009 +Audit fees 1 +$ +462,500 +$ +450,000 +Audit-related fees +— +— +Tax fees 2 +95,591 +131,821 +All other fees 3 +— +— +Total fees +$ +558,091 +$ +581,821 +(1) +Includes fees related to the audit of our financial statements for each indicated year, audits of our internal control over financial reporting for each indicated year, +and interim reviews of our financial statements in the Company’s Quarterly Reports on Form 10-Q for each indicated year, notwithstanding when the fees were billed or when the services were rendered. Also included in 2010 are professional +services in connection with the review of a registration statement on Form S-3 and the issuance of a related consent. +(2) +During 2010 and 2009, we engaged KPMG to provide tax compliance and tax planning services. +(3) +The Company did not pay any other fees to KPMG in connection with their services in 2010 and 2009. +The Audit Committee has adopted a general practice of pre-approving all audit and non-audit services provided to the Company by our +independent registered public accounting firm. The Chairman of the Audit Committee has been delegated the authority to pre-approve audit and non-audit services having an aggregate value of up to $10,000 in between meetings of the Audit Committee, +provided that such pre-approval is communicated to the Audit Committee at its next scheduled meeting. All services by KPMG in 2010 and 2009 were pre-approved in accordance with these practices. +Executive Compensation +Compensation Discussion and Analysis +This +Compensation Discussion and Analysis (“CD&A”) describes the Company’s executive compensation programs together with the material factors underlying the decisions which resulted in compensation for 2010 provided to the +Company’s Chief Executive Officer (“CEO”) and the other named executive officers (collectively, the “NEOs”), as presented in tables which follow this CD&A. +Executive Summary . As discussed in detail below, our compensation program is designed to pay +executives for performance by offering rewards for the achievement of pre-determined financial and strategic performance objectives. Our program is also designed to align the interests of executives with the interests of our stockholders, provide +long-term incentives and set compensation at levels sufficiently competitive to attract and retain high quality executives and to motivate them to contribute to our success. Key features of our compensation program include the following: +· +Our executive compensation focuses on performance, with a significant portion comprised of annual cash bonuses and long-term equity awards provided to +executives based on the achievement of predetermined performance objectives. In prior years, where these performance objectives were not met, the level of compensation provided to executives has been reduced accordingly. +17 +Table of Contents +· +Equity awards consist of a mix of restricted stock and stock options, and in recent years the proportion of stock options has been increased in order +to make our long-term incentive compensation more performance-based. In addition, equity awards are subject to long-term vesting requirements and thereby help align the interests of our executives with the interests of our stockholders. +· +In establishing compensation, the Compensation Committee of our Board regularly utilizes independent compensation consultants and makes compensation +decisions based on a competitive assessment of compensation paid to executives at a peer group of comparable medical diagnostic and healthcare companies. +· +The total compensation paid to executives is targeted at the median or 50 th percentile of a peer group of comparable companies with an opportunity to earn up to the 75 th percentile based on achievement of performance objectives. +· +The Company does not provide its executives with any perquisites. +· +The Company has implemented an annual process to assess the risks associated with our compensation programs. +For these and the other reasons described in this CD&A, we believe our compensation program follows sound corporate governance principles and is +strongly aligned with the interests of our stockholders. +Compensation Philosophy . The +primary objectives of our compensation program for executive officers are to: +· +reward executive officers for the performance of the Company and achievement by such officers of individual performance objectives; +· +align the interests of the executive officers with the interests of our stockholders; +· +provide long-term incentives for the executive officers; and +· +set compensation at sufficiently competitive levels to attract and retain high quality executives and to motivate them to contribute to our success. +Compensation for executive officers is established by the Compensation Committee of our Board (the +“Committee”) in accordance with the above objectives. In setting executive compensation, the Committee considers the Company’s and each executive’s performance against previously established objectives, internal pay equity, the +Company’s industry position, general industry data and recommendations of independent third party compensation consultants engaged by the Committee. The Committee periodically retains independent compensation consultants to review our executive +compensation practices and to assist the Committee in establishing competitive compensation levels for our executives. In determining whether to retain a compensation consultant, the Committee has sole authority to decide whether to hire or fire any +such consultant and to control the nature and scope of the engagement. +The Committee seeks to set +aggregate compensation levels for executives near the median or fiftieth (50 th ) percentile of amounts paid by comparable medical diagnostic and healthcare companies (defined by industry, revenues, market capitalization, number of employees or a combination of these factors) +for performance consistent with the Company’s target financial and strategic business plans for the applicable year. Use of the fiftieth (50 th ) percentile is intended as a market check and not as an absolute target. As a result, the aggregate compensation +and the value of specific compensation components for individual executives may fall below or exceed that median level depending on individual performance and contribution by the executive. Aggregate compensation includes the total value of the base +salary, incentive cash bonus and equity awards provided to each executive officer. +18 +Table of Contents +Annual Performance Evaluations . On an annual basis, the +Committee evaluates the performance of the CEO against predetermined performance objectives and the CEO evaluates the performance of the other NEOs against their respective predetermined performance objectives. Annual performance objectives for the +NEOs are established at the beginning of the applicable year and generally include two parts: the Company’s overall target financial/strategic performance objectives and the individual objectives in the functional areas for which the executive +is responsible. For each NEO, these objectives are then weighted to reflect their relative importance to the Company and the executive’s functional responsibilities. With respect to 2010, the Company’s annual financial/strategic +performance objectives were weighted at 50% for Messrs. Michels and Spair and 30% for Dr. Lee and Mr. Jerrett, with the individual performance objectives for these executives accounting for the balance of the weighting. Mr. Kuna had +only individual performance objectives for 2010. +Depending on the Company’s overall performance and the extent to which +an executive achieves his individual objectives for a particular year, the executive will be rated as “Does Not Meet,” “Meets Expectations,” “Exceeds Expectations” or “Outstanding.” As described later in this +CD&A, the Committee uses the performance ratings to determine annual base salary adjustments, incentive cash bonuses and equity awards. +19 +Table of Contents +Competitive Assessments . +During 2009, the Committee engaged Radford, an independent compensation consultant (“Radford”), to prepare a competitive +assessment of compensation practices. Radford collected and analyzed compensation data from (i) a group of companies with a similar diagnostic product focus and business stage as the Company, with revenues ranging from $25 million to $250 +million, market capitalizations ranging from $55 million to $475 million and employee populations ranging from 95 to 860 (“Diagnostic Peers”); and (ii) a broader group of life sciences companies with revenues ranging from $50 +million to $200 million (“Life Science Peers”). The companies comprising each of these peer groups were as follows: +Diagnostic Peers +Life Science Peers +Caliper Life Sciences +454 Life Sciences/Roche +Meridian Bioscience +Cepheid +Acorda Therapeutics +Micrus Endovascular +Clarient +Affymax +Monogram Biosciences +Genomic Health +Alnylam Pharmaceuticals +Morphosys AG +Genoptix +Alphatec Spine +Nektar Therapeutics +Harvard Biosciences +Auxilium Pharmaceuticals +Noven Pharmaceuticals +Immucor +Biocryst Pharmaceuticals +NPS Pharmaceuticals +Meridian Biosciences +Caliper Life Sciences +Onyx Pharmaceuticals +Monogram Biosciences +Candela Laser +OraSure Technologies +Quidel +Cepheid +Orthovita +Sequenom +Clarient +Osteotech +Surmodics +Conceptus +Pozen +Cryolife +Progenics Pharmaceutical +Emergent Biosolutions +Prostrakan +Enzon +QLT +Eresearch Technology +Questcor Pharmaceuticals +Eurand +Quidel +Exactech +R&D Systems +Exelixis +Salix Pharmaceuticals +Genomic Health +Santarus +Genoptix +Sciclone Pharmaceuticals +Harvard Bioscience +Sorin Group USA +Heska +Starr Surgical Company +Indevus Pharmaceuticals +Sucampo Pharmaceuticals +Infinity Pharmaceutical +Surmodics +Inspire Pharmaceuticals +Symyx Technologies +Ista Pharmaceuticals +Verenium +Jazz Pharmaceuticals +Vertex Pharmaceuticals +Kensey Nash +Vivus +Maxygen +Xoma +Medarex +Zymogenetics +The competitive compensation data developed by Radford in 2009 was used by the Committee in determining base salary levels, the incentive bonus targets and equity award guidelines for 2010. +20 +Table of Contents +During 2010, the Committee engaged PM&P to provide compensation consulting services, +including an updated competitive assessment of compensation paid to the Company’s executives. PM&P assisted the Committee in identifying a peer group consisting of fifteen medical diagnostic and healthcare companies, ten of which were +considered a primary peer group because of their close similarity to the Company’s business mix. The additional five peer companies were used for reference purposes. Companies included in the peer group were selected based on total revenues, +market value and number of employees, and included the following: +Primary Peer Companies +Additional Companies +Abaxis, Inc. +Caliper Life Sciences, Inc +Celera Corporation +Genomic Health, Inc. +Cepheid, Inc. +Harvard Bioscience, Inc. +Enzo Biochem, Inc. +MEDTOX Scientific, Inc. +Immucor, Inc. +Orchid Cellmark, Inc. +IRIS International Inc. +Luminex Corporation +Meridian Bioscience, Inc. +Neogen Corporation +Quidel Corporation +The Committee expects to use the smaller, more targeted peer group developed by PM&P for future +compensation assessments. The competitive compensation data developed by PM&P in 2010 was used by the Committee to evaluate the market competitiveness of base salary increases, incentive cash bonuses and equity grants approved based on +performance during 2010 and the incentive bonus targets and long-term incentive plan established for 2011. +Compensation +Components . Our executive compensation program consists of the components set forth below. +1. Annual Base Salary . The Committee believes that competitive salaries must be paid in order to attract, retain and motivate high quality executives. Each year, the +Committee evaluates and determines the annual base salaries for the NEOs. In determining salaries, the Committee considers the annual performance evaluation of the CEO prepared by non-employee Directors on the Board and the annual performance +evaluations prepared by the CEO for all other NEOs. The Committee also considers the Company’s budget for expected salary adjustments, salary levels paid at comparable medical diagnostic and healthcare companies and any recommendations that may +be made by any compensation consultant engaged to assist the Committee. An executive’s annual salary adjustment will tend to be at the higher end of the range budgeted by the Company if the executive receives a performance rating of “Meets +Expectations” or better and such executive’s pre-adjustment salary level is at or near the 50 th percentile for his or her position at comparable medical diagnostic and healthcare companies. +From time to time, the Committee may approve salary adjustments for executives to reflect promotions or changes in responsibilities, to bring the salary of a particular executive more in line with the +salaries offered at comparable medical diagnostics and healthcare companies or to reflect other factors. When such salary adjustments are made with respect to an executive, the Committee evaluates the proposed new salary in light of the total cash +and non-cash compensation paid to the executive and whether reasonable internal pay equity will be maintained in light of that executive’s position, responsibilities, experience and contributions. +2. Incentive Cash Bonuses . Annual cash bonuses are included as part of executive compensation because the +Committee believes that a significant portion of each executive’s compensation should be structured as a variable incentive tied to both the overall performance of the Company as well as the individual contribution of the executive. On an +annual basis, the Committee has adopted, with approval of the Board, a Management Incentive Plan (the “Incentive Plan”), which is intended to be the principal vehicle for incentive cash bonus awards. +21 +Table of Contents +Incentive cash bonuses are generally paid out of a cash pool funded under the Incentive Plan +based on the Company’s achievement of certain specific financial and strategic objectives determined by the Committee and approved by the Board at the beginning of each fiscal year. The financial objectives typically consist of short-term +targets that represent improvement in financial performance compared to the prior year. The strategic objectives represent milestones that the Committee and Board believe are critical to achieving long-term growth and profitability. Because we are a +small cap company that needs to make substantial investment in our product and clinical development activities, the Committee and Board believe it is important to tie incentive cash payments not only to the attainment of short-term financial +targets, but also to the achievement of strategic objectives that will benefit the Company and its stockholders over the long term. The objectives are each weighted to determine their respective contributions to the pool amount. Each objective can +be adjusted by the Committee or Board in an equitable manner to reflect unexpected changes in the Company’s business or assumptions underlying the original objective or other factors. +With respect to each financial objective, a Threshold, Target and Maximum performance level is established. The Target levels generally +reflect the Company’s financial budget or operating plan for the year. Except in special circumstances, the Threshold levels represent a minimum level of performance for which the Committee is willing to provide bonus pool funding. The Maximum +levels reflect outstanding performance for which the Committee is willing to reward executives with bonuses above the Target level payout. With respect to the strategic objectives, Threshold and Target performance levels are established to be +consistent with the Company’s long-term strategic goals for our business. Maximum performance levels may also be established for one or more strategic objectives at the time the Incentive Plan is adopted or deferred for later determination in +the discretion of the Committee and Board. +If the Company meets all the Target levels, the pool is funded at 100% of the +aggregate target bonuses for all participants in the Incentive Plan, as described below. The pool is funded at 50% of the aggregate target bonuses if all of the Threshold levels are met and at 150% if all of the Maximum levels are met. Pro-rata +adjustments to the amount of funding for each objective are made where a particular performance is in between the pre-established performance levels. To the extent a performance level is below the Threshold objective, there would be no funding for +that particular item unless the Committee or Board determines, in their discretion, that some funding is warranted. +The +amount of the cash bonus pool is determined by the Committee and recommended for Board approval. The Board may approve a pool greater than that recommended by the Committee if it determines that the Company has achieved a breakthrough performance by +substantially exceeding the Maximum performance level. The Committee and Board also retain discretion to increase or decrease the size of the pool in order to reflect specific performance or market conditions affecting the Company and the final +performance assessments for each participant for the applicable year. The cash bonus pool is used to pay bonuses not only to the Company’s NEOs, but also to all other officers of the Company and employees at the level of director. +Individual payments from the bonus pool to executives depend on the size of the bonus pool, the executive’s achievement of +individual performance objectives, the number of individuals participating in the plan at the time bonuses are awarded and the executive’s target bonus percentage. Bonuses are paid, based on an assessment of each officer’s performance for +the applicable year, using targets expressed as a percentage of the executive officer’s base salary. +If an executive +officer has met or exceeded his or her individual performance objectives and/or the Company’s expectations for the applicable year, he or she may be eligible to receive up to 150% of his or her target bonus, depending on the size of the bonus +pool. The Committee and Board retain the discretion to adjust an individual executive’s performance evaluation and to increase or decrease the bonus paid to such individual to reflect the specific contributions of that executive, the +Company’s overall performance, market conditions or other circumstances. +22 +Table of Contents +The Committee recommends for Board approval any bonus award for the CEO based on an +assessment of his performance against his individual performance objectives. The CEO recommends individual awards for the other executive officers for approval by the Committee based on an assessment of each executive’s performance against his +or her applicable performance objectives. The Committee and Board have the right, in their sole discretion, to reject any or all of the recommended bonus awards, even if the bonus pool has been funded and any or all applicable performance criteria +have been satisfied, based on the business conditions of the Company or other factors deemed relevant by the Committee or Board. +3. Equity Awards . The Committee believes that an additional way to promote the long-term growth of the Company and align the interests of executives with those of our +stockholders is by compensating executives with equity in the Company that vests over a multi-year period. As a result, the Committee administers the OraSure Technologies, Inc. Stock Award Plan (the “Stock Plan”), pursuant to which grants +of stock options and restricted shares are made to executive officers on an annual basis. +The Committee, with the approval of +the Board, has adopted, on an annual basis, Stock Award Guidelines for the Company’s management (the “Stock Award Guidelines”). The purpose of the Stock Award Guidelines is to provide a framework for determining annual equity awards +for executives that reflect the executive’s duties and performance evaluation against individual objectives for the applicable year and to align the value of the awards for executives with long-term incentive compensation for similar positions +at comparable medical diagnostics and healthcare companies. An executive must be rated as “Meets Expectations” or better in order to receive an equity award, unless the Committee or Board otherwise determines in its discretion that an +equity award is appropriate in view of the executive’s specific contributions, the Company’s overall performance, market conditions or other factors. +The Stock Award Guidelines provide for equity grants to the NEOs, based on an executive’s performance evaluation +for a particular year. The value of equity awarded to an executive receiving a “Meets Expectations” performance evaluation for a particular year is intended to approximate the fiftieth (50 th ) percentile of long-term incentive compensation for that +position paid by comparable medical diagnostic and healthcare companies. The Stock Award Guidelines provide an executive with the opportunity to receive up to the seventy-fifth (75 th ) percentile of long-term incentive compensation for that executive’s position paid by comparable medical +diagnostic and healthcare companies if their individual performance is rated above the “Meets Expectations” level. +The Committee has decided that awards should consist of a mix of stock options and restricted stock rather than solely of stock options +because such a mix would have greater value as both a long-term incentive and retention mechanism. Awards made during 2010 as a result of each executive’s performance for 2009 consisted of 60% restricted stock and 40% stock options, based on +the market value of potential awards. +Annual stock option awards have an exercise price equal to the fair market value of the +Company’s Common Stock on the date of grant, which is calculated as the mean between the high and low sales price of the Common Stock as reported by NASDAQ for that date. Stock options generally vest over four years, with the first 25% vesting +after one year and the remaining 75% vesting on a monthly basis over the next three years following the first anniversary of the grant date. Grants of restricted stock generally vest over a three-year period, with one-third vesting on the first +anniversary of the grant date, a second third vesting on the second anniversary and the final third vesting on the third anniversary. These vesting restrictions serve to promote the Company’s long-term growth by restricting executives’ +ability to realize short-term gains from their awards. The Committee believes the terms of its equity awards to executives are competitive with the terms of equity awards offered at comparable medical diagnostics and healthcare companies. +Equity awards are generally made by the Committee each year as part of the normal annual compensation cycle. The awards for a +particular year generally occur in late January or early February of the following year after the Company’s full year financial results are known and performance evaluations for the executive officers +23 +Table of Contents +have been prepared. Equity awards approved by the Committee for the CEO are then reviewed and approved by the Board. In addition to the annual equity awards, the Committee may approve stock +option and restricted stock awards for newly hired officers or in recognition of an executive’s promotion or expansion of responsibilities. These latter grants may have vesting or other terms that differ from the terms generally approved for +annual equity awards. Notwithstanding the Stock Award Guidelines, equity awards are made at the discretion of the Committee or Board. +4. Retirement Programs . We do not maintain any retirement programs other than a 401(k) profit sharing plan (the “401(k) Plan”). All of our employees, including +executive officers, are eligible to participate in the 401(k) Plan. We make matching contributions for participants on a dollar-for-dollar basis up to $4,000 per year. Payments of employer-provided benefits accrued for a 401(k) Plan participant will +be made upon retirement or upon termination of employment prior to retirement, provided certain vesting conditions have been met by the participant prior to termination. +5. Perquisites and Other Compensation . As a general matter, the Committee and Board do not believe that executive officers should be treated differently than other employees, +except that such officers should receive competitive annual base salaries and have competitive bonus and equity award opportunities commensurate with their higher level of responsibility, and that executive officers should receive employment +agreements as described below. Our healthcare, disability, and other insurance programs and benefits are the same for all eligible employees, including executive officers. Executive officers do not receive perquisites. +6. Potential Payments Upon Termination or Change in Control Pursuant to Employment Agreements . The Company +has entered into employment agreements with each of the NEOs. In addition to the compensation elements discussed above, these agreements provide for post-employment severance payments and benefits in the event of termination of employment by the +Company without “cause” or by the executive for “good reason” and provide enhanced severance payments upon such terminations in connection with a “change in control” of the Company. The terms of these agreements are +discussed in more detail under the Section entitled, “Employment Agreements and Potential Payments Upon Termination or Change in Control,” in this Proxy Statement. The Committee believes that these agreements are generally consistent with +industry practice at comparable medical diagnostic and healthcare companies, provide an incentive to the applicable executive to remain with the Company, and serve to align the interests of stockholders and the executives in the event of a change in +control of the Company. +Accounting and Tax Treatment of Compensation . In approving the +amount and form of compensation for the NEOs, the Committee considers all elements of the cost to the Company of providing such compensation, including the potential impact of Section 162(m) of the Internal Revenue Code. Section 162(m) +disallows a tax deduction for any publicly-held corporation for individual compensation exceeding $1 million in any taxable year for the CEO and for the three most highly compensated officers unless compensation is performance-based. The Committee +intends to maintain flexibility to pay compensation that is not entirely deductible when the best interests of the Company would make that advisable. +2010 Annual Base Salaries . Annual base salaries paid in 2010 to our NEOs were established by the Committee at the beginning of 2010 based on a review of the +Company’s performance during 2009, an evaluation of the individual contributions of each officer compared to pre-established performance objectives for 2009 and a review of the competitive data and recommendations provided to the Committee by +Radford, an independent compensation consultant. +Based on these factors, the Committee targeted an +aggregate annual base salary increase averaging approximately 3.5-4.0%, with an additional 1.0% for market-based adjustments. In order to reflect the Company’s performance and each executive’s contributions, and to equitably move salaries +towards the fiftieth (50 th ) percentile or maintain +them at approximately that level, the Committee used the following guidelines to assist in determining annual base salary increases. Although not a precise requirement, under the following +24 +Table of Contents +guidelines an executive’s base salary increase would vary depending upon whether such executive’s salary fell below the 25 th percentile, between the 25 th and 75 th percentile or above the 75 th percentile of salaries paid for the same position at comparative medical diagnostic and healthcare companies. +Performance +Rating +Recommended Merit Increases by +Peer Company Data Percentiles +<25th +25 th -75 th +>75th +Outstanding +7.0 +% +6.0 +% +5.0 +% +Exceeds Requirements +5.0 +% +4.5 +% +4.0 +% +Meets Requirements +4.0 +% +3.5 +% +3.0 +% +In +establishing the annual base salaries paid to the NEOs in 2010, the Committee considered that the Company’s $77 million in revenues for 2009 was below Target for that year but higher than the Threshold established for providing funding for +incentive cash bonuses. The Committee further noted that the shortfall from Target occurred during a very difficult economic environment and in a year when the Company experienced a significant and unexpected challenge in the manufacture of its +OraQuick ® HIV test. The Committee also considered the substantial improvement in the Company’s operating +performance from 2008 to 2009, the increase in gross margin to 61% in 2009 compared to 58% in 2008, and the substantial reduction in cash used in operating activities for 2009. In addition, the Committee’s base salary determinations were +significantly influenced by the many positive accomplishments achieved by management during 2009, including the following: +· +Receipt of CE mark approval for the OraQuick ® rapid HCV test and preparation for commercial launch of this product in Europe; +· +Filing of a pre-market approval (“PMA”) application amendment containing additional clinical data requested by the U.S. Food and Drug +Administration (“FDA”) for use of the OraQuick ® HCV test on venous whole blood samples; +· +Clarified requirements for final clinical study for an OraQuick ® HIV over-the-counter (“OTC”) test through ongoing discussions with the FDA and its Blood Product Advisory Committee (“BPAC”); +· +Achievement of improved field performance of the enhanced OraQuick ® HIV test, with specificity of 99.94% based on data from the Company’s sentinel sites; +· +Successful resolution of a manufacturing issue related to the OraQuick ADVANCE ® HIV test, which eliminated a substantial second quarter order backlog and restored critical inventory levels with minimal customer impact; +· +Signing of a final commercialization agreement with Roche Diagnostics for the worldwide distribution of high throughput fully automated oral fluid +drugs-of-abuse assays in combination with the Company’s Intercept ® oral specimen collection device; +· +Continued progress in the development of an enhanced or second generation rapid HIV test with improved performance; +· +Increased OraQuick +ADVANCE ® HIV sales in the U.S. by 21% and in international markets by almost 40% compared to 2008, +despite difficult global economic conditions; +· +Successful resolution of a major patent infringement lawsuit by Inverness Medical and Church & Dwight with settlement terms favorable to the +Company; +· +Maintenance of a greater than 65% institutional investor base and continued support by the Company’s largest stockholders, despite the continued +difficult economic environment and low stock price; and +· +Strengthening of our management team through the addition of a new Vice President, Marketing and Sales, and new Vice President, Regulatory and Quality +Assurance. +25 +Table of Contents +In light of the foregoing, the Committee concluded that Mr. Michels earned a +performance rating for 2009 of “Meets Expectations.” The Committee decided to increase Mr. Michels’ annual base salary from $475,500 to $500,000, reflecting a 3.05% merit increase tied to his performance rating for 2009 plus an +additional $10,000 adjustment in recognition of the many positive accomplishments achieved during the year. +Mr. Spair’s performance was rated as “Meets Expectations” by the Committee for performance during +2009, and his annual base salary was increased from $380,500 to $400,000. This increase reflected a 3.02% merit increase tied to his performance rating for 2009 plus an $8,000 adjustment in recognition of the many positive accomplishments achieved +during the year. In evaluating Mr. Spair’s performance, the Committee considered Mr. Spair’s successful maintenance of the Company’s institutional investor base, his ongoing supervision of the Company’s operations and +resolution of the manufacturing issues related to the OraQuick ® HIV test, his supervision of Sarbanes-Oxley +compliance and preparation of SEC filings and public disclosures, his leadership (along with Mr. Jerrett) in successfully resolving the Inverness Medical/Church & Dwight patent infringement litigation, and his ongoing management of the +financial planning, reporting and accounting functions. +Dr. Lee was rated as “Exceeds +Expectations” for performance during 2009, and his annual base salary was increased from $336,500 to $350,000, representing a 4.01% increase for 2010. In evaluating Dr. Lee’s performance, the Committee considered his efforts to +support ongoing HCV clinical studies and regulatory submissions, his support of the ongoing clinical development of an +OraQuick ® HIV OTC test and related discussions with the FDA and BPAC, his involvement in the clinical +development of fully automated homogeneous high-throughput oral fluid drugs-of-abuse assays, his leadership in the development of a second generation oral specimen collection device, his leadership in the development of a second generation rapid HIV +test, his assistance in evaluating new technology platforms and business development opportunities, and his ongoing support of manufacturing processes and operations. +Mr. Jerrett was rated as “Exceeds Expectations” for performance during 2009, and his annual base salary was increased from $260,000 to $275,000 for 2010, representing a 4.23% merit increase +plus a $4,000 market adjustment. In evaluating Mr. Jerrett’s performance, the Committee considered his leadership (along with Mr. Spair) in successfully resolving the Inverness Medical/Church & Dwight patent infringement +litigation and several other potential claims by third parties, the successful handling of multiple commercial issues across all of the Company’s business lines, his efforts to prepare all SEC filings and other public disclosures, and his +ongoing advice and counsel to the Board and senior management. +Mr. Kuna was rated as “Exceeds Expectations” +for performance during 2009, and his annual base salary was increased from $218,500 to $228,000 for 2010, representing a 4.35% increase. In evaluating Mr. Kuna’s performance, the Committee considered his effective management of the +Company’s cash reserves during difficult economic conditions, his management of the Company’s financial reporting, accounting systems and internal controls over financial reporting, his oversight of the preparation of the Company’s +financial statements and SEC reporting, and his management of tax and Sarbanes-Oxley compliance. +2010 Incentive Cash +Bonuses . In January 2011, the Committee approved incentive cash bonuses to the executive officers under the 2010 Management Incentive Plan (the “2010 Incentive Plan”). These bonuses were awarded for +performance during 2010. +Under the 2010 Incentive Plan, the Committee had previously established Threshold, Target and +Maximum performance levels for financial objectives and for several strategic objectives to be used to fund the bonus pool. The financial objectives consisted of performance levels for total revenues and improvement in operating results for +2010. The Target performance levels reflected the revenue and operating performance objectives contained in our 2010 financial budget or operating plan. The operating performance improvement objectives also reflected the significant additional +investment we expected to make in our product and clinical development programs during 2010 . +26 +Table of Contents +The strategic objectives for 2010 consisted of the following: +(1) continued efforts to obtain FDA approval for our OraQuick ® HCV test and commercialize that product; +(2) continued efforts to complete clinical work for an OraQuick ® HIV OTC test; (3) initiation and +completion of development of a second generation rapid HIV test; and (4) expansion of business development activities. +The revenue objectives, the improvement in operating performance objectives, and the strategic objectives as a group, were each weighted +at 30%, 30% and 40%, respectively, in determining the level of bonus pool funding. The individual strategic objectives were each weighted by assigning potential points achievable at the Threshold, Target and Maximum performance levels. The following +sets forth the potential bonus pool funding at each performance level: +Threshold +Target +Maximum +Revenues +$77.0 million +$84.6 million +$90.0 million +Operating Performance Improvement +$1.0 million +$3.7 million +$7.0 million +Strategic Objectives (Points) +30 +60 +90 +Pool Funding +$895,000 +$1.78 million +$2.67 million +If the Company +were to achieve the Target performance levels for all objectives, then the bonus pool would be funded at approximately $1.78 million, which equals 100% of the aggregate target bonus amounts for the Company’s senior management participating in +the 2010 Incentive Plan. If the Company were to achieve only the Threshold levels, then the bonus pool would be funded at approximately $895,000 or 50% of the aggregate target bonus, and if the Company were to achieve the Maximum levels, then the +bonus pool would be funded at approximately $2.67 million or 150% of the aggregate target bonuses. The foregoing funding levels assume each participant is rated as “Meets Expectations” for their 2010 performance. +During 2010, the Company achieved revenues of $75.0 million, which fell below the Threshold performance level for this financial +objective. As a result, the Committee concluded that no pool funding should be approved for this objective. +During 2010, the +Company reported an operating loss of $3.34 million, which compared to an operating loss of $8.79 for 2009. As a result, the Committee concluded that operating performance for 2010 improved by $5.46 million, which fell between the Target and +Maximum performance levels and warranted a pro-rated bonus pool funding of $678,900 for this objective. +27 +Table of Contents +With respect to the strategic objectives, the Committee evaluated the Company’s 2010 +activities as meeting the following performance levels with the indicated point totals. +Strategic +Objective +2010 +Activities +Performance Level +Points +1. +OraQuick ® HCV Test +Successful completion of FDA pre-approval inspection and CLIA waiver study, FDA approval of whole blood claim and filing of PMA supplement for a fingerstick whole +blood claim. +Target +15 +2. +OraQuick ® HIV OTC Test +Completion of product label mitigation studies, receipt of investigational device exemption for final clinical study and enrollment of initial patients into final +clinical study. +Target +15 +3. Second Generation Rapid HIV Test +Completion of life cycle planning for this test and completion of product development through prototype and feasibility stages. +Maximum +25 +4. Business Development +Execution of private label supply and distribution agreement for rapid flu test manufactured by a third party. +Target +15 +Total Points +70 +As a result, the +Committee concluded that a total of 70 points out of a maximum of 90 available points should be awarded, resulting in a pro-rated funding for the strategic objectives as a group of $833,700. +Based on the foregoing, the total bonus pool funding determined by the Committee for 2010 performance was $1,750,000, which included +$237,400 in additional funding approved by the Committee in its discretion to recognize the Company’s many positive accomplishments during 2010 and to ensure sufficient bonus funding for participants rated above the “Meets +Expectations” level for 2010. The bonus pool amount was also approved by the full Board and was used to pay bonuses to the Company’s NEOs and eighteen other members of our management team. +The specific target percentages for individual bonus payments under the 2010 Incentive Plan are shown below and were set by the Committee +(with Board approval) at levels that the Committee believes are competitive with incentive cash bonus opportunities available at comparable medical diagnostic and healthcare companies for each executive position. +Title +Target Payouts +Chief Executive Officer +60 +% +Chief Financial Officer and Chief Operating Officer +50 +% +Executive Vice President +40 +% +Senior Vice President +35 +% +In January 2011, the +Committee authorized the payout of individual bonus awards to executive officers from the bonus pool for 2010, based on the target bonus amounts described above and an assessment of each officer’s performance during 2010 against pre-established +performance objectives. +In evaluating Mr. Michels, the Committee recognized that the Company’s $75.0 million in +revenues for 2010 fell below the Threshold level for the year. However, the Committee noted that the shortfall occurred primarily as a result of the continuing difficult economic environment and governmental funding challenges which significantly +impacted the Company’s customers, particularly in the U.S. public health and international +28 +Table of Contents +markets. The Committee also considered the substantial improvement in the Company’s operating performance despite the revenue shortfall, and the many positive accomplishments achieved during +2010, including the following: +· +Receipt of FDA approval of venous whole blood claim for OraQuick ® rapid HCV test; +· +Completion of CLIA waiver study and submission of a PMA supplement for fingerstick whole blood claim for OraQuick ® rapid HCV test; +· +Completion of label mitigation studies and receipt of IDE approval for final phase of clinical studies for an OraQuick ® HIV OTC test and initiation of that study; +· +Completion of full development of a second generation rapid HIV test that is ready for validation and transfer to manufacturing; +· +Successful completion of two reductions in force, substantial reorganization of the sales department to reduce costs and improve effectiveness, and +implementation of other cost reduction initiatives; +· +Execution of a private label supply and distribution agreement with Princeton BioMeditech for the OraSure QuickFlu™ Rapid Flu A+B Test, for +distribution in U.S. hospital and public health markets; +· +Successful validation and FDA approval of automated manufacturing for OraQuick ® HIV product; +· +Successful extension of +OraQuick ® HIV product shelf life to 24 months; +· +Maintenance of a greater than 72% institutional investor base and facilitation of additional analyst coverage, despite the continued difficult economic +environment and low stock price; and +· +Strengthening of our management team through the addition of a new Senior Vice President, Operations, Senior Vice President, Business Development and +Executive Vice President, Marketing and Sales. +Based on the foregoing, the Committee rated Mr. Michels +as an “Exceeds Expectations” and awarded Mr. Michels a $317,600 bonus for 2010, which represented 63.5% of his annual base salary compared to his target bonus of 60%. Mr. Michels’ 2010 incentive cash bonus was also approved +by the Board. +The Committee rated Mr. Spair’s performance for 2010 as “Exceeds Expectations” and awarded +him a bonus of $211,800, which represented 53% of his base salary compared to his target bonus of 50%. In reaching this determination, the Committee considered Mr. Spair’s successful maintenance of the Company’s institutional investor +base, his efforts to accelerate the Company’s business development activities, his ongoing supervision of the Company’s operations, his supervision of Sarbanes-Oxley compliance and preparation of SEC filings and public disclosures, and his +ongoing management of the financial planning, reporting and accounting functions. +The Committee rated +Dr. Lee’s performance for 2010 as “Meets Expectations” and awarded him a $118,600 bonus, which represented 33.9% of his base salary compared to his target of 40%. In reaching this determination, the Committee considered his +efforts to support ongoing OraQuick ® HCV clinical studies and regulatory submissions, his support of the ongoing +clinical development of an OraQuick ® HIV OTC test, his support of the clinical development of fully automated +homogeneous high throughput oral fluid drugs-of-abuse assays, his leadership in the development of a second generation rapid HIV test, his assistance in evaluating new technology platforms and business development opportunities, and his ongoing +support of manufacturing processes and operations. +The Committee rated Mr. Jerrett’s performance for 2010 as +“Meets Expectations” and awarded him a bonus of $81,500, which represented 29.6% of his base salary compared to his target of 35%. In reaching this determination, the Committee considered his successful handling of multiple commercial +issues across all of the Company’s business lines, his handling and supervision of various claims, disputes and litigation matters, his +29 +Table of Contents +oversight of intellectual property matters, his support of the Company’s business development efforts, his efforts to help prepare all SEC filings and other public disclosures, and his +ongoing advice and counsel to the Board and senior management. +Finally, the Committee rated Mr. Kuna’s performance +for 2010 as “Exceeds Expectations” and awarded him a bonus of $84,500, which represented 37.1% of his base salary compared to his target of 35%. In reaching this determination, the Committee considered his effective management of the +Company’s cash reserves during difficult economic conditions, his management of the financial reporting, accounting systems and internal controls over financial reporting, his oversight of the preparation of the Company’s financial +statements and SEC reporting, and his management of tax and Sarbanes-Oxley compliance. +2010 Equity Awards . The +amounts of potential equity awards to be granted in 2010 (expressed in number of shares) under the Stock Award Guidelines adopted by the Committee and Board for performance during 2009, are summarized below: +Performance Evaluation +Meets Expectations +Exceeds Expectations +Outstanding +Position +Restricted +Stock +Stock +Option +Restricted +Stock +Stock +Option +Restricted +Stock +Stock +Option +President/CEO +53,620 Shs +90,990 Shs +67,020 Shs +113,740 Shs +105,910 Shs +179,740 Shs +CFO/COO +43,440 Shs +73,720 Shs +54,160 Shs +91,910 Shs +64,880 Shs +110,110 Shs +EVP +21,450 Shs +36,400 Shs +26,820 Shs +45,490 Shs +32,170 Shs +54,610 Shs +SVP +14,300 Shs +24,260 Shs +17,870 Shs +30,350 Shs +21,450 Shs +36,380 Shs +In January 2010, +utilizing the Stock Award Guideline described above, the Committee approved stock option and restricted stock awards for the NEOs, based on the performance evaluations of such officers for 2009, as set forth below. A description of the basis for +each NEO’s 2009 performance evaluation is set forth above under the Section entitled, “2010 Annual Base Salaries,” in this Proxy Statement. Messrs. Michels and Spair received equity grants pro-rated between the “Meets +Expectations” and “Exceeds Expectations” levels in recognition of the many positive accomplishments by the Company during 2009. +Executive Officer +Performance Evaluation +Restricted Shares +Stock Options +Douglas A. Michels +Meets Expectations +60,320 Shs +102,365 Shs +Ronald H. Spair +Meets Expectations +48,800 Shs +82,815 Shs +Stephen R. Lee, Ph.D. +Exceeds Expectations +26,820 Shs +45,490 Shs +Jack E. Jerrett +Exceeds Expectations +17,870 Shs +30,350 Shs +Mark L. Kuna +Exceeds Expectations +17,870 Shs +30,350 Shs +Other Elements of Compensation . The Committee reviewed each other element of compensation set forth +in the Summary Compensation Table set forth below, and found them to be consistent with the Company’s compensation philosophy as described above. +30 +Table of Contents +Summary Compensation Table +The following table summarizes the compensation of our CEO and the other NEOs, for the years ended December 31, 2010, 2009 and 2008: +Name and +Principal Position +Year +Salary +($) +Bonus +($) +Stock +Awards 1 +($) +Option +Awards 2 +($) +Non-Equity +Incentive +Plan +Compen- +sation 3 +($) +Change in +Pension Value +and +Nonqualified +Deferred +Compensation +Earnings +($) +All +other +Compen- +sation 4 +($) +Total ($) +Douglas A. Michels +President and +Chief Executive Officer +2010 +$ +499,152 +— +$ +313,061 +$ +231,161 +$ +317,600 +— +$ +4,000 +$ +1,364,974 +2009 +$ +475,500 +— +$ +150,404 +$ +105,894 +$ +303,500 +— +$ +4,000 +$ +1,039,298 +2008 +$ +474,884 +— +$ +528,609 +$ +176,951 +$ +88,450 +— +$ +4,000 +$ +1,272,894 +Ronald H. Spair +2010 +$ +399,325 +— +$ +253,272 +$ +187,013 +$ +211,800 +— +$ +4,000 +$ +1,055,410 +Chief Financial Officer +and Chief Operating Officer +2009 +$ +380,500 +— +$ +121,849 +$ +85,795 +$ +202,500 +— +$ +4,000 +794,644 +2008 +$ +380,119 +— +$ +426,915 +$ +143,134 +$ +58,975 +— +$ +4,000 +$ +1,013,143 +Stephen R. Lee, Ph.D. +2010 +$ +349,533 +— +$ +139,196 +$ +102,726 +$ +118,600 +— +$ +4,000 +$ +714,055 +Executive Vice President, Research and Development +2009 +$ +336,500 +— +$ +60,167 +$ +42,362 +$ +158,500 +— +$ +4,000 +$ +601,529 +2008 +$ +335,969 +— +$ +211,444 +$ +70,781 +$ +41,725 +— +$ +4,000 +$ +663,919 +Jack E. Jerrett +2010 +$ +274,481 +— +$ +92,745 +$ +68,536 +$ +81,500 +— +$ +4,000 +$ +521,262 +Senior Vice President +and General Counsel +2009 +$ +260,000 +— +$ +40,112 +$ +28,234 +$ +107,000 +— +$ +4,000 +$ +439,346 +2008 +$ +259,804 +— +$ +112,770 +$ +37,750 +$ +28,200 +— +$ +4,000 +$ +442,524 +Mark L. Kuna +Senior Vice President +Finance, and Controller +2010 +$ +227,671 +— +$ +92,745 +$ +68,536 +$ +84,500 +— +$ +4,000 +$ +477,452 +(1) +The indicated amounts reflect the aggregate grant date fair value of restricted stock awards made to the NEOs during the applicable year under the Company’s Stock +Award Plan, computed in accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 718. Certain assumptions used in the calculation of those amounts are set forth for the applicable year of award in footnote 10 to the +Company’s audited financial statements for the year ended December 31, 2010, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 10, 2011 (the “2010 10-K Report”). +(2) +The values set forth in this column reflect the aggregate grant date fair value of stock option awards made to the NEOs during the applicable year under the Stock Award +Plan, computed in accordance with FASB ASC Topic 718. Certain assumptions used in the calculation of those amounts are set forth for the applicable year of award in footnote 10 to the Company’s audited financial statements for the year ended +December 31, 2010, included in the Company’s 2010 10-K Report. +(3) +The indicated amounts reflect incentive cash bonuses paid to the NEOs pursuant to an Incentive Plan, based on performance during the applicable year. For a description +of incentive cash bonus payments for performance during 2010, see the Section entitled, “2010 Incentive Cash Bonuses,” in the CD&A. +(4) +The indicated amounts reflect cash contributed to a 401(k) profit sharing plan as an employer-matching contribution, which was offered to all employees of the Company +during each of the indicated years. +31 +Table of Contents +Grants of Plan-Based Awards +The following table summarizes information concerning possible incentive cash bonuses and possible and actual restricted stock and stock +option awards for the NEOs during the fiscal year ended December 31, 2010 as well as possible payouts under the 2010 Incentive Plan: +Name +Grant +Date 1 +Estimated Possible Payouts +Under +Non-Equity Incentive +Plan Awards 2 +Estimated Possible Payouts Under +Equity Incentive Plan Awards 3 +All other +Stock +Awards: +Number +Of Shares +Of Stock +Or Units +(#) +All other +Option +Awards: +Number +Of Securities +Underlying +Options +(#) +Exercise +or Base +Price of +Option +Awards 4 +($/Sh) +Grant +Date Fair +Value +of +Stock and +Option +Awards 5 +($) +Threshold +($) +Target +($) +Maximum +($) +Threshold +(# Shs.) +Target +(# Shs.) +Maximum +(# Shs.) +Douglas A. Michels +1/25/10 +— +— +— +— +— +— +60,320 +— +$ +313,061 +President and Chief +1/25/10 +— +— +— +— +— +— +— +102,365 +$ +5.19 +$ +231,161 +Executive Officer +N/A +$ +150,000 +$ +300,000 +$ +450,000 +53,620 RS +67,020 RS +105,910 RS +— +— +— +N/A +N/A +— +— +— +90,990 SO +113,740 SO +179,740 SO +— +— +— +N/A +Ronald H. Spair +1/25/10 +— +— +— +— +— +— +48,800 +— +— +$ +253,272 +Chief Financial Officer and +1/25/10 +— +— +— +— +— +— +— +82,815 +$ +5.19 +$ +187,013 +Chief Operating Officer +N/A +$ +100,000 +$ +200,000 +$ +300,000 +43,440 RS +54,160 RS +64,880 RS +— +— +— +N/A +N/A +— +— +— +73,720 SO +91,910 SO +110,110 SO +— +— +— +N/A +Stephen R. Lee, Ph.D. +1/25/10 +— +— +— +— +— +— +26,820 +— +— +$ +139,196 +Executive Vice President, +1/25/10 +— +— +— +— +— +— +— +45,490 +$ +5.19 +$ +102,726 +Research and Development +N/A +$ +70,000 +$ +140,000 +$ +210,000 +21,450 RS +26,820 RS +32,170 RS +— +— +— +N/A +N/A +— +— +— +36,400 SO +45,490 SO +54,610 SO +— +— +— +N/A +Jack E. Jerrett +1/25/10 +— +— +— +— +— +— +17,870 +— +— +$ +92,745 +Senior Vice President +1/25/10 +— +— +— +— +— +— +— +30,350 +$ +5.19 +$ +68,536 +and General Counsel +N/A +$ +48,125 +$ +96,250 +$ +144,375 +14,300 RS +17,870 RS +21,450 RS +— +— +— +N/A +N/A +— +— +— +24,260 SO +30,350 SO +36,380 SO +— +— +— +N/A +Mark L. Kuna +1/25/10 +— +— +— +— +— +— +17,870 +— +— +$ +92,745 +Senior Vice President, +1/25/10 +— +— +— +— +— +— +— +30,350 +$ +5.19 +$ +68,536 +Finance and Controller +N/A +$ +39,900 +$ +79,800 +$ +119,700 +14,300 RS +17,870 RS +21,450 RS +— +— +— +N/A +N/A +— +— +— +24,260 SO +30,350 SO +36,380 SO +— +— +— +N/A +(1) +Annual equity incentive awards to NEOs, consisting of a combination of restricted stock (“RS”) and stock options (“SO”), were determined for 2010 +pursuant to the applicable Stock Award Guidelines, based on an evaluation of each officer’s performance during 2009 against previously established performance objectives. Annual equity awards made during 2010 were approved by the Compensation +Committee on January 25, 2010. For a description of these equity awards and their terms, see the Sections entitled, “Compensation Components – Equity Awards” and “2010 Equity Awards,” in the CD&A. +(2) +The indicated amounts represent possible incentive cash bonus payments to the NEOs under the 2010 Incentive Plan. On January 27, 2011, bonus payments under the +2010 Incentive Plan were approved by the Compensation Committee for the NEOs based on an assessment of the Company’s performance against certain financial and strategic objectives for 2010 and of each officer’s performance against +pre-established individual performance objectives. A further description of the payments approved under the 2010 Incentive Plan is set forth in the Section entitled, “2010 Incentive Cash Bonuses,” in the CD&A. Actual amounts paid for +2010 are also disclosed in the Summary Compensation Table. +(3) +The indicated amounts represent the possible number of shares which could have been granted to the NEOs in 2010 in the form of restricted stock and stock options +pursuant to the Stock Award Guidelines, based on each officer’s performance during 2009. Specific RS and SO awards were approved by the Compensation Committee for the NEOs on January 25, 2010 based on an assessment of each officer’s +performance against pre-established performance objectives for 2009. A further description of these equity awards and their terms is set forth in the Sections entitled, “Compensation Components – Equity Awards” and “2010 Equity +Awards,” in the CD&A. The values of the RS and SO awards during 2010 are disclosed in the Summary Compensation Table. +(4) +The exercise price for stock options is the fair market value of the Company’s Common Stock, which is calculated as the mean between the high and low sales price +of the Common Stock as reported by NASDAQ on the date of grant. +(5) +The indicated amounts represent the grant date fair value calculated in accordance with FASB ASC Topic 718. +32 +Table of Contents +Outstanding Equity Awards at Fiscal Year-End +The following table summarizes information regarding unexercised stock options and unvested restricted stock held by the NEOs at December +31, 2010: +Option Awards 1 +Stock Awards 1 +Name +Number of +Securities +Underlying +Unexercised +Options +(#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options 2 +(#) +Unexercisable +Equity +Incentive +Plan +Awards +Number +of +Securities +Underlying +Unexercised +Unearned +Options (#) +Option +Exercise +Price +($/Sh.) +Option +Expiration +Date +Number of +Shares or +Units of +Stock +That Have +Not +Vested 2 +(#) +Market +Value of +Shares or +Units +of +Stock +That +Have Not +Vested 8 +($) +Equity +Incentive +Plan +Awards: +Number of +Unearned +Shares, +Units +or +Other +Rights +That Have +Not +Vested (#) +Equity +Incentive +Plan +Awards: +Market +or Payout +Value of +Unearned +Shares, +Units or +Other +Rights +That +Have Not +Vested +($) +Douglas A. Michels +President and Chief +Executive Officer +400,000 +— +— +$ +7.77 +6/22/2014 +— +— +— +— +67,500 +— +— +$ +5.60 +1/26/2015 +— +— +— +— +67,500 +— +— +$ +9.56 +1/23/2016 +— +— +— +— +43,125 +1,875 +3 (a) +— +$ +8.28 +2/01/2017 +— +— +— +— +39,843 +16,407 +3 (b) +— +$ +8.06 +2/01/2018 +— +— +— +— +43,599 +47,391 +3 (c) +— +$ +2.81 +1/23/2019 +— +— +— +— +— +102,365 +3 (d) +— +$ +5.19 +1/25/2020 +— +— +— +— +— +— +— +— +— +90,720 +3 (e) +$ +521,640 +— +— +— +— +— +— +— +21,875 +3 (f) +$ +125,781 +— +— +— +— +— +— +— +35,746 +3 (g) +$ +205,540 +— +— +— +— +— +— +— +60,320 +3 (h) +$ +346,840 +— +— +Ronald H. Spair +Chief Financial Officer +and Chief Operating Officer +150,000 +— +— +$ +10.70 +11/1/2011 +— +— +— +— +65,000 +— +— +$ +5.87 +1/31/2012 +— +— +— +— +90,000 +— +— +$ +6.96 +1/31/2013 +— +— +— +— +100,000 +— +— +$ +8.20 +1/14/2014 +— +— +— +— +27,000 +— +— +$ +5.60 +1/26/2015 +— +— +— +— +27,000 +— +— +$ +9.56 +1/23/2016 +— +— +— +— +43,125 +1,875 +4 (a) +— +$ +8.28 +2/01/2017 +— +— +— +— +32,229 +13,271 +4 (b) +— +$ +8.06 +2/01/2018 +— +— +— +— +35,324 +38,396 +4 (c) +— +$ +2.81 +1/23/2019 +— +— +— +— +— +82,815 +4 (d) +— +$ +5.19 +1/25/2020 +— +— +— +— +— +— +— +— +— +17,666 +4 (e) +$ +101,580 +— +— +— +— +— +— +— +28,960 +4 (f) +$ +166,520 +— +— +— +— +— +— +— +48,800 +4 (g) +$ +280,600 +— +— +Stephen R. Lee, Ph.D. +Executive Vice President, +Research and Development +125,000 +— +— +$ +8.97 +9/23/2015 +— +— +— +— +18,000 +— +— +$ +9.56 +1/23/2016 +— +— +— +— +21,562 +938 +5 (a) +— +$ +8.28 +2/01/2017 +— +— +— +— +15,937 +6,563 +5 (b) +— +$ +8.06 +2/01/2018 +— +— +— +— +17,441 +18,959 +5 (c) +— +$ +2.81 +1/23/2019 +— +— +— +— +— +45,490 +5 (d) +— +$ +5.19 +1/25/2020 +— +— +— +— +— +— +— +— +— +8,750 +5 (e) +$ +50,313 +— +— +— +— +— +— +— +14,300 +5 (f) +$ +82,225 +— +— +— +— +26,820 +5 (g) +$ +154,215 +— +— +33 +Table of Contents +Option Awards 1 +Stock Awards 1 +Name +Number of +Securities +Underlying +Unexercised +Options +(#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options 2 +(#) +Unexercisable +Equity +Incentive +Plan +Awards +Number +of +Securities +Underlying +Unexercised +Unearned +Options (#) +Option +Exercise +Price +($/Sh.) +Option +Expiration +Date +Number of +Shares or +Units of +Stock +That Have +Not +Vested 2 +(#) +Market +Value of +Shares or +Units +of +Stock +That +Have Not +Vested 8 +($) +Equity +Incentive +Plan +Awards: +Number of +Unearned +Shares, +Units +or +Other +Rights +That Have +Not +Vested (#) +Equity +Incentive +Plan +Awards: +Market +or Payout +Value of +Unearned +Shares, +Units or +Other +Rights +That +Have Not +Vested +($) +Jack E. Jerrett +Senior Vice President +and General Counsel +30,000 +— +— +$ +5.87 +1/31/2012 +— +— +— +— +40,000 +— +— +$ +6.96 +1/31/2013 +— +— +— +— +40,000 +— +— +$ +8.20 +1/14/2014 +— +— +— +— +15,000 +— +— +$ +5.60 +1/26/2015 +— +— +— +— +18,000 +— +— +$ +9.56 +1/23/2016 +— +— +— +— +11,500 +500 +6 (a) +— +$ +8.28 +2/01/2017 +— +— +— +— +8,500 +3,500 +6 (b) +— +$ +8.06 +2/01/2018 +— +— +— +— +11,624 +12,636 +6 (c) +— +$ +2.81 +1/23/2019 +— +— +— +— +— +30,350 +6 (d) +— +$ +5.19 +1/25/2020 +— +— +— +— +— +— +— +— +— +4,666 +6 (e) +$ +26,830 +— +— +— +— +— +— +— +9,533 +6 (f) +$ +54,815 +— +— +— +— +— +— +— +17,870 +6 (g) +$ +102,753 +— +— +Mark L. Kuna +15,000 +— +— +$ +5.87 +1/31/2012 +— +— +— +— +Senior Vice President, +Finance and Controller +25,000 +— +— +$ +6.96 +1/31/2013 +— +— +— +— +25,000 +— +— +$ +8.20 +1/14/2014 +— +— +— +— +11,250 +— +— +$ +5.60 +1/26/2015 +— +— +— +— +11,250 +— +— +$ +9.56 +1/23/2016 +— +— +— +— +14,375 +625 +7 (a) +— +$ +8.28 +2/01/2017 +— +— +— +— +10,625 +4,375 +7 (b) +— +$ +8.06 +2/01/2018 +— +— +— +— +14,543 +15,807 +7 (c) +— +$ +2.81 +1/23/2019 +— +— +— +— +— +30,350 +7 (d) +— +$ +5.19 +1/25/2020 +— +— +— +— +— +— +— +— +— +5,833 +7 (e) +$ +33,540 +— +— +— +— +— +— +— +11,913 +7 (f) +$ +68,500 +— +— +— +— +— +— +— +17,870 +7 (g) +$ +102,753 +— +— +(1) +The indicated information does not include restricted stock or stock options awarded to the NEOs in February 2011 pursuant to the applicable Stock Award Guidelines, in +respect of performance during 2010. +(2) +Stock options vest over four years, with the first 25% vesting on the first anniversary of the grant date and the remaining 75% vesting on a monthly basis over the next +three years following the first anniversary of the grant date. Grants of restricted stock vest over a three-year period, with one-third vesting on the first anniversary of the grant date, a second third vesting on the second anniversary and the +final third vesting on the third anniversary. +(3) +The indicated stock options and restricted stock vest as follows: +(a) +937 options on January 1 and February 1, 2011; +(b) +1,172 options on the +1 st of each month, from January 1, 2011 through +February 1, 2012; +(c) +1,895 options on the +23 rd of each month, from January 23, 2011 through +January 23, 2013; +(d) +25,591 options on January 25, 2011 and 2,133 options on the 25 th of each month, from February 25, 2011 through January 25, 2014; +(e) +6,480 restricted shares quarterly on March 31, June 30, September 30 and December 31 of each year; from March 31, 2011 through +June 30, 2014; +(f) +21,875 restricted shares on February 1, 2011; +34 +Table of Contents +(g) +17,873 restricted shares on January 23, 2011 and 2012; and +(h) +20,107 restricted shares on January 25, 2011, 2012 and 2013. +(4) +The indicated stock options and restricted stock vest as follows: +(a) +937 options on January 1 and February 1, 2011; +(b) +948 options on the +1 st of each month from January 1, 2011 through +February 1, 2012; +(c) +1,536 options on the +23 rd of each month, from January 23, 2011 through +January 23, 2013; +(d) +20,704 options on January 25, 2011 and 1,725 options on the 25 th of each month, from February 25, 2011 through January 25, 2014; +(e) +17,666 restricted shares on February 1, 2011; +(f) +14,480 restricted shares on February 1, 2011 and 2012; and +(g) +16,267 restricted shares on January 25, 2011, 2012 and 2013. +(5) +The indicated stock options and restricted stock vest as follows: +(a) +469 options on January 1 and February 1, 2011; +(b) +469 options on the +1 st of each month, from January 1, 2011 through +February 1, 2012; +(c) +758 options on the +23 rd of each month from January 23, 2011 through +January 23, 2013; +(d) +11,373 options on January 25, 2011 and 948 options on the 25 th of each month, from February 25, 2011 through January 25, 2014; +(e) +8,750 restricted shares on February 1, 2011; +(f) +7,150 restricted shares on February 1, 2011 and 2012; and +(g) +8,940 restricted shares on January 25, 2011, 2012 and 2013. +(6) +The indicated stock options and restricted stock vest as follows: +(a) +250 options on January 1 and February 1, 2011; +(b) +250 options on the +1 st of each month, from January 1, 2011 through +February 1, 2012; +(c) +505 options on the +23 rd of each month from January 23, 2011 through +January 23, 2013; +(d) +7,588 options on January 25, 2011 and 632 options on the 25 th of each month, from February 25, 2011 through January 25, 2014; +(e) +4,666 restricted shares on February 1, 2011; +(f) +4,667 restricted shares on February 1, 2011, and 2012; and +(g) +5,957 restricted shares on January 25, 2011, 2012 and 2013. +(7) +The indicated stock options and restricted stock vest as follows: +(a) +313 options on January 1 and February 1, 2011; +(b) +313 options on the +1 st of each month, from January 1, 2011 through +February 1, 2012; +(c) +632 options on the +23 rd of each month from January 23, 2011 through +January 23, 2013; +(d) +7,588 options on January 25, 2011 and 632 options on the 25 th of each month, from February 25, 2011 through January 25, 2014; +(e) +5,833 restricted shares on February 1, 2011; +(f) +5,957 restricted shares on February 1, 2012, and 2013; and +(g) +5,957 restricted shares on January 25, 2011, 2012 and 2013. +(8) +The indicated values were determined by multiplying the number of unvested shares of restricted stock shown in this table by $5.75 per share, the closing price of the +Company’s Common Stock as reported by NASDAQ on December 31, 2010. +35 +Table of Contents +Option Exercises and Stock Vested +The following table summarizes information with respect to the exercise of stock options and vesting of restricted stock for each of the +NEOs during the fiscal year ended December 31, 2010: +Option Awards 1 +Stock Awards +Name +Number +of +Shares +Acquired +on Exercise +(#) +Value +Realized +on +Exercise +($) +Number Of +Shares +Acquired +on Vesting +(#) +Value +Realized +on +Vesting 2 +($) +Douglas A. Michels +President and Chief Executive Officer +— +— +83,169 +$ +433,962 +Ronald H. Spair +Chief Financial Officer and Chief Operating Officer +— +— +49,647 +$ +261,009 +Stephen R. Lee, Ph.D. +Executive Vice President, Research and Development +— +— +24,650 +$ +129,596 +Jack E. Jerrett +Senior Vice President and General Counsel +— +— +14,100 +$ +74,066 +Mark L. Kuna +Senior Vice President, Finance and Controller +17,623 +$ +92,572 +(1) +No stock options were exercised by any of the NEOs during 2010. +(2) +The indicated amounts were calculated by multiplying the number of restricted shares acquired upon vesting by the market value of the Company’s Common Stock on the +applicable vesting date. The market value was determined by calculating the mean between the high and low sales price of the Common Stock as reported by NASDAQ on the vesting date. +Pension Benefits +We provide no pension benefits to the NEOs other than the right to participate in our 401(k) Plan. For a further description of the terms of the 401(k) Plan, see the Section entitled, “Compensation +Components – Retirement Programs,” in the CD&A. +Nonqualified Deferred Compensation +None of the NEOs has received any nonqualified deferred compensation during the fiscal year ended December 31, 2010. +Employment Agreements and Potential Payments Upon Termination or Change in Control +Mr. Michels has an employment agreement with the Company that provides for the various components of compensation described in the +CD&A. In addition, upon a termination of employment, Mr. Michels’ contract provides for certain post-employment severance and other benefits, as described below. +Mr. Michels’ employment agreement will terminate upon his death or disability. In addition, Mr. Michels may terminate his employment at any time and for any reason upon 90 days written +notice to the Company, for “good reason” (as defined below), or following a “change in control” (as defined below). Mr. Michels’ employment agreement can also be terminated by the Company for “cause” (as +defined below) or without “cause.” +36 +Table of Contents +As used in the agreement, the term “good reason” means (i) a material breach +of the agreement by the Company that is not cured within 30 days of written notice, (ii) any diminution in Mr. Michels’ base compensation or authority, duties or responsibilities, (iii) a material diminution in the authority, +duties or responsibilities of the person to whom Mr. Michels reports, including a change in Mr. Michels’ reporting obligation from the Board to another employee of the Company, if applicable, (iv) a material diminution of the +budget over which Mr. Michels exercises control, or (v) a material change in Mr. Michels’ job location. +A +“change in control” generally is defined to take place when disclosure of such a change would be required by the proxy rules promulgated by the SEC or when: +· +any person, or more than one person acting as a group within the meaning of Section 409A of the Internal Revenue Code (the “Code”) and +the regulations issued thereunder, acquires ownership of stock of the Company that, together with stock held by such person or group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of the Company; +· +any person, or more than one person acting as a group within the meaning of Code Section 409A and the regulations issued thereunder, acquires (or +has acquired during the 12-month period ending on the date of the most recent acquisition) ownership of stock of the Company possessing 30 percent or more of the total voting power of the Company’s stock; +· +a majority of the members of the Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority +of the members of the Board before the date of the appointment or election; or +· +a person, or more than one person acting as a group within the meaning of Code Section 409A and the regulations issued thereunder, acquires (or +has acquired during the 12-month period ending on the date of the most recent acquisition) assets from the Company that have a total gross fair market value equal to or more than 40 percent of the total gross fair market value of all the assets of +the Company immediately before such acquisition or acquisitions. +A “change in control period” is the period which +begins on the occurrence of a change in control and ends 18 months thereafter. +Upon the termination of Mr. Michels’ +employment upon his death or disability, by Mr. Michels for any reason other than good reason or by the Company for cause, Mr. Michels will be entitled to receive his salary through the date of termination and any bonus approved by the +Board or the Compensation Committee prior to the date of termination but not yet paid and, in the case of a termination upon his death or disability, a cash bonus for the calendar year in which termination occurs that Mr. Michels would have +received but for his death or disability, prorated through the date of death or commencement of disability. Upon termination of the agreement by Mr. Michels with good reason or after a change in control or by the Company without cause (which +includes the Company’s failure to renew the agreement), Mr. Michels would be entitled to receive his salary through the date of termination and any bonus that has been approved by the Board or the Compensation Committee prior to the date +of termination but not yet paid, a cash bonus for the calendar year in which termination occurs equal to Mr. Michels’ target bonus for such year, and for a period of one year after the date of termination, benefits for Mr. Michels +and/or his family at levels substantially equal to those that would have been provided to them by the Company if Mr. Michels’ employment had not been terminated. If termination is for good reason or without cause (which includes the +Company’s failure to renew the agreement) and does not occur during a change in control period, Mr. Michels would also receive a lump sum amount equivalent to 12 months of his annual salary. If, however, termination is for good reason or +without cause (which includes the Company’s failure to renew the agreement) and occurs during a change in control period, or if termination is by Mr. Michels after a change in control, Mr. Michels will receive a lump sum amount +equivalent to 36 months of his annual salary. If Mr. Michels is a “specified employee” within the meaning of Code Section 409A at the time of the termination of his employment and any of the foregoing payments would subject him +to any tax, interest or penalty under +37 +Table of Contents +Code Section 409A or regulation thereunder, then the payment shall not be made until the first day which is at least six months after the date of termination of his employment. +Mr. Michels’ agreement also provides that the Company will pay an amount equal to the first $1 million of excise tax incurred under Section 280G of the Internal Revenue Code on compensation paid to Mr. Michels upon a change in +control. +Upon termination of Mr. Michels’ employment as a result of disability, for good reason, by the Company +without cause or by Mr. Michels after a change of control, Mr. Michels can elect to receive medical and dental insurance coverage for himself and his family under any plans offered by the Company to the extent the Company is self insured +or coverage for former employees is available on reasonable terms (as determined by the Company) from the Company’s providers of medical and dental coverage. +All stock awards granted to Mr. Michels are required to immediately vest (i) in the event of a change in control or (ii) if Mr. Michels’ employment is terminated for good reason +by Mr. Michels or by the Company without cause during a change in control period, and 50% of such stock awards shall vest in the event Mr. Michels’ employment is terminated for good reason or by the Company without cause during any +period other than a change in control period. +The termination and severance provisions in the employment agreements for the +other NEOs are substantially similar to Mr. Michels’ employment agreement, with the following exceptions. The Company is obligated to pay an amount up to the first $500,000, rather than $1 million, of excise tax imposed under +Section 280G of the Internal Revenue Code on compensation paid as a result of a change in control for Messrs. Spair, Jerrett, Kuna and Dr. Lee. Messrs. Jerrett, Kuna and Dr. Lee are entitled to receive severance payments equivalent to +24 months of their annual salary, rather than 36 months, in the event of a termination of their agreements for good reason or without cause during a change in control period or after a change in control. +38 +Table of Contents +The following table provides estimates of the potential severance and other post-termination +benefits the NEOs would receive assuming their employment was terminated as of December 31, 2010: +Name +Benefit +Voluntary +Termination +or +Termination +for Cause +Termination +for Death +or +Disability 1 +Termination +for Good +Reason or +Without +Cause Not +Within +Change +in +Control +Period 1 +Termination after +Change in +Control, or for +Good Reason or +Without +Cause +Within Change in +Control Period 1,2 +Douglas A. Michels +President and Chief +Executive Officer +Salary Continuation +— +— +$ +500,000 +$ +1,500,000 +Bonus +— +$ +317,600 +$ +300,000 +$ +300,000 +Accelerated Option Vesting +— +— +$ +98,445 +$ +196,891 +Accelerated Restricted Stock Vesting +— +$ +1,199,801 +$ +599,900 +$ +1,199,801 +Health Care Benefits +— +— +$ +15,564 +$ +15,564 +Total +— +$ +1,517,401 +$ +1,513,909 +$ +3,212,256 +Ronald H. Spair +Chief Financial +Officer and Chief Operating Officer +Salary Continuation +— +— +$ +400,000 +$ +1,200,000 +Bonus +— +$ +211,800 +$ +200,000 +$ +200,000 +Accelerated Option Vesting +— +— +$ +79,726 +$ +159,453 +Accelerated Restricted Stock Vesting +— +$ +548,700 +$ +274,350 +$ +548,700 +Health Care Benefits +— +— +$ +12,101 +$ +12,101 +Total +— +$ +760,500 +$ +966,177 +$ +2,120,254 +Stephen R. Lee, Ph.D. +Executive Vice +President, Research and Development +Salary Continuation +— +— +$ +350,000 +$ +700,000 +Bonus +— +$ +118,600 +$ +140,000 +$ +140,000 +Accelerated Option Vesting +— +— +$ +40,654 +$ +81,309 +Accelerated Restricted Stock Vesting +— +$ +286,753 +$ +143,376 +$ +286,753 +Health Care Benefits +— +— +$ +11,701 +$ +11,701 +Total +— +$ +405,353 +$ +685,731 +$ +1,219,763 +Jack E. Jerrett +Senior Vice President +and General Counsel +Salary Continuation +— +— +$ +275,000 +$ +550,000 +Bonus +— +$ +81,500 +$ +96,250 +$ +96,250 +Accelerated Option Vesting +— +— +$ +27,105 +$ +54,209 +Accelerated Restricted Stock Vesting +— +$ +184,397 +$ +92,198 +$ +184,397 +Health Care Benefits +— +— +$ +11,791 +$ +11,791 +Total +— +$ +265,897 +$ +502,344 +$ +896,647 +Mark L. Kuna +Senior Vice President, +Finance and Controller +Salary Continuation +— +— +$ +228,000 +$ +456,000 +Bonus +— +$ +84,500 +$ +79,800 +$ +79,800 +Accelerated Option Vesting +— +— +$ +31,774 +$ +63,548 +Accelerated Restricted Stock Vesting +— +$ +204,792 +$ +102,396 +$ +204,792 +Health Care Benefits +— +— +$ +15,012 +$ +15,012 +Total +— +$ +289,292 +$ +456,982 +$ +819,152 +(1) +The indicated values for the accelerated vesting of stock options reflect (i) the number of option shares which would vest on an accelerated +basis, multiplied by (ii) the excess, if any, of the $5.75 per share closing price for the Company’s Common Stock, as reported by NASDAQ on December 31, 2010, over the applicable exercise price for each option. The indicated values +for the accelerated vesting of restricted stock +39 +Table of Contents +reflect the $5.75 per share closing price multiplied by the number of shares which would vest on an accelerated basis. +(2) +The Company will also pay the excise tax incurred under Section 280G of the Internal Revenue Code on compensation paid to the NEOs in the event of a change in +control in an amount up to $1 million for Mr. Michels and $500,000 for the other NEOs. +2010 +Director Compensation +During 2010, non-employee members of the Board of Directors (the “Board”) received fixed +annual fees for service on the Board and for service on Committees of the Board, as set forth below. The fees were paid quarterly in arrears. +Position +Annual Fee +Board Chairman +$ +60,000 +Non-Chairman Board Member +$ +40,000 +Audit Chairman +$ +18,000 +Compensation Chairman +$ +15,000 +N&CG Chairman +$ +8,000 +Non-Chairman Audit Member +$ +8,000 +Non-Chairman Compensation Member +$ +5,000 +Non-Chairman N&CG Member +$ +3,000 +Each non-employee +Director also received an annual grant of 15,000 restricted shares (the “Annual Grant”) on the annual equity grant date for officers and other employees of the Company, except for the Chairman of the Board, who received an Annual Grant of +25,000 restricted shares. +Annual Grants generally vest twelve (12) months after the date of grant and will also vest +immediately upon the occurrence of a change in control of the Company. A change in control of the Company would occur on the happening of such events as the acquisition of beneficial ownership by a person or group of 30 percent or more of the +outstanding Common Stock of the Company, certain changes in Board membership affecting a majority of positions, certain mergers or consolidations, a sale or other transfer of all or substantially all of the Company’s assets, or the liquidation +or dissolution of the Company, as well as any change in control required to be reported under the SEC’s proxy disclosure rules. Non-employee Directors are permitted to direct the Company to withhold restricted shares in order to pay tax +withholding obligations arising upon the vesting of such shares. +The following table summarizes information related to +compensation of non-employee Directors during the fiscal year ended December 31, 2010: +Name 1, +2 +Fees +Earned +or Paid +in +Cash +($) +Stock +Awards 3 +($) +Option +Awards +($) +Non-Equity +Incentive +Plan +Compensation +($) +Change in +Pension +Value +and +Nonqualified +Deferred +Compensation +Earnings +All +Other +Compensation +($) +Total ($) +Michael Celano +$ +62,000 +$ +77,850 +— +— +— +— +$ +139,850 +Jack Goldstein, Ph.D. +$ +63,000 +$ +77,850 +— +— +— +— +$ +140,850 +Ronny B. Lancaster +$ +54,000 +$ +77,850 +— +— +— +— +$ +131,850 +Charles W. Patrick +$ +52,000 +$ +77,850 +— +— +— +— +$ +129,850 +Roger L. Pringle +$ +50,000 +$ +77,850 +— +— +— +— +$ +127,850 +Stephen S. Tang, Ph.D. (4) +— +— +— +— +— +— +— +Douglas G. Watson +$ +74,000 +$ +129,750 +— +— +— +— +$ +203,750 +(1) +Because Messrs. Michels and Spair are officers of the Company, they are not entitled to any separate compensation for service on the Board or any Committee thereof and +have not been included in this table. +40 +Table of Contents +(2) +Non-employee Directors held the following number of restricted shares (“RSs”) and stock options (“SOs”) at December 31, 2010: Mr. Celano: +15,000 RSs; 70,000 SOs; Dr. Goldstein: 15,000 RSs; 70,000 SOs; Mr. Lancaster: 15,000 RSs; 130,000 SOs; Mr. Patrick: 15,000 RSs; 70,000 SOs; Mr. Pringle: 15,000 RSs; 255,552 SOs; and Mr. Watson: 25,000 RSs; 240,000 SOs. The +aggregate number of stock options and restricted shares held by Messrs. Michels and Spair are set forth in the table in the Section entitled, “Outstanding Equity Awards at Fiscal Year-End,” in this Proxy Statement. +(3) +The indicated amounts reflect the aggregate grant date fair value of restricted stock awards made to non-employee Directors during 2010 under the Stock Award Plan, +computed in accordance with FAS ASC Topic 718. Certain assumptions used in the calculation of those amounts are set forth in footnote 10 to the Company’s audited financial statements for the fiscal year ended December 31, 2010, included in +the Company’s 2010 10-K Report. This column does not include the value of restricted stock awarded to non-employee Directors in February 2011. +(4) +Dr. Tang did not become a member of the Board until April 2011 and, therefore, did not receive any compensation during 2010 and held no restricted shares or stock +options as of December 31, 2010. +Compensation Committee Interlocks and Insider Participation +Jack Goldstein, Ph.D., Roger L. Pringle, Ronny B. Lancaster and Douglas G. Watson served as members of the Compensation +Committee of the Board during 2010. None of Dr. Goldstein, Mr. Pringle, Mr. Lancaster or Mr. Watson has served or is currently serving as an officer or employee of the Company, nor have they engaged in any transactions involving +the Company which would require disclosure as a transaction with a related person. There are no compensation committee interlocks between the Company and any other entity involving the Company’s or such entity’s executive officers or board +members. +Compensation Risk Assessment +Management conducted a risk assessment of the Company’s compensation policies and practices, including its executive compensation +program. In its review, management considered the attributes of the Company’s policies and practices and other factors, including: +· +The mix of fixed and variable compensation opportunities; +· +The balance between annual and long-term performance opportunities; +· +The corporate and individual performance objectives established for annual and long-term incentive compensation; +· +The internal controls and procedures in place to mitigate risks facing the Company; and +· +The risk that unintended consequences could result from various aspects of the Company’s compensation policies and practices. +Based on its review and assessment, management concluded that the Company’s policies and practices are +designed with the appropriate balance of risk and reward in relation to the Company’s overall business strategy and do not incentivize employees to take unnecessary or excessive risks. The Company also concluded that any risks arising from the +Company’s compensation policies and practices are not reasonably likely to have a material adverse affect on the Company. +41 +Table of Contents +Compensation Committee Report +The information contained in this report shall not be deemed to be “soliciting material” or “filed” for purposes of +Section 18 of the Exchange Act, or otherwise subject to the liabilities of that Section. This report shall not be deemed to be “ incorporated by reference” into any document filed under the Securities Act of 1933, as amended, or +the Exchange Act, whether such filing occurs before or after the date hereof, regardless of any general incorporation language in such filing. +The Compensation Committee of OraSure Technologies, Inc. has reviewed and discussed with the Company’s management the Section entitled, “Compensation Discussion and Analysis,” contained in +this Proxy Statement. Based on that review and discussion, the Compensation Committee recommended to the Company’s Board of Directors that the foregoing Compensation Discussion and Analysis be included in the Company’s 2010 10-K Report and +Proxy Statement for the 2011 Annual Meeting of Stockholders. +COMPENSATION COMMITTEE: +Jack Goldstein, Ph.D., Chairman +Ronny B. Lancaster +Roger L. Pringle +Douglas G. Watson +March 30, 2011 +ITEM 3. +Non-Binding Advisory Vote on Executive Compensation +Background +Section 14A of the Exchange Act, enacted pursuant to the +Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), requires that stockholders be given the opportunity to vote to approve, on a non-binding advisory basis, no less frequently than once every three years, +the compensation of our NEOs. The vote on this resolution is not intended to address any specific element of compensation, but rather relates to the overall compensation of our NEOs. As described more fully under the Section entitled, +“Executive Compensation,” including the CD&A and the related tables and narrative, our compensation program is designed to pay executives for performance by offering rewards for the achievement of pre-determined financial and strategic +performance objectives. In addition, our program is designed to align the interests of executives with the interests of our stockholders, provide long-term incentives and set compensation at levels sufficiently competitive to attract and retain high +quality executives and to motivate them to contribute to our success. +Compensation Program Highlights +You are urged to carefully review the “Executive Compensation” section of this Proxy Statement which contains a detailed +discussion of our executive compensation program, including the 2010 compensation of our NEOs. We believe our compensation program follows sound corporate governance principles and is strongly aligned with the interests of our stockholders. +Highlights of our compensation programs include the following: +· +The Company’s compensation focuses on performance, with annual base salary accounting for approximately 37% to 53% of the target compensation +opportunity for our NEOs in 2010. The remainder of their total compensation opportunity is primarily comprised of variable or “at-risk” compensation consisting of incentive cash bonuses and long-term equity awards which are awarded to +executives based on the achievement of both Company and individual performance objectives. +· +The Compensation Committee monitors the Company’s performance and adjusts compensation accordingly. For example, our executives received no salary +increases and incentive cash bonuses were +42 +Table of Contents +substantially reduced as a result of the Company’s lower than expected financial performance during 2008. In fact, for 2008, Mr. Michels’ bonus was 18.6% of his annual base salary +compared to his target of 60%, and Mr. Spair’s bonus was 15.5% of his base salary compared to his target of 50%. +· +Equity awards for executives consist of a mix of restricted stock and stock options. For performance during 2009, executives received awards in 2010 +consisting of 60% restricted stock and 40% stock options. In order to make equity awards more performance-based, the Compensation Committee adjusted the equity program so that the portion represented by stock options increased to 50% for awards +based on performance during 2010 and to 60% for awards based on performance during 2011. +· +Our executives receive equity awards subject to long-term vesting requirements. Stock option awards generally vest over four years and restricted stock +awards generally vest over three years. We believe these awards ensure that a significant portion of the executive’s compensation is tied to the long-term success of the Company, consistent with the interests of our stockholders. +· +We have adopted a policy that any new employment agreement executed with an executive will not provide for the gross-up of excise tax obligations under +Section 280G of the Internal Revenue Code or a “modified single trigger” under which the executive can voluntarily leave the Company after a change of control and receive severance even though there has been no adverse impact on the +executive’s compensation or level of responsibilities. +· +The Compensation Committee regularly utilizes an independent compensation consultant to review our compensation program and provide a competitive +assessment of the compensation paid to our executives and the non-employee members of the Board. +· +The Compensation Committee regularly assesses the Company’s compensation program against peer companies consisting of medical diagnostics and +healthcare companies that are comparable to the Company. During 2010, the Committee approved the use of a smaller peer group that is targeted to be more similar to the Company’s business model. +· +We target total compensation (consisting of annual base salary, incentive cash bonuses and long-term incentive equity grants) for executives at the +median or 50 th percentile of a peer group of companies +with an opportunity to earn up to the 75 th percentile +based on performance. +· +The Company does not provide its executives with any perquisites. Our executives are eligible to participate in the same retirement and benefit plans +offered to all other employees. +· +The Company has implemented an annual process to assess the risks associated with our compensation programs. +Vote Required; Board Recommendation +If a quorum is present, the non-binding advisory approval of the executive compensation described in this Proxy Statement requires the affirmative vote of a majority of shares present, in person or by +Proxy and entitled to vote at the Annual Meeting. Shares voted in person or represented by Proxy which are not voted for approval of our executive compensation (by voting no or abstaining) will have the effect of voting against this proposal. Broker +non-votes will not count toward the determination of whether this proposal is approved and will have no impact on the vote. In the absence of instructions to the contrary, shares of Common Stock represented by properly executed Proxies will be voted +for approval of our executive compensation, as disclosed in this Proxy Statement. Because this stockholder vote is advisory, it will not be binding on the Company or the Board of Directors. However, the Compensation Committee and Board will take +into account the outcome of the vote when considering future executive compensation programs and arrangements. +43 +Table of Contents +Based on the foregoing, the Board is requesting that stockholders vote on the following +resolution: +RESOLVED , that the compensation paid to the Company’s named executive officers, as disclosed in the +Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby APPROVED. +Your Board +recommends that the stockholders vote FOR the approval of our executive compensation as described in the preceding resolution. +ITEM 4. +Non-Binding Advisory Vote on Frequency of Future Advisory Votes on Executive Compensation +Background +Section 14A of the Exchange Act, added under the +Dodd-Frank Act, also requires us to provide our stockholders with an opportunity to cast a separate non-binding advisory vote on the frequency of future advisory votes on executive compensation as set forth in Item 3, above. By casting your +vote, you may indicate whether you would prefer to have an opportunity to vote on our executive compensation annually, every two years, or every three years. You also have the option to abstain from voting on this matter. +For a number of reasons, the Board believes that stockholders should select a frequency of every three years (“triennial +vote”): +· +A triennial vote will encourage a long-term approach to evaluating our executive compensation program, consistent with the Company’s desire to +create stockholder value. As described in the CD&A, one of the core principles of our compensation program is to ensure that the executives’ interests are aligned with the interests of our stockholders. Consequently, we grant equity awards +and fund annual incentive cash bonuses based, in substantial part, on strategic objectives in order to focus our executives on the Company’s long-term performance. A triennial vote would allow stockholders to evaluate our executive compensation +program over a similar time frame and in relation to the Company’s long-term performance. +· +A triennial vote is necessary to provide sufficient time for us to thoughtfully and fully evaluate our compensation program and respond to stockholder +concerns, if any. The Compensation Committee generally makes changes to our compensation programs near the end of a year, but any change would typically be implemented in the following year. Thus, a change in year one would be effective in year two +and the Committee would see the results from those changes most likely in year two or year three. Thus, holding a non-binding advisory vote on executive compensation more frequently than every two or three years would not allow the Board, the +Compensation Committee or our stockholders sufficient time to fully assess our executive compensation program against our performance. +· +A triennial vote will allow adequate time for the Company to collect meaningful input from stockholders on our compensation program and respond +appropriately. Engagement with our stockholders is important, and we are open to input from our stockholders regarding governance matters as well as our executive compensation program. Allowing additional time between non-binding advisory votes on +executive compensation will allow both the Company and stockholders to engage in more thoughtful and constructive dialog on why particular components of compensations are or are not appropriate for the Company. +44 +Table of Contents +Vote Required; Board Recommendation +Approval of a specific frequency requires the affirmative vote of a majority of shares present, in person or by Proxy and entitled to vote +at the Annual Meeting. If none of the frequency alternatives receives a majority vote, we will consider the highest number of votes cast by stockholders to be the frequency that has been selected by stockholders. However, because this vote is +advisory and not binding on the Board or the Company, the Board may decide that it is in the best interests of our stockholders and the Company to hold an advisory vote on executive compensation more or less frequently than the option receiving the +highest vote total from our stockholders. +Your Board recommends that stockholders select THREE YEARS as the recommended +frequency of future non-binding advisory votes on executive compensation. +ITEM 5. +Amendment and Restatement of OraSure Technologies, Inc. Stock Award Plan +General +On November 16, 1999, the Board of Directors of Epitope +adopted, subject to stockholder approval, the Epitope, Inc. 2000 Stock Award Plan (the “Award Plan”). The Award Plan was approved by Epitope’s stockholders on February 15, 2000. The Award Plan initially authorized for award a +maximum of 2,500,000 shares of common stock of Epitope, plus the number of shares that were available for grant under the Epitope, Inc. 1991 Stock Award Plan on February 15, 2000, and such additional shares that become available under the terms +of the Award Plan thereafter. +Effective September 29, 2000, in connection with the merger of Epitope and STC +Technologies into the Company, the name of the Award Plan was changed to the OraSure Technologies, Inc. 2000 Stock Award Plan and the Award Plan was adopted as a stock award plan of the Company. All options granted under the Award Plan prior to the +merger were assumed by and became obligations of the Company. +The Board has approved and recommended for submission to +stockholders several amendments to the Award Plan including an increase in the number of shares of Common Stock authorized for grant under the Award Plan. A description of the proposed amendments and terms of the Award Plan as amended and restated, +is set forth below. +Amendment to the Award Plan +Under the terms of the Award Plan, as of March 28, 2011, there were: +(a) +47,494,896 shares of the Company’s Common Stock outstanding; +(b) +1,112,385 shares of the Company’s Common Stock remaining available for grant under the Award Plan as stock options or other equity awards; +(c) +6,276,650 stock options issued and outstanding, with a weighted-average exercise price of $6.85 per share and a weighted average remaining contractual term of 5.94 +years; and +(d) +934,956 restricted shares issued and unvested, with a weighted-average grant date fair value of $5.96 per share. +In order to enable the Company to continue to attract qualified directors, officers, employees and outside advisors and to compensate its +directors, officers, employees and advisors in a manner that is competitive with compensation provided by other medical diagnostic companies, the Board determined that additional shares of Common Stock would need to be authorized for grants under +the Award Plan. In addition, the Board wants to ensure that sufficient shares are available if needed to provide retention or other equity awards in connection with potential acquisitions or other business development activities. +45 +Table of Contents +Accordingly, subject to stockholder approval, the Board approved the amended and restated +Award Plan to increase the number of authorized shares by 3,500,000 shares. As a result of this increase, there will be a total of 4,612,385 shares available under the Award Plan on or after March 28, 2011, subject to stockholder approval. Of +this total, the maximum number of shares that will be available for issuance pursuant to the Award plan as “full value” awards (i.e. Restricted Awards, Performance Awards or other stock-based Awards) is 2,164,825 shares. +The Board determined that this increase in authorized shares will meet the Company’s needs under the Award Plan for the foreseeable +future. The Board also approved a change of the name of the Award Plan to the “OraSure Technologies, Inc. Stock Award Plan,” an extension of the term of the Award Plan to May 17, 2021 and certain other changes. A complete copy of the +amended and restated Award Plan is attached to this Proxy Statement as Exhibit A. +Vote Required For Approval; Board Recommendation +Assuming that a quorum is present, the affirmative vote of the holders of a majority of the shares of Common Stock +present, in person or by Proxy at the Annual Meeting, is required for approval of the proposed amended and restated Award Plan. Shares voted in person or represented by a Proxy which are not voted for approval of the amended and restated Award Plan +(by voting no or abstaining) will have the effect of voting against this proposal. Shares as to which a broker or other nominee has indicated on a duly executed and returned Proxy or otherwise advised us that it lacks voting authority will have no +effect on the vote for this proposal. +Your Board recommends that stockholders vote FOR approval of the amended and +restated Award Plan . +Summary of the Award Plan as Amended +A summary description of certain terms and provisions of the Award Plan as proposed to be amended and restated follows. +Purpose +The purpose of the Award Plan is to promote and advance the +interests of the Company and its stockholders by enabling the Company to attract, retain, and reward employees, outside advisors, and Directors of the Company and any subsidiaries. The Award Plan is intended to strengthen the mutuality of interests +between employees, advisors, and Directors and the Company’s stockholders by offering equity-based incentives to promote the long-term growth, profitability and financial success of the Company. +Eligibility +The Award +Plan provides for stock-based awards to (i) employees of the Company and any subsidiaries, if any (ii) members of advisory committees or other consultants to the Company or its subsidiaries (“Advisors”), and +(iii) non-employee Directors of the Company. Persons who help the Company raise money by selling securities or who promote or maintain a market for the Company’s securities are not eligible to participate in the Award Plan as Advisors. In +addition, only Advisors who, in the judgment of the Compensation Committee of the Board (the “Committee”), are or will be contributors to the long-term success of the Company, will be eligible to receive Awards (as defined below). As of +March 28, 2011, the Company had 237 employees and six non-employee Directors, all of whom are eligible to receive Awards under the Award Plan. +Administration of the Award Plan +The Committee administers the Award Plan +and determines the persons who are to receive Awards and the types, amounts, and terms of Awards. For example, the Committee may determine the exercise price, the form of +46 +Table of Contents +payment of the exercise price, the number of shares subject to an Award, and the date or dates on which an Award becomes exercisable. The Committee may delegate to one or more officers of the +Company the authority to determine the recipients of and the types, amounts and terms of Awards granted to participants who are not Reporting Persons. Awards made by the Committee for the Company’s Chief Executive Officer are also reviewed and +approved by the full Board. +The Award Plan will continue in effect until May 17, 2021 or until the Award Plan is +otherwise terminated by the Board. Termination or expiration of the Award Plan will not affect outstanding Awards. +The Award +Plan permits the Board to amend, suspend or terminate the Award Plan or any portion of the Award Plan. Stockholder approval is required if (i) any such action would increase the number of shares of Common Stock subject to the Award Plan, +(ii) such action would decrease the price at which Awards may be granted, (iii) such action would result in an Award becoming fully vested, exercisable or earned in the event of a change in control prior to the consummation of the change +in control or (iv) such approval is required by law or regulation or the rules of a stock exchange or over-the-counter trading system. +Awards +Awards that may +be granted under the Award Plan include stock options, stock appreciation rights, restricted awards, performance awards, and other stock-based awards (collectively, “Awards”). The following is a brief summary of the various types of Awards +that may be granted under the Award Plan. +Stock Options . Options granted under the Award Plan may be either +incentive stock options (“ISOs”), a tax-favored form of Award meeting the requirements of Section 422 of the Internal Revenue Code, as amended, or nonqualified options (“NQOs”), which are not entitled to special tax +treatment. The Award Plan limits the maximum term of any option granted to a period not longer than ten years from the date of grant. The exercise price of any option granted under the Award Plan may not be less than 100% of the fair market value of +the Common Stock on the date of grant, except that in the case of an option granted to holders of 10% or more of the Company’s voting securities, the exercise price may not be less than 110% of the fair market value of the Common Stock on the +date of grant. +The agreement evidencing the grant of a stock option (the “Option Agreement”) will specify, as +determined by the Committee, the time or times when the option is exercisable, in whole or in part, and the extent to which the option remains exercisable after the option holder ceases to be an employee, Advisor or nonemployee Director of the +Company. The Option Agreement may, in the discretion of the Committee, provide whether the option will become fully exercisable upon the death, disability or retirement of the option holder or upon a change in control of the Company. An option may +be exercised by payment of the exercise price in cash or, at the discretion of the Committee, in any combination of cash, previously held shares of Common Stock or share equivalents, or with proceeds from the sale of shares subject to the option. +A “change in control” generally is defined to take place when disclosure of such a change would be required by the +proxy rules promulgated by the SEC or when: +· +any person, or more than one person acting as a group within the meaning of Section 409A of the Internal Revenue Code (the “Code”) and +the regulations issued thereunder, acquires ownership of stock of the Company that, together with stock held by such person or group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of the Company; +· +any person, or more than one person acting as a group within the meaning of Code Section 409A and the regulations issued thereunder, acquires (or +has acquired during the 12-month period ending on the date of the most recent acquisition) ownership of stock of the Company possessing 30 percent or more of the total voting power of the Company’s stock; +47 +Table of Contents +· +a majority of the members of the Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority +of the members of the Board before the date of the appointment or election; or +· +a person, or more than one person acting as a group within the meaning of Code Section 409A and the regulations issued thereunder, acquires (or +has acquired during the 12-month period ending on the date of the most recent acquisition) assets from the Company that have a total gross fair market value equal to or more than 40 percent of the total gross fair market value of all the assets of +the Company immediately before such acquisition or acquisitions. +Options granted to employees under the +Award Plan generally vest over four years, with 25% of the grant vesting on the first anniversary of the grant date and the remaining 75% vesting ratably on a monthly basis over the next three years. Options granted to non-employee Directors in the +past have generally vested ratably on a monthly basis over either a 12 or 24-month period, depending on the type of grant. Options granted under the Award Plan generally provide for accelerated vesting upon a “change in control.” The +Committee may provide for different vesting for any option granted under the Award Plan. +In no event may options for more +than 500,000 shares of Common Stock be granted to any individual under the Award Plan during any fiscal year period. +Stock Appreciation Rights . A recipient of stock appreciation rights (“SARs”) will receive, upon exercise, a +payment (in cash or in shares of Common Stock) based on the increase in the fair market value of a share of Common Stock between the date of grant and the date of exercise. SARs may be granted in connection with options or other Awards granted under +the Award Plan or may be granted as independent Awards. The Award Plan limits the maximum term for the exercise of a SAR to a period not longer than ten years from the date of grant. In no event may SARs for more than 500,000 shares of Common Stock +be granted to any individual under the Award Plan during any fiscal year period. +Restricted Awards . Restricted +Awards may take the form of restricted shares or restricted units. Restricted shares are shares of Common Stock that may be subject to forfeiture if the recipient terminates employment or service as an Advisor or non-employee Director during a +specified period (the “Restriction Period”). Stock certificates representing restricted shares are issued in the name of the recipient, but are held by the Company until the expiration of the Restriction Period. From the date of issuance +of restricted shares, the recipient is entitled to the rights of a stockholder with respect to the shares, including voting and dividend rights. Any right to receive dividends on restricted shares shall be subject to the same forfeiture requirements +applicable to the restricted shares. Restricted units are Awards that entitle the recipient to receive a share of Common Stock or the fair market value of a share at some future date, which similarly may be subject to forfeiture if the recipient +terminates employment or service as an Advisor or non-employee Director during the applicable Restriction Period. At the expiration of the Restriction Period, payment with respect to restricted units is made in an amount equal to the fair market +value of the number of shares of Common Stock covered by the restricted units. Payment may be in cash, unrestricted shares of Common Stock, or any other form approved by the Committee. Restricted Awards that are subject to forfeiture based solely on +continued employment or passage of time shall vest over a period of at least three years, subject to certain exceptions set forth in the Award Plan. +Performance Awards . Performance Awards are designated in units equivalent in value to a share of Common Stock. A Performance Award is subject to forfeiture if or to the extent that the +Company, a subsidiary, an operating group, or the recipient, as specified by the Committee in the Award, fails to meet performance goals established for a designated performance period, which must have a duration of at least one year. Performance +Awards earned by attaining performance goals are paid at the end of a performance period in cash, shares of Common Stock, or any other form approved by the Committee. The number of shares of Common Stock issuable with respect to Performance Awards +granted to any individual executive officer may not exceed 150,000 shares for any calendar year. +48 +Table of Contents +Other Stock-Based Awards . The Committee may grant other Awards that involve +payments or grants of shares of Common Stock or are measured by or in relation to shares of Common Stock. +Shares Subject to the Award Plan +If an Award under the Award Plan is cancelled or expires for any reason prior to becoming fully vested or exercised or is +settled in cash in lieu of shares, or is exchanged for other Awards under the Award Plan, then all shares covered by such Awards will be made available for future Awards under the Award Plan. In the event of a change in the Company’s +capitalization affecting the Common Stock, including a stock dividend, stock split, recapitalization, merger, consolidation, split-up, combination or exchange of shares or other form of reorganization, the Committee shall make such proportionate +adjustments as it may determine, in its sole discretion to be appropriate as a result of such change, to the aggregate number of shares for which Awards may be granted under the Award Plan, the maximum number of shares which may be sold or awarded +to any participant, the number of shares covered by each outstanding Award, and the price per share in respect of outstanding Awards. +Federal Income Tax Consequences +The following discussion summarizes the principal anticipated federal income tax consequences of Awards granted under the Award Plan, to participants and to the Company. +Incentive Stock Options. A recipient of an option does not realize taxable income upon the grant or exercise of an ISO. If +no disposition of shares occurs within two years from the date of grant or within one year from the date of exercise, then (a) upon the sale of the shares, any amount realized in excess of the exercise price is taxed to the option recipient as +long-term capital gain and any loss sustained will be a long-term capital loss, and (b) no deduction is allowed to the Company for federal income tax purposes. For purposes of computing alternative minimum taxable income, an ISO is treated as an +NQO. +If shares of Common Stock acquired upon the exercise of an ISO are disposed of prior to the expiration of the two-year +and one-year holding periods described above, then (a) the recipient will realize ordinary income in the year of disposition in an amount equal to the excess (if any) of the fair market value of the shares at exercise (or, if less, the amount +realized on a sale of the shares) over the exercise price thereof and (b) the Company would be entitled to deduct such amount. Any further gain realized is taxed as a short-term or long-term capital gain, as applicable, and does not result in +any deduction for the Company. Any disqualifying disposition as described above will generally avoid the alternative minimum tax consequences of the exercise of an ISO. +Nonqualified Options . No income is realized by an option recipient at the time an NQO is granted. Upon exercise, (a) ordinary income is realized by the option recipient in an amount +equal to the difference between the exercise price and the fair market value of the shares on the date of exercise and (b) the Company receives a tax deduction for the same amount. Upon disposition of the shares, appreciation or depreciation in +the value of the shares after the date of exercise is treated as a short-term or long-term capital gain or loss, as applicable, and will not result in any deduction to the Company. +Payment of Exercise Price in Share s . The Committee may permit participants to pay all or a portion of the exercise price +for an option using previously acquired shares of Common Stock. If an option is exercised and payment is made in previously held shares (held for six months or longer), there is no taxable gain or loss to the participant other than any gain +recognized as a result of the exercise of the option, as described above. +Stock Appreciation Rights . The grant +of a SAR to a participant will not cause the recognition of income by the participant. Upon exercise of a SAR, the participant will realize ordinary income equal to the amount of cash +49 +Table of Contents +payable to the participant plus the fair market value of any shares of Common Stock delivered to the participant. The Company will be entitled to a deduction equal to the amount of ordinary +income realized by the participant in connection with the exercise of a SAR. +Restricted Awards and Performance +Awards . Generally, a participant will not recognize any income upon issuance of a Restricted Award or Performance Award that is subject to forfeiture. Generally, a participant will recognize ordinary income upon the vesting of Restricted +Awards or Performance Awards in an amount equal to the amount of cash payable to the participant plus the fair market value of shares of Common Stock delivered to the participant. Dividends paid with respect to Awards during the Restriction Period +will be subject to the same restrictions and will be taxable as ordinary income to the participant when, and if, the restrictions lapse. However, a participant may elect to recognize compensation income upon the grant of restricted shares, based on +the fair market value of the shares of Common Stock subject to the Award at the date of grant. If a participant makes such an election, dividends paid with respect to the restricted shares will not be treated as compensation, but rather as dividend +income at the time when the restricted shares vest. The Company will be entitled to a deduction equal to the amount of ordinary income recognized by the participant. If a participant who receives an Award of restricted shares makes the special +election described above, the Company will not be entitled to deduct dividends paid with respect to the restricted shares. +Limitation on Deductibility of Certain Compensation . Section 162(m) of the Internal Revenue Code generally makes +nondeductible to the Company taxable compensation paid to a single individual in excess of $1 million in any calendar year if the individual is the Chief Executive Officer or one of the next four highest-paid executive officers, unless the +excess compensation is considered to be “performance based.” Among other requirements contained in Section 162(m), the material terms of a compensation plan in which such officers participate must be approved by stockholders for +awards or compensation provided under the plan to be considered “performance based.” The Company may in the future consider structuring Awards to attempt to meet the requirements of Section 162(m) if it determines the action to be +advisable. +50 +Table of Contents +Equity Compensation Plan Information +The following table provides information as of December 31, 2010 about the shares of Common Stock that may be issued upon the +exercise of options under all of our equity compensation plans. These plans include the Award Plan, the Epitope, Inc. 1991 Stock Award Plan (the “1991 Plan”), the Agritope, Inc. 1992 Stock Award Plan (the “Agritope Plan”), and +the OraSure Technologies, Inc. Employee Incentive and Non-Qualified Stock Option Plan (the “Employee Incentive Plan”). The Award Plan, the 1991 Plan and the Agritope Plan were Epitope equity compensation plans, and the Employee Incentive +Plan was an STC Technologies, Inc. equity compensation plan. In connection with the merger of Epitope and STC into the Company on September 29, 2000, the Award Plan was adopted by the Company, and the Company assumed the obligation to issue +shares for the then outstanding stock options granted under the Award Plan, the 1991 Plan, the Agritope Plan and the Employee Incentive Plan. Additional grants of equity compensation may only be made under the Award Plan. +Plan Category +Number of securities to be +issued upon exercise of +outstanding +options +(a) +Weighted-average exercise +price of outstanding +options +(b) +Number of securities +remaining available for +future issuance +under +equity compensation plans +(excluding securities +reflected in column (a)) +(c) +Equity compensation plans approved by security holders +4,487,569 +$ +6.89 +2,555,240 +1 +Equity compensation plans not approved by security holders +1,015,964 +2 +$ +6.59 +2 +— +Total +5,503,533 +2,555,240 +(1) +Represents shares remaining available for future issuance as of December 31, 2010 under the Award Plan. +(2) +Includes 125,552 shares issuable as of December 31, 2010 under options at a weighted-average exercise price of $4.42 per share under the 1991 Plan and the Agritope +Plan. +51 +Table of Contents +Annual Report +Our Annual Report to Stockholders for the year ended December 31, 2010 accompanies this Proxy Statement. On written +request, we will provide, without charge, a copy of our Annual Report on Form 10-K for the year ended December 31, 2010, as filed with the SEC (including a list briefly describing the exhibits thereto), to any record holder or beneficial owner +of our Common Stock on March 28, 2011, the record date for the Annual Meeting, or to any person who subsequently becomes such a record holder or beneficial owner. Requests should be directed to the attention of the Secretary of the Company at +our address set forth in the Notice of Annual Meeting of Stockholders immediately preceding this Proxy Statement. +52 +Table of Contents +Deadline For Stockholder Proposals +You may submit proposals for inclusion in the proxy materials for the Company’s 2012 Annual Meeting of Stockholders. Any such +proposals must meet the stockholder eligibility and other requirements imposed by rules issued by the SEC and must be received by the Company at 220 East First Street, Bethlehem, Pennsylvania 18015, Attention: Secretary, in accordance with Rule +14a-8 promulgated under the Exchange Act, not later than December 9, 2011. +Our Bylaws provide that a +stockholder proposal must meet certain predetermined requirements in order to be considered at the Annual Meeting. In order to be considered, a stockholder’s proposal must be made in writing to the Company’s Secretary and must be delivered +to or received at our principal executive offices not less than ninety (90) days nor more than one hundred twenty (120) days prior to the meeting. However, if less than one hundred (100) days’ notice or prior public disclosure of +the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received no later than the close of business on the tenth (10 th ) day following the day on which such notice of the date of the meeting was mailed or such public disclosure was +made, whichever first occurs. The notice to the Secretary must set forth, with respect to each matter the stockholder proposes to bring before the meeting, a brief description of the matter and the reasons for considering that matter at the Annual +Meeting. The notice must also include, as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf notice of the proposed business is made: (i) the name and address of the stockholder and such beneficial owner; +(ii) any material interest of such stockholder and such beneficial holder in such business; (iii) the class and number of shares of capital stock of the Company which are held of record or beneficially owned by the stockholder and such +beneficial owner and any other direct or indirect pecuniary or economic interest in any capital stock of the Company of such stockholder and such beneficial owner, including without limitation, any derivative instrument, swap, option, warrant, short +interest, hedge, profit sharing arrangement or borrowed or loaned shares; (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to propose the business described in its notice; and (v) any other +information relating to such business matter that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies pursuant to Section 14 of the Exchange Act and the rules +and regulations promulgated thereunder. To the extent the Board of Directors or the SEC, or a court of competent jurisdiction, deems these Bylaw provisions to be inconsistent with the right of stockholders to request inclusion of a proposal in the +Company’s proxy materials pursuant to Rule 14a-8 promulgated under the Exchange Act, such rule shall prevail. +BY ORDER OF THE BOARD OF +DIRECTORS +Jack E. Jerrett +Secretary +April 7, 2011 +53 +Table of Contents +Exhibit A +ORASURE TECHNOLOGIES, INC. +STOCK AWARD PLAN +ARTICLE 1 +ESTABLISHMENT AND PURPOSE +(Amended and Restated Effective as of May 17, 2011) +Establishment . +Epitope, Inc. established this Plan as the Epitope, Inc. 2000 Stock Award Plan, effective as of February 15, 2000, and the Plan was approved by shareholders of Epitope, Inc. at the 2000 annual shareholders meeting. Effective September 29, +2000, in connection with the merger of Epitope, Inc. with and into OraSure Technologies, Inc., the name of the Plan was changed to the OraSure Technologies, Inc. 2000 Stock Award Plan and the Plan was adopted as a stock award plan of OraSure +Technologies, Inc. The Plan was amended and restated, subject to shareholder approval, effective May 16, 2006. The Plan was amended further, subject to shareholder approval, effective May 13, 2008. The Plan again was amended and restated +in its entirety, subject to shareholder approval, effective May 17, 2011. +1.1 Purpose . The +purpose of the Plan is to promote and advance the interests of Corporation and its shareholders by enabling Corporation to attract, retain, and reward employees, outside advisors, and directors of Corporation and its subsidiaries. It is also +intended to strengthen the mutuality of interests between such employees, advisors, and directors and Corporation’s shareholders. The Plan is designed to meet this intent by offering stock options and other equity-based incentive awards, +thereby providing a proprietary interest in pursuing the long-term growth, profitability, and financial success of Corporation. +ARTICLE 2 +DEFINITIONS +2.1 Defined Terms . For purposes of the Plan, the following terms have the meanings set forth below: +“ Advisor ” means a natural person who is a consultant to or member of an Advisory Committee of Corporation or a Subsidiary, who provides bona fide services to Corporation and who is +neither an employee of Corporation or a Subsidiary nor a Non-Employee Director. “Advisor” excludes any person who provides services to Corporation in connection with the offer or sale of securities in a capital raising transaction or to +promote or maintain a market for Corporation’s securities, and any other person excluded from the class of persons to whom securities may be offered pursuant to a registration statement on Form S-8 or any successor form of registration +statement. +“ Advisory Committee ” means a scientific advisory committee to Corporation or a Subsidiary. +“ Award ” means an award or grant made to a Participant of Options, Stock Appreciation Rights, +Restricted Awards, Performance Awards, or Other Stock-Based Awards pursuant to the Plan. +“ Award +Agreement ” means an agreement as described in Section 6.4. +“ Board ” means the Board +of Directors of Corporation. +“ Change in Control ” means, unless otherwise provided in the applicable +Award Agreement, a change of control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A pursuant to the Exchange Act; provided, however, that a change of control shall only be deemed to +have occurred at such time as (i) any person, or more than one person acting as a group within the meaning of Section 409A of the Code, acquires ownership of stock of the Corporation that, together with stock held by such +Table of Contents +person or group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of the Corporation; (ii) any person, or more than one person acting as a +group within the meaning of Section 409A of the Code, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition) ownership of stock of the Corporation possessing 30 percent or more of the total +voting power of the Corporation’s stock; (iii) a majority of the members of the Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board before the +date of the appointment or election; or (iv) a person, or more than one person acting as a group within the meaning of Section 409A of the Code, acquires (or has acquired during the 12-month period ending on the date of the most recent +acquisition) assets from the Corporation that have a total gross fair market value equal to or more than 40 percent of the total gross fair market value of all the assets of the Corporation immediately before such acquisition or acquisitions. +“ Code ” means the Internal Revenue Code of 1986, as amended and in effect from time to time, or any +successor thereto, together with rules, regulations, and interpretations promulgated thereunder. Where the context so requires, any reference to a particular Code section will be construed to refer to the successor provision to such Code section. +“ Committee ” means the committee appointed by the Board to administer the Plan as provided in Article +3 of the Plan. +“ Common Stock ” means the Common Stock, par value $0.000001 per share, of Corporation +or any security of Corporation issued in substitution, in exchange, or in lieu of such stock. +“ Continuing +Restriction ” means a Restriction contained in Sections 6.7, 6.8, and 16.4 of the Plan and any other Restrictions expressly designated by the Committee in an Award Agreement as a Continuing Restriction. +“ Corporation ” means OraSure Technologies, Inc., a Delaware corporation, or any successor corporation. As to +awards granted or other action taken prior to September 29, 2000, “Corporation” includes Epitope, Inc., as predecessor to OraSure Technologies, Inc. +“ Disability ” means the condition of being “disabled” within the meaning of Section 422(c)(6) of the Code. However, the Committee may change the foregoing definition +of “Disability” or may adopt a different definition for purposes of specific Awards. +“ Exchange +Act ” means the Securities Exchange Act of 1934, as amended and in effect from time to time, or any successor statute. Where the context so requires, any reference to a particular section of the Exchange Act, or to any rule promulgated +under the Exchange Act, shall be construed to refer to successor provisions to such section or rule. +“ Fair Market +Value ” means with respect to Common Stock, on a particular day, without regard to any restrictions (other than a restriction which, by its terms, will never lapse): +(1) if the Common Stock is at the time listed or admitted to trading on any stock exchange, the mean between the +highest and lowest prices of the Common Stock on the date in question on the principal national securities exchange on which it is then listed or admitted to trading. If no reported sale of Common Stock takes place on the date in question on the +principal exchange, then the reported closing asked price of the Common Stock on such date on the principal exchange shall be determinative of “Fair Market Value;” +(2) if the Common Stock is not at the time listed or admitted to trading on a stock exchange, the mean between the highest reported asked price and lowest reported bid price of the +Common Stock on the date in question in the over-the-counter market, as such prices are reported in a publication of general circulation selected by the Committee and regularly reporting the market price of Common Stock in such market; or +2 +Table of Contents +(3) if the Common Stock is not listed or admitted to trading on any +stock exchange or traded in the over-the-counter market, an amount as determined in good faith by the Committee and which shall comply with Section 409A of the Code. +“ Incentive Stock Option ” or “ ISO ” means any Option granted pursuant to the Plan that is intended to be and is specifically designated in its Award Agreement +as an “incentive stock option” within the meaning of Section 422 of the Code. +“ Non-Employee +Director ” means a member of the Board who is not an employee of Corporation or any Subsidiary. +“ Nonqualified Option ” or “ NQSO ” means any Option granted pursuant to the Plan that is not an +Incentive Stock Option. +“ Option ” means an ISO or an NQSO. +“ Other Stock-Based Award ” means an Award as defined in Section 11.1. +“ Participant ” means an employee of Corporation or a Subsidiary, an Advisor, or a Non-Employee Director who is +granted an Award under the Plan. +“ Performance Award ” means an Award granted pursuant to the +provisions of Article 10 of the Plan, the Vesting of which is contingent on performance attainment. +“ Performance +Cycle ” means a designated performance period pursuant to the provisions of Section 10.3 of the Plan. +“ Performance Goal ” means a designated performance objective pursuant to the provisions of Section 10.4 of +the Plan. +“ Plan ” means this OraSure Technologies, Inc. 2000 Stock Award Plan, as set forth herein and +as it may be amended from time to time. +“ Reporting Person ” means a Participant who is subject to the +reporting requirements of Section 16(a) of the Exchange Act. +“ Restricted Award ” means a +Restricted Share or a Restricted Unit granted pursuant to Article 9 of the Plan. +“ Restricted Share ” +means an Award described in Section 9.1(a) of the Plan. +“ Restricted Unit ” means an Award of +units representing Shares described in Section 9.1(b) of the Plan. +“ Restriction ” means a +provision in the Plan or in an Award Agreement which limits the exercisability or transferability, or which governs the forfeiture, of an Award or the Shares, cash, or other property payable pursuant to an Award. +“ Retirement ” means: +(a) For Participants who are employees, retirement from active employment with Corporation and its Subsidiaries at or after age 50, or such earlier retirement date as approved by the Committee for +purposes of the Plan; +3 +Table of Contents +(b) For Participants who are Non-Employee Directors, termination of +membership on the Board after attaining age 50, or such earlier retirement date as approved by the Committee for purposes of the Plan; and +(c) For Participants who are Advisors, termination of service as an Advisor after attaining age 50, or such earlier retirement date as approved by the Committee for purposes of the Plan. +However, the Committee may change the foregoing definition of “Retirement” or may adopt a different definition for purposes of specific Awards. +“ Share ” means a share of Common Stock. +“ Stock Appreciation Right ” or “ SAR ” means an Award to benefit from the appreciation of +Common Stock granted pursuant to the provisions of Article 8 of the Plan. +“ Subsidiary ” means any +“subsidiary corporation” of Corporation within the meaning of Section 424 of the Code, namely any corporation in which Corporation directly or indirectly controls 50 percent or more of the total combined voting power of all classes of +stock having voting power. +“ Ten Percent Shareholder ” means a person who on any given date owns, +either directly or indirectly (taking into account the attribution rules contained in Section 424(d) of the Code), stock possessing more than 10 percent of the total combined voting power of all classes of stock of the Corporation or any +Subsidiary under Section 424(f) of the Code. +“ Vest ” or “ Vested ” means: +(a) In the case of an Award that requires exercise, to be or to become immediately and fully exercisable and +free of all Restrictions (other than Continuing Restrictions); +(b) In the case of an Award that is subject to +forfeiture, to be or to become nonforfeitable, freely transferable, and free of all Restrictions (other than Continuing Restrictions); +(c) In the case of an Award that is required to be earned by attaining specified Performance Goals, to be or to become earned and nonforfeitable, freely transferable, and free of all Restrictions (other +than Continuing Restrictions); or +(d) In the case of any other Award as to which payment is not dependent +solely upon the exercise of a right, election, exercise, or option, to be or to become immediately payable and free of all Restrictions (except Continuing Restrictions). +2.2 Gender and Number . Except where otherwise indicated by the context, any masculine or feminine terminology used in the Plan shall also include the opposite gender; and the +definition of any term in Section 2.1 in the singular shall also include the plural, and vice versa. +ARTICLE 3 +ADMINISTRATION +3.1 General . Except as provided in Section 3.7, the Plan will be administered by a Committee composed as described in Section 3.2. +3.2 Composition of the Committee . The Committee will be appointed by the Board from among its members in a +number and with such qualifications as will meet the independence and other requirements for (i) approval by a committee pursuant to Rule 16b-3 under the Exchange Act, (ii) establishing, administering and +4 +Table of Contents +certifying performance goals pursuant to Section 162(m) of the Code and (iii) trading or listing securities on the securities exchange or association on which the Common Stock is then +traded or listed. The Board may from time to time remove members from, or add members to, the Committee. Vacancies on the Committee, however caused, will be filled by the Board. The initial members of the Committee will be the members of +Corporation’s existing Executive Compensation Committee. The Board may at any time replace the Executive Compensation Committee with another Committee. In the event that the Executive Compensation Committee ceases to satisfy the requirements of +Rule 16b-3, Section 162(m) of the Code or a securities exchange or association described above in 3.2(iii), the Board will appoint another Committee satisfying such requirements. +3.3 Authority of the Committee . The Committee will have full power and authority (subject to such orders or +resolutions as may be issued or adopted from time to time by the Board) to administer the Plan in its sole discretion, including the authority to: +(a) Construe and interpret the Plan and any Award Agreement; +(b) +Promulgate, amend, and rescind rules and procedures relating to the implementation of the Plan; +(c) With +respect to employees and Advisors: +(i) Select the employees and Advisors who shall be granted Awards; +(ii) Determine the number and types of Awards to be granted to each such Participant; +(iii) Determine the number of Shares, or Share equivalents, to be subject to each Award; +(iv) Determine the option price, purchase price, base price, or similar feature for any Award; and +(v) Determine all the terms and conditions of all Award Agreements, consistent with the requirements of the Plan. +Decisions of the Committee, or any delegate as permitted by the Plan, shall be final, conclusive, and binding on all Participants. +3.4 Action by the Committee . A majority of the members of the Committee will constitute a +quorum for the transaction of business. Action approved by a majority of the members present at any meeting at which a quorum is present, or action in writing by all the members of the Committee, will be the valid acts of the Committee. +3.5 Delegation . Notwithstanding the foregoing, the Committee may delegate to one or more officers of +Corporation the authority to determine the recipients, types, amounts, and terms of Awards granted to Participants who are not Reporting Persons or “covered employees” within the meaning of Section 162(m) of the Code. +3.6 Liability of Committee Members . No member of the Committee will be liable for any action or +determination made in good faith with respect to the Plan, any Award, or any Participant. +3.7 Awards to Non-Employee Directors . The Board or Committee may grant Awards from time to time to +Non-Employee Directors. +3.8 Costs of Plan . The costs and expenses of administering the Plan +will be borne by Corporation. +5 +Table of Contents +ARTICLE 4 +DURATION OF THE PLAN AND SHARES SUBJECT TO THE PLAN +4.1 Duration of the Plan . The Plan is effective May 17, 2011. The Plan shall remain in full force and +effect until May 17, 2021, or the date it is terminated by the Board. The Board shall have the power to amend, suspend or terminate the Plan as provided in Article 15. Termination of the Plan under Article 15 shall not affect Awards outstanding +under the Plan at the time of termination. +4.2 Shares Subject to the Plan . +4.2.1 General . The shares which may be made subject to Awards under the Plan are Shares of Common Stock, which may be either +authorized and unissued Shares or reacquired Shares. No fractional Shares may be issued under the Plan. +4.2.2 Number of +Shares; Limits . +(a) The maximum number of Shares for which Awards may be granted under the Plan on or +after March 28, 2011, is 4,612,385 Shares, plus any Shares that become available as the result of the cancellation or expiration of any Award, subject to adjustment for changes in capitalization affecting the Corporation’s Common Stock +pursuant to Section 14.2 of the Plan. +(b) The maximum number of Shares that may be issued pursuant to +paragraph (a) above on or after March 28, 2011, pursuant to Incentive Stock Options, is 2,447,560 Shares, subject to adjustment for changes in capitalization affecting the Corporation’s Common Stock pursuant to Section 14.2 of +the Plan. +(c) The maximum number of Shares that may be issued pursuant to paragraph (a) above on or after +March 28, 2011, as Restricted Awards, Performance Awards or Other Stock-Based Awards is 2,164,825 Shares, subject to adjustment for changes in capitalization affecting the Corporation’s Common Stock pursuant to Section 14.2 of the +Plan and provided that the Shares under any such Award which is cancelled or expires shall be available for future Awards under this provision. +4.2.3 Availability of Shares for Future Awards . If an Award under the Plan is canceled or expires for any reason prior to having been fully Vested or exercised by a Participant or is settled in +cash in lieu of Shares or is exchanged for other Awards, all Shares covered by such Awards will be made available for future Awards under the Plan. In no event shall the following be made available for future awards under the Plan: (a) Shares +retained or reacquired by the Corporation in payment of an option price or satisfaction of a withholding tax obligation by a Participant in connection with any Award, (b) Shares repurchased by the Corporation with Option proceeds and +(c) Shares covered by an SAR, to the extent the SAR is exercised and settled in Shares and whether or not Shares are actually issued to the Participant upon exercise of the SAR. +ARTICLE 5 +ELIGIBILITY +5.1 Employees and Advisors . Officers and other employees of Corporation and any Subsidiaries (who may also be directors of Corporation or a Subsidiary) and Advisors who, in +the Committee’s judgment, are or will be contributors to the long-term success of Corporation will be eligible to receive Awards under the Plan. +5.2 Non-Employee Directors . All Non-Employee Directors will be eligible to receive Awards as provided in Section 3.7 of the Plan. +6 +Table of Contents +ARTICLE 6 +AWARDS +6.1 Types of Awards . The types of +Awards that may be granted under the Plan are: +(a) Options governed by Article 7 of the Plan; +(b) Stock Appreciation Rights governed by Article 8 of the Plan; +(c) Restricted Awards governed by Article 9 of the Plan; +(d) Performance Awards governed by Article 10 of the Plan; and +(e) Other Stock-Based Awards or combination awards governed by Article 11 of the Plan. +In the discretion of the Committee, any Award may be granted alone, in addition to, or in tandem with other Awards under the Plan. +6.2 General . Subject to the limitations of the Plan, the Committee may cause Corporation to grant Awards to +such Participants, at such times, of such types, in such amounts, for such periods, with such option prices, purchase prices, or base prices, and subject to such terms, conditions, limitations, and restrictions as the Committee, in its discretion, +deems appropriate. Awards may be granted as additional compensation to a Participant or in lieu of other compensation to such Participant. A Participant may receive more than one Award and more than one type of Award under the Plan. +6.3 Nonuniform Determinations . The Committee’s determinations under the Plan or under one or more +Award Agreements, including without limitation, (a) the selection of Participants to receive Awards, (b) the type, form, amount, and timing of Awards, (c) the terms of specific Award Agreements, and (d) elections and +determinations made by the Committee with respect to exercise or payments of Awards, need not be uniform and may be made by the Committee selectively among Participants and Awards, whether or not Participants are similarly situated. +6.4 Award Agreements . Each Award will be evidenced by a written Award Agreement between Corporation and the +Participant. Award Agreements may, subject to the provisions of the Plan, contain any provision approved by the Committee. +6.5 Provisions Governing All Awards . All Awards will be subject to the following provisions: +(a) Alternative Awards . If any Awards are designated in their Award Agreements as alternative to each other, the +exercise of all or part of one Award automatically will cause an immediate equal (or pro rata) corresponding termination of the other alternative Award or Awards. +(b) Rights as Shareholders . No Participant will have any rights of a shareholder with respect to Shares subject to +an Award until such Shares are issued in the name of the Participant. +(c) Employment Rights . Neither +the adoption of the Plan nor the granting of any Award will confer on any person the right to continued employment with Corporation or any Subsidiary or the right to remain as a director of Corporation or a member of any Advisory Committee, as the +case may be, nor will it interfere in any way with the right of Corporation or a Subsidiary to terminate such person’s employment or to remove such person as an Advisor or as a director at any time for any reason or for no reason, with or +without cause. +(d) Termination Of Employment . The terms and conditions under which an Award may be +exercised or will continue to Vest, if at all, after a Participant’s termination of employment or service as an Advisor or as a Non-Employee Director will be determined by the Committee and specified in the applicable Award Agreement. +7 +Table of Contents +(e) Change in Control . The Committee, in its discretion, may provide +in any Award Agreement that in the event of a Change in Control of Corporation, as of the date of such Change in Control: +(i) All, or a specified portion of, Awards requiring exercise will become fully and immediately exercisable, notwithstanding any other limitations on exercise; +(ii) All, or a specified portion of, Awards subject to Restrictions will become fully Vested; and +(iii) All, or a specified portion of, Awards subject to Performance Goals will be deemed to have been fully earned. +The Committee, in its discretion, may include Change in Control provisions in some Award Agreements and not in others, may +include different Change in Control provisions in different Award Agreements, and may include Change in Control provisions for some Awards or some Participants and not for others. +(f) Service Periods . At the time of granting Awards, the Committee may specify, by resolution or in the Award +Agreement, the period or periods of service performed or to be performed by the Participant in connection with the grant of the Award. +6.6 Tax Withholding . +(a) +General . Corporation will have the right to deduct from any settlement, including the delivery or Vesting of Shares, made under the Plan any federal, state, or local taxes of any kind required by law to be withheld with respect to such +payments or to take such other action as may be necessary in the opinion of Corporation to satisfy all obligations for the payment of such taxes. The recipient of any payment or distribution under the Plan will make arrangements satisfactory to +Corporation for the satisfaction of any such withholding tax obligations. Corporation will not be required to make any such payment or distribution under the Plan until such obligations are satisfied. +(b) Stock Withholding . The Committee, in its sole discretion, may permit a Participant to satisfy all or a part of +the withholding tax obligations incident to the settlement of an Award involving payment or delivery of Shares to the Participant by having Corporation withhold a portion of the Shares that would otherwise be issuable to the Participant. Such Shares +will be valued based on their Fair Market Value on the date the tax withholding is required to be made. Any stock withholding with respect to a Reporting Person will be subject to such limitations as the Committee may impose to comply with the +requirements of the Exchange Act. Notwithstanding the foregoing, Reporting Persons shall be permitted to elect to satisfy all or a portion of the withholding tax obligations incident to the settlement of an Award involving payment or delivery of +Shares to such Participant by having Corporation withhold a portion of the Shares that would otherwise be issuable to the Participant. +6.7 Annulment of Awards . Any Award Agreement may provide that the grant of an Award payable in cash is provisional until cash is paid in settlement thereof or that grant of +an Award payable in Shares is provisional until the Participant becomes entitled to the Shares in settlement thereof. In the event the employment (or service as an Advisor or membership on the Board) of a Participant is terminated for cause (as +defined below), any Award that is provisional will be annulled as of the date of such termination for cause. For the purpose of this Section 6.7, the term “for cause” has the meaning set forth in the Participant’s employment +agreement, if any, or otherwise means any discharge (or removal) for material or flagrant violation of the policies and procedures of Corporation or for other job performance or conduct which is materially detrimental to the best interests of +Corporation, as determined by the Committee. +6.8 Engaging in Competition With Corporation . Any +Award Agreement may provide that, if a Participant terminates employment with Corporation or a Subsidiary for any reason whatsoever, and within 18 months after the date thereof accepts employment with any competitor of (or otherwise engages in +competition with) +8 +Table of Contents +Corporation, the Committee, in its sole discretion, may require such Participant to return to Corporation the economic value of any Award that is realized or obtained (measured at the date of +exercise, Vesting, or payment) by such Participant at any time during the period beginning on the date that is six months prior to the date of such Participant’s termination of employment with Corporation. +ARTICLE 7 +OPTIONS +7.1 Types of Options . Options granted under the Plan may be in the form of Incentive Stock Options or +Nonqualified Options. The grant of each Option and the Award Agreement governing each Option will identify the Option as an ISO or an NQSO. In the event the Code is amended to provide for tax-favored forms of stock options other than or in addition +to Incentive Stock Options, the Committee may grant Options under the Plan meeting the requirements of such forms of options. +7.2 General . Options will be subject to the terms and conditions set forth in Article 6 and this Article 7 +and may contain such additional terms and conditions, not inconsistent with the express provisions of the Plan, as the Committee (or the Board with respect to Awards to Non-Employee Directors) deems desirable. +7.3 Option Price . Each Award Agreement for Options will state the option exercise price per Share of Common +Stock purchasable under the Option, which will not be less than 100 percent (100%) of the Fair Market Value of a Share on the date of grant for all Options (ISOs or NQSOs); provided, however, that in the case of any ISO granted to a Ten Percent +Shareholder, the option exercise price per Share shall not be less than 110 percent (110%) of the Fair Market Value of a Share on the date of grant +7.4 Option Term . The Award Agreement for each Option will specify the term of each Option, which shall have a specified period during which the Option may be exercised which +is no longer than ten years, as determined by the Committee. +7.5 Time of Exercise . The Award +Agreement for each Option will specify, as determined by the Committee: +(a) The time or times when the Option +will become exercisable and whether the Option will become exercisable in full or in graduated amounts over a period specified in the Award Agreement; +(b) Such other terms, conditions, and restrictions as to when the Option may be exercised as determined by the Committee; and +(c) The extent, if any, to which the Option will remain exercisable after the Participant ceases to be an employee, +Advisor, or director of Corporation or a Subsidiary. +An Award Agreement for an Option may, in the discretion of the Committee, provide +whether, and to what extent, the Option will become immediately and fully exercisable (i) in the event of the death, Disability, or Retirement of the Participant, or (ii) upon the occurrence of a Change in Control of Corporation. +7.6 Method of Exercise . The Award Agreement for each Option will specify the method or methods +of payment acceptable upon exercise of an Option. An Award Agreement may provide that the option price is payable in full in cash or, at the discretion of the Committee: +(a) In previously acquired Shares (including Restricted Shares); +9 +Table of Contents +(b) By surrendering outstanding Awards under the Plan denominated in Shares +or in Share-equivalent units; +(c) By delivery (in a form approved by the Committee) of an irrevocable +direction to a securities broker acceptable to the Committee: +(i) To sell Shares subject to the Option and to +deliver all or a part of the sales proceeds to Corporation in payment of all or a part of the option price and withholding taxes due; or +(ii) To pledge Shares subject to the Option to the broker as security for a loan and to deliver all or a part of the loan proceeds to Corporation in payment of all or a part of the option price and +withholding taxes due; or +(d) In any combination of the foregoing or in any other form approved by the +Committee. +If Restricted Shares are surrendered in full or partial payment of an Option price, a corresponding number of the Shares issued +upon exercise of the Option will be Restricted Shares subject to the same Restrictions as the surrendered Restricted Shares. +7.7 Special Rules for Incentive Stock Options . In the case of an Option designated as an Incentive Stock +Option, the terms of the Option and the Award Agreement must be in conformance with the statutory and regulatory requirements specified in Section 422 of the Code, as in effect on the date such ISO is granted. ISOs may be granted only to +employees of Corporation or a Subsidiary. ISOs may not be granted under the Plan after May 17, 2021, unless the ten-year limitation of Section 422(b)(2) of the Code is removed or extended. +7.8 Restricted Shares . In the discretion of the Committee, the Shares issuable upon exercise of an Option +may be Restricted Shares if so provided in the Award Agreement. +7.9 Limitation on Number of Shares +Subject to Options . In no event may Options for more than 500,000 Shares be granted to any individual under the Plan during any fiscal year period. +ARTICLE 8 +STOCK APPRECIATION RIGHTS +8.1 General . Stock Appreciation Rights will be subject to the terms and conditions set forth in Article 6 +and this Article 8 and may contain such additional terms and conditions, not inconsistent with the express terms of the Plan, as the Committee (or the Board with respect to Awards to Non-Employee Directors) deems desirable. +8.2 Nature of Stock Appreciation Right . A Stock Appreciation Right is an Award entitling a Participant to +receive an amount equal to the excess (or if the Committee determines at the time of grant, a portion of the excess) of the Fair Market Value of a Share of Common Stock on the date of exercise of the SAR over the base price, as described below, on +the date of grant of the SAR, multiplied by the number of Shares with respect to which the SAR has been exercised. The base price will be designated by the Committee in the Award Agreement for the SAR and shall be not less than 100 percent +(100%) of the Fair Market Value of a Share on the grant date of the SAR. +8.3 Exercise . A +Stock Appreciation Right may be exercised by a Participant in accordance with procedures established by the Committee. The Committee may also provide that an SAR will be automatically exercised on one or more specified dates or upon the satisfaction +of one or more specified conditions. In the case of SARs granted to Reporting Persons, exercise of the SAR will be limited by the Committee to the extent required to comply with the applicable requirements of Rule 16b-3 under the Exchange Act. +8.4 Term . The Award Agreement for each SAR shall have a specified period during which the SAR +may be exercised, which is no longer than ten years, as determined by the Committee. +10 +Table of Contents +8.5 Form of Payment . Payment upon exercise of a Stock +Appreciation Right may be made in cash, in installments, in Shares, or in any combination of the foregoing, or in any other form as the Committee determines. +8.6 Limitation on Number of Shares Subject to SARs . In no event may SARs for more than 500,000 Shares be granted to any individual under the Plan during any fiscal year +period. +ARTICLE 9 +RESTRICTED AWARDS +9.1 Types of Restricted +Awards . Restricted Awards granted under the Plan may be in the form of either Restricted Shares or Restricted Units. +(a) Restricted Shares . A Restricted Share is an Award of Shares transferred to a Participant subject to such terms and conditions as the Committee deems appropriate, including, without limitation, +restrictions on the sale, assignment, transfer, or other disposition of such Restricted Shares and may include a requirement that the Participant forfeit such Restricted Shares back to Corporation upon termination of Participant’s employment +(or service as an Advisor or Non-Employee Director) for specified reasons within a specified period of time or upon other conditions, as set forth in the Award Agreement for such Restricted Shares. Each Participant receiving a Restricted Share will +be issued a stock certificate in respect of such Shares, registered in the name of such Participant, or such certificate, registered in the name of such Participant, will be placed in a restricted stock account (including an electronic account) with +a transfer agent. If such certificate is issued to the Participant, the Participant will be required to execute a stock power in blank with respect to the Shares evidenced by such certificate, and such certificate and the stock power will be held in +custody by Corporation until the Restrictions thereon will have lapsed. +(b) Restricted Units . A +Restricted Unit is an Award to receive a Share or the Fair Market Value of a Share at some date in the future, which is granted to a Participant subject to such terms and conditions as the Committee deems appropriate, and may include a requirement +that the Participant forfeit such Restricted Units upon termination of Participant’s employment (or service as an Advisor or Non-Employee Director) for specified reasons within a specified period of time or upon other conditions, as set forth +in the Award Agreement for such Restricted Units. +9.2 General . Restricted Awards will be +subject to the terms and conditions of Article 6 and this Article 9 and may contain such additional terms and conditions, not inconsistent with the express provisions of the Plan, as the Committee (or the Board with respect to Awards to Non-Employee +Directors) deems desirable. +9.3 Restriction Period . Restricted Awards will provide that such +Awards, and the Shares subject to such Awards, may not be transferred, and may provide that, in order for a Participant to Vest in such Awards, the Participant must remain in the employment (or remain as an Advisor or Non-Employee Director) of +Corporation or its Subsidiaries, subject to relief for reasons specified in the Award Agreement, for a period commencing on the date of the Award and ending on such later date or dates as the Committee designates at the time of the Award (the +“Restriction Period”). During the Restriction Period, a Participant may not sell, assign, transfer, pledge, encumber, or otherwise dispose of Shares received under or governed by a Restricted Award grant. The Committee, in its sole +discretion, may provide for the lapse of restrictions in installments during the Restriction Period; provided that a Restricted Award with a Restriction Period based solely on continued employment or passage of time may not permit the lapse of +restrictions over a period less than three (3) years after the date of the Award, except in the case of (a) Restricted Awards to Non-Employee Directors or Advisors, (b) Restricted Awards granted upon the commencement of a +Participant’s employment with the Corporation, (c) Restricted Awards which, in the aggregate, cover not more than 10% of the number of Shares available for Awards under the Plan under Section 4.2.2(a) (determined without regard to any +other limits set forth in Sections 4.2.2(b) or +11 +Table of Contents +(c)), or (d) restrictions which lapse (i) upon the death, Disability or retirement of the Participant, (ii) as may be required pursuant to an employment agreement between the +Participant and the Corporation or (iii) upon a Change in Control. Upon expiration of the applicable Restriction Period (or lapse of Restrictions during the Restriction Period where the Restrictions lapse in installments) the Participant shall +be entitled to settlement of the Restricted Award or portion thereof, as the case may be. Although Restricted Awards will usually Vest based on continued employment (or service as an Advisor or Non-Employee Director) and Performance Awards under +Article 10 shall usually Vest based on attainment of Performance Goals, the Committee, in its discretion, may condition Vesting of Restricted Awards on attainment of Performance Goals as well as continued employment (or service as an Advisor or +Non-Employee Director). In such case, the Restriction Period for such a Restricted Award will include the period prior to satisfaction of the Performance Goals. +9.4 Forfeiture . If a Participant ceases to be an employee, Advisor of Corporation or a Subsidiary or Non-Employee Director during the Restriction Period for any reason other +than reasons which may be specified in an Award Agreement (such as death, Disability, or Retirement), the Award Agreement may require that all non-Vested Restricted Awards previously granted to the Participant be forfeited and returned to +Corporation. +9.5 Settlement of Restricted Awards . +(a) Restricted Shares . Upon Vesting of a Restricted Share Award, the legend on such Shares will be removed and the +Participant’s stock power, if any, will be returned and the Shares will no longer be Restricted Shares. The Committee may also, in its discretion, permit a Participant to receive, in lieu of unrestricted Shares at the conclusion of the +Restriction Period, payment in cash, installments, or in any other manner or combination of such methods as the Committee, in its sole discretion, determines. +(b) Restricted Units . Upon Vesting of a Restricted Unit Award, a Participant will be entitled to receive payment for Restricted Units in an amount equal to the aggregate Fair Market Value of the +Shares covered by such Restricted Units at the expiration of the Applicable Restriction Period. Payment in settlement of a Restricted Unit will be made as soon as practicable following the conclusion of the applicable Restriction Period in cash, in +installments, in Shares equal to the number of Restricted Units, or in any other manner or combination of such methods as the Committee, in its sole discretion, determines, subject to the applicable restrictions contained in Section 409A of the +Code. +9.6 Rights as a Shareholder . A Participant will have, with respect to unforfeited Shares +received under a grant of Restricted Shares, all the rights of a shareholder of Corporation, including the right to vote the Shares and the right to receive any cash dividends. The right to receive cash dividends on Restricted Shares shall be +subject to the Restrictions applicable to the Restricted Shares. Stock dividends issued with respect to Restricted Shares will be treated as additional Shares covered by the grant of Restricted Shares and will also be subject to the same +Restrictions. A Participant may also have the right to receive dividend equivalents, which shall be subject to forfeiture restrictions as provided in Article 13, with respect to Restricted Units; provided, however, that a Participant shall have no +rights as a shareholder prior to delivery of a Share with respect to a Restricted Unit that is payable in Shares. +ARTICLE +10 +PERFORMANCE AWARDS +10.1 General . Performance Awards will be subject to the terms and conditions set forth in Article 6 and this Article 10 and may contain such other terms and conditions not +inconsistent with the express provisions of the Plan, as the Committee (or the Board with respect to Awards to Non-Employee Directors) deems desirable. +10.2 Nature of Performance Awards . A Performance Award is an Award of units (with each unit having a value equivalent to one Share) granted to a Participant subject to such +terms and conditions as the Committee +12 +Table of Contents +deems appropriate, including, without limitation, the requirement that the Participant forfeit such Performance Award or a portion thereof in the event specified performance criteria are not met +within a designated period of time. +10.3 Performance Cycles . For each Performance Award, the +Committee will designate a performance period (the “Performance Cycle”) with a duration of at least one (1) year, as may be determined by the Committee in its discretion within which specified Performance Goals are to be attained. +There may be several Performance Cycles in existence at any one time and the duration of Performance Cycles may differ from each other. +10.4 Performance Goals . The Committee will establish Performance Goals for each Performance Cycle on the basis of such criteria and to accomplish such objectives as the +Committee may from time to time select. Performance Goals may be based on performance criteria for Corporation, a Subsidiary, or an operating group, or based on a Participant’s individual performance. Performance Goals may include objective and +subjective criteria. During any Performance Cycle, the Committee may adjust the Performance Goals for such Performance Cycle as it deems equitable in recognition of unusual or nonrecurring events affecting Corporation, changes in applicable tax laws +or accounting principles, or such other factors as the Committee may determine. +10.5 Determination +of Awards . As soon as practicable after the end of a Performance Cycle, the Committee will determine the extent to which Performance Awards have been earned on the basis of performance in relation to the established Performance Goals. +10.6 Timing and Form of Payment . Settlement of earned Performance Awards will be made to the +Participant as soon as practicable after the expiration of the Performance Cycle and the Committee’s determination under Section 10.5, in the form of cash, installments, Shares, or any combination of the foregoing or in any other form as +the Committee determines. +10.7 Performance Goals for Executive Officers . The performance goals +for Performance Awards granted to executive officers of Corporation may relate to corporate performance, business unit performance, or a combination of both. +(a) Corporate performance goals will be based on financial performance goals related to the performance of Corporation as a whole and may include one or more measures related to earnings, profitability, +efficiency, or return to stockholders such as earnings per share, operating profit, stock price, costs of production, or other measures. +(b) Business unit performance goals will be based on a combination of financial goals and strategic goals related to the performance of an identified business unit for which a Participant has +responsibility. Strategic goals for a business unit may include one or a combination of objective factors relating to success in implementing strategic plans or initiatives, introductory products, constructing facilities, or other identifiable +objectives. Financial goals for a business unit may include the degree to which the business unit achieves one or more objective measures related to its revenues, earnings, profitability, efficiency, operating profit, costs of production, or other +measures. +(c) Any corporate or business unit goals may be expressed as absolute amounts or as ratios or +percentages. Success may be measured against various standards, including budget targets, improvement over prior periods, and performance relative to other companies, business units, or industry groups. +10.8 Award Limitations . The maximum number of Shares issuable with respect to Performance Awards granted to +any individual executive officer may not exceed 150,000 Shares for any calendar year. +13 +Table of Contents +ARTICLE 11 +OTHER STOCK-BASED AND COMBINATION AWARDS +11.1 Other Stock-Based Awards . The Committee (or the Board with respect to Awards to Non-Employee +Directors) may grant other Awards under the Plan pursuant to which Shares are or may in the future be acquired, or Awards denominated in or measured by Share equivalent units, including Awards valued using measures other than the market value of +Shares. Such Other Stock-Based Awards may be granted either alone, in addition to, or in tandem with, any other type of Award granted under the Plan. +11.2 Combination Awards . The Committee may also grant Awards under the Plan in tandem or combination with other Awards or in exchange of Awards, or in tandem or combination +with, or as alternatives to, grants or rights under any other employee plan of Corporation, including the plan of any acquired entity. No action authorized by this section may reduce the amount of any existing benefits or change the terms and +conditions thereof without the Participant’s consent. +ARTICLE 12 +DEFERRAL ELECTIONS +The Committee may permit a Participant to elect to defer receipt of the payment of cash or the delivery of Shares that would otherwise be due to such Participant by virtue of the exercise, earn-out, or +Vesting of an Award made under the Plan. If any such election is permitted, the Committee will establish rules and procedures for such payment deferrals, including, but not limited to: (a) payment or crediting of reasonable interest on such +deferred amounts credited in cash or (b) the payment or crediting of dividend equivalents in respect of deferrals credited in Share equivalent units. Such deferrals, if permitted, shall to the extent possible, comply with Section 409A of +the Code and the regulations and other guidance promulgated thereunder. +ARTICLE 13 +DIVIDEND EQUIVALENTS +Any Awards may, at the discretion of the Committee, earn dividend equivalents. In respect of any such Award that is outstanding on a dividend record date for Common Stock, the Participant may be credited +with an amount equal to the amount of cash or stock dividends that would have been paid on the Shares covered by such Award, had such covered Shares been issued and outstanding on such dividend record date. The Committee will establish such rules +and procedures governing the crediting of dividend equivalents, including the timing, form of payment, and payment contingencies of such dividend equivalents, as it deems appropriate or necessary. Any dividend equivalents earned with respect to an +Award shall be subject to the Restrictions applicable to such Award. +ARTICLE 14 +ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, ETC. +14.1 Plan Does Not Restrict Corporation . The existence of the Plan and the Awards granted hereunder will not affect or restrict in any way the right or power of the Board or +the shareholders of Corporation to make or authorize any adjustment, recapitalization, reorganization, or other change in Corporation’s capital structure or its business, any merger or consolidation of the Corporation, any issue of bonds, +debentures, preferred or prior preference stocks ahead of or affecting Corporation’s capital stock or the rights thereof, the dissolution or liquidation of Corporation or any sale or transfer of all or any part of its assets or business, or any +other corporate act or proceeding. +14 +Table of Contents +14.2 Adjustments by the Committee . In the event of any change +in capitalization affecting the Common Stock of Corporation, such as a stock dividend, stock split, recapitalization, merger, consolidation, split-up, combination or exchange of shares or other form of reorganization, or any other change affecting +the Common Stock, such proportionate adjustments, if any, as the Committee, in its sole discretion, may deem appropriate to reflect such change, will be made with respect to the aggregate number of Shares for which Awards in respect thereof may be +granted under the Plan, the maximum number of Shares which may be sold or awarded to any Participant, the number of Shares covered by each outstanding Award, and the price per Share in respect of outstanding Awards. The Committee may also make such +adjustments in the number of Shares covered by, and price or other value of any outstanding Awards in the event of a spin-off or other distribution (other than normal cash dividends), of Corporation assets to shareholders. +ARTICLE 15 +AMENDMENT AND TERMINATION +The Board may amend, suspend, or terminate the Plan or any portion of the Plan at any time; provided that no such action may be taken without shareholder +approval if (i) such action would increase the number of shares subject to the Plan; (ii) such action would decrease the price at which Awards may be granted; (iii) such action would result in an Award being fully Vested, exercisable +or earned in the event of a Change in Control prior to the consummation of the Change in Control; or (iv) such approval is required by applicable law or regulation or the applicable requirements of a stock exchange or over-the-counter stock +trading system; provided further that the Board may, in its discretion, determine to submit any other changes to the Plan to the shareholders for approval; provided further that no amendment, suspension or termination of the Plan may materially and +adversely affect the rights of a Participant under any outstanding Award without such Participant’s consent, unless such action is necessary to ensure a deduction under Section 162(m) of the Code or to avoid the additional tax described in +Section 409A of the Code. +ARTICLE 16 +MISCELLANEOUS +16.1 Unfunded Plan . The Plan +will be unfunded and Corporation will not be required to segregate any assets that may at any time be represented by Awards under the Plan. Any liability of Corporation to any person with respect to any Award under the Plan will be based solely upon +any contractual obligations that may be effected pursuant to the Plan. No such obligation of Corporation will be deemed to be secured by any pledge of, or other encumbrance on, any property of Corporation. +16.2 Payments to Trust . The Committee is authorized (but has no obligation) to cause to be established a +trust agreement or several trust agreements whereunder the Committee may make payments of amounts due or to become due to Participants in the Plan. +16.3 Other Corporation Benefit and Compensation Programs . Payments and other benefits received by a Participant under an Award made pursuant to the Plan will not be deemed a +part of a Participant’s regular, recurring compensation for purposes of the termination indemnity or severance pay law of any state or country and shall not be included in, or have any effect on, the determination of benefits under any other +employee benefit plan or similar arrangement provided by Corporation or a Subsidiary unless expressly so provided by such other plan or arrangements, or except where the Committee expressly determines that an Award or portion of an Award should be +included to accurately reflect competitive compensation practices or to recognize that an Award has been made in lieu of a portion of cash compensation. Awards under the Plan may be made in combination with or in tandem with, or as alternatives to, +grants, awards, or payments under any other Corporation or Subsidiary plans, arrangements, or programs. The Plan notwithstanding, Corporation or any Subsidiary may adopt such other compensation programs and additional compensation arrangements as it +deems necessary to attract, retain, and reward employees and directors for their service with Corporation and its Subsidiaries. +15 +Table of Contents +16.4 Securities Law Restrictions . No Shares may be issued +under the Plan unless counsel for Corporation is satisfied that such issuance will be in compliance with applicable federal and state securities laws. Certificates for Shares delivered under the Plan may be subject to such stop-transfer orders and +other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common Stock is then listed, and any applicable federal or state +securities law. The Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. +16.5 Governing Law . Except with respect to references to the Code or federal securities laws, the Plan and all actions taken thereunder shall be governed by and construed in +accordance with the laws of the state of Delaware. +ARTICLE 17 +SHAREHOLDER APPROVAL +The +Plan, as amended and restated, is expressly subject to the approval of the Plan by the shareholders at the 2011 annual meeting of Corporation’s shareholders. +16 +Table of Contents +YOUR VOTE IS IMPORTANT. PLEASE VOTE TODAY. +We encourage you to take advantage of Internet or telephone voting. +Both are available 24 hours a day, 7 days a week. +Internet and telephone voting are available through 11:59 PM Eastern Time May 16, 2011. +INTERNET +http://www.proxyvoting.com/osur +Use the Internet to vote your proxy. Have your proxy card in hand when you access the web site. +OR +TELEPHONE +1-866-540-5760 +Use any touch-tone telephone to vote your proxy. Have your proxy card in hand when you call. +If you vote your proxy by Internet or by telephone, you do NOT need to mail back your proxy card. +To vote by mail, mark, sign and date your proxy card and return it in the enclosed postage-paid envelope. +Your Internet or telephone vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed and returned your proxy card. +WO# +Fulfillment# +94741 +94746 +Ú FOLD AND DETACH +HERE Ú +Please mark your votes as +indicated in this example +x +The Board of Directors recommends you vote FOR each of the following nominees: +The Board of Directors recommends you vote FOR Items 2 and 3. +FOR +WITHHOLD +*EXCEPTIONS +FOR +AGAINST +ABSTAIN +1. +ELECTION OF DIRECTORS +Class II (Term Expiring 2014) +¨ +¨ +¨ +2. +Ratification of Appointment of KPMG LLP for fiscal year 2011. +¨ +¨ +¨ +Nominees: +3. +Proposal to approve the advisory +(non-binding) resolution relating to executive compensation. +¨ +¨ +¨ +01 +Ronny B. Lancaster +02 +Roger L. Pringle +03 +Ronald H. Spair +The Board of Directors recommends you vote FOR +stockholder +approval every 3 years. +3 years +2 years +1 year +Abstain +(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark the “Exceptions” box and write that nominee’s name in the space provided +below.) +4. +Recommend, on an advisory (non-binding) basis, the frequency of stockholder votes on executive compensation. +¨ +¨ +¨ +¨ +*Exceptions +The Board of Directors recommends you vote FOR Item 5. +FOR +AGAINST +ABSTAIN +5. +Amendment and Restatement of Stock Award Plan. +¨ +¨ +¨ +Mark Here for +Address Change +or Comments SEE REVERSE +¨ +NOTE: Please sign as name appears +hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. +Signature +Signature +Date +Table of Contents +OraSure Technologies, Inc. +2011 Annual Meeting of Stockholders +Tuesday, May 17, 2011 +Choose MLink SM for fast, easy and secure 24/7 online access to your future proxy materials, investment plan statements, tax documents and more. Simply log +on to Investor ServiceDirect ® at www.bnymellon.com/shareowner/equityaccess where step-by-step +instructions will prompt you through enrollment. +Important notice regarding the +Internet availability of proxy materials for the Annual Meeting of Stockholders. The Proxy Statement, 2010 Annual Report to Stockholders and other Proxy Materials are available at: http://www.proxyvoting.com/osur +Ú FOLD AND DETACH HERE Ú +PROXY +2011 Annual Meeting of Stockholders +PROXY SOLICITED ON BEHALF OF THE BOARD +OF DIRECTORS +The undersigned hereby appoints Jack E. Jerrett and Mark L. Kuna, and each of them, proxies with full power of +substitution, to vote all of the shares which the undersigned is entitled to vote at the 2011 Annual Meeting of Stockholders of OraSure Technologies, Inc. (the “Company”), to be held at the Historic Hotel Bethlehem, 437 Main Street, +Bethlehem, Pennsylvania 18018 on Tuesday, May 17, 2011, at 10:00 a.m. (local time), and at any adjournment or adjournments thereof, with all the powers the undersigned would possess if personally present, with respect to the matters listed on +the reverse side. +The shares represented by this Proxy, if properly executed, will be voted as specified on the reverse +side or, if no specification is made, will be voted (i) FOR the election of the nominees listed on the reverse side as directors, (ii) FOR the ratification of the appointment of KPMG LLP as the Company’s independent registered public +accounting firm for 2011, (iii) FOR the compensation of the Company’s named executive officers, (iv) FOR “Three Years” as the frequency for future stockholder votes on executive compensation and (v) FOR the amendment and +restatement of the Company’s Stock Award Plan. If any other business properly comes before the meeting, the proxies named above will have discretionary authority to vote thereon in accordance with their best judgment. +PLEASE MARK, DATE, SIGN AND RETURN THE PROXY CARD PROMPTLY. +Address Change/Comments +(Mark the corresponding box on the reverse side) +BNY MELLON SHAREOWNER SERVICES +P.O. BOX 3550 +SOUTH HACKENSACK, NJ 07606-9250 +(Continued and to be marked, dated and signed, on the other side) +WO# +Fulfillment# +94741 +94746 \ No newline at end of file diff --git a/raw/proxies/0001116463/0001193125-11-091272/proxy_rpt.txt b/raw/proxies/0001116463/0001193125-11-091272/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..09e17151b6fc3a210735249bc3ab85eafd559dbb --- /dev/null +++ b/raw/proxies/0001116463/0001193125-11-091272/proxy_rpt.txt @@ -0,0 +1,7 @@ +Transactions With Related Persons +Since January 1, 2010, there have been no transactions with related persons +which would require disclosure in this Proxy Statement. The Audit Committee is required to review and approve in advance all transactions with related persons involving the Company. The Audit Committee may approve a related party transaction if the +transaction is on terms comparable to those that could be obtained in arms’ length dealings with an unrelated third party. The Audit Committee also reviews any public disclosures of a related party transaction contained in our SEC filings. +These responsibilities are described in the Audit Committee’s charter, a copy of which is available on our website at www.orasure.com . +Information regarding employment and severance agreements between our executive officers and the Company is set forth in the Section entitled, “Employment Agreements and Potential Payments Upon +Termination or Change in Control,” in this Proxy Statement. \ No newline at end of file diff --git a/raw/proxies/0001116463/0001193125-12-151983/proxy.txt b/raw/proxies/0001116463/0001193125-12-151983/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..77b44dd405ca84667991e80263eaa9dc598b7ab4 --- /dev/null +++ b/raw/proxies/0001116463/0001193125-12-151983/proxy.txt @@ -0,0 +1,3621 @@ +DEF 14A +1 +d323664ddef14a.htm +DEFINITIVE PROXY STATEMENT +Definitive proxy Statement +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) +of the Securities Exchange Act of 1934 +(Amendment No. +) +Filed by the Registrant x Filed by a Party other than the +Registrant ¨ +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material Pursuant to §240.14a-12 +OraSure Technologies, Inc. +(Name of Registrant as +Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and +state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. +Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +ORASURE TECHNOLOGIES, INC. +220 East First Street +Bethlehem, Pennsylvania 18015 +April 5, 2012 +Dear Stockholder: +You are +cordially invited to attend the 2012 Annual Meeting of Stockholders to be held on Tuesday, May 15, 2012 , at the ArtsQuest Center at SteelStacks, 101 Founders Way, Bethlehem, Pennsylvania 18015, at 10:00 a.m. Eastern Time. Your Board of +Directors and Executive Management Team personally look forward to greeting those present. If you cannot attend in person, we are pleased to offer a live webcast of the Annual Meeting, which you can access by going to our website, +www.orasure.com . +Pursuant to the Securities and Exchange Commission rule allowing companies to furnish proxy materials +to their stockholders over the Internet, a Notice of Internet Availability of Proxy Materials (the “Notice”) has been sent to you on or about April 5, 2012. The Notice contains information on how to access copies of the proxy +materials and vote your shares. +At the meeting, you will be asked to (i) elect three Class III Directors to serve on the +Board of Directors until the Annual Meeting of Stockholders in 2015; (ii) ratify the appointment of KPMG LLP as our independent registered public accounting firm for 2012; (iii) approve, by a non-binding advisory vote, the compensation of +the Company’s named executive officers as disclosed in these materials; and (iv) transact such other business as may properly come before the meeting or any adjournment(s) thereof. +The Board of Directors has approved the nominees for Director and recommends that you vote FOR their election to the Board. In +addition, the Board of Directors recommends that you vote FOR the ratification of KPMG’s appointment and FOR the Company’s executive compensation. +Your vote is very important, regardless of the number of shares you own. Whether or not you plan to attend the Annual Meeting in person, we urge you to submit your vote as soon as possible. You will have +the option to vote by telephone, via the Internet, or by completing, signing, dating, and returning a paper Proxy Card. Additional details on these options can be found in the Notice sent to you or in the proxy materials. You may, of course, attend +the Annual Meeting and vote in person regardless of whether you have previously voted by phone, the Internet or mail. +We look +forward to seeing you at the meeting. +Sincerely, +Douglas A. Michels +President and Chief Executive Officer +Table of Contents +Table of Contents +Page +Notice of Annual Meeting of Stockholders +Proxy Statement +1 +Meeting Attendance +1 +Proxies +2 +Voting Procedures +2 +Voting Securities +3 +Stock Ownership of Certain Beneficial Owners and Management +3 +Corporate Governance +5 +Board Operation and Leadership Structure +5 +Oversight of Risk Management +5 +Insider Trading +6 +Director Independence +6 +Board Meetings +6 +Annual Meeting Attendance and Stockholder Communications +6 +Committees of the Board +6 +Nomination of Directors +8 +Report of the Audit Committee +9 +Executive Officers +11 +Transactions with Related Persons +12 +Section 16(a) Beneficial Ownership Reporting Compliance +12 +ITEM 1. – Election of Directors +13 +ITEM 2. – Ratification of Appointment of Independent Registered Public Accounting +Firm +16 +Audit Fees; Audit-Related Fees; Tax Fees; All Other Fees +16 +Executive Compensation +17 +Compensation Discussion and Analysis +17 +Summary Compensation Table +30 +Grants of Plan-Based Awards +31 +Outstanding Equity Awards at Fiscal Year-End +32 +Option Exercises and Stock Vested +34 +Pension Benefits +35 +Nonqualified Deferred Compensation +35 +Employment Agreements and Potential Payments Upon Termination or Change in Control +36 +2011 Director Compensation +39 +Compensation Committee Interlocks and Insider Participation +41 +Compensation Risk Assessment +41 +Compensation Committee Report +42 +Equity Compensation Plan Information +42 +ITEM 3. – Non-Binding Advisory Vote on Executive Compensation +43 +Annual Report +45 +Deadline for Stockholder Proposals +46 +Table of Contents +ORASURE TECHNOLOGIES, INC. +220 East First Street +Bethlehem, Pennsylvania 18015 +Notice of +Annual Meeting of Stockholders +to be held May 15, 2012 +To the Stockholders of OraSure Technologies, Inc.: +The Annual Meeting of +Stockholders of OraSure Technologies, Inc., a Delaware corporation, will be held at the ArtsQuest Center at SteelStacks, 101 Founders Way, Bethlehem, Pennsylvania 18015, on Tuesday, May 15, 2012 , at 10:00 a.m. Eastern Time, for the +following purposes: +1. +To elect three Class III Directors, each to serve for a term expiring at the Company’s Annual Meeting of Stockholders in 2015; +2. +To ratify the appointment of KPMG LLP as our independent registered public accounting firm for the year ending December 31, 2012; +3. +To approve, by a non-binding advisory vote, the compensation of the Company’s named executive officers as disclosed in the Proxy Statement accompanying this +Notice; and +4. +To consider such other business as may properly come before the meeting or any adjournment(s) or postponement(s) thereof. +Additional information is included in the Proxy Statement accompanying this Notice. Only holders of Common Stock of record at the close +of business on March 26, 2012, will be entitled to vote at the Annual Meeting of Stockholders and any adjournment(s) or postponement(s) thereof. +By Order of the Board of Directors, +Jack E. Jerrett +Secretary +April 5, 2012 +Bethlehem, Pennsylvania +YOUR VOTE IS IMPORTANT. Whether or not you plan +to attend the Annual Meeting, you are urged to vote your shares as promptly as possible by telephone, via the Internet, or by completing, signing, dating and returning a paper Proxy Card, as described in the attached Proxy Statement. Voting by +phone, the Internet or mail does not deprive you of your right to attend the Meeting and to vote your shares in person. +Table of Contents +ORASURE TECHNOLOGIES, INC. +220 East First Street +Bethlehem, Pennsylvania 18015 +Proxy +Statement +We are providing these Proxy Materials to stockholders of OraSure Technologies, Inc., a Delaware corporation +(as used herein, “we,” “us,” “our” or the “Company”), in connection with the Company’s solicitation of proxies (each, a “Proxy”) for use at the Annual Meeting of Stockholders to be held on +May 15, 2012, at 10:00 a.m. Eastern Time, at the ArtsQuest Center at SteelStacks, 101 Founders Way, Bethlehem, Pennsylvania 18015, and at any adjournment(s) or postponement(s) thereof (the “Annual Meeting”). +As a stockholder, you are invited to attend the Annual Meeting and are requested to vote on the matters described in this Proxy +Statement. For your convenience, we are pleased to offer a live webcast of our Annual Meeting which you can access by going to www.virtualshareholdermeeting.com/OSUR2012 . The webcast will end after the formal portion of the meeting is +adjourned and will not include any presentation by management or question and answer session for those present at the Annual Meeting. +We are furnishing Proxy Materials, including this Proxy Statement, the Proxy Card and the Company’s Annual Report to Stockholders for the year ended December 31, 2011 (“Annual +Report”), to our stockholders by providing access to such documents on the Internet in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). On or about April 5, 2012, we mailed a Notice +of Internet Availability of Proxy Materials (sometimes referred to as the “Notice”) to each stockholder at the holder’s address of record, indicating that this Proxy Statement is now available to our stockholders of record entitled to +vote at the Annual Meeting. All stockholders and beneficial holders have the ability to access a copy of our Proxy Materials on the Internet at the website referred to in the Notice. Stockholders will not receive printed copies of the Proxy +Materials unless they request those copies. The Notice also instructs stockholders as to how to submit a Proxy through the Internet. If you would like to receive a paper or e-mail copy of your Proxy Materials, you should follow the instructions +for requesting such materials included in the Notice. We will pay the entire cost of preparing, assembling, printing, mailing and distributing these Proxy Materials and soliciting votes. If you choose to access the Proxy Materials and/or vote over +the Internet, you are responsible for any Internet access charges you may incur. +SEC rules permit us to deliver only one copy of the Notice +or a single set of proxy materials to multiple stockholders sharing the same address. Upon written or oral request, we will deliver separate Notices and/or copies of our 2011 Annual Report and/or this Proxy Statement to any stockholder at a shared +address to which a single copy of the Notice was delivered. Stockholders may notify the Company of their requests by calling or writing us at OraSure Technologies, Inc., 220 East First Street, Bethlehem, Pennsylvania 18015; (610) 882-1820. +Meeting Attendance +If you plan to attend the Annual Meeting, please bring your Notice or Proxy Card or a recent broker statement as proof of ownership of your shares as of the March 26, 2012 record date for the Annual +Meeting. You will be required to present these materials as well as a valid photo identification in order to be admitted to +1 +Table of Contents +the Annual Meeting. Company representatives will be at the entrance to the Annual Meeting and these representatives will have the authority to determine, on the Company’s behalf, whether +these admission procedures have been followed and whether you will be granted admission to the Annual Meeting. Additional meeting procedures will be provided at the entrance to the Annual Meeting. Only the Company’s stockholders will be granted +in person access to the Annual Meeting. Members of the media and of the general public will not be granted access. +Proxies +If represented by a properly executed Proxy, whether delivered by phone, the Internet or mail, as described +below, your shares will be voted in accordance with your instructions. If you do not provide instructions with your Proxy, your shares will be voted according to the recommendations of our Board of Directors (the “Board”) as stated on the +Proxy. You may revoke the authority granted by your Proxy at any time before the Annual Meeting by notice in writing delivered to the Secretary of the Company, by delivering a subsequently dated Proxy, or by attending the Annual Meeting, withdrawing +the Proxy and voting in person. +At the Annual Meeting, action will be taken on the matters set forth in the accompanying +Notice of Annual Meeting of Stockholders and described in this Proxy Statement. The Board knows of no other matters to be presented for action at the Annual Meeting. If any other matters do properly come before the Annual Meeting, the persons named +in the Proxy Card will have discretionary authority to vote on those matters in accordance with their best judgment. +Solicitation of proxies is made on behalf of the Board. The cost of soliciting Proxies will be borne by us. In addition to solicitations +by e-proxy and/or by mail, certain of our Directors, officers and regular employees may solicit Proxies personally or by telephone or other means without additional compensation. We have also engaged Morrow & Co., LLC, 470 West Ave., +Stamford, CT 06902, to provide proxy solicitation services at a fee estimated at $5,500 plus expenses. +Arrangements will be +made with brokerage firms and other custodians, nominees and fiduciaries to forward solicitation materials to the beneficial owners of stock held of record by such persons, and we will, upon request, reimburse them for their reasonable expenses in +so doing. +Voting Procedures +You will have a choice of voting over the telephone, via the Internet or by completing and mailing a paper Proxy Card, as described +below. +Voting via the Internet or by Telephone. If you desire to vote online via the Internet +or by telephone prior to the Annual Meeting, you should go to www.proxyvote.com or call the toll free number indicated on the Proxy Card or Notice. You may vote via the Internet or by telephone provided you do so by 11:59 pm Eastern Time +(8:59 pm Pacific Time) on May 14, 2012. Stockholders who attend the Annual Meeting via the Internet may vote their shares at that time by following the instructions at www.virtualshareholdermeeting.com/OSUR2012 . +The telephone and Internet voting procedures are designed to authenticate your identity, to allow you to give your voting instructions +and to confirm that your instructions have been recorded properly. If you vote via the Internet, you should understand that you will be responsible for any costs associated with this method of voting, such as usage charges from Internet access +providers and telephone companies. +Voting by Mail . If you desire to vote by using a paper Proxy +Card instead of by telephone or the Internet, you will need to either print a copy of the Proxy Card from the website indicated in your Notice or follow the instructions in your Notice to request that a paper copy be sent to you. You will then need +to complete, sign, date and return the Proxy Card to the Company, as described on the Proxy Card. +2 +Table of Contents +Submitting a Proxy via the Internet, over the telephone or by mail will not affect your +right to withdraw your Proxy and vote in person at the Annual Meeting, provided that you follow the admission procedures described above. +Voting Securities +On March 26, 2012, the +record date for determining stockholders entitled to vote at the Annual Meeting, we had outstanding and entitled to vote at the meeting 48,508,302 shares of common stock, par value $.000001 per share (“Common Stock”). Each share of Common +Stock is entitled to one vote on any matter brought before the Annual Meeting. A majority of the shares of Common Stock outstanding as of the record date, represented in person or by Proxy at the Annual Meeting, will constitute a quorum for the +transaction of business. +Broker non-votes, votes withheld and abstentions will be counted for purposes of determining whether +a quorum has been reached at the Annual Meeting. Because abstentions will be included in tabulations of the votes entitled to vote for purposes of determining whether a proposal has been approved, abstentions have the same effect as negative votes. +Broker non-votes, however, are not counted as shares present and entitled to be voted with respect to the matters which the broker has not expressly voted. A broker “non-vote” occurs when a nominee holding shares for a beneficial owner +does not vote on a particular proposal because the nominee does not have the discretionary voting power with respect to that item and has not received instructions on how to vote the shares from the beneficial owner. Discretionary voting by a broker +or other nominee is not permitted in connection with the election of Directors or the advisory vote regarding the Company’s executive compensation. Thus, if your broker or nominee does not receive instructions from you, a broker non-vote will +occur and your shares will not be voted on these matters. +Stock Ownership of Certain Beneficial +Owners and Management +The following table sets forth information, as of March 26, 2012, regarding the beneficial +ownership of the Company’s Common Stock by (a) each person who is known by us to be the beneficial owner of more than five percent of the Common Stock outstanding, (b) each Director and nominee for election as Director, (c) each +of our executive officers named in the Summary Compensation Table in this Proxy Statement under “Executive Compensation,” and (d) all of our directors and executive officers as a group. Unless otherwise indicated, the address of each +person identified below is c/o OraSure Technologies, Inc., 220 East First Street, Bethlehem, Pennsylvania 18015. +3 +Table of Contents +Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the +“Exchange Act”), shares of Common Stock which a person has a right to acquire pursuant to the exercise of stock options held by that person that are exercisable within 60 days of March 26, 2012 are deemed to be outstanding for the +purpose of computing the percentage ownership of that person, but are not deemed outstanding for computing the percentage ownership of any other person. +Name and Address of +Beneficial Owner +Amount and Nature of +Beneficial Ownership 1,2 +Percent +of Class +Wells Fargo & Company 3 +420 Montgomery Street +San Francisco, CA +94104 +8,486,795 +17.5 +% +BlackRock, Inc . 4 +40 East 52 nd +Street +New York, NY +10022 +4,152,529 +8.6 +% +Putnam Investments, LLC 5 +One Post Office Square +Boston, MA 02109 +3,035,008 +6.3 +% +OrbiMed Advisors LLC 6 +OrbiMed Capital LLC +Samuel D. Isaly +601 Lexington Avenue +54 th Floor +New York, NY 10022 +2,908,900 +6.0 +% +Douglas A. Michels 7 +1,422,096 +2.9 +% +Ronald H. Spair +818,289 +1.7 +% +Stephen R. Lee, Ph.D. +313,002 +* +Roger L. Pringle 8 +341,931 +* +Douglas G. Watson +298,281 +* +Jack E. Jerrett +126,047 +* +Ronny B. Lancaster +88,829 +* +Charles W. Patrick +133,672 +* +Michael Celano +121,224 +* +Stephen S. Tang, Ph.D. +30,520 +* +Anthony Zezzo II +115,788 +* +Gerald M. Ostrov +18,854 +* +All directors and executive officers as a group (13 people) +3,984,657 +7.8 +% +*Less +than 1% +(1) +Subject to community property laws where applicable, beneficial ownership consists of sole voting and investment power except as otherwise indicated. +(2) +Includes shares subject to options exercisable within 60 days of March 26, 2012, as follows: Mr. Michels, 832,194 shares; Mr. Spair, +480,522 shares; Dr. Lee, 238,403 shares; Mr. Pringle, 235,552 shares; Mr. Watson, 200,000 shares; Mr. Jerrett, 102,732 shares; Mr. Lancaster, 70,000 shares; Mr. Patrick, 70,000 shares; Mr. Celano, 70,000 shares; +Dr. Tang, 21,666 shares; Mr. Zezzo, 38,333 shares; Mr. Ostrov, 10,000 +4 +Table of Contents +shares; and all directors and executive officers as a group, 2,475,454 shares. Also includes unvested restricted shares, as follows: Mr. Michels, 177,760 shares; Mr. Spair, 71,885 +shares; Dr. Lee, 30,782 shares; Mr. Pringle, 8,854 shares; Mr. Watson, 13,281 shares; Mr. Jerrett, 23,315 shares; Mr. Lancaster, 8,854 shares; Mr. Patrick, 8,854 shares; Mr. Celano, 8,854 shares; Dr. Tang, +8,854 shares; Mr. Zezzo, 60,536 shares; Mr. Ostrov, 8,854 shares; and all directors and executive officers as a group, 454,414 shares. +(3) +Based on information contained in a Schedule 13G/A filed January 24, 2012 by Wells Fargo & Company (“Wells Fargo”), on behalf of certain of its +subsidiaries. Wells Fargo has sole voting power with respect to 8,394,174 shares, sole dispositive power with respect to 8,472,185 shares and shared dispositive power with respect to 8,370 shares. +(4) +Based on information contained in a Schedule 13G/A filed February 10, 2012, by BlackRock, Inc. (“BlackRock”) on behalf of certain of its subsidiaries. +BlackRock has sole voting and dispositive power with respect to the indicated shares. +(5) +Based on information contained in a Schedule 13G filed February 14, 2012, by Putnam Investments, LLC (“Putnam”), on behalf of certain affiliates. Putnam +has sole voting power with respect to 226,086 shares and sole dispositive power with respect to 3,035,008 shares. +(6) +Based on information contained in a Schedule 13G filed February 14, 2012 by OrbiMed Advisors LLC (“OMA”), OrbiMed Capital LLC (“OMC”) and +Samuel D. Isaly, OMA has shared voting and dispositive power with respect to 1,236,600 shares, OMC has shared voting and dispositive power with respect to 1,672,300 shares and Mr. Isaly has shared voting and dispositive power with respect to +2,908,900 shares. +(7) +Includes 5,400 shares owned by Mr. Michels’ son. +(8) +Includes 1,500 shares owned by Mr. Pringle’s spouse. +Corporate Governance +Board +Operation and Leadership Structure +The Board has adopted Corporate Governance Principles which, along with the Charters +for each of its Committees and the Company’s Code of Business Conduct and Ethics, provide a framework for the governance of the Company. The Company’s Corporate Governance Principles address matters such as the responsibilities and +composition of the Board, Director independence and the conduct of Board and Committee meetings. The Company’s Code of Business Conduct and Ethics sets forth guiding principles of business ethics and certain legal requirements applicable to all +Company employees and Directors. Copies of the current Corporate Governance Principles and Code of Business Conduct and Ethics are available at the Company’s website, www.orasure.com . +Currently, the Company’s Chief Executive Officer does not hold the position of Chairman of the Board as the Company believes it is +appropriate for the Board to be led by an individual who is independent of management. Mr. Watson has served as the Chairman of our Board since March 2003. In the future, however, the Board may reconsider whether its Chief Executive Officer +should also serve as Board Chairman. +Oversight of Risk Management +As part of its oversight of the Company’s operations, the Board and Audit Committee monitor the management of risks by the +Company’s executives. The Audit Committee reviews the risks that the Company may face and receives reports from senior management on the nature of these risks and the procedures and processes in place to manage and mitigate such risks. +Substantive areas of risk reviewed by the Audit Committee include financial, legal compliance, operational, information technology and employment risks. The Audit Committee provides a report to the full Board on the matters covered during each of +its meetings, including its risk monitoring activities. In addition, senior management provides periodic reports to the full Board on the major risks facing the Company and the processes and procedures in place to manage such risks. +5 +Table of Contents +Insider Trading +The Company has a policy designed to prevent any trading in the Company’s Common Stock or other securities by a person while such +person is in possession of material nonpublic information. This policy applies to members of the Board, executive officers and all other employees of the Company. The policy prohibits trading in the Company’s securities on the basis of material +nonpublic information, requires preapproval for Directors and all employees of transactions in Company securities and establishes regular trading windows after each calendar quarter following the Company’s announcement of its quarterly +financial results. Directors and employees are expressly precluded from engaging in short-term or speculative transactions involving Company securities, including short sales, the buying or selling of puts or calls, the purchase of securities on +margin, prepaid variable forward contracts, equity swaps, collars, exchange funds and other similar financial instruments. +Director Independence +The Company’s Corporate Governance Guidelines require, among other things, that a majority +of the members of the Board meet the independence requirements of the SEC and The NASDAQ Stock Market (“NASDAQ”), on which our Common Stock is listed. Each year our Board, with assistance from the Nominating and Corporate Governance +Committee, conducts a review of Director independence. The most recent annual review occurred in the first quarter of 2012, during which the Board considered transactions and relationships, if any, between each Director or any member of such +Director’s immediate family and the Company. As a result of this review, the Board determined that Michael Celano, Ronny B. Lancaster, Gerald M. Ostrov, Charles W. Patrick, Roger L. Pringle, Stephen S. Tang, Ph.D., and Douglas G. Watson are +“independent,” as that term is defined in the applicable rules of NASDAQ and the SEC. +Only Douglas A. Michels and +Ronald H. Spair were determined by the Board not to be independent. Mr. Michels is not independent because he is employed as our President and Chief Executive Officer, and Mr. Spair is not independent because he is employed as our Chief +Financial Officer and Chief Operating Officer. Based on the foregoing, the Board of Directors is comprised of a majority of independent Directors. +Board Meetings +The Board held ten meetings and +acted by written consent on six occasions during the year ended December 31, 2011. Each member of the Board attended more than 75 percent of the combined total of meetings of the Board and of the committees of the Board on which such +member served during the period in the year in which he served as a Director. +Annual Meeting Attendance and +Stockholder Communications +The Board has approved a policy concerning Board members’ attendance at our annual meeting +of stockholders and a process for security holders to send communications to members of the Board. Our 2011 Annual Meeting of Stockholders held on May 17, 2011 was attended by all members of the Board. Descriptions of the Board’s policy on +annual meeting attendance and the process for security holders to send communications to the Board are provided on our website, at www.orasure.com . +Committees of the Board +The Board currently +has three standing committees – the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee. Each Committee is composed entirely of independent Directors. +Audit Committee. The Audit Committee oversees the Company’s accounting and financial reporting +process, internal controls and audits, and consults with management and the Company’s independent registered public accounting firm on, among other items, matters related to the annual audits, the published financial +6 +Table of Contents +statements and the accounting principles applied. As part of its duties, the Audit Committee appoints, evaluates and retains the Company’s independent registered public accounting firm. It +also maintains direct responsibility for the compensation, termination and oversight of the Company’s independent registered public accounting firm and evaluates the independent registered public accounting firm’s qualifications, +performance and independence. The Audit Committee approves all services provided to the Company by the independent registered public accounting firm. The Audit Committee has established procedures for the receipt, retention and treatment, on a +confidential basis, of complaints received by the Company, regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submissions by employees of concerns regarding questionable accounting or auditing +matters. The Audit Committee operates pursuant to a written charter, a copy of which is available on our website at www.orasure.com . +Members of the Audit Committee are Michael Celano, Chairman, Charles W. Patrick, Stephen S. Tang, Ph.D. and Douglas G. Watson. Each member of the Audit Committee is “independent,” as defined in +the Exchange Act and applicable NASDAQ rules. The Board has determined that Mr. Celano is an “audit committee financial expert,” as that term is defined by applicable rules of the SEC. The Audit Committee met eight times during the +year ended December 31, 2011. +Compensation Committee. The primary responsibility of +the Compensation Committee is to assist the Board in fulfilling its oversight responsibilities with respect to all types of compensation for our officers and non-employee Directors. Our overall compensation philosophy, as determined by the +Compensation Committee and approved by the Board, is to (i) reward executive officers for the performance of the Company and achievement by the executives of financial and other individual performance objectives, (ii) align the interests +of the executive officers with the interests of our stockholders, (iii) provide long-term incentives for the executive officers, and (iv) set compensation levels sufficiently competitive to attract and retain high quality executives and to +motivate them to contribute to our success. The Compensation Committee operates pursuant to a written charter, a copy of which is available on our website at www.orasure.com . +On an annual basis, the Compensation Committee evaluates the performance of the Chief Executive Officer against previously established +goals and objectives and reviews the performance evaluations and compensation recommendations for other executive officers provided by the Chief Executive Officer. Based on the foregoing, along with a review of compensation provided at comparable +medical diagnostic and healthcare companies and the recommendations of a compensation consultant engaged by the Compensation Committee, the Committee determines cash and equity compensation for the Chief Executive Officer, other executive officers +and the non-employee members of the Board. Compensation for the Chief Executive Officer is submitted for approval by a majority of independent Directors on the Board. +On an as-needed basis, the Compensation Committee retains independent compensation consultants to assist the Compensation Committee in evaluating and structuring our executive compensation program and +making compensation decisions. +During 2011, the Committee engaged Pearl Meyer & Partners (“PM&P”) to +do the following: (i) provide a competitive market assessment of compensation paid to Mr. Michels; (ii) finalize a competitive assessment of compensation paid to non-employee members of the Board; and (iii) assist the Committee +in finalizing a long-term incentive plan under which equity awards would be granted to executives beginning in 2012. We paid PM&P approximately $55,945 for the foregoing executive compensation consulting services. A further discussion of the +role of the Compensation Committee, our processes and procedures for determining executive officer and non-employee Director compensation, and the services provided by compensation consultants are set forth in the Section entitled, +“Compensation Discussion and Analysis,” in this Proxy Statement. +The Committee is authorized to delegate any of its +responsibilities to subcommittees or individuals, as the Committee deems appropriate. To date, the Committee has not exercised this right. +7 +Table of Contents +Members of the Compensation Committee are Roger L. Pringle, Chairman, Ronny B. Lancaster, +Stephen S. Tang, Ph.D. and Douglas G. Watson. Each member of the Compensation Committee is “independent,” as defined in applicable NASDAQ rules. The Compensation Committee met eight times and acted by written consent on two occasions +during the year ended December 31, 2011. +Nominating and Corporate Governance +Committee . The Nominating and Corporate Governance Committee of the Board identifies, evaluates and recommends to the Board candidates for election or re-election to the Board. In addition, this Committee is +responsible for developing, recommending for Board approval and administering our Corporate Governance Guidelines. The Nominating and Corporate Governance Committee operates pursuant to a written charter. Copies of the Committee’s charter and +the Company’s Corporate Governance Guidelines are available on our website at www.orasure.com . +In evaluating and +recommending candidates for the Board, the Nominating and Corporate Governance Committee will consider candidates recommended by members of the Committee or the Board of Directors, officers or employees of the Company, the Company’s security +holders and other business contacts. The Nominating and Corporate Governance Committee may also consult with outside advisors or retain search firms to assist in the search for qualified candidates. Candidates recommended by security holders will be +considered by the Nominating and Corporate Governance Committee in the same manner as candidates recommended by other sources, but only if the security holder makes a recommendation in accordance with the advance notification provisions set forth in +the Company’s By-laws. For a description of these provisions, see the Section entitled, “Nomination of Directors,” in this Proxy Statement. +Although there is no formal policy governing Board diversity, the Nominating and Corporate Governance Committee considers diversity and other factors in evaluating new candidates for the Board. The term +diversity is used broadly to include not only race, gender and national origin, but also any other factors determined to be relevant by the Committee based on the needs of the Board and Company, including: independence, integrity, knowledge, +judgment, character, leadership skills, education, industry experience, financial literacy, technical background, specialized expertise, and standing in the community. In evaluating incumbent Directors for re-election, the Nominating and Corporate +Governance Committee considers that Director’s background, experience and overall service to the Company, including the number of meetings attended, level of participation, quality of performance and other factors deemed relevant by the +Committee. +Members of the Nominating and Corporate Governance Committee are Ronny B. Lancaster, Chairman, Michael Celano, +Charles W. Patrick, and Roger L. Pringle. Each member of the Nominating and Corporate Governance Committee is “independent,” as defined in applicable NASDAQ rules. The Nominating and Corporate Governance Committee met five times during the +year ended December 31, 2011. +Nomination of Directors +Our Bylaws provide that nominations for election to the Board may be made by the Board or by any stockholder entitled +to vote for the election of Directors at the Annual Meeting. A stockholder’s notice of nomination must be made in writing to the Company’s Secretary and must be delivered to or received at our principal executive offices not less than +ninety (90) days nor more than one hundred twenty (120) days prior to the meeting. However, in the event that less than one hundred (100) days’ notice or prior public disclosure of the date of the meeting is given or made to +stockholders, notice by the stockholder to be timely must be received no later than the close of business on the tenth +(10 th ) day following the day on which such notice of +the date of the meeting was mailed or such public disclosure was made, whichever first occurs. The notice to the Secretary must set forth, with respect to the nominee, the name, age, business address, residence address, principal occupation or +employment of the person, the class and number of shares of capital stock of the Company which are beneficially owned by the person, and any other information relating to the person that is required to be disclosed in solicitations for proxies for +election of Directors pursuant to Regulation 14A under the Exchange Act. The notice must also include, as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the +8 +Table of Contents +nomination is made: (i) the name and address of the stockholder and such beneficial owner; (ii) the class and number of shares of capital stock of the Company which are held of record +or beneficially owned by such stockholder and such beneficial owner and any other direct or indirect pecuniary or economic interest in any capital stock of the Company of such stockholder and beneficial owner, including without limitation, any +derivative instrument, swap, option, warrant, short interest, hedge, profit sharing arrangement or borrowed or loaned shares; (iii) a description of any arrangements or understandings between such stockholder and beneficial owner and each +proposed nominee and any other person (including their names) pursuant to which the nomination(s) are to be made by such stockholder and such beneficial owner or with respect to actions to be proposed or taken by such nominee if elected as a +Director; (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice; and (v) any other information relating to such stockholder and such beneficial owner +that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of Directors, or may otherwise be required pursuant to Section 14 of the Exchange Act and +the rules and regulations promulgated thereunder. We may also require any proposed nominee to furnish such other information as we may reasonably require to determine the eligibility of the proposed nominee to serve as a Director of the Company. +Report of the Audit Committee +The information contained in this report shall not be deemed to be “soliciting material” or “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to +liability under that Section. This report shall not be deemed “incorporated by reference” into any document filed under the Securities Act of 1933, as amended, or the Exchange Act, whether such filing occurs before or after the date +hereof, regardless of any general incorporation language in such filing. +The role of the Audit Committee is to assist the +Board of Directors in fulfilling its responsibilities to oversee management’s conduct of the Company’s financial reporting process, including monitoring (1) the participation of management and the outside independent registered public +accounting firm in the financial reporting process, (2) the Company’s systems of internal accounting and financial controls, (3) the annual independent audit of the Company’s financial statements and (4) the qualifications, +independence and performance of the outside independent registered public accounting firm. The Committee selects the Company’s outside independent registered public accounting firm, and once selected, the outside independent registered public +accounting firm reports directly to the Committee. The Committee is responsible for approving both audit and non-audit services to be provided by the outside independent registered public accounting firm. The Committee operates pursuant to a Charter +that was last amended and restated by the Board on November 14, 2011. +Management of the Company is responsible for the +preparation, presentation and integrity of the Company’s financial statements, the Company’s accounting and financial reporting principles and internal controls and procedures designed to assure compliance with accounting standards and +applicable laws and regulations. The independent registered public accounting firm is responsible for auditing the Company’s financial statements and expressing an opinion as to their conformity with U.S. generally accepted accounting +principles. The Committee’s responsibility is to monitor and review these processes. It is not the Committee’s duty or responsibility to conduct auditing or accounting reviews. +In the performance of its oversight function, the Committee has considered and discussed the audited financial statements with +management, which included a discussion of not only the quality, but also the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements. The Committee met with +the independent registered public accounting firm, with and without management, to discuss the results of their audit and their judgments regarding the Company’s accounting policies. The Committee has also discussed with the independent +registered public accounting firm the matters required to be discussed by Statement on Auditing Standards No. 61, “Communication with Audit Committees,” as currently in effect. Finally, the Committee has received the written +disclosures and the letter from the independent registered public accounting firm required by applicable +9 +Table of Contents +requirements of the Public Company Accounting Oversight Board as currently in effect, has considered whether the provision of non-audit services by the independent registered public accounting +firm to the Company is compatible with maintaining the firm’s independence and has discussed with the independent registered public accounting firm the firm’s independence. +Based upon the reports and discussions described in this report, and subject to the limitations on the role and responsibilities of the +Committee referred to above and in the Committee’s Charter, the Committee recommended to the Board that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 for +filing with the SEC and selected KPMG LLP as the independent registered public accounting firm for fiscal year 2012. The Board is recommending that stockholders ratify that selection at the Annual Meeting. +SUBMITTED BY THE AUDIT COMMITTEE +OF +THE COMPANY’S BOARD OF DIRECTORS +Michael Celano, Chairman +Charles W. Patrick +Stephen S. Tang, Ph.D. +Douglas G. Watson +March 7, 2012 +10 +Table of Contents +Executive Officers +The table below provides information about the executive officers of the Company as of March 26, 2012. Officers of the Company hold +office at the discretion of the Board. +Name +Age +Position +Douglas A. Michels +55 +President and Chief Executive Officer +Ronald H. Spair +56 +Chief Financial Officer and Chief Operating Officer +Stephen R. Lee, Ph.D. +52 +Executive Vice President and Chief Science Officer +Anthony Zezzo II +58 +Executive Vice President, Marketing and Sales +Jack E. Jerrett +53 +Senior Vice President, General Counsel and Secretary +Mark L. Kuna +48 +Senior Vice President, Finance, Controller and Assistant Secretary +Douglas A. Michels has been the Company’s President and Chief Executive Officer since June 2004. +Prior to that, Mr. Michels served as Group Vice President, Global Marketing of Ortho-Clinical Diagnostics, President of Ortho-Clinical Diagnostics International, and President of Johnson & Johnson Healthcare Systems, Inc. Earlier in +his career, Mr. Michels held various positions of increasing responsibility within the Johnson & Johnson family of companies, including Vice President, Sales & Marketing, Vice President/General Manager – Immunocytometry +Business, Executive Director Sales & Marketing, Director of Marketing, Director of Sales, and Regional Sales Manager for Ortho Diagnostic Systems, Inc. Prior to joining Johnson & Johnson, Mr. Michels worked for the Diagnostics +Division of Abbott Laboratories in various sales and product management positions. Mr. Michels received a B.S. degree in Public Health Administration from the University of Illinois and an M.B.A. from Rutgers University. In 2010, +Mr. Michels was appointed to serve on the Presidential Advisory Council on HIV/AIDS (PACHA). Mr. Michels serves on the Board of West Pharmaceutical Services, Inc. and is a member of the Board of Trustees of St. Luke’s Hospital. +Ronald H. Spair has been the Company’s Chief Financial Officer and Chief Operating Officer since September 2006 and +served as Executive Vice President and Chief Financial Officer since November 2001. Prior to that time, Mr. Spair was Vice President, Chief Financial Officer and Secretary of Delsys Pharmaceutical Corporation, a pharmaceutical manufacturing +system development company, Senior Vice President, Chief Financial Officer and Secretary of SuperGen, Inc., a pharmaceutical company, and Senior Vice President, Chief Financial Officer and Secretary of Sparta Pharmaceuticals, Inc., a development +stage pharmaceutical company. Mr. Spair received both his B.S. in Accounting and M.B.A. from Rider College. He is also a licensed Certified Public Accountant and is a member of the New Jersey Society of Certified Public Accountants and the +American Institute of Certified Public Accountants. +Stephen R. Lee, Ph.D. has been the Company’s Executive Vice +President and Chief Science Officer since September 2005. Prior to that time, Dr. Lee worked at Ortho-Clinical Diagnostics, a Johnson & Johnson company, serving as Vice President, Assay Research & Development, Executive +Director, Worldwide Immunodiagnostic Product Development, and Director, Infectious Disease Assay Development. Dr. Lee has had responsibility for or direct involvement in the development of over 40 major diagnostic assays, in such areas as +infectious disease, cardiology, oncology and other conditions. While at Ortho, Dr. Lee was awarded the Johnson Medal, Johnson & Johnson’s highest award for research and development. Prior to joining Ortho, Dr. Lee worked as a +scientist for both Wampole Labs and Immunicon Corporation. Dr. Lee received a BSc. in Biochemistry from Sheffield University (U.K.) in 1981 and a Ph.D. degree in Biochemistry from Cardiff University (U.K.) in 1985. +Anthony Zezzo II has been the Company’s Executive Vice President, Marketing and Sales since January 2011. From 2004 to December +2010, Mr. Zezzo was Vice President, North American Sales and Marketing at the Ortho-Clinical Diagnostics Division of Johnson & Johnson. Prior to that time, Mr. Zezzo held a series of increasingly responsible positions within +Johnson & Johnson, including as Executive Director, Johnson & Johnson Healthcare Systems from 1994 to 1996, Executive Director, Marketing and Sales for the AIDS/Hepatitis +11 +Table of Contents +Division of Ortho Diagnostics from 1996 through 1999 and Vice President, Sales and Marketing for Ortho Diagnostics’ businesses in the United States, Canada and Latin America, from 1999 to +2004. Mr. Zezzo received his B.A. in Political Science from Grove City College. +Jack E. Jerrett has been the +Company’s Senior Vice President and General Counsel since February 2003 and served as Vice President and General Counsel since November 2000. He has also served as the Company’s Secretary since February 2001. Prior to joining the Company, +Mr. Jerrett served in the positions of Associate General Counsel and Senior Counsel at PPL Electric Utilities Corporation, and acted as general counsel to PPL Gas Utilities Corporation. Prior to that time, Mr. Jerrett was Senior Corporate +Attorney of Union Pacific Corporation and an Associate with Morgan, Lewis & Bockius. Mr. Jerrett received his B.S. in Accounting from Villanova University and his J.D. from the Villanova University School of Law. He is a member of the +Pennsylvania Bar and the American and Pennsylvania Bar Associations. +Mark L. Kuna has been the Company’s Senior Vice +President, Finance and Controller since September 2006, and served as Vice President and Controller since February 2003 and as Controller since February 2001. Mr. Kuna has also served as the Company’s Assistant Secretary since May 2002 and +provided accounting and financial analysis support since joining the Company in October 2000. Prior to that time, Mr. Kuna served as Director of Financial Planning and Analysis for the greater Philadelphia region of XO Communications, Inc., and +Vice President and Principal Accounting Officer of Wedco Technology, Inc. Prior to joining Wedco Technology, he was an accountant with Deloitte and Touche. Mr. Kuna received his B.S. in Accounting from the University of Scranton, is a licensed +Certified Public Accountant, and is a member of the Pennsylvania and American Institutes of Certified Public Accountants. +Transactions With Related Persons +Since January 1, 2011, there have been no transactions with related persons +which would require disclosure in this Proxy Statement. The Audit Committee is required to review and approve in advance all transactions with related persons involving the Company. The Audit Committee may approve a related party transaction if the +transaction is on terms comparable to those that could be obtained in arms’ length dealings with an unrelated third party. The Audit Committee also reviews any public disclosures of a related party transaction contained in our SEC filings. +These responsibilities are described in the Audit Committee’s charter, a copy of which is available on our website at www.orasure.com . +Information regarding employment and severance agreements between our executive officers and the Company is set forth in the Section entitled, “Employment Agreements and Potential Payments Upon +Termination or Change in Control,” in this Proxy Statement. +Section 16(a) Beneficial +Ownership Reporting Compliance +Section 16(a) of the Exchange Act requires that our executive officers and Directors +and persons who own more than ten percent of our Common Stock (collectively, “Reporting Persons”) file reports of ownership and changes in ownership with the SEC. Reporting Persons are required by the SEC’s regulations to furnish us +with copies of all Section 16(a) forms they file. +As a matter of practice, our administrative staff assists each of the +Reporting Persons who are employees and Directors of the Company in preparing initial reports of ownership and reports of changes in beneficial ownership and filing such reports with the SEC and the NASDAQ. Based solely on a review of the copies of +forms filed by or on behalf of the Reporting Persons and on written representations (if any) from each of the Reporting Persons, we believe that all Reporting Persons complied on a timely basis with all applicable filing requirements with respect to +the year 2011. +12 +Table of Contents +ITEM 1. +Election of Directors +Background +At the Annual Meeting, you will be asked to vote on the election of three Directors. A majority of the independent members +of the Board have nominated Michael Celano, Douglas A. Michels and Charles W. Patrick for election as Class III Directors, for terms expiring at the Annual Meeting of Stockholders in 2015. +All of the nominees for election as Directors are presently members of our Board. Mr. Celano joined the Board in 2006, is currently +Chairman of the Audit Committee and serves on the Nominating and Corporate Governance Committee. Mr. Michels became the Company’s President and Chief Executive Officer and a member of the Board in 2004. Because of his status as an +executive officer of the Company, Mr. Michels serves on no Committees of the Board. Finally, Mr. Patrick joined the Board in 2006 and serves on the Audit Committee and Nominating and Corporate Governance Committee. +We do not know of anything that would preclude any nominee from serving. However, should any nominee for any reason become unable or +unwilling to serve as a Director, the persons named in the enclosed Proxy Card will vote the shares represented by each Proxy for such substitute nominee as the Board may approve. +Any vacancy that occurs on the Board that results from an increase in the number of Directors may be filled by the affirmative vote of a +majority of the Directors then in office, and any other vacancy on the Board may be filled by the affirmative vote of a majority of the Directors then in office, even though less than a quorum of the Board, or by a sole remaining Director. +Certain information with respect to each person nominated for election as a Director and each person whose term of office as +a Director will continue after the Annual Meeting, including the particular experience, qualifications, attributes and skills they possess that led to the conclusion that they should serve as a Director, is set forth below. +Name +Principal Occupation +Age +Director +Since +Class I (Directors Whose Terms Expire in 2013): +Stephen S. Tang, Ph.D. +President and Chief Executive Officer of The University City Science Center +51 +2011 +Douglas G. Watson +Chief Executive Officer of Pittencrieff Glen Associates +67 +2002 +Gerald M. Ostrov +Former Chairman and CEO of Bausch & Lomb +62 +2011 +Class II (Directors Whose Terms Expire in 2014): +Ronny B. Lancaster +Senior Vice President for Federal Government Relations of Assurant, Inc. +60 +2003 +Roger L. Pringle +President of The Pringle Company +71 +2000 +Ronald H. Spair +Chief Financial Officer and Chief Operating Officer of the Company +56 +2006 +Class III (Nominees for Terms Expiring in 2015): +Michael Celano +Chief Financial Officer of Kensey Nash Corporation +53 +2006 +Douglas A. Michels +President and Chief Executive Officer of the Company +55 +2004 +Charles W. Patrick +Principal, Patrick Consulting +57 +2006 +13 +Table of Contents +Stephen S. Tang, Ph.D., became a member of the Board in April 2011. Since January 2008, +Dr. Tang has served as President and Chief Executive Officer of The University City Science Center, an urban research park and business incubator owned by over thirty leading universities, medical schools and health networks in the greater +Philadelphia, Pennsylvania area. Prior to that, Dr. Tang was employed by Olympus America, Inc., serving as Group Vice President for Life Science from 2006 to 2008 and as Vice President of Life Science Business Development from 2005 to 2006. +Prior to his work with Olympus America, Dr. Tang served as President and Chief Executive Officer of Millennium Cell Inc., an energy technology firm, from 2000 to 2004 and as Vice President and Managing Director of the global pharmaceutical and +healthcare practice of A.T. Kearney Inc. prior to 2000. Dr. Tang holds a B.S. degree in Chemistry from The College of William and Mary, an M.S. degree and Ph.D. in Chemical Engineering from Lehigh University and an MBA from The Wharton School +of Business at the University of Pennsylvania. Dr. Tang’s extensive business experience, and in particular his experience in the life sciences industry and with strategic and business development matters, led to the conclusion that he +should serve on the Company’s Board. +Douglas G. Watson became a member of the Board in May 2002 and became Chairman of +the Board in March 2003. Since July 1999, Mr. Watson has been Chief Executive Officer of Pittencrieff Glen Associates, a leadership and management consulting firm, which he founded. Prior to that, Mr. Watson served as President and Chief +Executive Officer of Novartis Corporation, the U.S. subsidiary of Novartis A.G., President and Chief Executive Officer of Ciba-Geigy Corporation, President of the Ciba Pharmaceuticals Division and Senior Vice President of Planning and Business +Development of Ciba’s U.S. Pharmaceuticals Division. Mr. Watson holds an M.A. degree in pure mathematics from Churchill College, Cambridge University, and is a member of the Chartered Institute of Management Accountants. Mr. Watson +also serves on the Boards of BioMimetic Therapeutics, Inc., Dendreon Corporation and Delcath Systems Inc. and previously served on the Boards of Engelhard Corporation, Genta Inc., Javelin Pharmaceuticals Inc., InforMedix Inc. and BioElectronics Inc. +Mr. Watson’s long business career and executive-level management experience in the pharmaceutical industry, his financial and accounting expertise and his service on the Boards and Board Committees of other private and public companies led +to the conclusion that he should serve on the Company’s Board. +Gerald M. Ostrov became a member of the Board in November +of 2011. Mr. Ostrov most recently served as Chairman and CEO of Bausch & Lomb from 2008 through 2010. Prior to this position, Mr. Ostrov spent the majority of his career with Johnson & Johnson where he held the position +of Company Group Chairman responsible for the Worldwide Vision Care businesses for nearly eight years. Earlier in his career at Johnson & Johnson, he served as President of the Personal Products Company. When he was later promoted to +Company Group Chairman, he added Northern Europe Consumer and Personal Care products to his responsibilities and became responsible for all Consumer and Personal Care businesses in North America. Mr. Ostrov also served as Vice President of +Marketing for Ciba-Geigy’s Consumer Pharmaceuticals business and President of Ciba’s Consumer Pharmaceuticals during the 1980’s. Mr. Ostrov earned a B.S. in Industrial Engineering and Operations Research from Cornell University +and an M.B.A. from Harvard University. Mr. Ostrov’s long and distinguished business career and in particular his extensive experience in marketing consumer products, led to the conclusion that he should serve on the Company’s Board. +Ronny B. Lancaster became a member of the Board in May 2003. Mr. Lancaster has served as Senior Vice President, Federal +Government Relations of Assurant, Inc., a provider of specialty insurance and insurance-related products and services since September 2005. From 1993 until September 2005, Mr. Lancaster served in various capacities at the Morehouse School of +Medicine in Atlanta, including as Chief Operating Officer. Prior to that, Mr. Lancaster was Executive Assistant to the Secretary and Principal Deputy Assistant Secretary for Planning and Evaluation at the U.S. Department of Health and Human +Services, General Counsel of Hamilton Enterprises, Inc., Senior Washington Representative for Blue Cross/Blue Shield Association, and Chief of the Division of Fee-For-Service Plans at the U.S. Office of Personnel Management. Mr. Lancaster +received his B.A. in Economics from the Catholic University of America, his M.B.A. from the Wharton School of the University of Pennsylvania, and his J.D. degree from The Georgetown University Law Center. He is admitted to the Bars of +14 +Table of Contents +Pennsylvania and the District of Columbia. Mr. Lancaster previously served on the Board of Immucor, Inc. Mr. Lancaster’s expertise in government affairs and political matters, his +extensive medical and healthcare experience and his legal training led to the conclusion that he should serve on the Company’s Board. +Roger L. Pringle has served on the Board since September 2000, when the Company was formed by the merger of Epitope, Inc. (“Epitope”) and STC Technologies, Inc. Prior to that, Mr. Pringle +served as Chairman of the Board and a member of the Board of Directors of Epitope, and was a director of Agritope, Inc., a plant genetics subsidiary of Epitope. Mr. Pringle is the President of The Pringle Company, a strategy and executive +consulting firm in Portland, Oregon, which was founded in 1976. Mr. Pringle currently serves on the Boards of Prolifiq Software, Inc. and previously served on the Boards of Bank of the Northwest, Metro One Telecommunications Inc. and North +Pacific Group. Mr. Pringle received a B.S. in Business from Oregon State University and an MBA from the University of Oregon. Mr. Pringle’s long service as a member of the Board of Epitope, his professional expertise in executive +selection, assessment and compensation, as well as his entrepreneurial and business leadership skills and his service on the Boards of other private and public companies led to the conclusion that he should serve on the Company’s Board. +For biographical information on Mr. Spair, see the Section entitled, “Executive Officers,” in this Proxy +Statement. Mr. Spair’s service as Chief Financial Officer and Chief Operating Officer of the Company, his financial and accounting expertise and his extensive business and investor relations experience led to the conclusion that he should +serve on the Company’s Board. +Michael Celano became a member of the Board in October 2006. Mr. Celano has served as +Chief Financial Officer of Kensey Nash Corporation, a biomaterials company, since March 2009. From August 2007 to December 2008, Mr. Celano served as Managing Director of Aon Risk Services and from September 2004 to May 2007, he served as Vice +President, Finance and Chief Financial Officer for BioRexis Pharmaceutical Corporation, a biopharmaceutical company. Before joining BioRexis, Mr. Celano served as a partner with KPMG LLP, in charge of its Mid-Atlantic Life Sciences Practice, +and was co-leader of its National Life Science Practice. Prior to joining KPMG, Mr. Celano was co-leader of the Life Science Practice for Arthur Andersen. Mr. Celano is a Certified Public Accountant and holds a B.S. degree in Accounting +from St. Joseph’s University. Mr. Celano’s accounting and financial expertise, and specifically his long career in public accounting focused in the life sciences area, and his extensive business experience led to the conclusion that +he should serve on the Company’s Board. +For biographical information on Mr. Michels, see the Section entitled, +“Executive Officers,” in this Proxy Statement. Mr. Michels’ service as President and Chief Executive Officer of the Company, his extensive business and executive-level management experience in the medical diagnostics field and +his sales and marketing expertise led to the conclusion that he should serve on the Company’s Board. +Charles W. Patrick +became a member of the Board in January 2006. Since 2000, Mr. Patrick has served as Principal of Patrick Consulting, a management consulting firm that helps diagnostic and technology companies develop sales, marketing and distribution +strategies. From 2002 through 2011, Mr. Patrick served as the President and Co-owner of ADS Golf, Inc., a golf equipment supplier. Prior to that time, he served as the President and Chief Executive Officer of CallNexus, Inc., a provider of +virtual call center services, and Vice President of Sales and Marketing for Biosite Diagnostics, a medical diagnostics company, where he had primary responsibility for developing and achieving Biosite’s strategic sales, marketing and +distribution objectives. Prior to his time at Biosite, Mr. Patrick served as World Wide Group Marketing Manager and held several other sales and marketing positions for the Diagnostics Division of Abbott Laboratories. Mr. Patrick received +a B.A. in Communications/Journalism from the University of Central Florida. Mr. Patrick also serves on the Board of diaDexus, Inc., a publicly traded cardiovascular and stroke diagnostics company. Mr. Patrick’s extensive sales and +marketing background, his experience in the medical diagnostics industry and his entrepreneurial skills led to the conclusion that he should serve on the Company’s Board. +15 +Table of Contents +Vote Required; Board Recommendation +If a quorum is present, each nominee will be elected if he receives a plurality of the votes cast by shares present in person or by Proxy +and entitled to vote at the Annual Meeting. Abstentions and broker non-votes will have no effect on the required vote. In the absence of instructions to the contrary, shares of Common Stock represented by properly executed Proxies will be voted for +the nominees, each of whom has consented to be named and to serve if elected. +Your Board recommends that you vote FOR the +election of the Director nominees. +ITEM 2. +Ratification of Appointment of Independent Registered Public Accounting Firm +Background +The Audit Committee of the Board of Directors has approved the +reappointment of KPMG LLP (“KPMG”) as our independent registered public accounting firm for 2012. The Audit Committee has also recommended that the Board submit the appointment of KPMG for ratification by stockholders at the Annual +Meeting. Although action by the stockholders on this matter is not required, the Audit Committee and the Board believe it is appropriate to seek stockholder ratification of this appointment in light of the role played by the independent registered +public accounting firm in reporting on the Company’s consolidated financial statements. If this appointment is not ratified by stockholders, the Audit Committee may reconsider its appointment. +One or more representatives of KPMG are expected to be at the Annual Meeting. They will have an opportunity to make a statement and will +be available to respond to appropriate questions. +Vote Required; Board Recommendation +Ratification of the appointment of KPMG requires the affirmative vote of a majority of shares present in person or by Proxy and entitled +to vote at the Annual Meeting. Shares voted in person or represented by Proxy which are not voted for this ratification (by voting no or abstaining) will have the effect of voting against this proposal. In the absence of instructions to the +contrary, shares of Common Stock represented by properly executed Proxies will be voted for ratification of the appointment of KPMG as our independent registered public accounting firm for 2012. +Your Board recommends that the stockholders vote FOR ratification of the appointment of KPMG. +Audit Fees; Audit-Related Fees; Tax Fees; All Other Fees. +The following table presents fees for professional audit services rendered by KPMG for the audits of our annual consolidated financial +statements for the years ended December 31, 2011 and 2010, for the audits of our internal control over financial reporting as of December 31, 2011 and 2010 and for the review of the financial statements included in our Quarterly Reports on +Form 10-Q for the fiscal years ended December 31, 2011 and 2010. The following table also includes fees billed for other services rendered by KPMG: +2011 +2010 +Audit fees 1 +$ +667,500 +$ +462,500 +Audit-related fees 2 +201,600 +— +Tax fees 3 +91,095 +95,591 +All other fees +— +— +Total fees +$ +960,195 +$ +558,091 +(1) +Includes fees related to the audit of our financial statements for each indicated year, audits of our internal control over financial reporting for +each indicated year, and interim reviews of our financial statements in +16 +Table of Contents +the Company’s Quarterly Reports on Form 10-Q for each indicated year, notwithstanding when the fees were billed or when the services were rendered. Also included are professional services in +connection with the review of a registration statement on Form S-8 and issuance of a related consent in 2011 and the review of a registration statement on Form S-3 and the issuance of a related consent in 2010. +(2) +During 2011, we engaged KPMG to provide tax due diligence and planning and financial due diligence services in connection with the acquisition of DNA Genotek, Inc. We +did not pay any other fees to KPMG in connection with their services in 2010. +(3) +During 2011 and 2010, we engaged KPMG to provide tax compliance and tax planning services. +The Audit Committee has adopted a general practice of pre-approving all audit and non-audit services provided to the Company by our +independent registered public accounting firm. The Chairman of the Audit Committee has been delegated the authority to pre-approve audit and non-audit services having an aggregate value of up to $25,000 between meetings of the Audit Committee, +provided that such pre-approval is communicated to the Audit Committee at its next scheduled meeting. All services by KPMG in 2011 and 2010 were pre-approved in accordance with these practices. +Executive Compensation +Compensation Discussion and Analysis +This +Compensation Discussion and Analysis (“CD&A”) describes the Company’s executive compensation programs together with the material factors underlying our 2011 compensation decisions for the Company’s Chief Executive Officer +(“CEO”) and the other named executive officers (collectively, the “NEOs”), as presented in tables which follow this CD&A. +Executive Summary . As discussed in detail below, our compensation program pays executives for performance by rewarding the achievement of predetermined financial and +strategic performance objectives. Our program is also designed to align the interests of executives with the interests of our stockholders, provide long-term incentives and set compensation at levels sufficiently competitive to attract and retain +high quality executives and motivate them to contribute to our success. Key features of our compensation program include the following: +· +Our executive compensation focuses on performance, with a significant portion comprised of annual cash bonuses and long-term equity awards that are +based on the executives’ and the Company’s achievement of predetermined performance objectives. In prior years, when these performance objectives were not met, the level of compensation provided to executives was reduced accordingly. +· +Equity awards consist of a mix of restricted stock and stock options, and in recent years the proportion of stock options has been increased in order +to make our long-term incentive compensation more performance-based. In addition, equity awards are subject to long-term vesting requirements and thereby help align the interests of our executives with the interests of our stockholders. +· +In establishing compensation, the Compensation Committee of our Board regularly utilizes independent compensation consultants and makes compensation +decisions based on a competitive assessment of compensation paid to executives at a peer group of comparable medical diagnostic and healthcare companies. +· +The total compensation paid to executives is targeted at the 50 th percentile of a peer group of comparable companies with an opportunity to earn up to the 75 th percentile based on achievement of performance objectives. +· +The Company does not provide its executives with any perquisites that are not offered to all employees of the Company. +17 +Table of Contents +· +Beginning in 2011, we adopted a policy under which any new employment agreement executed with an executive will not provide for the gross-up of excise +tax obligations under Section 280G of the Internal Revenue Code or a “modified single trigger” under which the executive can voluntarily leave the Company after a change of control and receive severance even though there has been no +adverse impact on the executive’s compensation or level of responsibilities. +· +The Company has implemented an annual process to assess the risks associated with our compensation programs. +In May 2011, we held a stockholder advisory vote on the compensation of our NEOs, commonly referred to as a “say-on-pay” vote. +Our stockholders overwhelmingly approved the compensation of our NEOs, with over 94% of stockholder votes cast in favor of our “say-on-pay” resolution. As we evaluated our compensation practices and policies during 2011, we were mindful of +the strong support our stockholders expressed for our compensation philosophy. As a result, our Board and its Compensation Committee decided to retain our general approach to executive compensation, with a focus on rewarding our most senior +executives when they deliver value for our stockholders. +In addition, when determining how often to hold a stockholder +advisory vote on executive compensation, the Board took into account a strong preference for an annual vote expressed by our stockholders at our 2011 Annual Meeting. Accordingly, the Board determined that at this time we intend to hold an advisory +“say-on-pay” vote each year. +Although the compensation of our NEOs received strong stockholder support in 2011, we +continued to consider ways to improve the competitiveness and pay-for-performance features of our compensation program. As a result, we modified our long-term incentive programs to change the method for making equity awards. Under this modified +program, we have adopted a “value transfer” methodology under which the size of annual equity awards is targeted at market-based dollar values rather than absolute numbers of restricted stock or option shares. This approach avoids +volatility in the value of equity awards resulting from movements in the price of our Common Stock on the grant date and better aligns the Company’s practices with industry standards. We also increased the percentage of executive equity awards +consisting of stock options so that awards shall be comprised of 60% stock options and 40% restricted stock beginning in 2012, as opposed to the 50%/50% split used in 2011. We believe the award of a greater percentage of stock options makes our +long-term incentive compensation for executives more performance-based because, unlike restricted stock, the value delivered to an executive upon the exercise of a stock option is limited to the increase in value of the Company’s stock +following the grant date. +For these and the other reasons described in this CD&A, we believe our compensation program +follows sound corporate governance principles and is strongly aligned with the interests of our stockholders. +Compensation Philosophy . The primary objectives of our compensation program for executive officers +are to: +· +reward executive officers for the performance of the Company and achievement by such officers of individual performance objectives; +· +align the interests of the executive officers with the interests of our stockholders; +· +provide long-term incentives for the executive officers; and +· +set compensation at sufficiently competitive levels to attract and retain high quality executives and to motivate them to contribute to our success. +Compensation for executives is established by the Compensation Committee of our Board (the +“Committee”) in accordance with the above objectives. In setting executive compensation, the Committee considers the Company’s and each executive’s performance against previously established objectives, internal pay equity, the +Company’s industry position, general industry data and recommendations of independent third +18 +Table of Contents +party compensation consultants engaged by the Committee. The Committee periodically retains independent compensation consultants to review our executive compensation practices and to assist the +Committee in establishing competitive compensation levels for our executives. In determining whether to retain a compensation consultant, the Committee has sole authority to decide whether to hire or fire any such consultant and to control the +nature and scope of the engagement. +The Committee seeks to set aggregate compensation levels for +executives near the fiftieth (50 th ) percentile of +amounts paid by comparable medical diagnostic and healthcare companies (defined by industry, revenues, market capitalization, number of employees or a combination of these factors) for performance consistent with the Company’s target financial +and strategic business plans for the applicable year. Use of the fiftieth (50 th ) percentile is intended as a market check and not as an absolute target. As a result, the aggregate compensation and the value of specific compensation components for individual executives may fall +below or exceed the fiftieth (50 th ) percentile +depending on individual performance and contribution by the executive. +The aggregate compensation provided to each executive +consists of an annual base salary, incentive cash bonus and equity awards. The amount of the incentive cash bonus and the size of annual equity awards are variable and depend on an executive’s and the Company’s achievement of predetermined +financial and strategic objectives. As a result, a substantial portion of each executive’s annual compensation is based on performance. As indicated in the Summary Compensation Table following this CD&A, 74% of Mr. Michels’ +aggregate compensation and 63% of Mr. Spair’s aggregate compensation for 2011 consisted of variable compensation. +Annual Performance Evaluations . On an annual basis, the Committee and other non-employee Directors +evaluate the performance of the CEO against predetermined performance objectives and the CEO evaluates the performance of the other NEOs against their respective predetermined performance objectives. Annual performance objectives for the NEOs are +established at the beginning of the applicable year and generally include two parts: the Company’s overall target financial/strategic performance objectives and individual objectives in the functional areas for which the executive is +responsible. For each NEO, these objectives are then weighted to reflect their relative importance to the Company and the executive’s functional responsibilities. +Depending on the Company’s overall performance and the extent to which an executive achieves his individual objectives for a particular year, the executive will be rated as “Does Not Meet,” +“Meets Expectations,” “Exceeds Expectations” or “Outstanding.” As described later in this CD&A, the Committee uses the performance ratings to determine base salary adjustments, incentive cash bonuses and equity +awards. +Compensation Consultants . +During 2010, the Committee engaged Pearl Meyer & Partners (“PM&P”), a national compensation consulting firm, to +provide an updated competitive assessment of executive compensation. PM&P assisted the Committee in identifying a peer group consisting of fifteen medical diagnostic and healthcare companies, ten of which were considered a primary peer group +because of their close similarity to the Company’s business mix. The additional five peer companies were used for reference purposes. Companies included in the peer group were selected based on total revenues, market value and number of +employees, and included the following: +Primary Peer Companies +Additional Companies +Abaxis, Inc. +Caliper Life Sciences, Inc. +Celera Corporation +Genomic Health, Inc. +Cepheid, Inc. +Harvard Bioscience, Inc. +Enzo Biochem, Inc. +MEDTOX Scientific, Inc. +Immucor, Inc. +Orchid Cellmark, Inc. +IRIS International Inc. +Luminex Corporation +Meridian Bioscience, Inc. +Neogen Corporation +Quidel Corporation +19 +Table of Contents +During 2011, the Committee again engaged PM&P to provide compensation consulting +services, including an updated competitive assessment of compensation paid to Mr. Michels and design of a new long-term incentive plan under which equity awards would be granted to executives. In preparing the competitive assessment, PM&P +used data from the peer group of companies described above. +Tally Sheets . In determining +annual compensation, the Committee reviews tally sheets for each executive. Tally sheets set forth the dollar amounts of all components of each NEO’s current compensation, including salary, incentive cash bonus, equity awards, potential change +of control payments and other benefits deemed relevant by the Committee. These tally sheets allow the Committee to review how a change in the amount of each compensation component affects each executive’s total compensation and to consider each +executive’s compensation in the aggregate. Included in each tally sheet is the estimated amount of severance and other benefits payable to the executive under various termination scenarios. Based upon the review of tally sheets, the Committee +establishes aggregate compensation for our executives which it believes to be reasonable. +Compensation +Components . The following is a description of each component of our executive compensation program. +1. Annual Base Salary . The Committee believes that competitive salaries must be paid in order to attract, retain and motivate high quality executives. Each year, the +Committee evaluates and determines the annual base salaries for the NEOs. In determining salaries, the Committee considers the annual performance evaluation of the CEO prepared by non-employee Directors on the Board and the annual performance +evaluations prepared by the CEO for all other NEOs. The Committee also considers the Company’s budget for expected salary adjustments, salary levels paid at comparable medical diagnostic and healthcare companies and any recommendations that may +be made by any compensation consultant engaged to assist the Committee. An executive’s annual salary adjustment will tend to be at the higher end of the range budgeted by the Company if the executive receives a performance rating of “Meets +Expectations” or better and such executive’s pre-adjustment salary level is below the 50 th percentile for his or her position at comparable medical diagnostic and healthcare companies. +From time to time, the Committee may approve salary adjustments for executives to reflect promotions or changes in responsibilities, to bring the salary of a particular executive more in line with the +salaries offered at comparable medical diagnostics and healthcare companies or to reflect other factors. When such salary adjustments are made with respect to an executive, the Committee evaluates the proposed new salary in light of the total cash +and non-cash compensation paid to the executive and whether reasonable internal pay equity will be maintained in light of that executive’s position, responsibilities, experience and contributions. +2. Incentive Cash Bonuses . Annual cash bonuses are included as part of executive compensation because the +Committee believes that a significant portion of each executive’s compensation should be structured as a variable incentive tied to both the overall performance of the Company and the individual contributions of the executive. On an annual +basis, the Committee has adopted, with approval of the Board, a Management Incentive Plan (the “Incentive Plan”), which is intended to be the principal vehicle for incentive cash bonus awards. +Incentive cash bonuses are generally paid out of a cash pool funded under the Incentive Plan based on the Company’s achievement of +certain specific financial and strategic objectives determined by the Committee and approved by the Board at the beginning of each fiscal year. The financial objectives typically consist of short-term targets that represent improvement in financial +performance compared to the prior year. The strategic objectives represent milestones that the Committee and Board believe are critical to achieving long-term growth and profitability. Because we are a small cap company that needs to make +substantial investment in our product and clinical development activities, the Committee and Board believe it is important to tie incentive cash payments not only to the attainment of short-term financial targets, but also to the achievement of +strategic objectives that will benefit the Company and its stockholders over the long term. The objectives are each weighted to determine their respective contributions to the pool amount. Each objective can be adjusted by the Committee or Board in +an equitable manner to reflect unexpected changes in the Company’s business or assumptions underlying the original objective or other factors. +20 +Table of Contents +With respect to each financial objective, a Threshold, Target and Maximum performance level +is established. The Target levels generally reflect the Company’s financial budget or operating plan for the year. Except in special circumstances, the Threshold levels represent a minimum level of performance for which the Committee is willing +to provide bonus pool funding. The Maximum levels reflect outstanding performance for which the Committee is willing to reward executives with bonuses above the Target level payout. With respect to the strategic objectives, Threshold and Target +performance levels are generally established to be consistent with the Company’s long-term strategic goals for our business. Maximum performance levels may also be established for one or more strategic objectives at the time the Incentive Plan +is adopted or deferred for later determination in the discretion of the Committee and Board. +If the Company meets all the +Target levels, the pool is funded at 100% of the aggregate target bonuses for all participants in the Incentive Plan, as described below. The pool is funded at 50% of the aggregate target bonuses if all of the Threshold levels are met and at 150% if +all of the Maximum levels are met. Pro-rata adjustments to the amount of funding for each objective are made where a particular performance is in between the pre-established performance levels. To the extent a performance level is below the +Threshold objective, there would be no funding for that particular item unless the Committee or Board determines, in its discretion, that some funding is warranted. +The amount of the cash bonus pool is determined by the Committee and recommended for Board approval. The Board may approve a pool greater than that recommended by the Committee if it determines that the +Company has achieved a breakthrough performance by substantially exceeding the Maximum performance level. The Committee and Board also retain discretion to increase or decrease the size of the pool in order to reflect specific performance or market +conditions affecting the Company and the final performance assessments for each participant for the applicable year. The cash bonus pool is used to pay bonuses not only to the Company’s NEOs, but also to all other officers and certain +higher-level employees of the Company. +Individual payments from the bonus pool to executives depend on the size of the bonus +pool, the executive’s achievement of individual performance objectives, the number of individuals participating in the plan at the time bonuses are awarded and the executive’s target bonus percentage. Bonuses are paid, based on an +assessment of each executive’s performance for the applicable year, using targets expressed as a percentage of the executive officer’s annual base salary. +If an executive officer has met or exceeded his or her individual performance objectives and/or the Company’s expectations for the applicable year, he or she may be eligible to receive up to 150% of +his or her target bonus, depending on the size of the bonus pool. The Committee and Board retain the discretion to adjust an individual executive’s performance evaluation and to increase or decrease the bonus paid to such individual to reflect +the specific contributions of that executive, the Company’s overall performance, market conditions or other circumstances. +The Committee recommends for Board approval any bonus award for the CEO based on an assessment of his performance against his individual +performance objectives. The CEO recommends individual awards for the other executive officers for approval by the Committee based on an assessment of each executive’s performance against his or her applicable individual performance objectives. +The Committee and Board have the right, in their sole discretion, to reject any or all of the recommended bonus awards, even if the bonus pool has been funded and any or all applicable performance criteria have been satisfied, based on the business +conditions of the Company or other factors deemed relevant by the Committee or Board. +3. Equity +Awards . The Committee believes that an additional way to promote the long-term growth of the Company and align the interests of executives with those of our stockholders is by compensating executives with equity in the +Company that vests over a multi-year period. As a result, the Committee administers the OraSure Technologies, Inc. Stock Award Plan (the “Stock Plan”), pursuant to which grants of stock options and restricted shares are made to executive +officers on an annual basis. +21 +Table of Contents +The Committee, with the approval of the Board, has in the past adopted Stock Award +Guidelines for the Company’s management (the “Stock Award Guidelines”). The purpose of the Stock Award Guidelines has been to provide a framework for determining annual equity awards for executives that reflect the executive’s +duties and performance evaluation against individual objectives for the applicable year and to align the value of the awards for executives with long-term incentive compensation for similar positions at comparable medical diagnostics and healthcare +companies. An executive must be rated as “Meets Expectations” or better in order to receive an equity award, unless the Committee or Board otherwise determines in its discretion that an equity award is appropriate in view of the +executive’s specific contributions, the Company’s overall performance, market conditions or other factors. +Depending on an executive’s position in the Company and performance evaluation for a particular year, the Stock Award Guidelines indicate a fixed number of restricted stock and option shares to be +awarded. These fixed share amounts have been set at levels intended to ensure that an executive receiving a “Meets Expectations” performance evaluation for a particular year would receive an annual equity award valued at approximately the +fiftieth (50 th ) percentile of long-term incentive +compensation for that position paid by comparable medical diagnostic and healthcare companies, with the opportunity to receive up to the seventy-fifth (75 th ) percentile of that executive’s individual performance is rated above the “Meets Expectations” +level. +The Committee has decided that awards should consist of a mix of stock options and restricted stock rather than solely +of stock options because such a mix would have greater value as both a long-term incentive and retention mechanism. Awards made during 2011 as a result of each executive’s performance for 2010 consisted of 50% restricted stock and 50% stock +options, based on the value of potential awards at the time of grant. This mix of equity awards represented a change from 2009, during which the mix was 40% stock options and 60% restricted stock. The Committee decided to increase the percentage of +stock options for the 2011 awards in order to make the Company’s long-term incentive compensation more performance-based. The Committee continued this trend in 2012 by further increasing the proportion of stock options to 60% and reducing the +percentage of restricted stock to 40% of the awards made in that year. +Annual stock option awards have an exercise price +equal to the fair market value of the Company’s Common Stock on the date of grant, which is calculated as the mean between the high and low sales price of the Common Stock as reported by NASDAQ for that date. Stock options generally vest over +four years, with the first 25% vesting after one year and the remaining 75% vesting on a monthly basis over the next three years following the first anniversary of the grant date. Grants of restricted stock generally vest over a three-year period, +with one-third vesting on the first anniversary of the grant date, a second third vesting on the second anniversary and the final third vesting on the third anniversary. These vesting restrictions serve to promote the Company’s long-term growth +by restricting executives’ ability to realize short-term gains from their awards. The Committee believes the terms of its equity awards to executives are competitive with the terms of equity awards offered at comparable medical diagnostics and +healthcare companies. +Equity awards are generally made by the Committee each year as part of the normal annual compensation +cycle. The awards for a particular year generally occur in late January or early February of the following year after the Company’s full year financial results are known and performance evaluations for the executive officers have been prepared. +Equity awards approved by the Committee for the CEO are then reviewed and approved by the Board. In addition to the annual equity awards, the Committee may approve stock option and restricted stock awards for newly hired officers or in recognition +of an executive’s promotion or expansion of responsibilities. These latter grants may have vesting or other terms that differ from the terms generally approved for annual equity awards. Notwithstanding the Stock Award Guidelines, equity awards +are made at the discretion of the Committee or Board. +Because the Stock Award Guidelines targeted equity awards expressed in +fixed numbers of restricted stock and option shares, the Committee recognized that the actual value of an equity award could vary substantially depending on the market value of the Company’s Common Stock on the grant date. In order to avoid +wide variations in the actual value of awards at the grant date and based on advice from its compensation consultant, +22 +Table of Contents +PM&P, the Committee recommended, and the Board adopted, a long-term incentive plan (“LTIP”) in 2011 under which equity awards would be made to executives beginning in 2012 using a +“value transfer” method. Under the LTIP, equity awards would continue to reflect an executive’s position in the Company and performance for a particular year, but the size of potential awards are expressed as a dollar value, +calculated as a percentage of the executive’s base salary. The potential equity award values under the LTIP were established at levels that the Committee believes represent an appropriate long-term incentive compensation value for each +executive, based on advice from PM&P and an assessment by PM&P of long-term incentive awards made at comparable medical diagnostic and healthcare companies. Once the aggregate dollar value of an award has been approved for a particular year +by applying the appropriate percentage to an executive’s base salary, the award is converted into shares based on a valuation of the restricted stock and option shares on the date of grant. Restricted stock is valued and converted based on the +average of the high and low sale price for the Company’s Common Stock on the grant date as reported on the NASDAQ Stock Market and stock options are valued and converted based on a corresponding Black-Scholes value. The Committee and Board +believe the value transfer method adopted in the LTIP is more reasonable in that it will eliminate variability in the value of equity awards and is more consistent with market practices. +4. Retirement Programs . We do not maintain any retirement programs other than a 401(k) profit sharing plan +(the “401(k) Plan”). All of our employees, including executive officers, are eligible to participate in the 401(k) Plan. We make matching contributions for participants on a dollar-for-dollar basis up to $4,000 per year. Payments of +employer-provided benefits accrued for a 401(k) Plan participant will be made upon retirement or upon termination of employment prior to retirement, provided certain vesting conditions have been met by the participant prior to termination. +5. Perquisites and Other Compensation . As a general matter, the Committee and Board do not +believe that executive officers should be treated differently than other employees, except that such officers should receive competitive annual base salaries and have competitive bonus and equity award opportunities commensurate with their higher +level of responsibility, and that executive officers should receive employment agreements as described below. Our healthcare, disability, and other insurance programs and benefits are the same for all eligible employees, including executive +officers. Executive officers do not receive any additional perquisites. +6. Potential Payments Upon Termination or Change +in Control Pursuant to Employment Agreements . The Company has entered into employment agreements with each of the NEOs. In addition to the compensation elements discussed above, these agreements provide for post-employment +severance payments and benefits in the event of termination of employment by the Company without “cause” or by the executive for “good reason” and provide enhanced severance payments upon such terminations in connection with a +“change in control” of the Company. The terms of these agreements are discussed in more detail under the Section entitled, “Employment Agreements and Potential Payments Upon Termination or Change in Control,” in this Proxy +Statement. The Committee believes that these agreements are generally consistent with industry practice at comparable medical diagnostic and healthcare companies, provide an incentive to the applicable executive to remain with the Company, and serve +to align the interests of stockholders and the executives in the event of a change in control of the Company. +Accounting and Tax Treatment of Compensation . In approving the amount and form of compensation for +the NEOs, the Committee considers all elements of the cost to the Company of providing such compensation, including the potential impact of Section 162(m) of the Internal Revenue Code. Section 162(m) disallows a tax deduction for any +publicly-held corporation for individual compensation exceeding $1 million in any taxable year for the CEO and for the three most highly compensated officers unless compensation is performance-based. The Committee intends to maintain flexibility to +pay compensation that is not entirely deductible when the best interests of the Company would make that advisable. +2011 +Annual Base Salaries . Annual base salaries paid in 2011 to our NEOs were established by the Committee at the beginning of 2011 based on a review of the Company’s performance during 2010, an +23 +Table of Contents +evaluation of the individual contributions of each officer compared to preestablished performance objectives for 2010 and a review of the competitive data and recommendations provided by the +Committee’s independent compensation consultant, PM&P. +Based on these factors, the Committee +approved an aggregate annual base salary increase averaging approximately 2.9%, with an additional 0.8% for market-based adjustments. In order to reflect the Company’s performance and each executive’s contributions, and to equitably move +salaries towards the fiftieth (50 th ) percentile or +maintain them at approximately that level, the Committee used the following guidelines to assist in determining annual base salary increases. +Performance Rating +Merit Increase Range +Outstanding +5.0 - 7.0 +% +Exceeds Requirements +3.0 - 4.0 +% +Meets Requirements +2.0 - 2.5 +% +In establishing the annual base salaries paid to the NEOs in 2011, the Committee recognized that the +Company’s $75.0 million in revenues for 2010 fell below the Threshold level established for providing funding for incentive cash bonuses for performance during that year. However, the Committee noted that the shortfall occurred primarily as a +result of the continuing difficult economic environment and governmental funding challenges which significantly impacted the Company’s customers, particularly in the U.S. public health and international markets. The Committee also considered +the substantial improvement in the Company’s operating performance during 2010 despite the revenue shortfall, and the many other positive accomplishments achieved during 2010, including the following: +· +Receipt of FDA approval of a venous whole blood claim for our OraQuick ® rapid HCV test; +· +Completion of the CLIA waiver studies and submission of a PMA supplement for a fingerstick whole blood claim for our OraQuick ® rapid HCV test; +· +Completion of label mitigation studies and receipt of IDE approval for the final phase of clinical studies for an OraQuick ® HIV OTC test and initiation of that study; +· +Continued development of a second generation rapid HIV test; +· +Successful completion of two reductions in force, substantial reorganization of the Sales Department to lower costs and improve effectiveness, and +implementation of other cost reduction initiatives; +· +Execution of a private label supply and distribution agreement with Princeton BioMeditech for the OraSure QuickFlu™ Rapid Flu A+B Test, for +distribution in U.S. hospital and public health markets; +· +Successful validation and FDA approval of automated manufacturing for our OraQuick ® HIV product; +· +Successful extension of the OraQuick ® HIV product shelf life to 24 months; +· +Maintenance of a greater than 72% institutional investor base and facilitation of additional analyst coverage, despite the continued difficult economic +environment and low stock price; and +· +Strengthening of our management team through the addition of a new Senior Vice President, Operations, Senior Vice President, Business Development and +Executive Vice President, Marketing and Sales. +In light of the foregoing, the Committee concluded that +Mr. Michels earned a performance rating for 2010 of “Exceeds Expectations,” and the Committee decided to increase Mr. Michels’ annual base salary from $500,000 to $517,500. This represented a 3.5% merit increase for 2011. +Mr. Spair’s performance was rated as “Exceeds Expectations” by the Committee for performance during 2010, +and his annual base salary was increased from $400,000 to $412,000. This represented a 3.0% merit increase for 2011. In evaluating Mr. Spair’s performance, the Committee considered Mr. Spair’s successful +24 +Table of Contents +maintenance of the Company’s institutional investor base, his efforts to accelerate business development activities, his ongoing supervision of the Company’s operations, his oversight +of Sarbanes-Oxley compliance and preparation of SEC filings and public disclosures, and his ongoing management of the financial planning, reporting and accounting functions. +Dr. Lee was rated as “Meets Expectations” for performance during 2010, and his annual base salary was +increased from $350,000 to $358,000, representing a 2.3% increase for 2011. In evaluating Dr. Lee’s performance, the Committee considered his support of ongoing OraQuick ® HCV clinical studies and regulatory submissions, his contributions to the ongoing clinical development of an +OraQuick ® HIV OTC test, his support of the clinical development of fully-automated homogeneous high throughput +oral fluid drugs-of-abuse assays, his leadership in the development of a second generation rapid HIV test, his assistance in evaluating new technology platforms and business development opportunities, and his ongoing support of manufacturing +processes and operations. +Mr. Zezzo joined the Company in January 2011 and thus did not have a performance rating for +2010. His annual base salary of $350,000 was determined by the Committee and Board to be necessary to attract an executive with Mr. Zezzo’s significant experience and training and to set Mr. Zezzo’s salary at an initial level in +line with compensation paid to executives at his position at comparable medical diagnostics and healthcare companies. +Finally, Mr. Jerrett was rated as “Meets Expectations” for performance during 2010, and his annual base salary was +increased from $275,000 to $300,000 for 2011, representing a 2.5% merit increase plus an $18,000 market adjustment to bring Mr. Jerrett’s base salary more in line with base salaries paid to executives in his position at comparable medical +diagnostics and healthcare companies. In evaluating Mr. Jerrett’s performance, the Committee considered his successful handling of multiple commercial issues across all of the Company’s business lines, his handling and supervision of +various claims, disputes and litigation matters, his oversight of intellectual property matters, his support of the Company’s business development efforts, his efforts to help prepare all SEC filings and other public disclosures, and his +ongoing advice and counsel to the Board and senior management. +2011 Incentive Cash +Bonuses . In January 2012, the Committee approved incentive cash bonuses to the executive officers under the 2011 Management Incentive Plan (the “2011 Incentive Plan”). These bonuses were awarded for +performance by our executive team during 2011. +Under the 2011 Incentive Plan, the Committee had previously established +Threshold, Target and Maximum performance levels for financial objectives and for several strategic objectives to be used to fund the bonus pool. The financial objectives consisted of performance levels for total revenues and improvement in +operating results (excluding research and development (“R&D”) expenses) for 2011. The Target performance levels reflected the revenue and operating performance objectives contained in our 2011 financial budget or operating plan. +The strategic objectives for 2011 consisted of the following: (1) continued progress towards +obtaining FDA approval for our OraQuick ® HCV test and commercializing that product; (2) continued progress +on our OraQuick ® HIV OTC clinical program; (3) further development of a second generation rapid HIV test; +and (4) expansion of business development activities. +The revenue objectives, the improvement in operating performance +objectives, and the strategic objectives as a group, were each weighted at 40%, 20% and 40%, respectively, in determining the level of bonus pool funding. The individual strategic objectives were each weighted by assigning potential points +achievable at the Threshold, Target and Maximum performance levels. The following sets forth the potential bonus pool funding at each performance level: +Threshold +Target +Maximum +Revenues +$75.0 million +$80.0 million +$85.0 million +Operating Performance Improvement (excluding R&D costs) +$1.3 million +$3.8 million +$6.3 million +Strategic Objectives (Points) +30 +60 +90 +Pool Funding +$1.05 million +$2.1 million +$3.2 million +25 +Table of Contents +If the Company were to achieve the Target performance levels for all objectives, then the +bonus pool would be funded at approximately $2.1 million, which equals 100% of the aggregate target bonus amounts for the Company’s senior management participating in the 2011 Incentive Plan. If the Company were to achieve only the Threshold +levels, then the bonus pool would be funded at approximately $1.05 million or 50% of the aggregate target bonus, and if the Company were to achieve the Maximum levels, then the bonus pool would be funded at approximately $3.2 million or 150% of the +aggregate target bonuses. The foregoing funding levels assume each participant is rated as “Meets Expectations” for their 2011 performance. +During 2011, the Company achieved revenues of $75.7 million, which fell between the Threshold and Target performance levels for this financial objective. As a result, the Committee concluded that a +pro-rated pool funding of $479,000 should be approved for this objective. +In evaluating the operating performance objective, +the Committee compared the GAAP operating losses reported for 2010 and 2011 and excluded research and development costs from both amounts because these costs included significant clinical development expenses that were not reflective of the +Company’s base operating performance. The Committee also decided to exclude transaction expenses incurred in 2011 as a result of the DNA Genotek, Inc. (“DNAG”) acquisition since those expenses were not anticipated when the +Company’s 2011 operating performance targets were established and also did not reflect the Company’s base operating performance. As a result, the Committee concluded that operating performance for 2011 improved by $2.65 million, which fell +between the Threshold and Target performance levels and warranted a pro-rated bonus pool funding of $328,000 for this objective. +With respect to the strategic objectives, the Committee evaluated the Company’s 2011 activities as meeting the following performance levels with the indicated point totals. +Strategic +Objective +2011 +Activities +Performance Level +Points +1. +OraQuick ® HCV Test +Receipt of PMA approval of finger-stick whole blood claim and CLIA waiver. +Target +15 +2. +OraQuick ® HIV OTC Test +Completion of final clinical study and submission of all three PMA modules to FDA. +Maximum +25 +3. Second Generation Rapid HIV Test +Product remains in development. +Below Threshold +0 +4. Business Development +Successful acquisition of DNA Genotek, Inc. +Maximum +25 +Total Points +65 +As a result, the Committee concluded that a total of 65 points out of a maximum of 90 available points +should be awarded, resulting in a pro-rated funding for the strategic objectives as a group of $917,000. +Based on the +foregoing, the total bonus pool funding determined by the Committee for 2011 performance was $2,101,900, which included $378,830 in additional funding approved by the Committee in its discretion to recognize the Company’s many positive +accomplishments during 2011 and to ensure sufficient bonus funding for participants rated above the “Meets Expectations” level for 2011. The bonus pool amount was also approved by the full Board and was used to pay bonuses to the +Company’s NEOs and eighteen other members of our management team. +26 +Table of Contents +The specific target percentages for individual bonus payments under the 2011 Incentive Plan +are shown below and were set by the Committee (with Board approval) at levels that the Committee believes are competitive with incentive cash bonus opportunities available at comparable medical diagnostic and healthcare companies for each executive +position. +Title +Target Payouts +Chief Executive Officer +70 +% +Chief Financial Officer and Chief Operating Officer +50 +% +Executive Vice President +40 +% +Senior Vice President +35 +% +In January 2012, the Committee authorized the payout of individual bonus awards to executive officers +from the bonus pool for 2011, based on the target bonus amounts described above and an assessment of each officer’s performance during 2011 against pre-established performance objectives. +In evaluating Mr. Michels, the Committee noted that 2011 revenues from the OraSure base business (exclusive of DNAG) of $75.7 +million, were lower than expected. However, the Committee considered that the primary reasons for this revenue performance were the continued difficult economic conditions and funding challenges affecting our customers, lower than expected royalties +under the Company’s cryosurgical patent license with Merck, lower OTC cryosurgical revenues in Latin America due to regulatory issues experienced by our distributor and a delay in receipt of a $1 million HCV milestone payment under our +collaboration with Merck. The Committee noted that the Company’s consolidated revenues, which included approximately $6.2 million from DNAG, amounted to $81.9 million, or 9% higher than 2010. The Committee also considered the many positive +accomplishments by management occurring during 2011, including the following: +· +Receipt of PMA approval of a finger-stick whole blood claim and a CLIA waiver for our OraQuick ® HCV test; +· +Progress in the commercialization of our OraQuick ® HCV test, including the commencement of physician office detailing activities under our HCV collaboration with Merck; +· +Successful completion of the final phase of clinical testing for an OraQuick ® HIV OTC test and the submission of all three modules to our PMA application for this product; +· +Progress in preparing for the commercialization of an OraQuick ® HIV OTC test, including selection of public relations, advertising and sales/logistics providers, development of a product manufacturing plan, and further development +of our sales and commercialization plans through the use of an independent OTC advisory committee and additional market research activities; +· +Successful extension of the OraQuick ® HIV shelf life to 30 months; +· +Receipt of FDA 510(k) clearance for five fully-automated high-throughput oral fluid drugs-of-abuse assays for use with our Intercept ® collection device and preparatory activities to launch these products in collaboration with Roche Diagnostics; +· +Implementation of a third-party warehousing and logistics strategy for virtually all of our products to improve efficiency and customer service; +· +Completion of a multi-year supplier and vendor quality analysis; +· +Successful maintenance of strong relationships with our investor base, particularly institutional investors, and the strong performance of our Common +Stock, which appreciated in value by approximately 58% during 2011; and +· +The successful recruitment of two new members of the Board with strong business backgrounds, including one Director with significant consumer marketing +experience. +27 +Table of Contents +Based on the foregoing, the Committee rated Mr. Michels as an “Exceeds +Expectations” and awarded him a $369,000 bonus for 2011, which represented 71.3% of his annual base salary compared to his target bonus of 70%. Mr. Michels’ 2011 incentive cash bonus was also approved by the Board. +The Committee rated Mr. Spair’s performance for 2011 as “Exceeds Expectations” and awarded him a bonus of $209,900, +which represented 50.9% of his base salary compared to his target bonus of 50%. In reaching this determination, the Committee considered Mr. Spair’s successful maintenance of the Company’s institutional investor base and the 58% +appreciation in the Company’s Common Stock price during 2011, his supervision of the DNAG acquisition and his efforts to continue to accelerate the Company’s business development activities, his continued contribution to various strategic +matters, his ongoing supervision of the Company’s operations, and his ongoing management of the financial planning, reporting and accounting functions. +The Committee rated Dr. Lee’s performance for 2011 as “Meets Expectations” and awarded him a +$116,700 bonus, which represented 32.6% of his base salary compared to his target of 40%. In reaching this determination, the Committee considered Dr. Lee’s assistance in obtaining PMA approval of a finger-stick whole blood claim and CLIA +waiver for our OraQuick ® HCV test, his efforts to secure third party availability of critical raw materials for +the OraQuick ® HCV test and other products, his continued development of a second generation rapid HIV test, his +assistance in evaluating new technology platforms and business development opportunities, and his ongoing support of manufacturing processes and operations. +The Committee rated Mr. Zezzo’s performance for 2011 as “Exceeds Expectations” and awarded him a +bonus of $142,600, which represented 40.7% of his base salary compared to his target of 40%. In reaching this determination, the Committee considered Mr. Zezzo’s efforts to become familiar with the Company’s organization and products +over a very short period, his efforts to increase product sales despite continued economic and funding challenges, his work to accelerate the commercialization of our OraQuick ® HCV test, his efforts to launch the OraSure QuickFlu™ product and his leadership in managing various organizational changes within the Sales and Marketing +Department. +Finally, the Committee rated Mr. Jerrett’s performance for 2011 as “Exceeds Expectations” and +awarded him a bonus of $127,000, which represented 42.3% of his base salary compared to his target of 35%. Mr. Jerrett’s bonus included an extra $20,000 in recognition of his leadership and work on the DNAG acquisition during 2011. In +reaching this determination, the Committee considered Mr. Jerrett’s contributions to all of the Company’s ongoing business development efforts including the DNAG acquisition, his successful handling of multiple commercial issues and +supervision of various claims, disputes and litigation matters, his oversight of intellectual property, his efforts to help prepare all SEC filings and other public disclosures, and his ongoing advice and counsel to the Board and senior management. +2011 Equity Awards . The amounts of potential equity awards to be granted in 2011 +(expressed in number of shares) under the Stock Award Guidelines adopted by the Committee and Board for performance during 2010, are summarized below: +Performance +Target +Exceeds Target +Outstanding +Position +Restricted +Stock +Stock +Option +Restricted +Stock +Stock +Option +Restricted +Stock +Stock +Option +President/CEO +43,700 Shs +100,100 Shs +84,300 Shs +193,300 Shs +125,000 Shs +286,600 Shs +CFO/COO +40,300 Shs +92,500 Shs +50,600 Shs +116,100 Shs +60,900 Shs +139,700 Shs +EVP +18,500 Shs +42,400 Shs +26,000 Shs +59,700 Shs +33,600 Shs +76,900 Shs +SVP +10,900 Shs +25,000 Shs +14,700 Shs +33,700 Shs +18,500 Shs +42,500 Shs +28 +Table of Contents +Effective February 1, 2011, utilizing the Stock Award Guideline described above, the +Committee approved stock option and restricted stock awards for the NEOs (except for Mr. Zezzo), based on the performance evaluations of such officers for 2010, as set forth below. A description of the basis for each NEO’s 2010 performance +evaluation is set forth above under the Section entitled, “2011 Annual Base Salaries,” in this Proxy Statement. +Executive Officer +Performance Evaluation +Restricted Shares +Stock Options +Douglas A. Michels +Exceeds Expectations +84,300 Shs +193,300 Shs +Ronald H. Spair +Exceeds Expectations +50,600 Shs +116,100 Shs +Stephen R. Lee, Ph.D. +Meets Expectations +18,500 Shs +42,400 Shs +Jack E. Jerrett +Meets Expectations +10,900 Shs +25,000 Shs +Since Mr. Zezzo joined the Company in January 2011, he did not receive any equity awards during our +annual compensation cycle and instead received 75,000 shares of restricted stock and 115,000 stock options as part of his initial compensation package. The Committee and Board believed these equity awards were necessary to attract an executive with +Mr. Zezzo’s extensive experience and training and were in line with compensation packages offered at comparable medical diagnostics and healthcare companies. +Other Elements of Compensation . The Committee reviewed each other element of compensation set forth in the Summary Compensation Table set forth below, and found them +to be consistent with the Company’s compensation philosophy as described above. +29 +Table of Contents +Summary Compensation Table +The following table summarizes the compensation of our CEO and the other NEOs, for the years ended December 31, 2011, 2010 and +2009: +Name and +Principal Position +Year +Salary +($) +Bonus +($) +Stock +Awards 1 +($) +Option +Awards 2 +($) +Non-Equity +Incentive +Plan +Compen- +sation 3 +($) +Change in +Pension Value +and +Nonqualified +Deferred +Compensation +Earnings +($) +All +other +Compen- +sation 4 +($) +Total ($) +Douglas A. Michels +President and +Chief Executive Officer +2011 +$ +516,827 +$ +558,488 +$ +552,471 +$ +369,000 +$ +4,000 +$ +2,000,786 +2010 +$ +499,152 +— +$ +313,061 +$ +231,161 +$ +317,600 +— +$ +4,000 +$ +1,364,974 +2009 +$ +475,500 +— +$ +150,404 +$ +105,894 +$ +303,500 +— +$ +4,000 +$ +1,039,298 +Ronald H. Spair +Chief Financial Officer +and Chief Operating Officer +2011 +$ +411,538 +$ +335,225 +$ +331,825 +$ +209,900 +$ +4,000 +$ +1,292,488 +2010 +$ +399,325 +— +$ +253,272 +$ +187,013 +$ +211,800 +— +$ +4,000 +$ +1,055,410 +2009 +$ +380,500 +— +$ +121,849 +$ +85,795 +$ +202,500 +— +$ +4,000 +$ +794,644 +Stephen R. Lee, Ph.D. +Executive Vice President, Research +and Development +2011 +$ +357,692 +$ +122,563 +$ +121,183 +$ +116,700 +$ +4,000 +$ +722,138 +2010 +$ +349,533 +— +$ +139,196 +$ +102,726 +$ +118,600 +— +$ +4,000 +$ +714,055 +2009 +$ +336,500 +— +$ +60,167 +$ +42,362 +$ +158,500 +— +$ +4,000 +$ +601,529 +Anthony Zezzo +II 5 +Executive Vice President +Marketing and Sales +2011 +$ +336,539 +— +$ +445,125 +$ +294,090 +$ +142,600 +— +— +$ +1,218,354 +Jack E. Jerrett +Senior Vice President +and General Counsel +2011 +$ +299,038 +$ +72,213 +$ +71,453 +$ +127,000 +$ +4,000 +$ +573,704 +2010 +$ +274,481 +— +$ +92,745 +$ +68,536 +$ +81,500 +— +$ +4,000 +$ +521,262 +2009 +$ +260,000 +— +$ +40,112 +$ +28,234 +$ +107,000 +— +$ +4,000 +$ +439,346 +(1) +The indicated amounts reflect the aggregate grant date fair value of restricted stock awards made to the NEOs during the applicable year under the Company’s Stock +Award Plan, computed in accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 718. Certain assumptions used in the calculation of those amounts are set forth for the applicable year of award in footnote 11 to the +Company’s audited consolidated financial statements for the year ended December 31, 2011, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 14, 2012 (the “2011 10-K Report”). +(2) +The values set forth in this column reflect the aggregate grant date fair value of stock option awards made to the NEOs during the applicable year under the Stock Award +Plan, computed in accordance with FASB ASC Topic 718. Certain assumptions used in the calculation of those amounts are set forth for the applicable year of award in footnote 11 to the Company’s audited consolidated financial statements for the +year ended December 31, 2011, included in the Company’s 2011 10-K Report. +(3) +The indicated amounts reflect incentive cash bonuses paid to the NEOs pursuant to an Incentive Plan, based on performance during the applicable year. For a description +of incentive cash bonus payments for performance during 2011, see the Section entitled, “2011 Incentive Cash Bonuses,” in the CD&A. +(4) +The indicated amounts reflect cash contributed to a 401(k) profit sharing plan as an employer-matching contribution, which was offered to all employees of the Company +during each of the indicated years. +(5) +Mr. Zezzo joined the Company in January 2011. +30 +Table of Contents +Grants of Plan-Based Awards +The following table summarizes information concerning possible incentive cash bonuses and possible and actual restricted stock and stock +option awards for the NEOs during the fiscal year ended December 31, 2011 as well as possible payouts under the 2011 Incentive Plan: +Name +Grant +Date 1 +Estimated Possible Payouts +Under +Non-Equity Incentive +Plan Awards 2 +Estimated Possible Payouts +Under +Equity Incentive Plan Awards 3 +All +other +Stock +Awards: +Number +Of Shares +Of Stock +Or Units +(#) +All +other +Option +Awards: +Number +Of +Securities +Underlying +Options +(#) +Exercise +or Base +Price of +Option +Awards 4 +($/Sh) +Grant +Date +Fair +Value of +Stock and +Option +Awards 5 +($) +Threshold +($) +Target +($) +Maximum +($) +Threshold +(# Shs.) +Target +(# Shs.) +Maximum +(# Shs.) +Douglas A. Michels +2/01/11 +— +— +— +— +— +— +84,300 +— +$ +558,488 +President and Chief +2/01/11 +— +— +— +— +— +— +— +193,300 +$ +6.625 +$ +552,471 +Executive Officer +N/A +$ +181,125 +$ +362,250 +$ +543,325 +43,700 RS +84,300 RS +125,000 RS +— +— +— +N/A +N/A +— +— +— +100,100 SO +193,300 SO +286,600 SO +— +— +— +N/A +Ronald H. Spair +2/01/11 +— +— +— +— +— +— +50,600 +— +— +$ +335,225 +Chief Financial Officer and +2/01/11 +— +— +— +— +— +— +— +116,100 +$ +6.625 +$ +331,825 +Chief Operating Officer +N/A +$ +103,000 +$ +206,000 +$ +309,000 +40,300 RS +50,600 RS +60,900 RS +— +— +— +N/A +N/A +— +— +— +92,500 SO +116,100 SO +139,700 SO +— +— +— +N/A +Stephen R. Lee, Ph.D. +2/01/11 +— +— +— +— +— +— +18,500 +— +— +$ +122,563 +Executive Vice President, +2/01/11 +— +— +— +— +— +— +— +42,400 +$ +6.625 +$ +121,183 +Research and Development +N/A +$ +71,600 +$ +143,200 +$ +214,800 +18,500 RS +26,000 RS +33,600 RS +— +— +— +N/A +N/A +— +— +— +42,400 SO +59,700 SO +76,900 SO +— +— +— +N/A +Anthony Zezzo II 6 +1/03/11 +— +— +— +— +— +— +75,000 +— +— +$ +445,125 +Executive Vice President, +1/03/11 +— +— +— +— +— +— +— +115,000 +$ +5.935 +$ +294,090 +Marketing and Sales +N/A +$ +87,500 +$ +175,000 +$ +262,500 +N/A +N/A +N/A +— +— +— +N/A +N/A +— +— +— +N/A +N/A +N/A +— +— +— +N/A +Jack E. Jerrett +2/01/11 +— +— +— +— +— +— +10,900 +— +— +$ +72,213 +Senior Vice President +2/01/11 +— +— +— +— +— +— +— +25,000 +$ +6.625 +$ +71,453 +and General Counsel +N/A +$ +52,500 +$ +105,000 +$ +157,500 +10,900 RS +14,700 RS +18,500 RS +— +— +— +N/A +N/A +— +— +— +25,000 SO +33,700 SO +42,500 SO +— +— +— +N/A +(1) +Annual equity incentive awards to NEOs (except for Mr. Zezzo, as described in note 6 below), consisting of a combination of restricted stock (“RS”) and +stock options (“SO”), were determined for 2011 pursuant to the applicable Stock Award Guidelines, based on an evaluation of each officer’s performance during 2010 against previously established performance objectives. Annual equity +awards made during 2011 were approved by the Compensation Committee effective on February 1, 2011. For a description of these equity awards and their terms, see the Sections entitled, “Compensation Components – Equity Awards” and +“2011 Equity Awards,” in the CD&A. +(2) +The indicated amounts represent possible incentive cash bonus payments to the NEOs under the 2011 Incentive Plan. On January 26, 2012, bonus payments under the +2011 Incentive Plan were approved by the Compensation Committee for the NEOs based on an assessment of the Company’s performance against certain financial and strategic objectives for 2011 and of each officer’s performance against +pre-established individual performance objectives. A further description of the payments approved under the 2011 Incentive Plan is set forth in the Section entitled, “2011 Incentive Cash Bonuses,” in the CD&A. Actual amounts paid for +2011 are also disclosed in the Summary Compensation Table. +(3) +The indicated amounts represent the possible number of shares which could have been granted to the NEOs (except for Mr. Zezzo, as described in note 6 below) in +2011 in the form of restricted stock and stock options pursuant to the Stock Award Guidelines, based on each officer’s performance during 2010. Specific RS and SO awards were approved by the Compensation Committee for the NEOs effective on +February 1, 2011 based on an assessment of each officer’s performance against pre-established performance objectives for 2010. A further description of these equity awards and their terms is set forth in the Sections entitled, +“Compensation Components – Equity Awards” and “2011 Equity Awards,” in the CD&A. The values of the RS and SO awards during 2011 are disclosed in the Summary Compensation Table. +(4) +The exercise price for stock options is the fair market value of the Company’s Common Stock, which is calculated as the mean between the high and low sales price +of the Common Stock as reported by NASDAQ on the date of grant. +(5) +The indicated amounts represent the grant date fair value calculated in accordance with FASB ASC Topic 718. +(6) +Because Mr. Zezzo did not join the Company until January 3, 2011, he was not eligible to participate in the equity awards issued under the Stock Award +Guidelines in 2011 for performance during 2010. However, as part of his initial compensation package, Mr. Zezzo received the indicated RS and SO awards effective on his date of employment. +31 +Table of Contents +Outstanding Equity Awards at Fiscal Year-End +The following table summarizes information regarding unexercised stock options and unvested restricted stock held by the NEOs at +December 31, 2011: +Option Awards 1 +Stock Awards 1 +Name +Number of +Securities +Underlying +Unexercised +Options +(#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options 2 +(#) +Unexercisable +Equity +Incentive +Plan +Awards +Number +of +Securities +Underlying +Unexercised +Unearned +Options (#) +Option +Exercise +Price +($/Sh.) +Option +Expiration +Date +Number of +Shares or +Units of +Stock +That Have +Not +Vested 2 +(#) +Market +Value of +Shares or +Units of +Stock +That +Have Not +Vested 8 +($) +Equity +Incentive +Plan +Awards: +Number of +Unearned +Shares, +Units +or +Other +Rights +That Have +Not +Vested (#) +Equity +Incentive +Plan +Awards: +Market +or Payout +Value +of +Unearned +Shares, +Units or +Other +Rights +That +Have Not +Vested +($) +Douglas A. Michels +President and Chief +Executive Officer +400,000 +— +— +$ +7.77 +6/22/2014 +— +— +— +— +67,500 +— +— +$ +5.60 +1/26/2015 +— +— +— +— +67,500 +— +— +$ +9.56 +1/23/2016 +— +— +— +— +45,000 +— +— +$ +8.28 +2/01/2017 +— +— +— +— +53,906 +2,344 +3(a) +— +$ +8.06 +2/01/2018 +— +— +— +— +66,347 +24,643 +3(b) +— +$ +2.81 +1/23/2019 +— +— +— +— +49,050 +53,315 +3(c) +— +$ +5.19 +1/25/2020 +— +— +— +— +— +193,300 +3(d) +— +$ +6.63 +2/01/2021 +— +— +— +— +— +— +— +64,800 +3(e) +$ +590,328 +— +— +— +— +— +— +— +17,873 +3(f) +$ +162,823 +— +— +— +— +— +— +— +40,213 +3(g) +$ +366,340 +— +— +— +— +— +— +— +84,300 +3(h) +$ +767,973 +— +— +— +— +— +Ronald H. Spair +90,000 +— +— +$ +6.96 +1/31/2013 +— +— +— +— +Chief Financial Officer +and Chief Operating +Officer +100,000 +— +— +$ +8.20 +1/14/2014 +— +— +— +— +27,000 +— +— +$ +5.60 +1/26/2015 +— +— +— +— +27,000 +— +— +$ +9.56 +1/23/2016 +— +— +— +— +45,000 +— +— +$ +8.28 +2/01/2017 +— +— +— +— +43,604 +1,896 +4(a) +— +$ +8.06 +2/01/2018 +— +— +— +— +53,754 +19,966 +4(b) +— +$ +2.81 +1/23/2019 +— +— +— +— +39,682 +43,133 +4(c) +— +$ +5.19 +1/25/2020 +— +— +— +— +— +116,100 +4(d) +— +$ +6.63 +2/01/2021 +— +— +— +— +— +— +— +— +— +14,480 +4(e) +$ +131,913 +— +— +— +— +— +— +— +32,533 +4(f) +$ +296,376 +— +— +— +— +— +— +— +50,600 +4(g) +$ +460,966 +— +— +Stephen R. Lee, Ph.D. +125,000 +— +— +$ +8.97 +9/23/2015 +— +— +— +— +Executive Vice +President, Research and +Development +18,000 +— +— +$ +9.56 +1/23/2016 +— +— +— +— +22,500 +— +— +$ +8.28 +2/01/2017 +— +— +— +— +21,562 +938 +5(a) +— +$ +8.06 +2/01/2018 +— +— +— +— +6,825 +9,859 +5(b) +— +$ +2.81 +1/23/2019 +— +— +— +— +21,797 +23,693 +5(c) +— +$ +5.19 +1/25/2020 +— +— +— +— +— +42,400 +5(d) +— +$ +6.63 +2/01/2021 +— +— +— +— +— +— +— +— +7,150 +5(e) +$ +65,137 +— +— +— +— +— +— +— +17,880 +5(f) +$ +162,887 +— +— +— +— +18,500 +5(g) +$ +168,535 +— +— +— +32 +Table of Contents +Option Awards 1 +Stock Awards 1 +Name +Number of +Securities +Underlying +Unexercised +Options +(#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options 2 +(#) +Unexercisable +Equity +Incentive +Plan +Awards +Number +of +Securities +Underlying +Unexercised +Unearned +Options (#) +Option +Exercise +Price +($/Sh.) +Option +Expiration +Date +Number of +Shares or +Units of +Stock +That Have +Not +Vested 2 +(#) +Market +Value of +Shares or +Units of +Stock +That +Have Not +Vested 8 +($) +Equity +Incentive +Plan +Awards: +Number of +Unearned +Shares, +Units +or +Other +Rights +That Have +Not +Vested (#) +Equity +Incentive +Plan +Awards: +Market +or Payout +Value +of +Unearned +Shares, +Units or +Other +Rights +That +Have Not +Vested +($) +Anthony Zezzo II +— +115,000 +6(a) +— +$ +5.94 +1/03/2021 +— +— +— +— +Executive Vice +President, Marketingand Sales +— +— +— +— +— +75,000 +6(b) +$ +683,250 +— +— +Jack E. Jerrett +Senior Vice President +and General Counsel +40,000 +— +— +$ +6.96 +1/31/2013 +— +— +— +— +40,000 +— +— +$ +8.20 +1/14/2014 +— +— +— +— +15,000 +— +— +$ +5.60 +1/26/2015 +— +— +— +— +18,000 +— +— +$ +9.56 +1/23/2016 +— +— +— +— +12,000 +— +— +$ +8.28 +2/01/2017 +— +— +— +— +11,500 +500 +7(a) +— +$ +8.06 +2/01/2018 +— +— +— +— +17,689 +6,571 +7(b) +— +$ +2.81 +1/23/2019 +— +— +— +— +14,543 +15,807 +7(c) +— +$ +5.19 +1/25/2020 +— +— +— +— +— +25,000 +7(d) +— +$ +6.63 +2/01/2021 +— +— +— +— +— +— +— +— +— +4,766 +7(e) +$ +43,418 +— +— +— +— +— +— +— +11,913 +7(f) +$ +108,527 +— +— +— +— +— +— +— +10,900 +7(g) +$ +99,299 +— +— +(1) +The indicated information does not include restricted stock or stock options awarded to the NEOs in January 2012 pursuant to the LTIP in respect of performance during +2011. +(2) +Stock options vest over four years, with the first 25% vesting on the first anniversary of the grant date and the remaining 75% vesting on a monthly basis over the next +three years following the first anniversary of the grant date. Grants of restricted stock vest over a three-year period, with one-third vesting on the first anniversary of the grant date, a second third vesting on the second anniversary and the +final third vesting on the third anniversary. +(3) +The indicated stock options and restricted stock vest as follows: +(a) +1,172 options on January 1 and February 1, 2012; +(b) +1,895 options on the +23 rd of each month, from January 23, 2012 through +January 23, 2013; +(c) +2,133 options on the +25 th of each month, from January 25, 2012 through +January 25, 2014; +(d) +48,325 options on February 1, 2012 and 4,027 options on the 1 st of each month, from March 1, 2012 through February 1, 2015; +(e) +6,480 restricted shares quarterly on March 31, June 30, September 30 and December 31 of each year; from March 31, 2012 through +June 30, 2014; +(f) +17,873 restricted shares on January 23, 2012; +(g) +20,107 restricted shares on January 25, 2012 and 2013; and +(h) +28,100 restricted shares on February 1, 2012, 2013 and 2014. +(4) +The indicated stock options and restricted stock vest as follows: +(a) +948 options on January 1 and February 1, 2012; +(b) +1,536 options on the +23 rd of each month, from January 23, 2012 through +January 23, 2013; +(c) +1,725 options on the +25 th of each month, from January 25, 2012 through +January 25, 2014; +(d) +29,025 options on February 1, 2012 and 2,419 options on the 1 st of each month, from March 1, 2012 through February 1, 2015; +(e) +14,480 restricted shares on January 23, 2012; +33 +Table of Contents +(f) +16,267 restricted shares on January 25, 2012 and 2013; and +(g) +16,867 restricted shares on February 1, 2012, 2013 and 2014. +(5) +The indicated stock options and restricted stock vest as follows: +(a) +469 options on January 1 and February 1, 2012; +(b) +758 options on the +23 rd of each month from January 23, 2012 through +January 23, 2013; +(c) +948 options on the +25 th of each month, from January 25, 2012 through +January 25, 2014; +(d) +10,600 options on February 1, 2012 and 883 options on the 1 st of each month, from March 1, 2012 through February 1, 2015; +(e) +7,150 restricted shares on January 23, 2012; +(f) +8,940 restricted shares on January 25, 2012 and 2013; and +(g) +6,167 restricted shares on February 1, 2012, 2013 and 2014. +(6) +The indicated stock options and restricted stock vest as follows: +(a) +28,750 options on January 3, 2012 and 2,396 options on the 3 rd of each month, from February 3, 2012 through January 3, 2015; +(b) +25,000 restricted shares on January 3, 2012, 2013 and 2014. +(7) +The indicated stock options and restricted stock vest as follows: +(a) +250 options on January 1 and February 1, 2012; +(b) +505 options on the +23 rd of each month from January 23, 2012 through +January 23, 2013; +(c) +632 options on the +25 th of each month, from January 25, 2012 through +January 25, 2014; +(d) +6,250 options on February 1, 2012 and 521 options on the 1 st of each month, from March 1, 2012 through February 1, 2015; +(e) +4,766 restricted shares on January 23, 2012; +(f) +5,957 restricted shares on January 25, 2012 and 2013; and +(g) +3,633 restricted shares on February 1, 2012, 2013 and 2014. +(8) +The indicated values were determined by multiplying the number of unvested shares of restricted stock shown in this table by $9.11 per share, the closing price of the +Company’s Common Stock as reported by NASDAQ on Friday, December 30, 2011. +Option +Exercises and Stock Vested +The following table summarizes information with respect to the exercise of stock options and +vesting of restricted stock for each of the NEOs during the fiscal year ended December 31, 2011: +Option Awards +Stock Awards +Name +Number of +Shares +Acquired +on Exercise +(#) +Value +Realized +on +Exercise 1 +($) +Number Of +Shares +Acquired +on Vesting +(#) +Value +Realized +on +Vesting 2 +($) +Douglas A. Michels +President and Chief Executive Officer +— +— +85,775 +$ +616,278 +Ronald H. Spair +Chief Financial Officer and Chief Operating Officer +65,000 +$ +207,583 +48,413 +$ +321,579 +Stephen R. Lee, Ph.D. +Executive Vice President, Research and Development +19,716 +$ +86,965 +24,840 +$ +164,931 +Anthony Zezzo II +Executive Vice President, Marketing and Sales +— +— +— +— +Jack E. Jerrett +Senior Vice President and General Counsel +30,000 +$ +63,420 +15,390 +$ +102,203 +34 +Table of Contents +(1) +The indicated amounts represent the number of shares acquired upon the exercise of the options multiplied by the difference between the market value of the +Company’s Common Stock on the applicable exercise date (calculated as the mean between the high and low sales price on such date) and the option exercise price. +(2) +The indicated amounts were calculated by multiplying the number of restricted shares acquired upon vesting by the market value of the Company’s Common Stock on the +applicable vesting date. The market value was determined by calculating the mean between the high and low sales price of the Common Stock as reported by NASDAQ on the vesting date. +Pension Benefits +We provide no pension benefits to the NEOs other than the right to participate in our 401(k) Plan. For a further description of the terms of the 401(k) Plan, see the Section entitled, “Compensation +Components – Retirement Programs,” in the CD&A. +Nonqualified Deferred Compensation +Effective January 3, 2012, the Board adopted the OraSure Technologies, Inc. Deferred Compensation Plan (the +“Plan”), a non-qualified deferred compensation plan designed to provide deferred compensation benefits to a select group of the Company’s highly compensated employees, including all of the NEOs, and to non-employee members of the +Board. +The Plan allows for deferrals by participants of up to 100% of their annual base salaries (or in the case of +non-employee Directors, 100% of fees payable under the Company’s Non-Employee Director Compensation Policy) and up to 100% of annual incentive cash bonuses and, upon vesting, restricted shares of the Company’s common stock awarded under +the Company’s Stock Award Plan. The Company may also make discretionary contributions to the accounts of employees participating in the Plan. Cash balances in participants’ accounts may be invested in a list of investment options that are +similar to the fund choices offered in the Company’s 401(k) plan. Participants will be permitted to sell vested restricted shares in their accounts, subject to compliance with the Company’s Insider Trading Policy and applicable securities +laws, and invest the proceeds of any such sale in the investment options available under the Plan. Participants will be 100% vested in their accounts and the restricted shares they defer, except that Company contributions will vest over one or more +years as determined by the Company. In the event of death, disability or change in control, a participant will become 100% vested in any then unvested Company contributions. +Participants may elect to receive a distribution from his or her account upon a specified date, separation from service, change in control, disability and/or death. Distributions will be made in a lump +sum or installments, as allowed under the Plan. +Amounts contributed to a participant’s account through elective +deferrals or through the Company’s discretionary contributions are generally not subject to income tax, and the Company does not receive a deduction until they are distributed pursuant to the Plan. However, cash deferrals are subject to the +Federal Insurance Contributions Act Tax imposed at the time of deferral (the “FICA tax”). Deferrals of restricted shares are subject to the FICA tax at the time the restricted shares vest, but are not subject to income tax, and the Company +does not receive the deduction until the restricted shares are distributed pursuant to the Plan. +The Company may amend or +terminate the Plan at any time in accordance with applicable law. +35 +Table of Contents +Employment Agreements and Potential Payments Upon Termination or Change in +Control +Mr. Michels has an employment agreement with the Company that provides for the various components of +compensation described in the CD&A. In addition, upon a termination of employment, Mr. Michels’ contract provides for certain post-employment severance and other benefits, as described below. +Mr. Michels’ employment agreement will terminate upon his death or disability. In addition, Mr. Michels may terminate his +employment at any time and for any reason upon 90 days written notice to the Company, for “good reason” (as defined below), or following a “change in control” (as defined below). Mr. Michels’ employment agreement can +also be terminated by the Company for “cause” (as defined below) or without “cause.” +As used in the +agreement, the term “good reason” means (i) a material breach of the agreement by the Company that is not cured within 30 days of written notice, (ii) any diminution in Mr. Michels’ base compensation or authority, +duties or responsibilities, (iii) a material diminution in the authority, duties or responsibilities of the person to whom Mr. Michels reports, including a change in Mr. Michels’ reporting obligation from the Board to another +employee of the Company, if applicable, (iv) a material diminution of the budget over which Mr. Michels exercises control, or (v) a material change in Mr. Michels’ job location. +A “change in control” generally is defined to take place when disclosure of such a change would be required by the proxy rules +promulgated by the SEC or when: +· +any person, or more than one person acting as a group within the meaning of Section 409A of the Internal Revenue Code (the “Code”) and +the regulations issued thereunder, acquires ownership of stock of the Company that, together with stock held by such person or group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of the Company; +· +any person, or more than one person acting as a group within the meaning of Code Section 409A and the regulations issued thereunder, acquires (or +has acquired during the 12-month period ending on the date of the most recent acquisition) ownership of stock of the Company possessing 30 percent or more of the total voting power of the Company’s stock; +· +a majority of the members of the Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority +of the members of the Board before the date of the appointment or election; or +· +a person, or more than one person acting as a group within the meaning of Code Section 409A and the regulations issued thereunder, acquires (or +has acquired during the 12-month period ending on the date of the most recent acquisition) assets from the Company that have a total gross fair market value equal to or more than 40 percent of the total gross fair market value of all the assets of +the Company immediately before such acquisition or acquisitions. +A “change in control period” is the period which +begins on the occurrence of a change in control and ends 18 months thereafter. +Upon the termination of Mr. Michels’ +employment upon his death or disability, by Mr. Michels for any reason other than good reason or by the Company for cause, Mr. Michels will be entitled to receive his salary through the date of termination and any bonus approved by the +Board or the Compensation Committee prior to the date of termination but not yet paid and, in the case of a termination upon his death or disability, a cash bonus for the calendar year in which termination occurs that Mr. Michels would have +received but for his death or disability, prorated through the date of death or commencement of disability. Upon termination of the agreement by Mr. Michels with good reason or after a change in control or by the Company without cause (which +includes the Company’s failure to renew the agreement), Mr. Michels would be entitled to receive his salary through the date of termination and any bonus that has been approved by the Board or the Compensation Committee prior to the date +of termination but not yet paid, a cash bonus for the calendar year in which termination occurs equal to +36 +Table of Contents +Mr. Michels’ target bonus for such year, and for a period of one year after the date of termination, benefits for Mr. Michels and/or his family at levels substantially equal to +those that would have been provided to them by the Company if Mr. Michels’ employment had not been terminated. If termination is for good reason or without cause (which includes the Company’s failure to renew the agreement) and does +not occur during a change in control period, Mr. Michels would also receive a lump sum amount equivalent to 12 months of his annual salary. If, however, termination is for good reason or without cause (which includes the Company’s failure +to renew the agreement) and occurs during a change in control period, or if termination is by Mr. Michels after a change in control, Mr. Michels will receive a lump sum amount equivalent to 36 months of his annual salary. If +Mr. Michels is a “specified employee” within the meaning of Code Section 409A at the time of the termination of his employment and any of the foregoing payments would subject him to any tax, interest or penalty under Code +Section 409A or regulation thereunder, then the payment shall not be made until the first day which is at least six months after the date of termination of his employment. Mr. Michels’ agreement also provides that the Company will pay +an amount equal to the first $1 million of excise tax incurred under Section 280G of the Internal Revenue Code on compensation paid to Mr. Michels upon a change in control. +Upon termination of Mr. Michels’ employment as a result of disability, for good reason, by the Company without cause or by +Mr. Michels after a change of control, Mr. Michels can elect to receive medical and dental insurance coverage for himself and his family under any plans offered by the Company to the extent the Company is self insured or coverage for +former employees is available on reasonable terms (as determined by the Company) from the Company’s providers of medical and dental coverage. +All stock awards granted to Mr. Michels are required to immediately vest (i) in the event of a change in control or (ii) if Mr. Michels’ employment is terminated for good reason +by Mr. Michels or by the Company without cause during a change in control period, and 50% of such stock awards shall vest in the event Mr. Michels’ employment is terminated for good reason or by the Company without cause during any +period other than a change in control period. +The termination and severance provisions in the employment agreements for the +other NEOs are substantially similar to Mr. Michels’ employment agreement, with the following exceptions. The Company is obligated to pay an amount up to the first $500,000, rather than $1 million, of excise tax imposed under +Section 280G of the Internal Revenue Code on compensation paid as a result of a change in control for Messrs. Spair, Jerrett and Dr. Lee. Mr. Jerrett and Dr. Lee are entitled to receive severance payments equivalent to 24 months +of their annual salary, rather than 36 months, in the event of a termination of their agreements for good reason or without cause during a change in control period or after a change in control. Beginning with Mr. Zezzo’s employment, +however, the Board adopted a new policy with respect to executive employment agreements. As a result, Mr. Zezzo’s agreement does not provide for any reimbursement of excise taxes imposed under Section 280G of the Internal Revenue +Code, and his agreement does not include a “modified style trigger” allowing him to terminate for any reason and receive severance following a change in control. Instead, Mr. Zezzo will be entitled to receive severance equal to 24 +months of his annual salary only if he is terminated for good reason or without cause during a change in control period. +37 +Table of Contents +The following table provides estimates of the potential severance and other post-termination +benefits the NEOs would receive assuming their employment was terminated as of December 31, 2011: +Name +Benefit +Voluntary +Termination +or +Termination +for Cause +Termination +for Death +or Disability 1 +Termination +for Good +Reason or +Without +Cause Not +Within +Change +in +Control +Period 1 +Termination +after Change in +Control, or for +Good Reason +or +Without Cause +Within Change in +Control Period 1,2 +Douglas A. Michels +President and Chief +Executive Officer +Salary Continuation +— +— +$ +517,500 +$ +1,552,500 +Bonus +— +$ +369,000 +$ +362,250 +$ +362,250 +Accelerated Option Vesting +— +— +$ +423,596 +$ +847,192 +Accelerated Restricted Stock Vesting +— +$ +1,887,464 +$ +943,732 +$ +1,887,464 +Health Care Benefits +— +— +$ +16,513 +$ +16,513 +Total +— +$ +2,256,464 +$ +2,263,591 +$ +4,665,919 +Ronald H. Spair +Chief Financial +Officer and Chief +Operating Officer +Salary Continuation +— +— +$ +412,000 +$ +1,236,000 +Bonus +— +$ +209,900 +$ +206,000 +$ +206,000 +Accelerated Option Vesting +— +— +$ +292,738 +$ +585,476 +Accelerated Restricted Stock Vesting +— +$ +889,254 +$ +444,627 +$ +889,254 +Health Care Benefits +— +— +$ +12,901 +$ +12,901 +Total +— +$ +1,099,154 +$ +1,368,266 +$ +2,929,631 +Stephen R. Lee, Ph.D. +Executive Vice +President, Research +and Development +Salary Continuation +— +— +$ +358,000 +$ +716,000 +Bonus +— +$ +116,700 +$ +143,200 +$ +143,200 +Accelerated Option Vesting +— +— +$ +130,696 +$ +261,391 +Accelerated Restricted Stock Vesting +— +$ +396,558 +$ +198,279 +$ +396,558 +Health Care Benefits +— +— +$ +13,325 +$ +13,325 +Total +— +$ +513,258 +$ +843,500 +$ +1,530,474 +Anthony Zezzo II +Executive Vice +President, Marketing +and Sales +Salary Continuation +— +— +$ +350,000 +$ +700,000 +Bonus +— +$ +142,600 +$ +140,000 +$ +140,000 +Accelerated Option Vesting +— +— +$ +182,563 +$ +365,125 +Accelerated Restricted Stock Vesting +— +$ +683,250 +$ +341,625 +$ +683,250 +Health Care Benefits +— +— +$ +2,153 +$ +2,153 +Total +— +$ +825,850 +$ +1,016,341 +$ +1,890,528 +Jack E. Jerrett +Senior Vice President +and General Counsel +Salary Continuation +— +— +$ +300,000 +$ +600,000 +Bonus +— +$ +127,000 +$ +105,000 +$ +105,000 +Accelerated Option Vesting +— +— +$ +83,023 +$ +166,046 +Accelerated Restricted Stock Vesting +— +$ +251,245 +$ +125,622 +$ +251,245 +Health Care Benefits +— +— +$ +16,072 +$ +16,072 +Total +— +$ +378,245 +$ +629,717 +$ +1,138,363 +38 +Table of Contents +(1) +The indicated values for the accelerated vesting of stock options reflect (i) the number of option shares which would vest on an accelerated basis, multiplied by +(ii) the excess, if any, of the $9.11 per share closing price for the Company’s Common Stock, as reported by NASDAQ on Friday, December 30, 2011, over the applicable exercise price for each option. The indicated values for the +accelerated vesting of restricted stock reflect the $9.11 per share closing price multiplied by the number of shares which would vest on an accelerated basis. +(2) +The Company will also pay the excise tax incurred under Section 280G of the Internal Revenue Code on compensation paid to the NEOs (other than Mr. Zezzo) in +the event of a change in control in an amount up to $1 million for Mr. +Michels and $500,000 for the other NEOs. +2011 Director Compensation +Annual Fees . Our Non-Employee Director Compensation Policy (“Director Policy”) provides that +non-employee members of the Board of Directors (the “Board”) will receive fixed annual fees for service on the Board and for service on Committees of the Board, as set forth below. The fees are paid quarterly in arrears. +Position +Annual Fee +Board Chairman +$ +60,000 +Non-Chairman Board Member +$ +40,000 +Audit Chairman +$ +18,000 +Compensation Chairman +$ +15,000 +N&CG Chairman +$ +8,000 +Non-Chairman Audit Member +$ +8,000 +Non-Chairman Compensation Member +$ +6,000 +Non-Chairman N&CG Member +$ +3,000 +Initial Equity Awards . Non-employee Directors receive an initial grant of +40,000 stock options for the Company’s Common Stock upon joining the Board (the “Initial Grant”). An additional grant of 40,000 stock options is also made to any non-employee Director who becomes Chairman of the Board (the +“Chairman Grant”). The options granted to non-employee Directors are nonqualified stock options and have an exercise price equal to the mean between the high and low sales prices of the Company’s Common Stock as quoted on the NASDAQ +Stock Market on the grant date. Each Initial Grant and Chairman Grant generally vest on a monthly basis over the 24 months immediately following the grant date. Payment of the exercise price may be made in cash or by delivery of previously acquired +shares of Common Stock having a fair market value equal to the aggregate exercise price. +Annual Equity +Awards . Under the Director Policy, during 2011 each non-employee Director received an annual grant of 15,000 restricted shares (the “Annual Grant”) of the Company’s common stock, except for the Chairman of +the Board, who received an Annual Grant of 25,000 restricted shares. Consistent with past practice, these Annual Grants were made on the annual equity grant date for officers and other employees of the Company. In November 2011, the Board amended +the Director Policy to change both the method of determining and the timing of Annual Grants to non-employee Directors. The method was changed from an annual award of a fixed number of restricted shares to a value transfer award method similar to +that used for our executives under the LTIP. The dollar values of the Annual Awards were determined by the Committee and Board based on advice from PM&P and an assessment of director equity awards made at comparable medical diagnostics and +healthcare companies. The Board also changed the timing of Annual Grants to occur at the same time as the Company’s Annual Meeting of Stockholders, beginning with the Annual Grants to be made in 2013. In order to transition to this new timing, +the Board determined that for 2012 a value-based Annual Grant of restricted shares (the “2012 Transitional Grant”) would be made to non-employee Directors on the annual equity award date for the Company’s officers and employees during +2012. +39 +Table of Contents +Under the amended Director Policy, as described above, beginning in 2012 Annual Grants of +restricted shares are being made pursuant to the values set forth in the following table: +Board Position +2012 Transitional Grant +Annual Grants For 2013 and +Beyond +Chairman +$150,000 +$120,000 +Non-Chairman Director +$100,000 +$80,000 +The dollar value of each Annual Grant is converted into restricted shares by dividing the above values by +the average of the high and low sales prices of the Company’s Common Stock, as reported on the NASDAQ Stock Market on the grant date. Annual Grants of restricted stock will continue to vest on the date that is twelve months from the date of +grant, except that the 2012 Transitional Grants will vest on May 15, 2013. Non-employee Directors are permitted to direct the Company to withhold restricted shares in order to pay tax withholding obligations arising upon the vesting of such +shares. +Equity Award Terms . Any unvested stock options and restricted shares granted to +non-employee Directors will vest in their entirety immediately upon the occurrence of a “change of control” of the Company. As defined in the Company’s Stock Award Plan, a change of control means a change of control that would be +required to be reported under the Securities Exchange Act of 1934, as amended, and would be deemed to have occurred at such time as (i) any person, or more than one person acting as a group within the meaning of Section 409A of the +Internal Revenue Code (the “Code”), acquires ownership of stock of the Company that, together with stock held by such person or group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of +the Company; (ii) any person, or more than one person acting as a group within the meaning of Section 409A of the Code, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition) ownership of +stock of the Company possessing 30 percent or more of the total voting power of the Company’s stock; (iii) a majority of the members of the Board is replaced during any 12-month period by directors whose appointment or election is not +endorsed by a majority of the members of the Board before the date of the appointment or election; or (iv) a person, or more than one person acting as a group within the meaning of Section 409A of the Code, acquires (or has acquired during +the 12-month period ending on the date of the most recent acquisition) assets from the Company that have a total gross fair market value equal to or more than 40 percent of the total gross fair market value of all the assets of the Company +immediately before such acquisition or acquisitions. In addition, if a non-employee Director leaves the Board for any reason other than a change of control, prior to the end of the vesting period for the 2012 Transitional Grant or any subsequent +Annual Grant of restricted shares, such award shall immediately vest on a pro-rata basis based on the actual duration of such Director’s service to the Board during such vesting period. +The following table summarizes information related to compensation of non-employee Directors during the fiscal year ended +December 31, 2011: +Name 1 , 2 +Fees +Earned +or Paid +in +Cash +($) +Stock +Awards 3 +($) +Option +Awards 4 +($) +Non-Equity +Incentive +Plan +Compensation +($) +Change in +Pension +Value +and +Nonqualified +Deferred +Compensation +Earnings +All +Other +Compensation +($) +Total ($) +Michael Celano +$ +62,000 +$ +99,375 +— +— +— +— +$ +161,375 +Ronny B. Lancaster +$ +54,000 +$ +99,375 +— +— +— +— +$ +153,375 +Gerald M. Ostrov 5 +$ +7,500 +— +$ +88,768 +— +— +— +$ +96,268 +Charles W. Patrick +$ +52,000 +$ +99,375 +— +— +— +— +$ +151,375 +Roger L. Pringle +$ +56,750 +$ +99,375 +— +— +— +— +$ +156,125 +Stephen S. Tang, Ph.D. +$ +40,500 +— +$ +89,168 +— +— +— +$ +129,668 +Douglas G. Watson +$ +74,000 +$ +165,625 +— +— +— +— +$ +239,625 +40 +Table of Contents +(1) +Because Messrs. Michels and Spair are officers of the Company, they are not entitled to any separate compensation for service on the Board or any Committee thereof and +have not been included in this table. +(2) +Non-employee Directors held the following number of restricted shares (“RSs”) and stock options (“SOs”) at December 31, 2011: Mr. Celano: +15,000 RSs; 70,000 SOs; Mr. Lancaster: 15,000 RSs; 70,000 SOs; Mr. Ostrov: 40,000 SOs; Mr. Patrick: 15,000 RSs; 70,000 SOs; Mr. Pringle: 15,000 RSs; 235,552 SOs; Dr. Tang: 40,000 SOs; and Mr. Watson: 25,000 RSs; 200,000 +SOs. The aggregate number of stock options and restricted shares held by Messrs. Michels and Spair are set forth in the table in the Section entitled, “Outstanding Equity Awards at Fiscal Year-End,” in this Proxy Statement. +(3) +The indicated amounts reflect the aggregate grant date fair value of restricted stock awards made to non-employee Directors during 2011 under the Stock Award Plan, +computed in accordance with FAS ASC Topic 718. Certain assumptions used in the calculation of those amounts are set forth in footnote 11 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, +2011, included in the Company’s 2011 10-K Report. This column does not include the value of restricted stock awarded to non-employee Directors in January 2012. +(4) +The indicated amounts represent the grant date fair value calculated in accordance with FASB ASC Topic 718. Certain assumptions used in the calculation of those amounts +are set forth in footnote 11 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2011, included in the Company’s 2011 10-K Report. +(5) +Mr. Ostrov has not been assigned to serve on any Committee of the Board. However, because of his extensive experience in consumer marketing, he +has from time to time been advising the Company on its commercialization plans for an OraQuick ® HIV +over-the-counter test. As a result, the Board has decided to pay Mr. Ostrov an amount of fees equal to that payable for a Director’s service on the Audit and Compensation Committees. +Compensation Committee Interlocks and Insider Participation +Stephen S. Tang, Ph.D., Roger L. Pringle, Ronny B. Lancaster and Douglas G. Watson served as members of the Compensation Committee of the +Board during 2011. None of Dr. Tang, Mr. Pringle, Mr. Lancaster or Mr. Watson has served or is currently serving as an officer or employee of the Company, nor have they engaged in any transactions involving the Company which +would require disclosure as a transaction with a related person. There are no compensation committee interlocks between the Company and any other entity involving the Company’s or such entity’s executive officers or board members. +Compensation Risk Assessment +Management conducted a risk assessment of the Company’s compensation policies and practices, including its executive compensation program. In its review, management considered the attributes of the +Company’s policies and practices and other factors, including: +· +The mix of fixed and variable compensation opportunities; +· +The balance between annual and long-term performance opportunities; +· +The corporate and individual performance objectives established for annual and long-term incentive compensation; +· +The internal controls and procedures in place to mitigate risks facing the Company; and +· +The risk that unintended consequences could result from various aspects of the Company’s compensation policies and practices. +41 +Table of Contents +Based on its review and assessment, management concluded that the Company’s policies +and practices are designed with the appropriate balance of risk and reward in relation to the Company’s overall business strategy and do not incentivize employees to take unnecessary or excessive risks. The Company also concluded that any risks +arising from the Company’s compensation policies and practices are not reasonably likely to have a material adverse affect on the Company. +Compensation Committee Report +The information contained in this report shall not be deemed to be “soliciting material” or “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the +liabilities of that Section. This report shall not be deemed to be “ incorporated by reference” into any document filed under the Securities Act of 1933, as amended, or the Exchange Act, whether such filing occurs before or after the +date hereof, regardless of any general incorporation language in such filing. +The Compensation Committee of OraSure +Technologies, Inc. has reviewed and discussed with the Company’s management the Section entitled, “Compensation Discussion and Analysis,” contained in this Proxy Statement. Based on that review and discussion, the Compensation +Committee recommended to the Company’s Board of Directors that the foregoing Compensation Discussion and Analysis be included in the Company’s 2011 10-K Report and Proxy Statement for the 2012 Annual Meeting of Stockholders. +COMPENSATION COMMITTEE: +Roger L. Pringle, Chairman +Ronny B. Lancaster +Stephen S. Tang, Ph.D. +Douglas G. Watson +April 2, 2012 +Equity Compensation Plan Information +The following table provides information as of December 31, 2011 about the shares of Common Stock that may be issued upon the exercise of options under all of our equity compensation plans. These +plans include the Award Plan, the Epitope, Inc. 1991 Stock Award Plan (the “1991 Plan”), and the Agritope, Inc. 1992 Stock Award Plan (the “Agritope Plan”). The Award Plan, the 1991 Plan and the Agritope Plan were Epitope equity +compensation plans. In connection with the merger of Epitope and STC into the Company on September 29, 2000, the Award Plan was adopted by the Company, and the Company assumed the obligation to issue shares for the then outstanding stock +options granted under the Award Plan, the 1991 Plan and the Agritope Plan. Additional grants of equity compensation may only be made under the Award Plan. +Plan Category +Number of securities to be +issued upon exercise of +outstanding +options +(a) +Weighted-average exercise +price of outstanding +options +(b) +Number of securities +remaining available for +future issuance +under +equity compensation plans +(excluding securities +reflected in column (a)) +(c) +Equity compensation plans approved by security holders +5,023,702 +$ +6.97 +4,054,041 +1 +Equity compensation plans not approved by security holders +392,484 +2 +$ +5.93 +2 +— +Total +5,416,186 +4,054,041 +42 +Table of Contents +(1) +Represents shares remaining available for future issuance as of December 31, 2011 under the Award Plan. +(2) +Includes 125,552 shares issuable as of December 31, 2011 under options at a weighted-average exercise price of $4.42 per share under the 1991 Plan and the Agritope +Plan. +ITEM 3. +Non-Binding Advisory Vote on Executive Compensation +Background +Section 14A of the Exchange Act, enacted pursuant to the +Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), requires that stockholders be given the opportunity to vote to approve, on a non-binding advisory basis, no less frequently than once every three years, +the compensation of our NEOs. Based on feedback received at our 2011 Annual Meeting, the Board has determined that such a vote should be held on an annual basis until the next advisory vote on frequency. +The vote on the resolution recommended below is not intended to address any specific element of compensation, but rather relates to the +overall compensation of our NEOs. As described more fully under the Section entitled, “Executive Compensation,” including the CD&A and the related tables and narrative, our compensation program is designed to pay executives for +performance by offering rewards for the achievement of pre-determined financial and strategic performance objectives. In addition, our program is designed to align the interests of executives with the interests of our stockholders, provide long-term +incentives and set compensation at levels sufficiently competitive to attract and retain high quality executives and to motivate them to contribute to our success. +Compensation Program Highlights +You are urged to carefully review the +“Executive Compensation” section of this Proxy Statement which contains a detailed discussion of our executive compensation program, including the 2011 compensation of our NEOs. We believe our compensation program follows sound corporate +governance principles and is strongly aligned with the interests of our stockholders. Highlights of our compensation programs include the following: +· +The Company’s compensation focuses on performance, with annual base salary accounting for approximately 26% to 52% of the target compensation +opportunity for our NEOs in 2011(other than Mr. Zezzo who did not join the Company until 2011). The remainder of their total compensation opportunity is primarily comprised of variable or “at-risk” compensation consisting of incentive +cash bonuses and long-term equity awards which are awarded to executives based on the achievement of both Company and individual performance objectives. +· +The Compensation Committee monitors the Company’s performance and adjusts compensation accordingly. For example, our executives received no salary +increases in 2008 and incentive cash bonuses were substantially reduced as a result of the Company’s lower than expected financial performance in that year. In fact, for 2008, Mr. Michels’ bonus was 18.6% of his annual base salary +compared to his target of 60%, and Mr. Spair’s bonus was 15.5% of his base salary compared to his target of 50%. +· +Equity awards for executives consist of a mix of restricted stock and stock options. For performance during 2009, executives received awards in 2010 +consisting of 60% restricted stock and 40% stock options. In order to make equity awards more performance-based, the Compensation Committee adjusted the equity program so that the portion represented by stock options increased to 50% for awards +based on performance during 2010 and to 60% for awards based on performance during 2011. +· +Our executives receive equity awards subject to long-term vesting requirements. Stock option awards generally vest over four years and restricted stock +awards generally vest over three years. We believe these awards ensure that a significant portion of the executive’s compensation is tied to the long-term success of the Company, consistent with the interests of our stockholders. +43 +Table of Contents +· +We have adopted a new long-term incentive compensation program under which a “value transfer” method will be used beginning in 2012 for +equity grants awarded to executives. We have adopted a similar value transfer method for non-employee members of the Board. These changes will eliminate volatility in the actual value of equity awards granted to executives and Board members and +bring our equity programs more in line with industry practices. +· +We have adopted a policy that any new employment agreement executed with an executive will not provide for the gross-up of excise tax obligations under +Section 280G of the Internal Revenue Code or a “modified single trigger” under which the executive can voluntarily leave the Company after a change of control and receive severance even though there has been no adverse impact on the +executive’s compensation or level of responsibilities. +· +The Compensation Committee regularly utilizes an independent compensation consultant to review our compensation program and provide a competitive +assessment of the compensation paid to our executives and the non-employee members of the Board. +· +The Compensation Committee regularly assesses the Company’s compensation program against peer companies consisting of medical diagnostics and +healthcare companies that are comparable to the Company. The Committee has approved the use of a smaller peer group that is targeted to be more similar to the Company’s business model. +· +We target total compensation (consisting of annual base salary, incentive cash bonuses and long-term incentive equity grants) for executives at the +median or 50 th percentile of a peer group of companies +with an opportunity to earn up to the 75 th percentile +based on performance. +· +The Company does not provide its executives with any perquisites. Our executives are eligible to participate in the same retirement and benefit plans +offered to all other employees. +· +The Company has implemented an annual process to assess the risks associated with our compensation programs. +Vote Required; Board Recommendation +If a quorum is present, the non-binding advisory approval of the executive compensation described in this Proxy Statement requires the affirmative vote of a majority of shares present, in person or by +Proxy and entitled to vote at the Annual Meeting. Shares voted in person or represented by Proxy which are not voted for approval of our executive compensation (by voting no or abstaining) will have the effect of voting against this proposal. Broker +non-votes will not count toward the determination of whether this proposal is approved and will have no impact on the vote. In the absence of instructions to the contrary, shares of Common Stock represented by properly executed Proxies will be voted +for approval of our executive compensation, as disclosed in this Proxy Statement. Because this stockholder vote is advisory, it will not be binding on the Company or the Board of Directors. However, the Compensation Committee and Board will take +into account the outcome of the vote when considering future executive compensation programs and arrangements. +Based on the +foregoing, the Board is requesting that stockholders vote on the following resolution: +RESOLVED , that the compensation +paid to the Company’s named executive officers, as disclosed in the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby APPROVED. +Your Board recommends that the stockholders vote FOR the approval of our executive compensation as described in the preceding +resolution. +44 +Table of Contents +Annual Report +Our Annual Report to Stockholders for the year ended December 31, 2011 accompanies this Proxy Statement. On written request, we +will provide, without charge, a copy of our Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the SEC (including a list briefly describing the exhibits thereto), to any record holder or beneficial owner of our +Common Stock on March 26, 2012, the record date for the Annual Meeting, or to any person who subsequently becomes such a record holder or beneficial owner. Requests should be directed to the attention of the Secretary of the Company at our +address set forth in the Notice of Annual Meeting of Stockholders immediately preceding this Proxy Statement. +45 +Table of Contents +Deadline For Stockholder Proposals +You may submit proposals for inclusion in the proxy materials for the Company’s 2013 Annual Meeting of Stockholders. Any such +proposals must meet the stockholder eligibility and other requirements imposed by rules issued by the SEC and must be received by the Company at 220 East First Street, Bethlehem, Pennsylvania 18015, Attention: Secretary, in accordance with Rule +14a-8 promulgated under the Exchange Act, not later than December 7, 2012. +In addition, our Bylaws +provide that a stockholder proposal must meet certain predetermined requirements in order to be considered at the Annual Meeting. These requirements are separate from, and in addition to, the requirements discussed above to have the shareholder +proposal included in the proxy materials pursuant to the SEC’s rules and regulations. In order to be considered, a stockholder’s proposal must be made in writing to the Company’s Secretary and must be delivered to or received at our +principal executive offices not less than ninety (90) days nor more than one hundred twenty (120) days prior to the meeting. However, if less than one hundred (100) days’ notice or prior public disclosure of the date of the +meeting is given or made to stockholders, notice by the stockholder to be timely must be so received no later than the close of business on the tenth (10 th ) day following the day on which such notice of the date of the meeting was mailed or such public disclosure was +made, whichever first occurs. The notice to the Secretary must set forth, with respect to each matter the stockholder proposes to bring before the meeting, a brief description of the matter and the reasons for considering that matter at the Annual +Meeting. The notice must also include, as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf notice of the proposed business is made: (i) the name and address of the stockholder and such beneficial owner; +(ii) any material interest of such stockholder and such beneficial holder in such business; (iii) the class and number of shares of capital stock of the Company which are held of record or beneficially owned by the stockholder and such +beneficial owner and any other direct or indirect pecuniary or economic interest in any capital stock of the Company of such stockholder and such beneficial owner, including without limitation, any derivative instrument, swap, option, warrant, short +interest, hedge, profit sharing arrangement or borrowed or loaned shares; (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to propose the business described in its notice; and (v) any other +information relating to such business matter that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies pursuant to Section 14 of the Exchange Act and the rules +and regulations promulgated thereunder. To the extent the Board of Directors or the SEC, or a court of competent jurisdiction, deems these Bylaw provisions to be inconsistent with the right of stockholders to request inclusion of a proposal in the +Company’s proxy materials pursuant to Rule 14a-8 promulgated under the Exchange Act, such rule shall prevail. +BY ORDER OF THE BOARD OF DIRECTORS +Jack E. Jerrett +Secretary +April 5, 2012 +46 +Table of Contents +220 EAST FIRST +STREET +BETHLEHEM, PA 18015 +VOTE BY INTERNET +Before The Meeting - Go to www.proxyvote.com +Use the Internet to transmit your voting instructions and for electronic delivery of +information up until 11:59 p.m. Eastern Time the day before the meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction +form. +During The Meeting - Go to +www.virtualshareholdermeeting.com/OSUR2012 +You may attend the +Meeting via the Internet and vote during the Meeting. Have the information that is printed in the box marked by the arrow available and follow the instructions. +VOTE BY PHONE -1-800-690-6903 +Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Time the day before the meeting date. Have your proxy card +in hand when you call and then follow the instructions. +VOTE BY +MAIL +Mark, sign and date your proxy card and return it in the +postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. +TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: +M44373-P24159 +KEEP THIS PORTION FOR YOUR RECORDS +DETACH AND RETURN THIS PORTION ONLY +THIS PROXY CARD IS VALID ONLY WHEN SIGNED +AND DATED. +ORASURE TECHNOLOGIES, INC. +For +All +Withhold +All +For All +Except +To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of +the nominee(s) on the line below. +The Board of Directors recommends you +vote FOR each of the following nominees: +1. +ELECTION OF DIRECTORS +¨ +¨ +¨ +Class III (Term Expiring 2015) +Nominees: +01) +Michael Celano +02) +Douglas A. Michels +03) +Charles W. Patrick +For +Against +Abstain +The Board of Directors recommends you vote FOR items 2 and 3. +2. +Ratification of Appointment of KPMG LLP for fiscal +year 2012. +¨ +¨ +¨ +3. +Advisory (non-binding) resolution to approve executive +compensation. +¨ +¨ +¨ +Mark Here for Address Change or Comments +SEE REVERSE +¨ +NOTE: Please sign as name appears hereon, Joint owners should each sign. +When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. +Signature [PLEASE SIGN WITHIN BOX] +Date +Signature (Joint Owners) +Date +Table of Contents +OraSure Technologies, Inc. +2012 Annual Meeting of Stockholders +Tuesday, May 15, 2012 +Important notice regarding the Internet +availability of proxy materials for the +Annual Meeting of Stockholders. +The Notice and Proxy Statement and 2011 Annual Report to Stockholders +are available at www.proxyvote.com. +q FOLD AND DETACH HERE q +M44374-P24159 +PROXY +2012 Annual Meeting of Stockholders +PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned hereby appoints Jack E. Jerrett and Mark L. Kuna, and each of them, proxies with full +power of substitution, to vote all of the shares which the undersigned is entitled to vote at the 2012 Annual Meeting of Stockholders of OraSure Technologies, Inc. (the “Company”), to be held at the ArtsQuest Center at SteelStacks, 101 +Founders Way, Bethlehem, Pennsylvania 18015 on Tuesday, May 15, 2012, at 10:00 a.m. (local time), and at any adjournment(s) or postponement(s) thereof, with all the powers undersigned would possess if personally present, with respect to the matters +listed on the reverse side. +The shares represented +by this Proxy, if properly executed, will be voted as specified on the reverse side or, if no specification is made, will be voted (i) FOR the election of the nominees listed on the reverse side as directors, (ii) FOR the ratification of the +appointment of KPMG LLP as the Company’s independent registered public accounting firm for 2012, and (iii) FOR the advisory resolution to approve executive compensation of the Company’s named executive officers. If any other business +properly comes before the meeting, the proxies named above will have discretionary authority to vote thereon in accordance with their best judgement. +PLEASE MARK, DATE, SIGN AND RETURN THE PROXY CARD PROMPTLY. +Address Changes/Comments +(Mark the corresponding box on the reverse side) +(Continued and to be marked, dated and signed, on the +other side) \ No newline at end of file diff --git a/raw/proxies/0001116463/0001193125-12-151983/proxy_rpt.txt b/raw/proxies/0001116463/0001193125-12-151983/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..a10e0da0ae70a75afd51d861edb46933589141fb --- /dev/null +++ b/raw/proxies/0001116463/0001193125-12-151983/proxy_rpt.txt @@ -0,0 +1,7 @@ +Transactions With Related Persons +Since January 1, 2011, there have been no transactions with related persons +which would require disclosure in this Proxy Statement. The Audit Committee is required to review and approve in advance all transactions with related persons involving the Company. The Audit Committee may approve a related party transaction if the +transaction is on terms comparable to those that could be obtained in arms’ length dealings with an unrelated third party. The Audit Committee also reviews any public disclosures of a related party transaction contained in our SEC filings. +These responsibilities are described in the Audit Committee’s charter, a copy of which is available on our website at www.orasure.com . +Information regarding employment and severance agreements between our executive officers and the Company is set forth in the Section entitled, “Employment Agreements and Potential Payments Upon +Termination or Change in Control,” in this Proxy Statement. \ No newline at end of file diff --git a/raw/proxies/0001116463/0001193125-13-142142/proxy.txt b/raw/proxies/0001116463/0001193125-13-142142/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..99bba09543a6098e9ab2fa9d3dcc0205f7114d97 --- /dev/null +++ b/raw/proxies/0001116463/0001193125-13-142142/proxy.txt @@ -0,0 +1,3891 @@ +DEF 14A +1 +d508853ddef14a.htm +DEF 14A +DEF 14A +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) +of the Securities Exchange Act of 1934 +(Amendment No. +) +Filed by the Registrant x Filed by a Party other than the +Registrant ¨ +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material Pursuant to §240.14a-12 +OraSure Technologies, Inc. +(Name of Registrant as +Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and +state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. +Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +ORASURE TECHNOLOGIES, INC. +220 East First Street +Bethlehem, Pennsylvania 18015 +April 4, 2013 +Dear Stockholder: +You are +cordially invited to attend the 2013 Annual Meeting of Stockholders to be held on Tuesday, May 14, 2013 , at the ArtsQuest Center at SteelStacks, 101 Founders Way, Bethlehem, Pennsylvania 18015, at 10:00 a.m. Eastern Time. Our Board of +Directors and Executive Management Team look forward to greeting those present. If you cannot attend in person, we are pleased to offer a live webcast of the Annual Meeting, which you can access by going to our website, www.orasure.com . +Pursuant to the Securities and Exchange Commission rule allowing companies to furnish proxy materials to their stockholders +over the Internet, a Notice of Internet Availability of Proxy Materials (the “Notice”) has been sent to you on or about April 4, 2013. The Notice contains information on how to access copies of the proxy materials and vote your +shares. +At the meeting, you will be asked to (i) elect three Class I Directors to serve on the Board of Directors until +the Annual Meeting of Stockholders in 2016; (ii) ratify the appointment of KPMG LLP as our independent registered public accounting firm for 2013; (iii) approve, by a non-binding advisory vote, the compensation of the Company’s named +executive officers as disclosed in these materials; and (iv) transact such other business as may properly come before the meeting or any adjournment(s) or postponement(s) thereof. +The Board of Directors has approved the nominees for Director and recommends that you vote FOR their election to the Board. In +addition, the Board of Directors recommends that you vote FOR the ratification of KPMG’s appointment and FOR the Company’s executive compensation. +Your vote is very important, regardless of the number of shares you own. Whether or not you plan to attend the Annual Meeting in person, we urge you to submit your vote as soon as possible. You will have +the option to vote by telephone, via the Internet, or by completing, signing, dating, and returning a paper Proxy Card. Additional details on these options can be found in the Notice sent to you and in the other proxy materials. You may, of course, +attend the Annual Meeting and vote in person regardless of whether you have previously voted by phone, the Internet or mail. +We look forward to seeing you at the meeting. +Sincerely, +Douglas A. Michels +President and Chief Executive Officer +Table of Contents +Table of Contents +Page +Notice of Annual Meeting of Stockholders +Proxy Summary +Proxy Statement +1 +General Information +1 +Internet Availability of Proxy Materials +1 +Stockholders with Shared Addresses +1 +Meeting Admission +2 +Proxies +2 +Voting Procedures +2 +Voting of Shares +3 +Stock Ownership of Certain Beneficial Owners and Management +3 +Corporate Governance +5 +Board Operation and Leadership Structure +5 +Independent Chairman +5 +Director Independence +5 +Oversight of Risk Management +6 +Board Meetings +6 +Annual Meeting Attendance and Stockholder Communications +6 +Committees of the Board +7 +Use of Compensation Consultants +8 +Nomination of Directors +8 +Insider Trading +9 +Prohibition Against Short Sales and Hedging +9 +Compensation Recoupment Policy +9 +Stock Ownership and Retention Guidelines +10 +Report of the Audit Committee +10 +Executive Officers +12 +Transactions with Related Persons +13 +Section 16(a) Beneficial Ownership Reporting Compliance +13 +Proposal No. 1. – Election of Directors +13 +Proposal No. 2. – Ratification of Appointment of Independent Registered Public Accounting +Firm +16 +Audit Fees; Audit-Related Fees; Tax Fees; All Other Fees +17 +Executive Compensation +18 +Executive Summary +18 +Compensation Discussion and Analysis +19 +Overview of Executive Compensation +19 +2012 Compensation Decisions +25 +Summary Compensation Table +31 +Grants of Plan-Based Awards +32 +Outstanding Equity Awards at Fiscal Year-End +33 +Table of Contents +Option Exercises and Stock Vested +35 +Pension Benefits +35 +Nonqualified Deferred Compensation +35 +Employment Agreements and Potential Payments Upon Termination or Change in Control +37 +2012 Director Compensation +40 +Compensation Committee Interlocks and Insider Participation +42 +Compensation Risk Assessment +42 +Compensation Committee Report +42 +Equity Compensation Plan Information +43 +Proposal No. 3. – Advisory (Non-Binding) Vote to Approve Executive +Compensation +44 +Annual Report +46 +Deadline for Stockholder Proposals +47 +Table of Contents +ORASURE TECHNOLOGIES, INC. +220 East First Street +Bethlehem, Pennsylvania 18015 +Notice of +Annual Meeting of Stockholders +to be held May 14, 2013 +To the Stockholders of OraSure Technologies, Inc.: +The Annual Meeting of +Stockholders of OraSure Technologies, Inc., a Delaware corporation, will be held at the ArtsQuest Center at SteelStacks, 101 Founders Way, Bethlehem, Pennsylvania 18015, on Tuesday, May 14, 2013 , at 10:00 a.m. Eastern Time, for the +following purposes: +1. +To elect three Class I Directors, each to serve for a term expiring at the Company’s Annual Meeting of Stockholders in 2016; +2. +To ratify the appointment of KPMG LLP as our independent registered public accounting firm for the year ending December 31, 2013; +3. +To approve, by a non-binding advisory vote, the compensation of the Company’s named executive officers as disclosed in the Proxy Statement accompanying this +Notice; and +4. +To consider such other business as may properly come before the meeting or any adjournment(s) or postponement(s) thereof. +Additional information is included in the Proxy Statement accompanying this Notice. Only holders of shares of our Common Stock of record +at the close of business on March 21, 2013, will be entitled to vote at the Annual Meeting of Stockholders and any adjournment(s) or postponement(s) thereof. +By Order of the Board of Directors, +Jack E. Jerrett +Secretary +April 4, 2013 +Bethlehem, Pennsylvania +YOUR VOTE IS IMPORTANT. Whether or not you plan +to attend the Annual Meeting, you are urged to vote your shares as promptly as possible by telephone, via the Internet, or by completing, signing, dating and returning a paper Proxy Card, as described in the attached Proxy Statement. Voting by +phone, the Internet or mail does not deprive you of your right to attend the Meeting and to vote your shares in person. +Table of Contents +PROXY SUMMARY +This summary highlights information contained elsewhere in this Proxy Statement. This summary does not contain all of the information that +you should consider, and you should read the entire Proxy Statement carefully before voting. +2013 Annual Meeting of Stockholders +Information +Date and Time: +Tuesday, May 14, 2013, beginning at 10:00 a.m. Eastern Time. +Place: +ArtsQuest Center at SteelStacks, 101 Founders Way, Bethlehem, Pennsylvania 18015. +Webcast: +A live webcast of the Annual Meeting will be available at ww.virtualshareholdermeeting.com/OSUR2013. +Record Date: +March 21, 2013. +Stockholder Voting Matters +Proposals +Board +Recommendation +1) Election of Directors +FOR +2) Ratification of lndependent Registered Public Accounting Firm +FOR +3) Advisory (Non-Binding) Vote to Approve Executive Compensation +FOR +Proposal No. 1 – Election of Directors +The following table provides summary information about each of our Director nominees: +Name +Age +Director +Since +Principal Occupation +Independent +Committee +Memberships +Other +Current +Public +Boards +AC +CC +NCGC +Gerald M. Ostrov +63 +2011 +Former Chairman and CEO of Bausch & Lomb +Yes +1 +Stephen S. Tang, Ph.D. +52 +2011 +President and CEO of The University Science Center +Yes +— +Douglas G. Watson 1 +68 +2002 +Chief Executive Officer of Pittencrieff Glen Associates; Former President and CEO of Novartis Corporation +Yes +2 +AC = Audit Committee +CC = Compensation Committee +NCGC = Nominating & Corporate Governance Committee += Member +- Chair +(1.) +Mr. Watson also serves as Chairman of our Board of Directors. +Table of Contents +Proposal No. 2 – Ratification of Independent Registered Public Accounting +Firm +We are asking our stockholders to ratify the selection of KPMG LLP (“KPMG”) as our independent registered +public accounting firm for the 2013 fiscal year. Set forth below is a summary of KPMG’s fees for services provided in 2012 and 2011: +2012 +2011 +Audit Fees +$ +775,000 +$ +667,500 +Audit-Related Fees +128,400 +201,600 +Tax Fees +119,984 +91,095 +All Other Fees +— +— +Total +$ +1,023,384 +$ +960,195 +Proposal No. 3 – Advisory (Non-Binding) Vote to Approve Executive Compensation +It takes commitment from all the talented people throughout our Company to manage the many facets of our business. We +believe that we have the right executive team in place, and we have designed our compensation programs to enable us to attract, retain and reward our executives for delivering value to stockholders over the long-term. Therefore, we are asking our +stockholders to approve, by a non-binding advisory vote, the compensation of our named executive officers (“NEOs”). +Our compensation programs must balance short-term results with long-term success. To fulfill this mission, we have a pay-for-performance +philosophy that forms the foundation for executive compensation decisions made by our Board of Directors (the “Board”) and the Compensation Committee of the Board (the “Compensation Committee”). In addition, our compensation +decisions are designed to align the interests of our executives with the interests of our stockholders and incorporate strong corporate governance principles. +The Compensation Discussion and Analysis portion of this Proxy Statement contains a detailed description of our executive compensation philosophy and program, the compensation decisions the Board and +Compensation Committee have made under those programs and the factors considered in making those decisions, focusing on the compensation of our NEOS for the year ended December 31, 2012, who were: +· +Douglas A. Michels, President and Chief Executive Officer; +· +Ronald H. Spair, Chief Financial Officer and Chief Operating Officer; +· +Stephen R. Lee, Ph.D., Executive Vice President and Chief Science Officer; +· +Anthony Zezzo, II, Executive Vice President, Marketing and Sales; and +· +Jack E. Jerrett, Senior Vice President, General Counsel and Secretary. +Our executive compensation consists of the following principal components: +Base Salary +Salaries are based on position relative to market and individual performance and contribution levels. +Annual Cash Incentive Bonus +Annual incentive cash bonuses reflect market-based targets and are contingent upon (i) achievement of corporate financial and other objectives and (ii) the executive’s +individual performance against pre-determined objectives. +Long-term Incentive Plan (LTIP) +Long-term incentive equity compensation reflects market-based targets and is contingent upon the executive’s individual performance against pre-determined +objectives. +Table of Contents +The following factors illustrate our continued commitment to pay-for-performance, +alignment with stockholder interests and strong corporate governance: +· +A significant percentage (over 70% and 60% for Messrs. Michels and Spair, respectively, and over 50% for the other NEOs) of our executive +officers’ target compensation consists of incentive cash bonuses and long-term incentive equity awards, which are based on achievement of performance objectives. +· +Our financial performance for 2012 was below expectations, although we made significant progress against major strategic objectives. As a result, our +executives received only modest base salary adjustments and incentive cash bonuses were paid at slightly more than 50% of our NEOs’ target percentages. +· +The portion of equity awards given to our executives that consists of stock options has increased in recent years to make our long-term incentive +compensation more performance-based. +· +Awards of restricted shares generally vest over a minimum of 3 years and stock options vest over a minimum of 4 years, thereby helping align our +executives’ interests with the long-term interests of our stockholders. +· +We have adopted a “value transfer” methodology under which equity awards are targeted at market-based dollar values rather than an absolute +number of shares. This approach reduces the volatility in the value of awards based on short-term movements in the price of the shares of our Common Stock. +· +Total compensation paid to executives is targeted at the 50 th percentile of a peer group of comparable companies, with an opportunity to achieve up to the 75 th percentile based on performance. +· +Our Board and Compensation Committee regularly utilize independent compensation consultants to assess the competitiveness of our executive compensation +program. +· +We have adopted a compensation recoupment or “clawback” policy, providing for the return of excess compensation by executive officers if our +financial statements are restated due to misconduct. +· +Our Chief Executive Officer, Chief Financial Officer and non-employee members of the Board are subject to stock ownership and retention guidelines. +· +Our Stock Award Plan has been amended to prohibit both the re-pricing and repurchase of under-water options or other equity awards without stockholder +approval. +· +We have adopted a policy that any new employment agreement with an executive will not provide for the gross-up of excise tax obligations or a +“modified single trigger” for severance payments upon a change of control. +· +We do not provide our executives with any perquisites that are not offered to all employees. +Table of Contents +ORASURE TECHNOLOGIES, INC. +220 East First Street +Bethlehem, Pennsylvania 18015 +PROXY STATEMENT +General Information +We are providing these +Proxy Materials to stockholders of OraSure Technologies, Inc., a Delaware corporation (as used herein, “we,” “us,” “our” or the “Company”), in connection with the Company’s solicitation of proxies (each, +a “Proxy”) for use at the Annual Meeting of Stockholders to be held on May 14, 2013, at 10:00 a.m. Eastern Time, at the ArtsQuest Center at SteelStacks, 101 Founders Way, Bethlehem, Pennsylvania 18015, and at any adjournment(s) or +postponement(s) thereof (the “Annual Meeting”). +As a stockholder, you are invited to attend the Annual Meeting and +are requested to vote on the matters described in this Proxy Statement. For your convenience, we are pleased to offer a live webcast of our Annual Meeting which you can access by going to www.virtualshareholdermeeting.com/OSUR2013 . The +webcast will end after the formal portion of the meeting is adjourned and will not include the presentation by management and the question and answer session provided for those present in person at the Annual Meeting. +Internet Availability of Proxy Materials +We are furnishing Proxy Materials, including this Proxy Statement, the Proxy Card and the Company’s Annual Report to Stockholders +for the year ended December 31, 2012 (“Annual Report”), to our stockholders by providing access to such documents on the Internet in accordance with the rules and regulations of the Securities and Exchange Commission (the +“SEC”). On or about April 4, 2013, we mailed a Notice of Internet Availability of Proxy Materials (the “Notice”) to each stockholder at the holder’s address of record, indicating that this Proxy Statement is now +available to our stockholders of record entitled to vote at the Annual Meeting. All stockholders and beneficial holders have the ability to access a copy of our Proxy Materials on the Internet at the website referred to in the Notice. +Stockholders will not receive printed copies of the Proxy Materials unless they request those copies. The Notice also instructs stockholders as to how to submit a Proxy through the Internet. If you would like to receive a paper or e-mail copy +of your Proxy Materials, you should follow the instructions for requesting such materials included in the Notice. We will pay the entire cost of preparing, assembling, printing, mailing and distributing these Proxy Materials and soliciting votes. If +you choose to access the Proxy Materials and/or vote over the Internet, you are responsible for any Internet access charges you may incur. +Stockholders with Shared Addresses +SEC rules +permit us to deliver only one copy of the Notice or a single set of proxy materials to multiple stockholders sharing the same address. Upon written or oral request, we will deliver separate Notices and/or copies of our 2012 Annual Report and/or this +Proxy Statement to any stockholder at a shared address to which a +1 +Table of Contents +single copy of the Notice was delivered. Stockholders may notify the Company of their requests by calling or writing us at OraSure Technologies, Inc., 220 East First Street, Bethlehem, +Pennsylvania 18015; (610) 882-1820. +Meeting Admission +If you plan to attend the Annual Meeting, please bring your Notice or Proxy Card or a recent broker statement as proof of ownership of +your shares as of the March 21, 2013 record date for the Annual Meeting. You will be required to present these materials as well as a valid photo identification in order to be admitted to the Annual Meeting. Company representatives will have +the authority to determine whether these admission procedures have been followed and whether you will be granted admission to the Annual Meeting. Additional meeting procedures will be provided at the entrance to the Annual Meeting. Only the +Company’s stockholders will be granted in person access to the Annual Meeting. Members of the media and of the general public will generally not be granted access. +Proxies +If represented by a properly executed +Proxy, whether delivered by phone, the Internet or mail, as described below, your shares will be voted in accordance with your instructions. If you do not provide instructions with your Proxy, your shares will be voted according to the +recommendations of our Board of Directors (the “Board”) as stated on the Proxy. You may revoke the authority granted by your Proxy at any time before the Annual Meeting by notice in writing delivered to the Secretary of the Company, by +delivering a subsequently dated Proxy, or by attending the Annual Meeting, withdrawing the Proxy and voting in person. +At the +Annual Meeting, action will be taken on the matters set forth in the accompanying Notice of Annual Meeting of Stockholders and described in this Proxy Statement. The Board knows of no other matters to be presented for action at the Annual Meeting. +If any other matters do properly come before the Annual Meeting, the persons named in the Proxy Card will have discretionary authority to vote on those matters in accordance with their best judgment. +Solicitation of proxies is made on behalf of the Board. The cost of soliciting Proxies will be borne by us. In addition to solicitations +by e-proxy and/or by mail, certain of our Directors, officers and regular employees may solicit Proxies personally or by telephone or other means without additional compensation. We have also engaged Morrow & Co., LLC, 470 West Ave., +Stamford, CT 06902, to provide proxy solicitation services at an estimated fee of $6,000 plus expenses. +Arrangements will be +made with brokerage firms and other custodians, nominees and fiduciaries to forward solicitation materials to the beneficial owners of stock held of record by such persons, and we will, upon request, reimburse them for their reasonable expenses in +so doing. +Voting Procedures +You will have a choice of voting via the Internet, over the telephone or by completing and mailing a paper Proxy Card, as described +below. +Voting via the Internet or by Telephone. If you desire to vote online via the Internet +or by telephone prior to the Annual Meeting, you should go to www.proxyvote.com or call the toll free number indicated on the Proxy Card or Notice. You may vote via the Internet or by telephone provided you do so by 11:59 pm Eastern Time +(8:59 pm Pacific Time) on May 13, 2013. Stockholders who attend the Annual Meeting via the Internet may vote their shares at that time up to and during the Annual Meeting by following the instructions at +www.virtualshareholdermeeting.com/OSUR2013 . +2 +Table of Contents +The telephone and Internet voting procedures are designed to authenticate your identity, to +allow you to give your voting instructions and to confirm that your instructions have been recorded properly. If you vote via the Internet, you should understand that you will be responsible for any costs associated with this method of voting, such +as usage charges from Internet access providers and telephone companies. +Voting by Mail . If you +desire to vote by using a paper Proxy Card instead of by telephone or via the Internet, you will need to either print a copy of the Proxy Card from the website indicated in your Notice or follow the instructions in your Notice to request that a +paper copy be sent to you. You will then need to complete, sign, date and return the Proxy Card to the Company, as described on the Proxy Card. +Submitting a Proxy via the Internet, over the telephone or by mail will not affect your right to withdraw your Proxy and vote in person at the Annual Meeting, provided that you follow the admission +procedures described above. +Voting of Shares +On March 21, 2013, the record date for determining stockholders entitled to vote at the Annual Meeting, we had outstanding and +entitled to vote at the meeting 56,183,966 shares of common stock, par value $.000001 per share (“Common Stock”). Each share of Common Stock is entitled to one vote on any matter brought before the Annual Meeting. A majority of the shares +of Common Stock outstanding as of the record date, represented in person or by Proxy at the Annual Meeting, will constitute a quorum for the transaction of business. +Broker non-votes, votes withheld and abstentions will be counted for purposes of determining whether a quorum has been reached at the Annual Meeting. Because abstentions will be included in tabulations of +the votes entitled to vote for purposes of determining whether a proposal has been approved, abstentions have the same effect as negative votes. Broker non-votes, however, are not counted as shares present and entitled to be voted with respect to +the matters which the broker has not expressly voted. A broker “non-vote” occurs when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have the discretionary voting power +with respect to that item and has not received instructions on how to vote the shares from the beneficial owner. Discretionary voting by a broker or other nominee is not permitted in connection with the election of Directors or the advisory vote +regarding the Company’s executive compensation. Thus, if your broker or nominee does not receive instructions from you, a broker non-vote will occur and your shares will not be voted on these matters. +Stock Ownership of Certain Beneficial Owners and Management +The following table sets forth information, as of March 21, 2013, regarding the beneficial ownership of the Company’s Common +Stock by (a) each person who is known by us to be the beneficial owner of more than five percent of the Common Stock outstanding, (b) each Director and nominee for election as Director, (c) each of our executive officers named in the +Summary Compensation Table in this Proxy Statement under “Executive Compensation,” and (d) all of our Directors and executive officers as a group. Unless otherwise indicated, the address of each person identified below is c/o OraSure +Technologies, Inc., 220 East First Street, Bethlehem, Pennsylvania 18015. +3 +Table of Contents +Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the +“Exchange Act”), shares of Common Stock which a person has a right to acquire pursuant to the exercise of stock options held by that person that are exercisable within 60 days of March 21, 2013 are deemed to be outstanding for the +purpose of computing the percentage ownership of that person, but are not deemed outstanding for computing the percentage ownership of any other person. +Name and Address of +Beneficial Owner +Amount and Nature of +Beneficial Ownership 1,2 +Percent +of Class +Wells Fargo & Company 3 +420 Montgomery Street +San Francisco, CA +94104 +10,534,815 +18.8 +% +OrbiMed Advisors LLC 4 +OrbiMed Capital LLC +Samuel D. Isaly +601 Lexington Avenue +54 th Floor +New York, NY 10022 +5,437,000 +9.7 +% +BlackRock, Inc. 5 +40 East 52 nd +Street +New York, NY 10022 +4,427,880 +7.9 +% +Vanguard Group 6 +100 Vanguard Blvd. +Malvern, PA 19355 +2,993,340 +5.3 +% +Douglas A. Michels 7 +1,144,771 +2.0 +% +Ronald H. Spair 8 +643,579 +1.1 +% +Stephen R. Lee, Ph.D. 8 +240,534 +* +Roger L. Pringle 9 +321,931 +* +Douglas G. Watson +238,281 +* +Jack E. Jerrett +164,753 +* +Ronny B. Lancaster +88,829 +* +Charles W. Patrick 8 +133,672 +* +Michael Celano +121,224 +* +Stephen S. Tang, Ph.D. +48,854 +* +Anthony Zezzo II +157,545 +* +Gerald M. Ostrov +38,854 +* +All Directors and executive officers as a group (13 people) +3,459,058 +5.9 +% +*Less +than 1% +(1) +Subject to community property laws where applicable, beneficial ownership consists of sole voting and investment power except as otherwise indicated. +(2) +Includes shares subject to options exercisable within 60 days of March 21, 2013, as follows: Mr. Michels, 527,037 shares; Mr. Spair, +434,940 shares; Dr. Lee, 180,965 shares; Mr. Pringle, 215,552 shares; Mr. Watson, 140,000 shares; Mr. Jerrett, 130,819 shares; Mr. Lancaster, 70,000 shares; Mr. Patrick, 70,000 shares; Mr. Celano, 70,000 shares; +Dr. Tang, 40,000 shares; Mr. Zezzo, 78,396 shares; Mr. Ostrov, 30,000 +4 +Table of Contents +shares; and all Directors and executive officers as a group, 2,061,667 shares. Also includes unvested restricted shares, as follows: Mr. Michels, 153,872 shares; Mr. Spair, 65,636 +shares; Dr. Lee, 32,301 shares; Mr. Pringle, 8,854 shares; Mr. Watson, 13,281 shares; Mr. Jerrett, 25,418 shares; Mr. Lancaster, 8,854 shares; Mr. Patrick, 8,854 shares; Mr. Celano, 8,854 shares; Dr. Tang, +8,854 shares; Mr. Zezzo, 43,328 shares; Mr. Ostrov, 8,854 shares; and all Directors and executive officers as a group, 409,097 shares. +(3) +Based on information contained in a Schedule 13G/A filed February 13, 2013 by Wells Fargo & Company (“Wells Fargo”), on behalf of certain of its +subsidiaries. +(4) +Based on information contained in a Schedule 13G\A filed February 14, 2013 by OrbiMed Advisors LLC (“OMA”), OrbiMed Capital LLC (“OMC”) and +Samuel D. Isaly. OMA has shared voting and dispositive power with respect to 2,416,000 shares, OMC has shared voting and dispositive power with respect to 3,021,000 shares and Mr. Isaly has shared voting and dispositive power with respect to +5,437,000 shares. +(5) +Based on information contained in a Schedule 13G/A filed February 11, 2013, by BlackRock, Inc. (“BlackRock”) on behalf of certain of its subsidiaries. +BlackRock has sole voting and dispositive power with respect to the indicated shares. +(6) +Based on information contained in a Schedule 13G filed February 13, 2013 by The Vanguard Group (“Vanguard”), Vanguard has sole voting power with respect +to 81,129 shares, sole dispositive power with respect to 2,914,911 shares and shared dispositive power with respect to 78,429 shares. +(7) +Includes 9,370 shares owned by Mr. Michels’ son. +(8) +Includes restricted shares contributed by the recipient to the OraSure Technologies, Inc. Deferred Compensation Plan, as follows: Mr. Spair, 34,180 shares; +Dr. Lee, 19,796 shares; and Mr. Patrick, 8,854 shares. +(9) +Includes 1,500 shares owned by Mr. Pringle’s spouse. +Corporate Governance +Board +Operation and Leadership Structure +The Board has adopted Corporate Governance Principles which, along with the Charters +for each of its Committees and the Company’s Code of Business Conduct and Ethics, provide a framework for the governance of the Company. The Company’s Corporate Governance Principles address matters such as the responsibilities and +composition of the Board, Director independence and the conduct of Board and Committee meetings. The Company’s Code of Business Conduct and Ethics sets forth guiding principles of business ethics and certain legal requirements applicable to all +Company employees and non-employee Directors. Copies of the current Corporate Governance Principles and Code of Business Conduct and Ethics are available at the Company’s website, www.orasure.com . +Independent Chairman +Currently, the Company’s Chief Executive Officer does not hold the position of Chairman of the Board as the Company believes it is appropriate for the Board to be led by an individual who is +independent of management. Mr. Watson has served as the Chairman of our Board since March 2003. In the future, however, the Board may reconsider whether its Chief Executive Officer should also serve as Board Chairman. +Director Independence +Our Corporate Governance Guidelines require, among other things, that a majority of the members of the Board meet the independence requirements of the SEC and The NASDAQ Stock Market (“NASDAQ”), +on +5 +Table of Contents +which our Common Stock is listed. Each year our Board, with assistance from the Nominating and Corporate Governance Committee, conducts a review of Director independence. The most recent annual +review occurred in the first quarter of 2013, during which the Board considered transactions and relationships, if any, between each Director or any member of such Director’s immediate family and the Company. As a result of this review, the +Board determined that Michael Celano, Ronny B. Lancaster, Gerald M. Ostrov, Charles W. Patrick, Roger L. Pringle, Stephen S. Tang, Ph.D., and Douglas G. Watson are “independent,” as that term is defined in the applicable rules of NASDAQ +and the SEC. Only Douglas A. Michels and Ronald H. Spair were determined by the Board not to be independent, because they are Company employees, Based on the foregoing, the Board of Directors is comprised of a majority of independent Directors. +Oversight of Risk Management +As part of its oversight of the Company’s operations, the Board and Audit Committee monitor the management of risks by the Company’s executives. The Audit Committee reviews the risks that the +Company may face and receives reports from senior management on the nature of these risks and the procedures and processes in place to manage and mitigate such risks. Substantive areas of risk reviewed by the Audit Committee include financial, legal +compliance, operational, information technology and employment risks. The Audit Committee provides a report to the full Board on the matters covered during each of its meetings, including its risk monitoring activities. In addition, senior +management provides periodic reports to the full Board on the major risks facing the Company and the processes and procedures in place to manage such risks. Management also conducts a risk assessment of the Company’s compensation policies and +practices, including its executive compensation program, as described in greater detail in the Section of this Proxy Statement entitled, “Compensation Risk Assessment.” +Board Meetings +The Board held 10 meetings and +acted by written consent on two occasions during the fiscal year ended December 31, 2012. Each member of the Board attended more than 75 percent of the combined total of meetings of the Board and of the committees of the Board on which +such member served during the period in the year in which he served as a Director. +Annual Meeting Attendance +and Stockholder Communications +The Board has approved a policy concerning Board members’ attendance at our annual +meeting of stockholders and a process for security holders to send communications to members of the Board. Descriptions of the Board’s policy on annual meeting attendance and the process for security holders to send communications to the Board +are provided on our website, at www.orasure.com . As a general matter, each Board member is expected to attend each annual meeting of stockholders and the Board’s annual organizational meeting is typically scheduled to follow each annual +meeting of stockholders. +Our last annual meeting of stockholders was held on May 15, 2012 (the +“2012 Annual Meeting”), which was also the same day that the FDA’s Blood Products Advisory Committee Meeting (“BPAC”) held a critical meeting to consider whether our +OraQuick ® In-Home HIV test should be approved for sale in the U.S. consumer market. As previously disclosed, the +BPAC unanimously recommended approval of this product, and in early July 2012 that approval was received from the FDA. Because of its critical importance, Messrs. Michels and Spair attended the BPAC meeting instead of our 2012 Annual Meeting. The +Board also decided to depart from its usual practice and deferred its annual organizational meeting to early June. In order to reduce costs and minimize schedule disruptions, the Board directed its members (other than Messrs. Michels and Spair) to +attend the 2012 Annual Meeting either in person or through the webcast and all such members attended the 2012 Annual Meeting in this manner. The Board expects that all of its members will resume the normal practice and attend the 2013 Annual Meeting +in person. +6 +Table of Contents +Committees of the Board +The Board currently has three standing committees – the Audit Committee, the Compensation Committee and the Nominating and Corporate +Governance Committee. Members of these committees are each “independent,” as defined in the Exchange Act and NASDAQ rules applicable to such Committees. In addition, the Board has determined that Mr. Celano is an “audit committee +financial expert,” as that term is defined by applicable rules of the SEC. Each committee operates pursuant to a written charter, copies of which are available on our website, www.orasure.com . The following provides additional +information with respect to each standing committee: +Audit Committee +Michael Celano, Chairman +Charles W. Patrick +Stephen S. +Tang +Douglas G. Watson +The Audit Committee oversees the Company’s accounting and financial reporting process, internal controls and audits, and consults with management and the Company’s +independent registered public accounting firm on, among other items, matters related to the annual audits, the published financial statements and the accounting principles applied. As part of its duties, the Audit Committee: (i) appoints, evaluates +and retains our independent registered public accounting firm; (ii) maintains direct responsibility for the compensation, termination and oversight of our independent registered public accounting firm; (iii) evaluates the independent registered +public accounting firm’s qualifications, performance and independence; (iv) approves all services provided to the Company by the independent registered public accounting firm; and (iv) maintains procedures for the receipt, retention and +treatment, on a confidential basis, of complaints received by the Company, regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submissions by employees of concerns regarding questionable accounting +or auditing matters. The Audit Committee met nine times during the fiscal year ended December 31, 2012. +Compensation Committee +Roger L. Pringle, Chairman +Ronny B. Lancaster +Gerald Ostrov +Stephen S. Tang, Ph.D. +Douglas G. Watson +The primary responsibility of the Compensation Committee is to assist the Board in overseeing all types of compensation for our officers and non-employee Directors. Our +compensation philosophy is to (i) reward executive officers for performance; (ii) align the interests of our executives with the interests of our stockholders; (iii) provide long-term incentives for our executive officers; and (iv) set compensation +at levels sufficient to attract, retain and motivate high quality executives and to motivate them to contribute to our success. Except as prohibited by law, the Compensation Committee is authorized to delegate any of its responsibilities to +subcommittees or individual members, as the Compensation Committee deems appropriate. A further discussion of our process for determining executive officer and non-employee Director compensation is set forth in the “Compensation Discussion and +Analysis” Section of this Proxy Statement. The Compensation Committee met eight times and acted by written consent on two occasions during the fiscal year ended December 31, 2012. +7 +Table of Contents +Nominating and Corporate Governance Committee +Ronny B. Lancaster, Chairman +Michael Celano +Charles W. Patrick +Roger L. +Pringle +The Nominating and Corporate Governance Committee of the Board identifies, evaluates and recommends to the Board candidates for election or re-election to the Board and +administers our Corporate Governance Guidelines. In evaluating candidates for the Board, the Nominating and Corporate Governance Committee will consider individuals recommended by members of the Nominating and Corporate Governance Committee or the +Board of Directors, officers or employees of the Company, the Company’s security holders and other business contacts. The Nominating and Corporate Governance Committee may also consult with outside advisors or retain search firms to assist in +the search for qualified candidates. Candidates recommended by security holders will be considered by the Nominating and Corporate Governance Committee in the same manner as candidates recommended by other sources, but only if the security holder +makes a recommendation in accordance with the advance notification provisions set forth in the Company’s By-laws. Although there is no formal policy governing Board diversity, the Nominating and Corporate Governance Committee considers +diversity and other factors in evaluating new candidates for the Board. The term diversity is used broadly to include not only race, gender and national origin, but also any other factors determined to be relevant by the Nominating and Corporate +Governance Committee based on the needs of the Board and Company, including independence, integrity, knowledge, judgment, character, leadership skills, education, industry experience, financial literacy, technical background, specialized expertise, +and standing in the community. In evaluating incumbent Directors for re-election, the Nominating and Corporate Governance Committee considers that Director’s background, experience and overall service to the Company, including the number of +meetings attended, level of participation, quality of performance and other factors deemed relevant by the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee met four times during the fiscal year ended +December 31, 2012. +Use of Compensation Consultants +On an as-needed basis, the Compensation Committee retains independent compensation consultants to assist in evaluating and structuring our +executive compensation program and making compensation decisions. During 2012, the Compensation Committee engaged Pearl Meyer & Partners (“PM&P”) to (i) assist in updating the peer group of companies used by the +Compensation Committee and Board for compensation benchmarking purposes; (ii) provide a competitive market assessment of our executive compensation program; and (iii) analyze internal pay equity among our named executive officers (the +“Services”). We paid PM&P approximately $69,800 for the Services. +Nomination of Directors +Our Bylaws provide that nominations for election to the Board may be made by the Board or by any +stockholder entitled to vote for the election of Directors at the Annual Meeting. A stockholder’s notice of nomination must be made in writing to the Company’s Secretary and must be delivered to or received at our principal executive +offices not less than ninety (90) days nor more than one hundred twenty (120) days prior to the meeting. However, in the event that less than one hundred (100) days’ notice or prior public disclosure of the date of the meeting is +given or made to stockholders, notice by the stockholder to be timely must be received no later than the close of business on the tenth (10 th ) day following the day on which such notice of the date of the meeting was mailed or such public disclosure was +made, whichever first occurs. The notice to the Secretary must +8 +Table of Contents +set forth, with respect to the nominee, the name, age, business address, residence address, principal occupation or employment of the person, the class and number of shares of capital stock of +the Company which are beneficially owned by the person, and any other information relating to the person that is required to be disclosed in solicitations for proxies for election of Directors pursuant to Regulation 14A under the Exchange Act. The +notice must also include, as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination is made: (i) the name and address of the stockholder and such beneficial owner; (ii) the class and number of +shares of capital stock of the Company which are held of record or beneficially owned by such stockholder and such beneficial owner and any other direct or indirect pecuniary or economic interest in any capital stock of the Company of such +stockholder and beneficial owner, including without limitation, any derivative instrument, swap, option, warrant, short interest, hedge, profit sharing arrangement or borrowed or loaned shares; (iii) a description of any arrangements or +understandings between such stockholder and beneficial owner and each proposed nominee and any other person (including their names) pursuant to which the nomination(s) are to be made by such stockholder and such beneficial owner or with respect to +actions to be proposed or taken by such nominee if elected as a Director; (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice; and (v) any other +information relating to such stockholder and such beneficial owner that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of Directors, or may +otherwise be required pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. We may also require any proposed nominee to furnish such other information as we may reasonably require to determine the +eligibility of the proposed nominee to serve as a Director of the Company. +Insider Trading +We have a policy designed to prevent any trading in the Company’s Common Stock or other securities by a person while such person is +in possession of material nonpublic information. This policy applies to members of the Board, executive officers and all other employees of the Company. The policy prohibits trading in the Company’s securities on the basis of material nonpublic +information, requires preapproval for Directors and all employees of transactions in Company securities and establishes regular trading windows after each calendar quarter following the Company’s announcement of its quarterly financial results. +Prohibition Against Short Sales and Hedging +We believe it is inappropriate for any employee or member of the Board to engage in short-term or speculative transactions involving +Company securities. As a result, our insider trading policy prohibits employees and Directors from entering into these types of transactions involving our Common Stock, including short sales, the buying or selling of puts or calls, the purchase of +securities on margin, prepaid variable forward contracts, equity swaps, collars, exchange funds and other similar financial instruments. +Compensation Recoupment Policy +The Board has adopted a compensation recoupment or “clawback” policy, +applicable to all officers subject to Section 16 of the Exchange Act. Under this policy, the Board and the Compensation Committee are permitted to recoup any excess compensation, including incentive cash bonuses, restricted stock, stock options +or other compensation, which was awarded to a covered officer based on financial statements of the Company when such statements are required to be restated as a result of the misconduct of the covered officer. The Board and the Compensation +Committee have discretionary authority to pursue all available remedies, including recoupment of all or part of the excess compensation and disciplinary action against the officer whose misconduct resulted in the restatement. The recovery period for +recoupment of any compensation is up to three years preceding the date on which the Company is required to prepare and file the restated financial statements. +9 +Table of Contents +Stock Ownership and Retention Guidelines +The Board has adopted stock ownership and retention guidelines applicable to the Company’s President and Chief Executive Officer, its +Chief Financial Officer and Chief Operating Officer, and all non-employee members of the Board. Under these guidelines, the covered individuals must meet the following ownership requirements, expressed either as a multiple of base salary (in the +case of Company officers) or annual cash fees (in the case of Board members): +Covered Individual +Multiple of Base Salary or Director Fees +President and Chief Executive Officer +2x +Chief Financial Officer and Chief Operating Officer +1x +Non-Employee Directors +1x +Any individual who was covered by the guidelines at the time of adoption was required to be in compliance +on the adoption date. Any individual who becomes subject to the guidelines following adoption is required to meet the guidelines within five years. Any individual already subject to the guidelines who becomes subject to a higher ownership +requirement, either due to a promotion or increase in compensation, is required to meet the new ownership requirement within three years following the effective date of the change in compensation or, if later, the end of the original five-year +period. In determining whether an individual meets the required ownership requirement, shares owned directly or indirectly, restricted shares, and shares deferred under our deferred compensation plan will be counted. Compliance will be determined as +of December 31 of each fiscal year. The guidelines also require each covered individual to retain at least 25% of the net shares acquired upon the exercise of stock options and the vesting of restricted stock until the individual’s +holdings of Common Stock equal or exceed the applicable ownership requirement. As of December 31, 2012, all covered officers and non-employee Directors were in compliance with the stock ownership guidelines. +Report of the Audit Committee +The information contained in this report shall not be deemed to be “soliciting material” or “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to +liability under that Section. This report shall not be deemed “incorporated by reference” into any document filed under the Securities Act of 1933, as amended, or the Exchange Act, whether such filing occurs before or after the date +hereof, regardless of any general incorporation language in such filing. +The role of the Audit Committee is to assist the +Board of Directors in fulfilling its responsibilities to oversee management’s conduct of the Company’s financial reporting process, including monitoring (1) the participation of management and the outside independent registered public +accounting firm in the financial reporting process, (2) the Company’s systems of internal accounting and financial controls, (3) the annual independent audit of the Company’s financial statements and (4) the qualifications, +independence and performance of the outside independent registered public accounting firm. The Audit Committee selects the Company’s outside independent registered public accounting firm, and once selected, the outside independent registered +public accounting firm reports directly to the Audit Committee. The Audit Committee is responsible for approving both audit and non-audit services to be provided by the outside independent registered public accounting firm. The Audit Committee +operates pursuant to a Charter that was last amended and restated by the Board on February 12, 2013. +Management of the +Company is responsible for the preparation, presentation and integrity of the Company’s financial statements, the Company’s accounting and financial reporting principles and internal controls and procedures designed to assure compliance +with accounting standards and applicable laws and regulations. The independent registered public accounting firm is responsible for auditing the Company’s financial statements and expressing an opinion as to their conformity with U.S. generally +accepted accounting principles. The Audit Committee’s responsibility is to monitor and review these processes. It is not the Audit Committee’s duty or responsibility to conduct auditing or accounting reviews. +10 +Table of Contents +In the performance of its oversight function, the Audit Committee has considered and +discussed the audited financial statements with management, which included a discussion of not only the quality, but also the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in +the financial statements. The Audit Committee met with the independent registered public accounting firm, with and without management, to discuss the results of their audit and their judgments regarding the Company’s accounting policies. The +Audit Committee has also discussed with the independent registered public accounting firm the matters required to be discussed by Statement on Auditing Standards No. 61, “Communication with Audit Committees,” as currently in effect. +Finally, the Audit Committee has received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board as currently in effect, has +considered whether the provision of non-audit services by the independent registered public accounting firm to the Company is compatible with maintaining the firm’s independence and has discussed with the independent registered public +accounting firm the firm’s independence. +Based upon the reports and discussions described in this report, and subject to +the limitations on the role and responsibilities of the Audit Committee referred to above and in the Committee’s Charter, the Audit Committee recommended to the Board that the audited financial statements be included in the Company’s +Annual Report on Form 10-K for the year ended December 31, 2012 for filing with the SEC and selected KPMG LLP as the independent registered public accounting firm for fiscal year 2013. The Board is recommending that stockholders ratify that +selection at the Annual Meeting. +SUBMITTED BY THE AUDIT COMMITTEE +OF THE COMPANY’S BOARD OF DIRECTORS +Michael Celano, +Chairman +Charles W. Patrick +Stephen S. Tang, Ph.D. +Douglas G. Watson +March 8, 2013 +11 +Table of Contents +Executive Officers +The table below provides information about the executive officers of the Company as of March 21, 2013. Officers of the Company hold +office at the discretion of the Board. +Name +Age +Position +Douglas A. Michels +56 +President and Chief Executive Officer +Ronald H. Spair +57 +Chief Financial Officer and Chief Operating Officer +Stephen R. Lee, Ph.D. +53 +Executive Vice President and Chief Science Officer +Anthony Zezzo II +59 +Executive Vice President, Marketing and Sales +Jack E. Jerrett +54 +Senior Vice President, General Counsel and Secretary +Mark L. Kuna +49 +Senior Vice President, Finance, Controller and Assistant Secretary +Douglas A. Michels has been the Company’s President and Chief Executive Officer since June 2004. +Prior to that, Mr. Michels served as Group Vice President, Global Marketing of Ortho-Clinical Diagnostics, President of Ortho-Clinical Diagnostics International, and President of Johnson & Johnson Healthcare Systems, Inc. Earlier in +his career, Mr. Michels held various sales and marketing positions of increasing responsibility within the Johnson & Johnson family of companies and with the Diagnostics Division of Abbott Laboratories. Mr. Michels received a B.S. +degree in Public Health Administration from the University of Illinois and an M.B.A. from Rutgers University. Mr. Michels also serves on the Presidential Advisory Council on HIV/AIDS (PACHA) and on the board of directors of West Pharmaceutical +Services, Inc. +Ronald H. Spair has been the Company’s Chief Financial Officer and Chief Operating Officer since +September 2006 and served as Executive Vice President and Chief Financial Officer since November 2001. Prior to that time, Mr. Spair served as Chief Financial Officer for various companies in the pharmaceutical industry, including Delsys +Pharmaceutical Corporation, SuperGen, Inc., and Sparta Pharmaceuticals, Inc. Mr. Spair received both his B.S. in Accounting and M.B.A. from Rider College. He is also a licensed Certified Public Accountant, a Chartered Global Management +Accountant, and a member of the New Jersey Society of Certified Public Accountants and the American Institute of Certified Public Accountants. +Stephen R. Lee, Ph.D. has been the Company’s Executive Vice President and Chief Science Officer since September 2005. Prior to that time, Dr. Lee held senior research and development positions +with Ortho-Clinical Diagnostics, a Johnson & Johnson company. Dr. Lee has had responsibility for or direct involvement in the development of over 40 major diagnostic assays, in such areas as infectious disease, cardiology, oncology and +other conditions. While at Ortho, he was awarded the Johnson Medal, Johnson & Johnson’s highest award for research and development. Dr. Lee received a BSc. in Biochemistry from Sheffield University (U.K.) in 1981 and a Ph.D. +degree in Biochemistry from Cardiff University (U.K.) in 1985. +Anthony Zezzo II has been the Company’s Executive Vice +President, Marketing and Sales since January 2011. From 2004 to December 2010, Mr. Zezzo was Vice President, North American Sales and Marketing at the Ortho-Clinical Diagnostics Division of Johnson & Johnson. Prior to that time, +Mr. Zezzo held a series of increasingly responsible sales and marketing positions within Johnson & Johnson. Mr. Zezzo received his B.A. in Political Science from Grove City College. +Jack E. Jerrett has been the Company’s Senior Vice President and General Counsel since February 2003 and served as Vice President +and General Counsel since November 2000. He has also served as the Company’s Secretary since February 2001. Prior to joining the Company, Mr. Jerrett worked as an Associate at Morgan, Lewis & Bockius and held positions of +increasing legal responsibilities with companies in the transportation and energy industries. Mr. Jerrett received his B.S. in Accounting from Villanova University and his J.D. from the Villanova University School of Law. He is a member of the +Pennsylvania Bar and the American and Pennsylvania Bar Associations. +12 +Table of Contents +Mark L. Kuna has been the Company’s Senior Vice President, Finance and Controller since +September 2006, and served as Vice President and Controller since February 2003 and as Controller since February 2001. Mr. Kuna has also served as the Company’s Assistant Secretary since May 2002 and provided accounting and financial +analysis support since joining the Company in October 2000. Prior to that time, Mr. Kuna served as an accountant with Deloitte and Touche and held senior accounting and management positions with companies in the petrochemical, manufacturing, +and telecommunications industries. Mr. Kuna received his B.S. in Accounting from the University of Scranton and is a licensed Certified Public Accountant, a Chartered Global Management Accountant, and a member of the Pennsylvania and American +Institutes of Certified Public Accountants. +Transactions With Related Persons +Since January 1, 2012, there have been no transactions with related persons which would require disclosure in this Proxy Statement. +The Audit Committee is required to review and approve in advance all transactions with related persons involving the Company. The Audit Committee may approve a related party transaction if the transaction is on terms comparable to those that could +be obtained in arms’ length dealings with an unrelated third party. The Audit Committee also reviews any public disclosures of a related party transaction contained in our SEC filings. These responsibilities are described in the Audit +Committee’s charter, a copy of which is available on our website at www.orasure.com . +Information regarding +employment and severance agreements between our executive officers and the Company is set forth in the Section entitled, “Employment Agreements and Potential Payments Upon Termination or Change in Control,” in this Proxy Statement. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Exchange Act requires that our executive officers and Directors and persons who own more than ten percent of +our Common Stock (collectively, “Reporting Persons”) file reports of ownership and changes in ownership with the SEC. Reporting Persons are required by the SEC’s regulations to furnish us with copies of all Section 16(a) forms +they file. +As a matter of practice, our administrative staff assists each of the Reporting Persons who are employees and +Directors of the Company in preparing initial reports of ownership and reports of changes in beneficial ownership and filing such reports with the SEC and the NASDAQ. Based solely on a review of the copies of forms filed by or on behalf of the +Reporting Persons and on written representations (if any) from each of the Reporting Persons, we believe that all Reporting Persons complied on a timely basis with all applicable filing requirements with respect to the year 2012, except for Anthony +Zezzo, the Company’s Executive Vice President, Marketing and Sales. Due to an administrative oversight, a Form 4 required in connection with the vesting of restricted stock for Mr. Zezzo on January 3, 2012 was filed two business days +late. +Proposal No. 1. Election of Directors +Background +At the +Annual Meeting, you will be asked to vote on the election of three Directors. A majority of the independent members of the Board have nominated Gerald M. Ostrov, Stephen S. Tang, Ph.D. and Douglas G. Watson for election as Class I Directors, for +terms expiring at the Annual Meeting of Stockholders in 2016. +Each of the nominees for election as Directors is presently a +member of our Board and has consented to continue to serve if re-elected to the Board. Mr. Ostrov joined the Board in 2011 and serves on the Compensation Committee. Dr. Tang joined the Board in 2011 and serves on the Audit Committee and +Compensation Committee. Mr. Watson joined the Board in 2002, is Chairman of the Board and serves on the Audit Committee and Compensation Committee. +13 +Table of Contents +We do not know of anything that would preclude any nominee from serving. However, should any +nominee for any reason become unable or unwilling to serve as a Director, the persons named in the enclosed Proxy Card will vote the shares represented by each Proxy for such substitute nominee as the Board may approve. +Any vacancy that occurs on the Board that results from an increase in the number of Directors may be filled by the affirmative vote of a +majority of the Directors then in office, and any other vacancy on the Board may be filled by the affirmative vote of a majority of the Directors then in office, even though less than a quorum of the Board, or by a sole remaining Director. +Certain information with respect to each person nominated for election as a Director and each person whose term of office as +a Director will continue after the Annual Meeting, including the particular experience, qualifications, attributes and skills they possess that led to the conclusion that they should serve as a Director, is set forth below. +Name +Principal Occupation +Age +Director +Since +Class I (Nominees for Terms Expiring in 2016): +Gerald M. Ostrov +Former Chairman and CEO of Bausch & Lomb +63 +2011 +Stephen S. Tang, Ph.D. +President and Chief Executive Officer of The University City Science Center +52 +2011 +Douglas G. Watson +Chief Executive Officer of Pittencrieff Glen Associates +68 +2002 +Class II (Directors Whose Terms Expire in 2014): +Ronny B. Lancaster +Senior Vice President for Federal Government Relations of Assurant, Inc. +61 +2003 +Roger L. Pringle +President of The Pringle Company +72 +2000 +Ronald H. Spair +Chief Financial Officer and Chief Operating Officer of the Company +57 +2006 +Class III (Directors Whose Terms Expire in 2015): +Michael Celano +Chief Financial Officer of Drugscan, Inc. +54 +2006 +Douglas A. Michels +President and Chief Executive Officer of the Company +56 +2004 +Charles W. Patrick +Principal, Patrick Consulting +58 +2006 +Gerald M. Ostrov became a member of the Board in November of 2011. Mr. Ostrov most recently served +as Chairman and CEO of Bausch & Lomb from 2008 through 2010. Prior to this position, Mr. Ostrov spent the majority of his career with Johnson & Johnson where he held the position of Company Group Chairman responsible for the +Worldwide Vision Care businesses for nearly eight years. Earlier in his career, he held executive positions responsible for consumer personal care and pharmaceutical products at Johnson & Johnson and at Ciba-Geigy. Mr. Ostrov +earned a B.S. in Industrial Engineering and Operations Research from Cornell University and an M.B.A. from Harvard University and serves on the board of directors of Oramed Pharmaceuticals. Mr. Ostrov’s long and distinguished business +career and in particular his extensive experience in marketing consumer products, led to the conclusion that he should serve on the Company’s Board. +Stephen S. Tang, Ph.D., became a member of the Board in April 2011. Since January 2008, Dr. Tang has served as President and Chief Executive Officer of The University City Science Center, an urban +research park and business incubator owned by over thirty leading universities, medical schools and health networks in the greater Philadelphia, Pennsylvania area. Prior to that, Dr. Tang held senior management and business development +14 +Table of Contents +positions with several firms in the life sciences industry, including Olympus America, Inc., Millennium Cell Inc. and A.T. Kearney Inc. Dr. Tang holds a B.S. degree in Chemistry from The +College of William and Mary, an M.S. degree and Ph.D. in Chemical Engineering from Lehigh University and an MBA from The Wharton School of Business at the University of Pennsylvania. Dr. Tang’s extensive business experience, and in +particular his experience in the life sciences industry and with strategic and business development matters, led to the conclusion that he should serve on the Company’s Board. +Douglas G. Watson became a member of the Board in May 2002 and became Chairman of the Board in March 2003. Since July 1999, +Mr. Watson has been Chief Executive Officer of Pittencrieff Glen Associates, a leadership and management consulting firm, which he founded. Prior to that, Mr. Watson served as President and Chief Executive Officer of Novartis Corporation, +the U.S. subsidiary of Novartis A.G., President and Chief Executive Officer of Ciba-Geigy Corporation, President of the Ciba Pharmaceuticals Division and Senior Vice President of Planning and Business Development of Ciba’s U.S. Pharmaceuticals +Division. Mr. Watson holds an M.A. degree in pure mathematics from Churchill College, Cambridge University, and is a member of the Chartered Institute of Management Accountants. Mr. Watson also serves on the boards of directors of Dendreon +Corporation and Delcath Systems Inc. and previously served on the boards of directors of BioMimetic Therapeutics, Inc., Engelhard Corporation, Genta Inc., Javelin Pharmaceuticals Inc., InforMedix Inc., BioElectronics Inc. and Summit Bank +Corporation. Mr. Watson’s long business career and executive-level management experience in the pharmaceutical industry, his financial and accounting expertise and his service on the Boards and Board Committees of other private and public +companies led to the conclusion that he should serve on the Company’s Board. +Ronny B. Lancaster became a member of the +Board in May 2003. Mr. Lancaster has served as Senior Vice President, Federal Government Relations of Assurant, Inc., a provider of specialty insurance and insurance-related products and services since September 2005. Prior to that, +Mr. Lancaster served as Chief Operating Officer of the Morehouse School of Medicine, Executive Assistant to the Secretary and Principal Deputy Assistant Secretary for Planning and Evaluation at the U.S. Department of Health and Human Services, +General Counsel of Hamilton Enterprises, Inc., Senior Washington Representative for Blue Cross/Blue Shield Association, and Chief of the Division of Fee-For-Service Plans at the U.S. Office of Personnel Management. Mr. Lancaster received his +B.A. in Economics from the Catholic University of America, his M.B.A. from the Wharton School of the University of Pennsylvania, and his J.D. degree from The Georgetown University Law Center. He is admitted to the Bars of Pennsylvania and the +District of Columbia. Mr. Lancaster previously served on the board of directors of Immucor, Inc. Mr. Lancaster’s expertise in government affairs and political matters, his extensive medical and healthcare experience and his legal +training led to the conclusion that he should serve on the Company’s Board. +Roger L. Pringle has served on the Board +since September 2000, when the Company was formed by the merger of Epitope, Inc. (“Epitope”) and STC Technologies, Inc. Prior to that, Mr. Pringle served as Chairman of the Board and a member of the Board of Directors of Epitope, and +was a director of Agritope, Inc., a plant genetics subsidiary of Epitope. Mr. Pringle is the President of The Pringle Company, a strategy and executive consulting firm in Portland, Oregon, which was founded in 1976. Mr. Pringle +currently serves on the board of directors of Prolifiq Software, Inc. and previously served on the boards of directors of Bank of the Northwest, Metro One Telecommunications Inc. and North Pacific Group. Mr. Pringle received a B.S. in Business +from Oregon State University and an MBA from the University of Oregon. Mr. Pringle’s long service as a member of the Board of Epitope, his professional expertise in executive selection, assessment and compensation, as well as his +entrepreneurial and business leadership skills and his service on the Boards of other private and public companies led to the conclusion that he should serve on the Company’s Board. +For biographical information on Mr. Spair, see the Section entitled, “Executive Officers,” in this Proxy Statement. +Mr. Spair’s service as Chief Financial Officer and Chief Operating Officer of the Company, his financial and accounting expertise and his extensive business and investor relations experience led to the conclusion that he should serve on +the Company’s Board. +15 +Table of Contents +Michael Celano became a member of the Board in October 2006. Mr. Celano has served as +Chief Financial Officer of DrugScan, Inc., a clinical laboratory services company, since January 2013. Prior to that, Mr. Celano served as Chief Financial Officer of Kensey Nash Corporation, a biomaterials company from March 2009 until June +2012, and as a consultant to Royal DSM, the acquiror of Kensey Nash Corporation, from July 2012 through December 2012. From August 2007 to December 2008, Mr. Celano served as Managing Director of Aon Risk Services and prior to that, he served +as Vice President, Finance and Chief Financial Officer for BioRexis Pharmaceutical Corporation, a biopharmaceutical company. Before joining BioRexis, Mr. Celano served as a partner with KPMG LLP, in charge of its Mid-Atlantic Life Sciences +Practice, and was co-leader of its National Life Science Practice. Mr. Celano also was co-leader of the Life Science Practice for Arthur Andersen before he joined KPMG. Mr. Celano is a Certified Public Accountant and holds a B.S. degree in +Accounting from St. Joseph’s University. Mr. Celano’s accounting and financial expertise, and specifically his long career in public accounting focused in the life sciences area, and his extensive business experience led to the +conclusion that he should serve on the Company’s Board. +For biographical information on Mr. Michels, see the +Section entitled, “Executive Officers,” in this Proxy Statement. Mr. Michels’ service as President and Chief Executive Officer of the Company, his extensive business and executive-level management experience in the medical +diagnostics field and his sales and marketing expertise led to the conclusion that he should serve on the Company’s Board. +Charles W. Patrick became a member of the Board in January 2006. Since 2000, Mr. Patrick has served as Principal of Patrick +Consulting, a management consulting firm that helps diagnostic and technology companies develop sales, marketing and distribution strategies. From 2001 through 2011, Mr. Patrick also served as the President and Co-owner of ADS Golf, Inc., a +golf equipment supplier. Prior to that time, he served as the President and Chief Executive Officer of CallNexus, Inc., a provider of virtual call center services, and Vice President of Sales and Marketing for Biosite Diagnostics, a medical +diagnostics company, where he had primary responsibility for developing and achieving Biosite’s strategic sales, marketing and distribution objectives. Prior to his time at Biosite, Mr. Patrick served as World Wide Group Marketing Manager +and held several other sales and marketing positions for the Diagnostics Division of Abbott Laboratories. Mr. Patrick received a B.A. in Communications/Journalism from the University of Central Florida. Mr. Patrick also serves on the board +of directors of diaDexus, Inc., a publicly traded cardiovascular and stroke diagnostics company. Mr. Patrick’s extensive sales and marketing background, his 35 years of experience in the medical diagnostics industry and his entrepreneurial +skills led to the conclusion that he should serve on the Company’s Board. +Vote Required; Board Recommendation +If a quorum is present, each nominee will be elected if he receives a plurality of the votes cast by shares present in person or by Proxy +and entitled to vote at the Annual Meeting. Abstentions and broker non-votes will have no effect on the required vote. In the absence of instructions to the contrary, shares of Common Stock represented by properly executed Proxies will be voted for +the nominees, each of whom has consented to be named and to serve if elected. +Your Board recommends that you vote FOR the +election of the Director nominees. +Proposal No. 2. Ratification of Appointment of +Independent Registered Public Accounting Firm +Background +The Audit Committee of the Board of Directors has approved the reappointment of KPMG LLP (“KPMG”) as our independent registered public accounting firm for 2013. The Audit Committee has also +recommended that the Board submit the appointment of KPMG for ratification by stockholders at the Annual Meeting. Although action by the stockholders on this matter is not legally required, the Audit Committee and the Board believe it is appropriate +to seek stockholder ratification of this appointment in light of the important role played by the independent registered public accounting firm in reporting on the Company’s consolidated financial statements. If this appointment is not ratified +by stockholders, the Audit Committee may reconsider its appointment. +16 +Table of Contents +One or more representatives of KPMG are expected to be at the Annual Meeting. They will have +an opportunity to make a statement and will be available to respond to appropriate questions. +Vote Required; Board Recommendation +Ratification of the appointment of KPMG requires the affirmative vote of a majority of shares present in person or by +Proxy and entitled to vote at the Annual Meeting. Shares voted in person or represented by Proxy which are not voted for this ratification (by voting no or abstaining) will have the effect of voting against this proposal. In the absence of +instructions to the contrary, shares of Common Stock represented by properly executed Proxies will be voted for ratification of the appointment of KPMG as our independent registered public accounting firm for 2013. +Your Board recommends that the stockholders vote FOR ratification of the appointment of KPMG. +Audit Fees; Audit-Related Fees; Tax Fees; All Other Fees. +The following table presents fees for professional audit services rendered by KPMG (i) for the audits of our annual consolidated +financial statements and review of the financial statements in our Quarterly Report on Form 10-Q for the fiscal years ended December 31, 2012 and 2011, and (ii) for the audits of our internal control over financial reporting as of +December 31, 2012 and 2011. The following table also includes fees billed for other services rendered by KPMG: +2012 +2011 +Audit fees 1 +$ +775,000 +$ +667,500 +Audit-related fees 2 +128,400 +201,600 +Tax fees 3 +119,984 +91,095 +All other fees +— +— +Total fees +$ +1,023,384 +$ +960,195 +(1) +Includes fees related to the audits of our annual financial statements, interim reviews of our quarterly financial statements and audits of our internal control over +financial reporting for each indicated year. Also included are professional services in connection with the review of a registration statement on Form S-3 and two amendments to that statement and the issuance of related consents in 2012 and the +review of a registration statement on Form S-8 and issuance of a related consent in 2011. +(2) +During 2011, we engaged KPMG to provide tax due diligence and planning and financial due diligence services in connection with the acquisition of DNA Genotek, Inc., a +portion of which was paid in 2012. +(3) +During 2012 and 2011, we engaged KPMG to provide tax compliance and tax planning services. +The Audit Committee has adopted a general practice of pre-approving all audit and non-audit services provided to the Company by our +independent registered public accounting firm. The Chairman of the Audit Committee has been delegated the authority to pre-approve audit and non-audit services having an aggregate value of up to $25,000 between meetings of the Audit Committee, +provided that such pre-approval is communicated to the Audit Committee at its next scheduled meeting. All services by KPMG in 2012 and 2011 were approved in accordance with these practices. +17 +Table of Contents +Executive Compensation +Executive Summary +We follow a pay-for-performance approach in compensating executives. Our compensation program pays executives for performance by rewarding the achievement of predetermined financial and other performance +objectives. Our program is also designed to align the interests of executives with those of our stockholders, provide long-term incentives and set compensation at levels sufficiently competitive to attract and retain high quality executives and +motivate them to contribute to our success, and incorporate sound corporate governance principles. Key features of our compensation program include the following: +· +Our executive compensation focuses on performance, with a significant portion comprised of annual incentive cash bonuses and long-term incentive equity +awards that are based on the executives’ and the Company’s achievement of predetermined performance objectives. The following illustrates the relative proportion of 2012 base salary and incentive targets for performance-based compensation +for Messrs. Michels and Spair, our President and Chief Executive Officer (“CEO”) and our Chief Financial Officer and Chief Operating Officer, respectively: +· +Our revenues and bottom line performance for 2012 were below expectations, although significant progress was made against major strategic objectives. +As a result, our CEO and the other named executive officers (“NEOs”) received only modest base salary adjustments for 2013, and incentive cash bonuses for these individuals under our 2012 Management Incentive Plan were slightly more than +50% of their target percentages. +· +Equity awards consist of a mix of restricted stock (40%) and stock options (60%). We believe the higher proportion of stock options makes our +long-term incentive compensation more performance-based. +· +Equity awards are subject to long-term vesting requirements, with restricted shares vesting over 3 years and stock options vesting over a minimum of 4 +years. Structuring our equity awards in this manner helps align the interests of our executives with the interests of our stockholders. +· +We have adopted a “value transfer” methodology under which long-term incentive equity awards are targeted at market-based dollar values +rather than absolute numbers of restricted stock or option shares. This approach avoids volatility in the value of equity awards resulting from short-term movements in the price of our Common Stock and better aligns the Company’s practices with +industry standards. +· +The total compensation paid to executives is targeted at the 50 th percentile of a peer group of comparable companies with an opportunity to earn up to the 75 th percentile based on achievement of performance objectives. +· +The Board and Compensation Committee regularly utilize independent compensation consultants to provide compensation advice, including competitive +assessments of our program compared to compensation paid to executives at a peer group of comparable medical diagnostic and healthcare companies. +· +Our Board recently adopted a compensation recoupment or “clawback” policy, under which the Board or Compensation Committee may recover excess +compensation paid to our executives if our financial statements are restated due to misconduct by that executive. +18 +Table of Contents +· +Messrs. Michels and Spair, and each non-employee member of the Board, are subject to stock ownership guidelines, measured as a multiple of annual base +salary or cash fees, as applicable. In addition, each of these individuals is required to retain 25% of the shares received upon the vesting of restricted shares or the exercise of stock options until that individual complies with the applicable +ownership multiple. +· +Our Stock Award Plan, under which long-term incentive equity awards are made to executives and Board members, was recently amended to prohibit both the +repricing and repurchase of under-water stock options or other equity awards without stockholder approval. +· +We have adopted a policy that any new employment agreement with an executive will not provide for the gross-up of excise tax obligations under +Section 280G of the Internal Revenue Code or a “modified single trigger” under which the executive can voluntarily leave the Company after a change of control and receive severance even though there has been no adverse impact on the +executive’s compensation or level of responsibilities. +· +The Company does not provide its executives with any perquisites that are not offered to all employees of the Company. +· +We regularly assess the risks associated with our compensation programs. +In May 2012, we held a stockholder advisory vote on the 2011 compensation for our NEOs, commonly referred to as a “say-on-pay” +vote. Our stockholders approved the compensation of our NEOs, with approximately 85% of stockholder votes cast in favor of our “say-on-pay” resolution. As we evaluated our compensation program during 2012, we were mindful of the strong +support our stockholders expressed for our compensation philosophy. As a result, our Board and Compensation Committee decided to retain our general approach to executive compensation. The Company currently holds a “say-on-pay” vote on an +annual basis in accordance with the preference expressed by our stockholders at our 2011 Annual Meeting. Accordingly, after this year’s vote, the Company expects to hold the next say-on-pay vote at our 2014 Annual Meeting. +We also continued to consider ways to improve our compensation program and have made certain changes since our 2012 Annual Meeting. For +example, as described elsewhere in this Proxy Statement, the Board has adopted a compensation recoupment or “clawback” policy applicable to all of our executive officers, along with stock ownership and retention guidelines for Messrs. +Michels and Spair and for all non-employee members of the Board. In addition, the Board recently amended our Stock Award Plan to require stockholder approval before the Company can reprice or repurchase any under-water stock options or other equity +awards made to our executives. +For these and the other reasons described below, we believe our compensation program reflects +a pay-for-performance philosophy, is aligned with the interests of our stockholders and follows sound corporate governance principles. +Compensation Discussion and Analysis +This Compensation Discussion and Analysis (“CD&A”) describes the +Company’s executive compensation program together with the material factors underlying our 2012 compensation decisions for the Company’s CEO and the other NEOs, as presented in tables which follow this CD&A. +Overview of Executive Compensation +Compensation Philosophy . The primary objectives of our compensation program for executive officers +are to: +· +reward executive officers for the performance of the Company and achievement of individual performance objectives; +· +align the interests of the executive officers with the interests of our stockholders; +· +provide long-term incentives for the executive officers; and +19 +Table of Contents +· +set compensation at sufficiently competitive levels to attract and retain high quality executives and to motivate them to contribute to our success. +Compensation for executives is established by the Compensation Committee in accordance with the above +objectives. In setting executive compensation, the Compensation Committee considers the Company’s and each executive’s performance against previously established objectives, internal pay equity, the Company’s industry position, +general industry data and recommendations of independent third party compensation consultants engaged by the Compensation Committee. The Compensation Committee periodically retains independent compensation consultants to review our executive +compensation practices and to assist in establishing competitive compensation levels for our executives. +The Compensation Committee seeks to set aggregate compensation levels for executives near the fiftieth (50 th ) percentile of amounts paid by comparable medical diagnostic +and healthcare companies (defined by industry, revenues, market capitalization or a combination of these factors) for performance consistent with the Company’s target financial and other business plans for the applicable year. Use of the +fiftieth (50 th ) percentile is intended as a market +check and not as an absolute target. As a result, the aggregate compensation and the value of specific compensation components for individual executives may fall below or exceed the fiftieth +(50 th ) percentile depending on individual performance +and contribution by the executive. +The aggregate compensation provided to each executive consists of an annual base salary, +incentive cash bonus and incentive equity awards. The amount of the incentive cash bonus and the size of annual incentive equity awards are variable and depend on an executive’s and the Company’s achievement of predetermined financial and +other objectives. As a result, a substantial portion of each executive’s annual compensation is based on performance. As indicated in the Summary Compensation Table following this CD&A, approximately 74% of Mr. Michels’ aggregate +compensation and 70% of Mr. Spair’s aggregate compensation for 2012 consisted of variable compensation. +Annual Performance Evaluations . On an annual basis, the Committee and other non-employee Directors +evaluate the performance of the CEO against predetermined performance objectives and the CEO evaluates the performance of the other NEOs against their respective predetermined performance objectives. Annual performance objectives for the NEOs are +established at the beginning of the applicable year and generally include two parts: the Company’s overall target financial/strategic performance objectives and individual objectives in the functional areas for which the executive is +responsible. For each NEO, these objectives are then weighted to reflect their relative importance to the Company and the executive’s functional responsibilities. +Depending on the Company’s overall performance and the extent to which an executive achieves his individual objectives for a particular year, the executive will be rated as “Does Not Meet,” +“Meets Expectations,” “Exceeds Expectations” or “Outstanding.” As described later in this CD&A, the Compensation Committee uses the performance ratings to determine base salary adjustments, incentive cash bonuses +and incentive equity awards. +Compensation Consultants . During 2012, the Compensation +Committee engaged Pearl Meyer & Partners (“PM&P”), a national compensation consulting firm, to assist the Compensation Committee in updating its peer group of companies for benchmarking purposes, to provide an updated +competitive assessment of executive compensation and to analyze internal pay equity among our NEOs. Companies included in the peer group were selected from the healthcare/life sciences industry based on total revenues and market value, and included +the following: +Primary Peer Companies +Abaxis, Inc. +Affymetrix, Inc. +Cepheid, Inc. +Conceptus Inc. +20 +Table of Contents +Genomic Health, Inc. +IRIS International Inc. +Luminex Corporation +Meridian Bioscience, Inc. +Natus Medical Incorporated +Neogen Corporation +Quidel Corporation +Teche Corporation +In preparing its competitive assessment of executive compensation, PM&P compared the compensation of our NEOs with a 50/50 blend of data from the peer group of companies and data from the 2012 Radford +Global Life Sciences Survey. PM&P also compared the mix of executive compensation and the relative compensation levels of the NEOs with data from the peer group. Based on this analysis, PM&P reached the following conclusions: +· +Salaries, annual incentive cash bonuses and long-term incentive equity awards for our executives are generally competitive with median market practice; +· +The mix of cash and long-term incentive compensation for our executives is generally competitive with median market practice; +· +The long-term incentive equity target for Mr. Michels was below median practice and should be increased somewhat; and +· +With the recommended increase to Mr. Michels’ long-term incentive equity target, the relative pay relationships among the NEOs are aligned +with median market practice. +Tally Sheets . In determining annual +compensation, the Compensation Committee reviews tally sheets for each executive. Tally sheets set forth the dollar amounts of all components of each NEO’s current compensation, including salary, incentive cash bonus, incentive equity awards, +potential change of control payments and other benefits deemed relevant by the Compensation Committee. These tally sheets allow the Compensation Committee to review how a change in the amount of each compensation component affects each +executive’s total compensation and to consider each executive’s compensation in the aggregate. Included in each tally sheet is the estimated amount of severance and other benefits payable to the executive under various termination +scenarios. Based upon the review of tally sheets, the Compensation Committee establishes aggregate compensation for our executives which it believes to be reasonable. +Compensation Components . The following is a description of each component of our executive compensation program. +1. Annual Base Salary . The Compensation Committee believes that competitive salaries +must be paid in order to attract, retain and motivate high quality executives. Each year, the Compensation Committee evaluates and determines the annual base salaries for the NEOs. The Compensation Committee considers the annual performance +evaluation of the CEO prepared by non-employee members of the Board and the annual performance evaluations prepared by the CEO for all other NEOs. The Committee also considers the Company’s budget for expected salary adjustments, salary levels +paid at peer group companies and any recommendations that may be made by any compensation consultant engaged to assist the Compensation Committee. An executive’s annual salary adjustment will tend to be at the higher end of the range budgeted +by the Company if the executive receives a performance rating of “Meets Expectations” or better and such executive’s pre-adjustment salary level is below the 50 th percentile for his or her position at peer group companies. +2. Incentive Cash Bonuses . Annual cash bonuses are included as part of executive compensation because the +Compensation Committee believes that a significant portion of each executive’s compensation should be structured as a variable incentive tied to both the overall performance of the Company and the individual +21 +Table of Contents +contributions of the executive. On an annual basis, the Compensation Committee has adopted, with approval of the Board, a Management Incentive Plan (the “Incentive Plan”), which is +intended to be the principal vehicle for incentive cash bonus awards. +Incentive cash bonuses are generally paid out of a cash +pool funded under the Incentive Plan based on the Company’s achievement of specific financial and other objectives determined by the Compensation Committee and approved by the Board at the beginning of each fiscal year. The financial objectives +typically consist of short-term targets that represent improvement in financial performance compared to the prior year. Other objectives typically represent milestones that the Compensation Committee and Board believe are critical to achieving +long-term growth and profitability. The objectives are each weighted to determine their respective contributions to the pool amount. Each objective can be adjusted by the Compensation Committee or Board in an equitable manner to reflect unexpected +changes in the Company’s business or assumptions underlying the original objective or other factors. +With respect to +each financial objective, a Threshold, Target and Maximum performance level is established. The Target levels generally reflect the Company’s financial budget or operating plan for the year. Except in special circumstances, the Threshold levels +represent a minimum level of performance for which the Compensation Committee is willing to provide bonus pool funding. The Maximum levels reflect outstanding performance for which the Compensation Committee is willing to reward executives with +bonuses above the Target level payout. With respect to the other objectives, Threshold, Target and Maximum performance levels are generally established consistent with the Company’s long-term strategic goals or deferred for later determination +by the Compensation Committee and/or the Board. +If the Company meets all the Target levels, the pool is funded at 100% of the +aggregate target bonuses for all participants in the Incentive Plan, as described below. The pool is funded at 50% of the aggregate target bonuses if all of the Threshold levels are met and at 150% if all of the Maximum levels are met. Pro-rata +adjustments to the amount of funding for each objective are made where a particular performance is in between the pre-established performance levels. To the extent a performance level is below the Threshold objective, there would be no funding for +that particular item unless the Compensation Committee or Board determines, in its discretion, that some funding is warranted. +The amount of the cash bonus pool is determined by the Compensation Committee and recommended for Board approval. The Compensation +Committee and Board also retain discretion to increase or decrease the size of the pool in order to reflect specific performance or market conditions affecting the Company and the final performance assessments for each participant for the applicable +year. The cash bonus pool is used to pay bonuses not only to the Company’s NEOs, but also to all other officers and certain higher-level employees of the Company. +Individual payments from the bonus pool to executives depend on the size of the bonus pool, the executive’s achievement of individual performance objectives, the number of individuals participating +in the plan at the time bonuses are awarded and the executive’s target bonus percentage. Bonuses are paid, based on an assessment of each executive’s performance for the applicable year, using targets expressed as a percentage of the +executive officer’s annual base salary. +If an executive officer has met or exceeded his or her individual performance +objectives and/or the Company’s expectations for the applicable year, he or she may be eligible to receive up to 150% of his or her target bonus, depending on the size of the bonus pool. The Compensation Committee and Board retain the +discretion to adjust an individual executive’s performance evaluation and to increase or decrease the bonus paid to such individual to reflect the specific contributions of that executive, the Company’s overall performance, market +conditions or other circumstances. +The Compensation Committee recommends for Board approval any bonus award for the CEO based +on an assessment of his performance against his individual performance objectives. The CEO recommends individual +22 +Table of Contents +awards for the other executive officers for approval by the Compensation Committee based on an assessment of each executive’s performance against his or her applicable individual performance +objectives. The Compensation Committee and Board have the right, in their sole discretion, to reject any or all of the recommended bonus awards, even if the bonus pool has been funded and any or all applicable performance criteria have been +satisfied, based on the business conditions of the Company or other factors deemed relevant by the Compensation Committee or Board. +3. Incentive Equity Awards . The Compensation Committee believes that an additional way to promote the long-term growth of the Company and align the interests of executives +with those of our stockholders is by compensating executives with equity in the Company that vests over a multi-year period. As a result, the Compensation Committee administers the Company’s Long-Term Incentive Plan (the “LTIP”), +pursuant to which grants of stock options and restricted shares are made to executive officers on an annual basis. +The first +incentive equity awards under the LTIP occurred in 2012, based on performance during 2011. The LTIP implements a “value transfer” method for determining the size of individual awards, as described further below. This represents a change +from the Company’s prior practice of using fixed targets of restricted stock and stock options for incentive equity awards. The Board and Compensation Committee believe the use of a “value transfer” method is a more reasonable +approach in that it eliminates volatility in the value of awards based on short-term changes in the value of our Common Stock and is more consistent with market practice. +Incentive Equity awards under the LTIP are made on an annual basis, and are discretionary and subject to approval by the Compensation Committee and/or Board. Awards to individual participants under the +LTIP are based on an evaluation of a number of factors, including: +· +performance of the participant for the applicable year; +· +the participant’s level of responsibilities and relative contribution to the Company’s business; +· +a competitive assessment of awards at peer group companies; +· +history of equity awards to the participant; and +· +other factors deemed relevant by the Compensation Committee and/or Board. +Each participant’s individual performance for the applicable year is evaluated against his or her individual performance objectives +for that year. A “Meets Expectations” performance is typically the threshold requirement to receive an equity award under the LTIP. Awards below this performance level may be considered on an exception basis in the discretion of the +Compensation Committee and/or the Board. +The value of an equity award is calculated as a percentage of the participant’s +annual base salary based on performance during the applicable year, pursuant to the following guidelines: +Title +Award as a % of Annual Base Salary +Lower End +Target +Maximum +President and CEO +130 +% +175 +% +220 +% +Chief Operating Officer/Chief Financial Officer +90 +% +125 +% +160 +% +Executive Vice President +55 +% +75 +% +95 +% +Senior Vice President +55 +% +75 +% +95 +% +The percentages set forth above were established at levels that the Compensation Committee believed +represented an appropriate long-term incentive compensation value for each executive, based on the results of a competitive assessment of long-term incentive awards at peer group companies provided to the Compensation Committee by PM&P. Awards +under the LTIP, which began in 2012 for performance during 2011, consist of 40% restricted stock and 60% stock options, based on the market value of the awards on the date of grant. Once +23 +Table of Contents +the aggregate dollar value of an award has been established by applying the appropriate percentage to a participant’s base salary, the award is converted into shares based on a valuation of +the restricted stock and stock option portions of the award as of the grant date. Restricted stock is valued based on the average of the high and low stock price on the grant date as reported on the NASDAQ Stock Market and stock options are valued +based on a corresponding Black-Scholes value. +Stock option awards granted under the LTIP have an exercise price equal to the +fair market value of the Company’s common stock on the date of grant, which is calculated using the average high and low stock price on that date. Stock options generally vest over four years, with the first 25% vesting after one year and the +remaining 75% vesting on a monthly basis over the next three years following the first anniversary of the grant date. Grants of restricted stock generally vest in equal annual installments over a three-year period. These vesting restrictions serve +to promote the Company’s long-term growth by restricting executives’ ability to realize short-term gains from their awards. The Compensation Committee believes the terms of its incentive equity awards to executives are competitive with the +terms of equity awards offered at comparable medical diagnostics and healthcare companies. +Equity awards are generally made +by the Compensation Committee each year as part of the normal annual compensation cycle. The awards for a particular year generally occur in late January or early February of the following year after the Company’s full year financial results +are known and performance evaluations for the executive officers have been prepared. Equity awards approved by the Compensation Committee for the CEO are then reviewed and approved by the Board. In addition to the annual equity awards, the +Compensation Committee may approve stock option and restricted stock awards for newly hired officers or in recognition of an executive’s promotion or expansion of responsibilities. These latter grants may have vesting or other terms that differ +from the terms generally approved for annual equity awards. Notwithstanding the terms of the LTIP, equity awards are made at the discretion of the Compensation Committee or Board. +4. Retirement Programs . All of our employees, including executive officers, are eligible to participate in +our 401(k) profit sharing plan (the “401(k) Plan”). We make matching contributions for participants on a dollar-for-dollar basis up to $4,000 per year. Payments of employer-provided benefits accrued for a 401(k) Plan participant will be +made upon retirement or upon termination of employment prior to retirement, provided certain vesting conditions have been met by the participant prior to termination. In addition, the Company maintains the OraSure Technologies, Inc. Deferred +Compensation Plan (the “Deferred Compensation Plan”) for the benefit of the Company’s highly compensated employees, including all of the NEOs, and its non-employee Directors. The Deferred Compensation Plan allows participants to defer +up to 100% of their annual base salaries (or fees in the case of non-employee Directors) and up to 100% of annual incentive cash bonuses and, upon vesting, restricted shares of the Company’s Common Stock awarded to the participant. The Company +may also make discretionary contributions to the participants’ accounts that vest over one or more years as determined by the Company, as well as upon death, disability or a change in control. Participants may elect to receive distributions of +deferred amounts on a specified date, separation from service, a change in control, disability and/or death. +5. +Perquisites and Other Compensation . As a general matter, the Compensation Committee and Board do not believe that executive officers should be treated differently than other employees, except that such officers should +receive competitive annual base salaries and have competitive incentive bonus and equity award opportunities commensurate with their higher level of responsibility and that certain executive officers should receive employment agreements as described +below. Therefore, our healthcare, disability, and other insurance programs and benefits are the same for all eligible employees, including executive officers. Executive officers do not receive any additional perquisites. +6. Potential Payments Upon Termination or Change in Control Pursuant to Employment Agreements . The Company +has entered into employment agreements with each of the NEOs. In addition to the compensation elements discussed above, these agreements provide for post-employment severance payments and benefits in the event of termination of employment by the +Company without “cause” or by the executive for “good reason” and +24 +Table of Contents +provide enhanced severance payments upon such terminations in connection with a “change in control” of the Company. The terms of these agreements are discussed in more detail under the +Section entitled, “Employment Agreements and Potential Payments Upon Termination or Change in Control,” in this Proxy Statement. The Compensation Committee believes that these agreements are generally consistent with industry practice at +peer group companies, provide an incentive to the applicable executive to remain with the Company, and serve to align the interests of stockholders and the executives in the event of a change in control of the Company. +Accounting and Tax Treatment of Compensation . In approving the amount and form of compensation for +the NEOs, the Compensation Committee considers all elements of the cost to the Company of providing such compensation, including the potential impact of Section 162(m) of the Internal Revenue Code. Section 162(m) disallows a tax deduction +for any publicly-held corporation for individual compensation exceeding $1 million in any taxable year for the CEO and for the three most highly compensated officers (other than the Chief Financial Officer) unless compensation is performance-based. +The Compensation Committee intends to maintain flexibility to pay compensation that is not entirely deductible when the best interests of the Company would make that advisable. +2012 Compensation Decisions +2012 Annual Base Salaries . Annual base salaries paid in 2012 to our NEOs were established by the +Compensation Committee at the beginning of 2012 based on a review of the Company’s performance during 2011, an evaluation of the individual contributions of each officer compared to preestablished performance objectives for 2011 and a review of +the competitive data and recommendations provided by the Compensation Committee’s independent compensation consultant, PM&P. +Based on these factors, the Compensation Committee approved an aggregate annual base salary increase for our management (including the NEOs) averaging approximately 3.4%, with an additional 1.6% for +market-based adjustments. In order to reflect the Company’s performance and each executive’s contributions, and to equitably move salaries towards the fiftieth (50 th ) percentile or maintain them at approximately that level, the Compensation Committee used the following +guidelines to assist in determining annual base salary increases. +Performance Rating +Merit Increase Range +Outstanding +5.0 - 7.0 +% +Exceeds Requirements +3.0 - 4.0 +% +Meets Requirements +2.0 - 2.5 +% +In establishing NEO base salaries for 2012, the Compensation Committee noted that 2011 revenues from our +base business (exclusive of DNA Genotek (“DNAG”)) of $75.7 million, were lower than expected. However, the Compensation Committee recognized that the primary reasons for this revenue performance were the continued difficult economic +conditions and funding challenges affecting our customers, lower than expected royalties under the Company’s cryosurgical patent license with Merck, lower over-the-counter (“OTC”) cryosurgical revenues in Latin America due to +regulatory issues experienced by our distributor and a delay in receipt of a $1.0 million HCV milestone payment under our collaboration with Merck. The Compensation Committee noted that the Company’s total consolidated revenues, which included +approximately $6.2 million from DNAG, amounted to $81.9 million, or 9% higher than 2010. The Compensation Committee also considered the many positive accomplishments by management occurring during 2011, including the following: +· +Receipt of FDA approval of a finger-stick whole blood claim and a CLIA waiver for our OraQuick ® HCV test; +· +Progress in the commercialization of our OraQuick ® HCV test, including the commencement of physician office detailing activities under our HCV collaboration with Merck; +· +Successful completion of the final phase of clinical testing for our OraQuick ® In-Home HIV test and the submission of all three modules to our FDA application for this product; +25 +Table of Contents +· +Progress in preparing for the commercialization of the OraQuick ® In-Home HIV test, including selection of public relations, advertising and sales/logistics providers, development of a product manufacturing plan, and further +development of our sales and commercialization plans through the use of an independent OTC advisory committee and additional market research activities; +· +Successful extension of the OraQuick ® HIV product shelf life to 30 months; +· +Receipt of FDA 510(k) clearance for five fully-automated high-throughput oral fluid drugs-of-abuse assays for use with our Intercept ® collection device in collaboration with Roche Diagnostics; +· +Implementation of a third-party warehousing and logistics strategy for virtually all of our products to improve efficiency and customer service; +· +Completion of a multi-year supplier and vendor quality analysis; +· +Successful maintenance of strong relationships with our investor base, particularly institutional investors, and the strong performance of our Common +Stock, which appreciated in value by approximately 58% during 2011; and +· +The successful recruitment of two new Board members with strong business backgrounds, including one Director with significant consumer marketing +experience. +In light of the foregoing, the Compensation Committee concluded that Mr. Michels earned a +performance rating for 2011 of “Exceeds Expectations,” and decided to increase his annual base salary from $517,500 to $550,000. This represented a 4.3% merit increase for 2012 plus a $10,000 adjustment to align Mr. Michels’ base +salary with the 50th percentile for CEO salaries at peer group companies as indicated in the PM&P assessment. +Mr. Spair’s performance was rated as “Exceeds Expectations” for performance during 2011, and his annual base salary +was increased from $412,000 to $430,000. This represented a 4.4% merit increase for 2012. In evaluating Mr. Spair’s performance, the Compensation Committee considered Mr. Spair’s successful maintenance of the Company’s +institutional investor base, the 58% appreciation in the Company’s Common Stock price during 2011, Mr. Spair’s supervision of the DNAG acquisition and his efforts to accelerate the Company’s business development activities, his +continued contribution to various strategic matters, his ongoing supervision of the Company’s operations, and his ongoing management of the financial planning, reporting and accounting functions. +Dr. Lee was rated as “Meets Expectations” for performance during 2011, and his annual base salary was +increased from $358,000 to $367,000, representing a 2.5% merit increase for 2012. In evaluating Dr. Lee’s performance, the Compensation Committee considered Dr. Lee’s assistance in obtaining FDA approval of a finger-stick whole +blood claim and CLIA waiver for our OraQuick ® HCV test, his support of our FDA application for the OraQuick ® In-Home HIV test, his efforts to secure third party availability of critical raw materials for the OraQuick ® HCV test and other products, his continued development of a second generation rapid HIV test, his assistance in +evaluating new technology platforms and business development opportunities, and his ongoing support of manufacturing processes and operations. +Mr. Zezzo was rated as “Exceeds Expectations” for performance during 2011, which was his first full year of employment at the Company, and his annual base salary was increased from $350,000 +to $362,000, representing a 3.4% merit increase for 2012. In evaluating Mr. Zezzo’s performance, the Compensation Committee considered Mr. Zezzo’s efforts to become familiar with the Company’s organization and products over +a very short period, his efforts to increase product sales despite continued economic and funding challenges, his work to accelerate the commercialization of our OraQuick ® HCV test, his efforts to launch the OraSure QuickFlu™ product and his leadership in managing various organizational changes within the Sales and Marketing +Department. +Finally, Mr. Jerrett was rated as “Exceeds Expectations” for performance during 2011, and his +annual base salary was increased from $300,000 to $312,000 for 2012, representing a 4.0% merit increase. In evaluating +26 +Table of Contents +Mr. Jerrett’s performance, the Compensation Committee considered Mr. Jerrett’s contributions to the Company’s ongoing business development efforts including the DNAG +acquisition, his successful handling of multiple commercial issues and supervision of various claims, disputes and litigation matters, his oversight of intellectual property, his help in preparing all SEC filings and other public disclosures, and +his ongoing advice and counsel to the Board and senior management. +2012 Incentive Cash +Bonuses . In January 2013, the Committee approved incentive cash bonuses to the executive officers under the 2012 Management Incentive Plan (the “2012 Incentive Plan”). These bonuses were awarded for +performance by our executive team during 2012. +Under the 2012 Incentive Plan, the Compensation Committee had previously +established Threshold, Target and Maximum performance levels for two financial objectives to be used to fund the bonus pool. The financial objectives consisted of the following (with the Target levels reflecting our annual budget or operating plan +for 2012): +Financial Objectives +Threshold +Target +Maximum +Consolidated Revenues (excluding OraQuick ® In-Home HIV sales) +$ +90.0 +$ +99.6 +$ +102.8 +Operating Performance Improvement +$ +5.1 +$ +10.9 +$ +12.8 +The Compensation Committee also established other business objectives to fund the bonus pool with factors +to be considered in determining whether a Threshold, Target or Maximum performance level was achieved. These objectives and related factors are set forth below: +Business Objectives +Factors +Commercialization of OraQuick ® In-Home HIV test +· Successful Blood Products Advisory Committee review of product. +· Complete plans for commercial launch. +· Obtain final FDA approval. +· Execute commercial launch within approved operating plan. +Expand OraQuick ® HCV sales +· Define and launch public/private partnership (or similar arrangement) for purchase of the test. +· Develop plan to obtain FDA approved oral fluid claim. +The following sets forth the weighting for each objective and potential bonus pool funding at each +performance level established under the 2012 Incentive Plan: +Objectives +Weight +Threshold +Target +Maximum +Consolidated Revenues (excluding OraQuick ® In-Home HIV test sales) +40 +% +$ +500,000 +$ +1,000,000 +$ +1,500,000 +Operating Performance Improvement +20 +% +250,000 +500,000 +750,000 +OraQuick ® +In-Home Test Commercialization +20 +% +250,000 +500,000 +750,000 +OraQuick HCV Growth +20 +% +250,000 +500,000 +750,000 +Potential Pool Funding +$ +1.25 million +$ +2.5 million +$ +3.75 million +During 2012, the Company’s consolidated revenues (exclusive of OraQuick ® In-Home HIV test sales) and operating performance improvement both fell below the Threshold performance levels for +these financial objectives. As a result, the Compensation Committee concluded that no pool funding should be approved for either objective. +27 +Table of Contents +With respect to the other business objectives, the Compensation +Committee concluded that the Company had exceeded the Maximum performance level for the commercialization of the +OraQuick ® In-Home HIV test in light of: (i) the BPAC’s unanimous recommendation supporting FDA +approval of the OraQuick ® In-Home HIV test; (ii) the receipt of final FDA approval in July 2012; and +(iii) the launch of sales to consumers and our national promotional campaign in September 2012. Based on this assessment, the Compensation Committee determined that $755,000 in pool funding should be awarded for this objective. +With respect to the OraQuick ® HCV growth objective, the Compensation Committee recognized that sales of the product increased from $1.6 million in 2011 to $3.9 million in 2012, or 144%, and that +significant effort had been expended by management in attempting to complete a public/private partnership with the Federal government and several major pharmaceutical companies for a significant purchase of the product. The Compensation Committee +also noted that management had developed a strategy for seeking FDA approval of an oral fluid claim, although such claim is not being pursued at this time. As a result, the Compensation Committee concluded that the performance level for this +objective fell between Threshold and Target and that $355,000 in pool funding should be awarded. +Based on the foregoing, the +total bonus pool funding for 2012 performance was approximately $1,110,000. The bonus pool amount was also approved by the full Board and used to pay bonuses to the Company’s NEOs and twenty-five other members of our management team. The +specific target payouts for NEO bonuses (expressed as a percentage of annual base salary) are shown below: +Title +Target Payouts +Chief Executive Officer +70 +% +Chief Financial Officer and Chief Operating Officer +50 +% +Executive Vice President +40 +% +Senior Vice President +35 +% +In January 2013, the Compensation Committee authorized the payout of individual bonus awards to executive +officers from the bonus pool for 2012, based on the target bonus amounts described above and an assessment of each officer’s performance during 2012 against pre-established performance objectives. +In evaluating Mr. Michels, the Compensation Committee recognized that the Company’s aggregate 2012 +consolidated net revenues grew 7% in 2012 compared to 2011, although revenues for our core business (excluding DNAG and +OraQuick ® In-Home HIV test sales) came in below expectations due primarily to the continuing difficult economic +conditions and funding challenges affecting our customers and increased competition. The Compensation Committee also noted the Company’s receipt of FDA approval of the OraQuick ® In-Home HIV test, which represents a first of its kind product available to consumers. Other specific factors considered by the Compensation Committee included the +following: +· +Successful presentation of extensive clinical data and a sound risk-benefit analysis to the BPAC, resulting in a unanimous recommendation by this +committee in favor of approval of the OraQuick ® In-Home HIV test; +· +Successful completion of a six-week facility audit by the FDA as a prelude to the OraQuick ® In-Home HIV test FDA approval; +· +Successful commercial launch of the OraQuick ® In-Home HIV test, including development and implementation of comprehensive public relations, advertising and sales/logistical plans supported by manufacturing of +sufficient inventory; +· +Recognition of +OraQuick ® In-Home HIV test as one of Time Magazine’s top 25 “Best Inventions of 2012;” +· +OraQuick ® HCV +sales increase of 144% in 2012 compared to 2011, despite funding limitations in the domestic public health market and slow adoption in the domestic physician office market; +28 +Table of Contents +· +Addition of $14.3 million in revenues from the first full year by DNAG as our subsidiary; +· +Successful maintenance of strong relationships with our investor base, particularly institutional investors and increased coverage of our Common Stock +by analysts; +· +Successful completion of secondary Common Stock offering, resulting in $70.2 million in net proceeds; +· +Successful filing and effectiveness of new $200 million universal shelf registration statement; and +· +Successful recruitment of a new head of business development and a general manager for our consumer business, including the OraQuick ® In-Home HIV test. +Based on the foregoing, the Compensation Committee rated Mr. Michels as a “Meets Expectations” and awarded him a $196,600 bonus for 2012, which represented 35.7% of his annual base salary +compared to his target bonus of 70%. Mr. Michels’ 2012 incentive cash bonus was also approved by the Board. +The +Compensation Committee rated Mr. Spair’s performance for 2012 as “Meets/Exceeds Expectations” and awarded him a bonus of $116,000, which represented 27% of his base salary compared to his target bonus of 50%. In reaching this +determination, the Compensation Committee considered Mr. Spair’s successful maintenance of the Company’s institutional investor base, his leadership of the secondary Common Stock offering and management of the shelf registration +statement filing, his supervision of business development activities and contribution to various strategic matters, his ongoing oversight of the Company’s operations, and his management of the financial planning, reporting and accounting +functions. Mr. Spair was also given an additional $50,000 achievement bonus in recognition of his work on the secondary stock offering. +The Compensation Committee rated Dr. Lee’s performance for 2012 as “Exceeds Expectations” and awarded him an $88,000 bonus, which represented 24% of his base salary compared to his +target of 40%. In reaching this determination, the Compensation Committee considered his successful presentation of the Company’s data and position at the BPAC review of the OraQuick ® In-Home HIV test, his continued support of the Company’s clinical efforts to obtain approval of the OraQuick ® In-Home HIV test, his leadership in resolving raw material supply issues for the Company’s products, his ongoing management of product development activities, +his assistance in evaluating potential new technologies and business development opportunities, and his support of manufacturing operations. Dr. Lee was also given an additional $35,000 achievement bonus in recognition of his strong +presentation at the BPAC meeting and his contribution to the Company’s efforts to obtain FDA approval for our +OraQuick ® In-Home HIV test. +The Compensation Committee rated Mr. Zezzo’s performance for 2012 as “Does Not Meet Expectations” and awarded him no bonus for 2012. The Compensation Committee reached this +determination because of the Company’s lower than expected sales revenue performance for its base business for 2012. +Finally, the Compensation Committee rated Mr. Jerrett’s performance for 2012 as “Meets/Exceeds Expectations” and awarded him a bonus of $58,000, which represented 18.9% of his base +salary compared to his target of 35%. In reaching this determination, the Compensation Committee considered his support of the Company’s efforts to commercialize the OraQuick ® In-Home HIV test, his successful handling of various commercial issues and business development matters, his oversight of intellectual property, his leadership in +helping to prepare all SEC filings and other public disclosures, and his ongoing advice and counsel to the Board and senior management. Mr. Jerrett was also given an additional $25,000 achievement bonus in recognition of his assistance with the +secondary stock offering and the commercial launch of the OraQuick ® In-Home HIV test. +29 +Table of Contents +2012 Incentive Equity Awards . The amounts of potential +incentive equity awards to be granted under the LTIP (expressed as a percentage of annual base salary), are summarized below: +Performance +Position +Lower End +Target +Maximum +President/CEO +130 +% +175 +% +220 +% +CFO/COO +90 +% +125 +% +160 +% +EVP and SVP +55 +% +75 +% +95 +% +Effective February, 2012, the Compensation Committee approved stock option and restricted stock awards +for the NEOs under the LTIP based on the performance evaluations of such officers for 2011, as summarized below. A description of the basis for each NEO’s 2011 performance evaluation is set forth above under the Section entitled, “2012 +Annual Base Salaries,” in this Proxy Statement. +Executive Officer +Performance Evaluation +Restricted Stock +Stock Options +Douglas A. Michels +Exceeds Expectations +36,654 Shs +200,954 Shs +Ronald H. Spair +Exceeds Expectations +21,886 Shs +125,207 Shs +Stephen R. Lee, Ph.D. +Meets Expectations +9,509 Shs +32,675 Shs +Anthony Zezzo II +Exceeds Expectations +10,536 Shs +36,204 Shs +Jack E. Jerrett +Exceeds Expectations +10,093 Shs +34,683 Shs +The share totals for Messrs. Michels and Spair also include additional stock option +awards of 75,000 and 50,000 shares, respectively, in recognition of their leadership and strong contributions to significant strategic achievements during 2011, including the DNAG acquisition, receipt of finger-stick whole blood approval and CLIA +waiver for our OraQuick ® HCV test and completion of the clinical development program for our OraQuick ® In-Home HIV test. These additional option awards resulted in Messrs. Michels and Spair exceeding their respective +Maximum targets under the LTIP. +Other Elements of Compensation . The Compensation +Committee reviewed each other element of compensation set forth in the Summary Compensation Table set forth below, and found them to be consistent with the Company’s compensation philosophy as described above. +30 +Table of Contents +Summary Compensation Table +The following table summarizes the compensation of our CEO and the other NEOs, for the fiscal years ended December 31, 2012, 2011 and +2010: +Name and +Principal Position +Year +Salary +($) +Bonus +($) +Stock +Awards 1 +($) +Option +Awards 2 +($) +Non-Equity +Incentive +Plan +Compen- +sation 3 +($) +Change in +Pension Value +and +Nonqualified +Deferred +Compensation +Earnings +($) +All +other +Compen- +sation 4 +($) +Total ($) +Douglas A. Michels +President and Chief Executive Officer +2012 +$ +548,750 +$ +414,007 +$ +990,784 +$ +196,600 +— +$ +4,000 +$ +2,154,141 +2011 +$ +516,827 +$ +558,488 +$ +552,471 +$ +369,000 +— +$ +4,000 +$ +2,000,786 +2010 +$ +499,152 +— +$ +313,061 +$ +231,161 +$ +317,600 +— +$ +4,000 +$ +1,364,974 +Ronald H. Spair +2012 +$ +429,308 +$ +247,202 +$ +617,321 +$ +166,000 +— +$ +4,000 +$ +1,463,831 +Chief Financial Officer +2011 +$ +411,538 +$ +335,225 +$ +331,825 +$ +209,900 +— +$ +4,000 +$ +1,292,488 +and Chief Operating Officer +2010 +$ +399,325 +— +$ +253,272 +$ +187,013 +$ +211,800 +— +$ +4,000 +$ +1,055,410 +Stephen R. Lee, Ph.D. +2012 +$ +366,654 +$ +107,404 +$ +161,101 +$ +123,000 +— +$ +4,000 +$ +762,159 +Executive Vice +2011 +$ +357,692 +$ +122,563 +$ +121,183 +$ +116,700 +— +$ +4,000 +$ +722,138 +President, Research and Development +2010 +$ +349,533 +— +$ +139,196 +$ +102,726 +$ +118,600 +— +$ +4,000 +$ +714,055 +Anthony Zezzo +II 5 +Executive Vice President +Marketing and Sales +2012 +$ +361,539 +$ +119,004 +$ +178,500 +$ +— +— +— +$ +659,043 +2011 +$ +336,539 +$ +445,125 +$ +294,090 +$ +142,600 +— +— +$ +1,218,354 +Jack E. Jerrett +Senior Vice President +and General Counsel +2012 +$ +311,538 +$ +114,000 +$ +171,001 +$ +83,900 +— +$ +4,000 +$ +684,439 +2011 +$ +299,038 +$ +72,213 +$ +71,453 +$ +127,000 +— +$ +4,000 +$ +573,704 +2010 +$ +274,481 +— +$ +92,745 +$ +68,536 +$ +81,500 +— +$ +4,000 +$ +521,262 +(1) +The indicated amounts reflect the aggregate grant date fair value of restricted stock awards made to the NEOs during the applicable year, computed in accordance with +Financial Accounting Standards Board (“FASB”) ASC Topic 718. Certain assumptions used in the calculation of those amounts are set forth for the applicable year of award in footnote 10 to the Company’s audited consolidated financial +statements for the year ended December 31, 2012, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 13, 2013 (the “2012 10-K Report”). +(2) +The values set forth in this column reflect the aggregate grant date fair value of stock option awards made to the NEOs during the applicable year, computed in +accordance with FASB ASC Topic 718. Certain assumptions used in the calculation of those amounts are set forth for the applicable year of award in footnote 10 to the Company’s audited consolidated financial statements for the year ended +December 31, 2012, included in the Company’s 2012 10-K Report. +(3) +The indicated amounts reflect incentive cash bonuses paid to the NEOs pursuant to an Incentive Plan, based on performance during the applicable year. For a description +of incentive cash bonus payments for performance during 2012, see the Section entitled, “2012 Incentive Cash Bonuses,” in the CD&A. +(4) +The indicated amounts reflect cash contributed to a 401(k) profit sharing plan as an employer-matching contribution, which was offered to all employees of the Company +during each of the indicated years. +(5) +Mr. Zezzo joined the Company in January 2011. +31 +Table of Contents +Grants of Plan-Based Awards +The following table summarizes information concerning possible incentive cash bonuses and possible and actual restricted stock and stock +option awards for the NEOs during the fiscal year ended December 31, 2012 as well as possible payouts under the 2012 Incentive Plan: +Name +Grant +Date 1 +Estimated Possible Payouts +Under Non-Equity Incentive +Plan Awards 2 +Estimated Possible Payouts Under +Equity Incentive Plan Awards 3 +All other +Stock +Awards: +Number +Of Shares +Of Stock +Or Units 4 +(#Shs.) +All other +Option +Awards: +Number +Of Securities +Underlying +Options 4 +(#Shs.) +Exercise +or Base +Price of +Option +Awards 5 +($/Sh) +Grant +Date Fair +Value of +Stock and +Option +Awards 6 +($) +Threshold +($) +Target +($) +Maximum +($) +Threshold +(# +Shs.) +Target +(# Shs.) +Maximum +(# Shs.) +Douglas A. Michels +2/01/12 +— +— +— +— +— +— +36,654 +— +$ +414,007 +President and Chief +2/01/12 +— +— +— +— +— +— +— +200,954 +$ +11.295 +$ +990,784 +Executive Officer +N/A +$ +192,500 +$ +385,000 +$ +577,500 +23,825 RS +32,072 RS +40,319 RS +— +— +— +N/A +N/A +— +— +— +81,870 SO +110,209 SO +138,549 SO +— +— +— +N/A +Ronald H. Spair +2/01/12 +— +— +— +— +— +— +21,886 +— +— +$ +247,202 +Chief Financial Officer and +2/01/12 +— +— +— +— +— +— +— +125,207 +$ +11.295 +$ +617,321 +Chief Operating Officer +N/A +$ +107,500 +$ +215,000 +$ +322,500 +13,131 RS +18,238 RS +23,345 RS +— +— +— +N/A +N/A +— +— +— +45,124 SO +62,672 SO +80,221 SO +— +— +— +N/A +Stephen R. Lee, Ph.D. +2/01/12 +— +— +— +— +— +— +9,509 +— +— +$ +107,404 +Executive Vice President, +2/01/12 +— +— +— +— +— +— +— +32,675 +$ +11.295 +$ +161,101 +Research and Development +N/A +$ +73,400 +$ +146,800 +$ +220,200 +6,973 RS +9,509 RS +12,044 RS +— +— +— +N/A +N/A +— +— +— +23,692 SO +32,675 SO +41,388 SO +— +— +— +N/A +Anthony Zezzo II +2/01/12 +— +— +— +— +— +— +10,536 +— +— +$ +119,004 +Executive Vice President, +2/01/12 +— +— +— +— +— +— +— +36,204 +$ +11.295 +$ +178,500 +Marketing and Sales +N/A +$ +72,400 +$ +144,800 +$ +217,200 +6,817 RS +9,296 RS +11,775 RS +— +— +— +N/A +N/A +— +— +— +23,426 SO +31,945 SO +40,463 SO +— +— +— +N/A +Jack E. Jerrett +2/01/12 +— +— +— +— +— +— +10,093 +— +— +$ +114,000 +Senior Vice President +2/01/12 +— +— +— +— +— +— +— +34,683 +$ +11.295 +$ +171,001 +and General Counsel +N/A +$ +54,600 +$ +109,200 +$ +163,800 +5,843 RS +7,968 RS +10,093 RS +— +— +— +N/A +N/A +— +— +— +20,080 SO +27,381 SO +34,683 SO +— +— +— +N/A +(1) +Annual incentive equity awards to NEOs, consisting of a combination of restricted stock (“RS”) and stock options (“SO”), were determined for 2012 +pursuant to the LTIP, based on an evaluation of each officer’s performance during 2011 against previously established performance objectives. Annual equity awards made during 2012 were approved by the Compensation Committee effective on +February 1, 2012. For a description of these equity awards and their terms, see the Sections entitled, “Compensation Components – Incentive Equity Awards” and “2012 Incentive Equity Awards,” in the CD&A. +(2) +The indicated amounts represent potential incentive cash bonus payments to the NEOs under the 2012 Incentive Plan. On January 21, 2013, bonus payments under the +2012 Incentive Plan were approved by the Compensation Committee for the NEOs based on an assessment of the Company’s performance against certain financial and other objectives for 2012 and each officer’s performance against pre-established +individual performance objectives. Additional achievement bonuses were also approved for Messrs. Spair and Jerrett and Dr. Lee in recognition of certain contributions by those individuals during 2012. A further description of the payments +approved under the 2012 Incentive Plan is set forth in the Section entitled, “2012 Incentive Cash Bonuses,” in the CD&A. Actual amounts paid for 2012 are also disclosed in the Summary Compensation Table. +(3) +The indicated amounts represent the potential number of shares which could have been granted to the NEOs in 2012 in the form of restricted stock and stock options +pursuant to the LTIP, based on each officer’s performance during 2011. For restricted stock, the individual share numbers were calculated by dividing 40% of the long-term incentive targets for each NEO set forth in the LTIP by the mean between +the high and low sales price of the Common Stock as reported by NASDAQ on the date of grant. For stock options, the individual option numbers were calculated by dividing 60% of the long-term incentive targets for each NEO set forth in the LTIP by +the corresponding estimated Black-Scholes value of the Company’s Common Stock on the date of grant. +(4) +The indicated amounts represent the actual number of shares granted to the NEOs in 2012 under the LTIP, based on each officer’s performance during 2011. Specific +RS and SO awards were approved by the Compensation Committee for the NEOs effective on February 1, 2012 based on an assessment of each officer’s performance against pre-established performance objectives for 2011. The share amounts for +Messrs. Michels and Spair include additional stock option awards of 75,000 and 50,000 shares, respectively, in recognition of their contributions toward achievement of several significant strategic objectives during 2011. A further description of +these equity awards and their terms is set forth in the Sections entitled, “Compensation Components – Incentive Equity Awards” and “2012 Incentive Equity Awards,” in the CD&A. The values of the RS and SO awards during +2012 are disclosed in the Summary Compensation Table. +(5) +The exercise price for stock options is the fair market value of the Company’s Common Stock on the date of grant, which is calculated as the mean between the high +and low sales price of the Common Stock as reported by NASDAQ on such date. +(6) +The indicated amounts represent the grant date fair value calculated in accordance with FASB ASC Topic 718. +32 +Table of Contents +Outstanding Equity Awards at Fiscal Year-End +The following table summarizes information regarding unexercised stock options and unvested restricted stock held by the NEOs at +December 31, 2012: +Option Awards 1 +Stock Awards 1 +Name +Number of +Securities +Underlying +Unexercised +Options +(#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options 2 +(#) +Unexercisable +Equity +Incentive +Plan +Awards +Number +of +Securities +Underlying +Unexercised +Unearned +Options (#) +Option +Exercise +Price +($/Sh.) +Option +Expiration +Date +Number of +Shares or +Units of +Stock +That Have +Not +Vested 2 +(#) +Market +Value of +Shares or +Units of +Stock +That +Have Not +Vested 8 +($) +Equity +Incentive +Plan +Awards: +Number of +Unearned +Shares, +Units +or +Other +Rights +That Have +Not +Vested (#) +Equity +Incentive +Plan +Awards: +Market +or Payout +Value +of +Unearned +Shares, +Units or +Other +Rights +That +Have Not +Vested +($) +Douglas A. Michels +President and Chief +Executive Officer +12,597 +— +— +$ +5.60 +1/26/2015 +— +— +— +— +67,500 +— +— +$ +9.56 +1/23/2016 +— +— +— +— +45,000 +— +— +$ +8.28 +2/01/2017 +— +— +— +— +56,250 +— +— +$ +8.06 +2/01/2018 +— +— +— +— +89,094 +1,896 +3 (a) +— +$ +2.81 +1/23/2019 +— +— +— +— +74,641 +27,724 +3 (b) +— +$ +5.19 +1/25/2020 +— +— +— +— +88,595 +104,705 +3 (c) +— +$ +6.63 +2/01/2021 +— +— +— +— +— +200,954 +3 (d) +— +$ +11.30 +2/01/2022 +— +— +— +— +— +— +— +— +— +38,880 +3 (e) +$ +279,158 +— +— +— +— +— +— +— +20,106 +3(f) +$ +144,361 +— +— +— +— +— +— +— +56,200 +3(g) +$ +403,516 +— +— +— +— +— +— +— +36,654 +3(h) +$ +263,176 +— +— +Ronald H. Spair +Chief Financial Officer +and Chief Operating +Officer +100,000 +— +— +$ +8.20 +1/14/2014 +— +— +— +— +27,000 +— +— +$ +5.60 +1/26/2015 +— +— +— +— +27,000 +— +— +$ +9.56 +1/23/2016 +— +— +— +— +45,000 +— +— +$ +8.28 +2/01/2017 +— +— +— +— +45,500 +— +— +$ +8.06 +2/01/2018 +— +— +— +— +17,184 +1,536 +4 (a) +— +$ +2.81 +1/23/2019 +— +— +— +— +60,386 +22,429 +4 (b) +— +$ +5.19 +1/25/2020 +— +— +— +— +53,212 +62,888 +4 (c) +— +$ +6.63 +2/01/2021 +— +— +— +— +— +125,207 +4 (d) +— +$ +11.30 +2/01/2022 +— +— +— +— +— +— +— +— +— +16,266 +4 (e) +$ +116,790 +— +— +— +— +— +— +— +33,733 +4 (f) +$ +242,203 +— +— +— +— +— +— +21,866 +4 (g) +$ +157,141 +— +— +Stephen R. Lee, Ph.D. +Executive Vice +President, Research and +Development +85,000 +— +— +$ +8.97 +9/23/2015 +— +— +— +— +18,000 +— +— +$ +9.56 +1/23/2016 +— +— +— +— +8,689 +— +— +$ +8.28 +2/01/2017 +— +— +— +— +22,500 +— +— +$ +8.06 +2/01/2018 +— +— +— +— +8,341 +759 +5 (a) +— +$ +2.81 +1/23/2019 +— +— +— +— +10,424 +12,321 +5 (b) +— +$ +5.19 +1/25/2020 +— +— +— +— +8,833 +22,967 +5 (c) +— +$ +6.63 +2/01/2021 +— +— +— +— +— +32,675 +5 (d) +— +$ +11.30 +2/01/2022 +— +— +— +— +— +— +— +— +— +8,940 +5 (e) +$ +64,189 +— +— +— +— +— +— +12,333 +5 (f) +$ +88,551 +— +— +— +— +— +9,509 +5 (g) +$ +68,275 +— +— +Anthony Zezzo II +Executive Vice +President, Marketing and +Sales +55,104 +59,896 +6 (a) +— +$ +5.94 +1/03/2021 +— +— +— +— +— +36,204 +6 (b) +— +$ +11.30 +2/01/2022 +— +— +— +— +— +— +— +— +— +50,000 +6 (c) +$ +359,000 +— +— +— +— +— +— +— +10,536 +6 (d) +$ +75,648 +— +— +Jack E. Jerrett +Senior Vice President +and General Counsel +18,195 +— +— +$ +8.20 +1/14/2014 +— +— +— +— +15,000 +— +— +$ +5.60 +1/26/2015 +— +— +— +— +18,000 +— +— +$ +9.56 +1/23/2016 +— +— +— +— +12,000 +— +— +$ +8.28 +2/01/2017 +— +— +— +— +12,000 +— +— +$ +8.06 +2/01/2018 +— +— +— +— +5,559 +506 +7 (a) +— +$ +2.81 +1/23/2019 +— +— +— +— +22,130 +8,220 +7 (b) +— +$ +5.19 +1/25/2020 +— +— +— +— +11,458 +13,542 +7 (c) +— +$ +6.63 +2/01/2021 +— +— +— +— +— +34,683 +7 (d) +— +$ +11.30 +2/01/2022 +— +— +— +— +— +— +— +— +— +5,956 +7 (e) +$ +42,764 +— +— +— +— +— +— +— +7,266 +7 (f) +$ +52,170 +— +— +— +— +— +— +— +10,093 +7 (g) +$ +72,468 +— +— +33 +Table of Contents +(1) +The indicated information does not include restricted stock or stock options awarded to the NEOs in February 2013 pursuant to the LTIP in respect of performance during +2012. +(2) +Stock options vest over four years, with the first 25% vesting on the first anniversary of the grant date and the remaining 75% vesting on a monthly basis over the next +three years following the first anniversary of the grant date. Grants of restricted stock vest over a three-year period, with one-third vesting on the first anniversary of the grant date, a second third vesting on the second anniversary and the +final third vesting on the third anniversary. +(3) +The indicated stock options and restricted stock vest as follows: +(a) +1,896 options on January 23, 2013; +(b) +2,133 options on the 25 th of each month, from January 25, 2013 through +January 25, 2014: +(c) +4,027 options on the 1 st of each month, from January 1, 2013 through +February 1, 2015; +(d) +50,239 options on February 1, 2013 and 4,186 options on the 1 st of each +month, from March 1, 2013 through February 1, 2016; +(e) +6,480 restricted shares quarterly on March 31, June 30, September 30 and December 31 of each year; from March 31, 2013 through +June 30, 2014; +(f) +20,106 restricted shares on January 25, 2013; +(g) +28,100 restricted shares on February 1, 2013 and 2014; and +(h) +12,218 restricted shares on February 1, 2013, 2014 and 2015. +(4) +The indicated stock options and restricted stock vest as follows: +(a) +1,536 options on January 23, 2013; +(b) +1,725 options on the 25 th of each month, from January 25, 2013 through +January 25, 2014; +(c) +2,419 options on the 1 st of each month, from January 1, 2013 through +February 1, 2015; +(d) +31,302 options on February 1, 2013 and 2,608 options on the 1 st of each +month, from March 1, 2013 through February 1, 2016; +(e) +16,266 restricted shares on January 25, 2013; +(f) +16,866 restricted shares on February 1, 2013 and 2014; and +(g) +7,289 restricted shares on February 1, 2013, 2014 and 2015. +(5) +The indicated stock options and restricted stock vest as follows: +(a) +759 options on January 23, 2013; +(b) +948 options on the 25 th of each month, from January 25, 2013 through +January 25, 2014; +(c) +883 options on the 1 st of each month, from January 1, 2013 through +February 1, 2015; +(d) +8,169 options on February 1, 2013 and 681 options on the 1 st of each +month, from March 1, 2013 through February 1, 2016; +(e) +8,940 restricted shares on January 25, 2013; +(f) +6,167 restricted shares on February 1, 2013 and 2014; and +(g) +3,170 restricted shares on February 1, 2013, 2014 and 2015. +(6) +The indicated stock options and restricted stock vest as follows: +(a) +2,396 options on the 3 rd of each month, from January 3, 2013 through +January 3, 2015; +(b) +9,051 options on February 1, 2013 and 754 options on the 1 st of each +month, from March 1, 2013 through February 1, 2016; +(c) +25,000 restricted shares on January 3, 2013 and 2014; and +(d) +3,512 restricted shares on February 1, 2013, 2014 and 2015. +(7) +The indicated stock options and restricted stock vest as follows: +(a) +506 options on January 23, 2013; +(b) +632 options on the 25 th of each month, from January 25, 2013 through +January 25, 2014; +(c) +521 options on the 1 st of each month, from January 1, 2013 through +February 1, 2015; +(d) +8,671 options on February 1, 2013 and 723 options on the 1 st of each +month, from March 1, 2013 through February 1, 2016; +(e) +5,956 restricted shares on January 25, 2013; +(f) +3,633 restricted shares on February 1, 2013 and 2014; and +(g) +3,364 restricted shares on February 1, 2013, 2014 and 2015. +(8) +The indicated values were determined by multiplying the number of unvested shares of restricted stock shown in this table by $7.18 per share, the closing price of the +Company’s Common Stock as reported by NASDAQ on December 31, 2012. +34 +Table of Contents +Option Exercises and Stock Vested +The following table summarizes information with respect to the exercise of stock options and vesting of restricted stock for each of the +NEOs during the fiscal year ended December 31, 2012: +Option Awards +Stock Awards +Name +Number of +Shares +Acquired +on Exercise +(#) +Value +Realized +on +Exercise 1 +($) +Number Of +Shares +Acquired +on Vesting +(#) +Value +Realized +on +Vesting 2 +($) +Douglas A. Michels +President and Chief Executive Officer +454,903 +$ +2,328,585 +92,000 +$ +1,004,378 +Ronald H. Spair +Chief Financial Officer and Chief Operating Officer +145,000 +$ +838,671 +47,614 +$ +532,876 +Stephen R. Lee, Ph.D. +Executive Vice President, Research and Development +94,740 +$ +582,526 +22,257 +$ +248,630 +Anthony Zezzo II +Executive Vice President, Marketing and Sales +— +— +25,000 +$ +234,750 +Jack E. Jerrett +Senior Vice President and General Counsel +80,000 +$ +324,051 +14,357 +$ +160,322 +(1) +The indicated amounts represent the number of shares acquired upon the exercise of the options multiplied by the difference between the market value of the +Company’s Common Stock on the applicable exercise date and the option exercise price. +(2) +The indicated amounts were calculated by multiplying the number of restricted shares acquired upon vesting by the market value of the Company’s Common Stock on the +applicable vesting date. The market value was determined by calculating the mean between the high and low sales price of the Common Stock as reported by NASDAQ on the vesting date. +Pension Benefits +The NEOs are eligible to participate in our 401(k) Plan on the same terms and conditions applicable to all of our employees. For a further description of the terms of the 401(k) Plan, see the Section +entitled, “Compensation Components – Retirement Programs,” in the CD&A. +Nonqualified +Deferred Compensation +The OraSure Technologies, Inc. Deferred Compensation Plan (the “Plan”) is a non-qualified +deferred compensation plan designed to provide deferred compensation benefits to a select group of the Company’s highly compensated employees, including all of the NEOs, and to non-employee members of the Board. +The Plan allows for deferrals by participants of up to 100% of their annual base salaries (or in the case of non-employee Directors, 100% +of fees payable under the Company’s Non-Employee Director Compensation Policy) and up to 100% of annual incentive cash bonuses and, upon vesting, restricted shares of the Company’s Common Stock awarded under the Company’s Stock Award +Plan. The Company may also make discretionary contributions to the accounts of employees participating in the Plan. Cash balances in participants’ accounts may be invested in a list of investment options that are similar to the fund choices +offered in the Company’s 401(k) plan. Participants will be permitted to sell vested restricted shares in their accounts, subject to compliance with the Company’s Insider Trading Policy and applicable securities laws, and invest the +proceeds of any such sale in the investment options available under the Plan. Participants will be 100% vested in their accounts and the restricted shares they defer, except that Company contributions will vest over one or more years as determined +by the Company. In the event of death, disability or change in control, a participant will become 100% vested in any then unvested Company contributions. +35 +Table of Contents +Participants may elect to receive a distribution from his or her account upon a specified +date, separation from service, change in control, disability and/or death. Distributions will be made in a lump sum or installments, as allowed under the Plan. +Amounts contributed to a participant’s account through elective deferrals or through the Company’s discretionary contributions are generally not subject to income tax, and the Company does not +receive a deduction until they are distributed pursuant to the Plan. However, cash deferrals are subject to the Federal Insurance Contributions Act Tax imposed at the time of deferral (the “FICA tax”). Deferrals of restricted shares are +subject to the FICA tax at the time the restricted shares vest, but are not subject to income tax, and the Company does not receive the deduction until the restricted shares are distributed pursuant to the Plan. The Company may amend or terminate +the Plan at any time in accordance with applicable law. +The following table summarizes information for each NEO with respect +to the Plan for the fiscal year ended December 31, 2012: +Name +Executive +Contributions 1 +($) +Registrant +Contributions +($) +Aggregate +Earnings 2 +($) +Aggregate +Withdrawals/ +Distributions +($) +Aggregate +Balance +at +12/31/12 1 ,2 +($) +Douglas A. Michels +President and Chief +Executive Officer +— +— +— +— +— +Ronald H. Spair +Chief Financial Officer +and Chief Operating Officer +— +— +— +— +— +Stephen R. Lee, Ph.D. +Executive Vice President, +Research and Development +$ +35,219 +— +$ +1,489 +— +$ +36,708 +Anthony Zezzo II +Executive Vice President, +Marketing and Sales +— +— +— +— +— +Jack E. Jerrett +Senior Vice President and +General Counsel +— +— +— +— +— +(1) +The first year in which NEOs could make contributions under the Plan was 2012. The indicated amounts of NEO contributions have been reported as compensation in the +Summary Compensation Table for 2012. +(2) +There were no earnings or deferred compensation at above market or preferential rates and, therefore, no earnings have been reported as compensation in the Summary +Compensation Table for 2012. Aggregate earnings include dividends and interest earned during the period, as well as the net unrealized appreciation of the underlying investments in the participant’s account. +36 +Table of Contents +Employment Agreements and Potential Payments Upon Termination or Change in +Control +Mr. Michels has an employment agreement with the Company that provides for the various components of +compensation described in the CD&A. In addition, upon a termination of employment, Mr. Michels’ contract provides for certain post-employment severance and other benefits, as described below. +Mr. Michels’ employment agreement will terminate upon his death or disability. In addition, Mr. Michels may terminate his +employment at any time and for any reason upon 90 days written notice to the Company, for “good reason” (as defined below), or following a “change in control” (as defined below). Mr. Michels’ employment agreement can +also be terminated by the Company for “cause” (as defined below) or without “cause.” +As used in the +agreement, the term “good reason” means (i) a material breach of the agreement by the Company that is not cured within 30 days of written notice, (ii) any diminution in Mr. Michels’ base compensation or authority, +duties or responsibilities, (iii) a material diminution in the authority, duties or responsibilities of the person to whom Mr. Michels reports, including a change in Mr. Michels’ reporting obligation from the Board to another +employee of the Company, if applicable, (iv) a material diminution of the budget over which Mr. Michels exercises control, or (v) a material change in Mr. Michels’ job location. +A “change in control” generally is defined to take place when disclosure of such a change would be required by the proxy rules +promulgated by the SEC or when: +· +any person, or more than one person acting as a group within the meaning of Section 409A of the Internal Revenue Code (the “Code”) and +the regulations issued thereunder, acquires ownership of stock of the Company that, together with stock held by such person or group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of the Company; +· +any person, or more than one person acting as a group within the meaning of Code Section 409A and the regulations issued thereunder, acquires (or +has acquired during the 12-month period ending on the date of the most recent acquisition) ownership of stock of the Company possessing 30 percent or more of the total voting power of the Company’s stock; +· +a majority of the members of the Board is replaced during any 12-month period by Directors whose appointment or election is not endorsed by a majority +of the members of the Board before the date of the appointment or election; or +· +a person, or more than one person acting as a group within the meaning of Code Section 409A and the regulations issued thereunder, acquires (or +has acquired during the 12-month period ending on the date of the most recent acquisition) assets from the Company that have a total gross fair market value equal to or more than 40 percent of the total gross fair market value of all the assets of +the Company immediately before such acquisition or acquisitions. +A “change in control period” is the period which +begins on the occurrence of a change in control and ends 18 months thereafter. +Upon the termination of Mr. Michels’ +employment upon his death or disability, by Mr. Michels for any reason other than good reason or by the Company for cause, Mr. Michels will be entitled to receive his salary through the date of termination and any bonus approved by the +Board or the Compensation Committee prior to the date of termination but not yet paid and, in the case of a termination upon his death or disability, a cash bonus for the calendar year in which termination occurs that Mr. Michels would have +received but for his death or disability, prorated through the date of death or commencement of disability. Upon termination of the agreement by Mr. Michels with good reason or after a change in control or by the Company without cause (which +includes the Company’s failure to renew the agreement), Mr. Michels would be entitled to receive his salary through the date of termination and any bonus that has been approved by the Board or the Compensation Committee prior to the date +of termination but not yet paid, a cash bonus for the calendar year in which termination occurs equal to Mr. Michels’ target bonus for such year, and for a period of one year after the date of termination, benefits for +37 +Table of Contents +Mr. Michels and/or his family at levels substantially equal to those that would have been provided to them by the Company if Mr. Michels’ employment had not been terminated. If +termination is for good reason or without cause (which includes the Company’s failure to renew the agreement) and does not occur during a change in control period, Mr. Michels would also receive a lump sum amount equivalent to 12 months of +his annual salary. If, however, termination is for good reason or without cause (which includes the Company’s failure to renew the agreement) and occurs during a change in control period, or if termination is by Mr. Michels after a change +in control, Mr. Michels will receive a lump sum amount equivalent to 36 months of his annual salary. If Mr. Michels is a “specified employee” within the meaning of Code Section 409A at the time of the termination of his +employment and any of the foregoing payments would subject him to any tax, interest or penalty under Code Section 409A or regulation thereunder, then the payment shall not be made until the first day which is at least six months after the date +of termination of his employment. Mr. Michels’ agreement also provides that the Company will pay an amount equal to the first $1.0 million of excise tax incurred under Section 280G of the Code on compensation paid to Mr. Michels +upon a change in control. +Upon termination of Mr. Michels’ employment as a result of disability, for good reason, +by the Company without cause or by Mr. Michels after a change of control, Mr. Michels can elect to receive medical and dental insurance coverage for himself and his family under any plans offered by the Company to the extent the Company is +self insured or coverage for former employees is available on reasonable terms (as determined by the Company) from the Company’s providers of medical and dental coverage. +All stock awards granted to Mr. Michels are required to immediately vest (i) in the event of a change in control or (ii) if Mr. Michels’ employment is terminated for good reason +by Mr. Michels or by the Company without cause during a change in control period, and 50% of such stock awards shall vest in the event Mr. Michels’ employment is terminated for good reason or by the Company without cause during any +period other than a change in control period. +The termination and severance provisions in the employment agreements for the +other NEOs are substantially similar to Mr. Michels’ employment agreement, with the following exceptions. The Company is obligated to pay an amount up to the first $500,000, rather than $1.0 million, of excise tax imposed under +Section 280G of the Code on compensation paid as a result of a change in control for Messrs. Spair, Jerrett and Dr. Lee. Mr. Jerrett and Dr. Lee are entitled to receive severance payments equivalent to 24 months of their annual +salary, rather than 36 months, in the event of a termination of their agreements for good reason or without cause during a change in control period or after a change in control. Beginning with Mr. Zezzo’s employment, however, the Board +adopted a new policy with respect to executive employment agreements. As a result, Mr. Zezzo’s agreement does not provide for any reimbursement of excise taxes imposed under Section 280G of the Code, and his agreement does not include +a “modified single trigger” allowing him to terminate for any reason and receive severance following a change in control. Instead, Mr. Zezzo will be entitled to receive severance equal to 24 months of his annual salary only if he is +terminated for good reason or without cause during a change in control period. +38 +Table of Contents +The following table provides estimates of the potential severance and other post-termination +benefits the NEOs would receive assuming their employment was terminated as of December 31, 2012: +Name +Benefit +Voluntary +Termination +or +Termination +for Cause +Termination +for +Death +or Disability 1 +Termination +for Good +Reason or +Without +Cause Not +Within +Change +in +Control +Period 1 +Termination +after Change in +Control, or for +Good Reason or +Without +Cause +Within Change in +Control Period 1,2 +Douglas A. Michels +Salary Continuation +— +— +$ +550,000 +$ +1,650,000 +President and Chief +Bonus +— +$ +196,600 +$ +385,000 +$ +385,000 +Executive Officer +Accelerated Option Vesting +— +— +$ +60,789 +$ +121,577 +Accelerated Restricted Stock Vesting +— +$ +1,090,211 +$ +545,106 +$ +1,090,211 +Health Care Benefits +— +— +$ +16,153 +$ +16,153 +Total +— +$ +1,286,811 +$ +1,557,048 +$ +3,262,941 +Ronald H. Spair +Salary Continuation +— +— +$ +430,000 +$ +1,290,000 +Chief Financial +Bonus +— +$ +116,000 +$ +215,000 +$ +215,000 +Officer and Chief +Accelerated Option Vesting +— +— +$ +43,128 +$ +86,257 +Operating Officer +Accelerated Restricted Stock Vesting +— +$ +516,134 +$ +258,067 +$ +516,134 +Health Care Benefits +— +— +$ +12,753 +$ +12,753 +Total +— +$ +632,134 +$ +958,948 +$ +2,120,144 +Stephen R. Lee, Ph.D. +Salary Continuation +— +— +$ +367,000 +$ +734,000 +Executive Vice +Bonus +— +$ +88,000 +$ +146,800 +$ +146,800 +President, Research +Accelerated Option Vesting +— +— +$ +20,293 +$ +40,586 +and Development +Accelerated Restricted Stock Vesting +— +$ +221,015 +$ +110,507 +$ +221,015 +Health Care Benefits +— +— +$ +13,358 +$ +13,358 +Total +— +$ +309,015 +$ +657,958 +$ +1,155,759 +Anthony Zezzo II +Salary Continuation +— +— +$ +362,000 +$ +724,000 +Executive Vice +Bonus +— +— +$ +144,800 +$ +144,800 +President, Marketing +Accelerated Option Vesting +— +— +$ +37,285 +$ +74,571 +and Sales +Accelerated Restricted Stock Vesting +— +$ +434,648 +$ +217,324 +$ +434,648 +Health Care Benefits +— +— +$ +2,903 +$ +2,903 +Total +— +$ +434,648 +$ +764,312 +$ +1,380,922 +Jack E. Jerrett +Salary Continuation +— +— +$ +312,000 +$ +624,000 +Senior Vice President +Bonus +— +$ +58,900 +$ +109,200 +$ +109,200 +and General Counsel +Accelerated Option Vesting +— +— +$ +13,044 +$ +26,087 +Accelerated Restricted Stock Vesting +— +$ +167,402 +$ +83,701 +$ +167,402 +Health Care Benefits +— +— +$ +12,408 +$ +12,408 +Total +— +$ +226,302 +$ +530,353 +$ +939,097 +39 +Table of Contents +(1) +The indicated values for the accelerated vesting of stock options reflect (i) the number of option shares which would vest on an accelerated basis, multiplied by +(ii) the excess, if any, of the $7.18 per share closing price for the Company’s Common Stock, as reported by NASDAQ on December 31, 2012, over the applicable exercise price for each option. The indicated values for the accelerated +vesting of restricted stock reflect the $7.18 per share closing price on December 31, 2012 multiplied by the number of shares which would vest on an accelerated basis. +(2) +The Company will also pay the excise tax incurred under Section 280G of the Internal Revenue Code on compensation paid to the NEOs (other than Mr. Zezzo) in +the event of a change in control in an amount up to $1 million for Mr. +Michels and $500,000 for such other NEOs. +2012 Director Compensation +Annual Fees . Under our Non-Employee Director Compensation Policy (“Director Policy”), non-employee +members of the Board receive fixed annual fees for service on the Board and Committees of the Board, as set forth below. The fees are paid quarterly in arrears. +Position +Annual Fee +Board Chairman +$ +60,000 +Non-Chairman Board Member +$ +40,000 +Audit Chairman +$ +18,000 +Compensation Chairman +$ +15,000 +N&CG Chairman +$ +8,000 +Non-Chairman Audit Member +$ +8,000 +Non-Chairman Compensation Member +$ +6,000 +Non-Chairman N&CG Member +$ +4,000 +Initial Equity Awards . Non-employee Directors receive an initial grant of +40,000 stock options for the Company’s Common Stock upon joining the Board (the “Initial Grant”). An additional grant of 40,000 stock options is also made to any non-employee Director who becomes Chairman of the Board (the +“Chairman Grant”). The options granted to non-employee Directors are nonqualified stock options and have an exercise price equal to the mean between the high and low sales prices of the Company’s Common Stock as quoted on the NASDAQ +Stock Market on the grant date. Each Initial Grant and Chairman Grant generally vest on a monthly basis over the 24 months immediately following the grant date. Payment of the exercise price may be made in cash or by delivery of previously acquired +shares of Common Stock having a fair market value equal to the aggregate exercise price. +Annual Equity +Awards . Under the Director Policy, during 2012 each non-employee Director received an annual grant of restricted shares (the “Annual Grant”) of the Company’s Common Stock. In the past, these Annual Grants +were made on the annual equity grant date for officers and other employees of the Company. In November 2011, the Board amended the Director Policy to change both the method of determining and the timing of Annual Grants to non-employee Directors. +The method was changed from an annual award of a fixed number of restricted shares to a value transfer award method similar to that used for our executives under the LTIP. The dollar values of the Annual Awards were determined by the Compensation +Committee and Board based on advice from PM&P and an assessment of director equity awards made at comparable medical diagnostics and healthcare companies. The Board also changed the timing of Annual Grants to occur at the same time as the +Company’s Annual Meeting of Stockholders, beginning with the Annual Grants to be made in 2013. In order to transition to this new timing, the Board determined that for 2012 a value-based Annual Grant of restricted shares (the “2012 +Transitional Grant”) would be made to non-employee Directors on the annual equity award date for the Company’s officers and employees during 2012. +40 +Table of Contents +Under the amended Director Policy, as described above, beginning in 2012 Annual Grants of +restricted shares have been and will be made pursuant to the values set forth in the following table: +Board Position +2012 Transitional Grant +Annual Grants For 2013 and Beyond +Chairman +$150,000 +$120,000 +Non-Chairman Director +$100,000 +$80,000 +The dollar value of each Annual Grant is converted into restricted shares by dividing the above values by +the average of the high and low sales prices of the Company’s Common Stock, as reported on the NASDAQ Stock Market, on the grant date. Annual Grants of restricted stock will vest on the date that is twelve months from the date of grant, except +that the 2012 Transitional Grants will vest on May 15, 2013. Non-employee Directors are permitted to direct the Company to withhold restricted shares in order to pay tax withholding obligations arising upon the vesting of such shares. +Equity Award Terms . Any unvested stock options and restricted shares granted to non-employee +Directors will vest in their entirety immediately upon the occurrence of a “change of control” of the Company. As defined in the Company’s Stock Award Plan, a change of control means a change of control that would be required to be +reported under the Securities Exchange Act of 1934, as amended, and would be deemed to have occurred at such time as (i) any person, or more than one person acting as a group within the meaning of Section 409A of the Code, acquires +ownership of stock of the Company that, together with stock held by such person or group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of the Company; (ii) any person, or more than one +person acting as a group within the meaning of Section 409A of the Code, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition) ownership of stock of the Company possessing 30 percent or more of +the total voting power of the Company’s stock; (iii) a majority of the members of the Board is replaced during any 12-month period by Directors whose appointment or election is not endorsed by a majority of the members of the Board before +the date of the appointment or election; or (iv) a person, or more than one person acting as a group within the meaning of Section 409A of the Code, acquires (or has acquired during the 12-month period ending on the date of the most recent +acquisition) assets from the Company that have a total gross fair market value equal to or more than 40 percent of the total gross fair market value of all the assets of the Company immediately before such acquisition or acquisitions. In addition, +if a non-employee Director leaves the Board for any reason other than a change of control, prior to the end of the vesting period for the 2012 Transitional Grant or any subsequent Annual Grant of restricted shares, such award shall immediately vest +on a pro-rata basis based on the actual duration of such Director’s service to the Board during such vesting period. +Deferred Compensation . Non-employee Directors are permitted to defer all or a portion of the fees and +grants of restricted shares under the Company’s Non-Qualified Deferred Compensation Plan, on terms similar to those applicable to our officers. +The following table summarizes information related to compensation of non-employee Directors during the fiscal year ended December 31, 2012: +Name 1 , 2 +Fees +Earned +or Paid +in +Cash +($) +Stock +Awards 4 +($) +Option +Awards +($) +Non-Equity +Incentive +Plan +Compensation +($) +Change in +Pension +Value +and +Nonqualified +Deferred +Compensation +Earnings +All +Other +Compensation +($) +Total ($) +Michael Celano +$ +62,000 +$ +100,006 +— +— +— +— +$ +162,006 +Ronny B. Lancaster +$ +54,000 +$ +100,006 +— +— +— +— +$ +154,006 +Gerald M. Ostrov +$ +50,000 +$ +100,006 +— +— +— +— +$ +150,006 +Charles W. Patrick 3 +$ +52,000 +$ +100,006 +— +— +— +— +$ +152,006 +Roger L. Pringle +$ +59,000 +$ +100,006 +— +— +— +— +$ +159,006 +Stephen S. Tang, Ph.D. +$ +54,000 +$ +100,006 +— +— +— +— +$ +154,006 +Douglas G. Watson +$ +74,000 +$ +150,009 +— +— +— +— +$ +224,009 +41 +Table of Contents +(1) +Because Messrs. Michels and Spair are officers of the Company, they are not entitled to any separate compensation for service on the Board or any Committee thereof and +have not been included in this table. +(2) +Non-employee Directors held the following number of restricted shares (“RSs”) and stock options (“SOs”) at December 31, 2012: Mr. Celano: +8,854 RSs; 70,000 SOs; Mr. Lancaster: 8,854 RSs; 70,000 SOs; Mr. Ostrov: 8,854 RSs; 40,000 SOs; Mr. Patrick: 8,854 RSs; 70,000 SOs; Mr. Pringle: 8,854 RSs; 235,552 SOs; Dr. Tang: 8,854 RSs; 40,000 SOs; and Mr. Watson: +13,281 RSs; 140,000 SOs. The aggregate number of stock options and restricted shares held by Messrs. Michels and Spair are set forth in the table in the Section entitled, “Outstanding Equity Awards at Fiscal Year-End,” in this Proxy +Statement. +(3) +The indicated amounts include $52,000 in fees and $100,006 in restricted stock deferred by Mr. Patrick pursuant to the Company’s Non-Qualified Deferred +Compensation Plan. +(4) +The indicated amounts reflect the aggregate grant date fair value of restricted stock awards made to non-employee Directors during 2012, computed in accordance with FAS +ASC Topic 718. Certain assumptions used in the calculation of those amounts are set forth in footnote 10 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2012, included in the Company’s +2012 10-K Report. +Compensation Committee Interlocks and Insider Participation +Ronny B. Lancaster, Gerald Ostrov, Roger L. Pringle, Stephen S. Tang, Ph.D. and Douglas G. Watson served as members of the Compensation +Committee of the Board during 2012. None of these Directors has served or is currently serving as an officer or employee of the Company, nor have they engaged in any transactions involving the Company which would require disclosure as a transaction +with a related person. There are no compensation committee interlocks between the Company and any other entity involving the Company’s or such entity’s executive officers or board members. +Compensation Risk Assessment +Management conducted a risk assessment of the Company’s compensation policies and practices, including its executive compensation program. In its review, management considered the attributes of the +Company’s policies and practices and other factors, including: +· +The mix of fixed and variable compensation opportunities; +· +The balance between annual and long-term performance opportunities; +· +The corporate and individual performance objectives established for annual and long-term incentive compensation; +· +The internal controls and procedures in place to mitigate risks facing the Company, including the Company’s “clawback” policy and stock +ownership guidelines; and +· +The risk that unintended consequences could result from various aspects of the Company’s compensation policies and practices. +Based on its review and assessment, management concluded that the Company’s policies and practices are +designed with the appropriate balance of risk and reward in relation to the Company’s overall business strategy and do not incentivize employees to take unnecessary or excessive risks. The Company also concluded that any risks arising from the +Company’s compensation policies and practices are not reasonably likely to have a material adverse affect on the Company. +Compensation Committee Report +The information contained in this report shall not be deemed to be “soliciting +material” or “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that Section. This report +42 +Table of Contents +shall not be deemed to be “ incorporated by reference” into any document filed under the Securities Act of 1933, as amended, or the Exchange Act, whether such filing occurs before +or after the date hereof, regardless of any general incorporation language in such filing. +The Compensation Committee of +OraSure Technologies, Inc. has reviewed and discussed with the Company’s management the Section entitled, “Compensation Discussion and Analysis,” contained in this Proxy Statement. Based on that review and discussion, the Compensation +Committee recommended to the Company’s Board of Directors that the foregoing Compensation Discussion and Analysis be included in the Company’s 2012 10-K Report and Proxy Statement for the 2013 Annual Meeting of Stockholders. +COMPENSATION COMMITTEE: +Roger L. Pringle, Chairman +Ronny B. Lancaster +Gerald Ostrov +Stephen S. Tang, Ph.D. +Douglas G. Watson +March 29, 2013 +Equity Compensation Plan Information +The following table provides information as of December 31, 2012 about the shares of Common Stock that may be issued upon the exercise of options under all of our equity compensation plans. These +plans include the Award Plan, the Epitope, Inc. 1991 Stock Award Plan (the “1991 Plan”), the Agritope, Inc. 1992 Stock Award Plan (the “Agritope Plan”), and the OraSure Technologies, Inc. Employee Incentive and Non-Qualified +Stock Option Plan (the “Employee Incentive Plan”). The Award Plan, the 1991 Plan and the Agritope Plan were Epitope equity compensation plans, and the Employee Incentive Plan was an STC Technologies, Inc. equity compensation plan. In +connection with the merger of Epitope and STC into the Company on September 29, 2000, the Award Plan was adopted by the Company, and the Company assumed the obligation to issue shares for the then outstanding stock options granted under the +Award Plan, the 1991 Plan, the Agritope Plan and the Employee Incentive Plan. Additional grants of equity compensation may only be made under the Award Plan. +Plan Category +Number of securities to be +issued upon exercise of +outstanding +options +(a) +Weighted-average exercise +price of outstanding +options +(b) +Number of securities +remaining available for +future issuance +under +equity compensation plans +(excluding securities +reflected in column (a)) +(c) +Equity compensation plans approved by security holders +4,447,375 +$ +7.74 +3,105,228 +1 +Equity compensation plans not approved by security holders +196,929 +2 +$ +5.34 +2 +— +Total +4,644,304 +3,105,228 +(1) +Represents shares remaining available for future issuance as of December 31, 2012 under the Award Plan. +(2) +Includes 125,552 shares issuable as of December 31, 2012 under options at a weighted-average exercise price of $4.42 per share under the 1991 Plan and the Agritope +Plan. +43 +Table of Contents +Proposal No. 3. Advisory (Non-Binding) Vote to Approve Executive +Compensation +Background +Section 14A of the Exchange Act, enacted pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), requires that stockholders be given the +opportunity to vote to approve, on a non-binding advisory basis, no less frequently than once every three years, the compensation of our NEOs. Based on feedback received at our 2011 Annual Meeting, the Board has determined that such a vote should be +held on an annual basis until the next advisory vote on frequency. +The vote on the resolution recommended below is not +intended to address any specific element of compensation, but rather relates to the overall compensation of our NEOs. As described more fully under the Section entitled, “Executive Compensation,” including the CD&A and the related +tables and narrative, our compensation program is designed to pay executives for performance by offering rewards for the achievement of pre-determined financial and strategic performance objectives. In addition, our program is designed to align the +interests of executives with the interests of our stockholders, provide long-term incentives and set compensation at levels sufficiently competitive to attract, retain and motivate high quality executives, and meet strong corporate governance +principles. +Compensation Program Highlights +You are urged to carefully review the “Executive Compensation” section of this Proxy Statement which contains a detailed discussion of our executive compensation program, including the 2012 +compensation of our NEOs. We believe our compensation program follows sound corporate governance principles and is strongly aligned with the interests of our stockholders. Highlights of our compensation programs include the following: +· +The Company’s compensation focuses on performance, with over 50% of the target compensation opportunity for our NEOs (and over 70% and 60% for +Messrs. Michels and Spair, respectively) consisting of incentive cash bonuses and long-term incentive equity awards which are awarded to executives based on the achievement of both Company and individual performance objectives. +· +The Compensation Committee monitors the Company’s performance and adjusts compensation accordingly. For example, our revenues and bottom line +performance for 2012 were below expectations, although significant progress was made against major strategic objectives. As a result, our NEOs received only modest base salary adjustments for 2013, and incentive cash bonuses for these individuals +under our 2012 Management Incentive Plan were slightly more than 50% of their target percentages. +· +Equity awards for executives consist of a mix of restricted stock and stock options. For performance during 2011, executives received awards in 2012 +consisting of 40% restricted stock and 60% stock options. The Compensation Committee believes the higher proportion of stock options makes our equity awards more performance-based. +· +Our executives receive equity awards subject to long-term vesting requirements. Stock option awards generally vest over four years and restricted stock +awards generally vest over three years. We believe these awards ensure that a significant portion of the executive’s compensation is tied to the long-term success of the Company, consistent with the interests of our stockholders. +· +We have adopted a new long-term incentive compensation program under which a “value transfer” method is used for equity grants awarded to +executives. We have adopted a similar value transfer method for non-employee members of the Board. These changes eliminate volatility in the actual value of equity awards granted to executives and Board members and bring our equity programs more in +line with industry practices. +· +We target total compensation (consisting of annual base salary, incentive cash bonuses and long-term incentive equity grants) for executives at the +median or 50 th percentile of a peer group of companies +with an opportunity to earn up to the 75 th percentile +based on performance. +44 +Table of Contents +· +The Board and Compensation Committee regularly utilize an independent compensation consultant to review our compensation program and provide a +competitive assessment of the compensation paid to our executives and the non-employee members of the Board. +· +The Compensation Committee regularly assesses the Company’s compensation program against peer companies consisting of medical diagnostics and +healthcare companies that are comparable to the Company. +· +Our Board recently adopted a compensation recoupment or “clawback” policy, under which the Board or Compensation Committee may recover excess +compensation paid to our executives if our financial statements are restated due to misconduct by that executive. +· +Messrs. Michels and Spair, and each non-employee member of the Board, are subject to stock ownership guidelines, measured as a multiple of annual base +salary or fees, as applicable. In addition, each of these individuals is required to retain 25% of the shares received upon the vesting of restricted shares or the exercise of stock options until that individual complies with the applicable +ownership multiple. +· +Our Stock Award Plan, under which long-term incentive equity awards are made to executives and Board members, was recently amended to prohibit both the +repricing and repurchase of under-water stock options or other equity awards, without stockholder approval. +· +We have adopted a policy that any new employment agreement with an executive will not provide for the gross-up of excise tax obligations under +Section 280G of the Internal Revenue Code or a “modified single trigger” under which the executive can voluntarily leave the Company after a change of control and receive severance even though there has been no adverse impact on the +executive’s compensation or level of responsibilities. +· +The Company does not provide its executives with any perquisites that are not offered to all employees. +· +We regularly assess the risks associated with our compensation programs. +Vote Required; Board Recommendation +If a quorum is present, the +non-binding advisory approval of the executive compensation described in this Proxy Statement requires the affirmative vote of a majority of shares present, in person or by Proxy and entitled to vote at the Annual Meeting. Shares voted in person or +represented by Proxy which are not voted for approval of our executive compensation (by voting no or abstaining) will have the effect of voting against this proposal. Broker non-votes will not count toward the determination of whether this proposal +is approved and will have no impact on the vote. In the absence of instructions to the contrary, shares of Common Stock represented by properly executed Proxies will be voted for approval of our executive compensation, as disclosed in this Proxy +Statement. Because this stockholder vote is advisory, it will not be binding on the Company or the Board of Directors. However, the Compensation Committee and Board will take into account the outcome of the vote when considering future executive +compensation programs and arrangements. +Based on the foregoing, the Board is requesting that stockholders vote on the +following resolution: +RESOLVED , that the compensation paid to the Company’s named executive officers, as disclosed +in the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby APPROVED. +Your Board +recommends that the stockholders vote FOR the approval of our executive compensation as described in the preceding resolution. +45 +Table of Contents +Annual Report +Our Annual Report to Stockholders for the year ended December 31, 2012 accompanies this Proxy Statement. On written request, we +will provide, without charge, a copy of our Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the SEC (including a list briefly describing the exhibits thereto), to any record holder or beneficial owner of our +Common Stock on March 21, 2013, the record date for the Annual Meeting, or to any person who subsequently becomes such a record holder or beneficial owner. Requests should be directed to the attention of the Secretary of the Company at our +address set forth in the Notice of Annual Meeting of Stockholders immediately preceding this Proxy Statement. +46 +Table of Contents +Deadline For Stockholder Proposals +You may submit proposals for inclusion in the proxy materials for the Company’s 2014 Annual Meeting of Stockholders. Any such +proposals must meet the stockholder eligibility and other requirements imposed by rules issued by the SEC and must be received by the Company at 220 East First Street, Bethlehem, Pennsylvania 18015, Attention: Secretary, in accordance with Rule +14a-8 promulgated under the Exchange Act, not later than December 6, 2013. +In addition, our Bylaws +provide that a stockholder proposal must meet certain predetermined requirements in order to be considered at the Annual Meeting. These requirements are separate from, and in addition to, the requirements discussed above to have the shareholder +proposal included in the proxy materials pursuant to the SEC’s rules and regulations. In order to be considered, a stockholder’s proposal must be made in writing to the Company’s Secretary and must be delivered to or received at our +principal executive offices not less than ninety (90) days nor more than one hundred twenty (120) days prior to the meeting. However, if less than one hundred (100) days’ notice or prior public disclosure of the date of the +meeting is given or made to stockholders, notice by the stockholder to be timely must be so received no later than the close of business on the tenth (10 th ) day following the day on which such notice of the date of the meeting was mailed or such public disclosure was +made, whichever first occurs. The notice to the Secretary must set forth, with respect to each matter the stockholder proposes to bring before the meeting, a brief description of the matter and the reasons for considering that matter at the Annual +Meeting. The notice must also include, as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf notice of the proposed business is made: (i) the name and address of the stockholder and such beneficial owner; +(ii) any material interest of such stockholder and such beneficial holder in such business; (iii) the class and number of shares of capital stock of the Company which are held of record or beneficially owned by the stockholder and such +beneficial owner and any other direct or indirect pecuniary or economic interest in any capital stock of the Company of such stockholder and such beneficial owner, including without limitation, any derivative instrument, swap, option, warrant, short +interest, hedge, profit sharing arrangement or borrowed or loaned shares; (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to propose the business described in its notice; and (v) any other +information relating to such business matter that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies pursuant to Section 14 of the Exchange Act and the rules +and regulations promulgated thereunder. To the extent the Board of Directors or the SEC, or a court of competent jurisdiction, deems these Bylaw provisions to be inconsistent with the right of stockholders to request inclusion of a proposal in the +Company’s proxy materials pursuant to Rule 14a-8 promulgated under the Exchange Act, such rule shall prevail. +BY ORDER OF THE BOARD OF DIRECTORS +Jack E. Jerrett +Secretary +April 4, 2013 +47 +Table of Contents +OraSure Technologies, Inc. +220 EAST FIRST STREET BETHLEHEM, PA 18015 +VOTE BY INTERNET +Before The Meeting - Go to +www.proxyvote.com +Use the Internet to transmit your voting instructions and for electronic delivery of +information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction +form. +During The Meeting - Go to www.virtualshareholdermeeting.com/OSUR2013 +You may attend the Meeting via the Internet and vote during the Meeting. Have the information that is printed in the box +marked by the arrow available and follow the instructions. +VOTE BY PHONE - 1-800-690-6903 +Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the +cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. +VOTE BY MAIL +Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. +TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: +M55818-P35285 +KEEP THIS PORTION FOR YOUR RECORDS +THIS PROXY +CARD IS VALID ONLY WHEN SIGNED AND DATED. +DETACH AND RETURN THIS PORTION ONLY +ORASURE TECHNOLOGIES, INC. +For All +Withhold All +For All Except +To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. +The Board of Directors recommends you vote FOR each of the following nominees: +1. ELECTION OF DIRECTORS +Class I (Term Expiring 2016) +Nominees: +01) Gerald M. Ostrov +02) Stephen S. Tang, Ph.D. +03) Douglas G. Watson +The Board of Directors recommends you vote FOR items 2 and 3. +For +Against +Abstain +2. Ratification of Appointment of KPMG LLP as the Independent Registered Public Accounting Firm for Fiscal Year 2013. +3. Advisory (Non-Binding) Vote to Approve Executive Compensation. +Mark Here for Address Change or Comments +SEE REVERSE +NOTE: Please sign as name appears +hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. +Signature [PLEASE SIGN WITHIN BOX] +Date +Signature (Joint Owners) +Date +Table of Contents +OraSure Technologies, Inc. +OraSure Technologies, Inc. +2013 Annual Meeting of Stockholders +Tuesday, May +14, 2013 +Important notice regarding the Internet availability of proxy materials for the Annual Meeting of +Stockholders. +The Notice and Proxy Statement and 2012 Annual Report to Stockholders are available at +www.proxyvote.com. +FOLD AND DETACH HERE +M55819-P35285 +OraSure Technologies, Inc. +PROXY +2013 Annual Meeting of Stockholders +PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned hereby appoints Jack E. Jerrett and Mark L. Kuna, and each of them, proxies with full power of substitution, to vote all of the shares which the undersigned is entitled to +vote at the 2013 Annual Meeting of Stockholders of OraSure Technologies, Inc. (the “Company”), to be held at the ArtsQuest Center at SteelStacks, 101 Founders Way, Bethlehem, Pennsylvania 18015 on Tuesday, May 14, 2013, at 10:00 a.m. +(local time), and at any adjournment(s) or postponement(s) thereof, with all the powers undersigned would possess if personally present, with respect to the matters listed on the reverse side. +The shares represented by this Proxy, if properly executed, will be voted as specified on the reverse side or, if no +specification is made, will be voted (i) FOR the election of the nominees listed on the reverse side as directors, (ii) FOR the ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm for +fiscal year 2013, and (iii) FOR the advisory (non-binding) vote to approve executive compensation of the Company’s named executive officers. If any other business properly comes before the meeting, the proxies named above will have +discretionary authority to vote thereon in accordance with their best judgment. +PLEASE MARK, DATE, SIGN AND +RETURN THE PROXY CARD PROMPTLY. +Address Changes/Comments: +(If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.) +(Continued and to be marked, dated and signed, on the other side) \ No newline at end of file diff --git a/raw/proxies/0001116463/0001193125-13-142142/proxy_rpt.txt b/raw/proxies/0001116463/0001193125-13-142142/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..ed588688f037fa2fb5e6eba85769a5a55b964a77 --- /dev/null +++ b/raw/proxies/0001116463/0001193125-13-142142/proxy_rpt.txt @@ -0,0 +1,7 @@ +Transactions With Related Persons +Since January 1, 2012, there have been no transactions with related persons which would require disclosure in this Proxy Statement. +The Audit Committee is required to review and approve in advance all transactions with related persons involving the Company. The Audit Committee may approve a related party transaction if the transaction is on terms comparable to those that could +be obtained in arms’ length dealings with an unrelated third party. The Audit Committee also reviews any public disclosures of a related party transaction contained in our SEC filings. These responsibilities are described in the Audit +Committee’s charter, a copy of which is available on our website at www.orasure.com . +Information regarding +employment and severance agreements between our executive officers and the Company is set forth in the Section entitled, “Employment Agreements and Potential Payments Upon Termination or Change in Control,” in this Proxy Statement. \ No newline at end of file diff --git a/raw/proxies/0001116463/0001193125-14-140504/proxy.txt b/raw/proxies/0001116463/0001193125-14-140504/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..b563fa5c693771b162d7e9a2eadd4f2041355527 --- /dev/null +++ b/raw/proxies/0001116463/0001193125-14-140504/proxy.txt @@ -0,0 +1,4525 @@ +DEF 14A +1 +d699030ddef14a.htm +DEFINITIVE PROXY STATEMENT +Definitive Proxy Statement +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) +of the Securities Exchange Act of 1934 +(Amendment No. +) +Filed by the Registrant x Filed by a Party other than the +Registrant ¨ +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material Pursuant to §240.14a-12 +OraSure Technologies, Inc. +(Name of Registrant as +Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and +state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. +Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +ORASURE TECHNOLOGIES, INC. +220 East First Street +Bethlehem, Pennsylvania 18015 +April 11, 2014 +Dear Stockholder: +You are cordially invited to attend the 2014 Annual Meeting of Stockholders to be held on Thursday, May 22, 2014 , at the ArtsQuest Center at SteelStacks, 101 Founders Way, Bethlehem, +Pennsylvania 18015, at 10:00 a.m. Eastern Time. Our Board of Directors and Executive Management Team look forward to greeting those present. If you cannot attend in person, we are pleased to offer a live webcast of the Annual Meeting, which you can +access by going to our website, www.orasure.com . +Pursuant to the Securities and Exchange Commission rule allowing +companies to furnish proxy materials to their stockholders over the internet, a Notice of Internet Availability of Proxy Materials (the “Notice”) has been sent to you on or about April 11, 2014. The Notice contains information on how +to access copies of the proxy materials and vote your shares. +At the meeting, you will be asked to (i) elect three Class +II Directors to serve on the Board of Directors until the Annual Meeting of Stockholders in 2017; (ii) ratify the appointment of KPMG LLP as our independent registered public accounting firm for the 2014 fiscal year; (iii) approve, by an +advisory (non-binding) vote, the compensation of the Company’s named executive officers as disclosed in these materials; (iv) amend the Company’s Stock Award Plan to increase the number of shares of Common Stock authorized for grant +under such Plan; and (v) transact such other business as may properly come before the meeting or any adjournment(s) or postponement(s) thereof. +The Board of Directors has approved the nominees for Director and recommends that you vote FOR their election to the Board. In addition, the Board of Directors recommends that you vote FOR +the ratification of KPMG’s appointment, FOR the Company’s executive compensation, and FOR the amendment of the Stock Award Plan. +Your vote is very important, regardless of the number of shares you own. Whether or not you plan to attend the Annual Meeting in person, we urge you to submit your vote as soon as possible. You will have +the option to vote by telephone, via the internet, or by completing, signing, dating, and returning a paper Proxy Card. Additional details on these options can be found in the Notice sent to you and in the other proxy materials. You may, of course, +attend the Annual Meeting and vote in person regardless of whether you have previously voted by phone, the internet or mail. +We look forward to seeing you at the meeting. +Sincerely, +Douglas A. Michels +President and Chief Executive Officer +Table of Contents +Table of Contents +Page +Notice of Annual Meeting of Stockholders +Proxy Summary +Proxy Statement +1 +General Information +1 +Internet Availability of Proxy Materials +1 +Stockholders with Shared Addresses +1 +Meeting Admission +2 +Proxies +2 +Voting Procedures +2 +Voting of Shares +3 +Stock Ownership of Certain Beneficial Owners and Management +3 +Corporate Governance +5 +Board Operation and Leadership Structure +5 +Independent Chairman +5 +Director Independence +5 +Oversight of Risk Management +6 +Board Meetings +6 +Annual Meeting Attendance and Stockholder Communications +6 +Committees of the Board +6 +Use of Compensation Consultants +8 +Nomination of Directors +8 +Insider Trading +8 +Prohibition Against Short Sales, Hedging and Pledging +9 +Stock Ownership and Retention Guidelines +9 +Report of the Audit Committee +9 +Executive Officers +11 +Transactions with Related Persons +12 +Section 16(a) Beneficial Ownership Reporting Compliance +12 +Proposal No. 1. – Election of Directors +13 +Proposal No. +2. – Ratification of Appointment of Independent Registered Public Accounting Firm +16 +Audit Fees; Audit-Related Fees; Tax Fees; All Other Fees +16 +Executive Compensation +17 +Compensation Discussion and Analysis +17 +Executive Summary +17 +Compensation Philosophy +23 +Compensation Setting and Process +24 +2013 Executive Compensation Components +28 +Other Compensation +37 +Accounting and Tax Treatment of Compensation +37 +Compensation Recoupment Policy +38 +Table of Contents +Summary Compensation Table +39 +Grants of Plan-Based Awards +40 +Outstanding Equity Awards at Fiscal Year-End +41 +Option Exercises and Stock Vested +43 +Retirement Benefits +43 +Nonqualified Deferred Compensation +43 +Employment Agreements and Potential Payments Upon Termination or Change in Control +44 +Compensation Committee Report +48 +2013 Director Compensation +48 +Compensation Committee Interlocks and Insider Participation +50 +Compensation Risk Assessment +51 +Proposal No. 3. – Advisory (Non-Binding) Vote to Approve Executive +Compensation +51 +Proposal No. 4. – Amendment of OraSure Technologies, Inc. Stock Award +Plan +53 +Equity Compensation Plan Information +59 +Annual Report +60 +Deadline for Stockholder Proposals +61 +Exhibit A – Amendment to Stock Award Plan +Table of Contents +ORASURE TECHNOLOGIES, INC. +220 East First Street +Bethlehem, Pennsylvania 18015 +Notice of Annual Meeting of Stockholders +to be held May 22, 2014 +To the Stockholders of OraSure Technologies, Inc.: +The Annual Meeting of Stockholders of OraSure Technologies, Inc., a Delaware corporation, will be held at the ArtsQuest Center at +SteelStacks, 101 Founders Way, Bethlehem, Pennsylvania 18015, on Thursday, May 22, 2014 , at 10:00 a.m. Eastern Time, for the following purposes: +1. +To elect three Class II Directors, each to serve for a term expiring at the Company’s Annual Meeting of Stockholders in 2017; +2. +To ratify the appointment of KPMG LLP as our independent registered public accounting firm for the year ending December 31, 2014; +3. +To approve, by an advisory (non-binding) vote, the compensation of the Company’s named executive officers as disclosed in the Proxy Statement accompanying this +Notice; +4 +To amend the Company’s Stock Award Plan to increase the number of shares of Common Stock authorized under such Plan; and +5. +To consider such other business as may properly come before the meeting or any adjournment(s) or postponement(s) thereof. +Additional information is included in the Proxy Statement accompanying this Notice. Only holders of shares of our Common Stock of record +at the close of business on March 28, 2014, will be entitled to vote at the Annual Meeting of Stockholders and any adjournment(s) or postponement(s) thereof. +By Order of the Board of Directors, +Jack E. Jerrett +Secretary +April 11, 2014 +Bethlehem, Pennsylvania +YOUR VOTE IS IMPORTANT. Whether or not you plan +to attend the Annual Meeting, you are urged to vote your shares as promptly as possible by telephone, via the internet, or by completing, signing, dating and returning a paper Proxy Card, as described in the attached Proxy Statement. Voting by +phone, the internet or mail does not deprive you of your right to attend the Meeting and to vote your shares in person. +Table of Contents +PROXY SUMMARY +This summary highlights information contained elsewhere in this Proxy Statement. This summary does not contain all of the information that +you should consider, and you should read the entire Proxy Statement carefully before voting. +2014 Annual Meeting of Stockholders +Information +Date and Time: +Thursday, May 22, 2014, beginning at 10:00 a.m. Eastern Time. +Place: +ArtsQuest Center at SteelStacks, 101 Founders Way, Bethlehem, Pennsylvania 18015. +Webcast: +A live webcast of the Annual Meeting will be available at ww.virtualshareholdermeeting.com/OSUR2014 . +Record Date: +March 28, 2014. +Stockholder Voting Matters +Proposals +Board +Recommendation +1) Election of Directors +FOR +2) Ratification of Independent Registered Public Accounting Firm +FOR +3) Advisory (Non-Binding) Vote to Approve Executive Compensation +FOR +4) Amend Stock Award Plan +FOR +Proposal No. 1 – Election of Directors +The following table provides summary information about each of our nominees for Class II Directors, whose terms would expire at the 2017 +Annual Meeting of Stockholders: +Name +Age +Director +Since +Principal Occupation +Independent +Committee +Memberships +Other +Current +Public +Boards +AC +CC +NCGC +Ronny B. Lancaster +62 +2003 +Senior Vice President for Federal Government Relations of Assurant, Inc. +Yes +— +Roger L. Pringle. +73 +2000 +President of The Pringle Company +Yes +— +Ronald H. Spair +58 +2006 +CFO and COO of the Company +No +— +AC = Audit Committee +CC = Compensation Committee +NCGC = Nominating & Corporate Governance Committee += Member += Chair +Table of Contents +Proposal No. 2 – Ratification of Independent Registered Public Accounting Firm +We are asking our stockholders to ratify the selection of KPMG LLP (“KPMG”) as our independent registered +public accounting firm for the 2014 fiscal year. Set forth below is a summary of KPMG’s fees for services provided for the years ended December 31, 2013 and 2012: +2013 +2012 +Audit Fees +$ +660,000 +$ +775,000 +Audit-Related Fees +— +128,400 +Tax Fees +160,310 +119,984 +All Other Fees +— +— +Total +$ +820,310 +$ +960,195 +Proposal No. 3 – Advisory (Non-Binding) Vote to Approve Executive Compensation +It takes commitment from all the talented people throughout our Company to manage the many facets of our business. We +believe that we have the right executive team in place, and we have designed our compensation programs to enable us to attract, retain and reward our executives for delivering value to stockholders over the long-term. Therefore, we are asking our +stockholders to approve, by an advisory (non-binding) vote, the compensation of our named executive officers (“NEOs”). +Our compensation programs must balance short-term results with long-term success. To fulfill this mission, we have a pay-for-performance philosophy that forms the foundation for executive compensation +decisions made by our Board of Directors (the “Board”) and the Compensation Committee of the Board (the “Compensation Committee”). In addition, our compensation decisions are designed to align the interests of our executives with +the interests of our stockholders and incorporate strong corporate governance principles. +The Compensation Discussion and +Analysis portion of this Proxy Statement (the “CD&A”) contains a detailed description of our executive compensation philosophy and program, the compensation decisions the Board and Compensation Committee have made under that program +and the factors considered in making those decisions, focusing on the compensation of our NEOs for the year ended December 31, 2013, who were: +· +Douglas A. Michels, President and Chief Executive Officer; +· +Ronald H. Spair, Chief Financial Officer and Chief Operating Officer; +· +Stephen R. Lee, Ph.D., Former Executive Vice President and Chief Science Officer; +· +Anthony Zezzo, II, Executive Vice President, Marketing and Sales; and +· +Jack E. Jerrett, Senior Vice President, General Counsel and Secretary. +At our 2013 Annual Meeting of Stockholders, we did not receive a majority vote approving the compensation paid to our NEOs for the 2012 +fiscal year as disclosed in our 2013 Proxy Statement. The Board and our management take seriously the results of each “say-on-pay” (“SOP”) vote and the views of our stockholders regarding executive compensation. Accordingly, +following that vote we instituted an outreach effort to contact our stockholders in order to obtain their views on the reasons for the vote and to solicit their input on other aspects of our compensation practices. The CD&A provides additional +detail regarding the results of this outreach effort, the input received from our stockholders and the important actions we have taken in response to that input. +Table of Contents +We believe that all components of our executive compensation program are strongly tied to +performance of both the Company and our executives. These components consist of the following: +Base Salary +Salaries are based on position relative to market and individual performance and contribution. +Annual Cash Incentive Bonus +Annual incentive cash bonuses reflect market-based targets and are contingent upon (i) achievement of corporate financial and other objectives, which are used to determine +overall bonus pool funding, and (ii) the executive’s individual performance against pre-determined objectives, which are used to determine individual bonus payouts. +Long-term Incentive Plan (LTIP) +Long-term incentive equity compensation reflects market-based targets with the value of individual awards contingent upon the executive’s individual performance against +pre-determined objectives. Moreover, over half of the value of equity awards to executives consists of stock options, which provide no value to executives unless our stock price increases after the date of grant. +Compensation awarded to our executives for 2013 was closely aligned with performance. The Company’s +financial results for 2013 were strong and represented a substantial improvement over 2012. Specifically, our 2013 consolidated net revenues reached a record high and grew by 13% over 2012, which contributed to a 26% reduction in our consolidated +net loss for the year. A particularly strong performing segment was our molecular collection systems business, which delivered revenues 43% higher in 2013 than in 2012. We also generated an incremental $8.4 million in cash from operations in 2013 +compared to 2012, which substantially improved our cash balance at the end of 2013 compared to year-end 2012. +Despite this +strong performance, the compensation paid to our NEOs for the 2013 fiscal year changed only modestly from the year-ago levels. In fact, the 2013 compensation to Mr. Michels, our President and CEO, and Mr. Spair, our Chief Operating Officer +and Chief Financial Officer, declined when compared to 2012. We believe these compensation levels are reasonable, and in fact are conservative, given the substantially improved financial performance during 2013. +We believe many features of our compensation program illustrate our commitment to pay-for-performance, strong alignment of our +executives’ interests with those of our stockholders and strong corporate governance. These features are summarized below: +· +Performance Mix : The vast majority of our NEOs’ compensation is performance-based. For example, approximately 73% of +Mr. Michels’ 2013 compensation consisted of an incentive cash bonus and long-term incentive equity awards, which are awarded based on Company and/or individual performance. For the other NEOs, almost 60% of their aggregate 2013 +compensation consisted of this same performance-based compensation. +· +Diversified Portfolio : Our executive compensation consists of a mix of cash/equity, fixed/variable and +short-term/long-term compensation. Equity awards consist of a mix of restricted stock (40%) and stock options (60%). +· +Performance Value of Options : Because stock options only provide value to executives if the price of our stock increases +after the date of grant, the issuance of 60% of an executive’s annual equity award as stock options means that the realizable value of long-term equity awards provided to executives is heavily weighted and dependent on the Company’s future +performance. +· +Long-Term Focus : Equity awards are subject to long-term vesting requirements, with restricted shares vesting over 3 years +and stock options vesting over a minimum of 4 years. Structuring our equity awards in this manner helps align the interests of our executives with the interests of our stockholders. +Table of Contents +· +Prudent Benchmarking : The total compensation paid to executives is targeted at the 50 th percentile of a peer group of comparable companies with an +opportunity to earn up to the 75 th percentile based on +achievement of performance objectives. In response to feedback related to the 2013 SOP vote, we modified our peer group in 2013 to consist of companies in the medical diagnostic, healthcare and biotech industries more comparable in size to the +Company based on total revenues and market value. +· +No 280G Excise Tax Gross-Ups or Modified Single-Triggers Going Forward : Since 2005, we have followed a policy that any +new employment agreement with an executive will not provide for the gross-up of excise tax obligations under Section 280G of the Internal Revenue Code or a “modified single trigger” under which the executive can voluntarily leave the +Company after a change of control and receive severance even though there has been no adverse impact on the executive’s compensation or level of responsibilities. +· +Independent Compensation Consultants : The Board and Compensation Committee regularly utilize independent compensation +consultants to provide compensation advice, including competitive assessments of our program compared to compensation paid to executives at the peer group of comparable medical diagnostic and healthcare companies. +· +Recoupment Policy : Our Board has adopted a compensation recoupment or “clawback” policy, under which the Board +or Compensation Committee may recover excess compensation paid to our executives if our financial statements are restated due to misconduct by that executive. +· +Stock Ownership Guidelines : Messrs. Michels and Spair, and each non-employee member of the Board, are subject to stock +ownership guidelines, measured as a multiple of annual base salary or cash fees, as applicable. In addition, each of these individuals is required to retain 25% of the shares received upon the vesting of restricted shares or the exercise of stock +options until that individual complies with the applicable ownership multiple. +· +No Repricing : Our Stock Award Plan prohibits both the repricing and repurchase of under-water stock options or other +equity awards without stockholder approval. +· +No Perquisites : We do not provide executives with any perquisites that are not offered to all employees of the Company. +· +Risk Review Process : We regularly assess the risks associated with our compensation programs. +· +Anti-Hedging and Pledging Policy : Employees and non-employee Directors are prohibited from engaging in hedging activities +to offset fluctuations in their stock holdings or pledging their shares as collateral. +Proposal +No. 4 – Amendment to Stock Award Plan +In order to enable the Company to continue to attract qualified +Directors, officers, employees and outside advisors and to compensate its Directors, officers, employees and advisors in a manner that is competitive with compensation provided by other medical diagnostic and healthcare companies, the Board +determined that additional shares of Common Stock would need to be authorized for grants under the Company’s Stock Award Plan. In addition, the Board wants to ensure that sufficient shares are available if needed to provide retention or other +equity awards in connection with potential acquisitions or other business development activities. +Accordingly, subject to +stockholder approval, the Board approved an amendment to the Award Plan to increase the number of authorized shares by 4,000,000 shares. As a result of this increase, there will be a total of 4,853,512 shares available under the Stock Award Plan on +or after March 28, 2014, subject to stockholder approval. The amendment also provides that any shares granted pursuant to the Stock Award Plan as “full value” shares (i.e. Restricted Awards, Performance Awards or other stock-based +Awards) shall be counted against the total available shares on the basis of one and a half shares for every such “full value” share granted. +Table of Contents +ORASURE TECHNOLOGIES, INC. +220 East First Street +Bethlehem, Pennsylvania 18015 +PROXY STATEMENT +General Information +We are providing these +Proxy Materials to stockholders of OraSure Technologies, Inc., a Delaware corporation (as used herein, “we,” “us,” “our” or the “Company”), in connection with the Company’s solicitation of proxies (each, +a “Proxy”) for use at the Annual Meeting of Stockholders to be held on May 22, 2014, at 10:00 a.m. Eastern Time, at the ArtsQuest Center at SteelStacks, 101 Founders Way, Bethlehem, Pennsylvania 18015, and at any adjournment(s) or +postponement(s) thereof (the “Annual Meeting”). +As a stockholder, you are invited to attend the Annual Meeting and +are requested to vote on the matters described in this Proxy Statement. For your convenience, we are pleased to offer a live webcast of our Annual Meeting which you can access by going to www.virtualshareholdermeeting.com/OSUR2014 . The +webcast will end after the formal portion of the meeting is adjourned and will not include the presentation by management or the question and answer session provided for those present in person at the Annual Meeting. +Internet Availability of Proxy Materials +We are furnishing Proxy Materials, including this Proxy Statement, the Proxy Card and the Company’s Annual Report to Stockholders +for the year ended December 31, 2013 (“2013 Annual Report”), to our stockholders by providing access to such documents on the internet in accordance with the rules and regulations of the Securities and Exchange Commission (the +“SEC”). On or about April 11, 2014, we mailed a Notice of Internet Availability of Proxy Materials (the “Notice”) to each stockholder at the holder’s address of record, indicating that this Proxy Statement is now +available to our stockholders of record entitled to vote at the Annual Meeting. All stockholders and beneficial holders have the ability to access a copy of our Proxy Materials on the internet at the website referred to in the Notice. +Stockholders will not receive printed copies of the Proxy Materials unless they request those copies. The Notice also instructs stockholders as to how to submit a Proxy through the internet. If you would like to receive a paper or e-mail copy +of your Proxy Materials, you should follow the instructions for requesting such materials included in the Notice. We will pay the entire cost of preparing, assembling, printing, mailing and distributing these Proxy Materials and soliciting votes. If +you choose to access the Proxy Materials and/or vote over the internet, you are responsible for any internet access charges you may incur. +Stockholders with Shared Addresses +SEC rules +permit us to deliver only one copy of the Notice or a single set of proxy materials to multiple stockholders sharing the same address. Upon written or oral request, we will deliver separate Notices and/or +1 +Table of Contents +copies of our 2013 Annual Report and/or this Proxy Statement to any stockholder at a shared address to which a single copy of the Notice was delivered. Stockholders may notify the Company of +their requests by calling or writing us at OraSure Technologies, Inc., 220 East First Street, Bethlehem, Pennsylvania 18015; (610) 882-1820. +Meeting Admission +If you plan to attend the +Annual Meeting, please bring your Notice or Proxy Card or a recent broker statement as proof of ownership of your shares as of the March 28, 2014 record date for the Annual Meeting. You will be required to present these materials as well as a +valid photo identification in order to be admitted to the Annual Meeting. Company representatives will have the authority to determine whether these admission procedures have been followed and whether you will be granted admission to the Annual +Meeting. Additional meeting procedures will be provided at the entrance to the Annual Meeting. Only the Company’s stockholders will be granted in person access to the Annual Meeting. Members of the media and of the general public will not be +granted access. +Proxies +If represented by a properly executed Proxy, whether delivered by phone, the internet or mail, as described below, your shares will be +voted in accordance with your instructions. If you do not provide instructions with your Proxy, your shares will be voted according to the recommendations of our Board as stated on the Proxy. You may revoke the authority granted by your Proxy at any +time before the Annual Meeting by notice in writing delivered to the Secretary of the Company, by delivering a subsequently dated Proxy, or by attending the Annual Meeting, withdrawing the Proxy and voting in person. +At the Annual Meeting, action will be taken on the matters set forth in the accompanying Notice of Annual Meeting of Stockholders and +described in this Proxy Statement. The Board knows of no other matters to be presented for action at the Annual Meeting. If any other matters do properly come before the Annual Meeting, the persons named in the Proxy Card will have discretionary +authority to vote on those matters in accordance with their best judgment. +Solicitation of proxies is made on behalf of the +Board. The cost of soliciting Proxies will be borne by us. In addition to solicitations by e-proxy and/or by mail, certain of our Directors, officers and regular employees may solicit Proxies personally or by telephone or other means without +additional compensation. We have also engaged Morrow & Co., LLC, 470 West Ave., Stamford, CT 06902, to provide proxy solicitation services at an estimated fee of $6,500 plus expenses. +Arrangements will be made with brokerage firms and other custodians, nominees and fiduciaries to forward solicitation materials to the +beneficial owners of stock held of record by such persons, and we will, upon request, reimburse them for their reasonable expenses in so doing. +Voting Procedures +You will have a choice of +voting via the internet, over the telephone or by completing and mailing a paper Proxy Card, as described below. +Voting +via the Internet or by Telephone. If you desire to vote online via the internet or by telephone prior to the Annual Meeting, you should go to www.proxyvote.com or call the toll free number indicated on the Proxy +Card or Notice. You may vote via the internet or by telephone provided you do so by 11:59 pm Eastern Time (8:59 pm Pacific Time) on May 21, 2014. Stockholders who attend the Annual Meeting via the internet may vote their shares at that time up +to and during the Annual Meeting by following the instructions at www.virtualshareholdermeeting.com/OSUR2014 . +2 +Table of Contents +The telephone and internet voting procedures are designed to authenticate your identity, to +allow you to give your voting instructions and to confirm that your instructions have been recorded properly. If you vote via the internet, you should understand that you will be responsible for any costs associated with this method of voting, such +as usage charges from internet access providers and telephone companies. +Voting by Mail . If you +desire to vote by using a paper Proxy Card instead of by telephone or via the internet, you will need to either print a copy of the Proxy Card from the website indicated in your Notice or follow the instructions in your Notice to request that a +paper copy be sent to you. You will then need to complete, sign, date and return the Proxy Card to the Company, as described on the Proxy Card. +Submitting a Proxy via the internet, over the telephone or by mail will not affect your right to withdraw your Proxy and vote in person at the Annual Meeting, provided that you follow the admission +procedures described above. +Voting of Shares +On March 28, 2014, the record date for determining stockholders entitled to vote at the Annual Meeting, we had outstanding +56,607,650 shares of common stock, par value $0.000001 per share (“Common Stock”). Each share of Common Stock is entitled to one vote on any matter brought before the Annual Meeting. A majority of the shares of Common Stock outstanding as +of the record date, represented in person or by Proxy at the Annual Meeting, will constitute a quorum for the transaction of business. +Broker non-votes, votes withheld and abstentions will be counted for purposes of determining whether a quorum has been reached at the Annual Meeting. Because abstentions will be included in tabulations of +the votes entitled to vote for purposes of determining whether a proposal has been approved, abstentions have the same effect as negative votes. Broker non-votes, however, are not counted as shares present and entitled to be voted with respect to +the matters which the broker has not expressly voted. A broker “non-vote” occurs when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have the discretionary voting power +with respect to that item and has not received instructions on how to vote the shares from the beneficial owner. Discretionary voting by a broker or other nominee is not permitted in connection with the election of Directors, the advisory vote +regarding the Company’s executive compensation or the amendment to our Stock Award Plan. Thus, if your broker or nominee does not receive instructions from you, a broker non-vote will occur and your shares will not be voted on these matters. +Stock Ownership of Certain Beneficial Owners and Management +The following table sets forth information, as of March 28, 2014, regarding the beneficial ownership of the Company’s Common +Stock by (a) each person who is known by us to be the beneficial owner of more than five percent of the Common Stock outstanding, (b) each Director and nominee for election as Director, (c) each of our executive officers named in the +Summary Compensation Table in this Proxy Statement under “Executive Compensation,” and (d) all of our Directors and executive officers as a group. Unless otherwise indicated, the address of each person identified below is c/o OraSure +Technologies, Inc., 220 East First Street, Bethlehem, Pennsylvania 18015. +3 +Table of Contents +Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the +“Exchange Act”), shares of Common Stock which a person has a right to acquire pursuant to the exercise of stock options held by that person that are exercisable within 60 days of March 28, 2014 are deemed to be outstanding for the +purpose of computing the percentage ownership of that person, but are not deemed outstanding for computing the percentage ownership of any other person. +Name and Address of +Beneficial Owner +Amount and Nature of +Beneficial Ownership 1,2 +Percent +of Class +Wells Fargo & Company 3 +420 Montgomery Street +San Francisco, CA +94104 +8,362,141 +14.8 +% +BlackRock, Inc. 4 +40 East 52 nd +Street +New York, NY 10022 +6,208,790 +11.0 +% +Orbimed Advisors LLC 5 +Orbimed Capital LLC +Samuel D. Isaly +601 Lexington Avenue +54 th Floor +New York, New York 10022 +4,988,000 +8.8 +% +Douglas A. Michels +1,362,432 +2.4 +% +Ronald H. Spair 6 +685,129 +1.2 +% +Roger L. Pringle 7 +316,426 +* +Stephen R. Lee, Ph.D. 6 +257,433 +* +Douglas G. Watson +234,539 +* +Anthony Zezzo II +223,881 +* +Jack E. Jerrett +194,372 +* +Charles W. Patrick 6 +151,177 +* +Michael Celano +136,244 +* +Ronny B. Lancaster +83,368 +* +Gerald M. Ostrov +66,359 +* +Stephen S. Tang, Ph.D. +63,874 +* +All Directors and executive officers as a group (14 people) +3,938,313 +6.7 +% +*Less than 1% +(1) +Subject to community property laws where applicable, beneficial ownership consists of sole voting and investment power except as otherwise indicated. +(2) +Includes shares subject to options exercisable within 60 days of March 28, 2014, as follows: Mr. Michels, 701,632 shares; Mr. Spair, 441,901 shares; +Dr. Lee, 217,984 shares; Mr. Pringle, 195,552 shares; Mr. Watson, 110,000 shares; Mr. Jerrett, 146,939 shares; Mr. Lancaster, 50,000 shares; Mr. Patrick, 70,000 shares; Mr. Celano, 70,000 shares; Dr. Tang, +40,000 shares; Mr. Zezzo, 126,485 shares; Mr. Ostrov, 40,000 shares; and all Directors and executive officers as a group, 2,318,140 shares. Also includes unvested restricted shares, as follows: Mr. Michels, 155,635 shares; +Mr. Spair, 75,040 shares; Mr. Pringle, 17,505 shares; Mr. Watson, 26,258 shares; Mr. Jerrett, 31,320 shares; Mr. Lancaster, 17,505 shares; Mr. Patrick, 17,505 shares; Mr. Celano, 17,505 shares; Dr. Tang, +17,505 shares; Mr. Zezzo, 40,186 shares; Mr. Ostrov, 17,505 shares; and all Directors and executive officers as a group, 461,474 shares. +4 +Table of Contents +(3) +Based on information contained in a Schedule 13G/A filed January 28, 2014 by Wells Fargo & Company (“Wells Fargo”), on behalf of certain of its +subsidiaries. Wells Fargo has shared voting power with respect to 8,361,771 shares, sole voting power with respect to 2 shares, shared dispositive power with respect to 8,362,139 shares and sole dispositive power with respect to 2 shares. +(4) +Based on information contained in a Schedule 13G/A filed January 9, 2014, by BlackRock, Inc. (“BlackRock”) on behalf of certain of its subsidiaries. +BlackRock has sole voting power with respect to 6,047,705 shares and sole dispositive power with respect to 6,208,790 shares. +(5) +Based on information contained in a Schedule 13G/A filed February 13, 2014 by OrbiMed Advisors LLC (“OMA”), OrbiMed Capital LLC (“OMC”) and +Samuel D. Isaly. OMA has shared voting and dispositive power with respect to 2,226,800 shares, OMC has shared voting and dispositive power with respect to 2,761,200 shares, and Mr. Isaly has shared voting and dispositive power with respect to +4,988,000 shares. +(6) +Includes restricted shares contributed by the recipient to the OraSure Technologies, Inc. Deferred Compensation Plan, as follows: Mr. Spair, 78,882 shares; +Dr. Lee, 19,476 shares; and Mr. Patrick, 17,505 shares. +(7) +Includes 1,500 shares owned by Mr. Pringle’s spouse. +Corporate Governance +Board +Operation and Leadership Structure +The Board has adopted Corporate Governance Principles which, along with the Charters +for each of its Committees and the Company’s Code of Business Conduct and Ethics, provide a framework for the governance of the Company. The Company’s Corporate Governance Principles address matters such as the responsibilities and +composition of the Board, Director independence and the conduct of Board and Committee meetings. The Company’s Code of Business Conduct and Ethics sets forth guiding principles of business ethics and certain legal requirements applicable to all +Company employees and non-employee Directors. Copies of the current Corporate Governance Principles and Code of Business Conduct and Ethics are available at the Company’s website, www.orasure.com . +Independent Chairman +Currently, the Company’s Chief Executive Officer does not hold the position of Chairman of the Board as the Company believes it is appropriate for the Board to be led by an individual who is +independent of management. Mr. Watson has served as the Chairman of our Board since March 2003. In the future, however, the Board may reconsider whether its Chief Executive Officer should also serve as Board Chairman. +Director Independence +Our Corporate Governance Guidelines require, among other things, that a majority of the members of the Board meet the independence requirements of the SEC and The NASDAQ Stock Market (“NASDAQ”), +on which our Common Stock is listed. Each year our Board, with assistance from the Nominating and Corporate Governance Committee, conducts a review of Director independence. The most recent annual review occurred in the first quarter of 2014, during +which the Board considered transactions and relationships, if any, between each Director or any member of such Director’s immediate family and the Company. As a result of this review, the Board determined that Michael Celano, Ronny B. +Lancaster, Gerald M. Ostrov, Charles W. Patrick, Roger L. Pringle, Stephen S. Tang, Ph.D., and Douglas G. Watson are “independent,” as that term is defined in the applicable rules of NASDAQ and the SEC. Only Douglas A. Michels and Ronald +H. Spair were determined by the Board not to be independent because they are executive officers of the Company. Based on the foregoing, the Board of Directors is comprised of a majority of independent Directors. +5 +Table of Contents +Oversight of Risk Management +As part of its oversight of the Company’s operations, the Board and Audit Committee monitor the management of risks by the +Company’s executives. The Audit Committee reviews the risks that the Company may face and receives reports from senior management on the nature of these risks and the procedures and processes in place to manage and mitigate such risks. +Substantive areas of risk reviewed by the Audit Committee include financial, legal compliance, operational, information technology and employment risks. The Audit Committee provides a report to the full Board on the matters covered during each of +its meetings, including its risk monitoring activities. In addition, senior management provides periodic reports to the full Board on the major risks facing the Company and the processes and procedures in place to manage such risks. Management also +conducts a risk assessment of the Company’s compensation policies and practices, including its executive compensation program, as described in greater detail in the Section of this Proxy Statement entitled, “Compensation Risk +Assessment.” +Board Meetings +The Board held eight meetings and acted by written consent on one occasion during the fiscal year ended December 31, 2013. Each member of the Board attended more than 75 percent of the combined +total of meetings of the Board and of the committees of the Board on which such member served during the period in the year in which he served as a Director. +Annual Meeting Attendance and Stockholder Communications +The Board has approved a policy concerning Board members’ attendance at our annual meeting of stockholders and a process for security holders to send communications to members of the Board. +Descriptions of the Board’s policy on annual meeting attendance and the process for security holders to send communications to the Board are provided on our website, at www.orasure.com . As a general matter, each Board member is expected +to attend each annual meeting of stockholders and the Board’s annual organizational meeting is typically scheduled to follow each annual meeting of stockholders. +Our 2013 Annual Meeting of Stockholders was attended by all members of the Board. +Committees of the Board +The Board currently has three standing committees – the Audit Committee, the Compensation +Committee and the Nominating and Corporate Governance Committee. Members of these committees are each “independent,” as defined in the Exchange Act and NASDAQ rules applicable to such Committees. In addition, the Board has determined that +Mr. Celano is an “audit committee financial expert,” as that term is defined by applicable rules of the SEC. Each committee operates pursuant to a written charter, copies of which are available on our website, www.orasure.com . +The following provides additional information with respect to each standing committee: +Audit Committee +Michael Celano, Chairman +Charles W. Patrick +Stephen S. Tang, +Ph.D. +Douglas G. Watson +The Audit Committee oversees the Company’s accounting and financial reporting process, internal controls and audits, and consults with management and the Company’s +independent registered public accounting firm on, among other items, matters related to the annual audits, the published financial statements and the accounting principles applied. As part of its duties, the Audit Committee: (i) appoints, evaluates +and retains our independent registered public accounting firm; (ii) maintains direct responsibility for the compensation, termination and oversight +6 +Table of Contents +of our independent registered public accounting firm; (iii) evaluates the independent registered public accounting firm’s qualifications, performance and independence; (iv) +approves all services provided to the Company by the independent registered public accounting firm; and (iv) maintains procedures for the receipt, retention and treatment, on a confidential basis, of complaints received by the Company, regarding +accounting, internal accounting controls or auditing matters, and the confidential, anonymous submissions by employees of concerns regarding questionable accounting or auditing matters. The Audit Committee met eight times during the fiscal year +ended December 31, 2013. +Compensation Committee +Roger L. Pringle, Chairman +Ronny B. Lancaster +Gerald Ostrov +Stephen S. Tang, +Ph.D. +Douglas G. Watson +The primary responsibility of the Compensation Committee is to assist the Board in overseeing all types of compensation for our officers and non-employee Directors. Our +compensation philosophy is to (i) reward executive officers for performance; (ii) align the interests of our executives with the interests of our stockholders; (iii) provide long-term incentives for our executive officers; and (iv) set compensation +at levels sufficient to attract, retain and motivate high quality executives and to motivate them to contribute to our success. Except as prohibited by law, the Compensation Committee is authorized to delegate any of its responsibilities to +subcommittees or individual members, as the Compensation Committee deems appropriate. A further discussion of our process for determining executive officer compensation is set forth in the “Compensation Discussion and Analysis” Section of +this Proxy Statement. The Compensation Committee met nine times and acted by written consent on one occasion during the fiscal year ended December 31, 2013. +Nominating and Corporate Governance Committee +Ronny B. Lancaster, Chairman +Michael Celano +Charles W. Patrick +Roger L. +Pringle +The Nominating and Corporate Governance Committee of the Board identifies, evaluates and recommends to the Board candidates for election or re-election to the Board and +administers our Corporate Governance Guidelines. In evaluating candidates for the Board, the Nominating and Corporate Governance Committee will consider individuals recommended by members of the Nominating and Corporate Governance Committee or the +Board of Directors, officers or employees of the Company, the Company’s security holders and other business contacts. The Nominating and Corporate Governance Committee may also consult with outside advisors or retain search firms to assist in +the search for qualified candidates. Candidates recommended by security holders will be considered by the Nominating and Corporate Governance Committee in the same manner as candidates recommended by other sources, but only if the security holder +makes a recommendation in accordance with the advance notification provisions set forth in the Company’s By-laws. Although there is no formal policy governing Board diversity, the Nominating and Corporate Governance Committee considers +diversity and other factors in evaluating new candidates for the Board. The term diversity is used broadly to include not only race, gender and national origin, but also any other factors determined to be relevant by the Nominating and Corporate +Governance Committee based on the needs of the Board and Company, including independence, integrity, knowledge, judgment, character, leadership skills, education, industry +7 +Table of Contents +experience, financial literacy, technical background, specialized expertise, and standing in the community. In evaluating incumbent Directors for re-election, the Nominating and +Corporate Governance Committee considers that Director’s background, experience and overall service to the Company, including the number of meetings attended, level of participation, quality of performance and other factors deemed relevant by +the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee met four times during the fiscal year ended December 31, 2013. +Use of Compensation Consultants +On an as-needed basis, the Compensation Committee retains independent compensation consultants to provide advice and assist in evaluating +and structuring our executive compensation program and making compensation decisions. A further discussion of the use of compensation consultants in the process for determining executive officer compensation for 2013 is set forth in the +“Compensation Discussion and Analysis” Section of this Proxy Statement. +Nomination of Directors +Our Bylaws provide that nominations for election to the Board may be made by the Board or by any +stockholder entitled to vote for the election of Directors at the Annual Meeting. A stockholder’s notice of nomination must be made in writing to the Company’s Secretary and must be delivered to or received at our principal executive +offices not less than ninety (90) days nor more than one hundred twenty (120) days prior to the meeting. However, in the event that less than one hundred (100) days’ notice or prior public disclosure of the date of the meeting is +given or made to stockholders, notice by the stockholder to be timely must be received no later than the close of business on the tenth (10 th ) day following the day on which such notice of the date of the meeting was mailed or such public disclosure was +made, whichever first occurs. The notice to the Secretary must set forth, with respect to the nominee, the name, age, business address, residence address, principal occupation or employment of the person, the class and number of shares of capital +stock of the Company which are beneficially owned by the person, and any other information relating to the person that is required to be disclosed in solicitations for proxies for election of Directors pursuant to Regulation 14A under the Exchange +Act. The notice must also include, as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination is made: (i) the name and address of the stockholder and such beneficial owner; (ii) the class and +number of shares of capital stock of the Company which are held of record or beneficially owned by such stockholder and such beneficial owner and any other direct or indirect pecuniary or economic interest in any capital stock of the Company of such +stockholder and beneficial owner, including without limitation, any derivative instrument, swap, option, warrant, short interest, hedge, profit sharing arrangement or borrowed or loaned shares; (iii) a description of any arrangements or +understandings between such stockholder and beneficial owner and each proposed nominee and any other person (including their names) pursuant to which the nomination(s) are to be made by such stockholder and such beneficial owner or with respect to +actions to be proposed or taken by such nominee if elected as a Director; (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice; and (v) any other +information relating to such stockholder and such beneficial owner that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of Directors, or may +otherwise be required pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. We may also require any proposed nominee to furnish such other information as we may reasonably require to determine the +eligibility of the proposed nominee to serve as a Director of the Company. +Insider Trading +We have a policy designed to prevent any trading in the Company’s Common Stock or other securities by a person while such person is +in possession of material nonpublic information. This policy applies to Directors, +8 +Table of Contents +executive officers and all other employees of the Company. The policy prohibits trading in the Company’s securities on the basis of material nonpublic information, requires preapproval for +Directors, executive officers and all other employees of the Company of transactions in Company securities and establishes regular trading windows after each calendar quarter following the Company’s announcement of its quarterly financial +results. +Prohibition Against Short Sales, Hedging and Pledging +We believe it is inappropriate for any employee or member of the Board to engage in short-term or speculative transactions involving +Company securities. As a result, our insider trading policy prohibits Directors, executive officers and all other employees of the Company from entering into these types of transactions involving our Common Stock, including short sales, the buying +or selling of puts or calls, the purchase of securities on margin, prepaid variable forward contracts, equity swaps, collars, exchange funds and other similar financial instruments. Our policy also prohibits employees and Directors from pledging +shares of our Common Stock as collateral. +Stock Ownership and Retention Guidelines +The Board has adopted stock ownership and retention guidelines applicable to the Company’s President and Chief Executive Officer, its +Chief Financial Officer and Chief Operating Officer, and all non-employee members of the Board. Under these guidelines, the covered individuals must meet the following ownership requirements, expressed either as a multiple of base salary (in the +case of Company officers) or annual cash fees (in the case of Board members): +Covered Individual +Multiple of Base Salary or Director Fees +President and Chief Executive Officer +2x +Chief Financial Officer and Chief Operating Officer +1x +Non-Employee Directors +1x +Any individual who was covered by the guidelines at the time of adoption was required to be in compliance +on the adoption date. Any individual who becomes subject to the guidelines following adoption is required to meet the guidelines within five years. Any individual already subject to the guidelines who becomes subject to a higher ownership +requirement, either due to a promotion or increase in compensation, is required to meet the new ownership requirement within three years following the effective date of the change in compensation or, if later, the end of the original five-year +period. In determining whether an individual meets the required ownership requirement, shares owned directly or indirectly, restricted shares, and shares deferred under our deferred compensation plan will be counted. Compliance will be determined as +of December 31 of each fiscal year. The guidelines also require each covered individual to retain at least 25% of the net shares acquired upon the exercise of stock options and the vesting of restricted stock until the individual’s +holdings of Common Stock equal or exceed the applicable ownership requirement. As of December 31, 2013, all covered officers and non-employee Directors were in compliance with the stock ownership guidelines. +Report of the Audit Committee +The information contained in this report shall not be deemed to be “soliciting material” or “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to +liability under that Section. This report shall not be deemed “incorporated by reference” into any document filed under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, whether such filing +occurs before or after the date hereof, regardless of any general incorporation language in such filing. +The role of the +Audit Committee is to assist the Board of Directors in fulfilling its responsibilities to oversee management’s conduct of the Company’s financial reporting process, including monitoring (1) the participation of management and the +outside independent registered public accounting firm in the financial reporting process, +9 +Table of Contents +(2) the Company’s systems of internal accounting and financial controls, (3) the annual independent audit of the Company’s financial statements and (4) the +qualifications, independence and performance of the outside independent registered public accounting firm. The Audit Committee selects the Company’s outside independent registered public accounting firm, and once selected, the outside +independent registered public accounting firm reports directly to the Audit Committee. The Audit Committee is responsible for approving both audit and non-audit services to be provided by the outside independent registered public accounting firm. +The Audit Committee is composed of four (4) non-employee directors and operates pursuant to a Charter that was last amended and restated by the Board on February 12, 2013 (which can be found on the Company’s website at +www.orasure.com ). +Management of the Company is responsible for the preparation, presentation and integrity of the +Company’s financial statements, the Company’s accounting and financial reporting principles and internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. The independent +registered public accounting firm is responsible for auditing the Company’s financial statements and expressing an opinion as to their conformity with U.S. generally accepted accounting principles. The Audit Committee’s responsibility is +to monitor and review these processes. It is not the Audit Committee’s duty or responsibility to conduct auditing or accounting reviews. +In the performance of its oversight function, the Audit Committee has considered and discussed the audited financial statements with management, which included a discussion of not only the quality, but +also the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements. The Audit Committee met with the independent registered public accounting firm, with and +without management, to discuss the results of their audit and their judgments regarding the Company’s accounting policies. The Audit Committee has also discussed with the independent registered public accounting firm the matters required to be +discussed under applicable standards, including those in Public Company Accounting Oversight Board Auditing Standard No. 16, as currently in effect. Finally, the Audit Committee has received the written disclosures and the letter from the +independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board as currently in effect, has considered whether the provision of non-audit services by the independent registered +public accounting firm to the Company is compatible with maintaining the firm’s independence and has discussed with the independent registered public accounting firm the firm’s independence. +Based upon the reports and discussions described in this report, and subject to the limitations on the role and responsibilities of the +Audit Committee referred to above and in the Audit Committee’s Charter, the Audit Committee recommended to the Board that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended +December 31, 2013 for filing with the SEC and selected KPMG LLP as the independent registered public accounting firm for fiscal year 2014. The Board is recommending that stockholders ratify that selection at the Annual Meeting. +SUBMITTED BY THE AUDIT COMMITTEE OF THE COMPANY’S BOARD OF DIRECTORS +Michael Celano, Chairman +Charles W. Patrick +Stephen S. Tang, Ph.D. +Douglas G. Watson +March 5, 2014 +10 +Table of Contents +Executive Officers +The table below provides information about the executive officers of the Company as of March 28, 2014. Officers of the Company hold +office at the discretion of the Board. +Name +Age +Position +Douglas A. Michels +57 +President and Chief Executive Officer +Ronald H. Spair +58 +Chief Financial Officer and Chief Operating Officer +Stephen R. Lee, Ph.D. +54 +Former Executive Vice President and Chief Science Officer +Anthony Zezzo II +60 +Executive Vice President, Marketing and Sales +Jack E. Jerrett +55 +Senior Vice President, General Counsel and Secretary +Mark L. Kuna +50 +Senior Vice President, Finance, Controller and Assistant Secretary +Eric Whitters, Ph.D. +53 +Senior Vice President, Research and Development, Regulatory, Quality and Clinical Affairs +Douglas A. Michels has been the Company’s President and Chief Executive Officer since June 2004. +Prior to that, Mr. Michels served as Group Vice President, Global Marketing of Ortho-Clinical Diagnostics, President of Ortho-Clinical Diagnostics International, and President of Johnson & Johnson Healthcare Systems, Inc. Earlier in +his career, Mr. Michels held various sales and marketing positions of increasing responsibility within the Johnson & Johnson family of companies and with the Diagnostics Division of Abbott Laboratories. Mr. Michels received a B.S. +degree in Public Health Administration from the University of Illinois and an M.B.A. from Rutgers University. Mr. Michels also serves on the Presidential Advisory Council on HIV/AIDS (PACHA) and on the board of directors of West Pharmaceutical +Services, Inc. +Ronald H. Spair has been the Company’s Chief Financial Officer and Chief Operating Officer since +September 2006 and served as Executive Vice President and Chief Financial Officer since November 2001. Prior to that time, Mr. Spair served as Chief Financial Officer for various companies in the pharmaceutical industry, including Delsys +Pharmaceutical Corporation, SuperGen, Inc., and Sparta Pharmaceuticals, Inc. Mr. Spair received both his B.S. in Accounting and M.B.A. from Rider College. He is also a licensed Certified Public Accountant, a Chartered Global Management +Accountant, a member of the New Jersey Society of Certified Public Accountants and the American Institute of Certified Public Accountants and a member of the board of Pennsylvania Bio. +Stephen R. Lee, Ph.D. served as the Company’s Executive Vice President and Chief Science Officer from September 2005 until his +retirement on February 28, 2014. Prior to joining the Company, Dr. Lee held senior research and development positions with Ortho-Clinical Diagnostics, a Johnson & Johnson company. Dr. Lee has had responsibility for or direct +involvement in the development of over 40 major diagnostic assays, in such areas as infectious disease, cardiology, oncology and other conditions. While at Ortho, he was awarded the Johnson Medal, Johnson & Johnson’s highest award for +research and development. Dr. Lee received a BSc. in Biochemistry from Sheffield University (U.K.) in 1981 and a Ph.D. degree in Biochemistry from Cardiff University (U.K.) in 1985. +Anthony Zezzo II has been the Company’s Executive Vice President, Marketing and Sales since January 2011. From 2004 to December +2010, Mr. Zezzo was Vice President, North American Sales and Marketing at the Ortho-Clinical Diagnostics Division of Johnson & Johnson. Prior to that time, Mr. Zezzo held a series of increasingly responsible sales and marketing +positions within Johnson & Johnson. Mr. Zezzo received his B.A. in Political Science from Grove City College. +Jack E. Jerrett has been the Company’s Senior Vice President and General Counsel since February 2003 and served as Vice President +and General Counsel since November 2000. He has also served as the Company’s Secretary since February 2001. Prior to joining the Company, Mr. Jerrett worked as an Associate at Morgan, Lewis & Bockius and held positions of +increasing legal responsibilities with companies in the transportation and +11 +Table of Contents +energy industries. Mr. Jerrett received his B.S. in Accounting from Villanova University and his J.D. from the Villanova University School of Law. He is a member of the Pennsylvania Bar and +the American and Pennsylvania Bar Associations. +Mark L. Kuna has been the Company’s Senior Vice President, Finance and +Controller since September 2006, and served as Vice President and Controller since February 2003 and as Controller since February 2001. Mr. Kuna has also served as the Company’s Assistant Secretary since May 2002 and provided accounting +and financial analysis support since joining the Company in October 2000. Prior to that time, Mr. Kuna served as an accountant with Deloitte and Touche and held senior accounting and management positions with companies in the petrochemical, +manufacturing, and telecommunications industries. Mr. Kuna received his B.S. in Accounting from the University of Scranton and is a licensed Certified Public Accountant, a Chartered Global Management Accountant, and a member of the Pennsylvania +and American Institutes of Certified Public Accountants. +Eric Whitters, Ph.D. has been the Company’s Senior Vice +President, Research and Development, Regulatory, Quality and Clinical Affairs since March 2014 and served as Director, Research and Development since November 2012. Prior to that time, Dr. Whitters worked at Novartis Diagnostics, serving as +Vice President, Research & Development and Vice President, Research. Prior to joining Novartis, Dr. Whitters held several product development positions at Siemens Healthcare Diagnostics and Diagnostics Products Corporation. +Dr. Whitters received his B.A. in Biology from St. Olaf College and his Ph.D. and MS in Microbiology from the University of Illinois. He is a member of the American Association of Clinical Chemistry. +Transactions With Related Persons +Since January 1, 2013, there have been no transactions with related persons which would require disclosure in this Proxy Statement. +The Audit Committee is required to review and approve in advance all transactions with related persons involving the Company. The Audit Committee may approve a related party transaction if the transaction is on terms comparable to those that could +be obtained in arms’ length dealings with an unrelated third party. The Audit Committee also reviews any public disclosures of a related party transaction contained in our SEC filings. These responsibilities are described in the Audit +Committee’s charter, a copy of which is available on our website at www.orasure.com . +Information regarding +employment and severance agreements between our executive officers and the Company is set forth in the Section entitled, “Employment Agreements and Potential Payments Upon Termination or Change in Control,” in this Proxy Statement. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Exchange Act requires that our executive officers and Directors and persons who own more than ten percent of +our Common Stock (collectively, “Reporting Persons”) file reports of ownership and changes in ownership with the SEC. Reporting Persons are required by the SEC’s regulations to furnish us with copies of all Section 16(a) forms +they file. +As a matter of practice, our administrative staff assists each of the Reporting Persons who are employees and +Directors of the Company in preparing initial reports of ownership and reports of changes in beneficial ownership and filing such reports with the SEC and the NASDAQ. Based solely on a review of the copies of forms filed by or on behalf of the +Reporting Persons and on written representations (if any) from each of the Reporting Persons, we believe that all Reporting Persons complied on a timely basis with all applicable filing requirements with respect to the 2013 fiscal year. +12 +Table of Contents +Proposal No. 1. Election of Directors +Background +At the Annual +Meeting, you will be asked to vote on the election of three Directors. A majority of the independent members of the Board have nominated Ronny B. Lancaster, Roger L. Pringle and Ronald H. Spair for election as Class II Directors, for terms expiring +at the Annual Meeting of Stockholders in 2017. +Each of the nominees for election as Directors is presently a member of our +Board and has consented to continue to serve if re-elected to the Board. Mr. Lancaster joined the Board in 2003, is currently Chairman of the Nominating and Corporate Governance Committee, and serves as a member of the Compensation Committee. +Mr. Pringle joined the Board in 2000, is Chairman of the Compensation Committee and serves as a member of the Nominating and Corporate Governance Committee. Mr. Spair joined the Board in 2006 and is the Company’s Chief Financial +Officer and Chief Operating Officer. +We do not know of anything that would preclude any nominee from serving. However, should +any nominee for any reason become unable or unwilling to serve as a Director, the persons named in the enclosed Proxy Card will vote the shares represented by each Proxy for such substitute nominee as the Board may approve. +Any vacancy that occurs on the Board that results from an increase in the number of Directors may be filled by the affirmative vote of a +majority of the Directors then in office, and any other vacancy on the Board may be filled by the affirmative vote of a majority of the Directors then in office, even though less than a quorum of the Board, or by a sole remaining Director. +Certain information with respect to each person nominated for election as a Director and each person whose term of office as +a Director will continue after the Annual Meeting, including the particular experience, qualifications, attributes and skills they possess that led to the conclusion that they should serve as a Director, is set forth below. +Name +Principal Occupation +Age +Director +Since +Class I (Directors Whose Terms Expire in 2016): +Gerald M. Ostrov +Former Chairman and CEO of Bausch & Lomb +64 +2011 +Stephen S. Tang, Ph.D. +President and Chief Executive Officer of The University City Science Center +53 +2011 +Douglas G. Watson +Chief Executive Officer of Pittencrieff Glen Associates +69 +2002 +Class II (Nominees for Terms Expiring in 2017): +Ronny B. Lancaster +Senior Vice President for Federal Government Relations of Assurant, Inc. +62 +2003 +Roger L. Pringle +President of The Pringle Company +73 +2000 +Ronald H. Spair +Chief Financial Officer and Chief Operating Officer of the Company +58 +2006 +Class III (Directors Whose Terms Expire in 2015): +Michael Celano +Chief Financial Officer of Drugscan, Inc. +55 +2006 +Douglas A. Michels +President and Chief Executive Officer of the Company +57 +2004 +Charles W. Patrick +Principal, Patrick Consulting +59 +2006 +13 +Table of Contents +Gerald M. Ostrov became a member of the Board in November of 2011. Mr. Ostrov most +recently served as Chairman and CEO of Bausch & Lomb from 2008 through 2010. Prior to this position, Mr. Ostrov spent the majority of his career with Johnson & Johnson where he held the position of Company Group Chairman +responsible for the Worldwide Vision Care businesses for nearly eight years. Earlier in his career, he held executive positions responsible for consumer personal care and pharmaceutical products at Johnson & Johnson and at +Ciba-Geigy. Mr. Ostrov earned a B.S. in Industrial Engineering and Operations Research from Cornell University and an M.B.A. from Harvard University and serves on the board of directors of Oramed Pharmaceuticals Inc. Mr. Ostrov’s +long and distinguished business career and in particular his extensive experience in marketing consumer products, led to the conclusion that he should serve on the Company’s Board. +Stephen S. Tang, Ph.D., became a member of the Board in April 2011. Since January 2008, Dr. Tang has served as President and Chief +Executive Officer of The University City Science Center, an urban research park and business incubator owned by over thirty leading universities, medical schools and health networks in the greater Philadelphia, Pennsylvania area. Prior to that, +Dr. Tang held senior management and business development positions with several firms in the life sciences industry, including Olympus America, Inc., Millennium Cell Inc. and A.T. Kearney Inc. Dr. Tang holds a B.S. degree in Chemistry from +The College of William and Mary, an M.S. degree and Ph.D. in Chemical Engineering from Lehigh University and an MBA from The Wharton School of Business at the University of Pennsylvania. Dr. Tang’s extensive business experience, and in +particular his experience in the life sciences industry and with strategic and business development matters, led to the conclusion that he should serve on the Company’s Board. +Douglas G. Watson became a member of the Board in May 2002 and became Chairman of the Board in March 2003. Since July 1999, +Mr. Watson has been Chief Executive Officer of Pittencrieff Glen Associates, a leadership and management consulting firm, which he founded. Prior to that, Mr. Watson served as President and Chief Executive Officer of Novartis Corporation, +the U.S. subsidiary of Novartis A.G., President and Chief Executive Officer of Ciba-Geigy Corporation, President of the Ciba Pharmaceuticals Division and Senior Vice President of Planning and Business Development of Ciba’s U.S. Pharmaceuticals +Division. Mr. Watson holds an M.A. degree in pure mathematics from Churchill College, Cambridge University, and is a member of the Chartered Institute of Management Accountants. Mr. Watson also serves on the boards of directors of Dendreon +Corporation, Delcath Systems Inc. and Wright Medical Group Inc. and previously served on the boards of directors of BioMimetic Therapeutics, Inc., Engelhard Corporation, Genta Inc., Javelin Pharmaceuticals Inc., Novartis Corporation, InforMedix +Inc., BioElectronics Inc. and Summit Bank Corporation. Mr. Watson’s long business career and executive-level management experience in the pharmaceutical industry, his financial and accounting expertise and his service on the Boards and +Board Committees of other private and public companies led to the conclusion that he should serve on the Company’s Board. +Ronny B. Lancaster became a member of the Board in May 2003. Mr. Lancaster has served as Senior Vice President, Federal Government +Relations of Assurant, Inc., a provider of specialty insurance and insurance-related products and services since September 2005. Prior to that, Mr. Lancaster served as Chief Operating Officer of the Morehouse School of Medicine, Executive +Assistant to the Secretary and Principal Deputy Assistant Secretary for Planning and Evaluation at the U.S. Department of Health and Human Services, General Counsel of Hamilton Enterprises, Inc., Senior Washington Representative for Blue Cross/Blue +Shield Association, and Chief of the Division of Fee-For-Service Plans at the U.S. Office of Personnel Management. Mr. Lancaster received his B.A. in Economics from the Catholic University of America, his M.B.A. from the Wharton School of the +University of Pennsylvania, and his J.D. degree from The Georgetown University Law Center. He is admitted to the Bars of Pennsylvania and the District of Columbia. Mr. Lancaster previously served on the board of directors of Immucor, Inc. +Mr. Lancaster’s expertise in government affairs and political matters, his extensive medical and healthcare experience and his legal training led to the conclusion that he should serve on the Company’s Board. +Roger L. Pringle has served on the Board since September 2000, when the Company was formed by the merger of Epitope, Inc. +(“Epitope”) and STC Technologies, Inc. Prior to that, Mr. Pringle served as Chairman of +14 +Table of Contents +the Board and a member of the Board of Directors of Epitope, and was a director of Agritope, Inc., a plant genetics subsidiary of Epitope. Mr. Pringle is the President of The Pringle +Company, a strategy and executive consulting firm in Portland, Oregon, which was founded in 1976. Mr. Pringle currently serves on the board of directors of Prolifiq Software, Inc. and previously served on the boards of directors of Bank of +the Northwest, Metro One Telecommunications Inc. and North Pacific Group. Mr. Pringle received a B.S. in Business from Oregon State University and an MBA from the University of Oregon. Mr. Pringle’s long service as a member of the +Board of Epitope, his professional expertise in executive selection, assessment and compensation, as well as his entrepreneurial and business leadership skills and his service on the Boards of other private and public companies led to the conclusion +that he should serve on the Company’s Board. +For biographical information on Mr. Spair, see the Section entitled, +“Executive Officers,” in this Proxy Statement. Mr. Spair’s service as Chief Financial Officer and Chief Operating Officer of the Company, his financial and accounting expertise and his extensive business and investor relations +experience led to the conclusion that he should serve on the Company’s Board. +Michael Celano became a member of the +Board in October 2006. Mr. Celano has served as Chief Financial Officer of DrugScan, Inc., a clinical laboratory services company, since January 2013. Prior to that, Mr. Celano served as Chief Financial Officer of Kensey Nash Corporation, +a biomaterials company from March 2009 until June 2012, and as a consultant to Royal DSM, the acquiror of Kensey Nash Corporation, from July 2012 through December 2012. From August 2007 to December 2008, Mr. Celano served as Managing Director +of Aon Risk Services and prior to that, he served as Vice President, Finance and Chief Financial Officer for BioRexis Pharmaceutical Corporation, a biopharmaceutical company. Before joining BioRexis, Mr. Celano served as a partner with KPMG +LLP, in charge of its Mid-Atlantic Life Sciences Practice, and was co-leader of its National Life Science Practice. Mr. Celano also was co-leader of the Life Science Practice for Arthur Andersen before he joined KPMG. Mr. Celano holds a +B.S. degree in Accounting from St. Joseph’s University. Mr. Celano’s accounting and financial expertise, and specifically his long career in public accounting focused in the life sciences area, and his extensive business experience +led to the conclusion that he should serve on the Company’s Board. +For biographical information on Mr. Michels, see +the Section entitled, “Executive Officers,” in this Proxy Statement. Mr. Michels’ service as President and Chief Executive Officer of the Company, his extensive business and executive-level management experience in the medical +diagnostics field and his sales and marketing expertise led to the conclusion that he should serve on the Company’s Board. +Charles W. Patrick became a member of the Board in January 2006. Since 2000, Mr. Patrick has served as Principal of Patrick +Consulting, a management consulting firm that helps diagnostic and technology companies develop sales, marketing and distribution strategies. From 2001 through 2011, Mr. Patrick also served as the President and Co-owner of ADS Golf, Inc., a +golf equipment supplier. Prior to that time, he served as the President and Chief Executive Officer of CallNexus, Inc., a provider of virtual call center services, and Vice President of Sales and Marketing for Biosite Diagnostics, a medical +diagnostics company, where he had primary responsibility for developing and achieving Biosite’s strategic sales, marketing and distribution objectives. Prior to his time at Biosite, Mr. Patrick served as World Wide Group Marketing Manager +and held several other sales and marketing positions for the Diagnostics Division of Abbott Laboratories. Mr. Patrick received a B.A. in Communications/Journalism from the University of Central Florida. Mr. Patrick also serves on the board +of directors of diaDexus, Inc. and Seamless Medical Systems. Mr. Patrick’s extensive sales and marketing background, his 35 years of experience in the medical diagnostics industry and his entrepreneurial skills led to the conclusion that +he should serve on the Company’s Board. +Vote Required; Board Recommendation +If a quorum is present, each nominee will be elected if he receives a plurality of the votes cast by shares present in person or by Proxy +and entitled to vote at the Annual Meeting. Abstentions and broker non-votes will +15 +Table of Contents +have no effect on the required vote. In the absence of instructions to the contrary, shares of Common Stock represented by properly executed Proxies will be voted for the nominees, each of whom +has consented to be named and to serve if elected. +Your Board recommends that you vote FOR the election of the Director +nominees. +Proposal No. 2. Ratification of Appointment of Independent Registered Public +Accounting Firm +Background +The Audit Committee of the Board of Directors has approved the reappointment of KPMG LLP (“KPMG”) as our independent registered public accounting firm for the 2014 fiscal year. The Audit +Committee has also recommended that the Board submit the appointment of KPMG for ratification by stockholders at the Annual Meeting. Although action by the stockholders on this matter is not legally required, the Audit Committee and the Board +believe it is appropriate to seek stockholder ratification of this appointment in light of the important role played by the independent registered public accounting firm in reporting on the Company’s consolidated financial statements. If this +appointment is not ratified by stockholders, the Audit Committee may reconsider its appointment for the 2014 fiscal year or in the future. +One or more representatives of KPMG are expected to be at the Annual Meeting. They will have an opportunity to make a statement and will be available to respond to appropriate questions. +Vote Required; Board Recommendation +Ratification of the appointment of KPMG requires the affirmative vote of a majority of shares present in person or by Proxy and entitled to vote at the Annual Meeting. Shares voted in person or +represented by Proxy which are not voted for this ratification (by voting no or abstaining) will have the effect of voting against this proposal. In the absence of instructions to the contrary, shares of Common Stock represented by properly executed +Proxies will be voted for ratification of the appointment of KPMG as our independent registered public accounting firm for the 2014 fiscal year. +Your Board recommends that the stockholders vote FOR ratification of the appointment of KPMG. +Audit Fees; Audit-Related Fees; Tax Fees; All Other Fees. +The following table presents fees for professional audit services rendered by KPMG (i) for the audits of our annual consolidated financial statements and review of the financial statements in our +Quarterly Report on Form 10-Q for the fiscal years ended December 31, 2013 and 2012, and (ii) for the audits of our internal control over financial reporting as of December 31, 2013 and 2012. The following table also includes +fees billed for other services rendered by KPMG: +2013 +2012 +Audit fees 1 +$ +660,000 +$ +775,000 +Audit-related fees 2 +— +128,400 +Tax fees 3 +160,310 +119,984 +All other fees +— +— +Total fees +$ +820,310 +$ +1,023,384 +(1) +Includes fees related to the audits of our annual financial statements, interim reviews of our quarterly financial statements and audits of our internal control over +financial reporting for each indicated year. Also included are professional services in connection with the review of a registration statement on Form S-3 and two amendments to that registration statement and the issuance of related consents in the +2012 fiscal year. +16 +Table of Contents +(2) +During 2011, we engaged KPMG to provide tax due diligence and planning and financial due diligence services in connection with the acquisition of DNA Genotek. A portion +of the fees for these services was paid in 2012. +(3) +During the fiscal years ended December 31, 2013 and 2012, we engaged KPMG to provide tax compliance and tax planning services. +The Audit Committee has adopted a general practice of pre-approving all audit and non-audit services provided to the Company by our +independent registered public accounting firm. The Chairman of the Audit Committee has been delegated the authority to pre-approve audit and non-audit services having an aggregate value of up to $25,000 between meetings of the Audit Committee, +provided that such pre-approval is communicated to the Audit Committee at its next scheduled meeting. All services by KPMG in 2013 and 2012 were approved in accordance with these practices. +Executive Compensation +Compensation Discussion and Analysis +Executive Summary +Overview +This CD&A describes the material elements of the compensation of our NEOs and describes the objectives and principals underlying the Company’s executive compensation program, the compensation +decisions we have recently made under this program and the factors we considered in making these decisions. +Our NEOs for 2013 +who are covered in this CD&A include: +Name +Position +Douglas A. Michels +President and Chief Executive Officer +Ronald H. Spair +Chief Financial Officer and Chief Operating Officer +Stephen R. Lee, Ph.D. +Former Executive Vice President and Chief Science Officer +Anthony Zezzo, II +Executive Vice President, Marketing and Sales +Jack E. Jerrett +Senior Vice President, General Counsel and Secretary +17 +Table of Contents +Business Highlights in 2013 +Our financial performance for 2013 met or exceeded our operating plan for the year and represented a substantial improvement over 2012. The following charts and summary describe our consolidated financial +performance and several of the principal contributors to the growth we achieved. +· +Our consolidated net revenues for 2013 grew $11.1 million, or by 13%, over 2012. This was a record high for our Company. +· +The growth in revenues, along with a reduction in our operating expenses, lowered our consolidated net loss for the year by $3.9 or 26% compared to +2012. +· +We generated $8.4 million in cash from our operations during 2013, representing an improvement of $13.7 million from 2012. +· +Our aggregate cash and cash equivalent balances at the end of 2013 grew by $5.3 million to a total of $93.2 million, compared to the 2012 year-end +balance. +The success we achieved in 2013 was a direct result of the strong performance of our newest +business lines and other actions taken by management. We believe these developments, which are summarized below, lay the foundation for continued growth and increased long-term value for our stockholders: +· +Our molecular collections systems business, which we acquired in 2011, generated revenues of $20.4 million during 2013, an increase of 43% over 2012. +This growing segment represented 21% of our +18 +Table of Contents +aggregate net consolidated revenues for the year. The primary reason for this growth was higher sales to commercial customers. We believe this business segment will continue to deliver strong +growth in future years. +· +Our OraQuick ® +HCV test generated $5.1 million in revenues for 2013, a 32% increase over 2012. We believe this part of the business is gaining momentum as a result of the increased awareness and demand our sales team is building for HCV testing and because of the +new, more effective HCV pharmaceutical treatments that are now coming to market. This increased momentum has also allowed us to advance discussions with potential collaborators for this product which, if successful, could contribute substantially to +the long-term future growth of our Company. +· +Net revenues from our +OraQuick ® In-Home HIV test reached $9.1 million for 2013, or 9% of our net consolidated revenues. We invested +heavily in the promotion and advertising of this new product during 2013 and made substantial progress in developing awareness and demand in the domestic OTC market, refining our messaging for target consumers and building strong relationships with +the retail trade. +· +We successfully exited our collaboration with Roche Diagnostics for the development of high-throughput fully-automated oral fluid drug assays to be +used with our Intercept ® collection device. We took this action because the collaboration was not meeting our +expectations and, in so doing, we secured an initial payment of $8.3 million, a transitional supply of the assays developed in this collaboration, and the potential receipt of $5.5 million later in 2014 when the transitional supply is terminated. +Simultaneous with this termination we entered into a new collaboration with Thermo Fisher for the development of up to twelve high-throughput oral fluid drug assays, which we intend to use in place of the Roche assays with a new version of our +Intercept ® collection device. The transition from Roche Diagnostics and the new collaboration with Thermo Fisher +is expected to help stabilize our substance abuse testing business and position it for potential future long-term growth. +· +Despite increased competition and ongoing funding limitations, revenues from our core professional HIV business met our operating plan for 2013. +Contributing to these results was strong growth in the physicians’ office and international markets. Despite its challenges, we expect our professional HIV business to continue as a strong contributor in the future. +· +Our cryosurgical business finished above our operating plan for 2013, primarily because of higher than expected sales in the OTC markets. During 2013, +we also successfully negotiated new agreements with our OTC distributors in Europe and Latin America along with new distribution agreements in the U.S. for our professional cryosurgical product. These new agreements set the stage for continued +future growth from our cryosurgical business. +Named Executive Officer Compensation At a Glance – 2013 +Compensation for the NEOs in 2013 was directly or indirectly tied to the performance of both the executives and the +Company, resulting in the following actions: +· +Base Salary : The base salaries for our management during 2013 increased 2.3% on average, with Mr. Michels +receiving a 2.5% increase for the year. These adjustments were based on the performance of each executive and the Company during 2012 and the results of a competitive marketplace assessment performed by PM&P. The primary performance factors from +2012 supporting this level of increase for Mr. Michels and the other NEOs included the receipt of FDA approval and commercial launch of the OraQuick ® In-Home HIV test (a first of its kind product for consumers), the addition of $14.3 million in net revenues from our molecular collection systems subsidiary, DNA +Genotek, during its first full year following our acquisition in 2011, and a 147% increase in revenues for our +OraQuick ® HCV test. +· +Annual Incentive Bonuses : Incentive cash bonus awards for 2013 ranged from 106% to 132% of target for the NEOs and +for Mr. Michels specifically was 119% of his target. The bonus amounts +19 +Table of Contents +exceeded the applicable targets for each executive primarily due to the strong financial performance and the improved strategic positioning for the Company accomplished during 2013, as described +under the “Business Highlights” section above. +· +Long-Term Incentive Awards : Equity incentive awards to NEOs during 2013 reflected each executive’s +performance during 2012 and ranged from 80% to 200% of the executive’s base salary. The value of Mr. Michels’ award was 200% of his salary. Mr. Michels’ award fell toward the upper end of the range for his position because +of the significant positive accomplishments during 2012, as described under the “Base Salary” section, above. +Pay for Performance +We +follow a pay-for-performance approach in compensating executives. Our program pays executives for performance by rewarding the achievement of predetermined financial and other performance objectives. A significant portion of each NEO’s +compensation is paid out in variable and long-term compensation that is intended to align with the long-term interests of our stockholders. Both our annual and long-term compensation are also tied to the Company’s overall performance. +Realizable Pay vs. TSR +To ensure that we are adhering to a pay-for-performance approach, we evaluated the degree of alignment between total realizable pay versus total shareholder return (“TSR”) over the prior three +fiscal years relative to our new peer group, which, as described below, we considered in response to feedback related to the 2013 SOP vote. The graph below shows the comparison of three-year TSR and “realizable pay” relative to our peer +group. We provide further detail regarding the companies in our new peer group in the “Benchmarking” section of this CD&A. +As the graph indicates, our performance (as represented by three-year TSR results) has been below median over the measurement period. As a result of the strong link between pay and performance embedded in +our incentive plans, the realizable pay for our CEO, Mr. Michels, was also below median relative to the peer group. We use the three-year period ended December 31, 2013 to maximize the extent to which historical compensation and +performance information from other peer companies with varying fiscal year ends is available for comparison purposes. +20 +Table of Contents +1 +Realizable pay includes base salary, incentive cash bonus and all other cash compensation reported in the Summary Compensation Table. Realizable pay also includes the +value of equity awards using each company’s closing stock price on December 31, 2013. Restricted share awards are valued by multiplying the number of shares by the closing stock price on December 31, 2013. Option awards are valued as +the difference between the closing stock price on December 31, 2013 and the exercise price multiplied by the number of option shares granted during the period. An option award with an exercise price greater than the closing stock price on +December 31, 2013 is valued as $0. +Pay vs. Other Company Measures of Performance +While TSR is a common and important measure of performance that is often used to evaluate a company’s +compensation practices, at our stage of development, we consider other performance measures to be equally important to the success of our business. Thus, our executive compensation does not follow a straight linear relationship with TSR. Rather, we +have tried to align our executive compensation with performance results that are part of our overall business strategy that we believe eventually will drive stock price improvement and increased value for our stockholders. For example, during the +past three years, our achievements have included the development, FDA approval and commercialization of the first and only rapid HCV test in the U.S. More recently, we developed an OTC version of our OraQuick ® HIV test, obtained FDA approval and brought this product to market. This is now the first and only rapid infectious +disease test available to consumers. We also successfully completed the acquisition of DNA Genotek in late 2011, providing us with an entrance into the high growth molecular diagnostics field. This acquisition is now contributing double digit growth +to our business and accounted for 21% of our 2013 consolidated net revenues. Finally, and more recently, we delivered a strong 2013 as described above, in which we generated a record level of revenues. +When evaluating our executive compensation, we believe TSR alone will not always appropriately account for the strategic significance of +these accomplishments and may often be affected by market or other factors unrelated to our business. In many cases it may take time for the impact of our business accomplishments to be fully reflected in the value of our stock. For these reasons, +TSR is only one of several factors we consider in making compensation decisions for our executives. +Say on Pay Results in 2013 and Company +Response +At our 2013 Annual Meeting, stockholders were asked to vote on an advisory (non-binding) basis on the +compensation paid to our NEOs for 2012. However, we failed to obtain stockholder approval of our NEO compensation by a small margin, with approximately 53% of stockholder votes cast against our “say-on-pay” resolution. We take the outcome +of this vote seriously and, as a result, we instituted an outreach effort to contact our major stockholders in order to obtain their views on the reasons for the vote and on other aspects of our compensation practices. We also met with both ISS +Proxy Advisory Services (“ISS”) and Glass Lewis & Co. (“Glass Lewis”), two leading proxy advisory firms, in order to solicit their views on these issues. Several of our independent Directors participated in this +outreach, including the Chairman of our Compensation Committee and the Chairman of our Board. Overall, we contacted stockholders who held approximately 42% of our outstanding Common Stock entitled to participate in the 2013 SOP vote and received +feedback from all of those stockholders. +As a general matter, our stockholders: +· +Appreciated our focus on stockholder engagement regarding compensation; +· +Generally supported our compensation policies and practices and had no desire to micro-manage this aspect of our business; +· +Emphasized the importance of increasing the market value of our Common Stock; +· +Indicated that disclosure on realizable pay may be a helpful addition to our CD&A; +21 +Table of Contents +· +Supported the use of equity awards that vested upon achievement of objective performance metrics, but clearly recognized that: +· +TSR did not need to be a specific performance metric embedded in equity compensation and that other metrics, such as revenues or operating performance, +could be used; and +· +Using TSR as a vesting metric may not be appropriate for the Company because of the volatility of its stock and the need to heavily invest in product +and clinical development. +Based on the outcome of these discussions and input we received from ISS and +Glass Lewis, we took the following steps: +· +The Board considered whether equity awards that vest upon the achievement of performance criteria rather than the passage of time should be +incorporated into our compensation program. The Board strongly believes its current practice of using stock options for 60% of executive equity awards is equally effective to awarding restricted stock with vesting tied to increased TSR since in both +cases the recipient of the award will receive no actual value unless our stock price increases after the grant date. Moreover, the Board was very concerned that the use of performance metrics might result in improper or unintended incentives for our +executives. For example, a metric such as revenue growth or improved profitability might be a disincentive for management to invest in product development or complete an acquisition or divestiture that adversely affects our financial performance for +the next year or two but is nevertheless beneficial to the Company over the long term. It was also noted, based on PM&P’s research at the time it was performed, that only about one-third of the new peer group had adopted performance-based +vesting of equity awards. For these reasons, the Board determined not to adopt performance vesting at this time, but concluded that it would remain open to considering equity awards with performance vesting in the future as the Company’s +business continues to grow and mature. +· +We reevaluated the peer group of companies used to benchmark our executive compensation. As part of this evaluation we considered the peer groups used +by both ISS and Glass Lewis along with the peer group last used by the Compensation Committee in 2012 and which is disclosed in our 2013 Proxy Statement. In the end, we selected 23 companies in the diagnostics, healthcare and biotech industries that +are closer in size to the Company when compared to the companies in our old peer group, as measured by revenues and market value. We believe this change adds a measure of conservatism to our benchmarking since we often recruit executives from much +larger pharmaceutical and diagnostics companies in order to ensure we obtain the most qualified and experienced individuals available. +· +Our Compensation Committee engaged its independent consultant, PM&P, to prepare an updated competitive benchmarking assessment of our executive +compensation, using data from the new peer group. This assessment was completed in November 2013. PM&P concluded that the change in peer group did not materially impact the benchmarking results. PM&P also advised our Compensation Committee +that no material changes to our compensation program were needed as a result of the new assessment. +We +believe our stockholder engagement was beneficial and the Board intends to continue ongoing dialogue with our stockholders with a view to improving our compensation program going forward. +Good Compensation Governance and Practices +We are committed to maintaining +good governance and pay practices. The following are some other aspects of our compensation program that reflect this commitment: +· +No 280G Excise Tax Gross-Ups or Modified Single-Triggers Going Forward : We have adopted a policy that any new employment +agreement with an executive will not provide for the gross-up of excise tax obligations under Section 280G of the Internal Revenue Code or a “modified single trigger” +22 +Table of Contents +under which the executive can voluntarily leave the Company after a change of control and receive severance even though there has been no adverse impact on the executive’s compensation or +level of responsibilities. +· +Diversified Portfolio : Our executive compensation consists of a mix of cash/equity, fixed/variable and +short-term/long-term compensation. Equity awards consist of a mix of restricted stock (40%) and stock options (60%). +· +Long-Term Focus : Equity awards are subject to long-term vesting requirements, with restricted shares vesting over 3 years +and stock options vesting over a minimum of 4 years. Structuring our equity awards in this manner helps align the interests of our executives with the interests of our stockholders. +· +Prudent Benchmarking : The total compensation paid to executives is targeted at the 50 th percentile of a peer group of comparable companies with an +opportunity to earn up to the 75 th percentile based on +achievement of performance objectives. In response to recent feedback from our stockholders, we have modified our peer group as described elsewhere in this CD&A to consist of companies in the medical diagnostic, healthcare and biotech industries +more comparable in size to the Company based on total revenues and market value. +· +Independent Compensation Consultants : The Board and Compensation Committee regularly utilize independent compensation +consultants to provide compensation advice, including competitive assessments of our program compared to compensation paid to executives at a peer group of comparable medical diagnostic and healthcare companies. +· +Recoupment Policy : Our Board recently adopted a compensation recoupment or “clawback” policy, under which the +Board or Compensation Committee may recover excess compensation paid to our executives if our financial statements are restated due to misconduct by that executive. +· +Stock Ownership Guidelines : Messrs. Michels and Spair, and each non-employee member of the Board, are subject to stock +ownership guidelines, measured as a multiple of annual base salary or cash fees, as applicable. In addition, each of these individuals is required to retain 25% of the shares received upon the vesting of restricted shares or the exercise of stock +options until that individual complies with the applicable ownership multiple. +· +No Repricing : Our Stock Award Plan prohibits both the repricing and repurchase of under-water stock options or other +equity awards without stockholder approval. +· +No Perquisites : We do not provide executives with any perquisites that are not offered to all employees of the Company. +· +Risk Review Process : We regularly assess the risks associated with our compensation programs. +· +Anti-Hedging and Pledging Policy : Employees and non-employee Directors are prohibited from engaging in hedging activities +to offset fluctuations in their stock holdings or pledging their shares as collateral. +Compensation Philosophy +The primary objectives of our compensation program for executive officers are to: +· +align the interests of the executive officers with the interests of our stockholders; +· +reward executive officers for the performance of the Company and achievement of individual performance objectives; +· +provide long-term incentives for the executive officers; and +23 +Table of Contents +· +set compensation at sufficiently competitive levels to attract and retain high quality executives and to motivate them to contribute to our success. +The total direct compensation provided to each executive consists of an annual base salary, incentive cash +bonus and incentive equity awards. The amount of the incentive cash bonus and the size of annual incentive equity awards are variable and depend on an executive’s and the Company’s achievement of predetermined financial and other +objectives. As a result, a substantial portion of each executive’s annual compensation is based on performance. +The Compensation Committee seeks to set total direct compensation levels for each executive near the fiftieth (50 th ) percentile of amounts paid by comparable medical diagnostic and healthcare companies (defined by industry, +revenues, market capitalization or a combination of these factors) for performance consistent with the Company’s target financial and other business plans for the applicable year. Use of the fiftieth (50 th ) percentile is intended as a market check and not as an +absolute target. As a result, the total direct compensation and the value of specific compensation components for individual executives may fall below or exceed the fiftieth (50 th ) percentile depending on individual performance and contribution by the executive. +Compensation Setting and Process +Compensation for executives is established by the Compensation Committee in accordance with our compensation philosophy. In setting +executive compensation, the Compensation Committee considers the Company’s and each executive’s performance against previously established objectives, internal pay equity, the compensation practices of the Company’s peer group, the +Company’s industry position and general industry data. The Compensation Committee periodically retains independent compensation consultants to review our executive compensation practices and to assist in establishing competitive compensation +levels for our executives, as discussed below. +Annual Performance Evaluations +On an annual basis, the Committee and other non-employee Directors evaluate the performance of the CEO and more recently the CFO/COO +against predetermined performance objectives. The CEO also evaluates the performance of the other NEOs against their respective predetermined performance objectives. Annual performance objectives for the NEOs are established at the beginning of the +applicable year and generally include two parts: the Company’s overall target financial/strategic performance objectives and individual objectives in the functional areas for which the executive is responsible. For each NEO, these objectives +are then weighted to reflect their relative importance to the Company and the executive’s functional responsibilities. +Depending on the Company’s overall performance and the extent to which an executive achieves his individual objectives for a +particular year, the executive will be rated as “Does Not Meet,” “Meets Expectations,” “Exceeds Expectations” or “Outstanding.” As described later in this CD&A, the Compensation Committee has used the +performance ratings to determine base salary adjustments, incentive cash bonuses and incentive equity awards. However, beginning with performance during the 2013 fiscal year, the Compensation Committee decided to take a different approach for +Messrs. Michels and Spair. The Compensation Committee has decided that, because of their senior positions with the Company, it is more appropriate to determine the base salary, incentive cash bonuses and long-term incentive equity awards for Messrs. +Michels and Spair based on the Company’s overall performance and, in doing so, has ceased to apply these performance rating labels to them. +Role of the Compensation Committee +The Compensation Committee is comprised +of non-employee independent Directors who oversee our executive compensation program. Each year, the Compensation Committee determines the appropriate level of +24 +Table of Contents +compensation for all executive officers, including the NEOs. As an initial guideline, the Committee sets the total direct compensation opportunity (base salary, annual incentive target, and +long-term incentive target) for each of our executive officers within a range around the 50th percentile of comparable medical diagnostics and healthcare companies. The variation of actual pay relative to the market data is dependent on the +executive officer’s performance, experience, knowledge, skills, level of responsibility, potential to impact our performance and future success, and the need to retain and motivate strategic talent. +The Compensation Committee will generally determine an executive officer’s compensation based upon a desire to link compensation to +the objectives of our executive compensation program. The Compensation Committee makes the compensation decisions for the CEO and the other NEOs after careful review and analysis of appropriate performance information and market compensation data. +The compensation for the CEO is also approved by the full Board. +Beyond determining specific compensation for NEOs, the +Compensation Committee works with executive management to review and adjust compensation policies and practices to remain consistent with the Company’s values and philosophy, support the recruitment and retention of executive talent, and help +the Company achieve its business objectives. +Role of the CEO +The CEO provides recommendations to the Compensation Committee on the total direct compensation for each executive. The CEO’s recommendations are based on his review of each executive’s +performance, job responsibilities, importance to our overall business strategy, and our compensation philosophy. Although the CEO’s recommendations are given significant weight, the Committee retains full discretion when determining +compensation. +Role of the Compensation Consultant +To assist in the review and approval of executive compensation and to inform the Committee of market trends, the Committee engages the services of PM&P as an independent executive compensation +consultant, to analyze our executive compensation structure and plan designs, and to assess whether the compensation program is competitive and supports the Committee’s goal to align the interests of our executive officers with those of our +stockholders. PM&P also directly provides the Compensation Committee with the peer group and other market data that we discuss in this CD&A, which the Compensation Committee evaluates when determining compensation for executive officers. +During 2013, the Compensation Committee specifically engaged PM&P to assist the Compensation Committee in updating its peer group of companies for benchmarking purposes, to provide an updated competitive assessment of executive compensation and +to assist in developing an appropriate response to the 2013 SOP vote and results from our stockholder outreach efforts. +The +Compensation Committee has the sole authority to approve the independent compensation consultant’s fees and terms of the engagement. Thus, the Compensation Committee annually reviews its relationship with PM&P to ensure executive +compensation consulting independence. The process includes a review of the services PM&P provides, the quality of those services, and fees associated with the services during the fiscal year as well as consideration of the factors impacting +independence that NASDAQ rules require. The Compensation Committee concluded that there were no conflicts of interest that prevented PM&P from serving as an independent consultant to the Compensation Committee on executive compensation matters. +Tally Sheets +In determining annual compensation, the Compensation Committee reviews tally sheets for each executive. Tally sheets set forth the dollar +amounts of all components of each NEO’s current compensation, including salary, incentive cash bonus, incentive equity awards, potential change of control payments and other benefits +25 +Table of Contents +deemed relevant by the Compensation Committee. These tally sheets allow the Compensation Committee to review how a change in the amount of each compensation component affects each +executive’s total compensation and to consider each executive’s compensation in the aggregate. Included in each tally sheet is the estimated amount of severance and other benefits payable to the executive under various termination +scenarios. Based upon the review of tally sheets, the Compensation Committee establishes aggregate compensation for our executives which it believes to be reasonable. +Benchmarking +During 2013, in response to the Company’s failure to +obtain majority support of the SOP vote, the Compensation Committee engaged PM&P to assist the Compensation Committee in updating its peer group of companies for benchmarking purposes. In determining a new peer group, the Company, with +PM&P’s assistance, evaluated the peer group used in 2012, the peer groups used by the proxy advisory firms, ISS and Glass Lewis, and other companies in the medical device, life sciences and biotech industries with revenues and market values +comparable to those of the Company. As a result of this review, we selected a new peer group that is closer in size to the Company, based on total revenues and market value, than the peer group previously used by the Compensation Committee. In so +doing, we retained five companies from our old peer group, excluded two companies from the old peer group because they were acquired, and excluded five companies because they either had revenues greater than 3x the Company’s revenues or a +market value greater than 5x the Company’s market value. In addition, the new peer group includes thirteen companies that were previously included in the ISS peer group and four companies that were previously in the Glass Lewis peer group for +the Company. +The following describes both the new 2013 peer group and the peer group used by the Compensation Committee in +2012: +2013 Peer Companies +2012 Peer Companies +Abaxis, Inc.* +Abaxis, Inc. +Abiomed, Inc. +Affymetrix, Inc. +Anika Therapeutics, Inc. +Cepheid, Inc. +Array Biopharma, Inc. +Conceptus Inc. +Astex Pharmaceuticals, Inc. +Genomic Health, Inc. +Atrion Corp. +IRIS International Inc. +Cardiovascular Systems, Inc. +Luminex Corp. +Cerus Corp. +Meridian Bioscience, Inc. +Cynosure, Inc. +Natus Medical Incorporated +Dyax Corp. +Neogen Corporation +Enzo Biochem, Inc. +Quidel Corporation +Fluidigm Corp. +Teche Corporation +Genomic Health, Inc.* +Harvard Bioscience, Inc. +Luminex Corp.* +Meridian Bioscience, Inc.* +Neogenomics, Inc. +Quidel Corp.* +Rockwell Medical, Inc. +Sequenom, Inc. +Spectranetics Corp. +Staar Surgical Co. +Vascular Solutions, Inc. +* +The five indicated companies were also included in the 2012 peer group. +26 +Table of Contents +In preparing its competitive assessment of executive compensation, PM&P compared the +compensation of our NEOs with a 50/50 blend of proxy data from the new peer group of companies and data for each NEO position from the 2013 Radford Global Life Sciences Survey. Since compensation market data can be volatile from year to year, the +Committee believes a blend of specific peer group proxy data and broader survey data better reflect market trends. PM&P also compared the mix of executive compensation and the relative compensation levels of the NEOs with data from the peer +group. Based on this analysis, PM&P reached the following conclusions: +· +On average, salaries, total cash compensation (salaries plus incentive cash bonuses) and target total direct compensation (total cash compensation and +incentive equity awards) for our executives are competitive with the market median; +· +The long-term incentive equity targets are competitive with the median; +· +Mr. Michels’ base salary and target total direct compensation are competitive with the market median; +· +The mix of cash and long-term incentive compensation for our executives is generally competitive with the market median; +· +No major changes to the target compensation for our executives were recommended by PM&P based on their assessment. +Pay Mix +We follow a +pay-for-performance approach to executive compensation, with a significant portion of our executives’ compensation consisting of annual incentive cash bonuses and long-term incentive equity awards that are based on the executives’ and the +Company’s achievement of predetermined performance objectives. Our program is also designed to align the interests of executives with those of our stockholders, provide long-term incentives and set compensation at levels sufficiently +competitive to attract and retain high quality executives and motivate them to contribute to our success, and incorporate sound corporate governance principles. +The following illustrates the relative proportion of 2013 base salary and performance-based compensation for Messrs. Michels and the other NEOs, respectively: +As indicated above, approximately 73% of Mr. Michels’ aggregate compensation and 59% of the +other NEOs’ aggregate compensation for 2013 consisted of variable compensation. +27 +Table of Contents +2013 Executive Compensation Components +Overview +Our compensation program +consists of the following components: +Compensation +Form of +Compensation +Purpose +Base Salary +Cash Compensation +Base salaries provide fixed compensation necessary to attract and retain key executives. Salary levels are established for each position based on competitive market data, with +annual adjustments tied to performance and market changes as appropriate. +Annual Incentive Bonus Awards +Annual Incentive Bonus Awards provide performance-based incentives to our executives to achieve both Company-wide financial and strategic goals and the executives’ individual +performance objectives. Targets for individual bonuses are set at levels consistent with those offered in the marketplace. +Long-Term Incentive Awards +Stock Options and Restricted Stock +The largest component of our executive compensation is paid in equity. Awards consist of 60% stock options and 40% restricted shares and strongly incentivize our executives to +perform at their highest levels to achieve our long-term strategic business plans and increase our share price, thereby aligning the interests of our executives with those of our stockholders. +Benefits +401(k) Plan +Health and Welfare Benefits +Retirement and health and welfare benefits provide a complete compensation package that is competitive with the market and addresses the needs of all employees and their families, +including our executives. +Employment Agreements +Cash severance and accelerated equity vesting +Severance and accelerated equity vesting, both in connection with a termination of employment and upon the occurrence of a change in control, are provided to our executive officers +in order to ensure they are not distracted by the possibility of a change of control and to encourage continued dedication to the Company. +Compensation Components in Detail +2013 Base Salaries +The Compensation Committee believes that competitive +salaries must be paid in order to provide fixed compensation necessary to attract and retain key executives. Each year, the Compensation Committee evaluates and determines the annual base salaries for the NEOs. The Compensation Committee considers +the annual performance evaluation of the CEO prepared by non-employee members of the Board and the annual performance evaluations prepared by the CEO for all other NEOs. The Committee also considers the Company’s budget for expected salary +adjustments, salary levels paid at peer group companies and any recommendations that may be made by any compensation consultant engaged to assist the Compensation Committee. An +28 +Table of Contents +executive’s annual salary adjustment will tend to be at the higher end of the range budgeted by the Company if the executive receives a performance rating of “Meets Expectations” +or better and such executive’s pre-adjustment salary level is below the 50 th percentile for his or her position at peer group companies. +Annual base +salaries paid in 2013 to our NEOs were established by the Compensation Committee at the beginning of 2013 based on a review of the Company’s performance during 2012, an evaluation of the individual contributions of each officer compared to +pre-established performance objectives for 2012 and a review of the competitive data and recommendations provided by the Compensation Committee’s independent compensation consultant, PM&P. +Based on these factors, the Compensation Committee approved an annual base salary increase for our management +(including the NEOs) averaging approximately 2.3%. In order to reflect the Company’s performance and each executive’s contributions, and to equitably move salaries towards the fiftieth (50 th ) percentile or maintain them at approximately that level, the +Compensation Committee used the following guidelines to assist in determining annual base salary increases. +Performance Rating +Merit Increase Range +Outstanding +5.0 - 7.0% +Exceeds Requirements +3.0 - 4.0% +Meets Requirements +2.0 - 2.5% +Does Not Meet Requirements +0 +In establishing NEO base salaries for 2013, the Compensation Committee recognized +that the Company’s aggregate 2012 consolidated net revenues grew 7% in 2012 compared to 2011, although revenues for our base business (excluding DNAG and OraQuick ® In-Home HIV test sales) came in below expectations due primarily to increased competition and the continuing difficult economic conditions and funding challenges +affecting our customers. The Compensation Committee also noted the Company’s receipt of FDA approval of the +OraQuick ® In-Home HIV test. This approval represented a significant accomplishment as this product is the first +and only rapid infectious disease test ever approved for use by consumers. Other specific factors considered by the Compensation Committee included the following: +· +Successful presentation of extensive clinical data and a sound risk-benefit analysis to the Blood Products Advisory Committee (“BPAC”), +resulting in a unanimous recommendation by the BPAC in favor of FDA approval of the OraQuick ® In-Home HIV test; +· +Successful completion of a six-week facility audit by the FDA as a prelude to its approval of the OraQuick ® In-Home HIV test; +· +Successful commercial launch of the OraQuick ® In-Home HIV test, including development and implementation of comprehensive public relations, advertising and sales/logistical plans supported by manufacturing of +sufficient inventory; +· +Recognition of +OraQuick ® In-Home HIV test as one of Time Magazine’s top 25 “Best Inventions of 2012;” +· +OraQuick ® HCV +sales increase of 147% in 2012 compared to 2011, despite funding limitations in the domestic public health market and slow adoption in the domestic physician office market; +· +Addition of $14.3 million in revenues from the first full year by DNAG as our subsidiary; +· +Successful maintenance of strong relationships with our investor base, particularly institutional investors and increased coverage of our Common Stock +by analysts; +· +Successful completion of a secondary Common Stock offering, resulting in $70.2 million in net proceeds; +· +Successful filing and effectiveness of a new $200 million universal shelf registration statement; and +· +Successful recruitment of a new head of business development and a general manager for our consumer business, including the OraQuick ® In-Home HIV test. +29 +Table of Contents +In light of the foregoing, the Compensation Committee approved the following 2012 +performance ratings and 2013 salary adjustments for Mr. Michels and the other NEOs: +NEO +2012 +Performance Rating +2012 Salary +2013 Salary +% Increase +2012 Performance +Douglas A. Michels President and Chief Executive Officer +Meets +$ +550,000 +$ +564,000 +2.5 +% +• Achievements described above for 2012. +Ronald H. Spair +Chief Financial +Officer and Chief Operating Officer +Meets/Exceeds +$ +430,000 +$ +443,000 +3.0 +% +• Successful secondary stock offering. +• Business +development activities. +• Supervision of operations. +• Maintenance of +strong investor base. +• Management of financial planning, reporting and accounting. +Stephen R. Lee, Ph.D. Former Executive Vice President, Research +and Development +Exceeds +$ +367,000 +$ +378,000 +3.0 +% +• Clinical development of OraQuick ® In-Home HIV test. +• Successful BPAC review of +OraQuick ® In-Home HIV test. +• Resolution of raw material supply issues. +• Product +development activities. +• New product evaluation support. +• Manufacturing +support. +Anthony Zezzo II Executive Vice President, Marketing and Sales +Does Not Meet +$ +362,000 +$ +362,000 +0.0 +% +• Lower than expected sales performance for the Company’s base +businesses. +Jack E. Jerrett +Senior Vice President and General Counsel +Meets/Exceeds +$ +312,000 +$ +320,000 +2.6 +% +• Support for OraQuick ® In-Home HIV test commercialization. +• Various commercial and business development matters. +• Oversight of +intellectual property and SEC matters. +• Support of secondary stock offering. +• Ongoing advice and counsel to Board and senior management. +30 +Table of Contents +2013 Annual Incentive Cash Bonuses +Annual cash bonuses are included as part of executive compensation because the Compensation Committee believes that a significant portion +of each executive’s compensation should be structured as a variable incentive tied to both the overall performance of the Company and the individual contributions of the executive. On an annual basis, the Compensation Committee has adopted, +with approval of the Board, a Management Incentive Plan (the “Incentive Plan”), which is intended to be the principal vehicle for incentive cash bonus awards. +Incentive cash bonuses are generally paid out of a cash pool funded under the Incentive Plan based on the Company’s achievement of specific financial and other objectives determined by the +Compensation Committee and approved by the Board at the beginning of each fiscal year. The financial objectives typically consist of short-term targets that represent improvement in financial performance compared to the prior year. Other objectives +typically represent milestones that the Compensation Committee and Board believe are critical to achieving long-term growth and profitability. The objectives are each weighted to determine their respective contributions to the pool amount. Each +objective can be adjusted by the Compensation Committee or Board in an equitable manner to reflect unexpected changes in the Company’s business or assumptions underlying the original objective or other factors. +With respect to each financial objective, a Threshold, Target and Maximum performance level is established. The Target levels generally +reflect the Company’s financial budget or operating plan for the year. Except in special circumstances, the Threshold levels represent a minimum level of performance for which the Compensation Committee is willing to provide bonus pool funding. +The Maximum levels reflect outstanding performance for which the Compensation Committee is willing to reward executives with bonuses above the Target level payout. With respect to the other objectives, Threshold, Target and Maximum performance +levels are generally established consistent with the Company’s long-term strategic goals or deferred for later determination by the Compensation Committee and/or the Board. +If the Company meets all the Target levels, the pool is funded at 100% of the aggregate target bonuses for all participants in the +Incentive Plan, as described below. The pool is funded at 50% of the aggregate target bonuses if all of the Threshold levels are met and at 150% if all of the Maximum levels are met. Pro-rata adjustments to the amount of funding for each objective +are made where a particular performance is in between the pre-established performance levels. To the extent a performance level is below the Threshold objective, there would be no funding for that particular item unless the Compensation Committee or +Board determines, in its discretion, that some funding is warranted. +The amount of the cash bonus pool is determined by the +Compensation Committee and recommended for Board approval. The Compensation Committee and Board also retain discretion to increase or decrease the size of the pool in order to reflect specific performance or market conditions affecting the Company +and the final performance assessments for each participant for the applicable year. The cash bonus pool is used to pay bonuses not only to the Company’s NEOs, but also to all other officers and certain higher-level employees of the Company. +Individual payments from the bonus pool to executives depend on the size of the bonus pool, the executive’s achievement +of individual performance objectives (except in the case of Messrs. Michels and Spair, as described below), the number of individuals participating in the plan at the time bonuses are awarded and the executive’s target bonus percentage. Bonuses +are paid, based on an assessment of each executive’s performance for the applicable year, using targets expressed as a percentage of the executive officer’s annual base salary. +If an executive officer has met or exceeded his or her individual performance objectives and/or the Company’s expectations for the +applicable year, he or she may be eligible to receive up to 150% of his or her target bonus, depending on the size of the bonus pool. The Compensation Committee and Board retain the discretion to adjust an individual executive’s performance +evaluation and to increase or decrease the bonus paid to such individual to reflect the specific contributions of that executive, the Company’s overall performance, market conditions or other circumstances. +31 +Table of Contents +The Compensation Committee recommends for Board approval any bonus award for the CEO based +on an assessment of his performance. The CEO recommends individual awards for the other executive officers for approval by the Compensation Committee based on an assessment of each executive’s performance against his or her applicable +individual performance objectives. The Compensation Committee and Board have the right, in their sole discretion, to reject any or all of the recommended bonus awards, even if the bonus pool has been funded and any or all applicable performance +criteria have been satisfied, based on the business conditions of the Company or other factors deemed relevant by the Compensation Committee or Board. +Under the 2013 Incentive Plan, the Compensation Committee had previously established Threshold, Target and Maximum performance levels for two financial objectives to be used to fund the bonus pool. The +financial objectives consisted of the following (with the Target levels reflecting our annual budget or operating plan for 2013): +Financial Objectives +Threshold +Target +Maximum +Consolidated Revenues +$ +90.8 +$ +100.8 +$ +110.8 +Operating Loss +$ +(30.0 +) +$ +(24.5 +) +$ +(19.5 +) +The following sets forth the weighting and potential bonus pool funding for both objectives at each +performance level established under the 2013 Incentive Plan: +Objectives +Weight +Threshold +Target +Maximum +Consolidated Revenues +70 +% +$ +804,000 +$ +1,608,000 +$ +2,412,000 +Operating Loss +30 +% +344,000 +688,000 +1,032,000 +Potential Total Pool Funding +$ +1,148,000 +$ +2,296,000 +$ +3,444,000 +During 2013, the Company’s consolidated net revenues were $99.0 million, a record amount which +exceeded the Threshold performance level and was slightly less than the Target performance level for this objective, resulting in funding of $1,463,000. The Company’s 2013 net operating loss was $(12.2) million and included an $8.3 million +settlement payment (accounted for as an expense reduction) received as a result of the termination of our drug assay collaboration with Roche Diagnostics. However, because the settlement was viewed by the Compensation Committee as an unusual item, +the $8.3 million was initially excluded for purposes of determining funding for this objective. As a result, the Compensation Committee used an adjusted operating loss of $20.5 million for 2013, which fell between the Target and Maximum performance +levels for this objective and resulted in funding of $963,000. +Although the Roche settlement amount was initially excluded in +determining funding for the operating loss objective, the Compensation Committee nevertheless recognized the importance of this matter and the replacement of the Roche relationship with a new high-throughput assay development and supply arrangement +with Thermo Fisher. As a result, the Compensation Committee exercised its discretion to increase funding by an additional $249,000 to recognize the positive impact of the $8.3 million Roche settlement on the Company’s net operating performance +for 2013. This resulted in total pool funding for the operating loss objective of $1,212,000 (i.e. $963,000 plus $249,000). +Based on the foregoing, the total bonus pool funding for 2013 performance was $2,675,000 ($1,463,000 plus $1,212,000). The bonus pool +amount was also approved by the full Board and used to pay bonuses to the Company’s NEOs and thirty-one other members of our management team. The specific target payouts for NEO bonuses (expressed as a percentage of annual base salary) are +shown below: +Title +Target Payouts +Chief Executive Officer +70 +% +Chief Financial Officer and Chief Operating Officer +50 +% +Executive Vice President +40 +% +Senior Vice President +35 +% +32 +Table of Contents +In January 2014, the Compensation Committee authorized the payout of individual bonus awards +to executive officers from the bonus pool for 2013, based on the target bonus amounts described above and an assessment of each officer’s performance during 2013 against pre-established performance objectives. +In evaluating Mr. Michels and the Company’s performance, the Compensation Committee recognized that the Company’s 2013 +consolidated net revenues of $99.0 million was a record performance and essentially met or exceeded the Company’s budget or operating plan for the year. These revenues represented a 13% increase over 2012. More importantly, the Compensation +Committee noted that the Company’s $12.2 million net loss represented a $13.3 million improvement over the net loss projected in the Company’s operating plan for 2013 and a 26% improvement over the Company’s bottom line performance +from 2012. Other specific factors considered by the Compensation Committee included the following: +· +The 43% increase in net revenues generated by the Company’s molecular collection systems business; +· +The 32% improvement in net revenues generated from sales of the Company’s OraQuick ® HCV test as a result of the Company’s ongoing efforts to broaden awareness and demand for this product; +· +The progress made by management in pursuing significant industry and public-private collaborations to further expand its HCV business; +· +The $9.1 million net revenue contribution from the OraQuick ® In-Home HIV test and the progress made by management in understanding the market for this unique product and in refining its promotional messaging for its target +consumer audiences; +· +The successful termination of the Company’s collaboration with Roche Diagnostics and the replacement of that collaboration with a new development +and supply agreement with Thermo Fisher for fully-automated, high-throughput oral fluid drug assays to be used with the Company’s Intercept ® collection device; +· +The strong performance by the Company’s cryosurgical systems business, which generated revenues greater than the Company’s operating plan for +that business; +· +Successful maintenance of strong relationships with our investor base, particularly institutional investors and increased coverage and interest in our +Common Stock by analysts; +· +The significant progress made in implementing major manufacturing process enhancements and raw material changes for several critical product lines; and +· +The careful and detailed evaluation of numerous potential business development opportunities as management explored additional areas of growth for the +Company. +Although in the past the Compensation Committee had used the performance rating labels mentioned +above (i.e. Meets Expectations, Exceeds Expectations, etc.) for all of the NEOs, the Compensation Committee decided that those labels will no longer be used for Messrs. Michels and Spair beginning with the 2013 performance assessment. Given the +senior positions of Messrs. Michels and Spair, the Compensation Committee determined it would be more appropriate to evaluate these executives based on the overall performance of the Company. As a result, the Compensation Committee approved the +following annual incentive cash bonuses for 2013: +NEO +2013 Rating +2013 Bonus +Target Bonus +(% Salary) +2013 Bonus +(% Salary) +2013 Performance +Douglas A. Michels President and Chief Executive Officer +N/A +$ +469,470 +70 +% +83.2 +% +• Strong corporate performance as described above. +Ronald H. Spair +Chief Financial +Officer and Chief Operating Officer +N/A +$ +263,390 +50 +% +59.5 +% +• Strong corporate performance as described +above. +33 +Table of Contents +NEO +2013 Rating +2013 Bonus +Target Bonus +(% Salary) +2013 Bonus +(% Salary) +2013 Performance +Stephen R. Lee, Ph.D. Former Executive +Vice President, Research and Development +Meets +$ +159,820 +40 +% +42.3 +% +• Completed development of next generation Intercept ® device. +• Assisted in process improvements for several key products. +• Assisted in +validation of new critical raw materials sources for key products. +• Ongoing support of regulatory, quality and manufacturing functions. +Anthony Zezzo II Executive Vice President, Marketing and Sales +Exceeds +$ +191,320 +40 +% +52.9 +% +• Exceeded revenue targets in 2013 operating plan for core product +lines. +• Successfully executed initiatives to expand awareness and demand for OraQuick ® HCV test. +• Helped lead negotiations for new third-party HCV collaborations. +• Increased +International sales for HIV and HCV products. +Jack E. Jerrett +Senior Vice President and General Counsel +Meets/Exceeds +$ +133,180 +35 +% +41.6 +% +• Leadership in negotiating termination of Roche Diagnostics +collaboration. +• Assistance in negotiating new high-throughput assay development and supply +collaboration with Thermo Fisher. +• Assistance on numerous commercial matters. +• Oversight of +SEC and other compliance matters. +• Ongoing advice and counsel to Board and senior management. +34 +Table of Contents +2013 Long-Term Incentive Awards +An additional way that we promote the long-term growth of the Company and align the interests of executives with those of our stockholders +is by compensating executives with equity in the Company that vests over a multi-year period. To accomplish this, the Compensation Committee administers the Company’s Long-Term Incentive Plan (the “LTIP”), pursuant to which grants of +stock options and restricted shares are made to executive officers on an annual basis. +We view all awards under our LTIP as +performance-based since the dollar value of each annual award is based on an assessment of the executive’s performance during the prior year. Moreover, more than half (i.e. 60%) of each award to our executives consists of stock options and +provides no real value to the recipient unless our stock price appreciates after the date of grant. Awards of restricted shares provide some immediate value to executives but are also performance-based in that the executive’s compensation will +increase further only if the market price of our stock also appreciates. +The LTIP uses a “value transfer” method +for determining the size of individual awards, as described further below. This represents a change from the Company’s older practice of using a fixed target number of restricted shares and stock options for incentive equity awards. The Board +and Compensation Committee believe the use of a “value transfer” method rather than the use of a fixed target number of shares, is a more reasonable approach in that it eliminates volatility in the value of awards based on short-term +changes in the price of our Common Stock and is more consistent with market practice. +Incentive equity awards under the LTIP +are made on an annual basis, and are discretionary and subject to approval by the Compensation Committee and/or Board. Awards to individual participants under the LTIP are based on an evaluation of a number of factors, including: +· +performance of the participant for the applicable year; +· +the participant’s level of responsibilities and relative contribution to the Company’s business; +· +a competitive assessment of awards at peer group companies; +· +history of equity awards to the participant; and +· +other factors deemed relevant by the Compensation Committee and/or Board. +Each participant’s individual performance for the applicable year is evaluated against his or her individual performance objectives +for that year. A “Meets Expectations” performance is typically the threshold requirement to receive an equity award under the LTIP. Awards below this performance level may be considered on an exception basis in the discretion of the +Compensation Committee and/or the Board. +The amounts of potential incentive equity awards that could be granted in 2013 under +the LTIP (expressed as a percentage of annual base salary) based on performance during 2012, are summarized below: +Performance +Position +Lower End +Target +Maximum +President/CEO +130 +% +175 +% +220 +% +CFO/COO +90 +% +125 +% +160 +% +EVP and SVP +55 +% +75 +% +95 +% +The percentages set forth above were established at levels that the Compensation Committee believed +represented an appropriate long-term incentive compensation value for each executive, based on the results of a competitive assessment of long-term incentive awards at peer group companies developed by the Compensation Committee in consultation with +its independent compensation consultant, PM&P. Awards under the LTIP consist of 40% restricted stock and 60% stock options, based on the market value of the awards on the date of grant. +35 +Table of Contents +Once the aggregate dollar value of an award has been established by applying the appropriate percentage to a participant’s base salary, the award is converted into shares based on a +valuation of the restricted stock and stock option portions of the award as of the grant date. Restricted stock is valued based on the average of the high and low stock price on the grant date as reported on the NASDAQ Stock Market and stock options +are valued based on a corresponding Black-Scholes value. +Stock option awards granted under the LTIP have an exercise price +equal to the fair market value of the Company’s common stock on the date of grant, which is calculated using the average high and low stock price on that date. Stock options generally vest over four years, with the first 25% vesting after one +year and the remaining 75% vesting on a monthly basis over the next three years following the first anniversary of the grant date. Grants of restricted stock generally vest in equal annual installments over a three-year period. These vesting +restrictions serve to promote the Company’s long-term growth by restricting executives’ ability to realize short-term gains from their awards. The Compensation Committee believes the terms of its incentive equity awards to executives are +competitive with the terms of equity awards offered at comparable medical diagnostics and healthcare companies. +Equity awards +are generally made by the Compensation Committee each year as part of the normal annual compensation cycle. The awards for a particular year generally occur in late January or early February of the following year after the Company’s full year +financial results are known and performance evaluations for the executive officers have been prepared. Equity awards approved by the Compensation Committee for the CEO are then reviewed and approved by the Board. In addition to the annual equity +awards, the Compensation Committee may approve stock option and restricted stock awards for newly hired officers or in recognition of an executive’s promotion or expansion of responsibilities. These latter grants may have vesting or other terms +that differ from the terms generally approved for annual equity awards. Notwithstanding the terms of the LTIP, equity awards are made at the discretion of the Compensation Committee or Board. +Effective February 1, 2013, the Compensation Committee approved stock option and restricted stock awards for the NEOs under the LTIP +based on the performance evaluations of such officers for 2012, as summarized below. A description of the basis for each NEO’s 2012 performance evaluation is set forth above under the Section entitled, “2013 Base Salaries,” in this +Proxy Statement. +Executive Officer +Performance +Evaluation +Restricted Stock +Stock Options +Award Value +(% of Base Salary) +Douglas A. Michels +President and Chief +Executive Officer +Meets +62,456 Shs +181,883 Shs +200% +Ronald H. Spair Chief +Financial Officer and Chief +Operating Officer +Meets/Exceeds +34,180 Shs +99,540 Shs +140% +Stephen R. Lee, Ph.D. +Former Executive Vice +President, Research and +Development +Exceeds +19,796 Shs +57,649 Shs +95% +Anthony Zezzo II +Executive Vice President, +Marketing and Sales +Does Not Meet +11,304 Shs +32,921 Shs +55% +Jack E. Jerrett +Senior Vice President and +General Counsel +Meets/Exceeds +15,057 Shs +43,850 Shs +85% +36 +Table of Contents +Other Compensation +We provide minimal additional benefits outside of our primary elements of compensation, as follows: +Retirement Programs +All of our employees, including executive officers, are eligible to participate in our 401(k) profit sharing plan (the “401(k) Plan”). We make matching contributions for participants on a +dollar-for-dollar basis up to $4,000 per year. Payments of employer-provided benefits accrued for a 401(k) Plan participant will be made upon retirement or upon termination of employment prior to retirement, provided certain vesting conditions have +been met by the participant prior to termination. In addition, the Company maintains the OraSure Technologies, Inc. Deferred Compensation Plan (the “Deferred Compensation Plan”) for the benefit of the Company’s highly compensated +employees, including all of the NEOs, and its non-employee Directors. The Deferred Compensation Plan allows participants to defer up to 100% of their annual base salaries (or fees in the case of non-employee Directors) and up to 100% of annual +incentive cash bonuses and, upon vesting, restricted shares of the Company’s Common Stock awarded to the participant. The Company may also make discretionary contributions to the participants’ accounts that vest over one or more years as +determined by the Company, as well as upon death, disability or a change in control. Since the Deferred Compensation Plan was put in place, the Company has made no discretionary contributions. Participants may elect to receive distributions of +deferred amounts on a specified date, separation from service, a change in control, disability and/or death. +Perquisites and Other +Compensation +As a general matter, the Compensation Committee and Board do not believe that executive officers +should be treated differently than other employees by receiving special perquisites unrelated to our general compensation program. Therefore, our healthcare, disability, and other insurance programs and benefits are the same for all eligible +employees, including executive officers. Executive officers do not receive any additional perquisites. +Potential Payments Upon Termination +or Change in Control Pursuant to Employment Agreements +The Company has entered into employment agreements +with each of the NEOs. In addition to the compensation elements discussed above, these agreements provide for post-employment severance payments and benefits in the event of termination of employment by the Company without “cause” or by +the executive for “good reason” and provide enhanced severance payments upon such terminations in connection with a “change in control” of the Company. The terms of these agreements are discussed in more detail under the Section +entitled, “Employment Agreements and Potential Payments Upon Termination or Change in Control,” in this Proxy Statement. The Compensation Committee believes that these agreements are generally consistent with industry practice at peer +group companies, provide an incentive to the applicable executive to remain with the Company, and serve to align the interests of stockholders and the executives in the event of a change in control of the Company. +Accounting and Tax Treatment of Compensation. +In approving the amount and form of compensation for the NEOs, the Compensation Committee considers all elements of the cost to the +Company of providing such compensation, including accounting and tax implications. In particular, it considers the potential impact of Section 162(m) of the Internal Revenue Code. Section 162(m) which disallows a tax deduction for any +publicly-held corporation for individual compensation exceeding $1 million in any taxable year for the CEO and for the three most highly compensated officers (other than the Chief Financial Officer) unless compensation is performance-based. The +Compensation Committee intends to maintain flexibility to pay compensation that is not entirely deductible when the best interests of the Company would make that advisable. +37 +Table of Contents +Compensation Recoupment Policy +The Board has adopted a compensation recoupment or “clawback” policy, applicable to all officers subject to Section 16 of +the Exchange Act. Under this policy, the Board and the Compensation Committee are permitted to recoup any excess compensation, including incentive cash bonuses, restricted stock, stock options or other compensation, which was awarded to a covered +officer based on financial statements of the Company when such statements are required to be restated as a result of the misconduct of the covered officer. The Board and the Compensation Committee have discretionary authority to pursue all available +remedies, including recoupment of all or part of the excess compensation and disciplinary action against the officer whose misconduct resulted in the restatement. The recovery period for recoupment of any compensation is up to three years preceding +the date on which the Company is required to prepare and file the restated financial statements. This policy has been proactively adopted in advance of final guidance under Section 954 of the Dodd-Frank Act, and will be amended to conform with +this Section when final guidance is available. +38 +Table of Contents +Summary Compensation Table +The following table summarizes the compensation of our CEO and the other NEOs, for the fiscal years ended December 31, 2013, 2012 and +2011: +Name and +Principal Position +Year +Salary +($) +Bonus +($) +Stock +Awards 1 +($) +Option +Awards 2 +($) +Non-Equity +Incentive +Plan +Compen- +sation 3 +($) +Change in +Pension +Value +and +Nonqualified +Deferred +Compensation +Earnings +($) +All +other +Compen- +sation 4 +($) +Total ($) +Douglas A. Michels +President and Chief Executive Officer +2013 +$ +563,408 +$ +440,003 +$ +659,799 +$ +469,470 +— +$ +4,000 +$ +2,136,680 +2012 +$ +548,750 +$ +414,007 +$ +990,784 +$ +196,600 +— +$ +4,000 +$ +2,154,141 +2011 +$ +516,827 +$ +558,488 +$ +552,471 +$ +369,000 +— +$ +4,000 +$ +2,000,786 +Ronald H. Spair +2013 +$ +442,450 +$ +240,798 +$ +361,091 +$ +263,390 +— +$ +4,000 +$ +1,311,729 +Chief Financial Officer +2012 +$ +429,308 +$ +247,202 +$ +617,321 +$ +166,000 +— +$ +4,000 +$ +1,463,831 +and Chief Operating Officer +2011 +$ +411,538 +$ +335,225 +$ +331,825 +$ +209,900 +— +$ +4,000 +$ +1,292,488 +Stephen R. Lee, Ph.D 5 . +2013 +$ +377,535 +$ +139,463 +$ +209,128 +$ +159,820 +— +$ +4,000 +$ +889,946 +Former Executive Vice +2012 +$ +366,654 +$ +107,404 +$ +161,101 +$ +123,000 +— +$ +4,000 +$ +762,159 +President, Research and Development +2011 +$ +357,692 +$ +122,563 +$ +121,183 +$ +116,700 +— +$ +4,000 +$ +722,138 +Anthony Zezzo II +Executive Vice President +Marketing and Sales +2013 +$ +362,000 +$ +79,637 +$ +119,424 +$ +191,320 +— +— +$ +752,381 +2012 +$ +361,539 +$ +119,004 +$ +178,500 +$ +— +— +— +$ +659,043 +2011 +$ +336,539 +$ +445,125 +$ +294,090 +$ +142,600 +— +— +$ +1,218,354 +Jack E. Jerrett +Senior Vice President +and General Counsel +2013 +$ +319,662 +$ +106,077 +$ +159,070 +$ +133,180 +— +$ +4,000 +$ +721,989 +2012 +$ +311,538 +$ +114,000 +$ +171,001 +$ +83,900 +— +$ +4,000 +$ +684,439 +2011 +$ +299,038 +$ +72,213 +$ +71,453 +$ +127,000 +— +$ +4,000 +$ +573,704 +(1) +The indicated amounts reflect the aggregate grant date fair value of restricted stock awards made to the NEOs during the applicable year, computed in accordance with +Financial Accounting Standards Board (“FASB”) ASC Topic 718. Certain assumptions used in the calculation of those amounts are set forth for the applicable year of award in footnote 10 to the Company’s audited consolidated financial +statements for the year ended December 31, 2013, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 14, 2014 (the “2013 10-K Report”). +(2) +The values set forth in this column reflect the aggregate grant date fair value of stock option awards made to the NEOs during the applicable year, computed in +accordance with FASB ASC Topic 718. Certain assumptions used in the calculation of those amounts are set forth for the applicable year of award in footnote 10 to the Company’s audited consolidated financial statements for the year ended +December 31, 2013, included in the Company’s 2013 10-K Report. +(3) +The indicated amounts reflect incentive cash bonuses paid to the NEOs pursuant to an Incentive Plan, based on performance during the applicable year. For a description +of incentive cash bonus payments for performance during 2013, see the Section entitled, “2013 Annual Incentive Cash Bonuses,” in the CD&A. +(4) +The indicated amounts reflect cash contributed to a 401(k) profit sharing plan as an employer-matching contribution, which was offered to all employees of the Company +during each of the indicated years. +(5) +Dr. Lee retired from the Company effective February 28, 2014. +39 +Table of Contents +Grants of Plan-Based Awards +The following table summarizes information concerning possible incentive cash bonuses and possible and actual restricted stock and stock +option awards for the NEOs during the fiscal year ended December 31, 2013 as well as possible payouts under the 2013 Incentive Plan: +Name +Grant +Date 1 +Estimated Possible Payouts +Under Non-Equity Incentive +Plan Awards 2 +Estimated Possible Payouts Under +Equity Incentive Plan Awards 3 +All other +Stock +Awards: +Number +Of Shares +Of Stock +Or Units 4 +(#Shs.) +All other +Option +Awards: +Number +Of Securities +Underlying +Options 4 +(#Shs.) +Exercise +or Base +Price of +Option +Awards 5 +($/Sh) +Grant +Date Fair +Value of +Stock and +Option +Awards 6 +($) +Threshold +($) +Target +($) +Maximum +($) +Threshold +(# Shs.) +Target +(# Shs.) +Maximum +(# Shs.) +Douglas A. Michels +2/01/13 +— +— +— +— +— +— +62,456 +— +$ +440,003 +President and Chief +2/01/13 +— +— +— +— +— +— +— +181,883 +$ +7.045 +$ +659,799 +Executive Officer +N/A +$ +197,400 +$ +394,800 +$ +592,200 +40,596 RS +54,649 RS +68,701 RS +— +— +— +N/A +N/A +— +— +— +118,260 SO +159,196 SO +200,132 SO +— +— +— +N/A +Ronald H. Spair +2/01/13 +— +— +— +— +— +— +34,180 +— +— +$ +240,798 +Chief Financial Officer and +2/01/13 +— +— +— +— +— +— +— +99,540 +$ +7.045 +$ +361,091 +Chief Operating Officer +N/A +$ +110,750 +$ +221,500 +$ +332,500 +21,973 RS +30,518 RS +39,063 RS +— +— +— +N/A +N/A +— +— +— +64,009 SO +88,902 SO +113,794 SO +— +— +— +N/A +Stephen R. Lee, Ph.D. +2/01/13 +— +— +— +— +— +— +19,796 +— +— +$ +139,463 +Former Executive Vice President, +2/01/13 +— +— +— +— +— +— +— +57,649 +$ +7.045 +$ +209,128 +Research and Development +N/A +$ +75,600 +$ +151,200 +$ +226,800 +11,461 RS +15,628 RS +19,796 RS +— +— +— +N/A +N/A +— +— +— +33,386 SO +45,526 SO +57,666 SO +— +— +— +N/A +Anthony Zezzo II +2/01/13 +— +— +— +— +— +— +11,304 +— +— +$ +79,637 +Executive Vice President, +2/01/13 +— +— +— +— +— +— +— +32,921 +$ +7.045 +$ +119,424 +Marketing and Sales +N/A +$ +72,400 +$ +144,800 +$ +217,200 +11,304 RS +15,415 RS +19,526 RS +— +— +— +N/A +N/A +— +— +— +32,931 SO +44,906 SO +56,881 SO +— +— +— +N/A +Jack E. Jerrett +2/01/13 +— +— +— +— +— +— +15,057 +— +— +$ +106,077 +Senior Vice President +2/01/13 +— +— +— +— +— +— +— +43,850 +$ +7.045 +$ +159,070 +and General Counsel +N/A +$ +56,000 +$ +112,000 +$ +168,000 +9,743 RS +13,286 RS +16,829 RS +— +— +— +N/A +N/A +— +— +— +28,382 SO +38,703 SO +49,024 SO +— +— +— +N/A +(1) +Annual incentive equity awards to NEOs, consisting of a combination of restricted stock (“RS”) and stock options (“SO”), were determined for 2013 +pursuant to the LTIP, based on performance during 2012. Annual equity awards made during 2013 were approved by the Compensation Committee effective on February 1, 2013. For a description of these equity awards and their terms, see the Section +entitled, “2013 Long-Term Incentive Awards,” in the CD&A. +(2) +The indicated amounts represent potential incentive cash bonus payments to the NEOs under the 2013 Incentive Plan. On January 27, 2014, bonus payments under the +2013 Incentive Plan were approved by the Compensation Committee for the NEOs, based on performance during 2013. A further description of the payments approved under the 2013 Incentive Plan is set forth in the Section entitled, “2013 Annual +Incentive Cash Bonuses,” in the CD&A. +(3) +The indicated amounts represent the potential number of shares which could have been granted to the NEOs in 2013 in the form of restricted stock and stock options +pursuant to the LTIP, based on each officer’s performance during 2012. For restricted stock, the individual share numbers were calculated by dividing 40% of the long-term incentive targets for each NEO set forth in the LTIP by the mean between +the high and low sales price of the Common Stock as reported by NASDAQ on the date of grant. For stock options, the individual option numbers were calculated by dividing 60% of the long-term incentive targets for each NEO set forth in the LTIP by +the corresponding estimated Black-Scholes value of the Company’s Common Stock on the date of grant. +(4) +The indicated amounts represent the actual number of restricted shares granted to the NEOs in 2013 under the LTIP, based on performance during 2012. Specific RS and SO +awards were approved by the Compensation Committee for the NEOs effective on February 1, 2013 based on performance during 2012. A further description of these equity awards and their terms is set forth in the Section entitled, “2013 +Long-Term Incentive Awards,” in the CD&A. +(5) +The exercise price for stock options is the fair market value of the Company’s Common Stock on the date of grant, which is calculated as the mean between the high +and low sales price of the Common Stock as reported by NASDAQ on such date. +(6) +The indicated amounts represent the grant date fair value calculated in accordance with FASB ASC Topic 718. +40 +Table of Contents +Outstanding Equity Awards at Fiscal Year-End +The following table summarizes information regarding unexercised stock options and unvested restricted stock held by the NEOs as of +December 31, 2013: +Option Awards 1 +Stock Awards 1 +Name +Number of +Securities +Underlying +Unexercised +Options +(#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options 2 +(#) +Unexercisable +Equity +Incentive +Plan +Awards +Number +of +Securities +Underlying +Unexercised +Unearned +Options (#) +Option +Exercise +Price +($/Sh.) +Option +Expiration +Date +Number of +Shares or +Units of +Stock +That +Have +Not +Vested 2 +(#) +Market +Value of +Shares or +Units of +Stock +That +Have Not +Vested 8 +($) +Equity +Incentive +Plan +Awards: +Number of +Unearned +Shares, +Units +or +Other +Rights +That Have +Not +Vested (#) +Equity +Incentive +Plan +Awards: +Market +or Payout +Value +of +Unearned +Shares, +Units or +Other +Rights +That +Have Not +Vested +($) +Douglas A. Michels +President and Chief +Executive Officer +12,597 +— +— +$ +5.60 +1/26/2015 +— +— +— +— +67,500 +— +— +$ +9.56 +1/23/2016 +— +— +— +— +45,000 +— +— +$ +8.28 +2/01/2017 +— +— +— +— +56,250 +— +— +$ +8.06 +2/01/2018 +— +— +— +— +90,990 +— +— +$ +2.81 +1/23/2019 +— +— +— +— +100,232 +2,133 +3(a) +— +$ +5.19 +1/25/2020 +— +— +— +— +136,920 +56,380 +3(b) +— +$ +6.63 +2/01/2021 +— +— +— +— +92,104 +108,850 +3(c) +— +$ +11.30 +2/01/2022 +— +— +— +— +— +181,883 +3(d) +— +$ +7.05 +2/01/2023 +— +— +— +— +— +— +— +— +— +12,960 +3(e) +$ +81,518 +— +— +— +— +— +— +— +28,100 +3(f) +$ +176,749 +— +— +— +— +— +— +— +24,436 +3(g) +$ +153,702 +— +— +— +— +— +— +— +62,456 +3(h) +$ +392,848 +— +— +Ronald H. Spair +Chief Financial Officer +and Chief Operating +Officer +100,000 +— +— +$ +8.20 +1/14/2014 +— +— +— +— +27,000 +— +— +$ +5.60 +1/26/2015 +— +— +— +— +27,000 +— +— +$ +9.56 +1/23/2016 +— +— +— +— +45,000 +— +— +$ +8.28 +2/01/2017 +— +— +— +— +45,500 +— +— +$ +8.06 +2/01/2018 +— +— +— +— +18,720 +— +— +$ +2.81 +1/23/2019 +— +— +— +— +81,089 +1,726 +4(a) +— +$ +5.19 +1/25/2020 +— +— +— +— +82,237 +33,863 +4(b) +— +$ +6.63 +2/01/2021 +— +— +— +— +57,386 +67,821 +4(c) +— +$ +11.30 +2/01/2022 +— +— +— +— +— +99,540 +4(d) +— +$ +7.05 +2/01/2023 +— +— +— +— +— +— +— +— +— +16,866 +4(e) +$ +106,087 +— +— +— +— +— +— +— +14,590 +4(f) +$ +91,771 +— +— +— +— +— +— +— +34,180 +4(g) +$ +214,992 +— +— +Stephen R. Lee, Ph.D. +Former Executive Vice +President, Research and +Development +85,000 +— +— +$ +8.97 +9/23/2015 +— +— +— +— +18,000 +— +— +$ +9.56 +1/23/2016 +— +— +— +— +8,689 +— +— +$ +8.28 +2/01/2017 +— +— +— +— +22,500 +— +— +$ +8.06 +2/01/2018 +— +— +— +— +9,100 +— +— +$ +2.81 +1/23/2019 +— +— +— +— +21,797 +948 +5(a) +— +$ +5.19 +1/25/2020 +— +— +— +— +19,433 +12,367 +5(b) +— +$ +6.63 +2/01/2021 +— +— +— +— +14,976 +17,699 +5(c) +— +$ +11.30 +2/01/2022 +— +— +— +— +— +57,649 +5(d) +— +$ +7.05 +2/01/2023 +— +— +— +— +— +— +— +— +— +6,166 +5(e) +$ +38,784 +— +— +— +— +— +— +— +6,339 +5(f) +$ +39,872 +— +— +— +— +— +— +— +19,796 +5(g) +$ +124,517 +— +— +Anthony Zezzo II +Executive Vice +President, Marketing and +Sales +83,854 +31,146 +6(a) +— +$ +5.94 +1/03/2021 +— +— +— +— +16,593 +19,611 +6(b) +— +$ +11.30 +2/01/2022 +— +— +— +— +— +32,921 +6(c) +— +$ +7.05 +2/01/2023 +— +— +— +— +— +— +— +— +— +25,000 +6(d) +$ +157,250 +— +— +— +— +— +— +— +7,024 +6(e) +$ +44,181 +— +— +— +— +— +— +— +11,304 +6(f) +$ +71,102 +— +— +Jack E. Jerrett +Senior Vice President +and General Counsel +18,195 +— +— +$ +8.20 +1/14/2014 +— +— +— +— +15,000 +— +— +$ +5.60 +1/26/2015 +— +— +— +— +18,000 +— +— +$ +9.56 +1/23/2016 +— +— +— +— +12,000 +— +— +$ +8.28 +2/01/2017 +— +— +— +— +12,000 +— +— +$ +8.06 +2/01/2018 +— +— +— +— +6,065 +— +— +$ +2.81 +1/23/2019 +— +— +— +— +29,717 +633 +7(a) +— +$ +5.19 +1/25/2020 +— +— +— +— +17,708 +7,292 +7(b) +— +$ +6.63 +2/01/2021 +— +— +— +— +15,896 +18,787 +7(c) +— +$ +11.30 +2/01/2022 +— +— +— +— +— +43,850 +7(d) +— +$ +7.05 +2/01/2023 +— +— +— +— +— +— +— +— +— +3,633 +7(e) +$ +22,852 +— +— +— +— +— +— +— +6,728 +7(f) +$ +42,319 +— +— +— +— +— +— +— +15,057 +7(g) +$ +94,709 +— +— +41 +Table of Contents +(1) +The table does not include restricted stock or stock options awarded to the NEOs in February 2014 pursuant to the LTIP in respect of performance during 2013. +(2) +Stock options vest over four years, with the first 25% vesting on the first anniversary of the grant date and the remaining 75% vesting on a monthly basis over the next +three years following the first anniversary of the grant date. Grants of restricted stock vest over a three-year period, with one-third vesting on the first anniversary of the grant date, a second third vesting on the second anniversary and the +final third vesting on the third anniversary. +(3) +The indicated stock options and restricted stock vest as follows: +(a) +2,133 options on January 25, 2014; +(b) +4,027 options on the 1 st of each month, from January 1, 2014 through +February 1, 2015; +(c) +4,186 options on the 1 st of each month, from January 1, 2014 through +February 1, 2016; +(d) +45,471 options on February 1, 2014 and 3,789 options on the 1 st of each +month, from March 1, 2014 through February 1, 2017; +(e) +6,480 restricted shares on March 31 and June 30, 2014; +(f) +28,100 restricted shares on February 1, 2014; +(g) +12,218 restricted shares on February 1, 2014 and 2015; and +(h) +20,818 restricted shares on February 1, 2014, 2015 and 2016. +(4) +The indicated stock options and restricted stock vest as follows: +(a) +1,726 options on January 25, 2014; +(b) +2,419 options on the 1 st of each month, from January 1, 2014 through +February 1, 2015; +(c) +2,608 options on the 1 st of each month, from January 1, 2014 through +February 1, 2016; +(d) +24,885 options on February 1, 2014 and 2,074 options on the 1 st of each +month, from March 1, 2014 through February 1, 2017; +(e) +16,866 restricted shares on February 1, 2014; +(f) +7,289 restricted shares on February 1, 2014 and 2015; and +(g) +11,393 restricted shares on February 1, 2014, 2015 and 2016. +(5) +The indicated stock options and restricted stock vest as follows: +(a) +948 options on January 25, 2014; +(b) +883 options on the 1 st of each month, from January 1, 2014 through +February 1, 2015; +(c) +681 options on the 1 st of each month, from January 1, 2014 through +February 1, 2016; +(d) +14,412 options on February 1, 2014 and 1,201 options on the 1 st of each +month, from March 1, 2014 through February 1, 2017; +(e) +6,166 restricted shares on February 1, 2014; +(f) +3,169 restricted shares on February 1, 2014 and 2015; and +(g) +6,599 restricted shares on February 1, 2014, 2015 and 2016. +(6) +The indicated stock options and restricted stock vest as follows: +(a) +2,396 options on the 3 rd of each month, from January 3, 2014 through +January 3, 2015; +(b) +754 options on the 1 st of each month, from January 1, 2014 through +February 1, 2016; +(c) +8,230 options on February 1, 2014 and 686 options on the 1 st of each +month, from March 1, 2014 through February 1, 2017; +(d) +25,000 restricted shares on January 3, 2014; +(e) +3,512 restricted shares on February 1, 2014, 2015; and +(f) +3,768 restricted shares on February 1, 2014, 2015 and 2016. +(7) +The indicated stock options and restricted stock vest as follows: +(a) +633 options on January 25, 2014; +(b) +521 options on the 1 st of each month, from January 1, 2014 through +February 1, 2015; +(c) +723 options on the 1 st of each month, from January 1, 2014 through +February 1, 2016; +(d) +10,963 options on February 1, 2014 and 913 options on the 1 st of each +month, from March 1, 2014 through February 1, 2017; +(e) +3,633 restricted shares on February 1, 2014; +(f) +3,364 restricted shares on February 1, 2014 and 2015; and +(g) +5,019 restricted shares on February 1, 2014, 2015 and 2016. +(8) +The indicated values were determined by multiplying the number of unvested shares of restricted stock shown in this table by $6.29 per share, the closing price of the +Company’s Common Stock as reported by NASDAQ on December 31, 2013. +42 +Table of Contents +Option Exercises and Stock Vested +The following table summarizes information with respect to the exercise of stock options and vesting of restricted stock for each of the +NEOs during the fiscal year ended December 31, 2013: +Option Awards +Stock Awards +Name +Number of +Shares +Acquired +on Exercise +(#) +Value +Realized +on +Exercise +($) +Number Of +Shares +Acquired +on Vesting +(#) +Value +Realized +on +Vesting 1 +($) +Douglas A. Michels +President and Chief Executive Officer +— +— +86,344 +$ +562,656 +Ronald H. Spair +Chief Financial Officer and Chief Operating Officer +— +— +40,429 +$ +282,789 +Stephen R. Lee, Ph.D. +Former Executive Vice President, Research and Development +— +— +18,277 +$ +127,644 +Anthony Zezzo II +Executive Vice President, Marketing and Sales +— +— +28,512 +$ +204,742 +Jack E. Jerrett +Senior Vice President and General Counsel +— +— +12,954 +$ +90,516 +(1) +The indicated amounts were calculated by multiplying the number of restricted shares acquired upon vesting by the market value of the Company’s Common Stock on the +applicable vesting date. The market value was determined by calculating the mean between the high and low sales price of the Common Stock as reported by NASDAQ on the vesting date. +Retirement Benefits +The NEOs are eligible to participate in our 401(k) Plan on the same terms and conditions applicable to all of our employees. For a further description of the terms of the 401(k) Plan, see the Section +entitled, “Retirement Programs,” in the CD&A. +Nonqualified Deferred Compensation +The OraSure Technologies, Inc. Deferred Compensation Plan (the “Plan”) is a non-qualified deferred compensation plan designed to +provide deferred compensation benefits to a select group of the Company’s highly compensated employees, including all of the NEOs, and to non-employee members of the Board. +The Plan allows for deferrals by participants of up to 100% of their annual base salaries (or in the case of non-employee Directors, 100% +of fees payable under the Company’s Non-Employee Director Compensation Policy) and up to 100% of annual incentive cash bonuses and, upon vesting, restricted shares of the Company’s Common Stock awarded under the Company’s Stock Award +Plan. The Company may also make discretionary contributions to the accounts of employees participating in the Plan. Cash balances in participants’ accounts may be invested in a list of investment options that are similar to the fund choices +offered in the Company’s 401(k) plan. Participants will be permitted to sell vested restricted shares in their accounts, subject to compliance with the Company’s Insider Trading Policy and applicable securities laws, and invest the +proceeds of any such sale in the investment options available under the Plan. Participants will be 100% vested in their accounts and the restricted shares they defer, except that Company contributions will vest over one or more years as determined +by the Company. In the event of death, disability or change in control, a participant will become 100% vested in any then unvested Company contributions. +43 +Table of Contents +Participants may elect to receive a distribution from his or her account upon a specified +date, separation from service, change in control, disability and/or death. Distributions will be made in a lump sum or installments, as allowed under the Plan. +Amounts contributed to a participant’s account through elective deferrals or through the Company’s discretionary contributions are generally not subject to income tax, and the Company does not +receive a deduction until they are distributed pursuant to the Plan. However, cash deferrals are subject to the Federal Insurance Contributions Act Tax imposed at the time of deferral (the “FICA tax”). Deferrals of restricted shares are +subject to the FICA tax at the time the restricted shares vest, but are not subject to income tax, and the Company does not receive the deduction until the restricted shares are distributed pursuant to the Plan. The Company may amend or terminate +the Plan at any time in accordance with applicable law. +The following table summarizes information for each NEO with respect +to the Plan for the fiscal year ended December 31, 2013: +Name +Executive +Contributions 1 +($) +Registrant +Contributions +($) +Aggregate +Earnings 2 +($) +Aggregate +Withdrawals/ +Distributions +($) +Aggregate +Balance +at 12/31/13 1,2 +($) +Douglas A. Michels +President and Chief +Executive Officer +— +— +— +— +— +Ronald H. Spair +Chief Financial Officer +and Chief Operating Officer +$ +353,200 +— +$ +55,306 +— +$ +408,506 +Stephen R. Lee, Ph.D. +Former Executive Vice President, +Research and Development +$ +44,000 +— +$ +16,328 +— +$ +97,036 +Anthony Zezzo II +Executive Vice President, +Marketing and Sales +— +— +— +— +— +Jack E. Jerrett +Senior Vice President and +General Counsel +— +— +— +— +— +(1) +The indicated amounts of NEO contributions have been reported as compensation in the Summary Compensation Table for 2013. +(2) +There were no earnings or deferred compensation at above market or preferential rates and, therefore, no earnings have been reported as compensation in the Summary +Compensation Table for 2013. Aggregate earnings include dividends and interest earned during the period, as well as the net unrealized appreciation of the underlying investments in the participant’s account. +Employment Agreements and Potential Payments Upon Termination or Change in Control +We have entered into employment agreements with all of our NEOs. We believe such agreements are necessary to attract and retain critical +talent, and are in-line with market practices. +Mr. Michels has an employment agreement with the Company that provides +for the various components of compensation described in the CD&A. In addition, upon a termination of employment, Mr. Michels’ contract provides for certain post-employment severance and other benefits, as described below. +44 +Table of Contents +Mr. Michels’ employment agreement will terminate upon his death or disability. In +addition, Mr. Michels may terminate his employment at any time and for any reason upon 90 days written notice to the Company, for “good reason” (as defined below), or following a “change in control” (as defined below). +Mr. Michels’ employment agreement can also be terminated by the Company for “cause” (as defined below) or without “cause.” +As used in the agreement, the term “good reason” means (i) a material breach of the agreement by the Company that is not cured within 30 days of written notice, (ii) any diminution in +Mr. Michels’ base compensation or authority, duties or responsibilities, (iii) a material diminution in the authority, duties or responsibilities of the person to whom Mr. Michels reports, including a change in +Mr. Michels’ reporting obligation from the Board to another employee of the Company, if applicable, (iv) a material diminution of the budget over which Mr. Michels exercises control, or (v) a material change in +Mr. Michels’ job location. +A “change in control” generally is defined to take place when disclosure of +such a change would be required by the proxy rules promulgated by the SEC or when: +· +any person, or more than one person acting as a group within the meaning of Section 409A of the Internal Revenue Code (the “Code”) and +the regulations issued thereunder, acquires ownership of stock of the Company that, together with stock held by such person or group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of the Company; +· +any person, or more than one person acting as a group within the meaning of Code Section 409A and the regulations issued thereunder, acquires (or +has acquired during the 12-month period ending on the date of the most recent acquisition) ownership of stock of the Company possessing 30 percent or more of the total voting power of the Company’s stock; +· +a majority of the members of the Board is replaced during any 12-month period by Directors whose appointment or election is not endorsed by a majority +of the members of the Board before the date of the appointment or election; or +· +a person, or more than one person acting as a group within the meaning of Code Section 409A and the regulations issued thereunder, acquires (or +has acquired during the 12-month period ending on the date of the most recent acquisition) assets from the Company that have a total gross fair market value equal to or more than 40 percent of the total gross fair market value of all the assets of +the Company immediately before such acquisition or acquisitions. +A “change in control period” is the period which +begins on the occurrence of a change in control and ends 18 months thereafter. +Upon the termination of Mr. Michels’ +employment upon his death or disability, by Mr. Michels for any reason other than good reason or by the Company for cause, Mr. Michels will be entitled to receive his salary through the date of termination and any bonus approved by the +Board or the Compensation Committee prior to the date of termination but not yet paid and, in the case of a termination upon his death or disability, a cash bonus for the calendar year in which termination occurs that Mr. Michels would have +received but for his death or disability, prorated through the date of death or commencement of disability. Upon termination of the agreement by Mr. Michels with good reason or after a change in control or by the Company without cause (which +includes the Company’s failure to renew the agreement), Mr. Michels would be entitled to receive his salary through the date of termination and any bonus that has been approved by the Board or the Compensation Committee prior to the date +of termination but not yet paid, a cash bonus for the calendar year in which termination occurs equal to Mr. Michels’ target bonus for such year, and for a period of one year after the date of termination, benefits for Mr. Michels +and/or his family at levels substantially equal to those that would have been provided to them by the Company if Mr. Michels’ employment had not been terminated. If termination is for good reason or without cause (which includes the +Company’s failure to renew the agreement) and does not occur during a change in control period, Mr. Michels would also receive a lump sum amount equivalent to 12 months of his annual salary. +45 +Table of Contents +If, however, termination is for good reason or without cause (which includes the Company’s failure to renew the agreement) and occurs during a change in control period, or if termination is +by Mr. Michels after a change in control, Mr. Michels will receive a lump sum amount equivalent to 36 months of his annual salary. If Mr. Michels is a “specified employee” within the meaning of Code Section 409A at the +time of the termination of his employment and any of the foregoing payments would subject him to any tax, interest or penalty under Code Section 409A or regulation thereunder, then the payment shall not be made until the first day which is at +least six months after the date of termination of his employment. Mr. Michels’ agreement also provides that the Company will pay an amount equal to the first $1.0 million of excise tax incurred under Section 280G of the Code on +compensation paid to Mr. Michels upon a change in control. +Upon termination of Mr. Michels’ employment as a +result of disability, for good reason, by the Company without cause or by Mr. Michels after a change of control, Mr. Michels can elect to receive medical and dental insurance coverage for himself and his family under any plans offered by +the Company to the extent the Company is self insured or coverage for former employees is available on reasonable terms (as determined by the Company) from the Company’s providers of medical and dental coverage. +All stock awards granted to Mr. Michels are required to immediately vest (i) in the event of a change in control or +(ii) if Mr. Michels’ employment is terminated for good reason by Mr. Michels or by the Company without cause during a change in control period, and 50% of such stock awards shall vest in the event Mr. Michels’ +employment is terminated for good reason or by the Company without cause during any period other than a change in control period. +The termination and severance provisions in the employment agreements for the other NEOs are substantially similar to Mr. Michels’ employment agreement, with the following exceptions. The +Company is obligated to pay an amount up to the first $500,000, rather than $1.0 million, of excise tax imposed under Section 280G of the Code on compensation paid as a result of a change in control for Messrs. Spair, Jerrett and Dr. Lee. +Mr. Jerrett and Dr. Lee are entitled to receive severance payments equivalent to 24 months of their annual salary, rather than 36 months, in the event of a termination of their agreements for good reason or without cause during a change in +control period or after a change in control. Beginning with Mr. Zezzo’s employment, however, the Board adopted a new policy with respect to executive employment agreements. As a result, Mr. Zezzo’s agreement does not provide for +any reimbursement of excise taxes imposed under Section 280G of the Code, and his agreement does not include a “modified single trigger” allowing him to terminate for any reason and receive severance following a change in control. +Instead, Mr. Zezzo will be entitled to receive severance equal to 24 months of his annual salary only if he is terminated for good reason or without cause during a change in control period. +46 +Table of Contents +The following table provides estimates of the potential severance and other post-termination +benefits the NEOs would receive assuming their employment was terminated as of December 31, 2013: +Name +Benefit +Voluntary +Termination +or +Termination +for Cause +Termination +for Death +or +Disability 1 +Termination +for Good +Reason or +Without +Cause Not +Within +Change +in +Control +Period 1 +Termination +after Change in +Control, or for +Good Reason or +Without +Cause +Within Change in +Control Period 1,2 +Douglas A. Michels +Salary Continuation +— +— +$ +564,000 +$ +1,692,000 +President and Chief +Bonus +— +$ +469,470 +$ +394,800 +$ +394,800 +Executive Officer +Accelerated Option Vesting +— +— +$ +1,173 +$ +2,346 +Accelerated Restricted Stock Vesting +— +$ +804,817 +$ +402.409 +$ +804,817 +Health Care Benefits +— +— +$ +13,219 +$ +13,219 +Total +— +$ +1,274,287 +$ +1,375,601 +$ +2,907,182 +Ronald H. Spair +Salary Continuation +— +— +$ +443,000 +$ +1,329,000 +Chief Financial +Bonus +— +$ +263,390 +$ +221,500 +$ +221,500 +Officer and Chief +Accelerated Option Vesting +— +— +$ +949 +$ +1,899 +Operating Officer +Accelerated Restricted Stock Vesting +— +$ +412,850 +$ +206,426 +$ +412,850 +Health Care Benefits +— +— +$ +13,144 +$ +13,144 +Total +— +$ +676,240 +$ +885,019 +$ +1,978,393 +Stephen R. Lee, Ph.D. +Salary Continuation +— +— +$ +378,000 +$ +756,000 +Former Executive +Vice President, +Bonus +— +$ +159,820 +$ +151,200 +$ +151,200 +Research and +Accelerated Option Vesting +— +— +$ +521 +$ +1,043 +Development +Accelerated Restricted Stock Vesting +— +$ +203,173 +$ +101,586 +$ +203,173 +Health Care Benefits +— +— +$ +13,539 +$ +13,539 +Total +— +$ +362,993 +$ +644,846 +$ +1,124,955 +Anthony Zezzo II +Salary Continuation +— +— +$ +362,000 +$ +724,000 +Executive Vice +Bonus +— +$ +191,320 +$ +144,800 +$ +144,800 +President, Marketing +Accelerated Option Vesting +— +— +$ +5,528 +$ +11,057 +and Sales +Accelerated Restricted Stock Vesting +— +$ +272,533 +$ +136,266 +$ +272,533 +Health Care Benefits +— +— +$ +3,371 +$ +3,371 +Total +— +$ +463,853 +$ +651,965 +$ +1,155,761 +Jack E. Jerrett +Salary Continuation +— +— +$ +320,000 +$ +640,000 +Senior Vice President +Bonus +— +$ +133,180 +$ +112,000 +$ +112,000 +and General Counsel +Accelerated Option Vesting +— +— +$ +348 +$ +696 +Accelerated Restricted Stock Vesting +— +$ +159,880 +$ +79,940 +$ +159,880 +Health Care Benefits +— +— +$ +12,970 +$ +12,970 +Total +— +$ +293,060 +$ +525,258 +$ +925,546 +47 +Table of Contents +(1) +The indicated values for the accelerated vesting of stock options reflect (i) the number of option shares which would vest on an accelerated basis, multiplied by +(ii) the excess, if any, of the $6.29 per share closing price for the Company’s Common Stock, as reported by NASDAQ on December 31, 2013, over the applicable exercise price for each option. The indicated values for the accelerated +vesting of restricted stock reflect the $6.29 per share closing price on December 31, 2013 multiplied by the number of shares which would vest on an accelerated basis. +(2) +The Company will also pay a portion of any excise tax incurred under Section 280G of the Internal Revenue Code on compensation paid to the NEOs (other than +Mr. Zezzo) in the event of a change in control in an amount up to $1.0 million for Mr. Michels and $500,000 for such other NEOs. +Compensation Committee Report +The +information contained in this report shall not be deemed to be “soliciting material” or “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that Section. This report shall not +be deemed to be “ incorporated by reference” into any document filed under the Securities Act or the Exchange Act, whether such filing occurs before or after the date hereof, regardless of any general incorporation language in such +filing. +The Compensation Committee of OraSure Technologies, Inc. has reviewed and discussed with the Company’s +management the Section entitled, “Compensation Discussion and Analysis,” contained in this Proxy Statement. Based on that review and discussion, the Compensation Committee recommended to the Company’s Board of Directors that the +foregoing Compensation Discussion and Analysis be included in the Company’s 2013 10-K Report and Proxy Statement for the 2014 Annual Meeting of Stockholders. +COMPENSATION COMMITTEE: +Roger L. Pringle, Chairman +Ronny B. Lancaster +Gerald Ostrov +Stephen S. Tang, Ph.D. +Douglas G. Watson +April 8, 2014 +2013 Director Compensation +Annual Fees . Under our Non-Employee Director Compensation Policy (“Director Policy”), non-employee members of the Board receive fixed annual fees for service on the +Board and Committees of the Board, as set forth below. The fees are paid quarterly in arrears. +Position +Annual Fee +Board Chairman +$ +60,000 +Non-Chairman Board Member +$ +40,000 +Audit Chairman +$ +18,000 +Compensation Chairman +$ +15,000 +N&CG Chairman +$ +8,000 +Non-Chairman Audit Member +$ +8,000 +Non-Chairman Compensation Member +$ +6,000 +Non-Chairman N&CG Member +$ +4,000 +48 +Table of Contents +Initial Equity Awards . Non-employee Directors receive an +initial grant of 40,000 stock options for the Company’s Common Stock upon joining the Board (the “Initial Grant”). An additional grant of 40,000 stock options is also made to any non-employee Director who becomes Chairman of the Board +(the “Chairman Grant”). The options granted to non-employee Directors are nonqualified stock options and have an exercise price equal to the mean between the high and low sales prices of the Company’s Common Stock as quoted on the +NASDAQ Stock Market on the grant date. Each Initial Grant and Chairman Grant generally vest on a monthly basis over the 24 months immediately following the grant date. Payment of the exercise price may be made in cash or by delivery of previously +acquired shares of Common Stock having a fair market value equal to the aggregate exercise price. +Annual Equity +Awards . Under the Director Policy, each non-employee Director receives an annual grant of restricted shares (the “Annual Grant”) of the Company’s Common Stock. In the past, these Annual Grants were made on +the annual equity grant date for officers and other employees of the Company. In November 2011, the Board amended the Director Policy to change both the method of determining and the timing of Annual Grants to non-employee Directors. The method was +changed from an annual award of a fixed number of restricted shares to a value transfer award method similar to that used for our executives under the LTIP. The dollar values of the Annual Awards were determined by the Compensation Committee and +Board based on advice from PM&P and an assessment of director equity awards made at comparable medical diagnostics and healthcare companies. The Board also changed the timing of Annual Grants to occur at the same time as the Company’s +Annual Meeting of Stockholders, beginning with the Annual Grants made in 2013. +Under the amended Director Policy, as +described above, Annual Grants of restricted shares are made pursuant to the values set forth in the following table: +Board Position +Award Grant Value +Chairman +$120,000 +Non-Chairman Director +$80,000 +The dollar value of each Annual Grant is converted into restricted shares by dividing the above values by +the average of the high and low sales prices of the Company’s Common Stock, as reported on the NASDAQ Stock Market, on the grant date. Annual Grants of restricted stock will vest on the date that is twelve months from the date of grant. +Non-employee Directors are permitted to direct the Company to withhold restricted shares in order to pay tax withholding obligations arising upon the vesting of such shares. +Equity Award Terms . Any unvested stock options and restricted shares granted to non-employee Directors will vest in their entirety immediately upon the occurrence of a +“change of control” of the Company. As defined in the Company’s Stock Award Plan, a change of control means a change of control that would be required to be reported under the Securities Exchange Act of 1934, as amended, and would be +deemed to have occurred at such time as (i) any person, or more than one person acting as a group within the meaning of Section 409A of the Code, acquires ownership of stock of the Company that, together with stock held by such person or +group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of the Company; (ii) any person, or more than one person acting as a group within the meaning of Section 409A of the Code, acquires +(or has acquired during the 12-month period ending on the date of the most recent acquisition) ownership of stock of the Company possessing 30 percent or more of the total voting power of the Company’s stock; (iii) a majority of the +members of the Board is replaced during any 12-month period by Directors whose appointment or election is not endorsed by a majority of the members of the Board before the date of the appointment or election; or (iv) a person, or more than one +person acting as a group within the meaning of Section 409A of the Code, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition) assets from the Company that have a total gross fair market value +equal to or more than 40 percent of the total gross fair market value of all the assets of the Company immediately before such acquisition or acquisitions. In addition, if a non-employee Director leaves the Board for any reason other than a change +of +49 +Table of Contents +control, prior to the end of the vesting period for the Annual Grant of restricted shares, such award shall immediately vest on a pro-rata basis based on the actual duration of such +Director’s service to the Board during such vesting period. +Deferred +Compensation . Non-employee Directors are permitted to defer all or a portion of the fees and grants of restricted shares under the Company’s Non-Qualified Deferred Compensation Plan, on terms similar to those +applicable to our officers. +The following table summarizes information related to compensation of non-employee Directors +during the fiscal year ended December 31, 2013: +Name 1, +2 +Fees +Earned +or Paid +in Cash +($) +Stock +Awards 4 +($) +Option +Awards +($) +Non-Equity +Incentive Plan +Compensation +($) +Change in +Pension +Value and +Nonqualified +Deferred +Compensation +Earnings +All Other +Compensation +($) +Total ($) +Michael Celano +$ +62,000 +$ +79,998 +— +— +— +— +$ +141,998 +Ronny B. Lancaster +$ +54,000 +$ +79,998 +— +— +— +— +$ +133,998 +Gerald M. Ostrov +$ +46,000 +$ +79,998 +— +— +— +— +$ +125,998 +Charles W. Patrick 3 +$ +52,000 +$ +79,998 +— +— +— +— +$ +131,998 +Roger L. Pringle +$ +59,000 +$ +79,998 +— +— +— +— +$ +138,998 +Stephen S. Tang, Ph.D. +$ +54,000 +$ +79,998 +— +— +— +— +$ +133,998 +Douglas G. Watson +$ +74,000 +$ +119,999 +— +— +— +— +$ +193,999 +(1) +Because Messrs. Michels and Spair are officers of the Company, they are not entitled to any separate compensation for service on the Board or any Committee thereof and +have not been included in this table. +(2) +Non-employee Directors held the following number of restricted shares (“RSs”) and stock options (“SOs”) at December 31, 2013: Mr. Celano: +17,505 RSs; 70,000 SOs; Mr. Lancaster: 17,505 RSs; 70,000 SOs; Mr. Ostrov: 17,505 RSs; 40,000 SOs; Mr. Patrick: 17,505 RSs; 70,000 SOs; Mr. Pringle: 17,505 RSs; 215,552 SOs; Dr. Tang: 17,505 RSs; 40,000 SOs; and +Mr. Watson: 26,258 RSs; 140,000 SOs. The aggregate number of stock options and restricted shares held by Messrs. Michels and Spair are set forth in the table in the Section entitled, “Outstanding Equity Awards at Fiscal Year-End,” in +this Proxy Statement. +(3) +The indicated amounts include $52,000 in fees and $79,998 in restricted stock deferred by Mr. Patrick pursuant to the Company’s Non-Qualified Deferred +Compensation Plan. +(4) +The indicated amounts reflect the aggregate grant date fair value of restricted stock awards made to non-employee Directors during 2013, computed in accordance with FAS +ASC Topic 718. Certain assumptions used in the calculation of those amounts are set forth in footnote 10 to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2013, included in the Company’s +2013 10-K Report. +Compensation Committee Interlocks and Insider Participation +Ronny B. Lancaster, Gerald Ostrov, Roger L. Pringle, Stephen S. Tang, Ph.D. and Douglas G. Watson served as members of the Compensation +Committee of the Board during 2013. None of these Directors has served or is currently serving as an officer or employee of the Company, nor have they engaged in any transactions involving the Company which would require disclosure as a transaction +with a related person. There are no compensation committee interlocks between the Company and any other entity involving the Company’s or such entity’s executive officers or board members. +50 +Table of Contents +Compensation Risk Assessment +Management conducted a risk assessment of the Company’s compensation policies and practices, including its executive compensation +program. In its review, management considered the attributes of the Company’s policies and practices and other factors, including: +· +The mix of fixed and variable compensation opportunities; +· +The balance between annual and long-term performance opportunities; +· +The corporate and individual performance objectives established for annual and long-term incentive compensation; +· +The internal controls and procedures in place to mitigate risks facing the Company, including the Company’s “clawback” policy and stock +ownership guidelines; and +· +The risk that unintended consequences could result from various aspects of the Company’s compensation policies and practices. +Based on its review and assessment, management concluded that the Company’s policies and practices are +designed with the appropriate balance of risk and reward in relation to the Company’s overall business strategy and do not incentivize employees to take unnecessary or excessive risks. The Company also concluded that any risks arising from the +Company’s compensation policies and practices are not reasonably likely to have a material adverse affect on the Company. +Proposal No. 3. Advisory (Non-Binding) Vote to Approve Executive Compensation +Background +Section 14A of the Exchange Act, enacted pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 +(“Dodd-Frank Act”), requires that stockholders be given the opportunity to vote to approve, on an advisory (non-binding) basis, no less frequently than once every three years, the compensation of our NEOs. Based on feedback received at our +2011 Annual Meeting, the Board determined that such a vote should be held on an annual basis until the next advisory vote on frequency. Thus, following this vote, the next time the Company will hold a non-binding advisory vote on the compensation of +our NEOs will be at our 2015 Annual Meeting. +The vote on the resolution recommended below is not intended to address any +specific element of compensation, but rather relates to the overall compensation of our NEOs. As described more fully under the Section entitled, “Executive Compensation,” including the CD&A and the related tables and narrative, our +compensation program is performance-based and is designed to pay executives for performance by offering rewards for the achievement of pre-determined financial and strategic objectives. In addition, our program is designed to align the interests of +executives with the interests of our stockholders, provide long-term incentives and set compensation at levels sufficiently competitive to attract, retain and motivate high quality executives, and meet strong corporate governance principles. +Compensation Program Highlights +You are urged to carefully review the “Executive Compensation” section of this Proxy Statement which contains a detailed discussion of our executive compensation program, including the 2013 +compensation of our NEOs. We believe our compensation program rewards our executives for performance, follows sound corporate governance principles and is strongly aligned with the interests of our stockholders. Highlights of our compensation +programs include the following: +· +Alignment of Pay and Performance : Our financial results for 2013 met or exceeded our operating plan and represented a +substantial improvement over 2012, with a 13% increase in consolidated net revenues, a 26% reduction in consolidated net loss, and a $13.7 million improvement in cash generated +51 +Table of Contents +from operations. Our molecular collection systems segment and our +OraQuick ® HCV product performed particularly well during the year. In contrast, the compensation paid to our +NEOs for 2013 changed only modestly with both Messrs. Michels and Spair receiving less compensation than in 2012. We believe there is no misalignment between our performance and the compensation paid to Mr. Michels or the other NEOs. +· +Performance Mix : The vast majority of our NEOs’ compensation is performance-based. For example, approximately 73% of +Mr. Michels’ 2013 compensation consisted of an incentive cash bonus and long-term incentive equity awards, which are awarded based on Company and/or individual performance. For the other NEOs, almost 60% of their aggregate 2013 +compensation consisted of the same performance-based compensation. +· +Diversified Portfolio : Our executive compensation consists of a mix of cash/equity, fixed/variable and +short-term/long-term compensation. Equity awards consist of a mix of restricted stock (40%) and stock options (60%). +· +Performance Value of Options : Because stock options only provide value to executives if the price of our stock increases +after the date of grant, the issuance of 60% of an executive’s annual equity award as stock options means that the realizable value of long-term equity awards provided to executives is heavily weighted and dependent on the Company’s future +performance. +· +Long-Term Focus : Equity awards are subject to long-term vesting requirements, with restricted shares vesting over 3 years +and stock options vesting over a minimum of 4 years. Structuring our equity awards in this manner helps align the interests of our executives with the interests of our stockholders. +· +Prudent Benchmarking : The total compensation paid to executives is targeted at the 50 th percentile of a peer group of comparable companies with an +opportunity to earn up to the 75 th percentile based on +achievement of performance objectives. In response to recent feedback from our stockholders, we modified our peer group in 2013 to consist of companies in the medical diagnostic, healthcare and biotech industries more comparable in size to the +Company based on total revenues and market value. +· +No 280G Excise Tax Gross-Ups or Modified Single-Triggers Going Forward : We have adopted a policy that any new employment +agreement with an executive will not provide for the gross-up of excise tax obligations under Section 280G of the Internal Revenue Code or a “modified single trigger” under which the executive can voluntarily leave the Company after a +change of control and receive severance even though there has been no adverse impact on the executive’s compensation or level of responsibilities. +· +Independent Compensation Consultants : The Board and Compensation Committee regularly utilize independent compensation +consultants to provide compensation advice, including competitive assessments of our program compared to compensation paid to executives at the peer group of comparable medical diagnostic and healthcare companies. +· +Recoupment Policy : Our Board has adopted a compensation recoupment or “clawback” policy, under which the Board +or Compensation Committee may recover excess compensation paid to our executives if our financial statements are restated due to misconduct by that executive. +· +Stock Ownership Guidelines : Messrs. Michels and Spair, and each non-employee member of the Board, are subject to stock +ownership guidelines, measured as a multiple of annual base salary or cash fees, as applicable. In addition, each of these individuals is required to retain 25% of the shares received upon the vesting of restricted shares or the exercise of stock +options until that individual complies with the applicable ownership multiple. +· +No Repricing : Our Stock Award Plan prohibits both the repricing and repurchase of under-water stock options or other +equity awards without stockholder approval. +· +No Perquisites : We do not provide executives with any perquisites that are not offered to all employees of the Company. +52 +Table of Contents +· +Risk Review Process : We regularly assess the risks associated with our compensation programs. +· +Anti-Hedging and Pledging Policy : Employees and non-employee Directors are prohibited from engaging in hedging activities +to offset fluctuations in their stock holdings or pledging their shares as collateral. +Vote Required; Board +Recommendation +If a quorum is present, the affirmative vote of a majority of shares present, in person or by Proxy and +entitled to vote at the Annual Meeting, is required to approve, on an advisory (non-binding) basis, the compensation paid to NEOs. Shares voted in person or represented by Proxy which are not voted for approval of our executive compensation (by +voting no or abstaining) will have the effect of voting against this proposal. Broker non-votes will not count toward the determination of whether this proposal is approved and will have no impact on the vote. In the absence of instructions to the +contrary, shares of Common Stock represented by properly executed Proxies will be voted for approval of our executive compensation, as disclosed in this Proxy Statement. Because this stockholder vote is advisory, it will not be binding on the +Company or the Board of Directors. However, the Compensation Committee and Board will take into account the outcome of the vote when considering future executive compensation programs and arrangements. +Based on the foregoing, the Board is requesting that stockholders vote on the following resolution: +RESOLVED , that the compensation paid to the Company’s named executive officers, as disclosed in the Compensation Discussion +and Analysis, compensation tables and narrative discussion, is hereby APPROVED. +Your Board recommends that the +stockholders vote FOR the approval of our executive compensation as described in the preceding resolution. +Proposal No. 4 - Amendment of OraSure Technologies, Inc. Stock Award Plan +General +On +November 16, 1999, the Board of Directors of Epitope, Inc. adopted, subject to stockholder approval, the Epitope, Inc. 2000 Stock Award Plan (the “Award Plan”). The Award Plan was approved by Epitope’s stockholders on +February 15, 2000. The Award Plan initially authorized for award a maximum of 2,500,000 shares of common stock of Epitope, plus the number of shares that were available for grant under the Epitope, Inc. 1991 Stock Award Plan on +February 15, 2000, and such additional shares that become available under the terms of the Award Plan thereafter. +Effective September 29, 2000, in connection with the merger of Epitope and STC Technologies, Inc. into the Company (the +“Merger”), the name of the Award Plan was changed to the OraSure Technologies, Inc. 2000 Stock Award Plan and the Award Plan was adopted by the Company. All options granted under the Award Plan prior to the merger were assumed by and +became obligations of the Company. +Since the Merger, the Award Plan has been amended several times to increase the number of +authorized shares, subject to stockholder approval, and to make certain additional amendments. Under the terms of the Award Plan, as of March 28, 2014, there were: +(a) +56,607,650 shares of the Company’s Common Stock outstanding; +(b) +853,512 shares of the Company’s Common Stock remaining available for grant under the Award Plan as stock options or other equity awards; +(c) +6,028,268 stock options issued and outstanding, with a weighted-average exercise price of $7.16 per share and a weighted average remaining contractual term of 6.9 +years; and +(d) +770,290 restricted shares issued and unvested, with a weighted-average grant date fair value of $6.22 per share. +53 +Table of Contents +In light of the foregoing, the Board has approved and recommended for submission to +stockholders an amendment to the Award Plan to increase in the number of shares of Common Stock authorized for grant under the Award Plan. A description of the proposed amendment and terms of the Award Plan, is set forth below. +Amendment to the Award Plan +In order to enable the Company to continue to attract and retain qualified Directors, officers, employees and outside advisors and to compensate its Directors, officers, employees and advisors in a manner +that is competitive with compensation provided by other medical diagnostic companies, the Board determined that additional shares of Common Stock would need to be authorized for grants under the Award Plan. The Board believes that the proposed +increase in the number of shares is necessary for retaining the flexibility to grant equity-based compensation at optimal levels to motivate and reward the Company’s Directors, officers, employees and advisors for their contributions to the +success of the Company and the growth in the value of our stock. In addition, the Board wants to ensure that sufficient shares are available if needed to provide retention or other equity awards in connection with potential acquisitions or other +business development activities. +Accordingly, subject to stockholder approval, the Board approved an amendment to the Award +Plan to increase the number of authorized shares by 4,000,000 shares. As a result of this increase, there will be a total of 4,853,512 shares available under the Award Plan on or after March 28, 2014, subject to stockholder approval. The +amendment also provides that any shares granted pursuant to the Award Plan as “full value” shares (i.e. Restricted Awards, Performance Awards or other stock-based Awards) shall be counted against the total available shares on the basis of +one and a half shares for every such “full value” share granted. In approving these amendments, the Board considered various aspects of the Award Plan, including the number of shares subject to outstanding awards, the number of shares that +remain available for future awards under the Award Plan, the Company’s historic grant rates, the cost of issuing additional shares, the impact of share dilution on existing stockholders, and the central role of equity compensation in our +executive compensation program, as described more fully in the CD&A section of this Proxy Statement. +Because grants of +future awards are based on a number of factors, including the achievement of both business and individual performance goals, the Board cannot currently predict the rate at which shares will become subject to future grants. However, the Board +determined that the proposed increase in authorized shares will meet the Company’s needs under the Award Plan for the foreseeable future. A copy of the amendment to the Award Plan is attached to this Proxy Statement as Exhibit A. +Vote Required For Approval; Board Recommendation +Assuming that a quorum is present, the affirmative vote of the holders of a majority of the shares of Common Stock present, in person or by Proxy at the Annual Meeting, is required for approval of the +proposed amended and restated Award Plan. Shares voted in person or represented by a Proxy which are not voted for approval of the amended and restated Award Plan (by voting no or abstaining) will have the effect of voting against this proposal. +Shares as to which a broker or other nominee has indicated on a duly executed and returned Proxy or otherwise advised us that it lacks voting authority will have no effect on the vote for this proposal. +Your Board recommends that stockholders vote FOR approval of the amendment to the Award Plan. +Summary of the Award Plan +A summary description of certain terms and provisions of the Award Plan follows. +Purpose +The purpose of the Award Plan is to promote and advance the +interests of the Company and its stockholders by enabling the Company to attract, retain, and reward employees, outside advisors, and Directors of the +54 +Table of Contents +Company and any subsidiaries. The Award Plan is intended to strengthen the mutuality of interests between employees, advisors, and Directors and the Company’s stockholders by offering equity-based incentives to promote the long-term growth, profitability and financial success of the Company. +Eligibility +The Award +Plan provides for stock-based awards to (i) employees of the Company and any subsidiaries, if any (ii) members of advisory committees or other consultants to the Company or its subsidiaries +(“Advisors”), and (iii) non-employee Directors of the Company. Persons who help the Company raise money by selling securities or who promote or maintain a market for the Company’s securities are not eligible to participate in the +Award Plan as Advisors. In addition, only Advisors who, in the judgment of the Compensation Committee of the Board (the “Committee”), are or will be contributors to the long-term success of the Company, will be eligible to receive Awards +(as defined below). As of March 28, 2014, the Company had 312 employees and seven non-employee Directors, all of whom are eligible to receive Awards under the Award Plan. +Administration of the Award Plan +The Committee administers the Award Plan +and determines the persons who are to receive Awards and the types, amounts, and terms of Awards. For example, the Committee may determine the exercise price, the form of payment of the exercise price, the number of shares subject to an Award, and +the date or dates on which an Award becomes exercisable. The Committee may delegate to one or more officers of the Company the authority to determine the recipients of and the types, amounts and terms of Awards granted to participants who are not +Reporting Persons. Awards made by the Committee for the Company’s Chief Executive Officer are also reviewed and approved by the full Board. +The Award Plan will continue in effect until May 17, 2021 or until the Award Plan is otherwise terminated by the Board. Termination or expiration of the Award Plan will not affect outstanding Awards. +The Award Plan permits the Board to amend, suspend or terminate the Award Plan or any portion of the Award Plan. Stockholder +approval is required if (i) any such action would increase the number of shares of Common Stock subject to the Award Plan, (ii) such action would decrease the price at which Awards may be granted, (iii) such action would result in an +Award becoming fully vested, exercisable or earned in the event of a change in control prior to the consummation of the change in control or (iv) such approval is required by law or regulation or the rules of a stock exchange or +over-the-counter trading system. +Awards +Awards that may be granted under the Award Plan include stock options, stock appreciation rights, restricted awards, performance awards, and other stock-based +awards (collectively, “Awards”). The following is a brief summary of the various types of Awards that may be granted under the Award Plan. +Stock Options . Options granted under the Award Plan may be either incentive stock options (“ISOs”), a tax-favored form of Award meeting the requirements of +Section 422 of the Internal Revenue Code, as amended, or nonqualified options (“NQOs”), which are not entitled to special tax treatment. The Award Plan limits the maximum term of any option granted to a period not longer than ten +years from the date of grant. The exercise price of any option granted under the Award Plan may not be less than 100% of the fair market value of the Common Stock on the date of grant, except that in the case of an option granted to holders of 10% +or more of the Company’s voting securities, the exercise price may not be less than 110% of the fair market value of the Common Stock on the date of grant. +The agreement evidencing the grant of a stock option (the “Option Agreement”) will specify, as determined by the Committee, the time or times when the option is exercisable, in whole or in part, +and the extent to which the option remains exercisable after the option holder ceases to be an employee, Advisor or nonemployee +55 +Table of Contents +Director of the Company. The Option Agreement may, in the discretion of the Committee, provide whether the option will become fully exercisable upon the death, disability or retirement of the +option holder or upon a change in control of the Company. As a general matter, the option holder may not transfer an option except by testamentary will or the laws of descent and distribution. An option may be exercised by payment of the exercise +price in cash or, at the discretion of the Committee, in any combination of cash, previously held shares of Common Stock or share equivalents, or with proceeds from the sale of shares subject to the option. +A “change in control” generally is defined to take place when disclosure of such a change would be required by the proxy rules +promulgated by the SEC or when: +· +any person, or more than one person acting as a group within the meaning of Section 409A of the Internal Revenue Code (the “Code”) and +the regulations issued thereunder, acquires ownership of stock of the Company that, together with stock held by such person or group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of the Company; +· +any person, or more than one person acting as a group within the meaning of Code Section 409A and the regulations issued thereunder, acquires (or +has acquired during the 12-month period ending on the date of the most recent acquisition) ownership of stock of the Company possessing 30 percent or more of the total voting power of the Company’s stock; +· +a majority of the members of the Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority +of the members of the Board before the date of the appointment or election; or +· +a person, or more than one person acting as a group within the meaning of Code Section 409A and the regulations issued thereunder, acquires (or +has acquired during the 12-month period ending on the date of the most recent acquisition) assets from the Company that have a total gross fair market value equal to or more than 40 percent of the total gross fair market value of all the assets of +the Company immediately before such acquisition or acquisitions. +Options granted to employees under the +Award Plan generally vest over four years, with 25% of the grant vesting on the first anniversary of the grant date and the remaining 75% vesting ratably on a monthly basis over the next three years. Options granted to non-employee Directors in the +past have generally vested ratably on a monthly basis over either a 12 or 24-month period, depending on the type of grant. Options granted under the Award Plan generally provide for accelerated vesting upon a “change in control.” The +Committee may provide for different vesting for any option granted under the Award Plan. +In no event may options for more +than 500,000 shares of Common Stock be granted to any individual under the Award Plan during any fiscal year period. +Stock Appreciation Rights . A recipient of stock appreciation rights (“SARs”) will receive, +upon exercise, a payment (in cash or in shares of Common Stock) based on the increase in the fair market value of a share of Common Stock between the date of grant and the date of exercise. SARs may be granted in connection with options or other +Awards granted under the Award Plan or may be granted as independent Awards. The Award Plan limits the maximum term for the exercise of a SAR to a period not longer than ten years from the date of grant. In no event may SARs for more than 500,000 +shares of Common Stock be granted to any individual under the Award Plan during any fiscal year period. +Restricted +Awards . Restricted Awards may take the form of restricted shares or restricted units. Restricted shares are shares of Common Stock that may be subject to forfeiture if the recipient terminates employment or service as +an Advisor or non-employee Director during a specified period (the “Restriction Period”). Stock certificates representing restricted shares are issued in the name of the recipient, but are held by the Company until the expiration of the +Restriction Period. From the date of issuance of restricted shares, the recipient is entitled to the rights of a stockholder with respect to the shares, including voting and dividend rights. Any right +56 +Table of Contents +to receive dividends on restricted shares shall be subject to the same forfeiture requirements applicable to the restricted shares. Restricted units are Awards that entitle the recipient to +receive a share of Common Stock or the fair market value of a share at some future date, which similarly may be subject to forfeiture if the recipient terminates employment or service as an Advisor or non-employee Director during the applicable +Restriction Period. Unvested Restricted Awards generally may not be sold, assigned, transferred, pledged, encumbered or otherwise transferred, voluntarily or involuntarily, by the recipient. +At the expiration of the Restriction Period, payment with respect to restricted units is made in an amount equal to the fair market value +of the number of shares of Common Stock covered by the restricted units. Payment may be in cash, unrestricted shares of Common Stock, or any other form approved by the Committee. Restricted Awards that are subject to forfeiture based solely on +continued employment or passage of time shall vest over a period of at least three years, subject to certain exceptions set forth in the Award Plan. +Performance Awards . Performance Awards are designated in units equivalent in value to a share of Common Stock. A Performance Award is subject to forfeiture if or to +the extent that the Company, a subsidiary, an operating group, or the recipient, as specified by the Committee in the Award, fails to meet performance goals established for a designated performance period, which must have a duration of at least one +year. Performance Awards earned by attaining performance goals are paid at the end of a performance period in cash, shares of Common Stock, or any other form approved by the Committee. The number of shares of Common Stock issuable with respect to +Performance Awards granted to any individual executive officer may not exceed 150,000 shares for any calendar year. +Other Stock-Based Awards . The Committee may grant other Awards that involve payments or grants of +shares of Common Stock or are measured by or in relation to shares of Common Stock. +No Repricing or +Exchanges . Since the Company was formed in 2000, neither the Board nor the Committee has taken any action that resulted in the repricing, replacement or repurchase of out-of-the money Options, SARs or other Awards. No +such action can be taken under the Plan without the approval of our stockholders. +Shares Subject to the Award Plan +If the amendment is approved by our stockholders at our 2014 Annual Meeting, there will be 4,853,512 shares available for issuance under +the Award Plan as of March 28, 2014. If an Award under the Award Plan is cancelled or expires for any reason prior to becoming fully vested or exercised or is settled in cash in lieu of shares, or is exchanged for other Awards under the Award +Plan, then all shares covered by such Awards will be made available for future Awards under the Award Plan. In the event of a change in the Company’s capitalization affecting the Common Stock, including a stock dividend, stock split, +recapitalization, merger, consolidation, split-up, combination or exchange of shares or other form of reorganization, the Committee shall make such proportionate adjustments as it may determine, in its sole discretion to be appropriate as a result +of such change, to the aggregate number of shares for which Awards may be granted under the Award Plan, the maximum number of shares which may be sold or awarded to any participant, the number of shares covered by each outstanding Award, and the +price per share in respect of outstanding Awards. +Federal Income Tax Consequences +The following discussion summarizes the principal anticipated federal income tax consequences of Awards granted under the Award Plan, to +participants and to the Company. +Incentive Stock Options . A recipient of an option does +not recognize taxable income upon the grant or exercise of an ISO. If no disposition of shares occurs within two years from the date of grant or within one year from the date of exercise, then (a) upon the sale of the shares, any amount +realized in excess of the exercise price +57 +Table of Contents +is taxed to the option recipient as long-term capital gain and any loss sustained will be a long-term capital loss, and (b) no deduction is allowed to +the Company for federal income tax purposes. For purposes of computing alternative minimum taxable income, an ISO is treated as an NQO. +If shares of Common Stock acquired upon the exercise of an ISO are disposed of prior to the expiration of the two-year and +one-year holding periods described above, then (a) the recipient will recognize ordinary income in the year of disposition in an amount equal to the excess (if any) of the fair market value of the shares +at exercise (or, if less, the amount realized on a sale of the shares) over the exercise price thereof and (b) the Company would be entitled to deduct such amount. Any further gain realized is taxed as a short-term or long-term capital gain, as +applicable, and does not result in any deduction for the Company. Any disqualifying disposition as described above will generally avoid the alternative minimum tax consequences of the exercise of an ISO. +Nonqualified Options . No income is recognized by an option recipient at the time an NQO is granted. +Upon exercise, (a) ordinary income is recognized by the option recipient in an amount equal to the difference between the exercise price and the fair market value of the shares on the date of exercise and (b) the Company receives a tax +deduction for the same amount. Upon disposition of the shares, appreciation or depreciation in the value of the shares after the date of exercise is treated as a short-term or +long-term capital gain or loss, as applicable, and will not result in any deduction to the Company. +Payment of Exercise Price in Shares . The Committee may permit participants to pay all or a portion of the exercise price for an option using previously acquired shares +of Common Stock. If an option is exercised and payment is made in previously held shares (held for six months or longer), there is no taxable gain or loss to the participant other than any gain recognized as a result of the exercise of the option, +as described above. +Stock Appreciation Rights . The grant of a SAR to a participant will +not cause the recognition of income by the participant. Upon exercise of a SAR, the participant will recognize ordinary income equal to the amount of cash payable to the participant plus the fair market value of any shares of Common Stock delivered +to the participant. The Company will be entitled to a deduction equal to the amount of ordinary income recognized by the participant in connection with the exercise of a SAR. +Restricted Awards and Performance Awards . Generally, a participant will not recognize any income upon issuance of a Restricted Award or Performance Award that is +subject to forfeiture. Generally, a participant will recognize ordinary income upon the vesting of Restricted Awards or Performance Awards in an amount equal to the amount of cash payable to the participant plus the fair market value of shares of +Common Stock delivered to the participant. Dividends paid with respect to Awards during the Restriction Period will be subject to the same restrictions and will be taxable as ordinary income to the participant when, and if, the restrictions lapse. +However, a participant may elect to recognize compensation income upon the grant of restricted shares, based on the fair market value of the shares of Common Stock subject to the Award at the date of grant. If a participant makes such an election, +dividends paid with respect to the restricted shares will not be treated as compensation, but rather as dividend income at the time when the restricted shares vest. The Company will be entitled to a deduction equal to the amount of ordinary income +recognized by the participant. If a participant who receives an Award of restricted shares makes the special election described above, the Company will not be entitled to deduct dividends paid with respect to the restricted shares. +Limitation on Deductibility of Certain Compensation . Section 162(m) of the Internal Revenue +Code generally makes nondeductible to the Company taxable compensation paid to a single individual in excess of $1 million in any calendar year if the individual is the Chief Executive Officer or one of the next four highest-paid executive +officers (other than the Chief Financial Officer), unless the excess compensation is considered to be “performance based.” Among other requirements contained in Section 162(m), the material terms of a compensation plan in which such +officers participate must be approved by stockholders for awards or compensation provided under the plan to be considered “performance based.” The Company may in the future +58 +Table of Contents +consider structuring Awards to attempt to meet the requirements of Section 162(m) if it determines the action to be advisable. +Equity Compensation Plan Information +The following table provides information as of December 31, 2013 about the shares of Common Stock that may be issued upon the +exercise of options under all of our equity compensation plans. These plans include the Award Plan, the Epitope, Inc. 1991 Stock Award Plan (the “1991 Plan”), and the Agritope, Inc. 1992 Stock Award Plan (the “Agritope Plan”). +The Award Plan, the 1991 Plan and the Agritope Plan were Epitope equity compensation plans. In connection with the merger of Epitope and STC into the Company on September 29, 2000, the Award Plan was adopted by the Company, and the Company +assumed the obligation to issue shares for the then outstanding stock options granted under the Award Plan, the 1991 Plan, and the Agritope Plan. Additional grants of equity compensation may only be made under the Award Plan. +Plan Category +Number of securities to be +issued upon exercise of +outstanding +options +(a) +Weighted-average exercise +price of +outstanding +options +(b) +Number of securities +remaining available for +future issuance +under +equity compensation plans +(excluding securities +reflected in column (a)) +(c) +Equity compensation plans approved by security holders +5,145,566 +$ +7.62 +2,019,468 +1 +Equity compensation plans not approved by security holders +125,552 +2 +$ +4.42 +2 +— +Total +5,271,118 +2,019,468 +(1) +Represents shares remaining available for future issuance as of December 31, 2013 under the Award Plan. +(2) +Represents shares issuable as of December 31, 2013, under options at a weighted-average exercise price of $4.42 per share, pursuant to the 1991 Plan and the +Agritope Plan. +59 +Table of Contents +Annual Report +Our Annual Report to Stockholders for the year ended December 31, 2013 accompanies this Proxy Statement. Following receipt +of a written request, we will provide, without charge, a copy of our Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the SEC (including a list briefly describing the exhibits thereto), to any record holder or +beneficial owner of our Common Stock on March 28, 2014, the record date for the Annual Meeting, or to any person who subsequently becomes such a record holder or beneficial owner. Requests should be directed to the attention of the Secretary of +the Company at our address set forth in the Notice of Annual Meeting of Stockholders immediately preceding this Proxy Statement. +60 +Table of Contents +Deadline For Stockholder Proposals +You may submit proposals for inclusion in the proxy materials for the Company’s 2015 Annual Meeting of Stockholders. Any such +proposals must meet the stockholder eligibility and other requirements imposed by rules issued by the SEC and must be received by the Company at 220 East First Street, Bethlehem, Pennsylvania 18015, Attention: Secretary, in accordance with Rule +14a-8 promulgated under the Exchange Act, not later than December 12, 2014. +In addition, our Bylaws +provide that a stockholder proposal must meet certain predetermined requirements in order to be considered at the Annual Meeting. These requirements are separate from, and in addition to, the requirements discussed above to have the stockholder +proposal included in the proxy materials pursuant to the SEC’s rules and regulations. In order to be considered, a stockholder’s proposal must be made in writing to the Company’s Secretary and must be delivered to or received at our +principal executive offices not less than ninety (90) days nor more than one hundred twenty (120) days prior to the meeting. However, if less than one hundred (100) days’ notice or prior public disclosure of the date of the +meeting is given or made to stockholders, notice by the stockholder to be timely must be so received no later than the close of business on the tenth (10 th ) day following the day on which such notice of the date of the meeting was mailed or such public disclosure was +made, whichever first occurs. The notice to the Secretary must set forth, with respect to each matter the stockholder proposes to bring before the meeting, a brief description of the matter and the reasons for considering that matter at the Annual +Meeting. The notice must also include, as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf notice of the proposed business is made: (i) the name and address of the stockholder and such beneficial owner; +(ii) any material interest of such stockholder and such beneficial holder in such business; (iii) the class and number of shares of capital stock of the Company which are held of record or beneficially owned by the stockholder and such +beneficial owner and any other direct or indirect pecuniary or economic interest in any capital stock of the Company of such stockholder and such beneficial owner, including without limitation, any derivative instrument, swap, option, warrant, short +interest, hedge, profit sharing arrangement or borrowed or loaned shares; (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to propose the business described in its notice; and (v) any other +information relating to such business matter that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies pursuant to Section 14 of the Exchange Act and the rules +and regulations promulgated thereunder. To the extent the Board of Directors or the SEC, or a court of competent jurisdiction, deems these Bylaw provisions to be inconsistent with the right of stockholders to request inclusion of a proposal in the +Company’s proxy materials pursuant to Rule 14a-8 promulgated under the Exchange Act, such rule shall prevail. +BY ORDER OF THE BOARD OF DIRECTORS +Jack E. Jerrett +Secretary +April 11, 2014 +61 +Table of Contents +EXHIBIT A +AMENDMENT TO THE +ORASURE TECHNOLOGIES, INC. 2000 STOCK AWARD PLAN +On March 24, 2014, +the Company’s Board of Directors approved, and recommended for approval by stockholders, a 4,000,000 share increase in the number of shares authorized under the Company’s Stock Award Plan (the “Award Plan”). In order to reflect +this increase in authorized shares, Section 4.2.2 of the Award Plan was amended and restated, subject to stockholder approval at the Company’s Annual Meeting of Stockholders on May 22, 2014, to read as follows: +“4.2.2 Number of Shares; Limits . +(a) The maximum number of Shares for which Awards may be granted under the Plan on or after May +[ ], 2014, is [ ]*Shares, plus any Shares that become available as the result of the cancellation or expiration of any Award, subject to +adjustment for changes in capitalization affecting the Corporation’s Common Stock pursuant to Section 14.2 of the Plan. Any Shares granted on or after May [ ], 2014 in connection with Options and Stock +Appreciation Rights shall be counted against this limit on the basis of one Share for each Share subject to such Option or Stock Appreciation Right. Any Shares granted on or after May [ ], 2014 in connection with +Restricted Awards, Performance Awards or Other Stock-Based Awards shall be counted against this limit on the basis of one and a half Shares for every one Share granted in connection with such Awards. +(b) The maximum number of Shares that may be issued pursuant to paragraph (a) above on or after May +[ ], 2014 pursuant to Incentive Stock Options, is [ ]*Shares, subject to adjustment for changes in capitalization affecting the +Corporation’s Common Stock pursuant to Section 14.2 of the Plan. +* +To equal 4,000,000 Shares plus the number of Shares available for issuance under the Plan immediately prior to this amendment becoming effective after the Annual +Meeting. +1 +Table of Contents +OraSure Technologies, Inc. +2014 Annual Meeting of Stockholders +Thursday, May 22, 2014 +Important notice regarding the Internet availability of proxy materials for the +Annual Meeting of Stockholders. +The Notice and Proxy Statement and 2013 Annual Report to Stockholders +are available at www.proxyvote.com. +M71688-P50192 +PROXY +2014 Annual Meeting of Stockholders +PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned hereby appoints Jack E. Jerrett and Mark +L. Kuna, and each of them, proxies with full power of substitution, to vote all of the shares which the undersigned is entitled to vote at the 2014 Annual Meeting of Stockholders of OraSure Technologies, Inc. (the “Company”), to be held at +the ArtsQuest Center at SteelStacks, 101 Founders Way, Bethlehem, Pennsylvania 18015 on Thursday, May 22, 2014, at 10:00 a.m. (local time), and at any adjournment(s) or postponement(s) thereof, with all the powers undersigned would possess if +personally present, with respect to the matters listed on the reverse side. +The shares represented by this Proxy, if properly executed, will be voted as specified on the reverse side or, if no specification is +made, will be voted (i) FOR the election of the nominees listed on the reverse side as directors, (ii) FOR the ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm for fiscal year +2014, (iii) FOR the advisory (non-binding) vote to approve executive compensation of the Company’s named executive officers; and (iv) FOR the amendment to the Company’s Stock Award Plan. If any other business properly comes +before the meeting, the proxies named above will have discretionary authority to vote thereon in accordance with their best judgment. +PLEASE MARK, DATE, SIGN AND RETURN THE PROXY CARD PROMPTLY. +Address Changes/Comments: +(If you noted any Address Changes/Comments above, please mark +corresponding box on the reverse side.) +(Continued and +to be marked, dated and signed, on the other side) +Table of Contents +220 EAST FIRST STREET +BETHLEHEM, PA 18015 +VOTE BY INTERNET +Before The Meeting - Go to www.proxyvote.com +Use the Internet to transmit your voting instructions and for electronic delivery of +information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction +form. +During The Meeting - Go to +www.virtualshareholdermeeting.com/OSUR2014 +You may attend the Meeting via +the Internet and vote during the Meeting. Have the information that is printed in the box marked by the arrow available and follow the instructions. +VOTE BY PHONE - 1-800-690-6903 +Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. +VOTE BY MAIL +Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. +TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: +M71687-P50192 +KEEP THIS PORTION FOR YOUR RECORDS +DETACH AND RETURN THIS PORTION ONLY +THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. +ORASURE TECHNOLOGIES, INC. +For All +Withhold +All +For All Except +To withhold authority to vote for any individual nominee(s), mark “For +All Except” and write the number(s) of the nominee(s) on the line below. +The Board of Directors recommends you vote +FOR each of the following nominees: +¨ +¨ +¨ +1. ELECTION OF DIRECTORS +Class II (Term Expiring 2017) +Nominees: +01) Ronny B. Lancaster +02) Roger L. Pringle +03) Ronald H. Spair +The Board of Directors recommends you vote FOR items 2, +3 and 4. +For +Against +Abstain +2. Ratification of Appointment of KPMG LLP as the Independent Registered Public Accounting +Firm for Fiscal Year 2014. +¨ +¨ +¨ +3. Advisory (Non-Binding) Vote to Approve Executive Compensation. +¨ +¨ +¨ +4. Amendment to Stock Award Plan. +¨ +¨ +¨ +Mark Here for Address Changes or Comments +¨ +SEE REVERSE +NOTE: Please sign as name appears hereon. Joint owners +should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. +Signature [PLEASE SIGN WITHIN BOX] +Date +Signature (Joint Owners) +Date \ No newline at end of file diff --git a/raw/proxies/0001116463/0001193125-14-140504/proxy_rpt.txt b/raw/proxies/0001116463/0001193125-14-140504/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..766a0ce392e711bc3ee39bb3477c4072343e8120 --- /dev/null +++ b/raw/proxies/0001116463/0001193125-14-140504/proxy_rpt.txt @@ -0,0 +1,7 @@ +Transactions With Related Persons +Since January 1, 2013, there have been no transactions with related persons which would require disclosure in this Proxy Statement. +The Audit Committee is required to review and approve in advance all transactions with related persons involving the Company. The Audit Committee may approve a related party transaction if the transaction is on terms comparable to those that could +be obtained in arms’ length dealings with an unrelated third party. The Audit Committee also reviews any public disclosures of a related party transaction contained in our SEC filings. These responsibilities are described in the Audit +Committee’s charter, a copy of which is available on our website at www.orasure.com . +Information regarding +employment and severance agreements between our executive officers and the Company is set forth in the Section entitled, “Employment Agreements and Potential Payments Upon Termination or Change in Control,” in this Proxy Statement. \ No newline at end of file